Exhibit 10.3
CONFORMED COPY
CONFIDENTIAL TREATMENT
FIRST AMENDED AND RESTATED SUPPLY AGREEMENT
AMONG
PATHMARK STORES, INC., PLAINBRIDGE, INC.
AND
C&S WHOLESALE GROCERS, INC.
DATED AS OF JANUARY 29, 1998
Portions of this exhibit have been omitted pursuant to a request for
confidential treatment filed with the Secretary of the Securities and Exchange
Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
amended. Such portions are marked with the word "[CONFIDENTIAL]".
TABLE OF CONTENTS
ARTICLE I
CERTAIN DEFINITIONS...................................................1
Section 1.01. Certain Defined Terms. ...............................1
Agreement....................................................1
AMF..........................................................1
Asset Purchase Agreement.....................................1
Average Service Level Deficiency.............................1
Base Price...................................................1
Commencement Date............................................1
Contract Year................................................1
Credit Agreement.............................................1
CPI..........................................................2
Division.....................................................2
ERISA........................................................2
Event of Force Majeure.......................................2
Event of Insolvency..........................................2
Facilities...................................................3
GMDC.........................................................3
GMDC Lease...................................................3
Goodwill.....................................................3
HPR..........................................................3
LC Termination Event.........................................3
Left-over Ad Product........................................3
Left-over Ad Product Report.................................3
Loan Documents...............................................3
Lost Profits Surcharge.......................................3
Master Purchase Order........................................3
Merchandise..................................................3
Multiemployer Pension Plans..................................4
Pathmark Stores..............................................4
Per Case Reduced Volume Surcharge............................4
Per Case Volume Incentive....................................4
Person.......................................................4
Plainbridge..................................................4
Reissued LC..................................................4
Sale.........................................................4
Service Level................................................4
Service Level Breach.........................................5
Service Level Deficiency.....................................5
SKU..........................................................5
Standard Credit Policy.......................................5
Targeted Service Level.......................................5
Term.........................................................5
TDR..........................................................5
Transportation Company.......................................5
Withdrawal Liability.........................................5
ARTICLE II
SCOPE OF AGREEMENT; TERM..............................................5
Section 2.01. Agreement..............................................5
Section 2.02. Term...................................................5
ARTICLE III
PURCHASE AND SALE.....................................................6
Section 3.01. Maintenance of Inventory; Operation of Facilities......6
Section 3.02. Delivery...............................................6
Section 3.03. Base Price.............................................7
Section 3.04. Other Pricing Provisions...............................8
Section 3.05. Payments..............................................12
Section 3.06. Service Level.........................................14
Section 3.07. Third Party Deductions................................15
Section 3.08. Ordering Practices....................................16
Section 3.09. GM/HBC Takeover.......................................16
ARTICLE IV
FEES; REBATES; OTHER CHARGES.........................................16
Section 4.01. Fees..................................................16
Section 4.02. Cross-dock............................................18
Section 4.03. Continuities..........................................18
Section 4.04. Banana Ripening.......................................18
Section 4.05. Cardboard ▇▇▇▇▇.......................................18
Section 4.06. Rebate................................................18
Section 4.07. Volume Incentive......................................19
Section 4.08. Reduced Volume Surcharge; Lost Profits Surcharge......19
Section 4.09. Reconciliation........................................19
Section 4.10. Trade Discount Rebate, Advance Marketing Funds and
Goodwill..............................................20
Section 4.11. Interest Charges......................................22
Section 4.12. Payments in Lieu of Diverting.........................22
Section 4.13. ERISA Withdrawal Liability............................22
ARTICLE V
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CERTAIN COVENANTS.............................................................23
Section 5.01. Pallet Program........................................23
Section 5.02. Reclamation...........................................23
Section 5.03. Compliance with Law...................................23
Section 5.04. Indemnity and Insurance...............................24
Section 5.05. Certain Financial Information.........................25
Section 5.06. PACA, Repossession and Set Off........................25
Section 5.07. Utilization of Other C&S Facilities...................26
Section 5.08. Base Price Audit......................................26
Section 5.09 Year 2000.............................................26
Section 5.10. Additional Stores.....................................27
ARTICLE VI
ASSET PURCHASE.......................................................27
Section 6.01. Purchase of Assets....................................27
ARTICLE VII
TERMINATION..........................................................27
Section 7.01. Termination by C&S....................................27
Section 7.02. Termination by Pathmark...............................27
Section 7.03. Waiver................................................28
Section 7.04. Meetings to Review Progress Toward Curing Breach......28
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES.......................................28
Section 8.01. Representations and Warranties of C&S.................28
Section 8.02. Representations and Warranties of Pathmark............29
ARTICLE IX
GENERAL PROVISIONS...................................................29
Section 9.01. Entire Agreement......................................29
Section 9.02. Expenses..............................................30
Section 9.03. Amendments............................................30
Section 9.04. Notices...............................................30
Section 9.05. Binding Effect; Assignment............................31
Section 9.06. Sale of Pathmark Division.............................32
Section 9.07. Counterparts..........................................32
Section 9.08. Confidentiality.......................................32
Section 9.09. Relationship of Parties...............................33
iii
Section 9.10. No Third-Party Beneficiaries..........................33
Section 9.11. Severability..........................................33
Section 9.12. Headings..............................................33
Section 9.13. Arbitration...........................................33
Section 9.14. Governing Law.........................................34
Section 9.15. Facility Closing......................................34
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THIS FIRST AMENDED AND RESTATED SUPPLY AGREEMENT, dated as of January
29, 1998 (this "Agreement"), is by and between PATHMARK STORES, INC., a Delaware
corporation, PLAINBRIDGE, INC., a Delaware corporation (collectively, with
Pathmark Stores, Inc., "Pathmark") and C&S WHOLESALE GROCERS, INC., a Vermont
corporation ("C&S").
Preliminary Statement. Pathmark operates supermarkets in the states of
New Jersey, New York, Delaware, Connecticut and Pennsylvania. C&S is a wholesale
supplier of food products and other merchandise sold in supermarkets. Pathmark
and C&S desire to enter into an arrangement pursuant to which C&S will source
and make available to Pathmark certain merchandise. Pathmark will be responsible
for distribution of the merchandise to Pathmark's stores.
Agreement. The parties, intending to be bound, agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.01. Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings:
"Agreement" has the meaning specified in the preamble to this
Agreement.
"AMF" has the meaning specified in Section 4.10(a).
"Asset Purchase Agreement" means that certain amended and restated
asset purchase agreement between C&S, Pathmark and Plainbridge, Inc., dated as
of September 26, 1997.
"Average Service Level Deficiency" means the arithmetic average of any
number of consecutive Weekly Service Level Deficiencies beginning with the first
week with respect to which Pathmark delivers a Service Level Deficiency Notice
pursuant to Section 3.06(b) hereof.
"Base Price" has the meaning specified in Section 3.03.
"Commencement Date" means February 1, 1998.
"Contract Year" means any consecutive twelve-month period during the
Term commencing on February 1, and ending the following January 31, the first
such Contract Year to commence February 1, 1998. Each Contract Year consists of
four 13-week "Contract Quarters."
"Credit Agreement" that certain Credit Agreement dated as of June 30,
1997, as amended, supplemented or otherwise modified, between Pathmark and the
lenders party thereto.
"CPI" means the Consumer Price Index for all urban consumers (CPI-U)
for New
York/Northeastern New Jersey for food and beverages or similar appropriate index
chosen by the parties if the CPI is no longer available.
"Division" means any number of Pathmark Stores (a) which if Sold, cause
Pathmark's case purchases from C&S to fall below [CONFIDENTIAL] cases in any
Contract Year or (b) to be Sold if Pathmark's case purchases from C&S are below
[CONFIDENTIAL] cases in any Contract Year.
"ERISA" means the Employee Retirement Income Security Act of 1974 (as
amended).
"Event of Force Majeure" means any event, circumstance or condition
described in any of clauses (a) through (h) below that is beyond the control of
C&S, and is not the result of negligence or failure of C&S to act with due care,
and that prevents C&S from performing, in whole or in part, its obligations
under this Agreement. The following occurrences shall be deemed to be Events of
Force Majeure: (a) Acts of God, fire, explosion, accident, flood, storm or other
natural phenomenon; (b) war (whether declared or undeclared); (c) national
defense requirements; (d) compliance with any law, rule, regulation or
governmental order that (i) becomes effective after the date hereof and (ii) is
binding on C&S, and compliance therewith by C&S is not voluntary or optional;
(e) producers or manufacturers establish allocations or restrictions on
quantities of products available to C&S; (f) the occurrence of a labor dispute
between Pathmark, its employees or agents; (g) performance, or the failure to
perform, by a Transportation Company; (h) until August 21, 2001, a labor dispute
between C&S and any of its employees and (1) such employees are former Pathmark
employees and (2) the dispute relates or is with respect to the transition of
work from Pathmark to C&S; or (i) Pathmark's failure to deliver possession or
complete use of any Facility pursuant to the Asset Purchase Agreement, but only
with respect to goods that were to be distributed from such Facility and only
until C&S shall have obtained a proper replacement Facility.
