SUPPLY AGREEMENT
THIS SUPPLY AGREEMENT (this "Agreement"), dated as of August 2, 1996, is by
and among Factory Card Outlet of America Ltd., an Illinois corporation ("FCOA"),
and Fine Art Developments p.l.c. ("Fine Art").
W I T N E S S E T H:
WHEREAS, FCOA is a leading U.S. retailer in the discount segment of the
social/personal expressions industry and operates as a specialty retail chain of
discount greeting card and party supply stores;
WHEREAS, Fine Art and Fine Art's subsidiaries (collectively, "FAD")
manufacture and distribute certain greeting cards, including greeting cards
known to the parties hereto and referred to herein as "Everyday and Seasonal
Counter Cards"; and
WHEREAS, FCOA desires to purchase from FAD, and FAD desires to sell to
FCOA, Everyday and Seasonal Counter Cards in accordance with the terms and
conditions set forth below;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, FCOA and FAD, intending to be legally bound, hereby agree as
follows:
1. Term; Termination. This Agreement shall be effective as of July 1, 1996
and shall terminate on December 31, 1999; provided, however, that this Agreement
shall automatically renew for successive one-year terms thereafter.
Notwithstanding the foregoing,
either party hereto may terminate without cause this Agreement by providing the
other party with at least twelve (12) months' prior written notice of such
termination no more than thirty (30) days after any Review Date (as hereinafter
defined); provided, however, that no such termination pursuant to this Section 1
shall be effective prior to December 1, 1998.
2. Purchase and Sale; Minimum Quantity.
(a) During the term of this Agreement (including, but not limited to,
any renewal terms hereof) FAD shall sell to FCOA, and FCOA shall purchase from
FAD, the number of Everyday and Seasonal Counter Cards covered by any and all
purchase orders (each, an "Order") placed by FCOA with FAD.
(b) A list of Everyday and Seasonal Counter Cards to be purchased and
sold pursuant to Section 2(a) hereof shall be agreed upon by both parties
hereto, and shall be attached to this Agreement as Schedule I hereto and made a
part hereof, by no later than September 30, 1996.
(c) Notwithstanding any contrary provision contained herein, during
the term of this Agreement, FCOA agrees to purchase from FAD no less than the
Minimum Quantity (as hereinafter defined) of Everyday and Seasonal Counter Cards
during the period from July 1, 1996 through June 30, 1997 (the "Initial Quantity
Period) and during each one-year period (from July 1 through June 30) thereafter
(each, a "Subsequent Quantity Period").
(d) For purposes hereof, the term "Minimum Quantity" with respect to
the Initial Quantity Period and each Subsequent Quantity Period means the number
of Everyday and Seasonal Counter Cards equal to forty-two percent (42%) of
FCOA's total annual purchases of Everyday and Seasonal Counter Cards (consisting
of regular stock excluding surplus) for such Initial Quantity Period or
Subsequent Quantity Period, as the case may be. The "Minimum Quantity" for each
Subsequent Quantity Period shall be agreed upon by both parties hereto by no
later than January 1 next preceding the commencement of such Subsequent Quantity
Period (the "Quantity Review Date"). In the event that such Minimum Quantity has
not been agreed upon by the Quantity Review Date for such corresponding
Subsequent Quantity Period, then the Minimum Quantity established for the next
preceding Subsequent Quantity Period shall remain in effect until the earlier to
occur of (i) the termination of this Agreement or (ii) the agreement of the
parties hereto to increase the Minimum Quantity for such Subsequent Quantity
Period.
3. Orders; Delivery.
(a) FCOA shall, from time to time, place an Order with FAD for such
number and types of Everyday and Seasonal Counter Cards as FCOA desires to
purchase from FAD.
(b) Within a reasonable period (taking into account the type of
product(s) ordered by FCOA and the context of the Order) after receipt of an
Order, FAD shall
deliver the ordered Everyday and Seasonal Counter Cards to FCOA's central
warehouse in Bensenville, Illinois or such other central warehouse as is
designated in advance by FCOA.
(c) No delivery of any products under this Agreement shall be deemed
to have been accepted by FCOA until FCOA has inspected such products and has
determined, in its sole discretion, that such products (i) conform to FCOA's
quality standards and (ii) are of quality equal to or better than the quality of
the same or similar products sold by FAD to FCOA during the twelve (12) months
prior to the date of this Agreement. If, within ninety (90) days after receipt,
FCOA determines that any or all of the products (i) do not conform to FCOA's
quality standards or (ii) are inferior to the quality of the same or similar
products sold by FAD to FCOA during the twelve (12) months prior to the date
hereof, then FCOA shall notify FAD and attempt to resolve any such problem with
FAD. If FCOA determines, in its sole discretion, that such problem has not been
resolved to FCOA's satisfaction within a reasonable period of time, FAD shall,
at FAD's option, either replace or provide a full refund for such products.
