Exhibit 10.5


 


OPERATING
AGREEMENT


 


This Agreement made and
entered into this 29th day of September, 1999 by and between WEIGHT WATCHERS
INTERNATIONAL, INC., a Virginia corporation with offices located at 175
Crossways Park West, Woodbury, New York 11797 (hereinafter referred to as “Weight Watchers”) and H.J. HEINZ COMPANY, a Pennsylvania
corporation with offices located at 600 Grant Street, Pittsburgh, Pennsylvania
15219 (hereinafter referred to as “Heinz”).


 


WHEREAS, WW Foods, LLC (“the LLC”) has licensed to Heinz and to Weight Watchers the
right to use the Food Trademarks (as hereinafter defined) and certain Program
Information (as hereinafter defined) in connection with certain food and
beverage products; and


 


WHEREAS, Heinz and Weight
Watchers therefore have a mutual interest in preserving and enhancing the value
of the Food Trademarks and the Program Information, and of their respective
licenses thereof, and in facilitating orderly and effective use of the Food
Trademarks and the Program Information;


 


NOW, THEREFORE, in
consideration of the mutual covenants and agreements hereinafter set forth and
other good and valuable consideration, including the Recapitalization and Stock
Purchase Agreement dated the 22nd day of July, 1999 (the “Principal
Agreement”), the receipt and adequacy of which is hereby
acknowledged, the parties intending to be legally bound agree as follows:


 


ARTICLE 1


GENERAL PROVISIONS


 


SECTION 1.01. Definitions. For the purposes of this
Agreement:


 


“Affiliate”
of any person shall mean any company controlled by, controlling or under common
control (that is, ownership of greater than 50% of the voting securities) with
a person after the Effective Date.


 


“Associated
Food Trademarks” shall mean (i) all Food & Beverage Trademarks
the transfer of which to the LLC cannot be recorded prior to the closing under
the Principal Agreement because of required association under the laws of a
particular jurisdiction, including but not limited to, those set forth on
Schedule A and (ii) all New Associated Food Trademarks.


 


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“Confidential
Information” shall have the meaning set forth in Section 2.12.


 


“Effective
Date” shall mean the day and year first above written.


 


“Endorse”
or “Endorsement” shall mean using the
Weight Watchers Business to endorse, recommend, promote, advertise, sponsor, or
imply an association with, expressly or impliedly, for cash or non-cash
consideration.


 


“Food &
Beverage Trademarks” shall mean all registered trademarks, trademark
applications, and common law trademarks covering food and beverage products,
falling in or that would fall within any Food Class, owned by Weight Watchers
and the Companies as defined in the Principal Agreement as of the Effective
Date.


 


“Food Classes”
shall mean International Classes 1, 5, 29, 30, 31, 32, and 33 (or comparable
classes) in relation to food and beverage products.


 


“Food
Trademarks” shall mean the Formation Trademarks and New Food
Trademarks.


 


“Formation
Trademarks” shall mean all Food & Beverage Trademarks less all
Weight Watchers Retained Trademarks, Parent Retained Trademarks, and any “Weight
Watchers From Heinz” trademarks.


 


“Heinz
License” shall mean the license dated September 29, 1999 between
Heinz and the LLC, pursuant to which Heinz licenses the right to use the Food
Trademarks and the Program Information on certain food and beverage products.


 


“Heinz
Licensed Products” shall mean the “Licensed Products” as defined in
the Heinz License and as set forth in Schedule B attached hereto.


 


“HJH Food Trademarks”
shall mean those trademarks used on food and beverage products identified in
Schedule C attached hereto and made a part hereof.


 


“Licensed
Products” means the Heinz Licensed Products and the Weight Watchers
Licensed Products, as the context may require.


 


“LLC”
shall mean the WW Foods, LLC.


 


“LLC
Agreement” shall mean the Limited Liability Company Agreement


 


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of the LLC, having
an Effective Date (as defined therein) of September 29, 1999.


 


“Multiclass
Trademarks” shall mean all Food & Beverage Trademarks consisting
of registrations or applications for registration in multiple registration
classes, where such classes include both Food Classes and other classes,
including but not limited to, those set forth on Schedule D.


 


“New
Associated Food Trademarks” shall mean all trademark registrations
and applications filed in the name of Weight Watchers from time to time
pursuant to Section 8(e) or (f), as the case may be, of the license agreement
dated September 29, 1999 between Weight Watchers and Heinz.


 


“New Food
Trademarks” shall mean all new common law trademarks, trademark
applications and trademark registrations that may be acquired by or contributed
to the LLC from time to time.


 


“Non-Recognition
Food Trademarks” shall mean (i) all Food & Beverage Trademarks
in jurisdictions where the local law or regulatory authority does not permit,
or will not recognize the validity of, ownership of trademarks by a limited
liability corporation or by an entity that owns but does not use (except
through use by a registered user or licensee) a trademark in that jurisdiction,
including, but not limited to those set forth on Schedule E.


 


“Non-Transferable
Food Applications” shall mean all Food & Beverage Trademarks
that are pending applications or intent-to-use applications in jurisdictions
where the local law or regulatory authority does not permit, or will not
recognize the validity of, an assignment or transfer of such applications,
including but not limited to those set forth on Schedule F.


 


“Parent
Retained Trademarks” shall mean certain Food & Beverage
Trademarks to be transferred by Weight Watchers to Heinz and to be retained by
Heinz, as identified in Schedule 8.1 of the Principal Agreement.


 


“Program
Information” shall mean the terminology used in connection with any
then-current Weight Watchers Program as it may exist from time to time
throughout the world, such information owned by Weight Watchers as is
reasonably necessary to develop, manufacture, market and distribute food and
beverage products in accordance with such Weight Watchers Program and to
calculate Points® or other measurements relating thereto, as well as
Program Information Trademarks.


 


“Program
Information Improvements” shall mean such information


 


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and know-how as
may be developed by Heinz through use of Program Information pursuant to the
Heinz License that Heinz determines would be useful for Weight Watchers in the
development and application of Program Information.


 


“Smart Ones Package Design” shall mean
the distinctive elements and features used in labels and packaging for food
products sold under both of the Weight Watchers and Smart Ones brand names and
uniquely associated therewith, including the principal color and layout and
configuration thereof.


