SUPPLY AGREEMENT FOR MONTERREY, MEXICO
Exhibit
10.2
Execution
Copy
FOR
MONTERREY, MEXICO
THIS
AGREEMENT is entered into on this 13th
day of July,
2007.
BETWEEN:
THE
HERSHEY COMPANY, a corporation organized and existing under the laws of
the State of Delaware, with a principal place of business at ▇▇▇ ▇▇▇▇▇▇▇ ▇
▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, (hereinafter referred to as “Hershey” or a
“Party”),
and
▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, AG, a corporation organized and existing under the laws of
Switzerland with a principal place of business at Westpark ▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇
▇▇, ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇, (hereinafter individually referred to as
“Callebaut” or a “Party”).
Callebaut
and Hershey may collectively be referred to herein as the
“Parties”.
BACKGROUND
This
Supply Agreement for Monterrey, Mexico (hereinafter this “Agreement”) is subject
to the terms and conditions found in the Master Innovation and Supply Agreement
between Hershey and Callebaut of even date herewith (the “Master
Agreement”). This Agreement further specifies the terms pursuant to
which Callebaut will manufacture the products specified in Exhibit I-M at its
Monterrey, Mexico facility (the “Products”) for Hershey. Callebaut
has indicated its ability and intent to manufacture the Products for Hershey
in
accordance with the terms and conditions specified herein. Defined terms used
herein and not otherwise defined herein shall have the meaning set forth in
the
Master Agreement.
NOW
THEREFORE, with the intent to be legally bound and in consideration of
the mutual promises herein set forth and other good and valuable consideration,
the Parties hereby agree as follows:
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1)
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Production
of the Product
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A)
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Callebaut
shall manufacture the Products specified in Exhibit I-M at its facility
to
be located in Monterrey, Mexico as further described
herein. Products may be added to or removed from this list by
Hershey at any time throughout the term of this Agreement. If a
new Product is added, Exhibit I-M will be revised to add
the
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new
Product. Other exhibits will be added or revised as required to
reflect the production of the new
Product(s).
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B)
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Provisions
regarding the volume of Products to be sourced under this Agreement
are
set forth in the Master Agreement. In the event that Hershey’s
actual order volume of Products in any given calendar year during
the Term
of this Agreement is less than the volume set forth in Exhibit VIII-M
(“Minimum Threshold Volume”) from Callebaut’s Monterrey facility, and
provided the shortfall is not due to Callebaut’s action or inaction,
Callebaut has the right to exercise a “put option” for the Monterrey
facility (excluding equipment) (the “Put Option”). If Callebaut exercises
its Put Option:
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1)
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Hershey
will purchase the Callebaut Monterrey facility building and base
utility
infrastructure at fair market value (to be determined in accordance
with a
methodology agreed upon by the parties);
and
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2)
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Hershey
will have the right, but not the obligation, to purchase the equipment
located at Callebaut’s Monterrey facility at its fair market value (to be
determined in accordance with a methodology agreed upon by the parties).
Any equipment Hershey elects not to purchase will be removed from
the
facility by Callebaut at its cost.
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Callebaut
must exercise the Put Option
within two years from the date Hershey’s annual orders from Monterrey fall below
the Minimum Threshold Volume threshold (the “Put Period”). The
purchase of the facility must be completed within one year of the exercise
of
the Put Option. During the Put Period operations will continue pursuant to
the
terms of this Agreement.
With
Hershey’s consent, Callebaut may
sell its capacity between the volume set forth in Exhibit VIII-M (“Target
Volume”) pounds and Hershey’s forecasted volume. Hershey’s overhead
burden will be reduced proportionately by the incremental sales attained by
Callebaut. Callebaut will also use commercially reasonable efforts to
reduce its costs in order to reduce the overhead burden assigned to
Hershey.