4. Purchase Price; Payment.
(a) Subject to Section 5 hereof, FCOA shall pay to FAD an amount (the
"Purchase Price") equal to U.S. $0.16 for each Everyday and Seasonal Counter
Card delivered to and accepted by FCOA during the period from July 1, 1996
through June 30, 1998 (the "Initial Price Period").
(b) The Purchase Price for the Everyday and Seasonal Counter Cards to
be purchased by FCOA during any one-year period (July 1 through June 30 of each
fiscal year) after the Initial Price Period (each, a "Subsequent Price Period")
shall be agreed to by the parties hereto by no later than the January 1 next
preceding the commencement of such Subsequent Price Period (the "Price Review
Date"). Notice of any proposed change in the Purchase Price must be delivered by
FAD to FCOA by no later than thirty (30) days prior to the Price Review Date
(the "Price Notice Date"). In the event that such Purchase Price has not been
agreed to by the parties hereto by the Price Review Date, then, upon written
notice by either party to the other party within sixty (60) days after the Price
Notice Date, this Agreement shall continue at the Purchase Price then in effect
until the earlier to occur of (i) the mutual agreement of the parties to a
change in the Purchase Price, (ii) the date twelve (12) months after the Price
Review Date or (iii) termination of this Agreement in accordance with Section 1
hereof. If the parties hereto agree to a change in the Purchase Price in
accordance with this Section 4(b), this Agreement shall continue at the Purchase
Price then in effect and such change shall become effective on the date six (6)
months after the Price Review Date.
(c) The amount of the Purchase Price specified forth in Section 4(a)
hereof or determined in accordance with Section 4(b) hereof is inclusive of (i)
the cost of the Everyday and Seasonal Counter Cards purchased, (ii) all freight
and transportation costs to deliver such Everyday and Seasonal Counter Cards to
FCOA's designated central distribution center and (iii) all duties, customs and
any and all other charges, fees and costs associated with the delivery of
such Everyday and Seasonal Counter Cards, the payment of which shall be the sole
obligation of FAD.
(d) Except as provided in Section 5 hereof, in no event shall the
Purchase Price for any Subsequent Price Period be reduced below the Purchase
Price for the preceding Price Period.
(e) FCOA shall pay the Purchase Price to FAD in United States
denominated dollars in accordance with FAD's current payment terms with FCOA in
effect as of July 1, 1996.
5. Overruns, Close-Outs and Excess Inventory; Discussions.
(a) In so far as practicable, FCOA shall be entitled to a right of
first refusal to purchase from FAD any and all of FAD's production overruns,
close-outs and excess inventory of Everyday and Seasonal Counter Cards and
non-counter cards including, without limitation, boxed cards (collectively,
"Everyday and Seasonal Cards"), not previously sold (collectively, "Close-Outs")
at prices substantially consistent with past pricing policies with respect to
each line or type of Everyday and Seasonal Cards, which prices shall be mutually
agreed upon by the parties hereto, and to be listed on Schedule II to be
attached hereto and made a part hereof, by no later than September 30, 1996;
provided, however, failure to reach such agreement by such date shall not
constitute a material breach under this Agreement. For purposes hereof, the term
"Close-Outs" does not include FAD's take-backs (i.e., FAD's products sold to
other vendors or products of
other distributors or manufacturers which have been repurchased by FAD from the
market). Any such purchases of Close-Outs shall not be included in the
calculation of the Minimum Quantity for purposes of Section 2 hereof.
(b) Members of management designated by FCOA and FAD will meet and
commence discussions on or prior to September 1, 1996 to establish (i) a
mutually agreed upon list of Everyday and Seasonal Cards to be made a part of
this Agreement pursuant to Section 2(b) hereof, (ii) a mutually agreed upon list
of prices for Close-Outs to be purchased and sold pursuant to Section 5(a),
consistent with Section 4(c) hereof, and (iii) mutually agreed upon prices for
take-backs to be purchased by FCOA from FAD, consistent with Section 4(c)
hereof. Any delay attributable to FAD or its management in meeting on or prior
to September 1, 1996 to commence such discussions shall extend the date for
agreeing upon such issues until October 30, 1996. Each of the parties hereto
agrees to diligently conduct such discussions and to negotiate such terms in
good faith. The parties hereto anticipate that the 30-day period designated in
Section 5(a) should be sufficient for the parties to reach a reasonable and fair
agreement on such terms.
