Manufacturing Agreement - Hershey Foods Corp. and Topps Co. Inc.
EXECUTION COPY
AMENDED AND RESTATED
MANUFACTURING AGREEMENT
This Amended and Restated Manufacturing Agreement is dated as of this
13th day of March, 1998 by and between Hershey Foods Corporation, a Delaware
corporation with an address of 14 E. Chocolate Avenue, Hershey, PA 17033 Hershey
(hereinafter "Hershey" ) and The Topps Company, Inc., a Delaware corporation,
having offices at One Whitehall Street, New York, NY 10004-2109 (hereinafter
"Topps").
RECITALS
WHEREAS, Topps and Leaf, Inc. entered into a Manufacturing Agreement
as of November 6, 1996 (the "Original Agreement");
WHEREAS, Hershey purchased Leaf, Inc. on December 30, 1996;
WHEREAS, Topps and Hershey wish to amend and restate the terms upon
which Hershey will manufacture for Topps the gum product(s) described on
Schedule A (the "Product") and package the Product in certain packaging and
labeling including, inter alia, Topps' name, trademarks and trade dress (the
"Packaging")(the Product as packaged in the packaging is referred to herein as
the "Packaged Product") for sale in the United States (the "Territory"); and
WHEREAS, Hershey and Topps desire to enter into this Agreement for the
mutual considerations stated in this Agreement, in order to establish their
respective rights, conditions, obligations and responsibilities with regard to
the manufacture, supply and sale of the Packaged Products.
NOW, THEREFORE, Hershey and Topps, in consideration of the mutual
promises and undertakings contained below, agree as follows:
1. MANUFACTURING RELATIONSHIP
(a) Subject to the terms and conditions of the Agreement, Topps
appoints Hershey as its exclusive manufacturer of the Product and Packaged
Product to be sold in the Territory and Hershey accepts such appointment. All
Products and Packaged Products shall be manufactured by Hershey at its current
Memphis, Tennessee plant (which it hereby represents that it owns), except as
otherwise agreed by Topps in writing. Nothing in this Agreement shall restrict
Topps from selling the Packaged Product outside the Territory.
(b) So long as Hershey is able to provide Topps with the quantity and
quality of the Packaged Product ordered hereunder and on the terms provided
hereunder, during the term of this Agreement, Topps shall not, directly or
indirectly, utilize another manufacturer to manufacture and/or package the
Product and Packaged Product to be sold in the Territory. Nothing contained in
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this Agreement shall restrict Topps from using other manufacturers to (i)
manufacture the Product or the Packaged Product for sale outside of the
Territory or (ii) to manufacture items other than the Product or Packaged
Product for sale anywhere in the world. In the event Topps desires to appoint a
manufacturer for the Product or the Packaged Product to be sold or distributed
by Topps (and not a licensee) outside of the Territory, Topps shall notify
Hershey and Hershey shall have the right to submit a bid for the job within ten
(10) days of such notice. Topps shall have the sole and absolute discretion,
however, over the selection of any such manufacturer.
(c) Topps shall provide to Hershey by the 1st of each month in which this
Agreement is in effect a written firm purchase order for the next calendar month
(the "Purchase Order"). Topps and Hershey may upon mutual written agreement
agree to replace written purchase orders with some form of electronic purchase
order system. In the event the parties so agree, all terms and conditions of
this Agreement governing written purchase orders other than the requirement that
the purchase order be written shall apply equally to any electronic purchase
orders. Upon receipt of the Purchase Order, Hershey shall notify Topps of its
acceptance or rejection (only as permitted below) of the Purchase Order. In the
event Hershey does not accept the Purchase Order, the parties will use their
best efforts to mutually agree on a revised Purchase Order. Hershey shall, at
all times, have sufficient Product production capacity to fully utilize all of
Topps' wrapping machines for the Product (which shall be kept in good working
order as further outlined in paragraph 3(a) below), based upon three shifts,
five (5) days per week (excluding scheduled plant shutdowns which shall be
agreed to by Hershey and Topps and Hershey's normal plant holidays).Hershey may
only reject a Purchase Order to the extent Topps requirements for any month
exceed such required capacity. In the event of Hershey's rejection of a Purchase
Order due to a request in excess of the foregoing production capacity
requirement, Topps shall be free to acquire up to that month's excess production
requirements from another source. Upon acceptance of the Purchase Order or
revised Purchase Order, Hershey shall be obligated to supply the quantity
ordered in the time required. Additionally, if Topps requests incremental
production which exceeds Hershey's 5 day, 3 shifts per day capacity, Hershey
will provide Topps with a cost estimate for the incremental overtime production.
Incremental labor cost for direct and indirect labor will be calculated by
multiplying the number of hours worked times the wage premium plus partial
benefit rate (401K, FICA, pension). Upon receipt of the cost estimate, Topps
will notify Hershey, in a timely manner if the overtime is desired and, if it
is, Hershey shall perform the overtime. Hershey will invoice Topps for the
actual overtime at the end of each month; provided, however, that Topps shall
not be required to pay any costs for overtime to the extent that they exceed
Hershey's estimate by more than 10%. The terms and conditions of this Agreement
shall supersede any and all terms and conditions that may be contained in such
Purchase Order other than the specified quantity to be purchased within the
specified time frame.
(d) Topps will provide rolling twelve (12) month estimates on a quarterly basis
of its anticipated requirements for the Product and/or Packaged Product for
purposes of Hershey maintaining adequate supplies of ingredients and packaging
components. Hershey shall have the right to purchase up to a three months'
supply of ingredients and packaging materials for the Product and/or Packaged
Products based on these estimates. During March and September of each year
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hereunder Topps and Hershey will review inventories of ingredients and packaging
materials and will agree on the disposition of and reimbursement for obsolete
items. Topps shall only be required to reimburse Hershey for any purchases of
ingredients or packaging materials made by Hershey in excess of this three month
supply if Topps has approved these purchases in writing in advance and Hershey
cannot use these ingredients.
(e) Hershey will provide daily production reports and monthly reports on waste
levels (gum and packaging), line output, etc., to be used by the parties to
monitor performance related improvements and production levels. The reports
shall be substantially in the form attached hereto as Schedule B.
