SUPPLY AGREEMENT

 

                                                        Exhibit 10.39

 

 

 

                                SUPPLY AGREEMENT

                                 BY AND BETWEEN

                 THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC.

                                        AND

                           C&S WHOLESALE GROCERS, INC.

 

 

     THIS AGREEMENT, made as of the 27th day of June, 2005 (this "Agreement"),

is by and between The Great Atlantic & Pacific Tea Company, Inc. and its

subsidiaries ("A&P"), a Maryland corporation with its principal office at 2

Paragon Drive, Montvale, New Jersey 07645, and C&S Wholesale Grocers, Inc.

("C&S"), a Vermont corporation with its principal office at 7 Corporate Drive,

Keene, New Hampshire 03431.

 

     Whereas, A&P desires to exit the distribution business;

 

     Whereas, A&P sells groceries and other merchandise through its retail

stores under the banners A&P, The Food Emporium, Waldbaum's, Foodmart, Food

Basics, Sav-A-Center, and Super Fresh;

 

     Whereas, C&S is a wholesale supplier of groceries, perishables and other

merchandise sold in supermarkets;

 

     Whereas, C&S currently supplies A&P product in a number of item categories

(including grocery, frozen, dairy and deli) and the parties desire to continue

and expand their relationship by C&S increasing the volume of merchandise C&S

supplies to A & P; and

 

     Whereas, the current supply relationship is covered in the Master Supply

Agreement dated October 27, 2003 (the "Existing Supply Agreement") and the

parties deem it in their respective best interest to enter into this Agreement,

which covers volume that is separate and apart from the volume covered by the

Existing Supply Agreement.

 

     NOW, THEREFORE, in consideration of the premises and of the mutual

covenants and agreements hereinafter set forth, A&P and C&S, intending to be

legally bound, hereby agree as follows:

 

     Section 1. Defined Terms. The following capitalized terms shall have the

meanings set forth below:

 

     1.1 Term. "Term" means, unless earlier terminated in accordance with the

terms of this Agreement, the period from June 27, 2005 until June 27, *.

 

     1.2 Contract Year. "Contract Year" means the twelve-month period commencing

on October 9, 2005 and on the anniversary of October 9 thereafter. Each Contract

Year consists of four 13-week "Contract Quarters ". Each Contract Year shall

begin on October 9 and continue through and include the following October 8. The

parties will in good faith attempt to make the beginning and ending of

 

______________________________

 

* *Material omitted and filed separately with the Securities and Exchange

Commission pursuant to a request for confidential treatment under Rule 24-b2.

 

 

<PAGE>

 

each Contract Quarter coincide with the beginning and ending of A&P's fiscal

accounting periods.

 

     1.3 Commencement Date. "Commencement Date" means July 10, 2005.

 

     1.4 Facilities. "Facilities" means collectively the A&P distribution

facilities in Islip, New York, Baltimore, Maryland, and Dunmore, Pennsylvania.

 

      1.5 A&P Store Locations. "A&P Store Locations" means the A&P stores set

forth on Schedule 1.5. Any new or replacement stores of A&P or any of its

subsidiaries or affiliates in the geographic region of any of the A&P Store

Locations shall also be supplied by C&S under this Agreement, provided that if

A&P purchases a group of 10 or more stores, then, regardless of whether or not

C&S has a supply agreement with the former owner of the purchased stores, C&S

and A&P will meet and in good faith adjust the terms of this Agreement to the

extent of any benefits or costs resulting from such additional volume and the

existing agreement, if any.

 

     1.6 Merchandise. "Merchandise" means A&P's entire requirements of grocery,

bakery, GM/HBC, candy, spices, meat, deli, seafood, produce, dairy, floral, and

certain other merchandise in the product categories carried by C&S or A&P,

provided, however, Merchandise does not include products that, as of the

Effective Date are not supplied from an A&P or C&S warehouse (i.e., are supplied

by direct store delivery ("DSD") vendors), provided, further, if C&S elects to

warehouse a DSD item, then A&P will support C&S and will purchase such item from

C&S if, and for so long as, A&P in its discretion determines it is

cost-competitive to do so taking into account the costs associated with any

services provided by the vendor of such product. If A&P decides to have an item

of C&S supplied Merchandise become a DSD item, then the parties shall meet and

in good faith agree on an appropriate upcharge adjustment if appropriate to keep

C&S whole while permitting A&P to receive the net benefits of such change. A&P

will in good faith negotiate with C&S with respect to C&S taking over the supply

of tobacco, ice, store supplies and front-end candy.

 

      1.7 CPI. "CPI" means the Consumer Price Index for all urban consumers

(CPI-U) for New York-Northern New Jersey-Long Island for food and beverages or

similar appropriate index chosen by the parties if the CPI is no longer

available.

 

     1.8 ECI. "ECI" means the U.S. Department of Labor Employment Cost Index --

Wholesale Trade Excluding Sales Occupations (Series ID ECU11402I) or similar

appropriate index chosen by the parties if the ECI is no longer available.

 

     1.9 Shipped Cases/Pieces. C&S will continue to count shipped cases/pieces

in a manner that is consistent with A&P's historical practices.