 


“Standards”
shall have the meaning set forth in Section 2.04(a) below.


 


“Sublicensee”
shall mean any recipient of a license or sublicense for use of the Food
Trademarks, the Program Information, or the Weight Watchers Retained Food
Trademarks as the context may require, and shall include a party’s Affiliates,
where applicable.


 


“Weight
Watchers Business” shall mean the weight control classroom meetings,
business and related activities owned or controlled by Weight Watchers or
Weight Watchers Affiliates, and conducted under the Weight Watchers name
including the Weight Watchers Program, and all promotional activities relating
thereto, including without limitation any program materials, Program Information,
Weight Watchers meeting rooms, recipes, publications, newsletters, direct mail
solicitations, advertising materials, posters, and other classroom media,
public relations programs, and Internet websites.


 


“Weight
Watchers Franchisee” shall mean any franchisee of Weight Watchers or
its Affiliates using the Weight Watchers name or with respect to the Weight
Watchers Business.


 


“Weight
Watchers License” shall mean the license dated September 29, 1999
between Weight Watchers and the LLC, pursuant to which Weight Watchers licenses
the right to use the Food Trademarks and Program Information Improvements on
certain food and beverage products.


 


“Weight
Watchers Licensed Products” shall mean the “Licensed Products” as
defined in the Weight Watchers License.


 


“Weight
Watchers Non-Food Trademarks” shall mean all trademarks owned,
registered, applied for, used or intended to be used by Weight Watchers or the
Companies as defined in the Principal Agreement that are not Food Trademarks.


 


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“Weight
Watchers Program” shall mean current and future eating or lifestyle
regimens to facilitate weight loss or weight control employed, designed,
marketed or adopted in any part of the world by or on behalf of Weight Watchers
or Weight Watchers Affiliates under the Weight Watchers trademark or service
mark.


 


“Weight
Watchers Retained Trademarks” shall mean all Associated Food
Trademarks, Non-Recognition Food Trademarks, Non-Transferable Food
Applications, Multiclass Trademarks, and Program Information Trademarks.


 


ARTICLE 2 


FOOD TRADEMARKS


 


SECTION 2.01. Non-endorsement.


 


(a)                                  (i)            Weight Watchers may Endorse the
Licensed Products; provided however, that Weight Watchers shall not and shall
cause Weight Watchers Affiliates not to enter into any agreement of any nature
or adopt any policy to Endorse any branded food product that competes with a
Heinz Licensed Product in any country if Heinz, its Affiliates or Sublicensees
are selling or have sold a competing Heinz Licensed Product in that country
within the previous year. If Heinz, on behalf of itself, its Affiliates or
Sublicensees, intends to commence or recommence sale of a Heinz Licensed
Product in a country and wishes to avail itself of this provision with regard
to that country, it shall so notify Weight Watchers no later than thirty (30)
days before the commencement of bona fide commercial sales of the Heinz
Licensed Product in that country. Weight Watchers thereupon shall use its best
efforts to cease and to cause Weight Watchers Affiliates to cease to Endorse
the branded food product in competition with the Heinz Licensed Product within
one year of receipt of such notice or upon expiration of any contractual
commitment to a third party concerning that branded food product, whichever is
later. It is expressly understood and agreed that accurate, factual references
to branded food products other than Heinz Licensed Products made in the
ordinary course of the Weight Watchers Business other than for cash or non-cash
consideration shall not constitute an Endorsement.


 


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(ii)                                Heinz
acknowledges that Weight Watchers cannot control the individual recommendations
of Weight Watchers service providers; however, Weight Watchers will not enter
into any agreement or adopt any policy to encourage such service providers to
engage in conduct that Weight Watchers is unable to engage in pursuant to the
terms of this provision.


 


(b)                                 Weight
Watchers may sell Licensed Products through the Weight Watchers Business or
otherwise but shall not, and shall cause Weight Watchers Affiliates not to,
sell any branded food product in any country if Heinz or its Affiliates or
Sublicensees is selling a competing Licensed Product in that country.


 


(c)                                  Weight
Watchers shall follow the same policies and practices in dealing with
Endorsement and sales by a Weight Watchers Franchisee of branded food products
that compete with Heinz Licensed Products, that Weight Watchers would apply to
dealing with Endorsement and sales by that franchisee of branded food products
that compete with Weight Watchers Licensed Products.


 


SECTION 2.02. Quality Control.


 


(a)                                  All
use of the Formation Trademarks, Weight Watchers Retained Trademarks and
Program Information by Heinz, Weight Watchers, their respective Affiliates and
their respective Sublicensees prior to the Effective Date are deemed to comply
with the Quality Control Requirements as defined in the LLC Agreement.


 


(b)                                 Heinz
and Weight Watchers and their respective Affiliates shall comply with all of
the terms and conditions of their respective licenses from the LLC.


 


(c)                                  It
is expressly understood and agreed between Heinz and Weight Watchers that the
LLC shall have exclusive responsibility for quality control of all Food
Trademarks as set forth in Section 2.06 of the LLC Agreement. Heinz represents
and warrants that the LLC has been duly formed and is in good standing, that
all assignments of Formation Trademarks contemplated by the Principal Agreement
and this Agreement from Heinz to the LLC have been duly and properly made in
accordance with the terms thereof, and that the representations and warranties
made by or on behalf of Heinz and Weight Watchers in Section 3.01(b) of the LLC
Agreement were true and correct when made and are true and correct as of the
date hereof.


 


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SECTION 2.03. Transitional Issues.


 


(a)           On the Effective Date, (i) all
existing licenses by Weight Watchers to parties including Heinz or its
Affiliates granting rights to manufacture, market, distribute or sell food
products under the Food Trademarks (the “Direct Food Trademark
Licenses”), including but not limited to those identified in
Schedule G hereto, shall be assigned by Weight Watchers to Heinz, and Heinz
shall assume the obligations of Weight Watchers with respect thereto pursuant
to an assignment and assumption agreement in form and substance reasonably satisfactory
to Heinz and Weight Watchers, and (ii) Heinz shall retain all existing sublicenses
by Heinz or any Heinz Affiliates to third parties granting rights to manufacture,
market, distribute or sell food products under the Food Trademarks (the “Heinz Sublicenses”), including but not limited to those
identified in Schedule H hereto. All subsequent use of the Food Trademarks
pursuant to this provision will otherwise be subject to the terms of the Heinz
License. Heinz and its Affiliates, as the case may be, may, in their
discretion, assign any of the Direct Food Trademark Licenses or the Heinz
Sublicenses to any Heinz Affiliate.