"Event of Insolvency" means that, with respect to any Person, such
Person shall admit in writing its inability to pay its debts generally or shall
make a general assignment for the benefit of creditors; or any proceeding shall
be instituted by or against such Person seeking to adjudicate it as bankrupt or
insolvent, or seeking liquidation, winding up, reorganization, arrangement,
adjustment, relief or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or seeking the
entry of an order for relief or the appointment of a receiver, trustee,
custodian or other similar official for it or for any substantial part of its
property and, in the case of any such proceeding instituted against it (but not
instituted by it), either such proceeding shall remain undismissed or unstayed
for a period of 60 days, or any of the actions sought in such proceeding
(including, without limitation, the entry of an order for relief against, or the
appointment of a receiver, trustee, custodian or other similar official for, it
or for any substantial part of its property) shall occur; or such Person shall
take any corporate action to authorize any of the actions set forth above in
this definition.
2
"Facilities" mean the facilities in the following locations: (i) ▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ (the "▇▇▇▇▇ Facility"), (ii) ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ (the "Omar Facility"), (iii) North Brunswick, New Jersey
(the "Brunswick Facility"), (iv) the freezer located in Dayton, New Jersey (the
"Dayton Facility"), and (v) any other facility used by C&S to supply Pathmark
Stores. The Facilities are sometimes individually referred to herein as a
"Facility." The Brunswick Facility is further described in the Brunswick
Facility Lease attached as Exhibit G-1 to the Asset Purchase Agreement. The
▇▇▇▇▇ Facility and Omar Facility are further described on Exhibit D attached to
the Asset Purchase Agreement. The Dayton Facility is further described in form
of Dayton Facility Lease attached as Exhibit G-2 to the Asset Purchase
Agreement.
[CONFIDENTIAL]
"GMDC" means the general merchandise facility located in Edison, New
Jersey that Pathmark shall continue to operate so as to supply Pathmark Stores
with certain goods not included in Merchandise hereunder.
"GMDC Lease" means the lease between Pathmark and California State
Teacher's Retirement System with respect to the GMDC.
"Goodwill" has the meaning specified in Section 4.10(a).
"HPR" means highly protected risk.
[CONFIDENTIAL]
"Left-over Ad Product" has the meaning specified in Section 3.04.
"Left-over Ad Product Report" has the meaning specified in Section
3.04.
"Loan Documents" has the meaning specified in the Credit Agreement.
"Lost Profits Surcharge" has the meaning specified in Section 4.08(b).
"Master Purchase Order" has the meaning specified in Section 5.04(b).
"Merchandise" means all of Pathmark's requirements of groceries,
perishables and other merchandise in the product categories carried by C&S
including, but not limited to, branded or private label products in the
following categories: grocery (mainline), dry bakery, candy, supplies and all
perishables including, but not limited to, fresh meat, fresh deli, fresh
seafood, dairy, produce, floral, frozen (mainline), frozen bakery, ice cream,
frozen meat and frozen seafood. The term "Merchandise" (a) includes ice, and
forty pounds of ice shall be considered one case, but (b) does not include,
▇▇▇▇▇▇▇▇ supplies and other supplies and candy currently
3
supplied to Pathmark Stores from the GMDC. Subject to the satisfaction of the
conditions set forth in Section 3.09, Merchandise shall include all goods
supplied to Pathmark Stores from the GMDC on the Commencement Date, including,
without limitation, all general merchandise and health and beauty aids.
"Multiemployer Pension Plans" has the meaning specified in the Asset
Purchase Agreement.
"Pathmark Stores" shall mean (i) all existing Pathmark stores as
itemized on Exhibit B, (ii) all new stores opened by Pathmark during the Term,
including without limitation, any so-called "replacement" store(s) opened by
Pathmark contemporaneously with, or in contemplation of, the closing of or other
suspension of operations at any then existing Pathmark store(s), and (iii) all
stores acquired by Pathmark during the Term by any means, including, without
limitation, through an acquisition or merger, as soon as Pathmark is legally
capable of purchasing Merchandise for such stores from C&S. The parties agree to
amend Exhibit B from time to time to reflect the addition of new Pathmark Stores
or the closing of existing Pathmark Stores.
"Per Case Reduced Volume Surcharge" has the meaning specified in
Section 4.08(a).
"Per Case Volume Incentive" has the meaning specified in Section 4.07.
"Person" means any individual, partnership, firm, corporation,
association, trust, unincorporated organization or other entity or any
government or governmental authority or agency and any affiliate of such Person.
"Plainbridge" means Plainbridge, Inc., a Delaware corporation.
[CONFIDENTIAL]
"Sale" has the meaning specified in Section 9.06(a).
[CONFIDENTIAL]
"Service Level" means at any time a percentage reflecting the ratio of
(i) the number of cases of Merchandise made available for pick up by Pathmark at
the Facilities to (ii) the total number of cases of such Merchandise ordered by
Pathmark, as calculated in accordance with Section 3.06. Service Level
percentages will not be adversely affected by long-term manufacturers'
out-of-stocks, commodity shortages, unusual overpulls on ad items, unauthorized
items ordered by Pathmark, any error by Pathmark in booking advertising and
feature items (including sales levels of feature items in excess of projections
made by Pathmark and adjustments to pre-orders where applicable), Pathmark's
directions with respect to items procured by Pathmark pursuant to Section
3.04(f) and 3.04(g), or any Event of Force Majeure.
4
"Service Level Breach" has the meaning specified in Section 3.06.
"Service Level Deficiency" has the meaning specified in Section 3.06.
"SKU" means stock keeping unit.
"Standard Credit Policy" has the meaning specified in Section 3.05(d)
"Targeted Service Level" has the meaning specified in Section 3.06.
"Transferred Inventory" shall mean the Merchandise purchased by C&S
from Pathmark pursuant to the Asset Purchase Agreement.
"Term" has the meaning specified in Section 2.02.
"TDR" has the meaning specified in Section 4.10(a).
"Transportation Company" means the company designated by Pathmark to
perform transportation services.
"Withdrawal Liability" has the meaning specified in Section 4.13.
ARTICLE II
SCOPE OF AGREEMENT; TERM
Section 2.01. Agreement. Except as set forth in Section 3.04(f) herein,
Pathmark agrees to purchase from C&S, during the Term, all requirements of
Merchandise for Pathmark Stores, and C&S agrees to supply to Pathmark, during
the Term, all Merchandise ordered by Pathmark, upon the terms and subject to the
conditions set forth in this Agreement. Pathmark agrees that it will not, during
the Term, use a secondary supplier for the Merchandise, except for Merchandise
that C&S fails to, or is unable to, provide in accordance with the provisions of
this Agreement. Notwithstanding the foregoing, Pathmark may continue to purchase
items currently supplied by direct store delivery vendors from suppliers other
than C&S, [CONFIDENTIAL].
Section 2.02. Term.
(a) The term of this Agreement (the "Term") will be fifteen
Contract Years, beginning February 1, 1998.
(b) Notwithstanding the foregoing provisions, the Term shall
not commence until the Closing under the Asset Purchase Agreement shall
have occurred, and sales of
5
Merchandise from C&S to Pathmark that commenced on January 11, 1998 in
anticipation of implementation of this Agreement shall be governed by
this Agreement.
ARTICLE III
PURCHASE AND SALE
Section 3.01. Maintenance of Inventory; Operation of Facilities.
(a) C&S shall purchase Merchandise from vendors thereof, and
shall maintain in stock an adequate inventory of Merchandise to fill
and load Pathmark orders on a timely basis in accordance with the load
schedules for Pathmark Stores. The initial load schedules for Pathmark
Stores are set forth on Exhibit D. The parties agree to negotiate in
good faith to make necessary adjustments to the load schedules from
time to time.
(b) C&S shall maintain a workforce and equipment reasonably
necessary to provide services under this Agreement in an efficient,
timely and safe manner. C&S will load Pathmark store-bound mail on the
provided trailers or with the Transportation Company; provided that
Pathmark shall sort and prepare all mail in the sequence of outbound
trailers for that day.