 

______________________________

 

* *Material omitted and filed separately with the Securities and Exchange

Commission pursuant to a request for confidential treatment under Rule 24-b2.

 

 

                                      -2-

<PAGE>

 

     Section 2. Agreement to Purchase and Implementation.

 

     2.1 Agreement. During the Term, A&P agrees to purchase from C&S, and C&S

agrees to sell to A&P, A&P's entire requirements of Merchandise for all A&P

Store Locations. From the date hereof (the "Effective Date") until the

respective Procurement Conversion Date (the "Transition Period"), the parties

shall use their respective best efforts to coordinate the transition of A&P's

distribution business to C&S on the respective Procurement Conversion Date.

 

     2.2 Schedule. C&S will phase in the supply and procurement of Merchandise

from July 10, 2005 through October 16, 2005, and all A&P Stores will be

accepting delivery of their entire requirements of Merchandise from C&S by

October 16, 2005. The detailed implementation schedule is attached hereto as

Schedule 2.1. The implementation schedule may, by mutual agreement of the

parties, be adjusted.

 

     Section 3. Price, Upcharges and Fees.

 

     3.1 Base Price. A&P shall pay C&S the Base Price for each product as set

forth below, plus the applicable upcharges and fees.

 

     (a) General. Except as stated below, the Base Price shall be the

manufacturer's published list price (as delivered) in the best bracket in which

A&P or C&S normally purchases such item for the applicable facility (including

all inbound transportation charges), less any published retail off-invoice

allowances.

 

     (b) Reserve Price. The "Reserve Price" shall be the price established at

the time product is purchased into the Reserve.

 

     (c) Fresh Deli (non-packaged), Produce, Floral, Fresh Meat, and Fresh

Seafood. The Base Price for items in the Fresh Deli (non-packaged), Produce,

Floral, Fresh Meat, and Fresh Seafood will be quoted * by C&S based upon market

conditions and availability. The Base Price shall be reviewed with and accepted

* by A&P. Produce and meat items covered by an A&P negotiated contract or any

renewal thereof shall be sold at the A&P contracted price. If A&P can purchase

an item covered by this Section 3.1(c) at a price lower than C&S's quote, then

C&S will match such quote or purchase the item from the A&P specified vendor.

Additional perishable procurement procedures are set forth on Schedule 3.1(c).

                   

     (d) Private Label. A&P shall have the right to negotiate directly with

vendors on the delivered price of A&P private label items to be shipped by C&S

to A&P Stores. The private label items covered by this Section 3.1(d) will have

a Base Price equal to the amount agreed to between A&P and the vendor, including

all inbound and accessorial charges payable by C&S, provided that the price

negotiated by A&P represents a market price. C&S and A&P will explore a program

for cooperative buying on private label brands.

 

     (e) Price Bulletin. C&S will publish electronically the Base Price * in a

bulletin and price file prepared for A&P.

 

______________________________

 

* *Material omitted and filed separately with the Securities and Exchange

Commission pursuant to a request for confidential treatment under Rule 24-b2.

 

 

                                      -3-

<PAGE>

 

     (f) Logistics Programs. The Base Price shall include all current logistics,

plant direct and other similar logistics programs that A&P is involved with as

of the Effective Date. (Such programs are set forth on Schedule 3.1(f)). If a

vendor initiates a new logistics program similar to those on Schedule 3.1(f),

then C&S will reflect * of the net savings of such program in the Base Price

after subtracting any costs of C&S related to compliance with such program,

provided, however, if a vendor converts an A&P trade funding program into a

logistics initiative, then A&P will be entitled to the full amount of such

initiative less any costs related to C&S's compliance with such initiative.

 

     (g) Transferred Inventory. The Base Price for each item of Transferred

Inventory (as defined in the Asset Purchase Agreement) will be the price paid by

C&S to A&P for such item.

 

     3.2 Upcharges.

 

     (a) General Background. The per case cost to A&P under this Agreement will

be * per case following June 1, 2006 premised on the provisions set forth in

Sections 3.2(b), (c) and (d). While this per case cost is implemented in several

components as noted below, the intent is that the upcharge of * per case will be

the baseline cost and C&S will provide * reconciliation for variances or

changes. The fee was reached based on A&P's present overall distribution costs

of approximately * minus over * in annual savings, which savings do not include

any A&P overhead savings. Following such savings, C&S annual expenses charged to

A&P would be approximately * initially following each Procurement Conversion

Date and * following October 1, 2006. For example, if A&P's annual case volume

hereunder is * then the upcharge would be calculated as follows:

 

A&P's blended warehousing and transportation:                  *

A&P Initial Savings                                            *

Final Additional Initial Savings                               *

Diverting Buyout (Section 3.2(c)(iv))                          *

Facility Credit                                                *

Stop Fee Savings (Section 3.2(b)(ii))                          *

Coupon Conversion Credit (Section 3.2(c)(v))                   *

Additional Savings (Section 3.2(c)(vi))                        *__

Total:                                                         *

 

     (b) (i) Warehouse Upcharge. A&P shall pay to C&S the per case Upcharges set

forth on Schedule 3.2(b)(i) (the "Upcharge") on all Merchandise delivered to A&P

following a Procurement Conversion Date as set forth below, except GM/HBC

Merchandise and Merchandise supplied to the New Orleans division ("New Orleans

Merchandise"). In addition to the Upcharge, A&P will pay to C&S a surcharge of *

per case on all private label cases in excess of * of the Merchandise supplied

hereunder in any Contract Year. ` The Procurement Conversion Date for

Merchandise presently supplied from the below facilities shall be:

 

______________________________

 

* *Material omitted and filed separately with the Securities and Exchange

Commission pursuant to a request for confidential treatment under Rule 24-b2.

