EXHIBIT 10.12
ROYAL CROWN COLA CO.
1000 CORPORATE DRIVE
FT. LAUDERDALE, FL 33334
January 28, 1994
Mr. Fraser Latta
Vice Chairman & Chief Operating Officer
Cott Corporation
6526 Viscount Road
Mississauga, Ontario
Mr. Ed Szczepanowski
Vice President
BCB International Limited
Chancery House
High Street
Bridgetown, Barbados
West Indies
RE: RCC/Cott Supply Agreement
Gentlemen:
Reference is made to the Concentrate Sales Agreement between Royal Crown
Cola Co. ('RCC') and Cott Corporation ('Cott') which commenced June 1, 1991 (the
'Supply Agreement'). This letter outlines the terms and conditions upon which
(i) RCC will assign its rights under the Supply Agreement to BCB International
Limited ('BCB'), a wholly owned subsidiary of Cott, and (ii) RCC will enter into
a new concentrate supply agreement (the 'New Supply Agreement') with BCB. Cott
and all of its present and future subsidiaries and affiliates are hereinafter
collectively referred to as the 'Cott Group.'
1. Assignment of Existing RCC Rights. RCC will assign to BCB all of RCC's
rights and obligations under the Supply Agreement, in exchange for BCB agreeing
to enter into this New Supply Agreement and for the payment to RCC of
$[deleted, confidential treatment requested pursuant to Rule 406] upon execution
of the New Supply Agreement. This assignment is to be effective
as of the effective date of the New Supply Agreement and Cott hereby consents to
this assignment.
2. Products and Scope. RCC will manufacture and sell to BCB, and BCB will
purchase, from RCC, all of the Cott Group's worldwide requirements for cola
concentrates, or cola emulsions used in the production of concentrates, which
concentrates and emulsions are used in the production of private label and Cott
Group proprietary label carbonated soft drinks ('CSDs'), which CSDs will be sold
to consumers in bottles, cans or other containers (collectively 'PL Cola
Concentrates') and will be produced, bottled or sold by or on behalf of the Cott
Group. Wherever possible, BCB will use commercially reasonable efforts to
purchase all of the Cott Group's worldwide requirements for non-cola
concentrates, or non-cola emulsions used in the production of concentrates,
which concentrates and emulsions are used in the production of private label and
Cott Group proprietary label CSDs, which CSDs will be sold to consumers in
bottles, cans or other containers (collectively 'PL Non-Cola Concentrates' and,
together with PL Cola Concentrates, 'PL Concentrates') and will be produced,
bottled or sold by or on behalf of the Cott Group. BCB agrees that during
calendar 1995 and each year thereafter, at least 75% of the Cott Group's
aggregate worldwide requirements for PL Concentrates will be purchased from RCC.
On or prior to March 31, 1996 and on or prior to March 31 of each year
thereafter, the Cott Group will deliver a statement based on internal case sales
data of the Cott Group, certified as having been derived from such internal
sales data by the independent auditors of the Cott Group, as to whether such 75%
requirement was met during the immediately preceding year. RCC may, at its
request and at its costs, conduct an audit of such case sales data. If the Cott
Group fails to satisfy the foregoing 75% requirement in any year, RCC will be
permitted to sell PL Concentrates to other
customers, but BCB will continue to be obligated to buy all of the Cott Group's
requirements for PL Cola Concentrates exclusively from RCC and to use
commercially reasonable efforts to purchase, wherever possible, all of the Cott
Group's requirements for PL Non-Cola Concentrates exclusively from RCC. Subject
to paragraph 6 hereof, in the event that the Cott Group purchases any PL Cola
Concentrates from anyone other than RCC and the Cott Group fails to cure such
breach within 15 days after notice from RCC, RCC, in addition to all of its
other rights and remedies under the New Supply Agreement and applicable law,
shall have the right to terminate the New Supply Agreement upon thirty (30) days
written notice and to pursue all of its rights and remedies under applicable law
against the Cott Group for breach of contract.
