SUPPLY AND LICENSE AGREEMENTSupply Agreement |
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EXHIBIT 10.1
PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXHANGE COMMISSION PURSUANT TO AN
APPLICATION FOR CONFIDENTIAL TREATMENT FILED WITH THE COMMISSION
PURSUANT TO RULE 24b-2 under the securities exchange act of 1934,
as amended.
[*] INDICATES INFORMATION THAT HAS BEEN OMITTED PURSUANT TO such
CONFIDENTIAL TREATMENT REQUEST and WHICH HAS BEEN FILED UNDER
SEPARATE COVER WITH THE COMMISSION.
SUPPLY AND LICENSE AGREEMENT
This
supply and license agreement (“Agreement”),
effective as of January 1, 2008 (the “Effective
Date”), is by and between CTI Industries Corporation,
having its principle office located at 22160 N. Pepper Road,
Barrington, Illinois 60010 (referred to herein as
“Supplier” or “CTI”) and S. C. Johnson
& Son, Inc., a Wisconsin corporation, having its principal
office located at 1525 Howe Street, Racine, Wisconsin
53403.
Whereas,
Johnson and Supplier have entered into this Agreement to
reflect their mutual understanding of the terms upon which
Supplier will manufacture and supply certain products to
Johnson;
Whereas,
Supplier owns or controls the necessary property, plant and
equipment so as to be able to produce such
products;
Whereas,
Supplier has agreed to grant Johnson the right to convert the
manufacture and supply arrangement described herein to a
license arrangement described herein upon the occurrence of
certain events.
Now,
therefore, the parties agree as follows:
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1.
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DEFINITIONS
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1.1
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General .
The capitalized terms defined herein shall have the meanings
indicated for purposes of this Agreement. Terms defined in the
singular shall have a comparable meaning when used in the plural,
and vice versa.
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1.2
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“Affiliate” shall
mean,
with respect to Johnson, any entity controlling or controlled by
Johnson, where control means the power to direct the management and
policies of a party, and with respect to Supplier it shall mean any
entity controlling, controlled by, or under common control with
Supplier.
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1.3
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“
Contract Year ”
means any period commencing on July 1 and ending on June 30
thereafter, unless otherwise noted, provided, however, that the
first Contract Year shall be an eighteen month period beginning
January 1, 2008 and ending June 30, 2009.
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1.4
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“
Consumer Fields of Use ”
means all distribution channels of trade where consumers purchase,
direct or indirect, products for ultimate use in the home or
otherwise including but not limited to food, drug, and mass
distribution retailers, do-it-yourself home improvement stores,
warehouse clubs, office supply stores and similar retailers and
internet outlets.
[*]
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1.5
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“
Effective Date ”
is defined in the first paragraph of this Agreement.
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1.6
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“
Johnson
License Agreement ”
shall mean Johnson’s license and right to use, at
Johnson’s option and upon conversion pursuant to
Sections 11.4 or 11.7 hereof,
all Licensed Intellectual Property (defined under
Section 21 ),
and shall include the right to sublicense third
parties.
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1.7
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“
Net Account Revenue ”
means Johnson’s (including Johnson Affiliates’) gross
sales [*] that utilize any Supplier Patent Rights,
to third party retail customers less any deductions or payments
including the following:
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(A)
Supply Chain Logistics Discounts, meaning discounts for ordering
full pallets, trucks, proper order lead times, etc.
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(B)
Supply Chain Channel Discounts, meaning wholesaler or broker
discounts or similar items.
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(C)
Supply Chain Discounts/Markdowns, meaning discounts applied to
obsolete goods in Johnson warehouses to incent secondary market
sales.
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(D)
Returns, meaning full case returns including any third party
handling fees.
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(E)
Remnants/Spoils, meaning less than full case returns or damaged
cases including any third party handling fees.
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(F)
Cash Discounts, meaning discounts allowed for prompt payment of
invoices.