 


(b)           Heinz shall be entitled to payment in
full of all royalties and other amounts payable under the Direct Food Trademark
Licenses and the Heinz Sublicenses (or agreements related thereto) for a period
of five years from the Effective Date (whether or not such agreements cover
Heinz Licensed Products and whether or not such agreements have been
transitioned to Weight Watchers). During such five-year period, the ownership
of the Direct Food Trademark Licenses and Heinz Sublicenses covering Weight
Watchers Licensed Products will be transitioned to Weight Watchers by Heinz or
its Affiliates assigning such agreements to Weight Watchers at the end of the
five (5) year period or by enabling Weight Watchers to renew such agreements as
they expire or become eligible for renewal, whichever is sooner. Heinz shall
give Weight Watchers ninety (90) days’ notice of the expiration or renewal date
of all Direct Food Trademark Licenses and Heinz Sublicenses covering Weight
Watchers Licensed Products expiring or having a renewal date during the five
year period, and Weight Watchers shall have the option to determine, to the
extent permissible under the terms of the agreement with the third party, to
renew or not to renew such agreement with regard to Weight Watchers Licensed
Products. If any Direct Food Trademark Licenses or Heinz Sublicenses covers
both Heinz Licensed Products and Weight Watchers Licensed Products (as of the
date of renewal or assignment pursuant to the two immediately preceding
sentences), the parties will use their reasonable best efforts to reach
agreement with the licensees or sublicensees to separate the products into
separate license/sublicense agreements with Weight Watchers (for Weight
Watchers Licensed Products) and Heinz and


 


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its Affiliates
(for Heinz Licensed Products).


 


(c)           If Heinz desires to terminate any
Direct Food Trademark License or Heinz Sublicense covering Weight Watchers
Licensed Products, it will first consult with Weight Watchers, which shall
advise, within twenty-one (21) days from the date of notice, whether it desires
for Heinz to assign such license or sublicense to Weight Watchers. To the
extent that Weight Watchers assumes or renews any of the Direct Food Trademark
Licenses or Heinz Sublicenses, Heinz shall assign or license at Heinz’
discretion, such intellectual property rights as may be necessary for Weight
Watchers to continue to perform under any such agreement with regard to Weight
Watchers Licensed Products.


 


(d)           In the event that any Direct Food
Trademark License or Heinz Sublicense is assigned to Weight Watchers or renewed
by or on behalf of Weight Watchers during the five-year transition period, the
royalties or other payments received by Weight Watchers from any such license/sublicense
will be paid over to Heinz upon receipt without demand until the expiration of
the five-year transition period. As between Heinz and Weight Watchers, Heinz
shall assume all administrative costs relating to such licenses/sublicenses. In
the event that any Direct Food Trademark License or Heinz Sublicense covering
Weight Watchers Licensed Products is not assigned to Weight Watchers and has
not expired at the end of the five-year transition period, the royalties or
other payments received by Heinz from any such license/sublicense will be paid
over to Weight Watchers upon receipt without demand thereafter, and Heinz shall
assign or license (at Heinz’ discretion) such intellectual property rights as
may be necessary to perform Licensor’s obligations thereunder. As between Heinz
and Weight Watchers, Weight Watchers shall assume all administrative costs
relating to such licenses/sublicenses.


 


(e)           During the five-year transition
period, Heinz will pay to Weight Watchers annually a sum of $1.2 million as a
custodial fee to hold certain of the Weight Watchers Retained Trademarks for
the benefit of the LLC. Such annual payment shall be payable in quarterly
installments of $300,000 payable in arrears. Such trademarks shall consist of
the Associated Food Trademarks, the Non-Recognition Food Trademarks, the
Non-Transferable Food Applications, and those portions of the Multiclass
Trademarks in Food Classes (the “Custodial Trademarks”). All use of, and
expenses relating to, such Custodial Trademarks shall be governed by the
provisions of this Agreement, the LLC Agreement and the terms of the license
agreement between Heinz and Weight Watchers attached as Exhibit I. Heinz and
Weight Watchers shall take all reasonable steps necessary to transfer all such
Custodial Trademarks to the LLC at an appropriate time and in an appropriate
manner, consistent with the intent of this Agreement and the


 


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purpose of the LLC
when permissible to do so under local law.


 


(f)            Notwithstanding any other provision
of this Agreement, the LLC Agreement, or any license between or among Heinz,
Weight Watchers and the LLC, Weight Watchers shall have the right to continue
to sell through particular channels of distribution in the Weight Watchers
Business conducted in any country all food and beverage products and comparable
products sold in such channels of distribution in that country within the
preceding year (whether or not such products are Weight Watchers Licensed
Products) and to retain all proceeds therefrom.


 


(g)           Heinz shall change or cause to be
changed the name of any Affiliate using the Weight Watchers name or any
derivative thereof that is not Weight Watchers or one of the Companies as
defined in the Principal Agreement to a name not using the Weight Watchers name
or any derivative thereof.


 


SECTION 2.04. Compatibility with
Weight Watchers Program. (a) Heinz shall, and will cause its
Sublicensees to, use the Food Trademarks, Weight Watchers Retained Trademarks
and Program Information only on Heinz Licensed Products that have been
specially formulated to be compatible with the dietary principles of the Weight
Watchers Program (the “Standards”).
The Heinz Licensed Products being marketed by Heinz on the Effective Date are
deemed to meet the Standards.


