SUPPLY AGREEMENT
THIS AGREEMENT made the 8th day of June, 1999
B E T W E E N:
NESTLE CANADA INC., a
corporation incorporated
under the laws of Ontario
(hereinafter called the
"Vendor")
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ARCHIBALD CANDY CORPORATION
a corporation
incorporated under the
laws of the State of
Illinois (hereinafter
called the "Purchaser")
WHEREAS:
A. The Vendor and the Purchaser have entered into an asset purchase
agreement dated May 26, 1999 (the "Asset Purchase Agreement") pursuant to
which the Purchaser has agreed to purchase from the Vendor certain assets as
defined in the Asset Purchase Agreement and to assume certain liabilities and
obligations as described in the Asset Purchase Agreement;
B. The obligations of the parties to complete the purchase and sale
contemplated in the Asset Purchase Agreement were conditional upon, inter
alia, the parties entering into a supply agreement for the manufacture and
supply of ice cream, frozen yogurt and related frozen products by the Vendor
to the Purchaser;
C. It is the desire of and the intention of the parties that the
Vendor shall supply the Purchaser with certain ice cream, frozen yogurt and
related frozen products, including frozen novelty products, to be sold by the
Purchaser through Laura Secord Shops (both present and future existing),
including Combination Stores (the "Laura Secord Shops"); and
D. Terms used but not defined herein shall have the meaning ascribed
to them in the Asset Purchase Agreement;
NOW THEREFORE, in consideration of the covenants and agreements
herein contained, the parties agree as follows:
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ARTICLE 1. SUPPLY
1.1 Subject to the provisions of this Agreement, the Vendor shall
supply to the Purchaser, including the Purchaser's franchisees and
Affiliates in Canada certain ice cream, frozen yogurt and related
frozen products, including frozen novelty products, and the
Purchaser, including the Purchaser's franchisees and Affiliates
(but only to the extent such franchisees and Affiliates are
operating Laura Secord Shops in Canada), shall purchase all of its
requirements for ice cream, frozen yogurt and related frozen
products, including frozen novelty products, for the Laura Secord
Shops exclusively from the Vendor in accordance with the terms of
this Agreement. The ice cream, frozen yogurt and related frozen
products to be supplied by the Vendor to the Purchaser and
purchased by the Purchaser from the Vendor are listed (by flavour)
in Schedule 1 attached hereto (the "Products"), provided that, from
time to time and in accordance with the provisions herein, new
products may be added thereto and certain products may be removed
therefrom. Subject to the terms of this Agreement, the Purchaser
shall have the sole and exclusive right to determine which ice
cream, frozen yogurt and related frozen products and frozen novelty
products are sold in all Laura Secord Shops; provided, however,
that the Purchaser, including its franchisees and Affiliates, may
purchase its requirements for ice cream, frozen yogurt and related
frozen products, including novelty items, from persons and entities
other than the Vendor if and to the extent that: (a) the Vendor is
unable to meet the Purchaser's requirements for Product hereunder
as provided in the Annual Forecast (as such Annual Forecast may be
revised pursuant to Paragraph 3.3 herein), (b) the Vendor and the
Purchaser are unable to agree on modifications to Product
Specifications or (c) the Vendor and the Purchaser are unable to
agree on any new flavors or products pursuant to Article 15 hereof.
ARTICLE 2. PRODUCT SPECIFICATIONS
2.1 The Vendor agrees to manufacture the Products in accordance with
the Good Manufacturing Practices prevailing in the industry and in
compliance (other than non-compliance in a minor or inconsequential
manner) with specifications (the "Product Specifications") set
forth in the Laura Secord Product Specifications Manual attached
hereto as Schedule 2. The Purchaser shall have the right, acting
reasonably, to amend the Product Specifications from time to time,
provided that any amendment or amendments which result in an
increase or decrease in the cost of manufacturing any of the
Products shall result in an adjustment of the price for the
particular Product or Products in accordance with Paragraph 4.1.