(c) C&S will be responsible for overall security at the
Facilities, and will take reasonable measures to safeguard the
Transportation Company's trucks and trailers while they are on the
grounds of each Facility including affixing and checking the seals of
all outbound loads and maintaining receiving and shipping logs.
Pathmark shall be responsible for movement of tractors and trailers on
the grounds of each Facility, and Pathmark shall cause the
Transportation Company to maintain a workforce reasonably necessary to
provide for such movement; provided that such work or movement must
arise out of, be related to or connected with Merchandise intended for
sale to, or services for, Pathmark . Pathmark acknowledges that it has
responsibility for its employees', agents' or licensees' activities at
each Facility.
(d) Each party agrees to consult with the other party on a
regular and continuing basis regarding all aspects of the services to
be provided hereunder.
Section 3.02. Delivery. (a) All Merchandise ordered by Pathmark
hereunder shall be made available for pick up by Pathmark at the applicable
Facility's loading docks within the agreed upon dispatch times and windows as
reflected on Exhibit D, as such Exhibit may be adjusted from time to time by
mutual agreement of the parties. If C&S decides to use another facility for the
supply of Merchandise hereunder, then Pathmark will, within reason, adjust its
ordering times or delivery schedule to accommodate such change. C&S shall be
responsible for loading the Merchandise onto the Transportation Company's
trucks. Pathmark shall be
6
responsible for ensuring that fully operable trailers are available to C&S for
loading in an adequate amount of time in order to meet scheduled loading times;
provided, that if additional trailers are needed, then C&S shall rent such
trailers with Pathmark's prior approval and charge the amount of such rental to
Pathmark on a weekly basis in accordance with Section 3.05(a). Pathmark shall be
responsible for delivering the Merchandise to Pathmark Stores. Title to, and
risk of loss with respect to, such Merchandise shall remain with C&S until such
time as the trailer containing Merchandise exits the applicable Facility;
provided, that such risk of loss shall transfer to Pathmark only at such time
that a Pathmark trailer is attached to a Pathmark tractor in order to move the
trailer from place to place within such Facility; provided, further that if the
Merchandise is lost or stolen due to the negligence or intentional act of an
employee of Pathmark or of the Transportation Company, C&S shall not be liable
to Pathmark for said damaged, lost or stolen Merchandise and Pathmark's recourse
shall be against its employees or the Transportation Company. C&S shall be
responsible for trailer damage caused by C&S employees; provided that C&S shall
not be responsible for usual and customary wear and tear on such trailers. C&S
shall have the right to use any facility (other than the Facilities) for the
supply of Merchandise hereunder; provided that C&S will reimburse Pathmark for
[CONFIDENTIAL] of the net additional direct transportation costs incurred by
Pathmark due to such change in facility; provided further that C&S shall not be
obligated to share in any such additional cost to the extent that (i) C&S can
demonstrate that such transportation services can be provided at a lower cost or
(ii) Pathmark fails to deliver possession or use of such Facility, under the
Asset Purchase Agreement, to supply the Merchandise (e.g., if due to
environmental remediation activities at such Facility for which Pathmark is
responsible or if Pathmark fails to deliver the lease assignment for such
Facility pursuant to the Asset Purchase Agreement). To the extent that C&S is
able to reduce Pathmark's transportation costs by opening new Facilities closer
to certain Pathmark Stores, Pathmark shall pay over to C&S annually
[CONFIDENTIAL] of all such savings. C&S shall have the right to audit Pathmark's
records, and Pathmark agrees to make all relevant records available for audit,
in order to confirm Pathmark's transportation costs. Such audits shall be
limited to one in any twelve-month period. For example, if (a) C&S should use a
warehouse in a location that is closer to certain Pathmark Stores than a current
Facility that is servicing such stores and (b) by using such warehouse, Pathmark
has lower transportation costs, then Pathmark shall pay to C&S [CONFIDENTIAL] of
such cost savings on a weekly basis in accordance with Section 3.05(a).
(b) C&S shall be prepared to handle new items within
twenty-one (21) days after Pathmark shall have notified C&S of Pathmark's
acceptance of such new items, subject to availability of such items from
vendors.
Section 3.03. Base Price. The Base Prices for all Merchandise supplied
by C&S to Pathmark pursuant to this Agreement are as follows; provided, that the
Base Price for each item of Transferred Inventory shall be [CONFIDENTIAL]:
(a) Grocery, Certain Frozen and Other Categories. The Base
Price for the grocery, dry bakery, candy, frozen (mainline), frozen
bakery, ice cream and dairy product
7
categories shall be [CONFIDENTIAL]. C&S shall publish the Base Price
weekly in the C&S bulletin and price book prepared for Pathmark, and
will also transmit the Base Price information electronically to
Pathmark each week.
(b) Produce and Meat Categories. The Base Price for items in
the produce (including floral), deli, fresh meat (including fresh
seafood), frozen seafood and frozen meat categories shall be
[CONFIDENTIAL].
(c) Store Supplies Category. The Base Price for items in the
store supplies product category shall be [CONFIDENTIAL].
Section 3.04. Other Pricing Provisions. The following provisions shall
be applicable to the purchase and supply by C&S of Merchandise hereunder:
[CONFIDENTIAL].
(c) C&S will carry Pathmark's full assortment of private label
and branded Merchandise [CONFIDENTIAL]. C&S agrees that Pathmark shall
identify the source of private label Merchandise and set the
specifications for same.
(d) Pathmark will be responsible for providing C&S with ad
quantities. C&S will notify Pathmark each Monday (a "Left-over Ad
Product Notice") of ad product [CONFIDENTIAL]. Items shall be removed
from the Left-over Ad Product Report when such item [CONFIDENTIAL].
[CONFIDENTIAL]
(f) In its sole discretion, Pathmark may control
[CONFIDENTIAL] procurement decisions solely with respect
[CONFIDENTIAL]. All produce and fresh meat Merchandise purchased by C&S
shall be purchased following the specifications attached to those
certain letters between Pathmark (▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇) and C&S (▇▇▇▇
▇▇▇▇▇), dated September 23, 1997 (produce specifications) and September
24, 1997 (meat specifications), which specifications may be adjusted
from time to time based upon availability and mutual agreement of the
parties. Pathmark shall disclose to C&S all rebates and volume
incentives available to Pathmark with respect to such items. Pathmark
will provide C&S with ad quantities, designated vendor, and cost of
goods for those items for which Pathmark is controlling the
procurement. C&S will cut all purchase orders, control all in-bound
freight and purchase turn inventory regardless of which party controls
the procurement decision. From time to time, C&S may allow Pathmark to
procure items in addition to those specified in this paragraph (such as
private label sausage), but such designation may be revoked in the sole
discretion of C&S.
(g) Pathmark is responsible for buying and storing all holiday
frozen turkeys and
8
holiday frozen shrimp. C&S shall not be obligated to take delivery of
such items more than one week prior to the first store distribution
date; provided that Pathmark shall handle the first store distribution
of such items.
[CONFIDENTIAL]
(j) Purchase orders for all grocery, frozen and dairy
Merchandise will be placed with metro New York/New Jersey brokers. C&S'
purchase orders will be placed based on the same pricing structure
currently presented on the Pathmark deal sheets.
[CONFIDENTIAL]
(l) The pricing provisions in this Agreement have been agreed
to based upon the parties' mutual assumption that deal and billback
activity and other manufacturers' promotions will remain at levels
throughout the Term that are essentially the same as the current levels
and that no fundamental changes will occur in the structuring of
promotions or other factors affecting the wholesale cost of
Merchandise. In the event that the parties' mutual assumptions cease to
be true at any time during the Term, the parties agree to negotiate in
good faith to reach agreement on new, mutually acceptable pricing
terms.
(m) C&S will not be responsible for any distress or spoiled
product for which C&S has not made the procurement decisions and shall
not issue any credit with respect to such product.
[CONFIDENTIAL]
(o) Each party will bear the cost of their own quality control
inspectors.
(p) Pathmark acknowledges that slots and other warehouse space
has value and that C&S is entitled to be compensated for the
introduction of new items into any Facility. Neither party nor their
respective representatives will interfere with the other party's
slotting, incentive or accrual programs. Neither party nor their
respective representatives will induce any vendor to forego paying to
either party slotting, incentive or accrual monies or any other funds
that a wholesaler or retailer, as the case may be, would customarily
receive.
(q) C&S shall not be obligated to carry a greater number of
SKU's than Pathmark currently carries as of the date hereof (as
attached to that certain letter between Pathmark (▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇)
and C&S (▇▇▇▇ ▇▇▇▇▇), dated September 24, 1997, absent the consent of
C&S, which consent will not be unreasonably withheld.