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2)
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Investment
by Callebaut
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A)
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Except
as otherwise agreed by the Parties, Callebaut will invest the necessary
capital, including the acquisition of certain machinery purchased
or
ordered by Hershey, for the construction of a liquid chocolate production
facility in Monterrey, Mexico on land owned by Hershey, adjacent
to the
proposed Hershey facility, and leased to Callebaut as described in
Section
5 below. All references to facilities or production hereunder
shall be deemed to refer to Hershey’s Monterrey facility or Callebaut’s
Monterrey facility, as appropriate. New Products added to
Exhibit I-M and any proposed changes to existing Products must be
within
the then existing technical capability of the Monterrey facility
being
constructed by Callebaut. Callebaut agrees to provide Hershey
with information describing its then-existing technical capabilities.
Should Callebaut be required to purchase additional or
new
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capital
to manufacture the new or modified Products, the Parties must agree
prior
to any production hereunder on the relevant conversion cost to be
invoiced
to Hershey by Callebaut, including the applicable allocation of
incremental capital, if any.
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B)
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Upon
execution of this Agreement Callebaut will assume, and Hershey will
assign
to Callebaut, all of Hershey’s rights and obligations under the purchase
orders for equipment listed on Exhibit II-M hereto (the “Transferred
Purchase Orders”). Within ten business days of execution of this
Agreement, Callebaut will reimburse Hershey in Dollars for all payments
Hershey has made under the Transferred Purchase Orders. The
payments and reimbursement amounts for these purchase orders are
outlined
on Exhibit II-M.
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3)
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Callebaut’s
Structure
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Callebaut
will maintain a structure that enables Callebaut to pass on duty free and value
added tax (VAT) free equipment, ingredient and material costs to Hershey as
allowable under current applicable laws and regulations.
If
for
any reason Callebaut is required to pay duties or value added tax on any
equipment, ingredients or components of the Products, other than as a result
of
a change in any applicable law or regulations, Callebaut agrees not to pass
those costs on to Hershey.
In
the
event a change in any such law or regulation pertaining to the duty and value
added tax (VAT) free structure should occur that results in an economic impact
necessitating Hershey’s cessation of its chocolate activities in its Monterrey
facility, Hershey may terminate its obligations under this Agreement.
Callebaut may exercise the Put Option set forth in Section 2(B) within
three months of the termination. Should Callebaut choose not to exercise
its Put Option, Callebaut may purchase the land leased to it by Hershey at
fair
market value. In addition, upon such cessation of Hershey’s chocolate
activities in its Monterrey facility, the Parties agree to jointly evaluate
the
Parties’ ongoing strategic relationship for the source of supply of those
Products previously sourced from the Monterrey facilities, including sourcing
from and investment in alternative locations.
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A)
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The
Products must qualify as products of Mexico under the North American
Free
Trade Agreement (NAFTA), and Callebaut must provide Hershey with
accurate
NAFTA Certificates of Origin throughout the Term of this
Agreement. Any exceptions to the foregoing must be
approved in writing by Hershey.
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4)
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Capacity
of Operation
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A)
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The
Callebaut Monterrey, Mexico facility will have the capacity to produce
and
deliver the Target Volume pounds per year of Products to
Hershey. Callebaut will install two manufacturing lines, each
capable of producing liquid milk, dark and compound
chocolate.
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B)
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Should
Hershey’s planned demand increase above the Target Volume pounds per
calendar year, Callebaut will, unless otherwise agreed by the Parties,
invest the
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necessary
capital in the facility to meet Hershey’s demand. The related
conversion costs for production in excess of the Target Volume pounds
will
be mutually agreed by the Parties, using the guidelines shown on
Exhibit
VIII-M.
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C)
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Hershey
shall provide Callebaut with twelve (12) months notice for planned
demand
increases over the Target Volume pounds to allow Callebaut to expand
capacity if a new line is required. Should Callebaut’s cost
base be increased as a result of such capital investment, the Parties
shall negotiate in good faith to agree on the conversion cost to
be
invoiced to Hershey by Callebaut, including the applicable allocation
of
capital costs. Should Callebaut’s cost base be reduced due to
increased volume from Hershey, such cost savings shall be shared
with
Hershey on a reasonable basis to be agreed to by the
Parties.