6. Restrictive Covenants.
(a) FAD acknowledges that FAD has, through its relationship with FCOA,
access to confidential information of FCOA, including, without limitation,
various methods of merchandising, purchasing and sales techniques and systems
and business practices relating to FCOA's program of offering greeting cards at
a single discount price to retail customers
(collectively, the "Confidential Information"), which Confidential Information
gravely affects the successful conduct of FCOA's business and is intended to be
private and confidential. FAD agrees that it shall not, directly or indirectly,
disclose or use any Confidential Information, except as necessary to fulfill its
obligations under this Agreement. This Section 6(a) shall survive the
termination of this Agreement.
(b) FAD acknowledges that FCOA has successfully developed over time a
unique method of merchandising, purchasing and sales techniques and systems and
business practices relating to its greeting card discount program which are
critical to the successful conduct of its business. Accordingly, during the term
of this Agreement, FAD shall not knowingly supply, encourage or assist any other
"one price" strategy retailer in the Restricted Area who is retailing at U.S.
$0.39 or less per card. For the avoidance of doubt, this undertaking will not
preclude FAD from continuing to supply either existing or new customers who have
a "one price" strategy in excess of U.S. $0.39 per card.
(c) In addition to the restriction contained in Section 6(b) hereof,
for the period from July 1, 1996 through June 30, 1998, FAD shall not in the
Restricted Area supply, encourage or assist any other "one price" strategy
retailer which, for the avoidance of doubt shall exclude retailers referred to
in Section 6(b) hereof, who is retailing at less than U.S. $0.75 per card and
which is a drug store chain or which generates 70% or more of its gross revenues
from the sale of greeting cards, party goods, gift wrap, gift wrap accessories
and/or stationery. This restriction shall not apply to retailers that use a
half-off discount strategy who currently purchase from FAD or
its subsidiaries as long as no such retailer regularly sells its greeting cards
at a price per card less than 2 for U.S. $1.00 or U.S. $0.50.
(d) For the avoidance of doubt, the restrictions contained in Sections
6(b) and 6(c) hereof shall not apply to sales by FAD to The 1/2 Off Card Shop
Inc.
(e) During the term of this Agreement, FAD shall not sell regular
stock to any retailer in the Restricted Area at a price per card equal to or
less than the price at which it sells such stock to FCOA.
(f) During the term of this Agreement, FCOA shall not sell product
supplied by FAD other than in the United States of America, Guam, Puerto Rico,
the United States Virgin Islands and Mexico (the "Restricted Area") without the
prior written consent of FAD.
(g) In the event that FAD is in breach of the restrictions contained
in Sections 6(b), 6(c) and 6(e) hereof, FCOA shall have the right to immediately
terminate this Agreement and FAD shall have the same right in the event that
FCOA is in breach of the restriction contained in Section 6(f) hereof.
7. Ownership Rights; Indemnification.
(a) FAD shall only be required to supply Everyday and Seasonal Counter
Cards pursuant to this Agreement for which it holds a copyright or license to
sell in the Restricted Area; provided, however, FAD shall use reasonable efforts
to acquire and maintain any
and all copyright, copyright license and other intellectual property and similar
rights necessary for FAD to sell to FCOA for resale of Everyday and Seasonal
Counter Cards in the Restricted Area.
(b) Subject to the foregoing, FAD hereby represents and covenants that
it (i) is the exclusive owner of all rights (including, without limitation, all
intellectual property and similar rights), title and interests, in, to and under
the Everyday and Seasonal Counter Cards and (ii) has the right to enter into,
and consummate the transactions contemplated by, this Agreement. FAD shall
indemnify, defend, and hold harmless FCOA and its shareholders, officers,
directors, employees, agents, servants, successors and assigns from and against
all losses, damages, injuries, claims, demands and expenses, including
reasonable attorneys' fees and costs, of whatsoever nature, which FCOA or any of
the other indemnitees listed herein may receive or incur as a result of any
misrepresentation by FAD under this Section 7(b).
8. Warehousing Facility. During the term of this Agreement, FAD shall
maintain a warehousing facility in the United States which will hold stock for
call-off by FCOA. The level of stock held in such facility shall be at the sole
discretion of FAD but shall be based on FCOA's forecast requirements (as
initially determined in the discussions between FAD and FCOA to be held pursuant
to Section 5(b) hereof) and shall be such as to maintain reasonable delivery
schedules to FCOA.
9. Other Products. FCOA shall, during the term of this Agreement, use
commercially reasonable efforts to purchase from FAD products other than the
Everyday and
Seasonal Counter Cards required to be purchased pursuant to this Agreement,
provided such other products are offered by FAD at competitive prices and
delivery terms.