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(G)
Deals, meaning all other trade payments for account specific
consumer promotions, markdowns, volume or growth rebates, display
programs, slotting fees, etc.;
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provided
that, for purposes of this definition only,
[*]
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| 1.8 | “ Product(s) ” means the following products, individually or collectively: |
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(A)
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[*]
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(B)
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[*]
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1.9
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“
Supplier Patent Rights ”
means those U.S. and foreign patents and patent
applications, currently
pending or issued, that are owned, licensed, or otherwise
controlled by Supplier, and that contain any issued valid claim
that reads on the Product(s), including but not limited to those
patents listed in
Schedule 1.9, attached
hereto, and hereby incorporated herein by reference.
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1.10
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“
Term ”
as used herein shall have the meaning as set forth in
Section 3 below.
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1.11
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“
Territory ”
means worldwide.
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2
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2.
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TERMS OF SALE
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2.1
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Supply Commitment .
Subject to the terms and conditions of this Agreement, the Supplier
shall manufacture and sell to Johnson and Johnson shall purchase
from Supplier the products listed in
Schedule 2.1 ("Product(s)").
Schedule 2.1 contains
a list of the Products (“Product List”) and the price
adjustment mechanism(s) for the Products (“Price Adjustment
Mechanism(s)”), if any. The Product List may be amended from
time to time by written agreement of the parties.
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2.2
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Purchase Orders .
Johnson may place orders in writing, by phone (confirmed in
writing), or by electronic data transmission (“Purchase
Order(s)”).
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2.3
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Shipments .
Shipments are according to Johnson’s delivery schedules and
shipping instructions (“Shipment Terms”) as set forth
in
Schedule 2.3 .
The Shipment Terms apply until changed by Johnson.
Delivery
schedules shall not materially exceed the capacity levels and
forecasts as provided in
Section 6 hereof.
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2.4
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Payment Terms .
Payment terms for [*] purchases are
[*] from
the later of (i) the date of invoice or (ii) acceptance of Product.
Payment terms for [*] purchases are
[*] from
the shipment date, provided that the goods were received by Johnson
a minimum of
[*] prior
to the end of such time period and Johnson has not rejected the
goods. In no event shall Johnson be required to make payment before
receipt of Product nor shall invoices be dated prior to the date of
shipment. Johnson does not waive any right it has for adjustment of
the amount due to Supplier by its having paid for the
Product.
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2.5
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Designated Purchasers .
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(A)
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Johnson
may request that Supplier sell Product directly to a third party
purchaser. Under these circumstances, such designated third party
purchaser shall purchase the Product subject to the terms and
conditions of this Agreement. In the event that Supplier determines
that a designated third party purchaser is not performing according
to the terms of this Agreement (including events of late payment),
Supplier has the right to cease selling to such third party
purchaser; provided, however, that Supplier shall notify Johnson if
a designated third party purchaser is not performing according to
the terms hereof, and shall allow Johnson at least
[*] to
attempt to resolve the matter with the designated third party
purchaser before Supplier ceases sales to such designated third
party purchaser.
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(B)
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References
to Johnson are considered a reference to such third party purchaser
if Johnson has exercised its option to have Product sold to such
third party purchaser. Johnson may change or add third party
purchasers at any time upon written notice to the
Supplier.
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2.6
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Additional Terms .
Acceptance of this Agreement is limited to acceptance of the terms
and conditions contained in this document. Any proposal for
additional or different terms or attempt by Supplier or Johnson to
change any of the terms and conditions of this Agreement is
rejected and not of any effect. Additionally, if any terms of a
Purchase Order, invoice or other document exchanged between the
parties related to the purchase of the Product(s) conflicts with
the terms of this Agreement, the terms of this Agreement shall
apply.
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3
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3.
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TERM
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3.1
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Initial Term .
This Agreement shall commence on the Effective Date and continue in
full force and effect for an initial term ending June 30, 2011
(“Initial Term”), unless renewed per the terms
of
Section 3.2 or
terminated earlier pursuant to this Agreement (the Initial Term and
any renewal terms shall be referred to collectively as the
“Term”).