 

 

                                      -4-

<PAGE>

 

         July 10, 2005               Edison and Freshtown

         August 28, 2005             Baltimore

         September 18, 2005          Central Islip

         October 2, 2005             New Orleans

         October 16, 2005            Dunmore

 

Prior to a Procurement Conversion Date, A&P will reimburse C&S for the total

actual cost of operating the Facilities and the New Orleans Facility and

delivering Merchandise consistent with A&P's past practices, including without

limitation, labor and benefit costs of the hired Affected Employees (as defined

in the Asset Purchase Agreement), all as calculated pursuant to Schedule

3.2(a)(i). However, the costs attributable to conversion to C&S systems,

including costs related to training for EXE, shall not be reimbursed by A&P but

will be borne by C&S. Within * following a Procurement Conversion Date the

parties shall reconcile the actual costs charged for a facility prior to the

Procurement Conversion Date.

 

     (ii) Stop Fee. (A) Facility Deliveries. Prior to October 2, 2005, C&S will

charge A&P for deliveries from the Facilities the amounts set forth on Schedule

3.2(b)(i), provided that if A&P opens or closes a store(s), then the

transportation expense to deliver or not to deliver to these stores will be

added to or subtracted from such amount. The parties shall work together in good

faith to reduce the transportation costs from the Facilities and C&S Facilities

and, based on * cases supplied per Contract Year, in no event will such savings

be less than * in the first Contract Year. Prior to August 1, 2005, C&S will

provide A&P with a list of savings programs totaling at least *. On October 2,

2005, the parties will (i) take the projected annual transportation costs from

the Facilities as they exist as of October 2 , 2005, minus (ii) the projected

savings from the implementation of the savings programs implemented by C&S,

(iii) divide the projected annual transportation costs by the projected number

of total annual stops as of October 2, 2005 and (iv) the result of such

calculation shall be the Stop Fee for Facilities following October 2, 2005. The

method of calculating the Stop Fee is more fully set forth on Schedule

3.2(b)(ii). It is agreed that A&P has the obligation to implement the savings

programs needed to achieve the * savings except to the extent that to do so

would in, A&P's reasonable judgment, be materially detrimental to its business.

 

     (B) C&S Facility Deliveries. For Merchandise that is not delivered from a

Facility (e.g. Harrisburg, Windsor Locks, North Hatfield and PDC) (collectively,

C&S Facilities"), prior to October 2, 2005, C&S will charge A&P for deliveries

from C&S Facilities the amounts set forth on Schedule 3.2(b)(i), provided that

if A&P opens or closes a store(s), then the transportation expense to deliver or

not to deliver to these stores will be added to or subtracted from the such

amount. On October 2, 2005, the parties will calculate the Stop Fee for C&S

Facilities as follows: (i) * minus (ii) the projected amount of the annual

savings resulting from the implementation of a savings program for a C&S

 

______________________________

 

* *Material omitted and filed separately with the Securities and Exchange

Commission pursuant to a request for confidential treatment under Rule 24-b2.

 

                                      -5-

<PAGE>

 

Facility set forth on the list provided pursuant to Section 3.1(b)(ii)(A) (which

when combined with the savings under Section 3.2(b)(ii)(A) shall be no less than

* ), (iii) divide the projected transportation costs by the number of total

projected annual stops as of October 2, 2005 and (iv) the result of such

calculation shall be the Stop Fee for C&S Facilities following October 2, 2005.

 

     (iii) Dunmore Upcharge. (A) Following October 9, 2005, the upcharge for

GM/HBC Merchandise is * per unit. The Dunmore upcharge reflects * of savings

from A&P's present costs in Dunmore. Attached as Schedule 3.2(b)(iii) is the

calculation of the Dunmore Upcharge. In addition, the agreed to imputed rent for

the Dunmore Facility shall be paid by A&P to C&S. The parties will establish the

standard credit policy and reserve for Dunmore within * of the Effective Date.

The parties will meet and discuss in good faith a volume incentive for GM/HBC

volume.

 

     (B) * . Notwithstanding the prior sentence, if A&P sells a division, then

(i) the GM/HBC Upcharge shall be reduced to reflect any GM/HBC transportation

savings resulting from such sale, (ii) the Upcharge will be adjusted to reflect

the fact that fewer cases are absorbing fixed costs associated with the supply

of GM/HBC merchandise, and (iii) the base for the GM/HBC Reduced Volume

Surcharge shall be adjusted to reflect the loss of cases.