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5)
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Lease
of Land to Callebaut
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On
or
before August 31, 2007 the Parties anticipate executing a lease agreement (the
“Lease Agreement”), whereby Hershey will lease to Callebaut (or its Mexican
subsidiary) land to be identified in the lease (the “Leased Premises”) upon
which Callebaut will construct its Monterrey facility. The Parties
agree to negotiate in good faith the terms of the Lease Agreement and use
commercially reasonable efforts to execute the Lease Agreement on or before
August 31, 2007. In the event a Lease Agreement is not executed on or
before August 31, 2007, either Party may terminate this Agreement, and if so
terminated neither Party shall have any further obligation to the other
hereunder.
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6)
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Utilities
and Services
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Exhibit
IV-M lists the Hershey infrastructure which Hershey has agreed to make available
to Callebaut, in exchange for the payment described on the Exhibit IV-M, to
enable Callebaut’s access to certain utilities and services for its Monterrey
facility. The Parties agree that the Lease Agreement will reflect which part
of
Hershey’s utility infrastructure Callebaut wishes to utilize (at the costs
specified on Exhibit IV-M hereto), and any ongoing maintenance or usage costs
associated therewith. Payment for any one-time costs will be made by
Callebaut to Hershey within 30 days after signing of the Monterrey Lease
Agreement.
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7)
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Key
Timelines for Facility
Readiness
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A)
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Callebaut
will be able to deliver Products from its Monterrey facility to Hershey’s
Monterrey facility in accordance with the terms and timelines set
forth on
Exhibit VIII-M.
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B)
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The
facility will be able to deliver Products to Hershey’s Monterrey facility
in accordance with the terms and timelines set forth on Exhibit
VIII-M.
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8)
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Contingency
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Callebaut
will have the process and equipment capabilities set forth on Exhibit
VIII-M.
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9)
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Access
to Facility
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Upon
reasonable notice, and during either Party's normal hours of operation, either
Party shall be granted access to the other Party's facilities utilized in the
receiving, manufacturing, handling, packaging and storage of packaging,
ingredients and Products for the purpose of ascertaining either Party's
compliance with the provisions of this Agreement and the Master Agreement,
as
pertains to compliance with Good Manufacturing Practices, Quality Assurance
and
Hershey’s Specifications; provided, however, that unless permitted either Party
shall not have access to any part of either Party's facilities which are not
used directly in the manufacture of Products or the receiving, storage, handling
or packaging of any Products or ingredients or which are subject to limited
access by agreement of the Parties. Notwithstanding the foregoing,
Hershey acknowledges the requirement for the Callebaut facility to remain
allergen free and Hershey will take necessary precautions when accessing the
Callebaut facility.
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10)
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Operations
Planning
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A)
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Callebaut
shall deliver Products meeting all Hershey Quality Specifications
to
Hershey’s designated plant and receiving
station.
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B)
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The
procedure for determining annual, quarterly, weekly and daily demands
for
the Products manufactured by Callebaut at its Monterrey facility
is
described in the Master Agreement.
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C)
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An
estimate for the first eighteen (18) months of Product demand is
attached
hereto as Exhibit V-M.
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D)
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The
Parties agree that there are maximum quantities of Products that
Callebaut
can deliver in a given period of time. Such quantities are
described in Exhibit VI-M. The minimum quantity of Product that
will be delivered to Hershey by Callebaut will be one (1) full
5,000-gallon (approximately 48,000 lbs or 21,800 Kg) tanker load
unless
pre-approved.
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E)
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The
Parties will develop procedures to enable visibility to each other’s
demand and inventory information.
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F)
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Callebaut
will provide a fleet of trucks and tankers capable of delivering
the
Products. Unless otherwise specified herein, Callebaut shall be
responsible for all costs associated with delivery of the
Products.