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2.2 The Purchaser reserves the right at any time, either before or
after shipment of any Products, to reject any Products which have
not been produced, packaged, stored or shipped by the Vendor in
compliance (other than non-compliance in a minor or inconsequential
manner) with the Specifications or which are otherwise not in
compliance, in all material respects, with the terms and conditions
of this Agreement ("Non-Conforming Products"). Specifically, but
not by way of limitation, both parties agree that:
(a) the Purchaser may reject and refuse to pay for any Products
which (i) have been damaged during storage or handling by the
Vendor, (ii) do not fully comply (other than non-compliance
in a minor or inconsequential manner) with the Specifications
or (iii) do not fully comply, in all material respects, with
the other terms and conditions of this Agreement;
(b) any work in progress or Products rejected by the Purchaser
pursuant to subparagraph (a) hereof shall be dealt with by
the Vendor at the Vendor's cost and expense in a manner which
shall absolutely preclude re-use in the production of the
Product (unless the Purchaser's consent to re-use is
obtained, which consent shall not be unreasonably withheld).
The Vendor shall remove all Purchaser identification and
dispose of the same as mutually agreed in writing between the
Purchaser and the Vendor;
(c) if the Purchaser has previously paid the Vendor for
Non-Conforming Products which are later validly rejected by
the Purchaser, the Purchaser shall invoice the Vendor for the
cost of such Non-Conforming Products thus rejected and for
any freight, handling or other disposition costs or expenses
incurred by the Purchaser in connection with such
Non-Conforming Products, and the Purchaser shall be entitled,
at the Purchaser's election, either to (i) offset and
withhold the sum of such invoice amount from amounts due and
owing to the Vendor hereunder or (ii) require the Vendor to
pay to the Purchaser the sum of such invoice amount within 30
days of the date of such invoice;
(d) in the event the Vendor has produced or shipped any
Non-Conforming Products, the Purchaser may order the Vendor
to suspend the further production or packaging of the
affected Products until such time as the Vendor has corrected
the non-conformity; and
(e) If a Product becomes a Non-Conforming Product due to
defective product supplies furnished by the Purchaser to the
Vendor, then the Vendor shall not be liable to the Purchaser
and the Purchaser shall pay all costs associated with the
correction of each such non-conformity or with the
disposition of such Product.
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ARTICLE 3. PROCUREMENT
3.1 The Purchaser acknowledges that (i) the Vendor has a system in
place for planning its production of Products, (ii) the production
of Products requires the Vendor to make, in advance, appropriate
arrangements for the supply of ingredients, raw materials and
labour, (iii) the Products produced by the Vendor for the Purchaser
and certain of the raw materials used to produce the Products for
the Purchaser are perishable goods which may be stored as inventory
by the Vendor for only a limited period of time and (iv) the Vendor
relies on the accuracy of the Purchaser's forecasts for product
requirements when the Vendor makes its arrangements in respect of
producing the Products for the Purchaser. The Purchaser agrees to
use all reasonable efforts to provide the Vendor with accurate
forecasts of its requirements for Products.
3.2 During the second week of October of each year of this Agreement,
the Purchaser shall provide to the Vendor an annual forecast (the
"Annual Forecast") of the Purchaser's anticipated requirements for
the Products for the upcoming year commencing January 1 and ending
December 31 (the "forecast period"), broken down by month, region
(ie. Western Canada, Ontario, Quebec and Atlantic Canada), flavour
and SKU; provided that (a) for the period from the date of this
Agreement until the end of 1999, such forecast period shall be that
1999 forecast presently used for the manufacture of the Products
for the Laura Secord Shops as attached as Schedule 3 and (b) for
each year of the term of this Agreement thereafter (or the
remainder of the term of this Agreement if less than one year), the
forecast period shall be the period commencing on January 1 and
ending on the earlier of December 31 of such year or the last
scheduled day of the term of this Agreement. With respect to the
Purchaser's anticipated requirements for feature flavour ice cream
products, such forecast period shall be broken down by month, Laura
Secord Shop and SKU. The Vendor represents that the 1999 forecast
attached as Schedule 3 was prepared by the Vendor in accordance
with past practice.
3.3 During the second week of each month of this Agreement, the
Purchaser shall provide the Vendor with a revised forecast of its
requirements for the Products for the balance of the then current
forecast period, broken down by month, region, flavour and SKU (and
by Laura Secord Shop if the forecast is in respect of a feature
flavour product). For each month during the term of this
Agreement, the Vendor shall be obligated to meet the Purchaser's
orders of Products as set out in the Annual Forecast as revised
herein and the Purchaser shall be required to purchase all Product
so produced, except to the extent as otherwise provided in Section
2.2 herein.