 

     (iv) New Orleans Upcharge. Following September 25, 2005, the upcharge for

the New Orleans division shall be * per case (the actual cost of the New Orleans

operations). In addition, the agreed to imputed rent for the owned New Orleans

facility shall be paid by A&P to C&S. The New Orleans division supply

arrangements shall be in accordance with this Agreement and Schedule 3.2(b)(iv).

 

     (v) Baltimore Imputed Rent. In addition to the Warehouse Upcharge, the

agreed to imputed rent for the owned Baltimore facility shall be paid by A&P to

C&S.

 

     (c) Warehouse Adjustments.

 

     (i) Upcharges. The essence of this upcharge section is that the Upcharge

reflects A&P's cost per case for the trailing * prior to February 26, 2005 for

all distribution related expenses with a savings of * per case. Schedule

3.2(c)(i) sets forth the information used to calculate the Upcharge.

Notwithstanding the parties' best efforts regarding the determination of the

proper Upcharge and other fees, surcharges, and incentives under Section 3 of

this Agreement, within * of the end of the first Contract Quarter and * Contract

Year, the parties shall meet to review the projections and data used to

calculate the Upcharge and the other fees, surcharges, and incentives covered

under Section 3 of this Agreement and shall in good faith adjust, if necessary,

the Upcharge and other fees, surcharges, and incentives under Section 3 of this

Agreement based on the accuracy of the data provided or data unavailable at the

time of the original calculations. It is the parties' intent that A&P will

continue to employ the same business practices with respect to the Facilities or

otherwise with respect to supplying the A&P Stores as it employed while it

 

______________________________

 

* *Material omitted and filed separately with the Securities and Exchange

Commission pursuant to a request for confidential treatment under Rule 24-b2.

 

 

                                      -6-

<PAGE>

 

was operating the Facilities (i.e., full pallet rounding and full pallet

ordering, mix of inner packs/eaches/full cases) and the parties will maintain

the same methodology for converting eaches to cases. If there is a fundamental

change following the Commencement Date in A&P's sales mix, service requirements

or other substantive changes affecting the cost of supplying the A&P Stores,

then the parties agree to meet and in good faith adjust the Upcharge.

 

     (ii) *.

 

     (iii) Vendor Inbound Compliance. C&S will continue vendor inbound

compliance programs and charge vendors for noncompliance (i.e., noncompliance

with routing guide instructions, late delivery, missed appointments, broken

pallets). If a fee is reduced or eliminated and A&P has not provided the support

set forth in the prior sentence, then the upcharge will be increased to reflect

such reduction or elimination, provided, however, prior to any such increase the

Presidents of A&P and C&S shall meet to try and find another method for making

up the decrease in vendor compliance income in lieu of increasing the upcharge.

 

     (iv) * .

 

     (v) Coupons. A&P will transfer its coupon processing to C&S and the parties

will follow the coupon processing program set forth on Schedule 3.2(c)(v).

Immediately following the commencement of C&S processing A&P's coupons, the

Upcharge will be reduced by * per case.

 

     (vi) Additional Savings. On June 1, 2006, the Upcharge shall be reduced by

* per case.

 

     (d) Stop Fee Adjustments. (i) Fuel Cost Adjustment. For purposes of this

Section 3.2(d)(i), the Base Cost of Fuel is as set forth on Schedule 3.2(d)(i).

The Base Cost of Fuel is calculated as set forth on Schedule 3.2(d)(i). Within *

of the end of each Contract Quarter, C&S shall calculate the cost of fuel for

such Contract Quarter (the "Quarterly Fuel Cost") in the same method as set

forth on Schedule 3.2(d)(i) and shall either bill A&P if the Quarterly Fuel Cost

is more than the Base Cost of Fuel or credit A&P if the Quarterly Fuel Cost is

less than the Base Cost of Fuel calculated as follows: * . The Stop Fee Fuel

Component for Facilities and C&S Facilities shall be calculated as part of the

calculations done pursuant to Section 3.2(b)(ii). For example, if * .

 

     (ii) Tolls and Road Taxes. Each Contract Quarter the Stop Fee for both

Facilities and C&S Facilities shall be adjusted to reflect any increase or

decrease in tolls and road taxes as compared to the prior Contract Quarter.

 

     (iii) * .

 

     (iv) Driver Cost Increases. Commencing with the * Contract Year,

 

______________________________

 

* *Material omitted and filed separately with the Securities and Exchange

Commission pursuant to a request for confidential treatment under Rule 24-b2.

 

 

                                      -7-

<PAGE>

 

on the * following any increase in the labor and/or employee benefit costs with

respect to the drivers delivering Merchandise from a Facility, the Stop Fee for

Facilities will be adjusted to reflect * of the actual cost of any such

increases. If A&P can demonstrate that any such driver cost increase is

materially out of line with labor and employee benefits cost increases for truck

drivers in the trucking industry in the Northeastern United States, then the

parties will meet and in good faith determine whether * or some lower percentage

is the fair and equitable percentage to use to adjust the Stop Fee. If there is

a non-productivity related negotiated benefit that offsets a labor or employee

benefit cost increase, then such negotiated benefit shall be factored into the

determination of the cost increase used to adjust the Stop Fee. For example, if

there is a wage increase, but a holiday is eliminated, then the cost benefit of

the elimination of such holiday will be factored into the calculation of such

wage increase. By way of further example, if there is an employee benefit cost

increase, but eligibility requirements are changed, then the cost benefit of

such eligibility requirements will be factored into the calculation of the

employee benefit cost increase.