 


(b)         (i)              Heinz
shall not be required to change the formulation of any Heinz Licensed Product
due solely to changes in the Weight Watchers Program. However, Heinz recognizes
that as the Weight Watchers Program changes over time, it is in the interest of
both parties that formulations for the food and beverage products bearing the
Food Trademarks should be changed in a consistent manner. Heinz will use
reasonable efforts to reformulate, if possible, and in a manner and on a timetable
reasonably acceptable to Heinz, existing categories of products sold under the
Food Trademarks to meet over time the new or evolving dietary principles
incorporated into the Weight Watchers Program with a goal of having such
products fit the Standards. Heinz will not be mandated to make changes to meet
the Weight Watchers Program that materially increase costs, materially degrade
palatability or consumer acceptance or eliminate major ingredient types
required in the production of Heinz Licensed Products. Other changes shall be


 


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implemented on a
reasonable timetable consistent with product development and restage cycles.


 


(ii)          Weight
Watchers shall construe and interpret the Weight Watchers Program in good faith
(A) to apply its dietary principles without discriminating between Heinz
Licensed Products and Weight Watchers Licensed Products, and (B) to permit,
where possible in Weight Watchers’ reasonable discretion, those ingredients and
processing techniques required to manufacture and market the Heinz Licensed
Products on a competitive basis in the marketplace.


 


(c)           All new Heinz Licensed Products shall
comply with the Standards then in effect; provided,
however, that a product that is a reformulation or repackaging of an
existing product, or a product that is an extension of an existing product line
that is substantially similar to other products in that product line, shall not
require approval as a new Heinz Licensed Product. Heinz shall, and shall cause its
Affiliates and Sublicensees to, submit to Weight Watchers a minimum of two
samples of any proposed new Heinz Licensed Product for the determination of its
compatibility with the dietary principles of the Weight Watchers Program.
Weight Watchers shall respond to Heinz or its Affiliates or Sublicensees, as
the case may be, in writing setting forth in detail any concerns or questions
with reasonable specificity. If Weight Watchers fails to respond within
twenty-one (21) days of receipt of such samples, such new Heinz Licensed
Products shall be deemed to be approved by Weight Watchers. For purposes of
this provision, Weight Watchers may object, subject to the terms of Section
2.04(b)(ii) above, to any proposed new Heinz Licensed Product only in the
exercise of a reasonable good faith belief that such new Heinz Licensed Product
does not conform to the Standards that are in effect at the time of the
development of the new Heinz Licensed Product. Heinz shall not sell any new
Heinz Licensed Product to which Weight Watchers objects in accordance with this
Section 2.04(c) until Weight Watchers agrees that any such objection has been
satisfactorily resolved.


 


SECTION 2.05. Changes to Graphic Representation of the Food
Trademarks.  Heinz recognizes
that as the Weight Watchers Program changes its graphic presentation over time,
it is in the interest of both parties to continue having similar graphic
presentations. Accordingly, Heinz agrees to consult with Weight Watchers and to
use its reasonable efforts to develop and implement in a manner and on a
timetable reasonably acceptable to Heinz comparable graphic presentations of
the Food Trademarks. Heinz shall not be required to change package design,
coloration, or other trade dress features of its existing products


 


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solely to conform
to changes in Weight Watchers’ graphic presentation.


 


SECTION 2.06. Third Party
Intellectual Property Licenses.  Weight
Watchers shall exercise reasonable efforts to cause any license granted to
Weight Watchers for the use of any trademarks, service marks or other
intellectual property from a third party for use on Weight Watchers Licensed
Products now or in the future (excluding the license granted to Weight Watchers
by the LLC), to be offered to Heinz for use on the Heinz Licensed Products on
comparable terms and conditions; provided,
however, that Weight Watchers shall have no obligation to incur any
substantial out-of-pocket expenses in exercising such efforts but shall offer
Heinz an opportunity to pay any additional amount necessary to obtain such
rights for Heinz to use.


 


SECTION 2.07. Proprietary Rights.


 


(a)           Proprietary Rights of Heinz.  (i) Weight Watchers acknowledges
and shall not contest Heinz’ or Heinz Affiliates’ ownership of Program
Information Improvements and the HJH Food Trademarks. Weight Watchers agrees
that all use of HJH Food Trademarks shall inure to the benefit of Heinz’ or
Heinz Affiliates’ ownership rights in HJH Food Trademarks as appropriate. The
parties recognize that the HJH Food Trademarks have been previously used
together with the Food Trademarks and Weight Watchers Retained Trademarks
(e.g., Smart Ones and Weight Watchers, Heinz and Weight Watchers) on labels,
advertising and promotions, and Weight Watchers agrees that Heinz may continue
to use the HJH Food Trademarks together with the Food Trademarks and Weight
Watchers Retained Trademarks in the countries in which they are in use as of
the Effective Date, as specified in the attached Schedule B. Weight Watchers acknowledges
that distribution and use may extend beyond these countries because of external
circumstances outside of the control of Heinz, such as manufacturing,
warehousing, and distribution logistics or sales to multinational accounts. Any
other use of the Food Trademarks and Weight Watchers Retained Trademarks with
any other trademarks that may be adopted for use on food products from time to
time by Heinz or Heinz Affiliates or Sublicensees, in such a manner as to
create a material risk of the establishment of a combination mark, shall not be
permitted without the permission of Weight Watchers. Heinz shall make no claim
of ownership or right in any permitted use of the Food Trademarks and Weight
Watchers Retained Trademarks in combination with any other mark, and the
parties shall take all steps necessary to cause the cancellation of any
existing registration or abandon any pending application relating to any such
combination, including but not limited to “Weight Watchers from Heinz,” at
Heinz’ expense.


 


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Weight Watchers
agrees to the continued use of the appropriate Formation Trademarks (e.g., Main
Street Bistro, Sweet Celebrations, Chocolate Treat, etc.) as sub-brands in a
subordinate manner to the Weight Watchers name without prior Weight Watchers
approval. Heinz, its Affiliates and Sublicensees may continue to use their
names and corporate logos as corporate identifiers in a substantially
subordinate manner to the Weight Watchers name to identify Heinz, its
Affiliates or Sublicensees as the case may be, for the purpose of identifying
them as the manufacturer or distributor for Heinz Licensed Products. Subject to
Weight Watchers’ ownership of Program Information and Weight Watchers Non-Food
Trademarks, Weight Watchers acknowledges Heinz’ (or Heinz Affiliates’ or Heinz
Sublicensees in appropriate circumstances) ownership of the specifications,
recipes, manufacturing process or other confidential or proprietary information
or materials related to Heinz Licensed Products and developed or owned by Heinz
and that all such information shall be considered Heinz’ (or Heinz Affiliates’ in
appropriate circumstances) Confidential Information and shall be subject to the
provisions of Section 2.12.