(f) Hershey agrees to conduct appropriate tests, audits and evaluations, as
currently performed by Hershey and described on Schedule C, to confirm that
ingredients, components, formulas, sequences, weights, count, package defect
levels and other quality parameters are being maintained, and shall provide
Topps monthly reports regarding the foregoing. Hershey shall perform such
additional quality assurance tests, audits or evaluation that Topps may request,
and Topps shall pay the incremental cost, if any, of the additional functions.
(g) Hershey agrees to maintain adequate records of production, including lot
numbers, dates, codes, etc., to identify and isolate production and to reduce
losses in the event of a product recall or defect.
2. PRICES AND CONDITIONS OF SALE
A. The following will apply during the Original Term of this Agreement (as
defined below):
(a) For 1997, Hershey shall sell the Packaged Product to Topps at the price
listed on Schedule D-1997, F.O.B. Hershey's production facility, exclusive of
all sales, use, excise or other taxes, charges or assessments imposed on the
purchase and resale of the Packaged Product, subject to only those changes
described in paragraph (d) below and subject to the next sentence. Topps
acknowledges that as of November 1, 1997, the gum and gum base processing labor
costs will be $.076 (or 7.6 cents) per pound for sugar gum (versus $.02) and
$.101 (or 10.1 cents) per pound for sugarless gum (versus $.0245) and,
therefore, the total net difference for November and December 1997 shall be paid
by Topps to Hershey within thirty (30) days after invoice.
(b) For the period from January 1, 1998 through December 31, 1998, Hershey shall
sell the Packaged Product to Topps at the price listed on Schedule D-1998,
F.O.B. Hershey's production facility, exclusive of all sales, use, excise or
other taxes, charges or assessments imposed on the purchase and resale of the
Packaged Product, subject only those changes described in paragraph (d) below.
(c) For the period from January 1, 1999 through December 31, 1999, Hershey shall
sell the Packaged Product to Topps at the prices listed on Schedule D-1999,
F.O.B. Hershey's production facility, exclusive of all sales, use, excise or
other taxes, charges or assessments imposed on the purchase and resale of the
Packaged Product, subject only to those changes described in paragraph (d)
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below. Schedule D-1999 shall be established not later than November 15, 1998 and
the differences between Schedule D-1998 and Schedule D-1999 shall reflect only
(i) an aggregate maximum increase of 2.5% in the labor cost per case, not to
exceed $110,000 in aggregate cost to Topps for the twelve-month period and (ii)
updated pricing on ingredients and packaging materials permitted under paragraph
(d) below provided, however, that this updated pricing shall reflect changes in
all ingredients and packaging materials (i.e. not limited to largest 80%).
(d) The prices for the Packaged Product outlined in (a) - (c) above may be
changed during the calendar year in which each Schedule D is in effect only to
reflect the following:
(i) increases or decreases in the cost of any of the largest
ingredients and packaging materials (by dollars) which make up 80% of the total
cost (by dollars) of ingredients and packaging materials in the aggregate for
all Packaged Products expected to be manufactured by Hershey during that
calendar year (which items shall be agreed to by the parties at the beginning of
each year); and
(ii) one-half of any cost decreases associated with performance
improvements in factory throughput of the Packaged Product.
Price changes in (i) above shall take place as and when Hershey uses
the newly priced items in the Packaged Product. The new prices will be effective
after use of the current inventory, using a FIFO depletion method. Hershey shall
give Topps notice of all pricing changes promptly after Hershey learns of such
changes along with copies of the notices or invoices received from its vendor.
On March 31, June 30, September 30 and December 31 of each year during the
Original Term Hershey will provide Topps with copies of the most recent invoices
Hershey has received for packaging and ingredients used to manufacture the
Packaged Product. Factory throughput shall be reviewed semi-annually during
March and September of each year and any price changes in (ii) above shall take
place as soon as possible thereafter.
B. The following shall apply during the Extended Term (as defined below):
(a) Topps shall pay Hershey as follows:
(i) the actual cost of ingredients and packaging to be provided by
Hershey;
(ii) Hershey's cost of labor and benefits as calculated from the
crewing, output and pay rates plus the benefits cost per labor dollar;
(iii) the overhead rate per pound of Packaged Product manufactured,
which shall be determined in accordance with subparagraph B(c)(vii) below; and
(iv) five (5)% of the total of subparagraphs B(a)(i)-(iii) above.
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(b) The costs referenced in B (a)(i)-(iv) will be established by November 15 of
the year preceding the year in which the costs will be effective during the
Extended Term (as hereinafter defined) and will be reflected in a new Schedule
D-[year]for each year. Hershey and Topps shall together review the new Schedule
D, and Hershey shall explain to Topps the basis for all changes from the prior
Schedule D.
(c) Topps and Hershey agree as follows with regard to pricing for Packaged
Products during the Extended Term:
(i) labor costs described in B (a) (ii) above will be reviewed and
revised in the new Schedule D to take into account actual, reasonable and
verifiable crewing changes, output changes, pay changes and benefit cost
changes. Output changes, if any, will be based on the last six months' prior to
October actual average output of each Packaged Product unless extenuating
circumstances affected the six-month average.
(ii) minimum acceptable yields for ingredients and packaging for each
year during the Extended Term will be mutually agreed to and set forth in
Schedule D hereto. Minimum acceptable yields will be based on the six months'
prior to October actual average yields, unless extenuating circumstances
affected the six-month average. Hershey will bear all costs incurred for
packaging and ingredients if yields fall below the yields stated on Schedule D.
(iii) on March 31, June 30, September 30 and December 31 of each year
during the Extended Term Hershey will provide Topps with copies of the most
recent invoices Hershey has received for the packaging and ingredients used to
manufacture the Packaged Products.
(iv) in the event Hershey at any time receives notice of a cost
increase or decrease in any of the largest ingredients and packaging materials
(by dollars) which make up 80% of the total cost (by dollars) of ingredients and
packaging materials in the aggregate for all Packaged Products expected to be
manufactured by Hershey during that calendar year (which items shall be agreed
to by the parties at the beginning of each year), Hershey will promptly notify
Topps of such increase(s) or decrease(s) along with any notices or invoices
received from vendors evidencing such increase(s) or decrease(s). The costs set
forth on Schedule D will change to evidence the changed costs when Hershey uses
the newly priced items in the Packaged Product. The new prices will be effective
after use of the current inventory, using a FIFO depletion method. Hershey shall
not discriminate against Topps in the manner in which it uses ingredients and
packaging materials in the Packaged Product versus its own products.