 

     (v) Stop Fee Savings. Following October 2, 2005, A&P will receive * and C&S

* of any Stop Fee Savings for Facilities and C&S Facilities resulting from A&P

decreasing the number of stops.

 

     (e) Notice/Backup. C&S will provide A&P with back-up documentation of any

increase under Section 3 (c) or (d) and written notice prior to the

implementation of any such change.

 

     (f) * .

 

     3.3 * .

 

     3.4 Restocking Fee. C&S will charge A&P a restocking fee of * for the

return of all cases ordered in error by A&P. This fee will not apply to the

return of any cases generated by C&S mispicks or other errors or returns from a

new store or a major remodel within * of the store's grand opening or reopening.

 

     3.5 Cross-Dock. C&S will charge A&P a cross dock fee of * per case for

cross-dock cases. If A&P commences cross-docking cases of a new DSD vendor C&S

will charge A&P * per pallet for any such cross-docked pallets, provided that

(i) the * fee is premised on there being an average of * cases per pallet and if

there is not such average, then the parties shall in good faith adjust the *

fee, and (ii) the Stop Fee shall be adjusted to reflect the increased

transportation cost, if any, resulting from these additional cross-dock cases.

If A&P converts selected cases to cross-dock, then C&S will charge A&P * per

pallet for such cross-dock cases. If the mix of existing cross-dock Merchandise

changes or the average cases per pallet changes, then parties will meet and good

faith adjust the relevant fees set forth above. With respect to cross-dock

pallets or totes that require breakdown, A&P and C&S will negotiate in good

faith to determine an appropriate fee. The handling fee will be subject to

adjustment for cases exceeding * cubic feet. Cross-dock product is not slotted

in C&S facilities and C&S is not required to hold any cross-dock product more

than * .

 

______________________________

 

* *Material omitted and filed separately with the Securities and Exchange

Commission pursuant to a request for confidential treatment under Rule 24-b2.

 

 

                                      -8-

<PAGE>

 

     3.6 Cardboard Bales. For * per bale C&S will pick up A&P's cardboard bales

at A&P stores, transport them to a C&S Facility or Facility and load them on a

trailer to be provided by A&P or a party designated by A&P. A&P shall promptly

remove full trailer loads of bales from the applicable facility. Any costs

incurred by C&S with respect to proper disposal or other disposition of the

baled cardboard shall be the responsibility of A&P. A&P shall clearly mark its

bales, e.g. with an A&P day glow sticker.

 

     3.7 Volume Incentive. If for either * , A&P's purchases from C&S are more

than * cases, then C&S shall pay to A&P a Volume Incentive (the "Volume

Incentive") equal to * per case for all case purchases for the applicable * in

excess of * . The Volume Incentive calculated as set forth in this Section 3.7

for any * period shall be paid by C&S by the * following any such period.

 

     3.8 Reduced Volume and Lost Profits Surcharge.

 

     (a) If for either the * , A&P's purchases from C&S are less than * cases,

then A&P shall pay to C&S a Reduced Volume Surcharge (the "Reduced Volume

Surcharge") equal to * per case for all case purchases for the applicable * less

than * .

 

     (b) The Reduced Volume Surcharge calculated as set forth in this Section

3.8 for any * period shall be paid by A&P by the * after the end of any such

period.

 

     (c) As for all other purposes under this Agreement, volume under the

Existing Supply Agreement shall be excluded from the calculations under this

Section 3.8 and Section 3.7 (Volume Incentive). In addition, GM/HBC Merchandise,

New Orleans Merchandise and cross-dock Merchandise shall be excluded from the

calculations under this Section 3.8 and Section 3.7 (Volume Incentive).

 

     3.9 Seasonal GM/HBC Storage. C&S will oversee the operation of seasonal

GM/HBC storage and A&P shall be responsible for the cost of seasonal GM/HBC

storage, including occupancy, transportation and warehousing, which costs A&P

shall reasonably approve in advance.

 

     Section 4. Implementation Committee.

 

     4.1 Implementation Committee. The parties will form an implementation

committee to oversee the implementation of this Agreement. The committee will

establish the requisite information flow. It also will work to (i) foster

efficient and timely communications and information sharing, (ii) to develop

mutually beneficial operating efficiencies and savings, (iii) ensure that the

actions of one party do not negatively impact the operations and/or profits of

the other, (iv) monitor, adjust and/or create new key performance indicators

("KPIs") and (v) identify items that could be added or subtracted for the

parties' mutual benefit.

 

     4.2 Committee Priorities. Within the first six months following the date of

this Agreement, the committee will work to develop mutually beneficial policies

in the

 

______________________________

 

* *Material omitted and filed separately with the Securities and Exchange

Commission pursuant to a request for confidential treatment under Rule 24-b2.