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G)
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Callebaut’s
fleet of tankers will be capable of unloading at least 60 gallons
per
minute of Product. Hershey will be responsible for providing
sufficient pumps, hoses and connections to empty the tankers at this
rate. Callebaut will at its cost retrofit any tankers in its
fleet with the appropriate fittings and discharge devices to match
Hershey’s receiving equipment at Callebaut’s
cost.
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H)
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Callebaut
shall inspect all tankers shipping the Products and shall reject
any
carrier not meeting the Hershey Specifications. Callebaut shall
be responsible for cleaning
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and
sanitizing tankers on an agreed upon
frequency.
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I)
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Callebaut
will maintain adequate and accurate shipping records in order that
Product
lots on all shipments may be
traced.
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J)
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All
shipments of Product shall meet the standard of identity for the
planned
Product.
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11)
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Product
Cost
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A)
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The
procedures for determining the cost of the Products are described
in the
Master Agreement.
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B)
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The
conversion costs for the Products are set forth on Exhibit
VI-M. By October 1 of each year, Hershey shall advise Callebaut
of the Annual Estimate of Products. Callebaut will utilize the conversion
cost applicable to the volumes in the Annual Estimate and conversion
cost
tier in its cost to Hershey for the following calendar year after
taking
into consideration the available Global Volume Increment, if
any.
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At
the
conclusion of each of the calendar years during the Term, should actual volume
differ from the Annual Estimate and fall into a conversion cost tier other
than
the one charged, Hershey will be debited or credited the difference in total
annual conversion costs with cash settlement in accordance with the terms of
the
Master Agreement, or the Parties can mutually agree to roll over the variance
for inclusion in the cost base to be invoiced to Hershey by Callebaut for
Products purchased in the next calendar year.
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C)
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The
initial Annual Estimate provided at the date of this Agreement indicates
that the total weighted average Product fineness for Monterrey is
as shown
on Exhibit VII-M. Should the actual average fineness for any
given calendar year fall outside the Base Range set forth in Exhibit
VII-M, the change in fineness charge shown on Exhibit VII-M will
apply as
appropriate to the total volume of Product purchases for such calendar
year. Hershey will be debited or credited the difference in
fineness on an annual basis with cash settlement in accordance with
the
terms of the Master Agreement, or the Parties can mutually agree
to roll
over the difference in fineness for inclusion in the cost base to
be
invoiced to Hershey by Callebaut for Products purchased in the next
calendar year.
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12)
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Coordination
of Product Receiving and
Invoicing
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A)
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Callebaut
and Hershey will coordinate the delivery details for each
tanker.
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B)
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Upon
entering the Hershey operation, Hershey will weigh Callebaut’s tanker
truck, and Product at Hershey’s weigh station. The driver shall
exit truck before weight is
recorded.
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C)
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Hershey
will unload each tanker to the fullest extent possible and take ownership
once chocolate leaves the relevant
tanker.
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D)
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Hershey’s
operator will be responsible for all connections of Hershey’s hoses to
Callebaut’s tankers and any resulting
incidents.
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E)
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Once
a tanker is emptied and appropriate documentation is approved, Callebaut’s
tanker will proceed to Hershey’s weigh station to weigh truck, tanker and
any left-over chocolate. Again, the driver shall exit the truck
before its weight is recorded. Callebaut will electronically
submit the invoice for the difference between the “full weight” and “empty
weight” to Hershey immediately upon the tanker leaving Hershey’s
operation.
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13)
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Quality
Assurance
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A)
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All
Products delivered by Callebaut to Hershey shall meet the terms agreed
to
under the Master Agreement.
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B)
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Callebaut
will not be required to utilize rework generated by
Hershey. Any use of such rework shall be negotiated on a
case-by-case basis.
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14)
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Title
Transfer and Risk of
Loss
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A)
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Title
to the Products shall be and remain with Hershey from the date and
time:
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i)
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the
Product leaves Callebaut’s tanker;
or
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ii)
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the
Product leaves Callebaut’s trailer and is delivered to Hershey’s receiving
dock for dry Products.