10. Force Majeure. No liability shall arise under this Agreement in respect
of the consequences of any failure of either party hereto to perform its
obligations hereunder by reason of Force Majeure. "Force Majeure" for the
purposes of this Agreement shall mean any substantial reason or cause beyond the
party's control, including but not limited to fire, flood, war, embargo,
strikes, lock-outs, labor troubles, transport interruptions, accident,
explosion, riot, insurrection, governmental laws or regulations, lawful property
seizure or shortages of materials or labor or supplies of any kind.
11. Notices. Any notices or communications under this Agreement shall be in
writing and shall be deemed to be delivered immediately if delivered by
messenger or express courier or transmitted by telecopier with oral or
telecopied confirmation of receipt, or within ten (10) business days after
having been mailed by first class air mail, postage prepaid, to the party
receiving such communication at the address indicated below its signature block
on the last page of this Agreement or such other address as any party may in the
future specify by notice to the other party delivered in accordance with this
Section 11, except that notices of change of address shall be deemed to be given
only upon receipt by the party to whom it is directed.
12. Modifications to Agreement. No modification, amendment, supplement to
or waiver of this Agreement, or any part thereof, shall be binding upon the
parties hereto unless made in a writing signed by both parties hereto.
13. Complete Agreement. This Agreement, together with the Orders covering
sales of Everyday and Seasonal Counter Cards to FCOA, sets forth the entire
understanding of the parties, which supersedes and merges all prior proposals,
understandings and all other agreements, oral and written, between the parties
relating to the subject matter hereof; provided, however, to the extent of any
conflict, difference or inconsistency between the Orders and this Agreement, the
terms and conditions of this Agreement shall apply.
14. Waiver. A failure of any of the parties hereto to exercise any right
provided for herein shall not be deemed to be a waiver of any right hereunder.
15. Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions of this Agreement or affecting the validity or enforcement
of such provision in any other jurisdiction. The parties hereto agree that, if
any covenant contained in this Agreement is adjudged unreasonable in any
proceeding, such covenant shall be modified so as to render such covenant to be
adjudged reasonable.
16. Headings. This Agreement shall not be interpreted by reference to any
of the title headings to the sections herein or to the schedules hereto, which
have been inserted for convenience purposes only and are not deemed a part
hereof.
17. Binding Nature; Assignment. This Agreement shall be binding upon the
parties hereto and their respective successors and assigns. Notwithstanding the
foregoing, neither party shall assign any of its rights or delegate any of its
obligations under this Agreement without the prior written consent of the other
party, such consent not to be unreasonably withheld.
18. Arbitration. Any controversy or claim, directly or indirectly, arising
out of or relating to this Agreement, shall be submitted to and settled by
arbitration conducted in Xxxx County, Illinois in accordance with the rules and
procedures then existing under the Commercial Arbitration Rules of the American
Arbitration Association, provided that notwithstanding anything to the contrary
contained in such Rules a panel of three arbitrators shall be used. The decision
in writing of a majority of the arbitrators on the panel shall be final,
conclusive, and binding on all parties hereto who had notice of such arbitration
and an opportunity to participate therein (whether or not such party so
participated); provided, however, no decision relating to a breach or alleged
breach of Section 6 hereof shall be binding on the parties hereto, and either
party hereto shall have the right to pursue any and all available remedies for
any such a breach or alleged breach in any court having jurisdiction, unless
both parties hereto agree in writing to be bound by such decision of the
arbitrators. Judgment upon any binding decision rendered by such panel may be
entered in any court having jurisdiction.
19. Governing Law; Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of Illinois without regard to
conflicts of law or choice of law rules. The sole jurisdiction and venue for the
entering of any judgment and for any litigation arising out of this Agreement
shall be an appropriate federal or state court in the State of Illinois.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands as of
the date first above written.
FINE ART DEVELOPMENTS p.l.c. FACTORY CARD OUTLET OF AMERICA LTD.
By: /s/ XXXXX XXXXXXX By: /s/ XXXXXXX X. XXXXXXX
------------------------------ ------------------------------
Xxxxx Xxxxxxx, Xxxxxxx X. Xxxxxxx,
Chairman Chairman of the Board
Mailing Mailing
Address: Xxxxxx Xxxx, Xxxxxx Xxxx, Xxxxxxxx Address: 000 Xxxxxxxx Xxxxx
Xxxx Xxxxxxxxx XX0 0XX Xxxxxxxxxxx, Xxxxxxxx
Xxxxxxx 00000-0000 X.X.X.
Attention: Office of Attention: Office of
the Chairman the President
Phone: (0) 0000 000000 Phone: (000) 000-0000
Fax: (0) 0000 000000 Fax: (000) 000-0000
