Karns Prime & Fancy Food, Ltd. - Page 6

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          note (April 15, 1999 note)5 dated April 15, 1999, and payable to            
          Super Rite that Super Rite also required of petitioner as a                 
          condition to Super Rite’s advancing $1.5 million to it.                     
               Pursuant to the April 16, 1999 supply agreement, petitioner            
          agreed to purchase annually from Super Rite $16 million in                  
          products over a six-year period.  The April 16, 1999 supply                 
          agreement provided in pertinent part:                                       
                    1.   Supply of Requirements; Certification.                       
               Throughout the term of this Agreement, Super Rite will                 
               be the principal wholesaler for all products purchased                 
               by the Retailer [petitioner] for sale in the Retailer’s                
               stores that are located within the geographic area                     
               served by Super Rite.  Throughout the term of this                     
               Agreement, the Retailer shall purchase at least                        
               $16,000,000.00 of product from Super Rite each year of                 
               this Agreement. * * *                                                  
                    2.   Pricing and Payment Terms.  During the term                  
               of this Agreement, product pricing, fees, billing and                  
               payment terms, returns and credits for products pur-                   
               chased, and other terms and conditions governing the                   
               sale of products hereunder shall be governed by Super                  
               Rite’s general policies and practices in effect from                   
               time to time.  In addition, Retailer shall receive a                   
               private label incentive to be determined on the basis                  
               of Exhibit A attached hereto and further, Retailer fees                
               for Grocery, Frozen and Dairy shall be in accordance                   
               with Exhibit B attached hereto.[6]  The parties further                
               agree that Retailer’s payment terms shall be seven (7)                 
               days.  Failure by the Retailer to make payment to Super                
               Rite of amounts due for the delivery of goods hereunder                

               5By using the term “April 15, 1999 note”, we do not intend             
          to suggest that for tax purposes there was a loan by Super Rite             
          to petitioner that was evidenced by that document.                          
               6Prior to the April 16, 1999 supply agreement, Super Rite              
          (1) did not provide petitioner with any incentives for private              
          label purchases and (2) charged petitioner fees higher than those           
          set forth in exhibit B attached to that supply agreement.                   

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