Prepared Foods August 16, 2004 enewsletter

CoolBrands International Inc. announced that it has filed a lawsuit against Weight Watchers International Inc. and Wells' Dairy in response to their violation of Weight Watchers' binding, exclusive Master License Agreement (MLA) with CoolBrands. That agreement allegedly confers upon CoolBrands the exclusive right to use the Weight Watchers trademark in connection with the manufacture, sale and distribution of ice cream and frozen novelty products until September 28, 2004. Additionally, after that time, the agreement allegedly confers upon CoolBrands a non-exclusive right to continue using that trademark in connection with the manufacture, sale and distribution of ice cream and frozen novelty products until September 28, 2005.

The lawsuit, filed in New York Supreme Court in Nassau County, seeks to recover compensatory and punitive damages of $360 million resulting from Weight Watchers and Wells' Dairy disregard and multiple breaches of the MLA, and redress from both defendants for using false claims and omissions of fact to “tortiously interfere with CoolBrands' existing strong relationships with its customers.”

Specifically, the lawsuit charges that Weight Watchers:
- Unlawfully entered into a licensing agreement with Wells' Dairy on July 28, 2004, violating the terms of its existing agreement with CoolBrands, which prohibits Weight Watchers from entering into any future licenses for the use of the Weight Watchers trademark on frozen novelties and ice cream until Weight Watchers' exclusive agreement with CoolBrands expires on September 28, 2004.
- Conspired with Wells' Dairy to breach the MLA, with the intent to deny CoolBrands the opportunity to use the remaining two months before the expiration of the agreement to conclude negotiations with other potential licensors on terms favorable to CoolBrands, and begin competing with CoolBrands before the MLA gave them a right to do so.
- Jointly issued a press release with Wells' Dairy, in addition to Wells' Dairy sending a letter to CoolBrands' customers, falsely claiming that Wells had the exclusive license to manufacture, sell and distribute Weight Watchers branded frozen novelties and ice cream, when, in fact, the MLA remains in effect until 12 months after September 28, 2004.
- Breached the agreement by granting Wells an exclusive license to use the Weight Watchers trademark on such products prior to September 28, 2005.
- In a further attempt to deny CoolBrands its rights under the MLA, filed and publicized a legal action in which Weight Watchers sought in effect to rewrite the MLA and prematurely terminate the MLA.

The company said that these actions and false statements were an attempt to impair CoolBrands' ability to sell its popular and successful Smart Ones brand of ice cream and frozen novelties, and damage CoolBrands' goodwill and reputation with customers, investors and the general public.

David Stein, CoolBrands' president and chief executive officer, said, "The issue is clear-cut: Weight Watchers broke their agreement with us and then tried to deceive our retailers into accepting a new product from Wells, in further violation of the terms of the agreement. CoolBrands will not be bullied by Weight Watchers, and we will hold them accountable for their attempt to damage our business. We have sought to enforce the terms of our legally binding agreement.

"Weight Watchers' and Wells' unlawful action is a transparent attempt to undermine our competitive position in the market. By breaching our agreement, Weight Watchers has attempted unlawfully to obtain an unfair competitive advantage. They resorted to litigation against us in a blatant publicity attempt to push retailers into replacing the highly popular Smart Ones products with the Wells' Dairy new product. We will vigorously enforce the plain language of the contract and our legal rights, which prohibit such conduct. We will seek redress for the damage Weight Watchers has inflicted. And we will fight to protect our customers, employees and shareholders and ensure that they will not be disadvantaged because of Weight Watchers' actions.

"Despite Weight Watchers' unlawful conduct, we will continue to build upon our position of leadership in the 'better-for-you' frozen novelty segment by pursuing exciting new partnerships, such as our recent alliances with Yoplait for Yoplait Frozen Breakfast Bars and Atkins, that we expect will grow our base of consumers and retailers," Stein concluded.

The company said that the full text of its complaint is available on its website:

TIMELINE (per CoolBrands)
- In 1995, Eskimo Pie Corporation (now owned by CoolBrands International Inc.) entered into a licensing agreement with H.J. Heinz for the manufacture, distribution and sale of Weight Watchers branded frozen novelties.

- In 1998, with sales of Weight Watchers frozen meals and frozen novelties sharply declining, H.J. Heinz re-branded these products by adding a new and distinctive Smart Ones identity, resulting in a transformation of the brand.

- In August 2000, CoolBrands and its subsidiary Integrated Brands purchased Eskimo Pie, and in October 2000, Weight Watchers consented to the change of control of Eskimo Pie and Eskimo and the continuation of the exclusive agreement.

- Before the re-branding of Weight Watchers products by adding the Smart Ones identity, Weight Watchers failed to rank in the top 20 brands in the frozen novelty category, and sales were trending consistently lower year after year. Since the re-branding, and through the investment and stewardship of CoolBrands after August 2000, annual sales of Smart Ones frozen novelties and ice cream have grown eight-fold. Currently, CoolBrands' line of Smart Ones frozen novelties rank in the top three national brands, argues the company, with sales increasing substantially in each of the past six years.

- Currently, Smart Ones products earn $400 million of retail sales nationwide. Smart Ones is the registered trademark of H.J. Heinz Company.

- Under the provisions of the MLA, following the expiration date of September 28, 2004, there is a one-year period in which CoolBrands may continue to sell, manufacture and distribute Weight Watchers frozen desserts on a non-exclusive basis. During that period, CoolBrands will be the only company marketing Smart Ones frozen novelties and ice cream.

- Under the provisions of the MLA, Weight Watchers is prohibited from entering into any future license prior to September 28, 2004. Additionally, Weight Watchers is prohibited from granting exclusive licensing rights to any party that take effect prior to September 28, 2005.

- By entering into the future license, Weight Watchers and Wells' Dairy violated these prohibitions of the MLA.

- On July 28, 2004, Weight Watchers' and Wells' Dairy issued a press release stating that "Weight Watchers International, Inc. and Wells' Dairy,...have entered into an exclusive licensing agreement commencing October 1, 2004. Under this agreement, Wells' Dairy will be the exclusive marketer, producer and distributor of the extensive line of frozen novelties and ice cream under the Weight Watchers brand."

- Wells' Dairy also distributed to retailers, including CoolBrands' customers, a letter misleading customers to believe that Wells' Dairy had an "exclusive licensing agreement with Weight Watchers International effective October 1, 2004, to develop, produce, market, sell and distribute all Weight Watchers ice cream and frozen novelties..."

- By falsely claiming that Wells' license to use the Weight Watchers name is exclusive, and thereby deceiving retailers into buying the new Wells' Dairy product, Weight Watchers and Wells are seeking to deny CoolBrands its right to market its Smart Ones products in accordance with the MLA.

- As described in the complaint, Wells and Weight Watchers acted with full knowledge of the fact that a breach of the agreement with CoolBrands and their conduct constituted tortious interference with CoolBrands' contracts and business relationships.