3. Use of Name. The Cott Group may advise its customers and other
interested parties that its PL Concentrates are made by RCC. However, the Cott
Group may not state or imply that any particular formula is RC Cola, Diet-Rite,
or any other branded product of RCC. The Cott Group shall not, and the Cott
Group shall cause its customers not to, use any of RCC's trademarks or RCC's
name in any way in connection with the production, labeling, advertising,
display or marketing of the private label and proprietary label CSDs produced or
sold by or on behalf of the Cott Group.
4. Ownership of Formulae. RCC will be the developer, formulator and
supplier of all PL Concentrates for CSDs which will be produced, bottled or sold
by or on behalf of the Cott Group and which are subject to the terms of the New
Supply Agreement. All rights and title to all formulae developed after the date
of the New Supply Agreement, whether developed by RCC, the Cott Group or jointly
by RCC and the Cott Group, shall belong exclusively to RCC. Formulae designed by
the Cott Group prior to the effective date of the New Supply Agreement shall
continue to belong to the Cott Group. Formulae designed by RCC prior to the
effective date of the New Supply Agreement shall continue to belong to RCC.
Formulae designed by RCC and Cott jointly prior to the effective date of the New
Supply Agreement shall continue to be jointly owned. Exhibits B and C hereto
identify the '800' and '900' Series products, the formulae for which are owned
by the Cott Group, and the '200,' '300,' '400,' and '500' Series products, the
formulae for which are owned by RCC. During the term of the New Supply Agreement
and any renewals thereof RCC agrees not to utilize any of the formulae supplied
to BCB for any other purpose without the written consent of BCB. Upon
termination of the New Supply Agreement because one party has elected not to
renew under Paragraph 10 hereof, formulae developed by the non-electing party,
formulae developed by the electing party which are in use at the time and
formulae developed by both parties jointly shall belong to the non-electing
party. Upon termination of the New Supply Agreement as a result of a breach or
failure to perform by one party, formulae developed by the non-breaching party,
formulae developed by the breaching party which are in use at the time and
formulae developed by both parties jointly shall belong to the non-breaching
party.
5. Performance Minimums. Except as provided in the immediately succeeding
sentence, RCC will agree not to sell PL Concentrates to anyone in the world
other than BCB. In the event that BCB fails in any calendar year to purchase PL
Concentrates from RCC which equal or exceed 100 million 12 ounce case
equivalents ('Cases') RCC may by written notice to BCB by April 30 of the
following year elect to sell PL Cola Concentrates and/or PL Non-Cola
Concentrates to other customers. If the volume purchased by BCB from RCC during
any calendar year declines by 20% or more in comparison to the immediately
preceding year for two consecutive years, RCC may by written notice to BCB by
April 30 of the year immediately following the second year in which BCB failed
to purchase the minimum volumes required, elect to sell PL Cola Concentrates
and/or PL Non-Cola Concentrates to other customers. If RCC elects to sell PL
Cola Concentrates to other customers, BCB may, by written notice to RCC within
90 days after receipt of RCC's election, elect to purchase PL Cola Concentrates
from suppliers other than RCC, in which case RCC shall continue to be obligated
to supply PL Cola Concentrates to BCB under the terms and conditions of the New
Supply Agreement. If RCC elects to sell PL Non-Cola Concentrates to other
customers, BCB may, by written notice to RCC within 90 days after receipt of
RCC's election, elect to purchase PL Non-Cola Concentrates from suppliers other
than RCC, in which case RCC shall continue to be obligated to supply PL Non-Cola
Concentrates to BCB under the terms and conditions of the New Supply Agreement.
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6. ACQUISITIONS.
6.1 In the event that the Cott Group acquires a business, whether through
an acquisition of stock or assets or some other form of transaction, that
purchases concentrates from a source other than RCC as a result of contractual
obligations and/or commercial relationships not evidenced by contractual
obligations, then notwithstanding the provisions of paragraph 2, (i) the
acquired business shall be permitted to continue to purchase concentrates from
the same non-RCC sources to the extent that it is contractually obligated to do
so or for a period of twelve (12) months after the date of acquisition of such
business by the Cott Group and (ii) in the case of a commercial relationship not
evidenced by a contractual obligation, the acquired business shall be permitted
to continue to purchase concentrates a from the same non-RCC source for a period
not exceeding twelve (12) months after the date of acquisition of such business
by the Cott Group. Concentrates purchased by the acquired business from non-RCC
sources pursuant to the preceding sentence shall not be included in the
calculations of the 75% test under Paragraph 2 for a period of twelve (12)
months after the date of acquisition of such business by the Cott Group.