3.4 The Purchaser shall forthwith provide the Vendor with a revised
forecast of its requirements for any Product if the forecast for
its requirements of such Product
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in any month is 10% greater or less than the most recent forecast
for such Product provided to the Vendor. The Vendor shall use
reasonable efforts to alter its production schedule and
arrangements in respect of any Product where the Purchaser has
notified the Vendor of a revision to the Purchaser's forecasted
requirements. In the event the Purchaser revises its forecast
requirements for any Product by 10% or more for any month, any
incremental increase or decrease in the cost of manufacturing any
of the Products resulting from such revision shall increase or
decrease, dollar for dollar, the price for such Products as
provided in Article 4 herein.
3.5 In respect of any Product produced by the Vendor in accordance with
the forecasts provided by the Purchaser and which is stored by the
Vendor as inventory for a period greater than eight weeks, the
Purchaser shall be liable to pay to the Vendor a carrying charge of
$0.15 per 11.4 litre tub of Product per month and co-operate and
work with the Vendor to reduce the inventory of such Product.
3.6 In the event that, for any month during the term of this Agreement,
the Purchaser orders less than 80% of the requirements for a
Product for such month as indicated in the Annual Forecast, the
Purchaser shall be liable to the Vendor for the cost of any
obsolete ingredients or raw materials and/or packaging inventory
where the Vendor purchased such ingredients, raw materials and/or
packaging inventory specifically and exclusively for the Purchaser
in reliance upon the Annual Forecast provided to the Vendor by the
Purchaser for such month and the Vendor, using commercially
reasonable efforts, is not able to use or sell at a price no lower
than the cost thereof to the Vendor, such ingredients, raw
materials and/or packaging inventory within a reasonable period of
time.
3.7 The Vendor shall provide the Purchaser with the Vendor's quarterly
age of inventory reports in respect of Products which relate to the
Purchaser's SKU, broken down by flavour and by region.
3.8 The Vendor and the Purchaser agree that the minimum annual volume
threshold for each Product (flavour) listed in Schedule 1 shall be
30,000 litres or 2,630 -11.4 litre tubs (the "Annual Minimum"). If
at any time during this Agreement the Purchaser's annual purchase
from the Vendor of a Product (flavour) listed in Schedule 1 does
not meet the Annual Minimum, then the Vendor shall not have an
obligation to continue to supply the Purchaser with such Product
(flavour) and the Vendor may remove such Product (flavour) from
Schedule 1.
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ARTICLE 4. PRICE
4.1 The Purchaser agrees to pay the Vendor for all Products supplied to
the Purchaser, at the prices set forth in Schedule 4 hereto,
subject to an adjustment from time to time as required to reflect
any increases or decreases in the cost to the Vendor of supplying
any of the Products that are a result of any changes in the Product
Specifications made by the Purchaser. The prices listed in
Schedule 4 also shall be subject to adjustment effective the
anniversary date of this Agreement as required to reflect any
increases or decreases in all costs to the Vendor specifically
related to the manufacturing of the Products; provided that such
prices shall be subject to adjustment effective both the
anniversary date of this Agreement and January 15th of each year to
reflect any cost adjustments to dairy or dairy related products
which are implemented or imposed by a dairy board or similar body.
ARTICLE 5. PAYMENT
5.1 The Vendor shall invoice the Purchaser upon delivery of the
Products by the Vendor to the appropriate Laura Secord Shop and the
terms of payment to be made by the Purchaser shall be on a basis of
1%/10 days net 30 days from the date of invoice; provided, that any
amounts not paid by the Purchaser on or prior to the 30th day from
the date of invoice shall bear interest at a per annum rate equal
to the Prime Rate (in effect on such 30th day) plus 1% until paid.
Prime Rate shall have the meaning provided in the Asset Purchase
Agreement.
5.2 Each week the Vendor shall send to the Purchaser, at the
Purchaser's head office, a customer statement for all Products
supplied to the Purchaser since the date of the last statement sent
to the Purchaser, broken down by SKU and Laura Secord Shop
location. Such weekly statement shall also be broken down by
Region so as to record the Products supplied to the Purchaser in
Ontario, Quebec, Atlantic Canada and Western Canada ("Regions").
5.3 Risk of damage or loss to the Products shall remain with the Vendor
until delivered to the appropriate Laura Secord Shops.
5.4 The Purchaser shall have the right to offset and withhold from
amounts due and owing to the Vendor hereunder any sums which may be
due and owing to the Purchaser from the Vendor under the terms of
this Agreement.