 


(iii)          Weight Watchers acknowledges Heinz’
exclusive ownership of the Smart Ones brand name and of the Smart Ones Package
Design as of the Effective Date. Heinz shall have no obligation to continue
using the Smart Ones brand name or Smart Ones Package Design together with the
Weight Watchers brand name following the Effective Date. If Heinz at any time
thereafter uses the Smart Ones brand name or Smart Ones Package Design with the
Weight Watchers brand name on any Heinz Licensed Product, it shall not use the
Smart Ones brand name or Smart Ones Package Design on any Heinz Licensed
Product without also using Weight Watchers as the brand for the product. If
Heinz determines at any time after the Effective Date to cease all use of the
Smart Ones brand name and Smart Ones Package Design together with the Weight
Watchers brand name, it shall provide Weight Watchers with at least ninety (90)
days’ notice in advance of the date upon which it intends to cease manufacture
of any Heinz Licensed Product using the Weight Watchers brand name with the
Smart Ones brand name and the Smart Ones Package Design (the “Discontinuation Date”) or upon which it intends to announce
publicly its intention to discontinue use of the Weight Watchers brand,
whichever is earlier. Following the Discontinuation Date, Heinz may commence
immediately to use the Smart Ones brand name (but not the Smart Ones Package
Design) on any food or beverage product, whether or not the product is a Heinz
Licensed Product, and to use the Smart Ones Package Design (with or without the
Smart Ones brand name) on any Heinz Licensed Product, without the Weight
Watchers brand name; provided, however, that
Heinz shall not use the Smart Ones Package Design (with or without the Smart
Ones brand name), or any package design containing


 


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elements or features similar thereto, on any food or
beverage product other than a Heinz Licensed Product for a period of five (5)
years following the Discontinuation Date. If Heinz discontinues all use of the
Smart Ones brand name or Smart Ones Package Design together with the Weight
Watchers brand name, it may recommence the manufacture of Heinz Licensed
Products using the Smart Ones brand name or Smart Ones Package Design together
with the Weight Watchers brand name within a two (2) year period following the
discontinuation; provided, however, that
(i) Heinz, its Affiliates and Sublicensees shall submit all products proposed
to be marketed or sold using the Weight Watchers brand name, and all labels,
packaging, advertising and promotional materials proposed to be used in
connection therewith, for approval to Weight Watchers or the LLC, as may be
appropriate, as if they were in all respects completely new products or new
uses; and (ii) if Heinz thereafter discontinues all use of the Smart Ones brand
name or Smart Ones Packaging Design together with the Weight Watchers brand
name for any period of time, it shall not have any right to recommence such
use, even with regard to Heinz Licensed Products, whether or not such use would
otherwise be permissible under any other provision of this Agreement or any
license concerning use of the Weight Watchers brand name previously granted to
Heinz.


 


(b)           Proprietary Rights
of Weight Watchers.


 


(i)            Heinz acknowledges and shall not
contest Weight Watchers’ or Weight Watchers Affiliates’ ownership of Program
Information and Weight Watchers Non-Food Trademarks. Heinz agrees that all use
of Program Information Trademarks and Weight Watchers Non-Food Trademarks shall
inure to the benefit of Weight Watchers’ or Weight Watchers Affiliates’
ownership rights therein as appropriate.


 


(i)            Heinz acknowledges Weight Watchers’
(or Weight Watchers Affiliates’ in appropriate circumstances) ownership of the specifications,
recipes, manufacturing process or other confidential or proprietary information
or materials related to Weight Watchers Licensed Products developed or owned by
Weight Watchers and that all such information shall be considered Weight
Watchers’ (or Weight Watchers Affiliates’ in appropriate circumstances)
Confidential Information and shall be subject to the provisions of Section
2.14. Additionally, Heinz hereby grants to Weight Watchers a non-exclusive
royalty-free license to use formulations and recipes owned by Heinz and used in
the past in Weight Watchers Licensed Products as they are transferred.


 


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(iii)          Heinz acknowledges and agrees that
Weight Watchers shall own and have the exclusive right to use all domain names
or other means for providing direct access to a website or dedicated portion of
a website using, incorporating, or derived from the Food Trademarks, the
Program Information or the Weight Watchers Non-Food Trademarks. Heinz shall not
use any Parent Retained Trademark as a domain name or as an identifier for a
means of providing access to a website or dedicated portion of a website (“Parent Retained Trademark Website”) promoting, advertising
or selling Heinz Licensed Products. Heinz and Weight Watchers acknowledge and
agree further that (A) access to such Parent Retained Trademark Websites shall
only be through a website controlled by or operated pursuant to a license from
Weight Watchers, the primary Heinz website in each of the U.S. and Canada, and the
Heinz Frozen Food website; (B) Heinz’ websites promoting Licensed Products
shall provide access by display of a hyperlink or other means of transfer, to a
website to be designated by Weight Watchers and the primary website operated
using the Weight Watchers brand name shall provide access by display of a
hyperlink or other means of transfer to the Heinz websites promoting Licensed
Products; and (C) websites controlled by Heinz which advertise, promote or sell
the Heinz Licensed Products shall not include content substantially similar in
nature to any website controlled by or operated pursuant to a license from the
Weight Watchers but may include information concerning the nutritional aspects
of Heinz Licensed Products, recipes and the like. For the avoidance of doubt, Heinz
may promote, advertise and sell Heinz Licensed Products on a website using any
Heinz trademark as a domain name or identifier, other than any domain name or
identifier using, incorporating, derived from or confusingly similar to the
Parent Retained Trademarks, the Food Trademarks, the Program Information or the
Weight Watchers Non-Food Trademarks.


 


(c)           Limitation on Proprietary Rights.  No party shall assert any right or
title to or interest in or to any slogan, trade name, symbol, emblem, insignia,
design, trade dress, or advertising theme devised by the other party for use in
connection with its products or services, except for the rights granted to or
received by that party under any agreement between or among them and the LLC.
Any new trademark used or intended to be used by any party covering any food or
beverage product that is derived from, identical to or confusingly similar to
any Food Trademark shall be contributed to the LLC.


