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Exclusive Manufacturing And Supply Agreement

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EXCLUSIVE MANUFACTURING AND
SUPPLY AGREEMENT


THIS AGREEMENT made as of December 18, 1998, between THE HOFFMASTER DIVISION OF THE FONDA GROUP, INC., a Delaware corporation, ("Hoffmaster") and CREATIVE EXPRESSIONS GROUP, INC., a Delaware corporation, ("CEG").


W I T N E S S E T H :


WHEREAS, CEG is engaged in the design, promotion, distribution and sale of disposable party goods, including, without limitation, the Products (as hereinafter defined); and


WHEREAS, CEG has concurrently herewith sold and transferred to Hoffmaster, all of CEG's right, title and interest in and to certain machinery and equipment heretofore utilized by CEG for the manufacture of the Products; and


WHEREAS, Hoffmaster and CEG have determined that they will mutually benefit from an exclusive manufacturing and distribution relationship pursuant to which CEG will utilize Hoffmaster exclusively to manufacture the Products to CEG's specifications and pursuant to which Hoffmaster will agree to so manufacture such Products for sale to CEG, upon and subject to the terms, covenants and conditions set forth in this Agreement.


NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Hoffmaster and CEG hereby agree as follows:


1. Definitions.


(a) "Adjustment Period" shall mean the most current calendar quarter for which a Purchase Price adjustment is to be made pursuant to Section 4.1(b) hereof.


(b) "Labor Costs" shall mean the contractual hourly labor rates for the Adjustment Period as set forth in the Collective Bargaining Agreement covering Hoffmaster's hourly workers at Appleton, Wisconsin, as the same may be amended, extended or replaced.


(c) "Party Goods Market" shall mean the party goods segment of the disposable consumer goods products market in the Territory.


(d) "Products" shall mean (i) the paper plates, napkins and table covers listed on a products list initialed by the parties for purposes of identification; and (ii) such additional disposable consumer goods products as Hoffmaster and CEG may from time-to-time agree upon in


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writing.


(e) "Raw Material Costs" with respect to each Product, shall mean the actual per ton cost for all tissue or plate board, as the case may be, incurred by Hoffmaster for the manufacture of such Product during the Adjustment Period.


(f) "Territory" shall mean the United States and Canada.


2. Purchase and Sale. CEG hereby agrees to purchase from Hoffmaster, and Hoffmaster hereby agrees to manufacture and sell to CEG, all of CEG's requirements for the Products during the Term.


3. Term. The term of this Agreement (the "Term") shall commence on the date hereof and continue through the fifth (5th) anniversary of the date of this Agreement, and continue thereafter from year-to-year unless either party shall elect to terminate this Agreement by notice given to the other party not less than ninety (90) days prior to the expiration of the Term, unless sooner terminated as herein provided.


4. Prices. (a) The initial purchase price for each Product shall be as set forth on a price list initialed by the parties for purposes of identification, subject to adjustment in accordance with the provisions of Section 4(b) hereof (the "Purchase Price").


(b) The parties recognize and agree that approximately seventy (70%) percent of Hoffmaster's manufacturing costs for the Products are based on Raw Material Costs, and that the remainder of such costs are in all material respects based on Labor Costs. Therefore, the Purchase Price for each Product will be adjusted as of April 1, 1999 and as of the first day of each succeeding calendar quarter during the Term as follows: (i) seventy (70%) percent of the Purchase Price for such Product shall be adjusted by the percentage change, if any, in the Raw Material Costs for the immediately preceding calendar quarter; and (ii) thirty (30%) percent of the Purchase Price for such Product shall be adjusted by the percentage change, if any, in the Labor Costs for the immediately preceding calendar quarter. Further, the ratio of Raw Material Costs to Labor Costs set forth above shall be reviewed on April 1, 1999 and annually thereafter and adjusted as agreed upon by the parties.


5. Orders, Shipments and Forecasts. CEG shall place its orders specifying the Products to be purchased hereunder not later than twenty-one (21) days prior to the date on which such Products are to be shipped. CEG has provided a yearly usage forecast which CEG shall update semi-annually during the Term. CEG shall be required to purchase all raw materials specifically relating to the Products but not to exceed three (3) months of normal demand, work-in-process and finished goods Products inventory on hand upon the expiration or sooner termination of the Term and such obligation shall survive.


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6. Delivery, Freight and Title. The Purchase Price shall be the price F.O.B. CEG's facility at Indianapolis, Indiana, with full freight being at Hoffmaster's sole cost and expense; except, however, that the Purchase Price for Products manufactured for Target shall be the price F.O.B. Appleton, Wisconsin and CEG shall have the right to select and contract with the applicable carriers for such Products. Title to and possession of Products shipped hereunder shall pass to CEG upon delivery by Hoffmaster to the carrier or if delivered by Hoffmaster, upon delivery to CEG's facility, as the case may be, and such Products shall be at the risk of CEG from and after the date of such delivery.


7. Taxes. In addition to the Purchase Price, CEG shall pay to Hoffmaster an amount equal to all federal, state, or local sales, use, or excise taxes now or hereafter imposed or payable with respect to the sale and delivery of the Products
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