ARTICLE 6. PACKAGING AND RAW MATERIALS
6.1 (a) Upon termination of this Agreement the Purchaser agrees to purchase
from the Vendor all finished goods inventory and any ingredients,
raw material and/or packaging inventory which the Vendor has
purchased or is committed to purchase
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in reliance upon the forecasts of the Purchaser and that the
Vendor, using commercially reasonable efforts, is unable to use or
sell at a price no lower than the cost thereof to the Vendor within
a reasonable period of time (provided that in no event shall the
Purchaser be obligated to purchase more than the average of the
most recent three months of inventory levels).
(b) Upon any change in the Specifications requested by the Purchaser
the Purchaser agrees to purchase from the Vendor all finished goods
inventory of Products for which the Specifications have been
changed and any ingredients, raw materials and/or packaging
inventory which the Vendor has purchased or is committed to
purchase, in each case, in reliance upon the forecasts of the
Purchaser in respect of such Products for which the Specifications
have been changed and that the Vendor, using commercially
reasonable efforts, is unable to use or to sell at a price no lower
than the cost thereof to the Vendor within a reasonable period of
time.
ARTICLE 7. QUALITY CONTROL
7.1 The Vendor shall assume responsibility for all manufacturing and
handling defects in respect of the Products in the Vendor's cold
chain/distribution system until such Products are delivered to the
Purchaser at the appropriate Laura Secord Shop.
7.2 The Purchaser shall have the right, from time to time during normal
business hours, to inspect, sample and test, upon reasonable
advance notice to the Vendor, the production, packaging and
distribution of the Products and the Products themselves in order
for the Purchaser to determine that the Product Specifications and
quality assurance standards set out in the Product Specifications
are being adhered to and maintained. In accordance with the
quality assurance procedures set forth in the Product
Specifications, the Vendor shall maintain the quality control
program in order to check and test the quality of the Products and
raw materials intended for the manufacture thereof and all
packaging intended for the Products.
7.3 The Vendor and the Purchaser shall maintain records to enable
inventory identification and tracking systems to track the movement
of Product and recalls relating thereto. The Vendor and the
Purchaser shall immediately notify the other by telephone and by
telecopy in accordance with Article 16 of any prospective recall,
seizure, withdrawal or destruction of any of the Products or of the
need for such actions of which it is aware. The Vendor and the
Purchaser shall cooperate with one another in implementing any
recall, seizure, withdrawal or destruction of any of the Products.
The costs and expenses incurred in connection with any such recall,
seizure, withdrawal or destruction of any of the Products shall be
allocated
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between the Purchaser and the Vendor based on the relative fault,
if any, of a party. In the event that neither the Vendor nor the
Purchaser has any fault with respect to any such recall, seizure,
withdrawal or destruction of Products, the Vendor and the Purchaser
shall each pay one-half of all costs associated therewith; provided
that where the fault is attributable to a supplier of the Vendor in
connection with this Agreement, the Vendor shall pay all costs and
the Purchaser shall assign to the Vendor any action it may have to
pursue the third party at fault and shall cooperate with the Vendor
in connection therewith. The Purchaser shall have primary
responsibility for all communications with its customers regarding
any such complaints and recalls.
ARTICLE 8. DISTRIBUTION
8.1 Subject to compliance by the Purchaser with Paragraphs 3.2 and 3.3,
the Vendor agrees to deliver the Products in accordance with the
written or verbal purchase orders received by the Vendor within two
Business Days of its receipt of such purchase order in respect of
orders destined for Laura Secord Shops in Ontario, Quebec and urban
areas of Western Canada, and within three Business Days of its
receipt of such purchase order in respect of orders destined for
Laura Secord Shops in Atlantic Canada and rural areas of Western
Canada.
8.2 The Vendor shall not be required to fill any individual order for
delivery to any individual Laura Secord Shop for fewer than 20 -
11.4 litre tubs of Product, or to deliver Products more than once
weekly during the months of October through April, or more than
twice weekly during the months of May through September. In
respect of the supply of frozen novelty products, there is no
minimum size order provided that such frozen novelty products are
delivered in addition to an individual order for no fewer than 20 -
11.4 litre tubs of Product.
8.3 The Vendor acknowledges and agrees that certain Laura Secord Shops
have limited storage capacity and agrees that notwithstanding
Paragraph 8.2, in respect of such locations, it will fill
individual orders for delivery to individual Laura Secord Shops of
less than 20, but not less than 10, 11.4 litre tubs of Product.
