EXHIBIT (e)(2)
PRODUCT SUPPLY AGREEMENT
THIS PRODUCT SUPPLY AGREEMENT (the "Agreement") is entered into effective
the 28th day of February, 1997, by and between THE SMITHFIELD HAM & PRODUCTS
COMPANY, INCORPORATED, a Virginia corporation (hereinafter referred to as
"Smithfield"); and XXXXXXXX'X FOODS, INCORPORATED, a Virginia corporation
(hereinafter referred to as "Xxxxxxxx'x");
W I T N E S S E T H :
WHEREAS, pursuant to the Asset Purchase Agreement dated as of January
30, 1997 (the "Purchase Agreement"), by and among Xxxxxxxx'x and Smithfield,
Smithfield has agreed to buy certain of the assets of Xxxxxxxx'x Manufacturing
Processing Division (the "Transaction"); and
WHEREAS, Smithfield following the Closing of the Purchase Agreement,
will manufacture and sell to Xxxxxxxx'x the product described on Exhibit A
attached hereto (hereinafter referred to individually and jointly as the
"Product") and made a part hereof; and
WHEREAS, both Smithfield and Xxxxxxxx'x are unwilling to proceed with
the Transaction unless the other party has entered into an agreement for the
purchase and sale of the Product; and
WHEREAS, the Purchase Agreement provides, as a condition to the
obligations of the parties to proceed with the Closing thereunder that
Smithfield and Xxxxxxxx'x shall execute and deliver this Agreement;
NOW, THEREFORE, in consideration of the foregoing, and in order to
induce Xxxxxxxx'x and Smithfield to proceed with the Transaction, and in
consideration of the mutual covenants hereinafter contained, and of other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
A. Purchase and Sale of Products.
Subject to the terms and conditions of this Agreement, Smithfield agrees to
sell to Xxxxxxxx'x, and Xxxxxxxx'x agrees to purchase from Smithfield at the
Purchase Price (as hereinafter defined) all of Xxxxxxxx'x requirements for the
Product identified on Exhibit A attached hereto and any other (i) fresh or
frozen pork, beef, or chicken barbecue, (ii) fresh or frozen chili, and (iii)
Xxxxxxxx'x label BBQ sauce, except for certain sales to Multi-Unit Accounts, as
hereinafter defined).
It is agreed and understood that the term "Product" as used herein is to
be construed to mean the identical products listed on Exhibit A; produced and
manufactured under the same formulas used by Xxxxxxxx'x during its manufacture
of such products, which formulas are being sold to Smithfield pursuant to the
terms of
the Asset Purchase Agreement. Xxxxxxxx'x shall be under no obligation hereunder
to purchase from Smithfield Products which are produced with different formulas
or recipes.
B. Multi-Unit and Large End User Accounts.
Xxxxxxxx'x shall not be obligated to purchase Product hereunder for sale to
any Multi-Unit Account which is defined as any account with over five (5)
affiliated locations to which Xxxxxxxx'x sells or will sell Product on a current
basis and which account requires, after the closing of the Transaction,
Xxxxxxxx'x to sell such account product other than that produced or sold by
Smithfield; (hereinafter referred to as "Multi-Unit Account" or "Multi-Unit
Accounts").
1. As a precondition to Xxxxxxxx'x ability to sell product of
another vendor to a Multi-Unit Account under this Agreement, Xxxxxxxx'x must
provide Smithfield with a written notice from the Multi-Unit Account requiring
such competing product.
2. Ten (10) business days prior to a sale by Xxxxxxxx'x to any
excluded Multi-Unit Account hereunder, Xxxxxxxx'x shall give Smithfield notice
of its intent to sell competing product from another supplier to such Account
and specify the competing product to be sold to such Account. Upon receipt of
such notice, Smithfield shall have the right to call on such Account with
Xxxxxxxx'x assistance to try to sell Product produced by Smithfield or then
currently stocked and offered for sale by Smithfield to such Account instead of
the competing product being specified or offered to such Account by Xxxxxxxx'x
pursuant to its notice to Smithfield.
3. Under no condition, during the term of this Agreement shall
Xxxxxxxx'x "general list" for sale Product of any other vendor (other than
Smithfield). For purposes of this Agreement "general list" means Xxxxxxxx'x
cannot offer a general product line other than the Product sold by Smithfield
hereunder.
4. Attached hereto and made a part hereof as Exhibit B is a list of
each customer to which Xxxxxxxx'x currently sells a competing product, together
with a list of the vender and brand name of the competing product sold by
Xxxxxxxx'x to each such customer. There shall be no restriction hereunder
against Xxxxxxxx'x ability to continue to sell the listed competing product to
the applicable customer(s) set forth on Exhibit B.
C. Smithfield's Audit of Multi-Unit Accounts.
Smithfield shall have the right to audit Xxxxxxxx'x records to confirm the
existence of any Multi-Units that Xxxxxxxx'x represents to be an exception under
the terms of Sections A and B above, and in the event such audit reveals that a
customer does not fall within the exceptions of Sections A and B above, then
Xxxxxxxx'x shall bear the cost of such audit and shall immediately cease sales
to such Account of Product other than those purchased or sold by Smithfield. If
the audit reveals that the customer is a properly designated Multi-Unit ,
Smithfield shall bear the cost of such audit, including all costs incurred by
Xxxxxxxx'x in accommodating such audit.
