[Certain portions of Exhibit 10.5 have been
omitted based upon a request for confidential treatment. The
non-public information has been filed with the Securities and
Exchange Commission.]
Exhibit 10.5
MILK SUPPLY
AGREEMENT
This Milk Supply Agreement
(“Agreement”) is entered into as of the 23rd day of
November, 2004, by and between Dairy Farmers of America, Inc., a
Kansas cooperative marketing association (“Seller”) and
Eagle Family Foods, Inc., a Delaware corporation
(“Buyer”). Buyer desires to purchase unprocessed Grade
“A” milk (“Demand Milk”) from Seller.
Seller desires to supply all the quantities of Demand Milk to
Buyer’s processing plant located in El Paso, Texas (the
“Plant”).
In consideration of the mutual
covenants and agreements set forth herein, Seller and Buyer hereby
agree as follows:
1. Supply .
Buyer desires that Seller sell and
supply, and Seller agrees and shall sell and supply all of
Buyer’s requirements for Demand Milk to the Plant. Seller
may, at its discretion, supply Demand Milk to the Plant from third
party sources at the same product specifications identified in
Exhibit C. In addition to the Demand Milk, Seller shall deliver to
Buyer certain quantities of Balancing Milk (as defined herein) as
set forth herein (the Demand Milk and the Balancing Milk are
collectively referred to herein as “Milk”).
2. Prices .
For all Demand Milk purchased and
sold pursuant to this Agreement, Buyer agrees to pay to Seller, and
Seller agrees to accept as payment in full, the appropriate Class
price based upon the announced component values by the Federal Milk
Market Administrator (Market Administrator). Class price will be
computed by the producer-weighted average butterfat times the
Federal Order (FO) announced butterfat price, the producer-weighted
average nonfat solids times the FO announced nonfat solids price,
the producer-weighted average protein times the FO announced
protein price, and the producer-weighted average somatic cell count
times the FO announced somatic cell adjustment price. In the event
the FO price is no longer published, Buyer and Seller agree to
negotiate in good faith a purchase price that similarly reflects
the FO price under which Demand Milk is sold. In addition, Buyer
shall pay the appropriate premiums for the Demand Milk as set forth
in Schedule A attached hereto and incorporated
herein.
3. Requirements .
On the terms and subject to the
conditions stated in this Agreement, at a minimum Seller will sell
and deliver and Buyer shall purchase and receive from Seller, the
quantities of Demand Milk as set forth in Schedule B2
attached hereto and incorporated herein (“Milk
Requirements”). Buyer, upon ninety (90) days notice to
Seller, may elect to increase volumes of Demand Milk to the
quantities as set forth in
Schedule B1 attached hereto and incorporated
herein. In the event Buyer does not serve notice to Seller of
Buyer’s intent to increase purchases of Demand Milk by
December 31, 2006, Schedule B1 shall become null and
void.
Notwithstanding anything to the
contrary, Buyer may, but shall not be obligated to, purchase any
Demand Milk until five days following the Completion Date (as such
term is defined in that certain Asset Purchase Agreement by and
between Buyer, Eagle Family Foods Holdings, Inc.
(“Parent”) and Seller, dated as of the date hereof](the
“First Required Delivery Date”). If Buyer desires to
purchase Demand Milk prior to the First Required Delivery Date,
Buyer shall give Seller thirty (30) days written notice prior
to the date such Demand Milk is to be delivered (the “First
Optional Delivery Date”). In the event that the First
Required Delivery Date or the First Optional Delivery Date, as the
case may be, is not on the first day of a calendar month, the Milk
Requirements for such month shall be prorated accordingly. For the
calendar year 2005, Buyer shall inform Seller in writing sixty
(60) days prior to the First Required Delivery Date or the
First Optional Delivery Date, as applicable, whether Schedule B-1
or Schedule B-2 shall apply, provided, however, that until the
third month anniversary of the First Required Delivery Date or the
First Optional Delivery Date, as applicable, the volumes set forth
in Schedules B-1 or B-2, as the case may be, may not apply. For all
subsequent calendar years, the Buyer agrees to provide Seller on
November 1 of each year during this Agreement, a projection of
Demand Milk volume for the following calendar year.
In addition, as requested by Seller,
Buyer will receive, pursuant to the terms of that certain Tolling
Agreement dated as of the date hereof, by and between Buyer and
Seller, for processing and/or manufacturing purposes, without said
milk being sold and purchased, hereunder, up to the daily maximum
milk volume capacity at the Plant (hereinafter referred to as
Balancing Milk). Such Balancing Milk volumes in excess of
Buyer’s Demand Milk volume requirements at the Plant will be
projected by Seller and agreed to by Buyer, from the actual Demand
Milk volume received at the Plant and provided to Buyer on
December 1 of each year during this Agreement for the
following calendar year. Notwithstanding the foregoing, Seller may
request before December 1 of each year, that the manner in
which Seller delivers, and Buyer receives, the annual requirements
as stated in B1 or B2 herein, shall be adjusted to reflect seasonal
intake to reflect milk availability in the marketing area in and
around the Plant. Balancing Milk volumes in excess of Buyer’s
Demand Milk volume requirements received, but not sold and
purchased hereunder at the Plant will be subject to the terms as
stated in the Tolling Agreement executed by Buyer and Seller for
the Plant.
4. Term .
The initial term of this Agreement
shall commence on January 1, 2005 and shall, unless earlier
terminated as provided herein, continue through December 31,
2009, provided, however, that the term of this Agreement shall
automatically be extended from day to day so that it always has a
remaining term of five years, unless Seller gives written notice to
Buyer that it does not wish to continue to extend the term, in
which event the term will terminate on the fifth anniversary of
such notice.