(r) With respect to Red Pack tomatoes, Ocean Spray cranberry
sauce, and certain private label commodity items that are subject to
significant market
9
changes, C&S and Pathmark will meet to determine the amount of product
to be purchased, the number of promotional weeks in relationship to the
number of turn weeks, and the price of such product (it being the
intent that C&S can recover its expenses related to the purchase plus a
fair profit for C&S). [CONFIDENTIAL]
(s) Pathmark shall repurchase from C&S any and all inventory
that C&S purchased from Pathmark pursuant to the Asset Purchase
Agreement within 120 days of the Commencement Date (or such shorter
time as provided in the Asset Purchase Agreement) [CONFIDENTIAL].
Section 3.05. Payments.
[CONFIDENTIAL]
(d) The parties have established an overage/shortage program,
attached hereto as Exhibit F (the "Standard Credit Policy"). The
Standard Credit Policy also provides for store delivery documentation
and remedy procedures in the event of a "missing pallet" and Pathmark's
right to witness load audits. C&S will adopt Pathmark's wrapping
procedure for pallets of high-cost product.
(e) C&S shall have the right to determine the application of
any monies received from Pathmark against amounts owed to it by
Pathmark. Generally, C&S shall apply amounts received from Pathmark
first against any fees and expenses, including interest charges and
TDR, AMF or Goodwill repayments (if due and payable), second to amounts
owed for non-produce Merchandise and finally to amounts owed for
produce Merchandise.
Section 3.06. Service Level.
(a) Service Level Reporting. C&S will provide Pathmark a daily
Service Level Reconciliation Report showing, with respect to each
invoice, the number of cases ordered, the number of cases shipped, the
number of cases that are out of stock (including "warehouse scratches")
and the number of cases that are unauthorized.
(b) Service Level Deficiency. During the first 90 days of the
Term of this Agreement, C&S' goal will be to maintain the following
Service Levels (each a "Targeted Service Level"):
A. Dry Merchandise, including: [CONFIDENTIAL]
--------------------------
grocery (mainline)
dry bakery
candy
supplies
10
B. Perishable Merchandise, including: [CONFIDENTIAL]
---------------------------------
fresh meat
fresh deli
fresh seafood
produce
dairy
C. Frozen Food Merchandise: [CONFIDENTIAL]
-----------------------
For the balance of the Term, C&S agrees to use its best efforts to maintain the
Targeted Service Levels at all times. The parties expressly acknowledge that
C&S's obligations to maintain such Service Level shall be excused upon the
occurrence of an Event of Force Majeure. If the Service Level falls below the
Targeted Service Level for any week following the first 90 days of the Term (a
"Service Level Deficiency"), Pathmark shall give notice to C&S and C&S shall use
its best efforts to restore the required Service Level. If, during the second
week following the occurrence of a Service Level Deficiency, a Targeted Service
Level is achieved, then the Service Level Deficiency shall be remedied. If C&S
fails to remedy the Service Level Deficiency during the second week following
the occurrence of a Service Level Deficiency, Pathmark shall be entitled to
source product from a third party. Once the Service Level Deficiency is cured,
Pathmark agrees to cease purchases from third party suppliers (except with
respect to products previously ordered).
[CONFIDENTIAL]
(d) Service Level Breach. If Pathmark has given notice to C&S
of a Service Level Deficiency and C&S fails during the following week
to remedy the Service Level Deficiency, a "Service Level Breach" will
be deemed to have occurred and such Service Level Breach shall continue
until a week occurs during which the Service Level Deficiency is
remedied. In the event, however, that the average Service Level in any
Contract Quarter meets or exceeds the Targeted Service Level, no
Service Level Breach shall be deemed to have occurred within such
Contract Quarter. If five or more Service Level Breaches occur within
any Contract Year, Pathmark shall have the right to terminate this
Agreement in accordance with the terms of Section 7.02.
Section 3.07. Third Party Deductions. From time to time, Pathmark may
ask C&S to act as its agent to deduct amounts that are due from manufacturers to
Pathmark. C&S has the right, in its discretion, to refuse to honor any third
party deduction request that Pathmark may make. If C&S makes a deduction on
Pathmark's behalf and the manufacturer disputes the deduction made by C&S,
Pathmark agrees to indemnify and defend C&S against and hold C&S harmless from
any claim by the manufacturer related to such deduction. If C&S repays any
deduction that C&S makes on Pathmark's behalf, Pathmark will, upon notice from
C&S, repay such amount to C&S. Pathmark will insure that supply of Merchandise
from manufacturers to C&S is not adversely affected by any third party
deductions that C&S may take on Pathmark's behalf. Service Level shall not be
adversely affected by an interruption in the supply of Merchandise from a
manufacturer to C&S if the interruption is caused by the refusal of the
11
manufacturer to ship product to C&S and such refusal is attributable to a
disputed deduction that C&S has taken on Pathmark's behalf. C&S will add to each
deduction from a vendor a fee of no less than [CONFIDENTIAL] to process the
deduction made by C&S on Pathmark's behalf; provided, that in no event will C&S
charge such fee for any goods processed through C&S' reclamation program. Each
Friday, C&S will reimburse Pathmark for all deductions collected during the
preceding seven day period, less C&S' fee.
Section 3.08. Ordering Practices. Pathmark and C&S agree to develop and
maintain ordering practices which shall include computer-assisted ordering and
full, store-ready pallets in order to maintain and improve efficiency at the
Pathmark Stores and the Facilities. The parties hereby agree and acknowledge
that with respect to the Pathmark Stores on Schedule 3.08, Pathmark may need to
adjust the amount of store-ready pallets such stores order.
[CONFIDENTIAL]
ARTICLE IV
FEES; REBATES; OTHER CHARGES
Section 4.01. Fees. (a) Pathmark shall pay to C&S, pursuant to Section
3.05(a) herein, for Merchandise ordered from C&S, fees determined in accordance
with the following schedule.
A. Dry Merchandise upcharge: [CONFIDENTIAL]
------------------------
-including the following:
grocery (mainline)
dry bakery
candy
supplies
B. Perishable Merchandise upcharge: [CONFIDENTIAL]
-------------------------------
-including the following:
fresh meat
fresh deli
fresh seafood
produce
dairy
floral
C. Frozen Food Merchandise upcharge: [CONFIDENTIAL]
--------------------------------
The modulars and loose produce Merchandise shipped in a bin as a packaging
container, [CONFIDENTIAL], shall be deemed to contain [CONFIDENTIAL].
12
(b) Adjustment to fees.
(i) C&S will ▇▇▇▇ Pathmark for C&S' costs due to any
Transportation Company's failure to perform as required under this
Agreement, including without limitation, any and all costs due to the
failure of any Transportation Company to move a trailer away from a
dock door within two hours of such trailer being ready to be moved.
(ii) Commencing with the third Contract Year, C&S may adjust
the upcharges to reflect increases in Pathmark's pro rata share of the
statutory rates for workers' compensation coverage and legislated costs
of providing medical benefits over the costs incurred by C&S for each
of these items during the first contract year.
[CONFIDENTIAL]
(iv) The fees set forth in this Agreement reflect the parties'
assumption that C&S will not be obligated to pay New Jersey gross
receipts (litter control) tax. If C&S determines that it is obligated
to pay New Jersey gross receipts (litter control) tax, the fees payable
to C&S will be adjusted to offset the increased cost to C&S.
Section 4.02. Cross-dock. C&S will charge Pathmark a handling fee of
[CONFIDENTIAL]. On a periodic basis, C&S will make empty totes available for
return to the GMDC. Cross-dock product is not slotted in the Facility and does
not have to be carried over 24 hours in the Facility.
Section 4.03. Continuities. The processing of continuities and their
returns will be at Pathmark's discretion. If C&S handles such continuities, then
C&S will charge Pathmark a handling fee of [CONFIDENTIAL]. Only full case units
in the original shipping container or partial cases which have been repacked and
sealed by the store may be returned. The handling fee will be subject to
adjustment for cases exceeding two cubic feet.
Section 4.04. Banana Ripening. In addition to the Upcharges reflected
in Section 4.01, Pathmark will pay a fee for banana ripening in an amount equal
to [CONFIDENTIAL].
Section 4.05. Cardboard ▇▇▇▇▇. If Pathmark requests that C&S handle
Pathmark's cardboard ▇▇▇▇▇, then Pathmark shall pay to C&S a handling fee of
[CONFIDENTIAL].
Section 4.06. Rebate.