 

 

                                      -9-

<PAGE>

 

following areas: store order frequency; better programs with respect to

packaging to reduce damages; pallet rounding; reduction in vendor lead times;

ordering efficiencies; receiving efficiencies (store and warehouse); combined

purchasing (cooperative purchasing opportunities in not for resale items);

service level/fill rate; new items speed to shelf; inventory management;

seasonal item management; manufacturer out of stock issues; ad underpulls and

overpulls (future promotions and past performance); new store openings and

remodels; and pallet exchange efficiencies.

 

     Section 5. Additional Buying and Supply Provisions.

 

     5.1 Deal Extensions. C&S will reflect all vendors' retail trade allowances

* after the vendors' last order date, except for the short coded items set forth

on Schedule 5.1.

 

     5.2 Slow Movers. C&S is entitled to discontinue any A&P unique items that

move less than * , unless A&P elects to pay a * cent per case surcharge on such

items or allows C&S to deliver such items * . On or before the * , C&S shall

provide A&P with a report indicating all A&P unique items that averaged less

than * of movement. A&P shall have until the * to determine whether C&S may

discontinue such items or whether A&P elects to pay the additional surcharge for

such slow moving items.

 

     5.3. New Items. C&S will work with vendors to make new items available for

shipment to A&P at the earliest shipment date. If A&P provides C&S at least *

notice of any new item, C&S will ship such new product within * of vendor's

first available ship date, subject to vendor availability of the product.

Strategic items, as reasonably determined by A&P, shall be shipped on the

vendor's first available ship date, subject to vendor product availability.

 

     5.4 Expedite. If C&S causes the shortage of any time sensitive items, such

items will be expedited at no expense to A&P, provided that A&P shall pay

additional costs for any shortages due to its error.

 

     5.5 Standard Credit Policy. (a) With respect to the Facilities, the parties

shall follow the standard credit policy set forth on Schedule 5.5(a), which is

intended to mirror A&P's current standard credit practices. With respect to any

other C&S facilities, the parties shall follow the standard credit policy set

forth on Schedule 5.5(b). The audit procedures to support the C&S facilities'

policy are also set forth on Schedule 5.5(b). With respect to Facilities, C&S

will, after taking into account credits that it has issued to the stores

pursuant to its warehouse audits and store called-in credits and all other

reserve adjustments, pay to or bill A&P the net shortage or gain in each

warehouse, all as described on Schedule 5.5(c). A&P will continue to receive

current swell allowances for product shipped from a Facility. C&S will receive

all swell allowances on any vendor that switches to a swell allowance and will

pass on to A&P * of such allowances received. C&S will receive all swell

allowances for Merchandise shipped from a C&S Facility and will pass on to A&P *

of such allowances received. If a vendor that switches to a swell allowance is a

successor to an A&P swell vendor, then the parties will meet and in good faith

agree on the proper allocation of the swell

 

______________________________

 

* *Material omitted and filed separately with the Securities and Exchange

Commission pursuant to a request for confidential treatment under Rule 24-b2.

 

 

                                      -10-

<PAGE>

 

allowance from the successor vendor. C&S will primarily rely on the A&P Help

Desk to issue credits because A&P is being billed for or paying the net

shortages or gains. C&S shall maintain a level of security at the facilities

serving A&P sufficient to mutually satisfy the parties that the Merchandise is

being adequately protected, with the presumption that the relative level of

security on the date hereof is sufficient for such purposes. C&S shall provide

A&P with a reconciliation report of net shortages and gains in inventory within

* of the end of each A&P accounting period.

 

     (b) Other Customers. Following the commencement of shipment by C&S to

customers other than A&P from the Facilities, the parties will follow the

standard credit policy attached as Schedule 5.5(b).

 

     5.6 Discontinued/No Movement items. The parties will work together to

eliminate items that have no movement for * , including, without limitation

working together to have the responsible manufacturer repurchase and remove such

inventory. For any and all items that A&P discontinues or items that have no

movement for * (excluding seasonal items that A&P represents it will sell the

following year), C&S will provide A&P notice. Upon receipt of such notice, A&P

will either provide for the vendor to remove and repurchase all such cases

remaining in the warehouse or give C&S a distribution for such cases. In either

event, such goods will be removed by vendor or store distribution within * of

A&P's receipt of notice. To minimize such inventory, A&P will give C&S advance

notice of any discontinuance to avoid unnecessary ordering. Furthermore, if such

item is not unique to A&P in the applicable facility, A&P will only be

responsible for such discontinued items to the extent that such leftover

inventory is A&P leftover ad product.

