12
EXHIBIT 10.22
RAW PRODUCT SUPPLY AGREEMENT
THIS AGREEMENT is effective as of May 5, 1997 by and between Xxxxxxx
Xxxxx Foods, Inc., acting through its Comstock Michigan Fruit Division ("CMF")
and Seneca Foods Corporation ("Seneca"). Seneca cans vegetables at plants
located in western New York in Geneva, Marion, Leicester, East Xxxxxxxxxx and
Newark (the "Seneca Plants"), as well as at plants in other states. CMF operates
plants in western New York for the production of canned and frozen vegetables at
Bergen, Oakfield, Barker, Gorham, Shortsville and Waterport (the "CMF Plants").
By this agreement, the parties agree to coordinate the procurement of
certain vegetables to meet their requirements which are to be obtained either
(a) from crops grown in western New York or (b) from crops needed for processing
at their plants in New York that are grown outside New York ("Raw Products") so
as to achieve economies of production and delivery of Raw Products for
processing. They have agreed that CMF shall be responsible for procuring all Raw
Products for delivery to both the Seneca Plants and the CMF Plants.
It is therefore agreed as follows:
1. Term and Exclusivity. Beginning with the western New York 1997 growing season
and continuing through the western New York growing season of 2006, CMF agrees
to obtain and deliver to Seneca and Seneca agrees to purchase from CMF green
peas, snap beans, sweet corn, red beets, carrots and cabbage as required for
processing by Seneca at the Seneca Plants. On April 28 of each year commencing
in 1998, the term of this Agreement shall be extended for one additional year,
without action by either party, unless prior to April 28 either party gives
notice that it will not agree to any additional extensions of the term. In the
event of such notice, the term of the agreement shall be fixed and not be
subject to any additional automatic extensions.
2. Raw Product Plan. The quality, quantity and variety of Raw Products
of Seneca and the location to which they are to be delivered shall be as
established in an annual raw product plan (the "Seneca Plan") and attached to
this Agreement as an addendum. The Seneca Plan shall also include, as
attachments, grower contracts agreed upon by both parties for that plan year.
The Seneca Plan for the 1997 growing season is attached hereto as Exhibit 1. For
each subsequent year during the term of this agreement, Seneca shall deliver to
CMF an estimated Seneca Plan no later than January 15 of the year preceding the
growing season for that year.
The parties shall consult thereafter and come to agreement no later than
the following March 1 as to the final Seneca Plan for the growing season of that
year.
3. Quantity of Raw Products. It is the expectation of the parties that
Seneca shall purchase from CMF each year during the term of this agreement
approximately 244,000 tons of Raw Products, based upon the historical
requirement of Seneca for 160,000 tons of Raw Products and the 84,000 tons which
have been required for the canned vegetable business purchased by Seneca from
CMF as of May 5, 1997. The parties recognize and acknowledge that such quantity
will vary from year to year as required by economic conditions. However, in any
event, Seneca agrees to purchase from CMF a minimum of 84,000 tons of Raw
Products each year during the term of this agreement, whether processed in the
Seneca Plants or processed for canning by CMF on Seneca's behalf at the
Oakfield, New York plant of CMF.
4. Raw Product Procurement. It is the responsibility of CMF to select
the growers and to contract and arrange for the growing and harvesting of Raw
Products each year in accordance with the Seneca Plan. CMF shall also be
responsible for the delivery of the Raw Products for processing on a timely
basis in accordance with the production schedule for the location to which such
crops are to be delivered, as specified in the Seneca Plan. Through its field
service employees, CMF shall inform Seneca on an as-required-by-Seneca basis
concerning the prospects for harvest of the Raw Products to be processed under
the current Seneca Plan. CMF agrees its field service employees will provide 24
hour service. Seneca may reject Raw Products which upon inspection by Seneca
fail to meet the quality requirements or pesticide limitations set forth in the
Seneca Plan.