[CONFIDENTIAL]
Section 4.07. Volume Incentive. If in any Contract Quarter, Pathmark's
case purchases
13
from C&S are greater than [CONFIDENTIAL], C&S will pay Pathmark a
volume incentive (the "Per Case Volume Incentive") equal to [CONFIDENTIAL] for
all cases in excess of the [CONFIDENTIAL], provided that (i) the parties expect
that such annual sales shall exceed the [CONFIDENTIAL], and (ii) if Pathmark
shall acquire any store that, prior to such acquisition, was supplied by C&S,
then the Per Case Volume Incentive shall not apply to the volume attributable to
such store. The Per Case Volume Incentive shall be credited by C&S by the 10th
day after the end of each Contract Quarter.
Section 4.08. Reduced Volume Surcharge; Lost Profits Surcharge.
(a) If in any Contract Quarter, Pathmark's purchases from C&S
are less than [CONFIDENTIAL], then Pathmark shall pay to C&S a Per Case
Reduced Volume Surcharge (the "Per Case Reduced Volume Surcharge")
equal to [CONFIDENTIAL] for all quarterly case sales less than
[CONFIDENTIAL].
(b) If in any Contract Quarter Pathmark's purchases from C&S
are less than the [CONFIDENTIAL] cases, Pathmark shall pay to C&S an
additional surcharge (the "Lost Profits Surcharge"), equal to
[CONFIDENTIAL].
(c) For purposes of determining any Reduced Volume Surcharge
payable with respect to the first Contract Quarter, cases purchased
during the implementation period will be aggregated with cases
purchased during the first Contract Quarter. The Per Case Reduced
Volume Surcharge and the Lost Profits Surcharge calculated as set forth
in this Section 4.08 for any Contract Quarter shall be paid by Pathmark
by the 10th day after the end of each Contract Quarter.
Section 4.09. Reconciliation. The [CONFIDENTIAL] referred to in Section
4.07 hereof, and Section 4.08(a) hereof, and the [CONFIDENTIAL] referred to in
Section 4.08(b) hereof are referred to herein as benchmarks. At the end of each
Contract Quarter, C&S shall reconcile the actual aggregate case sales for such
Contract Year with the applicable aggregate benchmark amount for each of the Per
Case Volume Incentive, Per Case Reduced Volume Surcharge and the Lost Profits
Surcharge. For example, if (a) in the first Contract Quarter, Pathmark's case
volume was [CONFIDENTIAL] cases and Pathmark paid a Per Case Reduced Volume
Surcharge of [CONFIDENTIAL] and (b) in the second Contract Quarter, Pathmark's
case volume was [CONFIDENTIAL] cases, then C&S would (i) aggregate the Contract
Quarters within such Contract Year [CONFIDENTIAL], (ii) aggregate the applicable
benchmarks [CONFIDENTIAL], reconcile such aggregate case sales with the
aggregate benchmark amount and, in this example, refund such prior
[CONFIDENTIAL] payment ten days following the end of the second Contract
Quarter.
Section 4.10. Trade Discount Rebate, Advance Marketing Funds and
Goodwill. [CONFIDENTIAL]
(b) Reduction and Repayment.
14
(i) Volume Decline. If in any Contract Year, the
annual case purchases by Pathmark from C&S are less than
[CONFIDENTIAL], then C&S shall reduce [CONFIDENTIAL] due at the end of
said Contract Year by [CONFIDENTIAL].
[CONFIDENTIAL]
(iii) TDR, AMF and Goodwill and Termination. If
Pathmark rejects and/or terminates this Agreement pursuant to any
bankruptcy case brought by or against Pathmark (any termination without
cause being prohibited under this Agreement), then Pathmark shall repay
to C&S all TDR, AMF and Goodwill payments that C&S has paid to Pathmark
in addition to all other damages caused by such termination.
(c) Schedule Adjustment. All dates set forth in Section
4.10(a) assume that Pathmark shall begin purchasing all of its
requirements of Merchandise from C&S on January 30, 1998. Payments
hereunder shall be, as applicable, delayed or accelerated by one day
for every day that the Commencement Date is delayed or accelerated.
(d) Conditions. C&S's obligation to make any and all TDR, AMF
or Goodwill payments shall be subject to the satisfaction of the
following conditions:
(i) The representations and warranties of Pathmark
set forth herein shall be true and correct in all material respects on
and as of the date of such payment except to the extent such
representations and warranties specifically relate to an earlier date,
in which case such representations and warranties shall have been true,
correct and complete in all material respects on and as of such earlier
date; and
(ii) At the time of such TDR, AMF or Goodwill
payment, no default under this Agreement or no Event of Default (as
defined in the Credit Agreement) in the following subparagraphs in
Article 7 (a)-(c) and (f)-(j) of the Credit Agreement shall have
occurred and be continuing.
Each and every TDR, AMF or Goodwill payment shall be deemed to
constitute a representation and warranty by Pathmark on the date
thereof as to the matters specified in paragraphs (i) and (ii) of this
Section.
Section 4.11. Interest Charges. This is a supply agreement and not a
credit agreement; it is not intended, nor shall it be a source of financing for
Pathmark. Notwithstanding the preceding sentence, interest shall accrue on all
unpaid amounts under this Agreement from the date due until repaid. Interest
shall accrue at a rate of [CONFIDENTIAL]. After termination of this Agreement,
any amounts outstanding under this Agreement shall bear interest from the date
of such termination to the date such amount is paid in full at a rate per annum
equal to [CONFIDENTIAL]. Interest is due and payable daily.
15
[CONFIDENTIAL]
Section 4.13. ERISA Withdrawal Liability. Pursuant to the Asset
Purchase Agreement, the parties thereunder have agreed that Woodbridge Logistics
LLC will elect to proceed under ERISA Section 4204 and assume Pathmark's
obligations under the Multiemployer Pension Plans. Upon any subsequent
withdrawal from such plan by Woodbridge Logistics LLC occurring (i) prior to the
expiration or termination (other than a termination that occurs as a result of a
default by C&S hereunder) of this Agreement; (ii) within 60 days after
expiration of this Agreement; or (iii) within 180 days after termination of this
Agreement, [CONFIDENTIAL]. This Section 4.13 shall survive termination of this
Agreement.
ARTICLE V
CERTAIN COVENANTS
Section 5.01. Pallet Program. Pursuant to the Asset Purchase Agreement,
C&S or its subsidiary shall purchase from Pathmark all of Pathmark's pallets
(plastic and wooden). C&S and Pathmark agree to develop a mutually acceptable
pallet exchange program and accounting procedures to ensure that Pathmark
maintains an adequate number of pallets throughout the Term, provided that it is
the responsibility of C&S to purchase any and all replacement pallets and the
responsibility of Pathmark to return all pallets. If Pathmark fails to return to
C&S any pallet, then C&S will ▇▇▇▇ Pathmark for such shortage. This Section 5.01
is amended and supplemented by the pallet control procedures set forth on
schedule 5.01.
Section 5.02. Reclamation.
(a) Pathmark shall participate in C&S' reclamation program for
all Merchandise. This product will be scanned at C&S' reclamation
center within seven days after the product or empty container is picked
up from Pathmark Stores, and Pathmark will receive credit, on a monthly
basis, in an amount equal to [CONFIDENTIAL] of the retail value of
qualifying product. Furthermore, Pathmark shall receive a credit, on a
monthly basis, in an amount equal to [CONFIDENTIAL]; provided, that if
manufacturers adjust their current practices regarding reclamation,
then C&S would suspend payment of this credit and the parties would
meet to ensure that C&S' profitability was not negatively affected. For
the purpose of this section, qualifying product shall not include any
private label or any other unauthorized items. C&S shall not sell
Pathmark's private label goods within a 200-mile radius of the ▇▇▇▇▇
Facility.
(b) GM/HBC, cigarettes and Non-Merchandise items. C&S will
scan all qualified units of GM/HBC, cigarettes and non-Merchandise
items and transmit such information to Pathmark. Pathmark, in turn,
shall pay C&S, on a monthly
16
basis, $.21 per unit scanned and will ▇▇▇▇ the respective vendors for
the cost of such product and related handling fees. If and when a
non-Merchandise item becomes Merchandise hereunder, then, at the
discretion of C&S, the reclamation of such items will be pursuant to
Section 5.02(a). If an item has been discontinued and C&S is unable to
▇▇▇▇ the respective vendor for the cost of such product and related
handling fees, then the reclamation of such item shall be pursuant to
this Section 5.02(c).
(c) This section 5.02 shall be supplemented by Schedule 5.02.
Section 5.03. Compliance with Law. Each of Pathmark and C&S covenants
and agrees that in performing its obligations hereunder, it will comply with all
applicable laws, rules, regulations and orders and will have and maintain all
permits, licenses and authorizations necessary for the conduct of its business
and the performance of its obligations hereunder.
Section 5.04. Indemnity and Insurance.
