SUPPLY AGREEMENT
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This Supply Agreement (this "Agreement"), effective as of October 22,
2004 is by and between Embroidery Acquisition LLC, a Delaware limited liability
company ("EAL"), Hirsch International Corp., a Delaware corporation ("Hirsch")
and PCA LLC, a Delaware limited liability company ("PCA") (for purposes of
Section 6.1 only).
Background Statement
Hirsch is in the business of manufacturing and selling embroidery
machines and related parts, accessories, software and supplies (the "Products").
EAL is in the business of operating and franchising retail embroidery service
centers in Wal-Mart stores and other retails locations, including, without
limitation, the resale of machinery, accessories and supplies to franchisees
(the "Business"). This Agreement establishes the terms and conditions of
purchases of the Products for use by EAL in the operation of the Business.
The entering into of this Agreement by EAL and Hirsch is a condition
precedent to the closing of the transactions contemplated by the Asset Purchase
Agreement dated as of October 22, 2004 between EAL, Hirsch, Hometown Threads LLC
and PCA.
Statement of Agreement
The parties agree as follows:
1. Purchase and Supply
1.1 Purchase Orders. During the term of this Agreement, EAL may place
purchase orders with Hirsch with respect to the Products offered
by Hirsch from time to time ("Purchase Orders"). Each Purchase
Order will specify the quantity of each Product being ordered,
the location to which the Products are to be delivered and the
required delivery date. Hirsch agrees to accept each such
Purchase Order and to supply EAL with Products in accordance with
the standard specifications for the Products, and the quantity
and delivery terms in the Purchase Order. On ten (10) days' prior
written notice, EAL may modify or terminate any Purchase Order
(other than Purchase Orders for specialized or customized
Products that are not saleable by Hirsch in the ordinary course
of its business) placed by EAL under this Agreement. EAL's
liability to Hirsch with respect to such modified or terminated
Purchase Order shall be limited to: (i) Hirsch's purchase price
of all components for the Product (not usable in Hirsch's
business operations or salable to another customer), plus (ii)
the actual costs incurred by Hirsch in procuring and
manufacturing the Product (not usable in Hirsch's business
operations or salable to another customer), in each case prior to
the date of modification or termination; less (3) any salvage or
resale value of the Product. However, no such charges shall be
payable by EAL if within ninety (90) days after notice of
modification or termination, substantially similar Products are
ordered by EAL. If requested, Hirsch agrees to substantiate any
termination or modification costs with proof reasonably
satisfactory to EAL.
The terms and conditions of this Agreement shall apply to each sale by
Hirsch to EAL of the Products, and, except as otherwise expressly provided
herein, none of the additional or inconsistent terms and conditions in any
quotation, purchase order, acknowledgement or similar document shall apply. The
specifications for the current model of the Exclusive Product (as defined below)
are attached hereto as Exhibit A. Subject to the limitations set forth in
Section 6.5 hereof, Hirsch may, upon prior written notice to EAL, modify the
specifications from time to time during the term of this Agreement.
1.2 Purchase Commitment. During the term of this Agreement, EAL shall
purchase from Hirsch, and Hirsch shall supply to EAL, one hundred
percent (100%) of the Covered Companies' requirements for the
embroidery machines, software, supplies, parts and accessories of
the general type and category being purchased from Hirsch by
Hometown Threads as of the date of this agreement (the "Exclusive
Products") for use in the Business. "Covered Companies" means
EAL, PCA and their respective affiliates as well as the assigns
of any of the foregoing.
2. Pricing.
2.1 [CONFIDENTIAL TREATMENT REQUESTED].
2.2 Documentation. Upon request by EAL, Hirsch shall promptly supply
EAL with a copy of any invoice or other documentation evidencing
Hirsch's costs for any of the Products.
2.3 Invoices. Any sales, use and similar taxes that must be paid by
EAL must be separately itemized on all invoices. At EAL's
request, Hirsch shall contest any such taxes that EAL deems
improperly levied. Invoices must be submitted to EAL at: 815
Matthews-Mint Hill Road, Matthews, North Carolina 28105. Each
invoice must include Hirsch's invoice number, the quantity and
price of each Product shipped and the total amount due under such
invoice.
2.4 Payment. Payment on invoices shall be due sixty (60) days from
the date of EAL's receipt of a correct and complete invoice.