5. Processing. It is the responsibility of Seneca to receive and
process the Raw Products as delivered in accordance with the Seneca Plan. Seneca
shall notify CMF as soon as possible of any anticipated inability of Seneca to
accept and process Raw Products in accordance with the Seneca Plan. To the
extent Seneca fails to accept Raw Products as specified in the Seneca Plan, and
provided Raw Products are available at the time, Seneca may decide to release
such products to CMF either for its use or for sale on the open market. If all
available Raw Products are not processed or sold, the remaining Raw Products
will be considered Bypassed Crops. Compensation for Bypassed Crops will be
determined as described in Section 12 of this agreement.
6. Title and Risk of Loss. Title to the Raw Products shall pass from
CMF to Seneca upon delivery and acceptance at a Seneca Plant in accordance with
the Seneca Plan. Risk of loss of the Raw Products shall remain with CMF until
the time of such delivery and acceptance, at which time such risk of loss shall
pass to Seneca.
7. Facilities at Seneca Plants. Seneca has previously conducted field
services for the Seneca Plants through its own employees, most of whom have
become employees of CMF providing comparable field services as provided in this
Agreement. Seneca agrees to provide, at no cost to CMF, office space and
secretarial assistance at each of the Seneca Plants which is comparable to such
facilities as were provided by Seneca for field service purposes when such
services were performed by employees of Seneca. Seneca also agrees to permit CMF
to install, at the expense of CMF, mainframe computer terminals and related
equipment in each of the Seneca Plants for the use of the CMF field staff in
performing its obligations under this agreement.
8. Pricing. The price to be charged by CMF for its services under
this agreement is to be determined as follows:
a. For all Raw Products sourced in New York State and
delivered to Seneca Plants pursuant to this Agreement which CMF has contracted
to obtain at the commercial market value ("CMV") thereof, Seneca shall pay CMF
the CMV of such Raw Products. CMV shall be calculated in the same manner as
determined between CMF and Pro-Fac Cooperative, Inc. ("Pro-Fac") for the same or
similar raw products sold by Pro-Fac to CMF in accordance with the current CMF
Raw Product Plan for the CMF Plants (the "CMF Plan"). The parties agree to
confer as to those situations where CMF shall procure Raw Products at a price
different from CMV. In such instances as CMF contracts for Raw Products required
for the Seneca Plan and for the CMF Plan at a price which is different from CMV
(the "Contract Products"), then Seneca shall pay for such Contract Products as
follows:
(i) Where the price of Contract Products exceeds CMV, Seneca shall pay for
such Contract Products supplied for the Seneca Plan a portion of the excess of
such price above CMV equal to that portion of such excess price as the
requirement for such crop as specified in the Seneca Plan bears to the combined
requirements for such crop as specified in the Seneca Plan and CMF Plan
together. For example, assume the contract price for corn is $10 per ton greater
than CMV, that Seneca requires 60,000 tons of corn under the Seneca Plan, that
there are 100,000 tons of corn required by Seneca and CMF together, that 20,000
of such 100,000 tons are Contract Products, that the total excess of the
Contract Products price over CMF is thus $200,000, and that CMV is $50 per ton.
Seneca will pay CMV of $3.0 million plus $120,000, for a total of $3,120,000 for
its corn. CMF will pay CMV of $2.0 million plus $80,000, for a net total of
$2,080,000 for its corn.
(ii) Where the price of Contract Products is less than CMV, Seneca shall
pay less than CMV by an amount equal to that portion of such lower price as the
requirement for such crop as specified in the Seneca Plan bears to the combined
requirements for such crop as specified in the Seneca Plan and CMF Plan
together. For example, assume the facts are the same as set forth above except
that the contract price for corn is $10 per ton less than CMV, resulting in a
total variance of $200,000 below CMV. Then Seneca will pay CMV of $3.0 million
less $120,000, for a total of $2,880,000 for its corn. CMF will pay CMV of $2.0
million less $80,000, for a net total of $1,920,000 for its corn.