(a) General Indemnity Provisions. C&S agrees to defend,
indemnify and hold harmless Pathmark and its employees, servants,
agents, successors and assigns from and against any and all claims and
demands for bodily injury or property damage arising out of or
resulting from the acts or omissions of C&S in any manner relating to
the handling, storage or use (but not the transportation) of the
Merchandise supplied to Pathmark pursuant to this Agreement, provided,
however, that this indemnification and hold harmless shall not apply to
any claims arising from or as a result of the misconduct or negligence
of Pathmark or its employees, agents or licensees.
Pathmark agrees to defend, indemnify and hold harmless C&S and
its employees, servants, agents, successors and assigns from and
against any and all claims and demands for bodily injury or property
damage arising from or caused by (i) any acts or omissions of Pathmark
in any manner relating to the transportation or handling of the
Merchandise; or (ii) the use of any product sold by Pathmark to C&S
pursuant to Section 6.01 of this Agreement.
Whenever Pathmark receives notice of a claim or demand that
would be covered by C&S' indemnity, Pathmark shall in turn provide C&S
with prompt written notice of said claim or demand.
Whenever C&S receives notice of a claim or demand that would
be covered by Pathmark' indemnity, C&S shall in turn provide Pathmark
with prompt written notice of said claim or demand.
(b) Product Liability. C&S represents that it shall endeavor
to obtain indemnification and hold harmless agreements (the "Master
Purchase Order") from the
17
manufacturers, vendors or distributors of the Merchandise being sold to
Pathmark by C&S under this Agreement, which indemnification and hold
harmless agreements shall cover all claims and demands in any manner
based upon or attributed to the use of the Merchandise supplied by C&S.
C&S also represents that it shall endeavor to obtain evidence of
product liability insurance covering said indemnification in the amount
of $1 million from each such manufacturer, vendor or distributor. C&S
has furnished Pathmark its form of Master Purchase Order currently
furnished to vendors, as attached hereto as Exhibit G.
Pathmark agrees to assist C&S in its efforts to obtain
indemnification agreements and evidence of insurance from all vendors
supplying Pathmark Merchandise. Attached to this Agreement as Exhibit H
is a list of all Pathmark vendors as of the date hereof and an
indication of the amount (if any) of insurance each such vendor has
agreed to maintain. Pathmark agrees to furnish C&S copies of insurance
certificates furnished by such vendors and any related indemnity
agreements upon request.
On the Commencement Date and on each anniversary of the
Commencement Date, C&S will furnish Pathmark a list of vendors that
have executed C&S' form of Master Purchase Order and provided evidence
of insurance. If Pathmark places further orders for product supplied by
any vendor that has not executed C&S' form of Master Purchase Order and
provided evidence of insurance, C&S shall have no liability except for
acts or omissions by C&S causing bodily injury or property damage, and
Pathmark shall indemnify, defend and hold harmless C&S and its
employees, servants, agents, successors and assigns against any and all
claims and demands in any manner based upon or attributed to the use of
the products supplied by such vendors except claims arising out of acts
or omissions by C&S.
(c) Insurance. C&S agrees that all material properties and
risks of C&S shall at all times be covered by valid and currently
effective insurance policies or binders of insurance or programs of
self-insurance in such types and amounts as are consistent with
customary practices and standards of C&S. Pathmark shall be named as an
additional insured as provided in the certificate of insurance
previously delivered to Pathmark, and certificates of insurance
evidencing the renewal of insurance shall be delivered by C&S to
Pathmark from time to time. Pathmark agrees that all material
properties and risks of Pathmark and any third party providing
transportation services to Pathmark shall at all times be covered by
valid and currently effective insurance policies or binders of
insurance or programs of self-insurance in such types and amounts as
are consistent with customary practices and standards of companies
engaged in businesses and operations similar to those of Pathmark. C&S
shall permit Pathmark's property insurance carrier to conduct one
property conservation inspection each year at each Facility. C&S shall
at all times maintain the Facilities utilizing the same fire protection
standards utilized by Pathmark prior to the transfer to C&S. C&S agrees
to implement the reasonable recommendations of such carrier and to
adhere to the property conservation practices
18
normally associated with HPR properties; provided, that C&S shall not
be obligated to expend more than [CONFIDENTIAL] in the first Contract
Year pursuant to this section and more than [CONFIDENTIAL] in the first
two Contract Years, and, provided further, that the inspection
scheduled by Arkwright Mutual Insurance Company for February 1998,
reaffirms the 1994 HPR rating for such Facility.
Section 5.05. Certain Financial Information. Pathmark shall immediately
give notice to C&S of any defaults (or any event that, with the passage of time,
would constitute a default) occurring under the Loan Documents.
Section 5.06. PACA, Repossession and Set Off . Pathmark affirms and
acknowledges that (i) upon a failure by Pathmark to make any payment when due
pursuant to this Agreement, C&S may fully enforce against Pathmark any and
all rights that C&S may possess pursuant to the Perishable Agricultural
Commodities Act, as amended, codified at 7 U.S.C.A. Section 499a et seq.;
(ii) upon an Event of Insolvency with respect to Pathmark or a failure by
Pathmark to make any payment when due under this Agreement, C&S may fully
enforce against Pathmark any and all rights that C&S may possess pursuant to
Section 2-702 of the Uniform Commercial Code, including without limitation,
the right to reclaim goods delivered to Pathmark upon the terms and
conditions set forth in Section 2-702; and (iii) upon a failure of Pathmark
to make any payment to C&S when due, C&S may, and is hereby authorized by
Pathmark, at any time and from time to time, to the fullest extent permitted
by applicable law, without advance notice to Pathmark (any such notice being
expressly waived by Pathmark), set off and apply any and all amounts owed by
C&S to Pathmark under this Agreement, against any or all of the Pathmark
obligations that have not been paid when due and remain unpaid, irrespective
of whether or not C&S has exercised any other rights that it has or may have
with respect to such Pathmark obligations. Pathmark shall execute and deliver
to C&S, from time to time during the term of this Agreement, such documents
as C&S may reasonably request to create, maintain, acknowledge or confirm the
rights of C&S affirmed and acknowledged by Pathmark pursuant to this Section
5.06.
Section 5.07. Utilization of Other C&S Facilities. If an Event of Force
Majeure affects C&S' ability to supply Pathmark Stores from any Facility but
does not otherwise affect C&S' operations, then C&S will use reasonable efforts
to supply Pathmark Stores from another facility operated by C&S.
Section 5.08. Base Price Audit. Pathmark shall have the right to audit
C&S' records, and C&S agrees to make all relevant records available for audit,
on C&S' premises or at other mutually agreed locations in order to confirm that
the Base Price charged to Pathmark during the period covered by the audit is in
accordance with the provisions of this Agreement. Such audits shall be limited
to one in any twelve month period, for the preceding twelve month period, and,
unless any significant discrepancies are found, each such audit shall be
completed in thirty working days. Pathmark agrees to conduct audits under this
Agreement only upon reasonable notice to C&S (which notice shall specify the
documentation that Pathmark requests the opportunity to review). All audits
shall be conducted so as to minimize the disruption on C&S'
19
business operation. Pathmark agrees that it shall be limited to using four
persons at any time on such audit and that such persons shall be knowledgeable
regarding industry standards and customs, and such persons shall keep all such
information strictly confidential. Pathmark acknowledges that disclosure to
third parties of information obtained by Pathmark during its audits, other
non-public financial information furnished by C&S or the terms of this Agreement
could have a substantial adverse impact upon C&S. Pathmark agrees to maintain
any such information in strict confidence. C&S reserves the right to require any
individual engaged in an audit on behalf of Pathmark to sign a confidentiality
agreement prior to commencing the audit.
Section 5.09. Year 2000. C&S shall complete its computer system
conversion to recognize dates beyond December 31, 1999 (year 2000) by June 30,
1999.
Section 5.10. Additional Stores. If, at any time and from time to time
during the Term hereof, Pathmark shall acquire any store(s) through merger,
consolidation or other transaction and prior to said acquisition was supplied
with Merchandise by C&S, then C&S shall elect to either continue to supply such
store(s) under the terms and conditions of its existing supply agreement or
supply such store under the terms and conditions of this Agreement.
ARTICLE VI
ASSET PURCHASE
Section 6.01. Purchase of Assets. C&S agrees to purchase from Pathmark
certain assets pursuant to the terms of the Asset Purchase Agreement.