The Purchaser agrees that, in respect of the Vendor (or the
Vendor's designate) filling such smaller orders, a surcharge of
$1.00 per 11.4 litre tub of Product shall apply to all such orders
destined for Laura Secord Shops in urban areas and a surcharge of
$1.00 per 11.4 litre tub of Product shall apply to all such orders
destined for Laura Secord Shops in rural areas.
8.4 Deliveries of Products will be made by the Vendor to the
appropriate Laura Secord Shop only on Business Days and only
between the hours of 10:00 a.m. and 5:00 p.m. (except as may
otherwise be arranged between the Vendor and the applicable Laura
Secord Shop). Deliveries shall be made to inside the Laura
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Secord Shop and shall include put away; provided that the Purchaser
shall acknowledge receipt in a timely and efficient manner. The
Vendor agrees to have at its disposal a fleet of vehicles which is
sufficient to provide for the efficient and timely distribution of
the Products to the Laura Secord Shops which it is responsible for
delivering the Products to in accordance with this Agreement.
Deliveries of Products destined for Laura Secord Shops in Atlantic
Canada and certain areas of Western Canada shall be made by third
parties on terms and conditions mutually satisfactory to the
Purchaser and the Vendor.
8.5 The Vendor shall make available to the Purchaser a call order
system whereby the Vendor shall, on a regular basis, call the
individual Laura Secord Shops (other than Laura Secord Shops
located in Atlantic Canada) so that such Shops may place their
purchase order for any Products. For Laura Secord Shops located in
Atlantic Canada, such Laura Secord Shops must call the Vendor's
designated dairy supplier in order to place their purchase order
for any Products.
8.6 The Purchaser acknowledges and agrees that with respect to
manufacturing and supplying Products to Laura Secord Shops located
in Atlantic Canada and rural areas of Western Canada, the Vendor
may designate (with Purchaser's approval) a third party to
manufacture and supply such Laura Secord Shops with their
requirements for Products.
ARTICLE 9. PURE FOOD GUARANTEE
9.1 The Vendor warrants that its obligations hereunder shall be
performed in full compliance with all applicable federal,
provincial and local laws, rules, regulations and guidelines.
Specifically, but not by way of limitation, the Vendor warrants
that all Products which are produced and packaged for the Purchaser
and all packaging and other materials which come in contact with
the Products will be of the highest quality, merchantable, fit for
their intended purpose and free from any defect in materials and
workmanship and will not at the time of shipment to the Purchaser
be adulterated, contaminated or misbranded by the Vendor within the
meaning of any applicable federal, provincial or local laws, rules
or regulations.
ARTICLE 10. CONFIDENTIALITY
10.1 Subject to Section 10.3, the Vendor agrees that Product
Specifications, as amended from time to time, are confidential and
agrees that it will not, during the term of this Agreement or at
any time thereafter, disclose the Product Specifications or any
other confidential information marked as such by the Purchaser and
provided from time to time by the Purchaser to the Vendor other
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than to such of its employees as may be necessarily involved in
order for the Vendor to carry out its obligations hereunder.
10.2 Subject to Section 10.3, the Vendor further agrees that it will not
at any time use for its own benefit, other than for the purpose of
carrying out its obligations in accordance with the terms hereof,
any of the Product Specifications or such other confidential
information marked as such and provided from time to time by the
Purchaser to the Vendor.
10.3 The Vendor shall not have an obligation of confidentiality with
respect to information which:
(a) is in the public domain at the time of receipt from the
Purchaser, or which comes into the public domain without
breach of an obligation assumed hereunder;
(b) becomes known to the Vendor on a non-confidential and good
faith basis through a third source whose own acquisition and
disclosure were entirely independent of the Vendor, not in
breach of any obligation hereunder and not on a confidential
basis;
(c) is approved for disclosure by the Purchaser in writing;
(d) is required by law to be disclosed; or
(e) is known by the Vendor on the date hereof (except to the
extent constituting "Assets" under the Asset Purchase
Agreement which are exclusive to the Purchaser).
10.4 All originals and copies of documented business and technical
information identified or reasonably identified as confidential or
proprietary to the Purchaser in the Vendor's possession shall
(except to the extent provided for in Section 10.3) be and remain
the exclusive property of the Purchaser and shall be returned by
the Vendor to the Purchaser upon the termination of this Agreement.