As required for payment and other purposes under this Agreement, CMV or an
average of CMV and the cost of the Contract Products shall be estimated in
accordance with the practices of CMF and Pro-Fac and shall be finally determined
for each growing season on or before December 31 of each year.
b. Raw Products obtained for Seneca by CMF pursuant to this
agreement from sources outside New York State will be priced at the cost to CMF
for such Raw Products.
c. In addition to paying the price for Raw Products as
provided above, Seneca will also reimburse CMF for the acquisition costs
incurred by CMF in delivering Raw Products to Seneca Plants, including, without
limitation, harvesting, hauling, insect control, insurance and any other
expenses incurred in connection with the delivery of Raw Products to the Seneca
Plants. The costs of CMF shall be determined in accordance with historical
accounting practices of CMF and be open for review by Seneca as provided in
Section 19. It is also agreed that Seneca shall deduct from amounts owed to CMF
an amount equal to the value of services and supplies provided by Seneca to CMF
for the production and delivery of Raw Products to Seneca.
d. Seneca will also reimburse CMF for its cost of providing
other field services pertaining to the sourcing of Raw Products for Seneca
incurred in connection with the performance by CMF of its responsibilities under
this agreement. In determining such cost, expenses will be allocated on a
tonnage basis between field services provided for Seneca and field services
provided for CMF with regard to obtaining and delivering Raw Products to the CMF
Plants. Accordingly, Seneca shall pay CMF as such reimbursement a percentage of
the total cost of such field services equal to the percentage of the total tons
of Raw Products delivered to Seneca over the total tons of Raw Products
delivered to Seneca and CMF.
e. For purposes of this Section 8, the costs of CMF shall be
determined in accordance with historical accounting practices of CMF and shall
be subject to audit by Seneca as provided in Section 19.
9. Terms of Payment.
a. The purchase price set forth in Section 8(a) and (b) shall
be paid as follows: For peas, Seneca shall pay 50% of the purchase price no
later than August 15 of the year of delivery and the remaining 50% no later than
December 15 of the year of delivery. For all other Raw Products Seneca shall pay
50% of the cost of such crop within 30 days of delivery to a Seneca
Plant and the remaining 50% no later than the following
February 15. CMF shall invoice Seneca for deliveries on a weekly basis. The
invoices shall indicate the due dates for payment.
b. CMF shall invoice Seneca monthly for its costs incurred
which are payable by Seneca as provided in Section 8(c) and (d), and Seneca
shall pay CMF the invoiced amounts within 30 days of receipt of such invoice,
except that 75% of hauling and harvesting charges shall be paid within 15 days
of receipt of such invoice and the final 25% 30 days after the last harvest date
for the crop to which such hauling and harvesting relates.
10. Crop Shortfall. If CMF invokes the provisions of force majeure
pursuant to Section 17 of this agreement, CMF may reduce the quantity of the
affected categories of Raw Products sold to Seneca below the quantity required
pursuant to the Seneca Plan for the year, but only to the extent necessary to
allow a pro rata allocation between Seneca and CMF, based upon the Seneca Plan
and the CMF Plan, of the actual production of the affected categories of Raw
Products. In determining such a pro rata allocation, CMF shall provide Seneca
with sufficient information from the CMF Plan for the applicable growing season
pertaining to the affected categories of Raw Products to establish that the
reduction of Raw Products provided to Seneca is in accordance with this Section
10. Notwithstanding the foregoing, any category of Raw Product of a particular
grade provided only to Seneca and not to CMF, or grown from seeds designated by
Seneca for a particular product required by Seneca (the "Seneca Products"),
shall be provided solely to Seneca and shall not be subject to a pro rata
allocation in the event of a crop shortfall. In the event of a crop shortfall
for any category of Raw Products, Seneca shall have the right, at its option, to
purchase additional quantities of such Raw Products of a lesser grade or quality
than was specified in the applicable Seneca Plan. Such additional quantities
shall be subject to proration between CMF and Seneca as provided above.