(v) Hershey will invoice Topps for the Packaged Products produced by
Hershey at the time of shipment of such Packaged Products to Topps. Topps will
pay Hershey the invoiced amount within 30 days of the invoice date. Interest
will accrue on any amount remaining unpaid at the end of such 30 day period at
the rate of 1% per month unless Topps has notified Hershey of its good faith
dispute of any invoiced item. Hershey and Topps agree to use their best efforts
to resolve such disputes.
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(vi) During the Extended Term only, in the event during any calendar
year Topps purchases less than 4 million pounds of Product from Hershey, then
Hershey shall have the option of terminating this Agreement upon eighteen (18)
months' written notice to Topps delivered within thirty (30) days after the end
of such calendar year. If Hershey delivers the notice of termination, Topps
shall then have the right (but not the obligation) to commit to Hershey (by
written notice delivered by March 15 of that year) that it will purchase at
least 4 million pounds of Product during that next calendar year. If Topps does
so commit and meets the 4 million pound level, the notice of termination shall
be void and this Agreement shall remain in full force and effect. If Topps makes
this commitment and fails to meet the 4 million pound threshold, then (x) Topps
shall pay Hershey an amount equal to the shortfall in pounds multiplied by the
overhead rate per pound of Packaged Product then in effect and (y) Hershey shall
have the right to terminate this Agreement by delivery of written notice within
thirty (30) days of the end of the calendar year, which termination shall be
effective eighteen (18) months after that notice of termination.
(vii) For calendar years 2000, 2001 and 2002, the overhead rate per
pound of Packaged Product shall be fixed at $0.34 per pound. Promptly after
execution of this Amended and Restated Manufacturing Agreement, the parties
shall work, in good faith, to establish a methodology, by October 15, 1998, for
determining the overhead rate per pound of Packaged Product for all years after
2002 that the Agreement is in effect. That methodology, when mutually agreed
upon, will become part of this Agreement as Schedule E. The actual overhead rate
for each year after 2002 will be calculated in accordance with this methodology
and will be included on the new Schedule D. In the event the total overhead rate
per pound of Packaged Product as listed in Schedule D for any such year exceeds
the overhead rate per pound of Packaged Product for that listed in Schedule D
for the prior year by more than 6%, Topps shall have the right to terminate this
Agreement on not less than six (6) nor more than eighteen (18) months' written
notice delivered at any time within ninety (90) days after the later of the date
the new Schedule D is established or February 15 of the new year.
C. The parties agree that the following will be applicable during the Original
Term and the Extended Term as defined below:
(a) The parties agree that Schedule A is not a static list of Products and
Packaged Products and that Product and Packaged Product skus (stock keeping
units) may be added or deleted at Topps' discretion. Pricing for any additional
Product or Packaged Product skus will be established using the same basic cost
and profit structure as was used to determine the agreed upon pricing of other
skus provided for herein. Topps and Hershey agree to review the pricing
established by the parties for items added to the Schedule of Packaged Products
90 days after production of those new products has begun to determine the
accuracy of the established prices. In the event actual costs to Hershey are
different than originally anticipated the parties agree to negotiate adjustments
in good faith to take into account the higher or lower costs actually incurred
by Hershey.
(b) The parties acknowledge that new product development is important to the
vitality of the Bazooka brand and that product changes are sometimes required or
advisable. Without limiting the foregoing, examples of some of these new
products or product changes are:
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A. Flavor extensions.
B. Size changes.
C. New configurations of existing or new formulations.
D. Wrap or box changes in graphics, counts, size, etc.
E. Ingredient changes.
If Topps requests, Hershey shall assist Topps with the research and
development and the implementation of changes or new products. If Topps so
requests Hershey's assistance, Topps shall be required to pay the capital costs
for the equipment required to produce a new or changed product and Topps will
retain ownership thereof. With respect to the cost of production trials for new
products, Topps shall pay for all ingredients, packaging components and direct
labor, and the parties shall negotiate in advance regarding additional costs and
expenses.
(c) In the event Hershey makes its continuous gum base and gum making process
available to Topps for use in producing the Products, and if Topps elects (in
its discretion) to use the same, Topps agrees that it will use the same formula
as Hershey chooses to utilize, except that Topps may choose the color and flavor
of the Products produced by Hershey through this process. In the event that,
before the end of 1998, Hershey makes this process available and Topps elects to
utilize Hershey's continuous gum base and gum making process, the gum and gum
base processing labor costs outlined in Schedule D will be replaced with $.033
(or 3.3 cents) per pound. For any use of this continuous base or process after
the end of 1998 Hershey will provide Topps with the costs of production. Nothing
herein shall be deemed to require Hershey to make its continuous system formulas
or process available to Topps, or, once having made it available, to continue to
make it available. Hershey may at any time decline to make the formulas and
process available to Topps. In the event Hershey determines it will no longer
make the formulas and process available to Topps, Topps must revert to the batch
production process at costs based on those previously applicable to batch
production. In the event Topps elects to utilize Hershey's continuous gum and
gum base formulas and Hershey subsequently changes its formula and elects to
make such revised formulas available to Topps, then Topps must either (x) accept
the revised formulas or (y) revert to Topps' prior batch production process at
rates based on those previously applicable to batch production. Topps
specifically acknowledges that the technology, processing and operation of
Hershey's continuous gum and base making process and the formulas are deemed
proprietary intellectual property and/or trade secret information by Hershey and
will be governed by the terms of this Agreement.
(d) Any new technology or other intellectual property or any portion thereof
developed solely by Topps concerning these new products or changes is to remain
confidential and not to be disclosed or used in the manufacture of any product
except the Product and the Packaged Product, and shall be owned by Topps. Any
new technology or intellectual property or portion thereof developed solely by
Hershey is to remain confidential and shall be owned by Hershey. Any new
technology or intellectual property developed jointly by Topps and Hershey will
be owned jointly by the two parties, and each party shall have the unrestricted
right to utilize, modify, enhance, replicate, and create derivatives of such
technology or intellectual property. Prior to full scale production of any new
product, any party that believes it has a proprietary interest in any component
thereof (other than items that have been previously included in the Product or
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Packaged Product or other new products developed hereunder) shall notify the
other party in writing. The parties shall attempt to amicably resolve any
dispute regarding the foregoing.