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3.2
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Renewal Terms. After
the Initial Term, this Agreement may be renewed for two additional
terms of two (2) years each. This Agreement shall automatically
renew for a first renewal term of two (2) years (“Automatic
First Renewal Term”)
[*]. If
this Agreement does not automatically renew in accordance with the
preceding sentence, then Johnson shall have the right to
unilaterally renew this Agreement for the first renewal term of two
(2) years (“First Renewal Term”) by giving written
notice to Supplier at lease four (4) months prior to the end of the
Initial Term. In addition, provided this Agreement has been renewed
for the Automatic First Renewal Term or First Renewal Term, Johnson
shall have the right to further extend this Agreement for a second
renewal term of two (2) years (“Second Renewal Term”)
by giving written notice to Supplier at least four (4) months prior
to the end of the such first renewal term.
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4.
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PRICING
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4.1
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Price .
The initial price for each Product is set forth in
Schedule 2.1 .
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4.2
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Price Adjustments .
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(A)
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Periodic
Price Adjustments.
[*] For
the Renewal Terms, Supplier
will provide to Johnson, at least six months prior to the
commencement of the First or Second Renewal Term (as applicable),
the Product price for the first year of the applicable Renewal
Term.
[*]
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(B)
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Johnson
Requested Change. If Johnson requests a change in the
Specifications or manufacturing process and the change would affect
Supplier's conversion cost and/or materials cost, the parties shall
determine the impact, if any, the change would have on the Product
price. If Johnson and Supplier agree on a price adjustment, the
Specification change or manufacturing process change, or both, will
be implemented, and the price change will become effective on the
date the change is implemented.
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(C)
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Complete
Pricing. The Product prices are complete, and Supplier may not add
charges of any type without Johnson's prior written consent.
Examples of charges that may not be added to the price include,
without limitation, shipping, packaging, labeling, customs duties,
taxes, storage, insurance, boxing, overtime (unless approved by
Johnson in advance), and crating costs.
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(D)
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Most
Favored Pricing. The Supplier represents and warrants to Johnson
that the Product prices are not less favorable than those currently
extended by Supplier to any other person for the same or similar
articles supplied in similar quantities. If permissible under
applicable law, Supplier shall immediately reduce the price to
Johnson for the affected Product if Supplier reduces its price to
other persons for the same or similar article for the supply of
similar quantities.
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(E)
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Resin
price adjustments. Product prices shall be subject to resin price
adjustment made effective on the first day of each calendar quarter
in accordance with
Schedule 2.1 attached.
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4.3
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Shrinkage .
Supplier is responsible for all expenses relating to manufacturing
losses and inventory losses until the Product is delivered to and
accepted by Johnson.
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4.4
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Cost Savings .
Supplier shall use its reasonable commercial efforts to generate
cost savings in the cost of the Products. Cost
savings shall be allocated as follows:
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(A)
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Cost
savings, which (i) result from Product or Product packaging
modifications or (ii) result from projects initiated jointly or
solely by either party and require no investment by Supplier or
(iii) result from a relocation of production to another Supplier
manufacturing facility, will be applied solely to reduce Product
prices upon implementation. If Supplier must invest to achieve
these savings, these savings will (i) first be used to fund the
cost of the investment and (ii) thereafter will be applied solely
to reduce Product prices.
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5.
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SPECIFICATIONS
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5.1
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Specifications .
Johnson has given Supplier copies of the Product Instruction
Handbooks. The Green General Specifications and Guidelines Handbook
contains general specifications for goods being manufactured for
Johnson. Specifications for new products just being launched are in
Red Product Instruction Handbooks. Blue Product Instruction
Handbooks cover the specifications for established products. Yellow
Product Instruction Handbooks cover the specifications for special
pack products. These Product Instruction Handbooks contain
Product-related, finished goods, and packaging specifications;
manufacturing instructions, formulas, processing instructions,
quality control procedures, finished goods and component
performance tests, Acceptable Quality Limits; and other information
relating to the manufacture of Product (the
“Specification(s)”). Supplier shall not use the Product
Instruction Handbooks for any purpose other than to perform its
obligations under this Agreement. Supplier shall manufacture
Product in compliance with the Product Instruction Handbooks. The
Product Instruction Handbooks (including all copies and related
notes) must be returned to Johnson upon Johnson’s request or
upon termination of this Agreement. Upon changes in the
Specifications, Johnson will provide amended Product Instruction
Handbooks to Supplier.
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5.2
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Changes .