11. Overproduction. If crop yields for a growing season result in an
excess of Raw Products beyond the volumes contemplated in the Seneca Plan and
the CMF Plan, ("Overproduction"), then (subject to the provisions of Section
13), CMF and Seneca shall purchase such Overproduction, on a pro rata basis
determined based on requirements for such Raw Products as are specified in the
Seneca Plan and the CMF Plan. In determining such allocation, CMF shall provide
Seneca with sufficient information from the CMF Plan for the applicable growing
season pertaining to the affected categories of Raw Products to establish that
the Overproduction allocated to Seneca is in accordance with this Section 11.
Notwithstanding the foregoing, any Overproduction of the Seneca Products, as
defined in Section 10, shall be allocated solely to Seneca under this Section
11.
12. Facilities Operated by Seneca or CMF Located Outside of New York
State. To the extent that raw product is available from Seneca or CMF facilities
located outside of New York State, and provided there is insufficient Raw
Product available under this Agreement, each company has first priority use of
its own raw product from outside of New York State, and the other company shall
then have second priority use of such raw product over third parties. It is
agreed that raw product processed from company owned facilities located outside
of New York State will not be considered in any of the pro rata allocations as
identified in Section 10.
13. Bypassed Crops. Raw Products fit for harvesting and suitable for
processing under the provisions of the Seneca Plan which are not harvested at
the direction of Seneca shall be referred to as "Bypassed Crops." Payments by
Seneca for Bypassed Crops shall be governed by the provisions of this Section
13. The quantity of the Bypassed Crops shall be determined by harvesting a
portion of the planting, sampling, or some other means acceptable to the parties
to determine the yield of the unharvested acreage and the amount of Bypassed
Crops. Initially, the value of such Bypassed Crops shall be the price which
would have been payable had such Bypassed Crops been harvested and delivered in
accordance with the Seneca Plan, less any cost not incurred for harvesting and
delivering such Bypassed Crops as set forth in the Seneca Plan, and plus any
costs associated with determining the yields of the unharvested acreage of the
Bypassed Crops. The value of the bypassed crops shall be held in a "bypassed
pool", which shall be established for each commodity separately. Compensation to
cover the expense of the bypassed pool shall be shared equally between
Seneca/CMF and the growers for that specific commodity, such that the growers
contribute 50% of the expenses and Seneca/CMF match the grower contributions, to
a maximum dollar value equal to 7% of the total value of that commodity. Any
expenses that exceed the 7% limit shall be borne by the growers if the excess is
the result of agricultural perils, and if the excess is the result of plant
operations issues shall be borne by Seneca and/or CMF. The allocation of the
excess, if any, between Seneca and CMF shall be mutually agreed upon at the end
of each growing season.
14. Sale of Overproduction and Bypassed Crops. To the extent that
neither Seneca nor CMF want the Overproduction allocable to them as provided in
Section 11 or Bypassed Crops as provided in Section 13, then CMF will make
commercially reasonable efforts to sell such Overproduction and Bypassed Crops
at the highest available price under such terms and conditions as are acceptable
to CMF. The net proceeds from any such sale shall be retained by CMF and shall
be deducted from the amount otherwise payable by Seneca to CMF pursuant to
Section 8(a), 8(b), 11 and 13.
15. Seeds and Proprietary Information. Two classes of seeds from which Raw
Products are to be grown for Seneca and CMF are contemplated by this Agreement:
Generic Seed and Proprietary Seed. a. Generic Seed: To the extent that such seed
is available from Seneca, CMF agrees to buy, and Seneca agrees to sell, such
seeds at the actual cost paid by Seneca for such seed. Payment by CMF for such
seed shall be made by a deduction of the cost thereof from the first payment of
the purchase price of such Seneca Products pursuant to Section 9. The parties
agree that CMF will thereafter resell such seed to their growers at the actual
cost paid by CMF for such seed. CMF agrees to direct the growers to whom seed is
sold by CMF to comply with any usage restrictions applicable to such seed which
may be required by Seneca. b. Proprietary Seed: Proprietary Seed as used in this
Agreement shall refer to seed which comprises trade secrets of The Pillsbury
Company ("Pillsbury"). To the extent the Proprietary Seed is available from
Seneca, Seneca agrees to provide such seed to CMF at its effective cost. CMF
shall, in turn, provide such seed at no cost to growers. In consideration of
being granted access to Pillsbury's trade secrets, CMF agrees to enter into an
agreement with Pillsbury in the form attached hereto as Exhibit 2, and shall
include within its standard grower contracts any restrictive provisions required
by Seneca or Pillsbury. All trade secret and other intellectual property rights
embodied in the Proprietary Seed provided by Seneca to CMF shall remain the
property of Pillsbury and may be used solely for the production of crops for
Seneca. No transfer of such rights shall be accomplished by any other
agreements, and CMF will not transfer such seed or crops grown from such seed to
any other party. The provisions of Section 14 hereof shall not be applicable to
crops resulting from Proprietary Seed unless crops are sold as ensilage or the
like.
