Excluded Business Co-pack Agreement

EXCLUDED BUSINESS CO-PACK AGREEMENT


THIS EXCLUDED BUSINESS CO-PACK AGREEMENT (this "Agreement"), dated as of July 1, 1997, by and between KRAFT FOODS, INC., a Delaware corporation ("Buyer"), and Aurora Foods Inc. (formerly MBW Foods Inc.), a Delaware corporation ("Co-Packer");


W I T N E S S E T H:


WHEREAS, Co-Packer has purchased the LOG CABIN(R), COUNTRY KITCHEN(R) and WIGWAM(R) syrup business (the "Business") and certain equipment (the "Equipment") of Buyer pursuant to that certain Asset Purchase Agreement, dated as of May 7, 1997, by and between Co-Packer and Buyer (the "Asset Purchase Agreement");


WHEREAS, Buyer wishes to engage Co-Packer for the purpose of manufacturing, processing and packaging the syrup products listed on Exhibit A attached hereto (the "Product"), utilizing the Equipment owned by Co-Packer in order to enable Buyer to continue (i) to supply such Product to Alliant Foodservice ("Alliant") pursuant to the Distribution Agreement, dated as of February 13, 1995, by and among Buyer, Alliant and CDRF Acquisition Corporation (the "Distribution Agreement") and (ii) to export Product to Mexico;


NOW, THEREFORE, in consideration of the premises and of the mutual promises and covenants hereinafter set forth, the parties hereto agree as follows:


1. Product and Its Manufacture/Packaging


1.1 Subject to and on the terms and conditions hereof, Co-Packer shall supply the Product to Buyer.


1.2 Subject to and on the terms and conditions hereof, Co-Packer (or one or more third-party co-packers retained by Co-Packer) shall manufacture and process the Product in accordance with the formulas, raw and packaging material specifications and finished product standards, the equipment and the manufacturing practices (collectively, the "Specifications") used by Buyer in manufacturing the Product as of the date of the Asset Purchase Agreement. Subject to Co-Packer's approval (which shall not be unreasonably withheld), the Specifications may be changed by Buyer from time to time on ninety (90) days' prior written


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notice; provided, however, that Co-Packer and Buyer shall mutually agree upon a schedule for any such Specifications change to minimize the incremental costs resulting from such change; and further provided, however, that (i) Buyer shall pay for any necessary administrative or technical support services relating to the implementation of any such change to the Specifications and shall promptly reimburse Co-Packer for any and all expenses and costs associated with or arising out of any such change in the Specifications (including the write-off of any stock of raw and packaging materials (including labels) and work-in-process and any start-up costs), (ii) Buyer shall pay for and provide any new equipment necessary to produce Product with such changed Specifications and (iii) the prices (and all components thereof) charged for the Product may be adjusted by Co-Packer (on a retroactive basis to the date of such Specifications change) to reflect incremental costs resulting from any such change in the Specifications. Co-Packer shall notify Buyer in writing of any such price changes.


1.3 All packaging (including labels) for the Product shall have been approved by Buyer prior to use; provided, however, that the types and designs of the stock of packaging existing as of the date of this Agreement shall be deemed approved. Buyer hereby grants to Co-Packer the right and license to use Buyer's trademarks relating to the Product solely for the purpose of performing services under this Agreement during the term hereof. Co-Packer shall not use packaging materials for the Product for any purpose other than the exercise of its rights and performance of its obligations pursuant to this Agreement.


1.4 Co-Packer shall replace without charge any Product not complying with the Specifications or having any defects in manufacturing or packaging demonstrated to have existed at the time of shipment to Buyer ("Defective Product"); provided that Buyer gives Co-Packer reasonably prompt written notice upon discovery of any Defective Product; and provided, further, however, that Buyer shall bear any losses due to Defective Product or otherwise unsaleable Product attributable in any respect to the Specifications relating thereto (including any change to the Specifications pursuant to Section 1.2 hereof).


1.5 Co-Packer shall purchase all raw and packaging materials used for the Product, and Co-Packer shall retain title thereto until title to finished Product has passed to Buyer pursuant to Section 4.3 hereof. In the event Buyer desires to supply any raw or packaging materials to Co-Packer, Buyer shall make a written proposal to Co-Packer (which proposal shall describe the method of procurement of such materials by Co-Packer), and if Co-Packer's computer systems permit Co-Packer to procure such materials on a basis which does not unreasonably interfere with the manner in which it procures other raw and packaging materials or the manner in which it performs its other duties under this Agreement


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or the Transition Services Agreement (e.g., invoicing, shipping, etc.), Co-Packer shall reasonably cooperate with Buyer to implement Buyer's proposal. If Buyer's proposal is implemented, the raw material costs and/or packaging material costs shall be reduced for any Product using such materials supplied by Buyer by the cost of such materials so supplied, and Buyer shall be responsible for any additional costs (or additional yield losses) incurred by Co-Packer as a result of using such materials supplied by Buyer.


1.6 Yield losses, on a monthly basis, for raw materials shall be maintained by Co-Packer at or below historical levels (calculated by averaging Co-Packer's monthly loss allowances for such raw materials during the twelve-month period immediately preceding the date of this Agreement or, if Co-Packer is using the services of a third party co-packer, by averaging such third party-co-packer's monthly loss allowances for such raw materials during the twelve-month period immediately preceding the date of this Agreement), except to the extent changes in Specifications result in higher levels.


2. [Intentionally Omitted.]