(e) After development of any item for which Topps requested Hershey's assistance
as set forth above, Hershey shall have the first option to be the manufacturer
for such changed or new product in the Territory so long as the cost to Topps
(including capital costs and unit prices) shall be no greater than Topps can
obtain elsewhere. Except as set forth in the preceding sentence, nothing
contained in this Agreement shall require Topps to utilize Hershey to
manufacture new products or variations. If Topps elects to produce the product,
for sale in the Territory, elsewhere, Topps will reimburse Hershey for costs
Hershey incurred on the development project.
(f) All orders will be loaded by Hershey for shipping, in truckload quantities
unless otherwise indicated by Topps, to any location within the 48 contiguous
states of the United States designated by Topps, by a means of transportation
selected by Topps. Hershey will cooperate in all shipping procedures. Topps
shall either supply, or at its option pay for, all pallets and slip sheets to be
used. All labeling shall include item numbers, count per pallet and date code.
Any other labeling or handling shall be negotiated by the parties in advance.
(g) Hershey shall not be liable for failure to perform or delay in performance
hereunder if such failure or delay is due to fire, storms, floods, labor
disputes, strikes, lockouts, war, riots, or civil commotion, embargoes,
government or industry regulation, act of God, or any other cause or contingency
beyond its reasonable control. In the event of any such occurrence, Topps shall
have the right (but not the obligation) to source the Product and the Packaged
Product from another entity for the affected period and if the period of force
majeure exceeds six (6) months, then Topps may, as its sole remedy, terminate
the Agreement immediately.
(h) Hershey agrees to carry insurance covering Products and general liability in
amounts of not less than $1 million per occurrence and $2 million in the
aggregate, and an umbrella policy of not less than $15 million in the aggregate.
All policies shall provide for at least thirty (30) days prior written notice of
cancellation, non-renewal or material change in the terms and conditions of
coverage and name Topps as an additional insured. Hershey will provide Topps
with a certificate or certificates of insurance evidencing such coverage and
such other evidence as Topps may reasonably request to insure that the insurer
is required to cover Topps, as an additional insured, for the deductible portion
as well. Hershey will promptly inform Topps of Hershey's receipt of a notice of
cancellation, non-renewal, or material change in the terms and conditions of
such coverage. In the event Hershey ceases to carry adequate insurance that
names Topps as an additional insured, and Hershey fails to cure such breach
within forty-five (45) days after written notice by Topps, Topps may terminate
this Agreement by giving Hershey written notice of Topps' election to terminate
this Agreement.
(i) Hershey shall provide evidence of all price changes referred to herein. In
the event Topps desires to confirm any pricing under this Agreement whatsoever,
an independent and mutually agreeable auditor will be retained by the parties,
at the sole expense of Topps and not more frequently than once per calendar
year, to do so; provided, however, that the cost components for the overhead
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rate through the year 2002 shall not be subject to audit. Notwithstanding the
foregoing, in the event that an audit reveals that Hershey overcharged Topps by
five percent (5%) or more for any calendar year, Hershey shall reimburse Topps
for the cost of the audit. Topps and Hershey will work together in good faith to
reduce the cost of production of the Product and Packaged Product, including
without limitation, the cost of ingredients. In the event Topps locates a
supplier of ingredients or packaging components that has lower prices than those
being used, Hershey and Topps shall evaluate such materials and supplier. If
Hershey determines that the materials or supplier are not acceptable or Hershey
has another reasonable basis for not buying such materials and, notwithstanding
such advice from Hershey in writing, Topps requires Hershey to use such
materials or supplier, Hershey shall not be responsible for any adverse effects
which may occur and which are related to Hershey's basis for rejecting such
supplier or materials. Title to and responsibility for the Product and Packaged
Product passes to Topps when placed on the truck for shipping at Hershey's
production facility.
(j) The parties acknowledge that Hershey will be purchasing ingredients and
components for its own products and the products of others, as well as for the
Packaged Product, and Hershey may not discriminate or act with prejudice against
Topps in any purchasing, use, pricing or allocation of ingredients or
components. Hershey agrees to use its reasonable best efforts in accordance with
Hershey's customary practice and consistent with the quality standards necessary
to ensure the quality of the Packaged Products, to obtain the best prices
available for the ingredients and packaging and to avoid price increases if
possible.
(k) The parties further acknowledge that the prices on Schedule D are based upon
Topps purchasing not less than 4 million pounds of Product per year from
Hershey. In the event that Topps purchases less than such amount, the prices
shall be adjusted to reflect any increased cost to Hershey. Nothing contained in
this Agreement, however, shall require Topps to make any minimum purchases of
the Product or the Packaged Product whatsoever.
3. TOPPS' RESPONSIBILITIES
(a) Topps has shipped to Hershey at Topps' sole expense all of Topps wrapping
machines for gum and other ancillary equipment listed on Schedule F (the "Topps
Equipment"). Such machinery shall remain the sole property of Topps and, at
Topps request, will be returned to Topps at Topps' cost upon termination or
expiration of this Agreement. In the event Topps does not so request the
machinery within six (6) months after termination or expiration, Hershey shall
be entitled to the machinery or to dispose of it at its sole option. Topps will
provide at its expense any replacements for the Topps Equipment reasonably
requested by Hershey and agreed to by Topps for use in the production and
packaging of the Products. Hershey shall be responsible for the normal and
customary day to day maintenance and repair of Topps Equipment at its expense as
necessary to keep Topps Equipment in good working order but not to exceed the
condition in which Hershey received the machinery provided, however, that Topps
shall pay for all rebuilds of Topps Equipment necessary in Hershey's reasonable
opinion to maintain the operation or performance of the equipment or any other
capital improvements to the Topps Equipment made with Topps' prior written
consent.
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(b) Topps warrants that any machinery, when delivered to Hershey, will be in
good working condition and not requiring any substantial repairs. Topps will
reimburse Hershey for all of its out-of-pocket expenses for Hershey's actual
capital expense and capital costs for installing the machinery provided by
Topps. Hershey shall provide in advance of the installation its best estimate of
such capital costs and Topps may review the methods of installation and costs,
and make reasonable requests of Hershey for a change in the method of
installation for the sole purpose of cost control. Further, Hershey shall be
entitled to test the machinery for operability and Topps will pay for all
materials and Hershey's direct labor costs for such tests.