16. Sweet Corn Ensilage. CMF shall sell or otherwise dispose of all
sweet corn ensilage created as a result of the growing of Raw Products pursuant
to this Agreement. Initially, CMF shall retain the proceeds from the sale of
such ensilage, and Seneca shall reimburse CMF for any cost incurred in disposing
of such ensilage attributable to the Seneca Plants to the extent that such costs
exceed the proceeds of the sale. On an annual basis, such costs shall be
invoiced by CMF and paid by Seneca, and to the extent the proceeds from sale of
ensilage attributable to Seneca Plants exceed such costs, CMF shall pay such
excess to Seneca.
17. Pesticide Treatment and Records. CMF agrees to direct the growers
of Raw Products to be sold to Seneca pursuant to this Agreement to use only
those pesticides that are registered under the applicable provisions of the
Federal Insecticide, Fungicide and Rodenticide Act and to use those pesticides
in a matter consistent with their labeling. CMF will use reasonable efforts
consistent with industry standards to assure compliance with such requirement by
the growers who produce Raw Products for Seneca pursuant to this Agreement. CMF
will provide to Seneca records of all pesticide applications to Raw Products
delivered to Seneca Plants
pursuant to this Agreement. Such records shall be supplied at the time of
delivery of such Raw Products at the Seneca Plants. Seneca shall have the right
to restrict the use of certain pesticides if in its opinion it is in its best
interest. Such restrictions will be identified in the annual Seneca Plan.
18. Force Majeure. If the performance of any part of this Agreement by
either party is prevented, hindered or delayed by reason of any cause or causes
beyond the control of such party due to acts of God, war, riot, fire, explosion,
flood, sabotage, inability to obtain raw materials or fuel or power,
governmental laws, regulations or orders, breakage of machinery or any cause
beyond the reasonable control of such party, or labor unrest, strike, lockout or
injunction, as the case may be and which cannot be overcome by due diligence,
the party affected shall be excused from such performance to the extent that it
is necessarily prevented, hindered or delayed thereby. During the continuance of
any such happening or event, this contract shall be deemed suspended so long as
and to the extent that any such cause prevents or delays its performance. Any
reduction of deliveries of Raw Products by CMF excused by this Section 18 shall
be handled as a crop shortfall pursuant to Section 10.
19. Audit. Within one year following the reporting by CMF to Seneca of
costs claimed by CMF to have been incurred under this Agreement (or of the
proceeds of sale in excess of costs under Section 16), Seneca shall have the
right on reasonable notice to CMF to examine the pertinent records of CMF to
verify the accuracy of costs (or proceeds under Section 16) so reported by CMF
and the appropriateness of the allocation of such costs (or proceeds). However,
CMF shall not disclose to Seneca any cost data other than that necessary to
permit such verification by Seneca. Should any disagreement arise as to such
costs which Seneca and CMF are unable to resolve, the matter shall be referred
for resolution to a Big-Six public accounting firm mutually acceptable to and
independent from Seneca and CMF (the "Accountant"). Upon the engagement of the
Accountant, Seneca and CMF shall each submit a statement to the Accountant
setting forth its respective position regarding the disagreement. The
determination of the Accountant shall be conclusive and binding upon the
parties. An adjustment, if any, to Seneca's cost shall be made in accordance
with the Accountant's determination. All fees and expenses of the Accountant in
performing its duties hereunder shall be shared equally by Seneca and CMF, each
of which hereby agrees to pay its share of such fees and expenses.