6.2 Anything in paragraph 6.1 notwithstanding, (a), wherever possible, the
Cott Group shall use commercially reasonable efforts to cause the acquired
business to cease purchasing cola and non-cola concentrates from sources other
than RCC as soon as possible, (b) the acquired business shall not be permitted
to sell cola concentrates manufactured by sources other than RCC or CSDs made
from cola concentrates manufactured by sources other than RCC to any customers
other than the customers it served at the time of its acquisition by the Cott
Group, (c) the Cott Group shall use commercially reasonable efforts to cause the
acquired business to cease selling non-cola concentrates manufactured by sources
other than RCC or CSDs made from non-cola concentrates manufactured by sources
other than RCC to any customers other than the customers it served at the time
of its acquisition by the Cott Group and (d) the Cott Group shall not renew or
extend or permit the renewal or extension of any contractual obligation of an
acquired business to purchase cola concentrates from a source other than RCC.
6.3 RCC will work with BCB to supply to the acquired business concentrates
or emulsions of a quality and taste similar to those which the acquired business
purchased from sources other than RCC (hereinafter 'Replacement Concentrates').
The prices for Replacement Concentrates will be equal to the cost of
ingredients, packaging and freight of $[deleted, confidential treatment
requested pursuant to Rule 406] per Case plus $[deleted, confidential treatment
requested pursuant to Rule 406] per Case. On the third anniversary of the
effective date of the New Supply Agreement and on every third anniversary
thereafter, the $[deleted, confidential treatment requested pursuant to
Rule 406] per Case rate shall be adjusted proportionately in accordance
with the adjustments to the prices set forth in Exhibit A. Thus, if the
prices in Exhibit A are increased 10%, then the $[deleted, confidential
treatment requested pursuant to Rule 406] per Case rate for Replacement
Concentrates shall increase to $[deleted, confidential treatment requested
pursuant to Rule 406]. Replacement Concentrates shall be omitted
from the calculations of the 75% test under Paragraph 2.
6.4 Except as provided by the terms of the New Supply Agreement, in no
event will the Cott Group engage in the business of manufacturing or selling
concentrates or branded CSDs without RCC's prior written consent. For purposes
of this paragraph, branded CSDs refers to CSDs which are marketed, distributed
and priced in substantially the same manner as the products produced by the two
major cola companies. In the event that the Cott Group wishes to acquire a
company or business that is engaged in the business of manufacturing or selling
concentrates or branded CSDs in competition with RCC (a 'Cott Restricted
Business'), then the Cott Group shall discontinue the Cott Restricted Business
or sell the Cott Restricted Business to a third party not affiliated with the
Cott Group within 12 months after the Cott Group acquires the Cott Restricted
Business. RCC shall have a right of first refusal to purchase the Cott
Restricted Business.
6.5 In the event that RCC acquires a company or business that sells PL
Concentrates to customers other than the Cott Group, then notwithstanding the
provisions of paragraph 5, (i) the acquired entity shall be permitted to
continue to sell PL Concentrates to customers other than the Cott Group to the
extent that it is contractually obligated to do so and (ii) in the case of
commercial relationships not evidenced by a contractual obligation, the acquired
entity shall be permitted to sell PL Concentrates to customers other than the
Cott Group for a period not exceeding twelve (12) months from the date of the
acquisition of such entity by RCC. Notwithstanding the foregoing, (a) wherever
possible RCC will use commercially reasonable efforts to cause the acquired
entity to cease selling PL Concentrates to
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customers other than the Cott Group as soon as possible (b) the acquired entity
shall not be permitted to sell PL Concentrates to any customers other than the
customers it served at the time of its acquisition by RCC (c) RCC shall not
extend or permit the renewal of any contractual obligation pursuant to which the
acquired entity sells PL Concentrates to customers other than the Cott Group,
and (d) RCC will not undertake any improvement or changes to the PL Concentrates
being manufactured by the acquired entity for sale to customers other than the
Cott Group. For greater certainty, RCC will not supply its concentrates or
emulsions to the acquired entity except for sale to the Cott Group.