3. Shipping Terms.
3.1 Standard Delivery. Delivery shall be FOB Hirsch's N.Y. warehouse.
Title and risk of loss shall pass upon delivery to EAL. Time is
of the essence. All Products shall be shipped by Hirsch on or
before the twenty-first (21st) day following receipt of a
Purchase Order from EAL. If Hirsch is or will be delayed with
respect to the shipment of all or any portion of the Products in
a Purchase Order, Hirsch shall notify EAL immediately after
becoming aware of any such delay or anticipated delay. If the
delay will extend beyond ten (10) days from the agreed ship date,
then EAL shall have the right to cancel the Purchase Order, in
whole or in part, at the time EAL is notified of the delay or at
any time prior to shipment. EAL shall have no liability for such
cancellation and shall have the right to cover by purchase of
substitute products (and to collect any such cover costs from
Hirsch). Any such cover products shall be considered as purchases
from Hirsch for purposes of EAL's purchase requirements under
this Agreement. In addition, EAL shall have the right to recover
any other damages arising from the delayed delivery.
3.2 Inspection. EAL shall have the right to inspect the Products
after they are delivered. However, the making of or failure to
make any inspection of, or payment for, any Product shall in no
way limit EAL's right to reject non-conforming or defective
Products or to exercise its rights under Section 4 of this
Agreement.
4. Warranties and Allocation of Liability.
4.1 Warranty. In addition to the standard warranties provided by the
manufacturer of the Products (which warranties shall be assigned
by Hirsch to EAL) and by Hirsch to other purchasers of the
Products, Hirsch warrants free and clear title to all Products
and that the Products will comply with the specifications. In
addition, Hirsch warrants that the Products will be free from
defects in workmanship and materials and warrants that the
Products have been manufactured in compliance with all applicable
laws.
4.2 Remedies. If any Product breaches any of the warranties set forth
above during the warranty period, Hirsch shall within a
commercially reasonable period of time either (i) repair the
Product (provided that Hirsch shall provide EAL with a temporary
replacement Product during the period of any repair, such that
EAL shall have as minimal interruption in its Business as
reasonably possible (which in no event will be more than four (4)
calendar days) a result of the repair) or (ii) replace the
Product with a new Product, in either case at no additional cost
to EAL, delivered to the same destination as that of the original
shipment, at Hirsch's expense. All such repaired or replacement
Products shall be warranted for a full warranty period. In the
event that Hirsch is unable to repair or replace the Product as
provided above, EAL shall be entitled to recover any resulting
damages, including the cost of cover, that (after commercially
reasonable efforts by EAL) have not been mitigated by EAL. EAL's
rights and remedies set forth herein shall be cumulative and in
addition to all other rights and remedies available to EAL in law
or equity.
4.3 Liability Insurance. Hirsch, at its sole expense, shall maintain
in effect during the term of this Agreement commercial general
liability insurance with a reputable insurer, covering risks that
are typically covered within the industry, including products and
completed operations and contractual liability coverage. The
commercial general liability coverage shall be written on an
occurrence basis with limits of not less than $1,000,000 per
occurrence.
4.4 Indemnification. Hirsch shall indemnify, save and hold EAL and
its affiliates, successors, assigns, officers, directors,
employees and agents (for the purpose of this Section, the
"Indemnified Parties") harmless from and against any and all
liabilities, expenses, losses, damages, claims, workers
compensation, fines, penalties and costs (including all
reasonable attorneys fees whether incurred by EAL or awarded
against the Indemnified Parties) (collectively, "Damages") that
the Indemnified Parties may reasonably sustain or incur as a
result of or arising out of: (a) any injury or death of any of
Hirsch's personnel arising out of or in any way relating to this
Agreement; (b) damage to any property or person caused by an act
or omission of Hirsch or Hirsch's personnel; (c) any negligence
or willful misconduct of Hirsch in the performance of this
Agreement or the manufacture of the Products; or (d) any claim
that the Products or EAL's use of the Product is an infringement
of any patent, copyright trademark, trade name, service mark or
any other proprietary right of a third party; provided, however
that (i) Hirsch shall be not be responsible for any Damages to
the extent arising primarily from the negligence or willful
misconduct of EAL; and (ii) EAL shall take commercially
reasonable steps to mitigate such Damages.
5. Term and Termination.
5.1 Period of Agreement. This Agreement shall commence on the date
hereof and shall remain in effect until the earlier of: (i) five
(5) years from the date hereof or (ii) the purchase by EAL of
Exclusive Products for 200 EAL locations.
5.2 Termination. Either party may terminate this Agreement during the
term hereof if the other party breaches any material term of this
Agreement and fails to cure that breach within forty-five (45)
days following written notice thereof, specifying in detail the
nature of the breach. In addition, each party shall also have the
right to terminate this Agreement to the extent that the other
party becomes the subject of any voluntary or involuntary filing
of a bankruptcy petition or similar proceeding under state law or
all or any substantial part of this property shall be placed in
the hands of a trustee, receiver or other officer of the court
for the protection of creditors, and such proceedings are not
dismissed within ninety (90) calendar days. In addition, EAL
shall have the right to terminate this Agreement immediately upon
written notice to Hirsch: (i) at any time after more than ten
(10) Purchase Orders (or any part thereof) are shipped after the
required ship date during the term of this Agreement; (ii) if at
any time EAL determines, in its reasonable discretion, that the
quality of the Exclusive Products being delivered is materially
less than the quality of the Exclusive Products used in the
Business on the date of this Agreement, which quality
determination shall be based on both performance and repair
record; or (iii) Hirsch breaches the Repair and Maintenance
Agreement between the parties dated as of the date hereof and
fails to cure such breach within forty-five (45) days following
written notice thereof.