 

     5.7 Ads. (a) A&P shall book all ads by facility for the first 18 months

following the Commencement Date. Following such 18 month period A&P shall only

be responsible for providing C&S with the aggregate number of cases per ad per

item across all facilities supplying A&P. In addition, the parties will in good

faith work on a feathering process to bring in ad product to each facility prior

to the commencement of the ad. A&P shall provide to C&S distribution quantities

for dry grocery by store for at least * of the product booked for a front page

ad for C&S' distribution prior to the commencement of the ad, provided that A&P

will use its commercially reasonable efforts to provide C&S distribution

quantities of * . Prior to the end of the * Contract Year, A&P will strive to

provide C&S distribution quantities for at least * of all ad product prior to

the commencement of an ad. Left-over ad product may be sent back to the

Facilities subject to Section 3.4. A&P will purchase left-over perishable ad

product from C&S prior to such product being out-of-code, provided that if A&P

is unable to so purchase, A&P will be responsible for the cost and disposition

of such product. C&S and A&P will work together to minimize leftover ad product,

including, continuing A&P's practices of remerchandising items where possible,

canceling trucks and having vendors pick-up leftover ad product. Left-over ad

product in excess of * normal turn movement (as measured against the physical

balance) shall be placed into the Reserve.

 

______________________________

 

* *Material omitted and filed separately with the Securities and Exchange

Commission pursuant to a request for confidential treatment under Rule 24-b2.

 

 

                                      -11-

<PAGE>

 

     (b) A&P will be responsible for all fresh seafood, chicken and other

poultry pre-orders and will purchase such items from C&S prior to the seafood or

chickens being out-of-code, provided that if A&P is unable to so purchase, A&P

will be responsible for the disposition of such product.

 

     5.8 SKU's. C&S shall not be obligated to carry more than * above the number

of SKU's per Facility than A&P carries as of the Effective Date absent the

consent of C&S, which consent will not be unreasonably withheld, provided that

the maximum increase in SKU's per Contract Year shall be no more than * of the

number of SKU's per Facility that A&P carried in the prior Contract Year.

Schedule 5.8 sets forth the present number of A&P SKU's by category and

warehouse.

 

     5.9 * .

 

     5.10 * .

 

     5.11 Base Price and other Adjustments.

 

     (a) To the extent that an income item formerly available to one party is

eliminated but such program dollars are made available to the other party in

another form, then the party benefited by such change will make the other party

whole by an adjustment to the Base Price of such goods or other agreed to

adjustment.

 

     (b) Each party acknowledges that the other party has historically benefited

from certain sources of income, including, but not limited to: Cross-Roads,

warehouse slotting, retail store slotting, alternative source buying, and cash

discounts. Furthermore, as of the date hereof, A&P earns a certain amount of

trade funds, but also engages in certain activities that one may claim could

impact trade funds, such as diverting or vendor compliance programs. Neither

party will knowingly interfere with the other party's programs. More

specifically, no action by C&S that differs from A&P's actions, be it, for

example, C&S' increasing the amount of diverting or vendor charges from A&P's

level, will negatively impact A&P's current level of trade funds. A&P will use

its commercially reasonable best efforts to both prevent a vendor from claiming

that C&S' programs interfere with A&P's trade funds and to preserve C&S'

programs. As part of A&P's efforts in this regard, on a case-by-case basis, A&P

will include C&S in vendor meetings, and with all parties present, inform such

vendor that it is the vendor's issue to resolve with C&S and that in no way is

the vendor to reduce A&P's trade funds.

 

     (c) The pricing provisions herein are based upon the parties' mutual

assumption that no fundamental changes will occur in the structuring or level of

promotions or other factors affecting the wholesale cost of Merchandise. If 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. It is A&P's intention to continue to negotiate and

structure deals that will lower A&P's net cost of goods.

 

______________________________

 

* *Material omitted and filed separately with the Securities and Exchange

Commission pursuant to a request for confidential treatment under Rule 24-b2.

 

 

                                      -12-

<PAGE>

 

     (d) Within * of the end of each Contract Quarter or as reasonably requested

by a party, the most senior merchandising executive at C&S and the most senior

merchandising executive at A&P will meet and review any instances where a

party's trade funding has decreased in the prior Contract Quarter. If a party

can show that a decline in its funding on a vendor is due to a program of the

other party that has resulted in an increase in such party's trade funding from

such vendor, then the benefited party will promptly meet with such vendor and

attempt to determine what effect, if any, its increased trade funding had on the

other party's trade funding. If a program of a party has had a negative impact

on the other party's funding, then the benefited party will seek to cause such

vendor to reverse such decline. If the benefited party is unsuccessful in

causing the vendor to reverse the other party's decline in trade funds, then A&P

and C&S shall jointly meet with the applicable vendor and attempt to cause the

vendor to reverse the decline. If such effort is unsuccessful, then the

benefited party will either take such vendor off the program in its entirety,

take the vendor off the program with respect to the other party or otherwise

make up the decline in the other party's trade funds. As part of the quarterly

reconciliation between the A&P and C&S executives, the parties will provide each

other with any information regarding the other party's programs requested by a

party, unless any such information is subject to a confidentiality obligation.

Any dispute under this Section 5.11(d) that cannot be resolved by the

merchandising executives shall be elevated to and settled by the Presidents of

A&P and C&S prior to the end of the subsequent Contract Quarter.

 

     5.12 * .

 

     Section 6. Billing and Payment.