6.6 The Cott Group will, wherever possible, use commercially reasonable
efforts to purchase PL Concentrates from the acquired entity in a quantity such
that the acquired entity's sales do not decline as a result of curtailing its
sales of PL Concentrates to customers other than the Cott Group. This paragraph
will not obligate the Cott Group to increase the minimum purchase requirements
contained in paragraph 5 hereof.
6.7 In no event will RCC engage in the business of marketing private label
CSDs to retailers without the Cott Group's prior written consent. In the event
that RCC wishes to acquire a company or business that is engaged in the business
of marketing private label CSDs to retailers (an 'RCC Restricted Business'),
then RCC shall discontinue the RCC Restricted Business or sell the RCC
Restricted Business to a third party not affiliated with RCC within 12 months
after RCC acquires the RCC Restricted Business. The Cott Group shall have a
right of first refusal to purchase the RCC Restricted Business.
7. Fighter Brands. RCC agrees to work with BCB to supply PL Concentrates to
BCB to meet the demands of BCB's customers for 'fighter brands.' The prices for
such fighter brands shall be negotiated in good faith. RCC agrees that it will
not develop a new brand with a full line of low-priced flavors which is
specifically designed for the warehouse retail distribution system.
8. RCC PERFORMANCE OBLIGATIONS.
(a) The PL Concentrates sold by RCC shall comply in all material respects
with all applicable laws, rules and regulations, including the Federal Food,
Drug and Cosmetic Act, at the time of shipment. All PL Concentrates sold by RCC
shall be merchantable and fit for the intended purpose at the time of shipment
and shall be designed to meet the specifications of the customers of the Cott
Group. In the event that RCC's quality control personnel and BCB's
representatives agree that any PL Concentrates sold by RCC do not meet the
foregoing standards, RCC's liability shall be limited to the replacement of the
PL Concentrates and the finished goods made from such defective PL Concentrates
and the reimbursement of costs throughout the supply chain caused by a recall of
products made from such defective PL Concentrates in a fashion consistent with
the policy followed by RCC with respect to a recall of product made from
defective branded concentrate. RCC shall also be responsible for claims by third
parties resulting solely from PL Concentrates proven to be defective. RCC shall
not be responsible for defective PL Concentrates produced by the Barbados
Facility unless RCC's quality control personnel and BCB's representatives
mutually determine in good faith that the emulsions from which such PL
Concentrates were produced were defective.
(b) BCB agrees to furnish RCC with its projected requirements for PL
Concentrates for each calendar year by not later than December 1 of the
preceding calendar year. BCB shall deliver updated projections of its
requirements for PL Concentrates for the next 12 months on or before March 1,
June 1, and September 1 of each year. All such projections shall specify, on a
month by month basis, BCB's requirements for each flavor or product. BCB shall
also (a) deliver monthly reports to RCC on BCB's actual sales for the preceding
month and (b) notify RCC as soon as possible of any significant business
developments which would be likely to cause changes in its projected
requirements. RCC will agree to deliver PL Concentrates as ordered by BCB,
provided that the volumes actually ordered by BCB do not exceed the amounts
specified in BCB's most recent projections, and RCC will use commercially
reasonable efforts to fill orders by BCB for amounts in excess of such
projections. RCC shall accord the same priority to BCB's orders that it accords
to the orders of RCC's franchises for RCC's branded concentrates. In the event
that RCC repeatedly fails to deliver the volumes ordered by BCB in timely
fashion, provided that such volumes do not exceed the amounts specified in BCB's
most recent projections, and such repeated failures are reasonably determined by
the Cott Group to have had, or
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may reasonably be expected to have in the future a material adverse effect on
the Cott Group's financial condition or results of operations, then BCB may
notify RCC in writing of such failures. RCC shall have the right to demonstrate
that the Cott Group's expectations of a future material adverse effect are
unreasonable. If, during the first 365 days after RCC receives such written
notice, deliveries by RCC continue to be untimely or in amounts substantially
less than the amounts ordered by BCB, provided that the volumes ordered by BCB
do not exceed the amounts specified in BCB's most recent projections, and the
Cott Group reasonably determines that such failures by RCC continue to have had,
or may reasonably be expected to have in the future, a material adverse effect
on the Cott Group's financial condition or results of operation, then the Cott
Group may, by written notice, elect to terminate the New Supply Agreement
without prejudice to the Cott Group's other legal rights and remedies arising
out of such breach. RCC shall not be responsible for failing to fill orders (i)
for amounts in excess of the amounts specified in the projections or (ii) to the
extent that such failure resulted from RCC's inability to obtain raw materials
because BCB did not give RCC sufficient advance notice of a change in BCB's
requirements.