(c) Topps acknowledges that Hershey incurred substantial start up costs when it
began production for Topps under the Original Agreement and that those costs
continued through October 31, 1997. Hershey agrees to provide Topps with all
available documentation and verification of such start up costs. Topps and
Hershey agree to review the costs in good faith. Topps agrees to pay fifty
percent (50%) of those verified start up costs to Hershey, up to a maximum
aggregate payment of $1 million (less the sum of $105,983 which was already
advanced to Hershey) in three equal installments, one due upon execution of this
Agreement, one due in December of 1998 and one due in December of 1999. Hershey
agrees that Topps will have no other liability for start-up costs. Hershey
hereby waives any claim that it may have relating to the condition, as it
existed at the date of delivery by Topps of the Topps Equipment that has been
delivered by Topps prior to the date hereof; provided, however, that the
foregoing shall not be interpreted as a waiver by Hershey of any claim regarding
equipment which is delivered by Topps after the date hereof. Except as
specifically set forth in the preceding sentence this section is not intended to
limit Topps' obligations with regard to equipment as set forth in paragraphs
3(a) and (b) above.
(d) Topps has provided Hershey with specifications, formula sequences, time
requirements and quality standards, which Topps may revise from time-to-time,
for the Products and/or the Packaged Products and any ingredient or component
thereof which Hershey is to purchase hereunder. Topps may modify the Product to
be manufactured hereunder and/or change the Packaging and Hershey shall
manufacture such changed Product or Packaging; provided, however, that if any
such modification or change would increase the cost of performance to Hershey
hereunder, then Hershey shall have the right to adjust the pricing of the
Product, as necessary, to offset such incremental cost and the prices shall be
reduced to Topps to the extent the costs are thereby reduced.
(e) Topps shall, at its sole cost, secure and maintain all necessary licenses,
permits, authorizations or other approvals for the use of the ingredient
statements, labeling, trademarks, trade names, trade dress or other elements of
the Packaging hereunder.
(f) Topps agrees to carry insurance covering Products and general liability in
amounts of not less than $1 million per occurrence and $2 million in the
aggregate, with an umbrella policy of not less than $15 million, and insurance
covering trademark infringement, trade name infringement, copyright infringement
and advertising liability in amounts not less than $1 million per occurrence and
$1 million in the aggregate. All such policies shall provide for at least thirty
(30) days prior written notice of cancellation or reduction in coverage and name
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Hershey as an additional insured. At Hershey's request, Topps will provide
Hershey with a certificate or certificates of insurance evidencing such
coverage. Topps will promptly inform Hershey of Topps' receipt of a notice of
cancellation or reduction in such coverage. In the event Topps ceases to carry
adequate insurance that names Hershey as an additional insured, and Topps fails
to cure such breach within forty-five (45) days after written notice by Hershey,
Hershey may terminate this Agreement by giving Topps written notice of Hershey's
election to terminate this Agreement on twelve (12) months' notice; provided,
however, that during such twelve (12) month period Hershey shall have the right
to buy such insurance and bill Topps therefor.
(g) Topps shall indemnify, defend and hold harmless Hershey and its parent,
affiliates, subsidiaries, officers, directors, employees and stockholders from
and against any and all claims, demands, suits, judgments, costs and expenses,
including, without limitation, reasonable attorneys' fees, (1) resulting from or
arising out of either: (i) Topps marketing practices and selling practices for
the Packaged Products; (ii) errors by Topps in the labeling of the Packaged
Product; (iii) any ingredient, packaging, formula, process or other component of
the Product or Packaged Product supplied by Topps; or (iv) any breach or
violation, or a claim by a third party that, if true, would be a breach or
violation, by Topps of any provision of this Agreement or of any representation,
warranty, covenant or guarantee of Topps under this Agreement, or (2) caused by
any of the written specifications for the Packaged Product given to Hershey by
Topps, except to the extent any of the foregoing arise out of Hershey's
negligent act or omission.
4. HERSHEY'S RESPONSIBILITIES
(a) As an essential condition of this Agreement, Hershey shall, at all times,
manufacture and produce the Product and the Packaged Product strictly in
accordance with Topps specifications, formula sequences, time requirements and
quality standards, which Topps may revise from time-to-time. In the event any
revision by Topps would increase the cost of performance to Hershey hereunder,
then Hershey shall have the right to adjust the pricing of the Product as
necessary. In the event any revisions by Topps reduces the cost of performance
to Hershey hereunder, the prices shall be reduced in an amount equal to the cost
of reduction. Hershey shall also provide reasonable security measures against
theft or sabotage, including the use of metal detectors supplied by Topps for
all Products and Packaged Products with such detectors being operated at
acceptable sensitivity levels, and shall code each case of Packaged Product with
a special date code which indicates the date and shift of manufacture.
(b) Hershey shall, at its sole cost, secure and maintain all necessary licenses,
permits, authorizations or other approvals necessary for its performance
hereunder including, without limitation, all licenses, permits and approvals
required by the Federal Food and Drug Administration (the "FDA"). Hershey
represents and warrants that at the time the Product is placed on trucks or
other carrier for shipping from Hershey's production plant to Topps' designated
location, the Product (i) shall be neither "adulterated" nor "misbranded' as
those terms are specifically defined in the Federal Food, Drug and Cosmetic Act,
(ii) shall comply with all applicable United States laws and regulations
relating to the production and manufacture of the Product and the Packaged
Product and (iii) that the Products and Packaged Products shall conform to
Topps' standards, specifications and instructions; provided, however, that Topps
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shall be responsible for taste testing the Bazooka flavor solely to test whether
it complies with Topps standards for taste. Notwithstanding the foregoing,
Hershey makes no representation or warranty of any kind to the extent any
Product or Packaged Product fails to comply with (i) - (iii) above to the extent
the non-compliance is the result of (x) ingredients or Packaging components
supplied by Topps, (y) the specifications, formula, sequences and instructions
for the manufacturing process provided by Topps, or (z)any of the written
specifications for the Packaged Product given to Hershey by Topps. Hershey
covenants that the Products and the Packaged Products will be manufactured
following FDA's Current Good Manufacturing Practice in Manufacturing, Packaging
or Holding Human Food, as these guidelines and rules may be modified from time
to time. However, Hershey makes no representation or warranty as to whether the
Product or the Packaged Product complies with any law or regulation of any
foreign governmental entity, unless otherwise agreed to by the parties by
written amendment to this Agreement.
