[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.]
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.
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.
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 .
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