9. Pricing and Payment. The price structure shall be as set forth in
Exhibit A. BCB shall make all payments to RCC within 30 days of shipment from
RCC's production center.
10. Term. The effective date of the New Supply Agreement shall be January
1, 1994 and the initial term of the New Supply Agreement shall be twenty-one
years. The parties agree to negotiate in good faith the terms of an extension to
the New Supply Agreement during the nineteenth year of the effective date of the
New Supply Agreement. If the parties have not agreed to the terms of an
extension by the twentieth anniversary of the effective date of the New Supply
Agreement, then the term of the New Supply Agreement shall be extended for six
years, and the terms and conditions of the extended agreement shall be the same
as the terms and conditions of the New Supply Agreement. The New Supply
Agreement will be subject to similar six-year extensions as follows: at the end
of the fifth year of each extended term, the parties agree to negotiate in good
faith the terms of another extension to the New Supply Agreement. If the parties
have not agreed to the terms of an extension within six months after the fifth
anniversary of the current extension, then the New Supply Agreement will
automatically be extended for an additional six years on the same terms and
conditions. Such six-year extensions shall continue successively notwithstanding
the failure of the parties during any such extension to agree upon the terms and
conditions of another extension. Notwithstanding the foregoing, either party
may, at its election, refuse to agree to any extension of the New Supply
Agreement, in which case Paragraph 4 hereof shall apply to determine ownership
of formulae.
11. Hiring. The Cott Group and RCC agree not to solicit for hire key
employees from each other's organizations.
12. New International Activities. RCC acknowledges that it presently
supplies the Cott Group with PL Concentrates in Canada and the United States.
RCC further acknowledges that Cott, through BCB, is actively pursuing the sale
of private label beverages in countries outside of Canada and the United States.
In order to enhance this activity, and to satisfy its obligation under paragraph
one (1) of this letter BCB is contemplating the use of an emulsifying finishing
facility (the 'International Facility') in a location outside the United States
or Canada. BCB expects to acquire or construct the International Facility or to
obtain the use of the International Facility through a lease, license, tolling
or other arrangement through a third party. RCC will cooperate with BCB with
respect to the International Facility, on the understanding that RCC, on behalf
of BCB, controls and directs 100% of the supply of all concentrate emulsions
manufactured by RCC and sent to the International Facility. The prices for the
emulsions sold by RCC to BCB shall result in the operating profit per Case,
determined in accordance with generally accepted accounting principles, earned
by RCC being equal to the operating profit per Case earned by RCC on PL
Concentrates manufactured at RCC's Columbus, Georgia facility as of December 31,
1993. The Cott Group will indemnify RCC against any duties, fees or taxes
(including withholding, gross receipts, value added, income or other type of
taxes) imposed by the government of the country in which the International
Facility is located that are attributable to the activities contemplated by the
New Supply Agreement. RCC will not bear any development and construction costs
relating to the International Facility. BCB agrees to retain the services of an
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employee or employees of RCC or its subsidiaries to occupy the positions of
plant manager and other key positions (as required) of the International
Facility.
13. Quality Control Services. RCC will provide quality control services at
the same level as provided with respect to RCC's own branded products, including
the provision of technical support to the Cott Group's bottling and canning
locations, including the International Facility, provided, however, that RCC
will not be responsible for the selection, testing or approval of container
closures and other packaging materials for the finished CSDs. In consideration
of such services, during each year of the first ten years of the operation of
the International Facility, BCB will pay to RCC a fee of $[deleted, confidential
treatment requested pursuant to Rule 406]. Such fee will
be payable upon the commencement of operations of the International Facility and
on each of the first [deleted, confidential treatment requested pursuant to Rule
406] anniversaries thereof.