 

     6.1 * Statements. Each * , C&S shall electronically transmit to A&P, files

(such files shall be referred to collectively as the "* Statement") for all

amounts owed (including purchases, fees, upcharges and credits) for the

immediately preceding * (the "* Statement Amount"). There will be a Shipment

File with all product charges to the stores; an Adjustment File with fees,

upcharges, and credits; a Cost and Weight File for random weight product; and a

Cost File for all other products. A separate Manual Charge file will be

provided, which shall include special delivery and trailer fees and all other

miscellaneous charges, by customer number and by invoice. The * Statement will

be received on the * following the * such shipments were made.

 

     6.2 Payment. Each * , A&P will make a wire transfer in the amount of *

(adjusted as set forth below) with respect to purchases to be made on such *

together with the purchases made on the immediately preceding * , * and * . Each

* , A&P will make a second wire transfer in the amount of * with respect to

purchases made on the immediately preceding * and to be made on * and * . A&P

will adjust the payment to be made on the next succeeding * to reflect any

overpayment or underpayment for the previous * purchases, based upon the

statement rendered by C&S on * . Should the due date of A&P's payment fall on a

date on which banks in New York are required to be closed, the due date shall be

accelerated to the previous day that banks in New York may legally open. The

parties acknowledge that the * figure used in this Section 6.2 is * of the

projected * purchases, plus

 

______________________________

 

* *Material omitted and filed separately with the Securities and Exchange

Commission pursuant to a request for confidential treatment under Rule 24-b2.

 

 

                                       -13-

<PAGE>

 

the projected fees and other charges under this Agreement for the first Contract

Quarter. The parties agree that such figure shall be adjusted up or down from

time to time (but no less than each Contract Quarter) to approximately * of the

actual volume of * purchases then being made by A&P pursuant to this Agreement.

If at any time A&P's S&P corporate credit rating is * or above, then C&S will

adjust A&P's payment terms for a * payment of the * estimated * payment amount.

 

     6.3 Miscellaneous Billing and Payment Matters. Time is of the essence. If

any payment under Section 6.2 is in default, and A&P has failed to cure the

default within * after receiving notice from C&S, then, subject to Section 14,

C&S shall have the right (which rights shall be nonexclusive, cumulative of and

additional to all other remedies) to defer further deliveries until all payments

in default have been made or, if such payment is in default for more than *

following notice from C&S, to terminate this Agreement. If A&P disputes any

portion of a statement, absent manifest error, it shall nonetheless pay the full

amount of the statement by the payment due date, without any deductions or

offsets. A&P shall give C&S notice of any billing adjustments it believes should

be made, and the parties shall attempt to reach agreement on any adjustments

within * . If either party believes a billing adjustment should be made, it

shall give notice to the other party and the parties shall attempt to reach

agreement on any adjustments within * from the date notice is received. In the

event an agreement cannot be reached on disputed adjustments within said * , the

parties will settle the dispute pursuant to Section 31.

 

     6.4 * .

 

     6.5 Review Rights. The parties will within * of the Effective Date develop

a * price file reconciliation process in a format with sufficient detail as

reasonably requested by A&P, whereby C&S will transmit to A&P all Base Price

information on a * basis and A&P may review and comment on such information. A&P

may also review C&S' Base Price information as set forth in Section 15.

 

     6.6 Third Party Deductions. From time to time, A&P may ask C&S, in writing,

to act as its agent to deduct amounts that are due from manufacturers to A&P.

A&P must provide C&S with supporting documentation before C&S will process such

deduction. C&S has the right, in its discretion, to refuse to honor any third

party deduction request that A&P may make; provided that C&S shall use this

right to refuse a deduction in a reasonable manner and shall discuss such with

A&P, in advance, and work with A&P to resolve any of A&P's concerns. If C&S

makes a deduction on A&P's behalf and the manufacturer disputes the deduction

made by C&S, A&P agrees to indemnify, defend and hold C&S harmless from any

claim by the manufacturer related to such deduction, provided that C&S will

cooperate with A&P in the defense of any such claim. If after taking a deduction

and paying the amount of such deduction to A&P, C&S repays any such deduction,

A&P will, upon receipt of notice and supporting documentation from C&S, repay

such amount to C&S. A&P will use its best efforts so that the supply of

merchandise from manufacturers to C&S is not adversely affected solely by any

third party deductions that C&S may take on A&P's behalf. Service level shall

not be adversely affected by an interruption in the supply of Merchandise from a

 

______________________________

 

* *Material omitted and filed separately with the Securities and Exchange

Commission pursuant to a request for confidential treatment under Rule 24-b2.

 

                                      -14-

<PAGE>

 

manufacturer to C&S if the interruption is caused by the refusal of the

manufacturer to ship product to C&S and such refusal is attributable to a

disputed deduction that C&S has taken on A&P's behalf at A&P's direction. C&S

will add to each deduction from a vendor a fee to process the deduction made by

C&S on A&P's behalf; such processing fee shall be (i) * for deductions equal to

or less than * and (ii) * for deductions in excess of * . Section 7. Reserve

System. The parties have established the reserve system described below (the

"Reserve").

 

     7.1 Designated Reserve Product. Promptly following receipt of notice from

A&P that it wishes C&S to acquire specified product to be held in reserve for

forward buy, C&S will purchase such product and hold it in reserve for A&P at

the Reserve Price whi