 


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SECTION 2.08.  Preservation of Trademarks: Responses to Third Party Activity.


 


(a)           Actions by Weight Watchers with Respect to Trademarks
or Service Marks Used in the Weight Watchers Business.  If Weight Watchers determines not to renew the
registration of any Weight Watchers trademarks or service marks (other than the
Food Trademarks) used in the Weight Watchers Business, Weight Watchers will
notify Heinz at least one hundred and twenty (120) days prior to such renewal,
except for intention to use applications, in which case Weight Watchers will
provide sixty (60) days’ written notice of use requirements. If Heinz
thereafter requests, Weight Watchers will renew the registration at Heinz’s
sole expense.


 


(b)           Mutual Cooperation.  The parries agree to cooperate with
each other and with the LLC in protecting and defending the Food Trademarks and
the Program Information in a manner consistent with the terms and conditions of
this Agreement, and Weight Watchers and Heinz agree to comply with the terms
and conditions of any license agreement between or among them and the LLC. The parties
will periodically (no less than once per year or otherwise upon reasonable written
request) furnish the LLC and each other with samples of all labels, advertising,
promotional and marketing material showing its use of the Food Trademarks for
the purpose of supporting the fame, notoriety and reputation of the Food
Trademarks and for registration, maintenance, and prosecution and renewal
purposes. The parties also agree to cooperate to furnish such other information
that is required for trademark prosecution and enforcement purposes, including
information concerning sales volume and dollar value of Licensed Products
bearing the Food Trademarks.


 


(c)           Further Documents.  The parties agree to execute such documents
from time to time as may be necessary to carry out the intent of this Section 2.08.


 


(d)           Unauthorized Use of the Food Trademarks.  Each party agrees to promptly
notify the other and the LLC in writing of any unauthorized use of the Food
Trademarks or Program Information by a third party promptly after such unauthorized
use comes to that party’s attention. Either party, at its cost and expense, may
bring or cause to be brought or cause the LLC to bring or cause to be brought
any prosecution, lawsuit, action, or proceeding for infringement, unauthorized
use, or interference with or violation of any such right, to the extent permissible
under local law. Each party shall provide the other with such assistance and
information and advice as may be reasonably available to it and which may be of
assistance to the other in respect of proceedings involving a third party
concerning the Food Trademarks, including being joined as a party to such proceedings,
executing any and all documents and cooperating as may reasonably


 


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be necessary to
assist the other party’s counsel in the conduct of such defense or prosecution.
For purposes of bringing such enforcement actions, the parties agree to take
such action or to execute such documents as may be necessary to empower the
other party to bring such action on its behalf. Each party will pay its own
costs in connection with any action taken in respect to this Section and will
pay the reasonable out of pocket costs of the LLC in accordance with the
applicable license. The party bringing or defending proceedings against a third
party will have the benefit or burden of any settlement with such third party.
Rights acquired by operation of law will be assigned to the appropriate party.


 


SECTION 2.09. Dispute Resolution.  (a) lf either party commits a
breach of or is in default under this Agreement, the other party shall provide
written notice thereof specifying the nature of the breach or default and
identifying the steps required to cure the same.


 


(b)           Upon the occurrence
of any breach or default under this Agreement, each Party, in addition to any
other right provided in this Agreement or otherwise, shall have the right to make
application for a temporary, preliminary or permanent injunction and/or
specific performance in order to prevent the continuation of such breach or
default. Each party waives any requirement that the other party be required to
post a bond in connection with any request for an injunction. Each party acknowledges
that an injunction or an order of specific performance may be necessary to
protect the Food Trademarks and Program Information and the rights of Weight
Watchers and Heinz hereunder as the case may be, because the Food Trademarks
and Program Information are unique and the success and viability of sales of
the Licensed Products and the marketing of the Weight Watchers Business depends
upon Weight Watchers and Heinz performance.


 


(c)           Notwithstanding
Section 2.09(b), it is agreed expressly by the parties to this Agreement that
termination is not available as a remedy for any breach or default committed by
another party under this Agreement.


 


SECTION 2.10. Insurance.  (a) At all times during the term of
this Agreement, Weight Watchers and Heinz will maintain adequate professional/product
liability insurance to cover claims related to (i) Weight Watchers Business in
the case of insurance held by Weight Watchers; (ii) the Heinz Licensed Products
in the case of insurance held by Heinz and (iii) the Weight Watchers Licensed
Products in the case of insurance held by Weight Watchers. Weight Watchers’
insurance policy will name Heinz and its Sublicensees specified by Heinz as
additional insureds. Heinz’ insurance policy will name Weight Watchers and
Weight Watchers Affiliates and Sublicensees


 


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specified by Weight
Watchers as additional insureds.
A copy of each parties’ current policy will be available to the other party
upon request. Heinz acknowledges that $10,000,000 of coverage is adequate for
purposes of this provision.


 


(b)           The insurance
requirements of the first sentence of Section 2.10(a) are waived for either party as long as that party has a senior
unsecured long-term debt rating of at least A- or its equivalent with at least
two of the following rating agencies: (i) Standard and Poor’s; (ii) Moody’s; (iii)
I.B.C.A.; (iv) Duff and Phelps; and (v) Fitch. In the event that the above
agencies are no longer available the parties will use rating agencies of equivalent
standing.


 


SECTION 2.11. Indemnification.  (a) Each party shall indemnify and
agrees to defend the other party and the other party’s Affiliates and
Sublicensees, from any and all claims, liabilities and damages (but excluding
any incidental or consequential damages, or claims for lost profits) resulting
from or arising out of the manufacture, packaging, distribution, selling,
handling, consumption or marketing of the Licensed Products by the
indemnifying party after the Effective Date, except to the extent such claims,
liabilities and damages are the result of or caused by the negligence of the
indemnified party or its Affiliates or Sublicensees.


 


(b)           Weight Watchers
shall indemnify and agrees to defend Heinz and its Affiliates and Sublicensees
from any and all claims, liabilities and damages (but excluding any incidental
or consequential damages, or claims for lost profits) resulting from or arising
out of the conduct or operation of Weight Watchers Business or any other use by
Weight Watchers or Weight Watchers Affiliates or their respective licensees of
the Food Trademarks or the Program Information, after the Effective Date,
except to the extent Heinz is required to indemnify and defend Weight Watchers
and Weight Watchers Affiliates under Section 2.12(a).