10.5 The Purchaser agrees that the Vendor possesses and may further
develop in the future its own formulae, specifications and know-how
in the manufacture of ice cream, frozen yogurt and other frozen
products and that the Vendor currently does, and will continue to,
manufacture on its own behalf and for others, using such formulae,
specifications and know-how, ice cream, frozen yogurt and other
frozen products similar to and competitive with the Products, and
that the use by the Vendor of such formulae, specifications and
know-how to produce and sell ice cream, frozen yogurt and other
frozen products for
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itself and others shall not be considered to be an infringement or
violation of the provisions of Paragraphs 10.1 or 10.2.
10.6 Subject to Section 10.7 the Purchaser agrees that under this
Agreement, and in particular the procedures contemplated in
Paragraph 7.2, the Purchaser and its representatives, employees and
agents may learn or come into possession of business and technical
information, whether in written or oral form and including but not
limited to, technical know-how, specifications, recipes, formulae,
manufacturing process, quality control standards, coding systems,
customer and supplier information, instructions and procedures
associated with the products of the Vendor ("confidential
information"), and that the Purchaser, its representatives,
employees and agents shall not disclose or use any such
confidential information other than in connection with verifying
the Vendor's compliance with the terms and conditions of this
Agreement, including the Schedules hereto, or as required by law to
be disclosed by the Purchaser.
10.7 The Purchaser shall not have an obligation of confidentiality with
respect to information which:
(a) is in the public domain at the time of receipt from the
Vendor, or which comes into the public domain without breach
of an obligation assumed hereunder;
(b) becomes known to the Purchaser on a non-confidential and good
faith basis through a third source whose own acquisition and
disclosure were entirely independent of the Purchaser, not in
breach of any obligation hereunder and not on a confidential
basis;
(c) is approved for disclosure by the Vendor in writing;
(d) is required by law to be disclosed;
(e) is known by the Purchaser on the date hereof;
(f) constitutes an "Asset" under the Asset Purchase Agreement.
ARTICLE 11. FORCE MAJEURE
11.1 All consequences, direct or indirect, of a labour dispute, fire,
war and circumstances beyond the control of either of the Parties,
shall excuse performance of such Party's obligations hereunder to
the extent performance has been prevented by any such occurrences.
However, in the event that either
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Party shall be unable to perform any part of its obligations and
duties hereunder, or in the event that either party anticipates
that it may become unable to perform any of its obligations and
duties hereunder, it shall forthwith advise the other party of the
extent of its inability to perform. In the event that such
inability is a significant inability of one party to perform and
shall continue for a period of 90 days, the other party shall have
the right to terminate this Agreement on giving 30 days prior
written notice to the party unable to perform its obligations
hereunder.
ARTICLE 12. WARRANTIES AND INDEMNITIES
12.1 In the event of consumer, customer or governmental agency
complaints, demands, claims or legal actions alleging illness,
injury, death or damage as a result of the consumption or use of
any Products produced, packaged, stored or shipped by the Vendor to
the Purchaser, the Vendor shall indemnify and hold the Purchaser
and its representatives and affiliates harmless from and against
any and all liability, loss, damage, cost or expense (including
court costs and attorney's fees), of whatsoever nature and by
whomsoever asserted, arising out of, resulting from, or in any way
connected with such complaint, demand or legal action, except that
the Vendor shall not be responsible for, and shall not be required
to indemnify or hold the Purchaser and its representatives and
affiliates harmless against any liability for illness, injury,
death or damage attributable to defects in Products which (i)
independent investigation discloses originated after the Product
left the care, custody and control of the Vendor and was not
attributable to any act or omission of the Vendor prior to such
Product leaving the custody and control of the Vendor or (ii)
arises from defective Product Supplies furnished by the Purchaser
to the Vendor. The Vendor shall assume full responsibility for,
and the expense of, the investigation, defence, settlement and
payment of all such complaints, demands, claims and legal actions
for which Vendor is responsible, provided that the Purchaser may,
at its expense, participate in any legal action through counsel of
its own choice. The Purchaser shall promptly notify the Vendor of
any such complaint, demand, claim or legal action and shall
reasonably co-operate in the defence thereof. The Purchaser shall
assume full responsibility for, and shall indemnify and hold the
Vendor harmless from any loss, damage or expense Vendor suffers
arising from Products produced with defective Product Supplies
furnished by the Purchaser to the Vendor.
12.2 The Vendor shall maintain comprehensive general liability insurance
(including contractual liability), with limits of not less than
$10,000,000 per occurrence for claims arising from bodily injury or
death to any person or persons and loss and damage to any property.
