In April 2010, we entered into a Supply and Toll Agreement with Canterbury Coffee Corporation (“Canterbury” and the “Supply Agreement”). The Supply Agreement was subsequently amended by a First Amendment to Supply and Toll Agreement entered into as of May 12, 2011.
The Supply Agreement has a term from April 28, 2011 to April 27, 2013, automatically continuing thereafter unless terminated in writing by either party with 60 days prior notice.
Pursuant to the Supply Agreement, we provide Canterbury with pre-made bags bearing our logo and the Trademarks licensed through the License Agreement and Canterbury obtains the beans and other ingredients for, roasts, prepares and packages the coffee beans for our products and packages them in the bags which we provide to Canterbury.
Under the Supply Agreement, we are responsible for carrying out sales and marketing for our products, provided that Canterbury pays the actual shipping costs to our licensed distributors and customers and receives the gross proceeds from the sale of our products, and we receive the net difference between the total cost of production and shipping of our products and the amount that Canterbury receives from the sale of such products to our distributors and customers.
The prices set forth in the Supply Agreement are fixed until December 31, 2011, and are subject to change thereafter with thirty days written notice based on prevailing market prices.
We bear 90% of the cost of bad debts or uncollectable accounts pursuant to the Supply Agreement.
The Supply Agreement also provides for an annual sales volume rebate in the event we meet certain minimum volume requirements set forth in the Supply Agreement.
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The Company is currently in discussions with MCL to amend the License Agreement to expand the description of the Licensed Services and to provide for exclusive rights to such Licenses Services; however, no definitive agreement or terms have been agreed to as of the date of this filing, and the Company can provide no assurance that such agreement will be agreed to or become effective in the future.
In the event such agreement does become effective, it will likely involve the issuance of additional securities to MCL, which could cause substantial dilution to the Company’s then shareholders and/or decrease such shareholders voting rights over the Company.
The Company’s immediate future plans to utilize the license with MCL are to create products and distribute them through our Supply Agreement with Canterbury, to the service, hospitality, office coffee service and big box store market segments. The names of our initial lines of the coffee include Lion’s Blend, Mountain Roast and Kingston City Roast.
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