2
Notwithstanding anything contained
herein to the contrary, Buyer may terminate this Agreement at any
time by providing Seller with twelve (12) months prior written
notice specifying the date of termination.
5. Manner of
Payment.
Seller shall submit invoices to
Buyer at Buyer’s address set forth in Section 25 below,
or at such other location designated by Buyer from time to time in
writing to Seller. Buyer shall pay Seller for all Demand Milk sold,
delivered and received at the Plant during any calendar month
through electronic transfer of funds by dates required in CFR
§1126.73. In the event the FO terminates , payment
dates for the Demand Milk shall be as follows: an advance payment
for Demand Milk received during the first fifteen (15) days of
each month shall be made in order that Seller may receive payment
by the 25 th (twenty-fifth) day of each month and
the final payment for the Demand Milk shall be made so that the
payment is received by Seller by the 17 th (seventeenth) day of each month
following the month in which the Demand Milk was sold to and
received by Buyer.
6. To evaluate Buyer’s
continued creditworthiness, its financial condition and overall
ability to make payments for Demand Milk purchased hereunder,
within forty-five (45) days after the close of each fiscal
year of Buyer, Buyer shall deliver or cause to be delivered to
Seller, a copy of the consolidated audited or unaudited, as
applicable and available, annual financial statements of Eagle
Family Foods Holdings, Inc. (the “Parent”) and its
subsidiaries as filed with the Securities and Exchange Commission
for the immediately preceding fiscal year, which will include a
balance sheet, profit and loss statement and reconcilement of
surplus of Buyer. Upon request from Seller, Buyer shall provide to
Seller, within ten (10) days from the date of such request, a
copy of the most recent available consolidated unaudited quarterly
financial statement of the Parent and its subsidiaries, prepared on
a consistent basis from quarter to quarter within each fiscal year
as filed with the Securities and Exchange Commission. Any and all
financial statements furnished to Seller by Buyer shall be
certified by the Parent’s chief financial officer (or other
person reasonably acceptable to Seller) verifying that such
financial statement accurately reflects the financial condition and
operations of the Parent and its subsidiaries at the times and for
the periods therein stated, provided, however, that any
certificates required to be filed pursuant to the Sarbanes-Oxley
Act of 2002 shall be deemed sufficient for purposes
hereof.
Further, Seller reserves the right
to modify and adjust the manner and terms of payment as set forth
in Section 5 above to fairly address the current financial
exposure to Seller for Demand Milk sold hereunder.
Seller agrees that the financial
information of Buyer provided herein shall not be disclosed to
anyone other than Seller’s employees who have a need to know
or permit the use of this financial information in a manner for any
purpose other than for determination of continued creditworthiness
of Buyer.
3
7. Transportation of Milk
.
Seller shall be responsible for the
transportation and delivery of Balancing Milk delivered or Demand
Milk purchased and sold hereunder to the Plant. Transportation and
delivery of Milk shall be at Seller’s sole risk and expense,
and Seller shall have full control over the method of
transportation.
8. Milk Tanker Washing
.
Buyer shall properly wash all milk
tankers delivering Milk to the Plant. This washing requirement
shall not apply if Seller directs tanker or tankers to leave the
Plant immediately after unloading. This requirement shall also not
apply if the tanker is not accessible to the washing facility. If
conditions develop that prohibit tankers from being washed at the
facility, Buyer shall notify Seller of conditions, and, if
necessary, Buyer shall assist Seller in paying the costs of washing
tanker(s).
9. Schedule of
Deliveries .
Buyer, on behalf of the Plant, will
order the Plant’s weekly Demand Milk requirements from Seller
on Thursday for delivery the following Sunday through Saturday.
Buyer and Seller will mutually agree to the schedule and times of
delivery. Scheduling will principally consist of weekly receipt
assignments in a uniform manner throughout the seven-day week, and
on occasion, receipts may be more heavily weighted on weekends
and/or holidays. Seller shall use reasonable commercial efforts to
meet said schedule and times of delivery.
10. Quality of Milk
.
Seller represents, warrants and
agrees that:
(a) Seller shall comply with all
laws and governmental rules and regulations applicable to the
production, storage and delivery of Milk to be delivered and/or
sold to Buyer and delivered to the Plant hereunder, and shall use
reasonable commercial efforts to assure that the members of Seller
producing the Milk do likewise;
(b) All Milk purchased and sold
hereunder shall, when delivered, be reasonably acceptable as to
flavor, odor and appearance and meet the specifications of the
Plant as set forth in Schedule C and incorporated herein by
reference.
(c) Seller agrees to respond in
writing to all non-conformance notifications from Buyer regarding
quality of Milk supplied hereunder identifying the steps it will
undertake to bring the quality of Milk supplied to the Plant up to
the specifications detailed in Schedule C .
4
11. Indemnification and
Insurance .
(a) Seller agrees to defend,
indemnify and hold harmless Buyer and the Plant, their subsidiaries
and affiliates and their agents, officers, directors, employees,
representatives, successors and permitted assigns from and against
all obligations, liabilities, damages, penalties, fines,
violations, claims, causes of action, suits, judgments, costs and
expenses (including, without limitation, reasonable
attorneys’ fees) (together, “Losses”) that Buyer
and/or the Plant may suffer, arising out of, resulting from or
connected with (i) willful miscondu