20. Indemnification. Each party hereto agrees to fully indemnify, defend
and hold the other party harmless from any and all claims, complaints, losses,
costs, expenses, damages or fees (including reasonable attorneys' fees) arising
from or associated with any failure by such party to comply with the terms,
undertakings or commitments set forth in this Agreement. Each party waives any
claim, or right to seek indemnification, for consequential damages. If the
indemnifying party shall so request, the indemnified
party agrees to cooperate with the indemnifying party and its counsel
in contesting any claim which the indemnifying party elects to contest or, if
appropriate, in making any counterclaim against the person asserting the claim,
or any cross-complaint against any person. The indemnifying party shall
reimburse the indemnified party for any expenses incurred by the indemnified
party in so cooperating.
21. Termination. Without prejudice to any other rights either party may
have under this Agreement, applicable law or rule of equity, either party shall
have the option to terminate this Agreement in the event:
a. The other party commits a material breach of any term,
covenant or condition of this Agreement and such breach
is not remedied within thirty (30) days after the
aggrieved party has sent written notice of such breach
to the other party;
b. The other party become insolvent within the meaning of
any bankruptcy or insolvency law, or makes an
assignment for the benefit of its creditors.
c. An attachment, execution or lien is levied against Raw
Products under this Agreement and such attachment,
execution or lien is not remedied within thirty (30)
days after the aggrieved party has sent written notice
of such event to the other party.
d. A controlling interest in the other party is sold or
transferred, other than by gift or inheritance, unless
there is a mutual agreement to the change.
Notwithstanding the election of either party to terminate this Agreement as
provided above, such termination shall not be effective until the conclusion of
the growing season for the year following the year in which such election to
terminate is made.
22. Non-Assignment. This Agreement may not be assigned by either party hereto
without the prior written consent of the other party, which consent shall
not be unreasonably withheld. Any attempted assignment without such consent
shall be void.
23. Independent Contractors. It is understood that neither Seneca nor CMF is
the agent or partner of the other, and that this Agreement shall not be
construed as a joint venture between them. It is further understood that
neither party shall be responsible for the debts or obligations of the
other, and neither party has the authority to bind or act on behalf of the
other.
24. Notices. All notices, requests, demands or other communications required or
permitted under this Agreement shall be given in writing and shall be
deemed to have been given if delivered personally, sent by facsimile or
Federal Express, or mailed postage prepaid, to the following addresses: As
to CMF: Xxxxxxxx Michigan Fruit A Division of Xxxxxxx Xxxxx Foods, Inc. 00
Xxxxxx Xxxxx Xxxxxxxxx, Xxx Xxxx 00000 Attn: President Facsimile:
000-000-0000
With a copy to:
Xxxxxx X. Xxxxxxx
Xxxxxx Beach & Xxxxxx, LLP
000 Xxxx Xxxx Xxxxxx
Xxxxxxxxx, Xxx Xxxx 00000-0000
Facsimile: 000-000-0000
As to Seneca:
Seneca Foods Corporation
0000 Xxxxxxxxx-Xxxxxx Xxxx
Xxxxxxxxx, Xxx Xxxx 00000
Attn: President
Facsimile: 000-000-0000
With a copy to:
Xxxxxxx X. Xxxxxxxx
Xxxxxxx Xxxxxxxxxxx & Mugel
Fleet Bank Building
Twelve Xxxxxxxx Xxxxx
Xxxxxxx, Xxx Xxxx 00000-0000
Facsimile: 000-000-0000
IN WITNESS WHEREOF, the parties hereto duly execute this
Agreement as of May 5, 1997.
XXXXXXX XXXXX FOODS, INC. SENECA FOODS CORPORATION
By: /s/ Xxxx X. Xxxxxx By /s/ Xxxxxxx Xxxxxx
Title: Chief Financial Officer Title: Vice President - Finance