(c) Hershey shall allow authorized representatives of Topps (i) to inspect
Hershey's facilities and review its manufacturing processing and conditions for
the Product and the Packaged Product at any time during normal business hours,
and (ii) to make product and process audits and prepare analytical data for
quality control purposes with the assistance of Hershey's personnel. Any such
inspection may be made without notice, on regular working days between 7:00 A.M.
and 5:00 P.M. or, on two hours' notice, between the hours of 5:00 P.M. and 7:00
A.M. on any day other than weekends, holidays or agreed upon shutdowns, in which
case Topps shall provide not less than 24 hours notice. Hershey shall, on a
weekly basis, send Topps samples (display box quantities) of the Products and
the Packaged Products, and in the case of new Products and if requested by
Topps, on a daily basis. Topps shall bear the cost of such samples and shipping.
In the event Topps wishes to exercise the right granted pursuant to this Section
4(c), Topps and any of Topps' personnel who are to inspect Hershey s facilities
shall execute any and all confidentiality agreements reasonably required to be
executed by Hershey which agreements shall supersede the secrecy provisions set
forth in this Agreement. If as a result of the exercise of the right granted
pursuant to this Section 4(c), Topps shall acquire confidential, proprietary or
trade secret information, Topps shall take all steps necessary to keep such
information confidential and shall not use such information other than for
analyzing Product quality as specifically set forth in Sections 4(c)(i) and
4(c)(ii). In addition, Topps shall indemnify, defend and hold harmless Hershey
from and against any and all claims, demands, suits, judgments, costs and
expenses arising out of any injury to Topps' personnel which occurs in
connection with any inspection performed, unless such injury was the result of
negligence or willful misconduct by Hershey.
(d) Hershey will procure and maintain, at its expense and in accordance with
specifications provided by Topps, all ingredients and Packaging components
necessary to manufacture and package the Packaged Product in amounts sufficient
to meet Topps' expressed production requirements and from suppliers approved in
advance by Topps.
(e) Hershey shall indemnify, defend and hold harmless Topps and its affiliates,
subsidiaries, officers, directors, employees and stockholders from and against
any and all claims, demands, suits, judgments, costs and expenses, including,
without limitation, reasonable attorneys' fees, resulting from or arising out of
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any breach or violation, or a claim by a third party that, if true, would be a
breach or violation, by Hershey of any provision of this Agreement or of any
representation, warranty, covenant, or guarantee of Hershey under this Agreement
unless caused by (x) specifications, formula sequences, quality standards,
ingredients, Packaging components or artwork/graphics supplied by Topps; (y) an
event which occurred after Hershey's delivery of the Product and/or Packaged
Product to Topps as described herein; or (z) any breach by Topps of any
representation contained herein or any negligent act or omission of Topps.
5. INTELLECTUAL PROPERTY
(a) Topps will market, distribute and sell the Packaged Product under its own
trademark and trade name. Topps shall have no right to use any of Hershey's
marks, names, other trade identities, copyrighted works or other intellectual
property except to the extent that Hershey has incorporated its own intellectual
property in or used in the manufacture of the Product or Packaged Product
supplied by Hershey to Topps. Topps represents, warrants and guarantees that no
intellectual property which it may provide, and no name or mark or aspect of the
trade dress used on the Packaging, or in any other way made a part of the
Packaging, shall infringe upon or violate any copyright, patent, trade secret,
trade name, trademark or any other proprietary rights, or other utility patent
rights, of any person not a party to this Agreement, or violate any laws, rules
or regulations prohibiting deceptive or other forms of advertising. In the event
that Topps receives a claim or notice of suit alleging such infringement, Topps
shall promptly notify Hershey. Topps shall then, at its sole expense, (i) settle
or defend (with counsel of its own choice) any such claim brought against
Hershey and/or Topps, (ii) procure for Topps the right or rights necessary to
manufacture, package and sell the Packaged Product or replace or modify the
Product, Packaging or Packaged Product, and (iii) to the extent required by a
court adjudicating the claim or as agreed in a settlement agreement respecting
the claim, remove the affected Product, Packaging and Packaged Product from
Hershey s inventory and pay Hershey the purchase price for all affected units of
the Product, Packaging and Packaged Product. Topps shall indemnify, defend and
hold harmless Hershey from and against any and all claims, demands, suits,
judgments, costs and expenses, including, without limitation, reasonable
attorneys' fees, resulting from or arising out of any breach or violation of any
representation, warranty or guarantee of Topps in this paragraph 5(a).
(b) Hershey shall have no right to use any of Topps marks, names, other trade
identities, copyrighted works or other intellectual property (including without
limitation the Bazooka flavors or Burst technology), except in the Product and
the Packaged Product in accordance with the Agreement. Hershey represents,
warrants, covenants and guarantees that intellectual property which it may
provide, if any, shall not infringe upon or violate any copyright, patent, trade
secret, trade name, trademark or any other proprietary rights, or other utility
patent rights, of any person not a party to this Agreement, or violate any laws,
rules or regulations. In the event Hershey receives a claim or notice of suit
alleging such infringement, Hershey shall promptly notify Topps. Hershey shall
then, at its sole expense, settle or defend (with counsel of its own choice) any
such claim brought against Hershey and/or Topps. Hershey shall indemnify, defend
and hold harmless Topps from and against any and all claims, demands, suits,
judgments, costs and expenses, including, without limitation, reasonable
attorneys' fees, resulting from or arising out of any breach or violation of any
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representation, warranty or guarantee of Hershey in this paragraph 5(b).
6. TERM AND TERMINATION
(a) The Original Term of this Agreement shall be from the date of execution
hereof through December 31, 1999. (the "Original Term"). The parties hereby
extend the term of this Agreement beyond the Original Term for an additional
term beginning on January 1, 2000 and ending December 31, 2002 (the "Extended
Term"). For purposes of this Agreement the first year of the Extended Term shall
be defined as January 1, 2000 through December 31, 2000. Beginning on December
31, 1998 and on each December 31 thereafter, the Extended Term shall
automatically be extended for an additional term of one (1) year so that there
are always five (5) years remaining in the term, unless either party delivers
notice, at least thirty (30) days prior to any such December 31, of its desire
to terminate this Agreement at the end of the then current five (5) year term.