Supplier must not change any Specification or manufacturing
location without Johnson’s prior written consent. Johnson
shall have the right, but not the obligation, to change the
Specifications, from time to time, upon reasonable advance written
notice to Supplier and, in that case, Johnson and Supplier shall
enter into good faith negotiations to adjust the price in
accordance with
Section
4.2(B) .
For changes to be effective, they must be set forth in a writing
that is signed by the parties and incorporated as an amendment to
the Specifications.
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5.3
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Materials .
Unless otherwise agreed, Supplier is solely responsible for
obtaining the equipment, materials, components, and services
required by Supplier to manufacture and deliver Product. To the
extent not covered by the Specifications, providers of and
specifications for materials and components must be approved in
advance by Johnson. If Johnson has a supplier of raw material
and/or components that could result in a Product cost savings,
Johnson shall have the right to change the Specifications pursuant
to
Section 5.2 above
to include such material and the designated supplier, subject to
the terms of
Section 5.2 .
In addition, Supplier may use an alternative supplier if approved
in advance and in writing by Johnson. If Supplier fails to obtain
Johnson’s prior written approval, Supplier shall assume any
and all responsibility in accord with
Section 12.1 of
the Agreement.
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6.
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MANUFACTURING CAPACITY
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6.1
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Capacity .
Supplier guarantees sufficient capacity at its production
facilities to manufacture and deliver the quantities
[*] .
[*] This
is not a commitment by Johnson to purchase any quantity. The
minimum criteria for any Contract Year of this Agreement shall be
that Supplier’s service permits Johnson to ship 99% of its
orders using Products to Johnson customers on time and
complete.
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6.2
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Forecasting .
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(A)
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Johnson
may provide on-line access for Supplier to Johnson’s
production forecasting system or its equivalent (collectively,
“PFS”). This access will permit Supplier to have
current information relating to Johnson’s estimates of
production forecast. Johnson shall provide such other information
as Supplier may reasonably request concerning Johnson’s
forecasts. Supplier shall only access that portion of the PFS
system necessary for Supplier to determine Johnson’s Product
needs. All information in the PFS system is highly confidential and
will be treated as Johnson Confidential Information pursuant
to
Section 17 below.
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(B)
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If
Supplier does not have access to Johnson’s PFS system,
Johnson shall provide non-binding annual forecasts, updated
quarterly, and binding written or electronic data input ("EDI")
Purchase Orders. The initial non-binding annual forecast is
attached hereto as
Schedule 6.2 .
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6.3
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No Requirements and No Minimums .
This is a not a requirements contract. Additionally, Johnson does
not have to purchase a minimum quantity of Product. Johnson does
not have to use its best efforts to promote and sell the Product,
and Johnson may discontinue or reduce its commercialization effort
with respect to any Product at any time for any
reason.
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6.4
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Exclusivity .
During the Term of this Agreement, Supplier and its Affiliates
shall not directly or indirectly manufacture or sell the
Product
[*] for
or to anyone other than Johnson,
[*]
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7.
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Brand NAME
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Supplier
acknowledges that Johnson’s Ziploc brand (or another
brand designated by Johnson) will be the primary brand name
for the Product. Johnson shall also select, own and control
any sub-brand for the Product.
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8.
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(INTENTIONALLY OMITTED)
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9.
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ROYALTY PAYMENTS AND REPORTS
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9.1
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Conversion to Johnson License Agreement
.
If
this Agreement converts to a Johnson License Agreement pursuant
to
Section 11.7 below,
the royalty fee payable on Johnson’s
[*] Product
Net Account Revenue shall be referred to herein as
“Royalties.”
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9.2
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Payment Due Date .
Any and all Royalties payable pursuant to
Section 11.7 shall
be paid to Supplier at the address set forth on the first page
hereof, within sixty (60) days of the close of each calendar
quarter within which the royalties accrued. All Royalties payable
hereunder shall be paid in USD. The royalties which are to be paid
for sales made in non-USD shall be calculated separately for each
month of the calendar quarter by determining the aggregate Net
Account Revenue of Products for that month in local currency, then
converting same to USD using the average of the conversion rates
for the first and last business day of that month as published in
the Wall Street Journal (New York edition). The royalties for each
month of the calendar quarter shall be calculated separately as
described, and then added to arrive at the quarterly royalty
payment.