 


(c)           Each party seeking
indemnification hereunder: (i) shall provide the other party with reasonable
notice of any such claim and cooperate with the defense of any such claim, and
(ii) agrees that the provisions of this Section 2.11 shall survive any termination
of this Agreement for the period of any applicable statute of limitations.


 


SECTION 2.12. Obligations Concerning
Confidentiality.  The parties
acknowledge that they will exchange certain confidential or proprietary
business information and know-how (collectively the “Confidential
Information”). The receiving party shall not disclose such
Confidential Information to any unauthorized third party. Confidential Information
of another party may be


 


17





















 


disclosed
internally by the receiving party only to those who have a “need-to-know” such
Confidential Information. The receiving party will make no copies of the
Confidential Information except upon the written permission of the disclosing
party. The obligation of confidentiality set forth herein shall not apply to
information which (a) was publicly available at the time of the disclosure to
the receiving party; (b) subsequently becomes publicly available through no
fault of the receiving party; (c) is rightfully acquired by the receiving party
from a third party who is not in breach of a confidential obligation with
regard to such information; (d) is independently known by the receiving party
whether prior to or during the term of this Agreement; or (e) is disclosed with
the written consent of the party who owns the Confidential Information.


 


SECTION 2.13. Costs and Expenses.  (a) Except as may be otherwise
agreed, each party agrees to be responsible for their respective costs and
expenses arising from their entry and continued performance of this Agreement.


 


(b)           Except as may be
otherwise agreed, each party will pay and discharge any and all expenses,
charges, fees and taxes arising out of and incidental to the carrying on of its
respective business and will save the other party harmless against any and all
claims by third parties for such expenses, charges, fees and taxes (except for
any taxes imposed on the income of the other). This provision shall survive any
termination of this Agreement for the period of any applicable statute of
limitations.


 


SECTION 2.14. Profits and Revenue
Sharing; Assignment of Existing Licenses. 
(a) Heinz hereby agrees to annually pay Weight Watchers an
amount equal to the amount that Weight Watchers is obligated to pay to Weight
Watchers Franchisees pursuant to agreements in effect on the Effective Date
(collectively, the “Sharing Agreements”)
between Weight Watchers and Weight Watchers franchisees, but only in respect to
and to the extent of distributions such franchisees
would be entitled to receive under such Sharing Agreements from revenues of Weight Watchers
arising from the sale and distribution of food products pursuant to the food
licensing agreements between Weight Watchers and Heinz Affiliates existing on
the date hereof, including, but not limited to those set forth on Schedule I
(the “Food License Agreements”) as are in
effect immediately prior to the Effective Date. Heinz will have sole
responsibility for any obligations under the Sharing Agreements pertaining to
Heinz Licensed Products or arising from the Heinz Sublicenses for the period
specified in Section 2.03 hereof.  Weight
Watchers will have sole responsibility for any obligations under the Sharing
Agreements pertaining to Weight Watchers Licensed Products or arising from
Heinz Sublicenses when transitioned to Weight Watchers as contemplated in
Section 2.03.


 


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(b)           The parties agree
that, notwithstanding the calculations required to be made pursuant to the
Sharing Agreements, Heinz is not obligated to reimburse Weight Watchers for
amounts which otherwise would be paid to (i) franchisees that have been
required by Weight Watchers or Weight Watchers Affiliates prior to the
Effective Date, and (ii) those Weight Watchers Franchisees that have assigned
their rights under Sharing Agreements to Weight Watchers or Weight Watchers
Affiliates prior to the Effective Date. Heinz acknowledges that the membership
statistics of the Weight Watchers Franchisees noted in (i) and (ii) above,
among others, will be used in calculating the Weight Watchers Franchisees’
payments pursuant to such Sharing Agreements and the amount of the
reimbursement required to be paid by Heinz to Weight Watchers hereunder.


 


(c)           For purposes of
Section 2.14(a) only, the royalty rate payable under the Food License
Agreements as of the Effective Date shall be used in determining Weight
Watchers Related Business Income and Franchisor’s Shared Revenues, as those
terms are defined in the Sharing Agreements. Heinz acknowledges that it has
read and is familiar with the terms and conditions of the Sharing Agreements
and Heinz agrees that the information that it will supply to Weight Watchers
for purposes of Weight Watchers computing its obligations under the Sharing
Agreements will be true and accurate in all material respects and in
conformance with the requirements of the Sharing Agreements so that Weight
Watchers Franchisees will continue to receive the benefit of distributions under
the Sharing Agreements they would otherwise be entitled to receive notwithstanding
the assignment of the Food Licensing Agreements to Heinz pursuant to a license
agreement between Heinz and the LLC.


 


Heinz’ obligations under Section 2.14(a) shall be limited to the
obligations of Weight Watchers to such Weight Watchers Franchisees as such
obligations exist as of the Effective Date and as they may be subsequently
reduced pursuant to Sections 2.14(b)(i) and (ii), it being understood that
Heinz’ obligations hereunder shall not be increased in any way as a result of
any amendments or modifications to the Sharing Agreements which become
effective after the Effective Date.


 


(d)           Heinz acknowledges
that Weight Watchers is required to make payments under the Sharing Agreements
on or before the first day of the fifth calendar month following the end of
Weight Watchers Fiscal Year as defined in the Sharing Agreements. Heinz shall
provide Weight Watchers with the information concerning its Revenues, as defined
in the Food Licensing Agreements, and the reimbursement payments pursuant to
this Section 2.14, in sufficient time to enable Weight Watchers to make the
required calculations on a timely basis. Heinz shall cooperate, and cause its
auditors to cooperate, with


 


19





















 


Weight Watchers
auditors in furnishing Weight Watchers Franchisees with the audited information
specified in the Sharing Agreements. Heinz agrees to pay Weight Watchers its
obligations hereunder no later than ten (10) days prior to the date Weight
Watchers is obligated to make payment to Weight Watchers Franchisees or ten
(10) days after being advised by Weight Watchers of the amount of such
obligation, whichever is later.