(b) Upon written notice, either party shall have the right to terminate this
Agreement, on ninety (90) days written notice delivered within thirty (30) days
after the end of the cure period if the other party materially breaches or fails
to perform any of its material obligations or responsibilities hereunder, which
material breach is not cured by the other party within thirty (30) days
following its receipt of the written notice of breach from the other party
specifying the breach. A material breach includes, but is not limited to: (1)
failure to pay material sums as provided for herein, unless such failure is the
result of a good faith dispute between the parties; (2) Hershey's failure to
comply with paragraphs 4(a) or 4(b) (unless such breach is caused by an act or
omission of Topps); and (3) Hershey's failure, for a period of two (2)
consecutive months or three (3) months during any twelve (12) month period, to
meet Topps' actual production requirements.
(c) Notwithstanding anything to the contrary in this Agreement, either party
shall have the right to terminate this Agreement immediately, without further
notice, if the other party becomes insolvent or makes an assignment for the
benefit of creditors, a proceeding or petition for bankruptcy or insolvency is
filed by or against the other party under any federal or state law in any court
of competent jurisdiction, or receiver of assets is appointed or any levy of a
material portion of the other party's assets under the attachment, execution or
similar process is made, and the other party does not cure any of the foregoing
within sixty (60) days of its occurrence.
(d) Hershey may terminate this Agreement, on six (6) month's written notice, if
the Product or the Packaged Product is or becomes injurious to health, and the
Product cannot be altered, within the six (6) month period, so that it will no
longer be injurious; provided, however, that Hershey shall not be required to
sell any injurious Product at any time. Notice of such termination must be given
within sixty (60) days after it is determined that the Product or the Packaged
Product is injurious.
(e) Either party may terminate this Agreement, on one (1) years written notice,
if the other party is convicted of criminal conduct in a criminal court of law,
and such conduct materially and adversely affects the reputation of the other
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party. Such notice shall be given promptly after such party is so affected.
(f) Notwithstanding anything to the contrary in this Agreement, upon termination
or expiration of this Agreement, Topps shall cease use of any of Hershey's
intellectual property, trade secrets and formula(e), provided Hershey advised
Topps in writing of its ownership of such intellectual property, trade secrets
or formula prior to inclusion in the Product or Packaged Product, and shall have
no further right to use the same except that Topps may sell the existing
inventory of Packaged Product.
(g) Notwithstanding anything to the contrary in this Agreement, Hershey shall
not use any of Topps intellectual property, trade secrets or formula (which
includes, without limitation, the Bazooka flavors, Burst technology, master
batching and processes relating to the production and manufacture) as provided
to Hershey at the commencement of this Agreement, learned by Hershey from Topps
or developed by Topps during this Agreement (i) during the term of this
Agreement, except in connection with Hershey's obligation to manufacture for
Topps under this Agreement or (ii) after the termination of this Agreement.
(h) Upon any termination or expiration of this Agreement, Topps shall have the
obligation to purchase, and shall receive, all Packaging material and other
material containing Topps trademarks ordered or in Hershey's possession, as well
as all Product or Packaged Product ingredients ordered or in Hershey's
possession, all at Hershey's actual cost therefor (provided the materials are of
good quality).
7. ADDITIONAL TERMS
(a) This document, together with the schedules, constitutes the entire
understanding of the parties relating to the manufacture, storage and shipping
of the Product and/or Packaged Products, and any prior or contemporaneous
agreements or understandings relating thereto are merged herein and superseded.
This Agreement may not be amended or altered except by agreement in writing,
signed and acknowledged by each party. The headings in this Agreement are for
reference only, and shall not affect the interpretation of this Agreement.
Non-enforcement by either party of the terms of this Agreement shall not be
deemed a waiver, nor in any manner affect such party's rights to enforce the
terms of this Agreement. Nor shall a waiver by one party of a breach of the
other party be considered a waiver of any other pre-existing or succeeding
breach. Notwithstanding anything contained in this Agreement to the contrary,
the parties expressly agree that this Agreement shall not extinguish or diminish
any liability of Topps or Leaf to the other under the Original Agreement with
respect to Product and Packaged Product that was manufactured prior to the date
hereof and other events which occurred prior to the date hereof, except as
expressly set forth in the last sentence of paragraph 3(c) hereof.
(b) Any notice required or necessary under this Agreement shall be in writing
and shall be delivered either in person, or by telegraph, telex, facsimile
transmission, or by certified or express mail, postage prepaid. Whenever notices
are necessary under this Agreement, they shall be considered given to the other
party when personally delivered, telegraphed, telexed, sent by facsimile
transmission or, if by certified mail, four days after the date of the mailing
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or, if by express mail, on the next business day. Notices provided pursuant to
this Agreement shall be addressed as follows:
If to Hershey Hershey Chocolate U.S.A.,
400 Running Pump Road
Lancaster, PA 17603
Attn.: Director, Manufacturing
With a copy to: Hershey Foods Corporation
100 Crystal A Drive
Hershey, PA 17033
Attn.: Vice President-General Counsel
If to Topps: The Topps Company, Inc.
401 York Avenue
Duryea, PA 18642
Attn: Vice President-Manufacturing
With copies to: The Topps Company, Inc.
One Whitehall Street
New York, NY 10004-2109
Attn.: Vice President-Operations
and
Vice President-General Counsel
Either party may change its designated addressee on thirty (30) days'
written notice.
(c) A termination or expiration of this Agreement shall not affect the rights
and responsibilities of the parties accruing prior to the date of termination or
expiration and, notwithstanding that this Agreement may otherwise terminate or
expire, any and all provisions regarding confidential information and
indemnification shall remain in full force and effect.
(d) In the event that any provision of this Agreement is held illegal or invalid
for any reason, such illegality or invalidity shall not affect the remaining
parts of this Agreement, but this Agreement shall be construed and enforced as
if such illegal or invalid provision had never been inserted herein.
(e) The rights and obligations of either party hereunder may not be assigned,
transferred or encumbered without the prior written consent of the other party.
(f) The laws of the State of Delaware shall govern this Agreement's
interpretation and construction.