ARTICLE VII
TERMINATION
Section 7.01. Termination by C&S. C&S may terminate this Agreement for
cause (i) in the event of a default by Pathmark under Section 3.05 which remains
uncured for 72 hours after receipt by Pathmark of written notice thereof from
C&S (subject, however, to the provisions of such Section for arbitration), (ii)
in the event that Pathmark breaches any other material obligation under this
Agreement and such breach is curable and remains uncured after 90 days following
receipt by Pathmark of written notice of such breach from C&S, or (iii) upon the
occurrence of an Event of Insolvency with respect to Pathmark (provided,
however, that C&S shall not terminate this Agreement upon the occurrence of an
Event of Insolvency in the event that Pathmark is otherwise in compliance with
the terms of this Agreement and Pathmark provides adequate assurance of future
performance under this Agreement). In the event that C&S terminates this
Agreement pursuant to this Section 7.01, Pathmark shall promptly re-pay to C&S
all TDR, AMF and Goodwill amounts paid to Pathmark pursuant to Section 4.10
hereof less
20
[CONFIDENTIAL] for each full Contract Year (or part thereof in excess of six
months) completed. This Section 7.01 shall survive termination of this
Agreement.
Section 7.02. Termination by Pathmark. Pathmark may terminate this
Agreement for cause (i) in the event that, for any reason other than a default
by Pathmark under this Agreement or an Event of Force Majeure, a Service Level
Breach occurs more than five times in any Contract Year, (ii) in the event that
C&S breaches any other material obligation under this Agreement and such breach
is curable and remains uncured after 90 days following receipt by C&S of written
notice of such breach from Pathmark, (iii) upon the occurrence of an Event of
Insolvency with respect to C&S (provided, however, that Pathmark shall not
terminate this Agreement upon the occurrence of an Event of Insolvency in the
event that C&S is otherwise in compliance with the terms of this Agreement and
C&S provides adequate assurance of future performance under this Agreement) or
(iv) if C&S fails to make any payment or credit to Pathmark under this Agreement
when due and payable that remains unpaid or credited for 72 hours after Pathmark
has given written notice to C&S of such default (subject, however, to the
provisions herein for arbitration with respect to credits due under this
Agreement).
Section 7.03. Waiver. Either party to this Agreement may (a) extend the
time for the performance of any of the obligations or other acts of the other
party or (b) waive compliance with any of the agreements or conditions of the
other party contained herein. Any such extension or waiver shall be valid only
if set forth in an instrument in writing signed by the party to be bound
thereby. Any waiver of any term or condition shall not be construed as a waiver
of any subsequent breach or a subsequent waiver of the same term or condition,
or a waiver of any other term or condition, of this Agreement. The failure of
any party to assert any of its rights hereunder shall not constitute a waiver of
any of such rights.
Section 7.04. Meetings to Review Progress Toward Curing Breach. If
either party gives notice of a breach that may be cured within 90 days pursuant
to section 7.01 or 7.02, the parties agree to meet within 10 days of the date of
the notice in order to review progress toward curing the breach. If the breach
is not sooner cured, the parties agree to meet again prior to the end of the 90
day cure period in order to review the progress toward curing the breach and to
attempt to negotiate an accommodation acceptable to each party.
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES
Section 8.01. Representations and Warranties of C&S. C&S hereby
represents and warrants to Pathmark as follows:
(a) Corporate Organization and Authority. C&S (i) is a
corporation duly organized, validly existing and in good standing under
the laws of the State of Vermont
21
and is authorized to transact business in the State of New Jersey; and
(ii) has the corporate power and authority to own and operate its
properties and to carry on its business as now conducted and as
proposed to be conducted.
(b) Authorization. C&S has the corporate power and authority
to execute, deliver and perform its obligations under this Agreement
and has taken all necessary corporate action to authorize its
execution, delivery and performance of this Agreement. This Agreement
has been duly executed and delivered on behalf of C&S and constitutes
the legal, valid and binding obligation of C&S, enforceable in
accordance with its terms.
(c) No Consents; Conflicts. No consent, authorization by,
approval of or other action by, and no notice to, or filing or
registration with, any governmental authority, agency, regulatory body,
lender, lessor, franchisee or other Person is required for the
execution, delivery or performance of this Agreement by C&S, other than
those that have been obtained and are in full force and effect. The
execution, delivery and performance of this Agreement will not result
in any violation or breach of any provision of the charter or by-laws
of C&S, any judgment, decree or order to which C&S is a party or by
which it is bound, any indenture, mortgage or other agreement or
instrument to which C&S is a party or by which it is bound or any
statute, rule or regulation applicable to C&S.
Section 8.02. Representations and Warranties of Pathmark. Pathmark
hereby represents and warrants to C&S as follows:
(a) Corporate Organization and Authority. Pathmark (i) is a
corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware; and (ii) has the corporate power and
authority to own and operate its properties and to carry on its
business as now conducted and as proposed to be conducted.
(b) Authorization. Pathmark has the corporate power and
authority to execute, deliver and perform its obligations under this
Agreement and has taken all necessary corporate action to authorize its
execution, delivery and performance of this Agreement. This Agreement
has been duly executed and delivered on behalf of Pathmark and
constitutes the legal, valid and binding obligation of Pathmark,
enforceable in accordance with its terms.
(c) No Consents; Conflicts. No consent, authorization by,
approval of or other action by, and no notice to, or filing or
registration with, any governmental authority, agency, regulatory body,
lender, lessor, franchisee or other Person is required for the
execution, delivery or performance of this Agreement by Pathmark, other
than those that have been obtained and are in full force and effect.
The execution, delivery and performance of this Agreement will not
result in any violation or breach of any provision of the charter or
by-laws of Pathmark, any judgment, decree or order to which Pathmark is
a party or by which it is bound, any indenture, mortgage or other
agreement or
22
instrument to which Pathmark is a party or by which it is
bound or any statute, rule or regulation applicable to Pathmark.
ARTICLE IX
GENERAL PROVISIONS
Section 9.01. Entire Agreement. This Agreement, together with the
documents referred to herein, constitutes the entire agreement of the parties
with respect to the subject matter hereof and supersedes all prior agreements
and undertakings, both written and oral, between the parties hereto with respect
to the subject matter hereof.
Section 9.02. Expenses. Except as otherwise specified in this
Agreement, all costs and expenses, including, without limitation, fees and
disbursements of counsel, financial advisors and accountants, incurred in
connection with this Agreement and the transactions contemplated hereby shall be
borne by the party incurring the same.
Section 9.03. Amendments. This Agreement may not be amended or modified
except (i) by an instrument in writing signed by, or on behalf of, each of
Pathmark and C&S or (ii) by a waiver in accordance with Section 7.03.
Section 9.04. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given or made (and
shall be deemed to have been duly given or made upon receipt) by delivery in
person, by courier service, by telecopy or telex or by registered or certified
mail (postage prepaid, return receipt requested) to the respective parties at
the following addresses (or at such other address for a party as shall be
specified in a notice given in accordance with this Section 9.04):
(a) If to Pathmark:
▇▇▇▇▇ ▇▇▇▇▇▇
Chairman, Chief Executive Officer and President
Pathmark Stores, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
23
with a copy to:
▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Esq.
Vice President and General Counsel
Pathmark Stores, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
(b) If to C&S:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
President and Chief Executive Officer
C&S Wholesale Grocers, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇ ▇▇▇▇▇, Esq.
Senior Vice President and General Counsel
C&S Wholesale Grocers, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Section 9.05. Binding Effect; Assignment. This Agreement shall be
binding upon and inure to the benefit of Pathmark and C&S and their respective
successors and assigns; provided that (i) C&S shall not have the right to assign
or subcontract its rights or obligations hereunder or any interest herein
without the prior written consent of Pathmark, which consent shall not be
unreasonably withheld, conditioned or delayed, provided that C&S may assign this
Agreement to a subsidiary of C&S without obtaining such consent, and (ii)
Pathmark may assign its rights and delegate its obligations hereunder only so
long as (x) Pathmark shall assign, and the assignee shall assume, all such
rights and obligations, (y) the assignment is to a Person or Persons who are
acquiring all or substantially all of Pathmark' business or assets, and (z)
Pathmark demonstrates, to the reasonable satisfaction of C&S, that such Person
has the financial capability to perform the obligations of Pathmark hereunder.
C&S agrees that it shall respond, in respect of clause (z) above, promptly, and
in any event within 10 business days of receipt of notice from Pathmark of any
such proposed assignment. Failure by C&S to respond to Pathmark within such 10
business
24
day period shall be deemed to be a confirmation by C&S to Pathmark of its
reasonable satisfaction with the financial capability of the proposed assignee.
The parties acknowledge that (i) C&S will be deemed to have assigned its rights
and obligations hereunder for purposes of this Section 9.05 in the event that
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ shall cease to beneficially own at least 50.1% of the issued
and outstanding voting stock of C&S, and (ii) such assignment shall require the
prior written consent of Pathmark, which consent shall not be unreasonably
withheld, conditioned or delayed.