 


SECTION 2.15. Term.  This Agreement shall take effect as
of the Effective Date and shall continue for an initial term of twenty-five
(25) years at which time this Agreement will automatically renew for
consecutive terms of twenty-five (25) years each, unless terminated pursuant to
Section 2.16.


 


SECTION 2.16. Termination.


 


(a)           Notwithstanding
anything herein to the contrary, either party shall have the right to terminate
this Agreement to be effective upon 365 days written notice to the other party
if the other party has ceased all bona fide commercial sale of Licensed Products
everywhere in the world for a
continuous period in excess of twenty-four (24) months and does not commence
bona fide commercial sale of any Licensed Product in any country within such 365 day notice period.


 


(b)           Either party has the
right to terminate this Agreement upon the written consent of the other party.


 


SECTION 2.17.  Assignment; Transfer.  (a) Except as provided herein,
neither party shall assign or transfer any or all its rights or obligations
under this Agreement, directly or indirectly, without the express written
consent of the other party.


 


(b)           Either party hereto
can assign or transfer its rights, but not any partial interest therein, under
this Agreement with the consent of the other party or without the consent of
any other party or person if the assignment or transfer is made (i) to an
Affiliate or (ii) to a purchaser of all or substantially all of the assets to
which the transferor or assignor party’s use of the Food Trademarks relates, provided
that (x) the Affiliate or purchaser agrees in writing to be bound to all of the
terms of this Agreement and (y) the Affiliate or purchaser will also assume ownership
of the transferor or assignor party’s membership interest in LLC and of its
rights and obligations under the LLC Agreement.


 


(c)           For the avoidance of
doubt, it is expressly understood and agreed that neither the sale nor issuance
of stock by a party, nor the granting of any security interest in or pledge of
a collateral interest in a party’s rights under this


 


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Agreement, standing alone, shall constitute
an assignment or transfer subject to this Section 2.17 or otherwise require the
consent of any other party or person.


 


(d)           Any attempt at assignment or transfer by any party in
violation of the provisions hereof shall be void. This Agreement and all of the
provisions hereof shall be binding upon and
inure to the benefit of the parties hereto and their successors and assigns.


 


section 2.18. Relationship of Parties. Nothing
herein contained shall be deemed to create the relationship of partnership or
joint venture between the parties. The parties shall have neither the right to
incur any obligation to third parties which shall be binding upon the other nor
have any interest in the profits and liabilities of the other arising out of or
resulting from the subject matter of this Agreement.


 


section
2.19. Relationship with the LLC. Weight Watchers and Heinz agree
that they each shall conduct their respective affairs, and shall cause their
affiliates, licensees and franchisees to conduct their respective affairs, in
such a manner as to fully honor, recognize, preserve and maintain the LLC as a
separate and distinct entity with the sole right, title and interest in and to its
property. Without limiting the generality of the foregoing, the parties agree
that they and their affiliates, licensees and franchisees:


 


(a)           shall maintain their
place of business in locations separate from those of the LLC;


 


(b)           shall maintain their
books and records separately from those of the LLC;


 


(c)           shall maintain their
assets and funds separately from those of the LLC;


 


(d)           shall maintain their
respective financial statements such that, to the extent any interest in the
LLC or their respective assets is reflected on such financial statements, such
financial statements shall disclose, in a footnote or otherwise, the existence
of the LLC and its sole and exclusive ownership of its property;


 


(e)           shall not hold
themselves out to any person as owner of or as having any direct ownership in
or as having any direct interest in the property of the LLC and any reference
to ownership of such property, whether written or oral, shall disclose the
ownership thereof by the LLC; and


 


21





















 


(f)            shall not guarantee
or otherwise become a co-obligor on any debts of the LLC.


 


section 2.20. Notices. Unless
otherwise specified herein, notices to the parties shall be sent by prepaid
certified or registered mail, or by a national overnight courier service, to
the parties at the following addresses (or at such other address as shall be
specified by like notice) and notice will be deemed to have been received by
the other party two days after mailing in the case of certified or registered
mail and the day after mailing in the case of notice sent by overnight courier.


 


(A)          if to Heinz:


H.J. Heinz Company


600 Grant Street


Pittsburgh, PA 15230


Attn: President with a copy
to the General Counsel


 


(B)           If to Weight Watchers:


Weight Watchers
International, Inc.


175 Crossways Park West


Woodbury, NY 11797


Attn: President with a copy
to the General Counsel


 


SECTION 2.21. Governing Law. This
Agreement is entered into in the State of New York and the validity,
construction and effect of this Agreement (and all performance related thereto)
shall be governed, enforced and interpreted under the laws of the State of New
York relating to contracts entered into and to be fully performed therein.


 


section 2.22. Miscellaneous.


 


(a)           Nothing expressed or
implied in this Agreement is intended or shall be construed to confer upon or
give any person other than Weight Watchers or Heinz any rights or remedies
under this Agreement.


 


(b)           The failure of either
party to insist on compliance with any provision hereof shall not constitute a
waiver or modification of such provision or any other provision nor shall
resort to a remedy constitute a waiver of the right to resort to another remedy
provided for under this Agreement.


 


(c)           If any provision
hereof is held to be invalid or unenforceable by any court of competent
jurisdiction or any other authority vested with jurisdiction.


 


22





















 


such holding shall not affect the validity or
enforceability of any other provision hereto.


 


(d)           The section order and
headings are for convenience only and shall not be deemed to affect in any way the language, obligations or the
provisions to which they refer.


 


(e)           This Agreement may be
amended or modified only in writing and when executed by both parties hereto.


 


IN WITNESS WHEREOF, the parties hereto have executed this


 


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Agreement
as of the date first above written.


 


	
   

  	
  WEIGHT WATCHERS

  
	
   

  	
  INTERNATIONAL, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robert W. Hollweg

  	
   

  
	
   

  	
  Name:

  	
  Robert W. Hollweg

  	
   

  
	
   

  	
  Title:

  	
  Vice President, General Counsel

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  H.J. HEINZ COMPANY

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Mitchell
  A. Ring

  	
   

  
	
   

  	
  Name:

  	
   Mitchell A. Ring

  	
   

  
	
   

  	
  Title:

  	
   Vice President

  	
   

  



 


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