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9.3
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Statements .
Johnson shall prepare and issue a report for each calendar quarter,
identifying this Agreement and showing (A) total number or amount
of Products by item sold by Johnson and its Affiliate sublicensees,
(B) [*] Product Net Account Revenue, and (C) the
royalties accrued during the quarter and payable to
Supplier.
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9.4
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Taxes and Other .
Johnson shall be responsible for payment of any taxes on the sale
of Products. If any taxes are required to be withheld on the
royalties due under this Agreement, which taxes would be owed by
Supplier, Johnson shall pay such taxes on behalf of Supplier,
provide to Supplier a copy of the withholding tax certificate, and
deduct any such payments from the amounts due to
Supplier.
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10.
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SUPPLIER REPRESENTATIONS AND WARRANTIES
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10.1
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Product Representations and Warranties .
The Supplier represents and warrants to Johnson with respect to
each delivery of Product as follows:
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(A)
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Product
has been manufactured in compliance with the Specifications, is
new, and is free from defects in materials and workmanship and
conforms in all respects to agreed samples. Product is adequately
contained, packaged, marked, and labeled. Product is merchantable
and is safe and appropriate for the purpose for which goods of that
kind are normally used and shall be suitable for food contact
applications as defined by the FDA and, for product destined for
the Canadian market, the Canadian equivalent of the FDA
Notwithstanding the foregoing, Supplier shall not be responsible
for Product
[*] provided
that Supplier fully complies with all of the Quality Control
procedures and standards contained in the Product Instruction
Handbook with respect to the inspection and testing
[*] .
For the avoidance of any doubt, Supplier shall be responsible for
Product defects caused by Supplier’s breach of any such
Quality Control requirements applicable to the valves and
zippers.
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(B)
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Supplier
has conveyed to Johnson good title to the Products, free from any
lawful security interest, lien, or encumbrance.
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(C)
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Supplier
and Supplier’s facilities comply with all applicable laws
relating to the manufacture, storage and sale of the Product,
including import and export compliance. Johnson may audit
Supplier’s compliance with applicable laws, rules,
regulations and the like, including a safety and environmental
audit.
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(D)
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To
Supplier’s best knowledge, neither Products nor
Supplier’s methods and means of manufacturing Products
infringe a valid patent, copyright, design right, or trade secret
of a third party.
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(E)
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Waste
material generated in connection with the production of the
Products, as well as any other products manufactured by Supplier at
its facility, has been or will be disposed of in strict compliance
with applicable laws. Upon request, Supplier shall certify its
compliance with such laws.
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(F)
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Supplier
is authorized to enter into and perform this Agreement and will not
breach any obligations owed to another person by performing this
Agreement.
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(G)
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Product,
Product constituents, and production methodologies comply with all
applicable laws, regulations and government directives, including,
but not limited to the Toxic Substances Control Act.
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10.2.
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Patent
Representations and Warranties .
Supplier represents and warrants to Johnson with respect to
Supplier Patent Rights as follows:
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(A)
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Supplier
is the owner or exclusive licensee, and otherwise in control of all
of said Supplier Patent Rights, and that all of the associated
patents and patent applications, owned, licensed, or controlled by
Supplier within defined Consumer Fields of Use, are set forth
in
Schedule 1.9 .
Furthermore, Supplier represents and warrants that said Schedule
captures all of the patent rights owned, licensed or otherwise
controlled by Supplier that fully cover the subject matter of
Products as defined herein.
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(B)
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Supplier
has authority to enter into this Agreement and to perform its
obligations under this Agreement and that it has been duly
authorized to execute and to deliver this Agreement.
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(C)
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As
of the date of signature hereto, and with exception for any
specific disclosures made to Johnson within the prior ninety days
by Mr. John Schwan on behalf of Supplier, Supplier is without
knowledge, whether actual or implied, of any pending or threatened
infringement litigation with respect to Supplier Patent Rights, and
furthermore that it has not received any actual notices of
infringement with respect to any of its own manufactured products
that may or could be covered by or related to Supplier Patent
Rights.