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(g) (i) The determination of the necessity of a product recall, whether or not
such recall is due to defects or potential defects in the Products or Packaged
Products subject to possible recall, the procedure for handling the recall, the
disposition of recalled Products or Packaged Products and packaging, and all
other considerations involved in such a recall, shall be made by Topps after
consultation with Hershey. Such decision shall not be arbitrary, capricious, or
unreasonable. Topps shall have the obligation to consider, in good faith, a
product recall due to defects or potential defects, upon Hershey's request.
(ii) All costs and expenses of the recall shall be paid by Hershey if the reason
for the recall is due to any event which occurred, or which failed to occur,
while the Product or the Packaged Product was in the possession or control of
Hershey (including, without limitation, the inclusion of foreign material or the
inclusion of the product or the Packaged Product of ingredients or components
that are or may be injurious to health), unless (A) the recall was the result of
flavor or color ingredients or packaging components from a Topps approved
supplier and Hershey has entered into a written agreement with such supplier
under which Topps actually has an enforceable claim against such supplier as a
third party beneficiary thereof (in which case Topps shall bear the costs and
expenses of the recall) or (B) the ingredients or components were those supplied
by Topps or (C) the recall was the result of any of the items for which Hershey
is not responsible for under paragraph 4(b) (x), (y) or (z) or the proviso
regarding Bazooka flavor contained in the second sentence of paragraph 4(b). All
costs and expenses of the recall shall also be paid by Hershey if the reason for
the recall is due to Hershey's conduct which is in breach of this Agreement,
Hershey's failure to manufacture (including, without limitation, labeling) the
Product or Packaged Product according to the specifications or Hershey's failure
to store the Product or Packaged Product according to FDA or other applicable
laws or regulations. All costs and expenses of the recall shall be paid by Topps
if the reason for the recall is due to conduct by Topps which is in breach of
this Agreement, an event which occurred after the Product or Packaged Product
was no longer in the possession or control of Hershey (provided it was not
caused by an act or omission on the part of Hershey while the Product or
Packaged Product was in Hershey's possession or control), or ingredients,
packaging components or artwork which were supplied by Topps. The parties shall
share the costs and expenses of any other recall.
(h) Hershey covenants that it shall be a condition to the sale by Hershey of a
material portion of the assets of its gum plant located at Memphis Tennessee, to
a single person, entity or group that at Topps request, this Agreement and the
obligations of Hershey hereunder shall be assigned to and assumed by such
purchaser. Topps shall have forty-five (45) days after written notice from
Hershey to determine whether it will require such assignment. If, and only if,
such sale takes place during the Extended Term and Topps does not require the
purchaser to assume this Agreement for the remainder of the then existing term,
then this Agreement shall, at Topps option and as a condition to such sale by
Hershey, be assigned to and assumed by such purchaser with a shortened term of
not less than six (6) months nor more than eighteen (18) months, such term to be
designated by Topps within sixty (60) days after the closing of the sale.
(i) Hershey and Topps will not use or commercially exploit for its own benefit
or the benefit of others any Confidential Information, nor will the receiving
party disclose any Confidential Information to any person, firm or corporation
except (i) employees of the receiving party who have a need to know such
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Confidential Information and who have been informed of the receiving party's
obligations hereunder, and (ii) contractors or consultants under contract to the
receiving party who have a need to know such Confidential Information, who have
been approved by the disclosing party in advance of any disclosure of
Confidential Information, and who have been informed of the receiving party's
obligations hereunder, unless the information:
1. was known to the receiving party prior to disclosure by the
disclosing party; or
2. was publicly available at the time of the disclosure to the
receiving party; or
3. subsequently becomes publicly available through no fault of the
receiving party; or
4. is rightfully acquired by the receiving party subsequent to
disclosure by the disclosing party from a third party who is not in breach of a
confidential relationship to the disclosing party with regard to such
information; or
5. is independently developed by the receiving party and the receiving
party shall have the obligation of proving independent development.
The term Confidential Information shall include, without limitation,
either Topps' or Hershey's formula, recipe, formula sequences and processes
relating to the production and maintenance of the Product and the Packaged
Product, as well as Topps' purchase order, purchasing information, production
requirements, production forecasts, etc.
In the event that Topps visits a Hershey facility in order to render
assistance to Hershey, Topps may be asked to sign a Visitor Agreement (attached
hereto as Exhibit A) containing a confidentiality provision which is of a term
longer than this agreement; in such case the term and the conditions of such
Visitor Agreement where they are inconsistent with this Agreement shall
supersede this Agreement except that the reference in the Visitor's Agreement to
ideas, as Proprietary Information, shall be deemed deleted.
(j) Except as may be required by law or regulation or if requested by Topps
employees' Union, Hershey and Topps agree that they will maintain in confidence
the provisions, terms and conditions of this Agreement.
(k) Nothing in this Agreement shall preclude Hershey from manufacturing any gum
or confection product for itself or others so long as Hershey does not violate
its obligations as set forth in this Agreement including, without limitation,
paragraph 7(i) hereof.
(l) Nothing contained herein shall place the parties in the relationship of
partners, joint venturers, principal-agent, or employer-employee and neither
party shall have any right to obligate or bind the other in any manner
whatsoever.
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(m) The parties agree that in the case of a breach of this Agreement, the
non-breaching party shall take reasonable steps to mitigate the damages caused
by the breach. Further, in the event that the breach at issue is Hershey's
failure to manufacture Packaged Product for Topps as required under this
Agreement, Hershey shall not be liable for damages to Topps to the extent that
such damages result from Topps failure, after a period of three (3) years after
such breach by Hershey, to find another manufacturer acceptable to Topps. Except
as expressly set forth in the two previous sentences, this Agreement shall in no
way limit the damages that may be awarded by any court or tribunal.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date shown.
THE TOPPS COMPANY, INC. HERSHEY FOODS CORPORATION
By: ____________________________ By: ____________________________
Title: ___________________________ Title: ___________________________
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SCHEDULES
Schedule A List of Products and Packaged Products
Schedule B Form of Monthly Report to be Furnished by Hershey
Schedule C QA Test Procedures and Form of Monthly Reports to be
Furnished by Hershey
Schedule D - 1997 Prices for 1997
Schedule D - 1998 Prices for 1998
Schedule E [to be completed]
Schedule F Schedule of Equipment
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