Such insurance shall be carried with an insurance company
acceptable to the Purchaser, and shall include
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product liability coverage and an endorsement naming the Purchaser
as an additional insured. The terms and conditions of such policy
shall not be changed and shall not be altered or cancelled until at
least six months after the termination or cancellation of this
Agreement. A certificate of such insurance coverage shall be furnished
by the Vendor to the Purchaser at the closing of the Asset Purchase
Agreement and thereafter from time to time upon the Purchaser's
request.
12.3 The representations, warranties and guarantees of the Vendor and
the Purchaser contained in this Agreement shall survive the
termination of this Agreement for a period of four years.
ARTICLE 13. ASSIGNMENT
13.1 This Agreement may not be assigned by either party without the
prior written consent of the other, provided, however, that either
party may assign this Agreement to an Affiliate without the consent
of the other, but on prior written notice to the other.
ARTICLE 14. TERM AND TERMINATION
14.1 The term of this Agreement shall be for a two-year period (the
"Initial Term"). Upon the completion of the Initial Term, the
Agreement shall be automatically renewed for successive two-year
periods (not to exceed two additional two-year periods) unless and
until the Purchaser, on or before the January 15 prior to the
expiration of the then current term, gives written notice to the
Vendor to the effect that the Agreement shall terminate as of the
last day of the then current term.
14.2 Notwithstanding the foregoing but subject to the provisions
regarding events of force majeure set out in Paragraph 11.1, this
Agreement may be terminated at any time by either party hereto by
not less than 60 days prior notice in writing to the other party in
any of the following events:
(a) if an order shall be made or an effective resolution be
passed for the winding up or liquidation of the other party;
(b) if the other party shall make a general assignment for the
benefit of its creditors, or shall be declared bankrupt, or
if, without the consent of the Vendor or the Purchaser, as
the case may be, a receiver or receiver and manager or any
other officer with similar powers, shall be appointed over
the other party or any part of such other party's property
which is, in the
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opinion of the Vendor or the Purchaser, as the case may be, a
substantial part thereof; or
(c) if the other party shall default in any material respect in
its observance or performance of the covenants and agreements
contained in this Agreement and such default shall continue
more than 30 days or such greater period as is reasonably
necessary to cure the default following notice thereof given
by the party not in default, but only if such default is not
the subject of a bona fide dispute between the parties.
14.3 The Vendor agrees that in the event it elects to terminate this
Agreement the Vendor shall, during the period following its giving
notice of its election to terminate until such termination,
continue to produce, package, store, ship and sell Products to the
Purchaser in accordance with the terms and conditions of the
Agreement.
14.4 Notwithstanding any other provision of this Agreement, the
Purchaser may elect to terminate this Agreement immediately in the
event the Vendor fails to meet the Purchaser's requirements for
Products for two consecutive months or four months in any year
where such requirements are set out consistently in the forecasts
provided by the Purchaser in accordance with Paragraphs 3.2 and 3.3
hereof.
14.5 Any failure by either party to notify the other party of a
violation, default or breach of this Agreement, or to terminate
this Agreement on account thereof, shall not constitute a waiver of
such violation, default or breach or a consent, acquiescence or
waiver of any late violation, default or breach, whether of the
same or a different character.
ARTICLE 15. NEW PRODUCT DEVELOPMENT
15.1 The Vendor and the Purchaser agree that, in addition to the
Products listed in Schedule 1, new flavours and ice cream novelty
products may from time to time be developed and added thereto. The
Vendor and the Purchaser agree that no new flavours or ice cream
novelty products may be added to Schedule 1 unless the Parties
agree to do so.
15.2 If the Purchaser wishes to add a new product or flavour to the list
of Products in Schedule 1, then it must first submit a proposal to
the Vendor ("Proposal"). Upon receipt of a Proposal from the
Purchaser, the Vendor shall prepare a product development brief
("Brief") addressing the economic feasibility of the Proposal and
the estimated cost per 11.4 litre tub to the Purchaser for such new
product or flavour. The addition of a new flavour or ice cream
novelty product
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to the list of Products and the production of such new flavour or
ice cream novelty product may only take place where the parties
mutually agree to do so. The Purchaser acknowledges that the
minimum lead time in order to introduce a new flavour or ice cream
novelty product to the list of Products is two months.
15.3 In respect of any new flavours added to the list of Products, the
minimum annual volume requirement shall initially equal 30,000
litres but only for the 12 month period immediately following the
introduction of such new flavour. After such initial 12 month
period, the minimum annual volume requirement for any new flavours
added to the list of Products shall be the Annual Minimum (defined
in Paragraph 3.8).