5.3 Effect of Termination. Unless otherwise set forth in writing and
signed by all the parties hereto, termination of this Agreement
shall not terminate the rights or obligations of either party
with respect to Purchase Orders and accounts payables that are
outstanding on the effective date of termination. The rights and
obligations of the parties set forth in Article IV (other than
Section 4.3) and in Section 6.8 will continue in full force and
effect subsequent to the termination of this Agreement.
6. Miscellaneous Provisions.
6.1 Guarantee of PCA LLC. PCA hereby guarantees to Hirsch the due and
punctual payment, performance and observance by EAL of EAL's
obligations hereunder. PCA shall be entitled to the defenses, if
any, against payment and performance of such obligations that are
both permitted by law and are available to EAL under the terms
and provisions of this Agreement (for the avoidance of doubt, PCA
shall not have the benefit of any defense relating to the
bankruptcy or insolvency of EAL). Except for such permitted
defenses, the guaranty provided hereby shall be absolute,
continuing, unconditional and irrevocable. The guaranty provided
hereby is a guaranty of payment (and not merely collection) and
Hirsch is not required to make demand upon or exhaust remedies
(or any similar matter) as against EAL before proceeding against
PCA.
6.2 Plant Rules and Security Requirements. The employees and agents
of each party shall, while on the premises of the other, comply
with all plant rules and regulations in effect at such premises,
including security requirements.
6.3 Models. Hirsch shall, at no cost, provide two (2) of the
Exclusive Product to EAL for use as training and demonstration
models. If at any time during the term of this Agreement Hirsch
introduces a new model of the Exclusive Product, then Hirsch
shall promptly provide two (2) of such new model of the Exclusive
Product to EAL for use as its training and demonstration models.
For a period of ninety (90) days following EAL's receipt of a new
training and demonstration model, EAL shall have the right to
retain both the old and new training and demonstration models. On
or before the end of such ninety (90)-day period, EAL shall, at
its option, either (i) return the old training and demonstration
models to Hirsch, at EAL's cost and expense, or (ii) purchase the
old training and demonstration models at a mutually agreed price.
6.4 Training. If at any time during the term of this Agreement,
Hirsch introduces a new model of the Exclusive Product, it shall
provide EAL and its designated personnel with training on the use
of such new model of the Exclusive Product. All training shall be
provided at Hirsch's expense and at a time and location mutually
agreed by EAL and Hirsch.
6.5 Manufacture of Discontinued Product. Hirsch shall provide EAL at
least one hundred eighty (180) days prior written notice if any
Product covered by this Agreement is to be discontinued, and
Hirsch shall accept Purchase Orders for such Products for one
hundred twenty (120) days following Hirsch's notice. Prices for
such Product shall be as set forth in this Agreement.
6.6 Material Changes. Hirsch shall notify EAL at least one hundred
eighty (180) days in advance, in writing, of any proposed change
in any of the Products that would effect the: (i) reliability of
the Product or (ii) the form, fit or function of the Product. In
the event that the proposed change would, in the reasonable
discretion of EAL, render the Product unacceptable for use in the
Business, EAL may terminate this Agreement.
6.7 Force Majeure. Neither Hirsch nor EAL shall be responsible for
any delay or failure in performance of any part of this Agreement
to the extent that such delay or failure is caused by an event
beyond its reasonable control, which may include but not be
limited to, fire, flood, explosion, war, strike, embargo,
government requirement, civil or military authority and acts of
God ("Conditions"). A party failing or delaying performance
hereunder due to such Conditions shall (i) promptly give the
other party written notice thereof, setting forth the cause and
expected duration of any delay and (ii) take all commercially
reasonable actions to eliminate, cure and overcome such cause to
the extent possible and resume performance hereunder. If Hirsch
has a Condition that delays or will delay its performance under
the Agreement for a period of more than ninety (90) calendar
days, then EAL shall have the option to terminate the Agreement,
immediately upon written notice to Hirsch.
6.8 Hazardous Materials. Hirsch shall promptly notify EAL in writing
if any Products supplied under this Agreement are deemed
hazardous under all laws, rules or regulations of any applicable
governmental or regulatory authority. All Product delivered under
this Agreement shall be packaged, marked and shipped by Hirsch in
compliance with all laws, rules and regulations of applicable
governmental or regulatory authorities.