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B)
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Callebaut
shall bear the risk of loss to the Products (either while in storage
or in
process at Callebaut’s plant or any non-Hershey storage facility utilized
by Callebaut with Hershey’s consent) until the Products leave the tanker
for delivery into Hershey’s Monterrey
facility.
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15)
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Term
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A)
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The
initial term of this Agreement shall commence on the date noted on
the
first page of this Agreement and shall expire, unless earlier terminated
in accordance with the terms hereof, on December 31, 2022 (the “Initial
Term”).
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B)
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This
Agreement may be renewed thereafter for one or more five (5) year
terms
(the “Renewal Term(s)”) upon written agreement of the Parties executed no
later than eighteen (18) months prior to the expiration of the then
current term.
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C)
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The
Initial Term and any Renewal Term shall be referred to herein as
the
“Term”.
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16)
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Termination
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Termination
rights are set forth in the
Master Agreement.
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17)
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Consequences
of Sale, Termination, Expiration, or Change in
Control
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In
the
event of termination or expiration of this Agreement, or of a change in control
of Callebaut described in the Master Agreement to which Hershey does not
consent, Hershey shall have a right to acquire Callebaut’s
Monterrey facility and the equipment required to manufacture Products for
Hershey at fair market value to be determined by a mutually
agreed upon valuation process. Should Hershey exercise such purchase, (i) an
eighteen (18) month period (either before the end of the Term or at the time
of
notice) will be given to Callebaut to allow time to build a new facility to
maintain business continuity and (ii) the Parties will agree on any future
employment of Callebaut’s employees working at the Monterrey facility at the end
of the eighteen month notice period. If notice is given at the time
of termination, the Parties shall continue to operate under the terms and
conditions of the Master Agreement and this Agreement for the duration of such
notification period. Ownership of any equipment not acquired by
Hershey will be retained by Callebaut and such equipment will be removed at
Callebaut’s cost in accordance with an agreed upon schedule. In the
event Hershey chooses to sell its Monterrey facility to a third party (and
not
as part of an acquisition or joint venture) or Hershey chooses not to exercise
its right to acquire Callebaut’s Monterrey facility, Callebaut shall have a
right to acquire the Leased Premises at fair market value to be determined
by a
mutually agreed upon valuation process, subject to Hershey’s continued ownership
of the water rights attributable to the Leased Premises; provided that Hershey
or the purchaser of its facility, as a condition of the sale agreement with
Hershey, continues to make water available to the Callebaut facility on
substantially the same terms and to the same extent as Hershey was providing
any
water prior to such transfer. In the event Hershey does not exercise its right
to purchase the Callebaut facility and Callebaut does not exercise its right
to
purchase the land, the Lease Agreement will be extended for an agreed upon
term
on terms no less favourable than those contained in the Lease
Agreement.
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18)
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Taxes
and Charges
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Except
as
otherwise provided in Section 3(A), Callebaut shall pay all federal, state
and
local taxes, charges, duties, fees and assessments which may be levied in
connection with Callebaut's performance of this Agreement except for charges
or
assessments resulting from Callebaut's violations of any laws or regulations
which were the result of Callebaut's adherence to the Hershey Specifications
or
directions or caused by Callebaut's use of Hershey supplied ingredients. In
the
event of a charge or assessment resulting from adherence to Hershey’s
Specifications, directions, or Hershey supplied ingredients, Hershey will be
responsible for resolving the assessment or charge in accordance with applicable
laws at its cost.
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WITNESS
WHEREOF, each of the Parties has executed this Agreement by its duly authorized
representatives as of the date and year first above written.
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▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, AG.
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BY: /s/
▇▇▇▇▇▇▇ De Maeseneire
NAME:
▇▇▇▇▇▇▇ De Maeseneire
TITLE: Chief
Executive Officer
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THE
HERSHEY COMPANY
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BY: /s/
▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇
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NAME:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
TITLE: Senior
Vice President,
General
Counsel & Secretary
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