15.4 The Vendor and the Purchaser agree that for each year of this
Agreement, a maximum of five Proposals may be submitted by the
Purchaser to the Vendor, at no charge to the Purchaser for the
Vendor's time and expense in reviewing the Proposal and negotiating
terms with the Purchaser. Where the Purchaser has already
submitted five proposals to the Vendor in a given calender year,
then the Purchaser agrees to pay a reasonable fee to the Vendor for
each additional Proposal submitted to the Vendor during the balance
of the calender year.
15.5 Notwithstanding anything to the contrary in this Agreement, the
Vendor shall satisfy the Purchaser's reasonable requests for
seasonal "ins and outs" (e.g., eggnog flavoured products during the
Christmas holidays) at prices mutually satisfactory to the Vendor
and the Purchaser.
ARTICLE 16. NOTICES
16.1 All notices or other communication required by this Agreement shall
be in writing and shall be effectively given if (i) delivered
personally, (ii) sent by courier or by certified or registered
mail, or (iii) sent by facsimile with original to follow, in each
case to the applicable address, addressee and/or facsimile number
set out below:
if to the Vendor:
Nestle Canada Inc.
25 Sheppard Avenue West
North York, Ontario
M2N 6S8
Attention: Terry Ellwood (Senior Vice-President and General
Counsel)
Facsimile: (416) 218-2677
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if to the Purchaser:
Archibald Candy Corporation
1137 West Jackson Blvd.
Chicago, Illinois 60607
Attention: Ted A. Shepherd (President and Chief Operating
Officer)
Facsimile: (312) 243-3992
16.2 All notices or other communications in respect of Nestle Quality
Assurance Support to be made by the Purchaser to the Vendor shall
be made in accordance with Paragraph 16.1 and addressed to:
Nestle Canada Inc.
25 Sheppard Avenue West
North York, Ontario
M2N 6S8
Attention: Paul Elstro (Executive Vice-President - Operations)
Martin Crumplen (Nestle Quality Assurance)
and Suzette Jordan (Nestle Technical Support)
Facsimile: (416) 218-2788
16.3 All notices or other communications required by this Agreement in
respect of recalls shall be made in accordance with Paragraph 16.1
and addressed as follows:
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if to the Vendor:
Nestle Canada Inc.
25 Sheppard Avenue West
North York, Ontario
M2N 6S8
Attention: Andrew Robinson (President - Ice Cream Division)
Louise Brown (Manager - Category Development)
Martin Crumplen (Director - Technical Services)
Ron Algate (Sales Representative - Key Accounts)
George Roberton (Director - Logistics)
and Martha Leyburn (Nestle Quality Assurance)
Facsimile: (416) 218-2788
if to the Purchaser:
Archibald Candy Corporation
1137 West Jackson Blvd.
Chicago, Illinois 60607
Attention: Ted A. Shepherd (President and Chief Operating
Officer)
Facsimile: (312) 243-3992
16.4 Either party hereto may from time to time change its address or
facsimile number or the addressee under this Article 16 by notice
to the other party given in the manner provided by this Article.
ARTICLE 17. PRIOR AGREEMENT
17.1 This Agreement supersedes all prior negotiations with respect to
the subject matter of this Agreement, and there are no other
understandings, oral or written, except as contained herein
expressly or by reference. Any amendment to this Agreement must be
made in writing and signed by the parties hereto.
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ARTICLE 18. APPLICABLE LAWS
18.1 This Agreement shall be governed by and construed in accordance
with the laws of the Province of Ontario and the laws of Canada
applicable therein.
18.2 At all times during the term of this Agreement, the Purchaser shall
have the right, upon reasonable notice, to send one or more of its
authorized employees to observe, audit and inspect, during regular
business hours, the manufacturing, warehousing and all other
facilities used by the Vendor to produce, package, store and ship
the Products, and shall have access to all relevant records of the
Vendor relating thereto.
IN WITNESS WHEREOF the parties hereto have executed this
Agreement on the date first above written.
NESTLE CANADA INC.
By: /s/ James M. Singh
-------------------------------
Name: James M. Singh
Title: Executive Vice-President and
Chief Financial Officer
ARCHIBALD CANDY CORPORATION
By: /s/ Ted A. Shepherd
-------------------------------
Name: Ted A. Shepherd
Title: President and Chief Operating
Officer