6.9 Waiver. No failure or delay by either party in enforcing any of
its rights under this Agreement shall be construed as a waiver of
the right to subsequently enforce any of its rights, whether
relating to the same or a subsequent matter.
6.10 Notices. All notices and other communications required or
permitted under this Agreement shall be in writing and shall be
deemed given when delivered by hand, electronically, or by a
reputable national over-night courier service or by confirmed
facsimile transmission or three (3) business days after mailing
when mailed by registered or certified mail (return receipt
requested), postage prepaid, to the parties identified below:
To EAL:
PCA LLC
815 Matthews - Mint Hill Road
Matthews, NC 28105
Attention: Barry J. Feld, Chairman, President and CEO
Facsimile No.: 704-847-1548
With Copy to:
Robinson, Bradshaw & Hinson, P.A.
101 North Tryon Street, Suite 1900
Charlotte, NC 28246
Attention: Steven D. Newmark
Facsimile No.: 704-378-4000
To Hirsch:
Hirsch International Corp.
200 Wireless Boulevard
Hauppauge, NY 11788
Attention Beverly Eichel, Chief Financial Officer
Facsimile No.: 631-952-0665
Any party may change the address to which notice is to be provided by providing
notice in the manner set forth above.
6.11 Confidential Information. The parties agree not to disclose to
any third party (but specifically excluding any direct affiliates
of the parties) and not to use, except for the purpose of this
Agreement, any technical or commercial information of a
confidential or proprietary nature that is not generally known in
the industry and that is first made available to either of the
parties by the other party or which either party may have learned
from the other party in the course of this Agreement
("Confidential Information"). Notwithstanding the foregoing, a
party may disclose Confidential Information of the other if
required by law or judicial process; provided; the party subject
to such law or process notifies the other party and reasonably
cooperates, at the other party's expense, in efforts to prevent
or limit such disclosure. All such Confidential Information shall
be returned to the disclosing party at its request upon
termination of this Agreement. This provision shall survive any
termination of this Agreement and shall continue with respect to
any Confidential Information so long as that information remains
not generally known in the industry.
6.12 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder may be assigned by either
party without the prior written consent of the other party.
Notwithstanding the foregoing, EAL may assign this Agreement to
any of its affiliates upon written notice to Hirsch if the
guarantee of PCA continues in effect for EAL and its assignee,
and upon such assignee's assumption of EAL's obligations
hereunder in a writing reasonably satisfactory to Hirsch. EAL may
also assign this Agreement to an unaffiliated third party to whom
EAL sells or transfers all or substantially all of its assets,
upon the prior written consent of Hirsch, which shall not be
unreasonably withheld and, in such event, PCA shall be released
from its guarantee. Notwithstanding the foregoing, Hirsch may
assign this Agreement to any third party to whom Hirsch sells or
transfers all or substantially all of its assets, upon the prior
written consent of EAL, which shall not be unreasonably withheld.
6.13 Governing Law. The execution, interpretation, construction and
performance of this Agreement shall be governed by the internal
laws of the State of New York, without regard to the conflicts of
law rules thereof. The United Nations Convention for Contracts
for the International Sale of Goods shall not apply.
6.14 Severability. The invalidity of any portion of this Agreement
shall not invalidate any other portion of this Agreement and,
except for such invalid portion, this Agreement shall remain in
full force and effect. If for any reason, any portion of this
Agreement is illegal or unenforceable, such provision will be
severed and the remainder of this Agreement shall be interpreted
in a manner that will not affect the enforcement of the remaining
provisions.
6.15 Headings. The paragraph headings contained herein are for
reference only and shall not affect in any way the meaning and
interpretation of the terms and conditions set forth herein.
6.16 Entire Agreement. This Agreement (including the Schedules hereto)
embodies the entire agreement and understanding of the parties
with respect of the subject matter of this Agreement and
supersedes all prior and contemporaneous negotiations,
undertakings and agreements between the parties. This Agreement
supersedes all prior and contemporaneous agreements and
understandings between the parties with respect to the
transactions contemplated hereby. This Agreement may be amended,
modified or supplemented only by written agreement of all of the
parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
EMBROIDERY ACQUISITION LLC
By: /s/ Barry J. Feld
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Name: Barry J. Feld
Title: President
HIRSCH INTERNATIONAL CORP.
By: /s/ Paul Gallagher
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Name: Paul Gallagher
Title: President
PCA executes this Agreement
solely for the purpose of being bound by
Section 6.1.
PCA LLC
By: /s/ Barry J. Feld
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Name: Barry J. Feld
Title: President