Section 9.06. Sale of Pathmark Division.
(a) Pathmark will provide C&S with written notice of any
Pathmark plan to sell transfer, assign or otherwise convey ownership (a
"Sale") in one or more Pathmark Divisions. Such notice shall be given
at the earliest practicable time and shall state, among other things,
the name of the proposed purchaser, the location of the stores
comprising the Division to be Sold, the approximate timetable for
consummating the sale and the purchaser's plans for supplying the
Division in the aftermath of the Sale, if such plan is known to
Pathmark. Such notice shall be given, at the latest, thirty (30) days
in advance of the date scheduled for the proposed Sale.
(b) If Pathmark Sells a Division in one or a series of
transactions within any consecutive twelve (12) month period to the
same Person, then C&S shall continue to supply such stores under the
terms of this Agreement for six months immediately following such sale
consummation.
(c) If the cause of any decline in the amount of Pathmark's
purchases from C&S is a Sale of a Division, then C&S shall relieve
Pathmark of Pathmark's obligation to pay the Per Case Reduced Volume
Surcharge and the Lost Profits Surcharge attributable to such sale to
the extent that the purchaser of such Division either (a) executes a
supply agreement on substantially the same terms and conditions as this
Agreement with respect to such Division, or (b) otherwise enters into
an agreement with C&S for C&S to supply such purchaser with
Merchandise.
Section 9.07. Counterparts. This Agreement may be executed in one or
more counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
Section 9.08. Confidentiality. Each of Pathmark and C&S agrees to and
will cause its respective authorized agents, representatives, affiliates,
employees, officers, directors, accountants, counsel and other designated
representatives (collectively, "Representatives") to (i) treat and hold as
confidential (and not disclose or provide access to any Person to) all records,
books, contracts, instruments, computer data and other data and information
(collectively,
25
"Information") concerning the other in its possession or furnished by the
other or the other's Representatives pursuant to this Agreement, (ii) in the
event that either party or its Representatives become legally compelled to
disclose any such Information, provide the other party with prompt written
notice of such requirement so that such other party may seek a protective
order or other remedy or waive compliance with this Section 9.08, and (iii)
in the event that such protective order or other remedy is not obtained, or
the other party waives compliance with this Section 9.08, furnish only that
portion of such Information which is legally required to be provided and
exercise its best efforts to obtain assurances that confidential treatment
will be accorded such Information; provided, however, that this sentence
shall not apply to any Information that, at the time of disclosure, is
available publicly and was not disclosed in breach of this Agreement by such
party or its Representatives. Without limiting the foregoing, (i) C&S agrees
that Pathmark is the owner of all information relating to its purchasing
practices and that Pathmark may, in its sole discretion, sell such
information to third parties and (ii) that C&S may share movement information
of any product with the supplier of such product. This Section 9.08 shall
survive termination of this Agreement.
Section 9.09. Relationship of Parties. In all matters relating to this
Agreement, both parties shall be acting solely as independent contractors and
shall be solely responsible for the acts of their employees, officers, directors
and agents. Employees, agents or contractors of one party shall not be
considered employees, agents or contractors of the other party.
Section 9.10. No Third-Party Beneficiaries. This Agreement shall be
binding upon and inure solely to the benefit of the parties thereto and their
permitted assigns, and nothing herein, express or implied, is intended to or
shall confer upon any other Person any legal or equitable right, benefit or
remedy of any nature whatsoever.
Section 9.11. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any law or
public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable
manner in order that the transactions contemplated hereby are consummated as
originally contemplated to the greatest extent possible.
Section 9.12. Headings. The descriptive headings contained in this
Agreement are for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.
26
Section 9.13. Arbitration.
(a) Any matter required to be submitted to arbitration
pursuant to Section 3.05 of this Agreement shall be subject to this
Section 9.13. Any such matter shall be submitted to binding arbitration
in Springfield, Massachusetts (or another location agreed to by the
parties) in accordance with the rules and procedures of the American
Arbitration Association (or another organization agreed to by the
parties). The arbitration shall be conducted in accordance with (i) the
terms of this Section 9.13; (ii) the commercial arbitration rules of
the American Arbitration Association (or the corresponding rules of any
such other organization); (iii) the Federal Arbitration Act (Title 9 of
the United States Code); and (iv) to the extent the foregoing are
inapplicable, unenforceable or invalid, the laws of the State of New
York. Judgment upon any award rendered hereunder may be entered in any
court having jurisdiction.
(b) A single arbitrator shall be selected by mutual agreement
of the parties, or, if the parties fail to reach such agreement within
ten days after either party has requested arbitration hereunder in
writing, by, or in a manner provided by the American Arbitration
Association (or such other organization referred to above).
(c) The arbitrator is empowered to resolve the matter in
dispute by summary ruling substantially similar to a summary judgment
and motion to dismiss. The arbitrator shall resolve all disputes in
accordance with applicable substantive law. The determination of the
arbitrator shall be binding on all parties and shall not be subject to
further review or appeal except as allowed by applicable law. The costs
and expenses of the arbitrator shall be apportioned between the parties
hereto as determined by the arbitrator in such manner as the arbitrator
deems reasonable.
(d) The arbitrator and the parties shall take all actions
necessary to the end that the arbitration proceeding shall be concluded
as promptly as practicable.
(e) The provisions of this Section 9.13 shall not preclude a
party from exercising any right or remedy with respect to any matter
that is not expressly required to be submitted to arbitration pursuant
to Section 3.05 of this Agreement.
27
Section 9.14. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York, without regard
to the principles of conflicts of laws thereof.
Section 9.15. Facility Closing. Subject to its abilities to meet its
obligations hereunder, C&S in its sole discretion may close any and all current
Facilities.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first written above.
PATHMARK STORES, INC.
By: /s/ ▇▇▇ ▇▇▇▇▇▇▇▇
--------------------------------------
Name: ▇▇▇ ▇▇▇▇▇▇▇▇
Title: Executive Vice President
C&S WHOLESALE GROCERS, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: President and Chief Executive
Officer
28
INDEX TO EXHIBITS
Exhibit A Omitted
Exhibit B Pathmark Stores
Exhibit C Omitted
Exhibit D Initial Load Schedules
Exhibit E Sales Service Allowances[CONFIDENTIAL]
Exhibit F Credit Policy[CONFIDENTIAL]
Exhibit G Master Purchase Order
Exhibit H Pathmark Vendors(OMITTED)
Schedule 3.04(a) Short-code dairy items[CONFIDENTIAL]
Schedule 3.04(b) List of Pathmark cash discounts[CONFIDENTIAL]
Schedule 3.04(d) Left-over ad product[CONFIDENTIAL]
Schedule 3.04(e) Forward Buy Procedures[CONFIDENTIAL]
Schedule 3.04(n) C&S average case weight average cost system[CONFIDENTIAL]
Schedule 3.08 Certain Pathmark Stores[CONFIDENTIAL]
Schedule 4.01 Produce shipped by the bin[CONFIDENTIAL]
Schedule 4.06-1 Current amount and "mix" of back hauls[CONFIDENTIAL]
Schedule 4.06-2 Back haul Rates[CONFIDENTIAL]
Schedule 5.01 Pallet Control Agreement
Schedule 5.02 Reclamation Procedures
Related Letters
- Produce Specifications referenced in Section 3.04(f)[CONFIDENTIAL]
- SKU lists referenced in Section 3.04(q)[CONFIDENTIAL]
- current list of items carried by the Grocery Department, as
evidenced on the Daily Buyer's Report processed 9/18/97;
- current list of items at the Dayton Facility, as evidenced on
the Daily Buyer's Report processed 9/16/97 and the PSS Weekly
Transmission Report - Store # 535 processed 9/22/97, pages
838-860;
- current list of items at the Perishable Distribution Facility,
as evidenced by the PSS Weekly Transmission Report - Store #
535 processed 9/20/97; and
- current list of items at the Perishable Distribution Facility
(fresh seafood, dry in-store bakery and dairy), as evidenced
by the Dairy-Deli Requirement Recap processed 9/18/97.
29
SCHEDULE 4.01
Loose Product packaged and shipped in bins
Watermelons (seeds) 30
Watermelons (seedless) 20
Cauliflower 30
Citrus, in 10 pound bags 30
Potatoes, in 10 pound bags, up to 225 bags per pallet 40
Apples, in 5 pound bags 20
Musk Melons 20
Bird seed 40
Mods packaged and shipped by pallet
Nut Mod (in shell) 40
Mixed Fruit Mod 40
Peanut Mod 40
30