3. Estimates, Orders and Volume Requirements


3.1 Buyer shall, on a monthly basis, provide a rolling 13-week production requirements forecast (each, a "Forecast") by SKU and distribution center. Buyer shall be responsible for all the Product produced by Co-Packer in reasonable reliance on each Forecast. Buyer shall place firm orders for the Product for no less than a minimum run quantity to be reasonably agreed upon between Buyer and Co-Packer with respect to Product under the Distribution Agreement (but not with respect to exports to Mexico), and orders for less than such minimum run quantity shall be treated by Co-Packer as orders for such minimum run quantity. Exceptions to minimum run quantities shall be made only by mutual consent in writing between Buyer and Co-Packer, and Buyer shall bear all incremental costs associated with such exceptions to minimum run quantities. Buyer shall, in accordance with Section 6.3 hereof, bear the cost of any unused raw materials and packaging materials procured by Co-Packer in reliance on the Forecast in the event that Buyer's firm orders for specific Product are lower than the Forecast for such Product. Buyer shall provide Co-Packer reasonable notice of any increases in any Forecast due to any material increase in demand and shall bear the incremental costs resulting from any increase in production to meet such demand. To the extent such increases in Forecasts exceed Co-Packer's manufacturing capacity and/or raw or packaging material availability, Buyer and Co-Packer shall mutually agree upon product scheduling deliver priority customer orders.


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3.2 In the event of any failure by Co-Packer timely to deliver the Product to Buyer in the quantities set forth in any Order or in compliance with the Specifications, Buyer shall use all commercially reasonable efforts to mitigate or eliminate any adverse impact to Buyer resulting from such failure, and Co-Packer shall use all commercially reasonable efforts to resume full performance of its obligations hereunder as soon as practicable following the onset of the events or circumstances giving rise to such failure.


4. Storage and Handling, Redistribution and Delivery


4.1 [Intentionally omitted.]


4.2 Co-Packer shall load and ship the Product, with appropriate shipping documents, to such delivery point (e.g., Buyer distribution centers or other final destination) and in such quantities as may be designated by Buyer in its Order for such Product. Co-Packer shall bear all responsibility for selecting the carrier, including the scheduling of pickups and negotiating of freight rates. The cost of such transportation services for Product, including, as applicable, the cost of transporting Product from the Facility at which such Product was produced to a distribution center determined by Co-Packer, between distribution centers and to Buyer's customers (collectively, "Freight Costs"), shall be charged to Buyer (i) where actual cost information is available, at Co-Packer's actual cost for such services or (ii) where actual cost information is not available, on an allocated basis consistent with Co-Packer's past custom and practice of allocating such costs. Co-Packer shall not provide any storage, handling or distribution services with respect to any products manufactured by Buyer or third parties.


4.3 Co-Packer shall deliver the Product at the loading dock of the facility at which such Product was produced, F.O.B. dock of production, and title to and risk of loss with respect to the Product shall pass to Buyer upon such delivery.


5. Price and Payment


5.1 In the event Co-Packer manufactures the Product itself (as opposed to retaining a third-party co-packer to manufacture such Product), Buyer shall pay Co-Packer for its fully allocated costs to manufacture such Product, without margin, subject to adjustment by Co-Packer from time to time as described below, provided that Co-Packer shall be entitled to a five (5) percent markup on Product manufactured by Co-Packer under this Agreement for export to Mexico. Such costs shall include the following components: (i) raw material costs, (ii) packaging costs, (iii) manufacturing variable, labor and expense costs and (iv) variable


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warehousing costs. In the event a third-party co-packer manufactures the Product on behalf of Co-Packer, Buyer shall pay Co-Packer the amounts invoiced to Co-Packer by such third-party co-packer for such Product (which invoice shall reflect prices determined in substantially the same manner and on substantially the same basis that prices for similar products manufactured for Co-Packer by such third-party co-packer are determined), plus a fee to administer such third party co-packing arrangement, but not including any carrying charges or margin for the account of Co-Packer. Buyer shall also reimburse Co-Packer for all Freight Costs.


5.2 With respect to Product manufactured by Co-Packer itself (as opposed to a third-party co-packer retained by Co-Packer), prices charged for Product shall be retroactively adjusted by Co-Packer from time to time to reflect the actual raw material costs and packaging costs for such Product. An appropriate payment shall be made to compensate for any such variance, either by Buyer to Co-Packer or by Co-Packer to Buyer, as the case may be, within thirty (30) days of the notification of cost changes given by Co-Packer pursuant to the following sentence. Co-Packer shall notify Buyer in writing of all such cost changes on Buyer's invoice. Upon Buyer's request, Co-Packer shall provide to Buyer in writing a reasonable explanation of any Raw Material Cost and Packaging Cost changes that resulted in the price change; provided that Co-Packer shall not be required to describe specific prices for Raw Material Costs and Packaging Costs where such prices are subject to confidentiality agreements with third parties.


5.3 With respect to Product manufactured by Co-Packer itself (as opposed to a third-party co-packer retained by Co-Packer), adjustments to Co-Packer's manufacturing variable, labor and expense costs and variable warehousing costs (collectively, "Conversion Costs" (it being understood that such Conversion Costs shall consist of the same cost components as those included in the definition of "Conversion Costs" included in the Transitional Co-Pack Agreement (as defined in the Asset Purchase Agreement)) shall be effective as of such time as any actual increases in Conversion Costs occurred. Upon such adjustment, an appropriate payment shall be made by Buyer to Co-Packer to compensate for such variance within thirty (30) days of the notification of cost changes given by Co-Packer pursuant to the following sentence. Co-Packer shall notify Buyer in writing of all such Conversion Cost changes. All such written notices shall contain a reasonable explanation of the Conversion Cost change that resulted in the price change.


5.4 Buyer shall pay any amounts that are required to be paid to Co-Packer's pallet provider in connection with the provision of pallet services hereunder, and any amounts that are required to be paid to such pallet provider to obtain the consent of such pallet provider to


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