14. Guaranty. Cott will guarantee all of BCB's obligations under the New
Supply Agreement.
15. Use of RCC Bottlers. Cott agrees to use commercially reasonable efforts
to cause the private label and proprietary label CSDs produced in North America
in bottles, cans or other containers by the Cott Group to be bottled by RCC's
franchisees wherever possible, provided, however, that the Cott Group shall be
relieved of such obligation to the extent that a franchisee does not have the
physical or technical capability to meet Cott's requirements on the most
cost-effective basis, as determined by Cott in its sole discretion.
16. Fountain Syrup. During the period January 1, 1994 through December 31,
1995, RCC will manufacture and sell to BCB, and BCB will purchase, all of the
Cott Group's worldwide requirements for cola concentrates or cola emulsions used
in the production of cola concentrates used in the production of private label
and Cott Group proprietary label fountain syrup (collectively 'PL Cola Fountain
Syrup') produced or sold by or on behalf of the Cott Group. Wherever possible,
BCB will during such two-year period use commercially reasonable efforts to
purchase all of the Cott Group's worldwide requirements for non-cola
concentrates or non-cola emulsions used in the production of concentrate used in
the production of private label and Cott Group proprietary label fountain syrup
(collectively 'PL Non-Cola Fountain Syrup' and, together with PL Cola Fountain
Syrup, 'PL Fountain Syrup') produced or sold by or on behalf of the Cott Group.
BCB agrees that during 1995, at least 75% of the Cott Group's aggregate
worldwide requirements for PL Fountain Syrup will be purchased from RCC. During
this two-year period, RCC will not sell PL Fountain Syrup to customers other
than the Cott Group. The pricing for the PL Fountain Syrup will be
$[deleted, confidential treatment requested pursuant to Rule 406] per
Case for regular colas and diet colas, with diet colas adjusted for any
differences in costs of ingredients and direct packaging. Such costs and prices
will be reviewed quarterly and adjusted by the same mechanisms as are set forth
in Exhibit A. Additionally, RCC will provide PL Fountain Syrup packing to Cott
at a rate competitive with the rate charged by other national fountain syrup
packers.
If Cott commits to developing the sales in the fountain syrup segment
during this two-year period, then Cott and RCC will negotiate appropriate
performance minimums for PL Fountain Syrup and PL Fountain Syrup will be made
subject to the New Supply Agreement. If the parties are unable to agree on
appropriate performance minimums for PL Fountain Syrup, then PL Fountain Syrup
will not be subject to the New Supply Agreement and the parties will have no
obligations to each other with respect to PL Fountain Syrup. If the Cott Group
decides during the two-year period not to pursue the development of sales in the
PL Fountain Syrup segment, then BCB will so advise RCC on behalf of itself and
the Cott Group. RCC will be free to sell PL Fountain Syrup to other customers if
the Cott Group decides not to pursue sales in the fountain syrup segment.
17. Miscellaneous. All references herein to '$' or 'dollars' are references
to United States dollars. All references herein to the Cott Group shall be
deemed to be references to each member of the Cott Group and to all members of
the Cott Group collectively. RCC shall have the right to utilize the foreign
sales corporation provisions of the Internal Revenue Code and to assign its
rights and obligations under the New Supply Agreement, provided that RCC fully
guarantees the assignee's obligations thereunder.
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The foregoing is a binding contractual obligation of each of RCC and Cott
and BCB. The parties intent to execute and deliver a definitive New Supply
Agreement, but until a definitive New Supply Agreement is executed, this letter
agreement shall be deemed a binding agreement.
Very truly yours,
ROYAL CROWN COLA CO.
/s/
By: .................................
John C. Carson, President
Accepted and agreed:
COTT CORPORATION
/s/
BY: .................................
Fraser Latta
Vice Chairman & COO
BCB INTERNATIONAL LIMITED
/s/
BY: .................................
Ed Szczepanowski
Vice President
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RCC/COTT SUPPLY AGREEMENT -- EXHIBIT A
[deleted, confidential treatment requested pursuant to Rule 406]