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(D)
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As
of the date of signature hereto, and with exception for any
specific disclosures made to Johnson within the prior ninety days
by Mr. John Schwan on behalf of Supplier, Supplier is without
actual or implied knowledge of any patent, any document, or any
other information, that would limit the validity of the Supplier
Patent Rights under this Agreement.
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(E)
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As
of the date of signature hereto, and with exception for any
specific disclosures made to Johnson within the prior ninety days
by Mr. John Schwan on behalf of Supplier, Supplier is without
knowledge that the practice of the Supplier Patent Rights is or may
be limited by intellectual property rights of third parties.
Moreover, Supplier shall have a continuing obligation to notify
Johnson within thirty days of its receipt of any non-public
information that impacts this warranty and
representation.
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| 10.3. | Certification . Upon Johnson’s request, Supplier shall provide Johnson with a warranty certificate certifying compliance with any and all of the representations and warranties contained in Sections 10.1 and 10.2 . |
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10.4
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Additional Agreements of Supplier .
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(A)
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If
requested by Johnson, Supplier must participate in Johnson’s
Systems Quality Assurance Program (“SQA Program”)
through Johnson’s Systems Quality Assurance group. If the
Supplier produces “Critical Level I” products, as
determined by Johnson, or Products that are used in the manufacture
of products regulated by Good Manufacturing Practices
(“GMP”) regulations, as determined by Johnson’s
Regulatory group, Supplier agrees to achieve a rating of 3.0 or
higher in each of the “red” subsystems in the SQA
Program, and a rating of 2.5 or higher in each of the
“yellow” subsystems in the SQA Program. Supplier
further agrees to continuously improve in all areas of the SQA
Program, with a target of an overall score of 4.0 or higher
.
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(B)
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If
the Products are regulated or controlled by the United States Food
and Drug Administration (“FDA”) or its Canadian
equivalent, Supplier shall maintain itself in good standing with
the FDA and manufacture the Products in compliance with all Good
Manufacturing Practices (“GMPs”) issued by the FDA from
time to time, and all raw materials used in such Products shall be
suitable for food contact applications as defined by the FDA or its
Canadian equivalent. Johnson or its agents shall have the right to
audit Supplier’s GMP compliance at any time.
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(C)
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If
the Products are registered with or regulated by the United States
Environmental Protection Agency (“EPA”) or Health
Canada, Supplier shall manufacture the Products in compliance with
all applicable EPA or Health Canada rules and regulations, and
shall promptly provide to Johnson copies of all reports, notices,
filings and other correspondence with the EPA or Health Canada and
similar state, provincial or local agencies related to the
Products, including, without limitation, “6(a)2” forms.
Johnson or its agents shall have the right to audit
Supplier’s EPA or Health Canada compliance at any
time.
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(D)
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If
Supplier’s projected annual sales to Johnson is $1 million to
$5 million in the United States, Supplier agrees to establish a
Supplier Diversity procurement target and agrees to report, on a
semi-annual basis, its expenditures for materials and/or services
with certified minority and women-owned businesses (i.e., certified
by an approved third party agency) attributable to Products made
for Johnson in the United States. If Supplier’s projected
annual sales to Johnson exceed $5 million in the United States,
Supplier further agrees to submit a written supplier diversity
procurement plan by March 31
st of
each year. Johnson does not accept self-certification.
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(E)
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Supplier
acknowledges that it has received, is aware of and has reviewed
Johnson’s Manufacturing Code of Conduct (the
“Code”), as amended from time to time, and agrees to
comply with the Code. Further upon request, Supplier agrees to
certify its compliance with the Code to Johnson. Johnson shall have
the right to audit Supplier’s compliance with the Code at any
time. The Code is attached hereto as
Schedule 10.4(E) .
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(F)
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Supplier
acknowledges that it has received, is aware of and has reviewed
Johnson’s Business Conduct and Ethics Policy (the
“Policy”), as amended from time to time, and agrees to
comply with the Policy. The Policy is attached hereto as
Schedule 10.4(F ).
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(G)
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Upon
Johnson’s request, the parties will meet quarterly to review
a “Supplier Scorecard” as developed by Johnson to track
and require improvement, when necessary, the Supplier’s
performance, including, but not limited to, key metrics such as
price, guaranteed cost savings, quality, and service. Supplier will
use reasonable commercial effort |