D. Purchase Price.
Smithfield shall sell to Xxxxxxxx'x Product at a price reasonably
comparable and of the same quality to competitors pricing of same Product as
others buying in comparable volumes and shall offer to Xxxxxxxx'x the same
rebate, growth, or marketing programs offered for the same Product except that
Smithfield may price Product at special rates lower than those sold to
Xxxxxxxx'x in the case of bids or proposals made directly by Smithfield to
school or governmental entities and for unique pricing opportunities for major
end users (excluding other distributors).
1. Xxxxxxxx'x shall have upon three days notice to Smithfield the
right to audit Smithfield's records to confirm the "Purchase Price" compliance
with the provisions of this Section D. In the event such audit reveals that the
invoice price for an item of Product from Smithfield to Xxxxxxxx'x, over a
six-month rolling period, exceeds the price for the same item of Product sold by
Smithfield to other distribution customers of Smithfield, buying in comparable
volumes, then Smithfield shall promptly pay to Xxxxxxxx'x any "over-charge" so
determined. If the audit reveals that Smithfield has complied with the "Purchase
Price" provisions of this Agreement, Xxxxxxxx'x shall bear the cost of such
audit including all costs incurred by Smithfield in accommodating such audit.
E. Term.
The term of this Agreement shall be Five (5) years commencing on the date
hereof and terminating February 28, 2002.
F. Orders.
Products must be ordered from Smithfield not less than seven (7) days
prior to delivery date. Smithfield may accept, in its discretion any Product
ordered for delivery in less than seven (7) days.
G. Quality.
Smithfield warrants that the quality of the Product sold will be
reasonably equal to the standards of quality existing at the time of the Closing
of the Transaction.
H. Customer Complaints.
In the event Xxxxxxxx'x loses fifty percent (50%) of the tonnage volume
for all Xxxxxxxx'x customers for a category item of Product purchased from
Smithfield from the volume figures set forth on Exhibit C attached hereto, as a
result of quality complaints only, Xxxxxxxx'x shall give Smithfield sixty (60)
days written notice of such loss of business and the nature of the qualtiy
complaint and will work with Smithfield during such 60-day period to cure or
correct any quality problem existing with such Product item(s). In the event
Xxxxxxxx'x customers cannot be satisfied as to the quality of the Product item
within sixty (60) days from the receipt by Smithfield of notice from Xxxxxxxx'x,
then Xxxxxxxx'x shall have the option to carry other competitive brands to
satisfy its customer needs with respect to such Product items(s).
I. Payments.
1. Smithfield shall render its invoices covering shipments as soon
as practicable after each shipment. Terms of payment are net ten (10) days after
date of invoice and other terms set forth on Smithfield's standard invoice, a
copy of which is attached hereto as Exhibit D and made a part hereof.
2. In case Smithfield shall have any reasonable doubt at any time as
to Xxxxxxxx'x financial responsibility, Smithfield may decline to make further
shipments hereunder except upon payment in cash at the time of delivery.
3. All payments shall be made at Smithfield's principal place of
business or the place specified for payment on the applicable Smithfield
invoice.
J. Parties Cooperations.
Xxxxxxxx'x agrees that its distribution division will maintain the
same selling practices and procedures, and customer service relating to the
Products to the extent practical during the term of this Agreement. The parties
hereto agree to cooperate with each other to market and sell the Products
through Seller's distribution business.
K. Force Majeure.
1. In the event of an Act of God, explosion, accident, fire,
drought, flood, earthquake, tornado, hurricane, strike, labor disturbance,
insurrection, riot, war, act of a public enemy, the acts or orders of a
governmental unit, freight embargo, transportation, power, utility, labor or
material shortage, delay in transportation or default of supplier or any other
cause beyond Smithfield's reasonable control, interfering with the production,
supply, transportation, or consumption of the Product or with the supply of raw
materials or utilities used in connection therewith (a "Force Majeure Event"),
the obligation of Smithfield to supply Product hereunder shall be held in
abeyance for the duration of the Force Majeure Event and the term of this
Agreement shall be extended for a period equal thereto. If a Force Majeure Event
results in or may reasonably be expected to result in an inability of Smithfield
to ship Product for more than seven (7) days past their scheduled shipping
dates, then Xxxxxxxx'x may purchase the Product covered by any orders so
affected by the Force Majeure Event from other suppliers. SMITHFIELD SHALL NOT
BE LIABLE FOR ANY DAMAGES, DIRECT OR CONSEQUENTIAL, ARISING OUT OF ANY DELAY IN
DELIVERY OR FAILURE TO DELIVER ANY OF THE PRODUCT SOLD HEREUNDER IF SUCH DELAY
OR FAILURE TO DELIVER IS DUE TO A FORCE MAJEURE EVENT.
2. Any suspension or reduction of deliveries of Product under this
Agreement due to the occurrence of any Force Majeure Event shall not invalidate
or be a basis for termination of this Agreement, and, upon the removal or
termination of the Force Majeure Event during the term of this Agreement,
delivery shall be made and taken, as the case may be, on the specified terms in
effect immediately prior to such suspension or reduction.
3. If in consequence of any Force Majeure Event, Smithfield's
production is partially curtailed, Smithfield may allocate its available supply
of Product among its then present customers on such basis as Smithfield may deem
fair and practical, and in making such allocation, Smithfield shall, as near as
practicable, limit its reduction of shipments to such customers to the same
percentage in each case.
4. The provisions of this Paragraph I shall not be available to any
party hereto which shall fail to use reasonable diligence to remedy the
situation and to remove the Force Majeure Event affecting its performance
hereunder with all reasonable dispatch. The requirement that any Force Majeure
Event be remedied with all reasonable dispatch shall not require the settlement
of strikes or labor controversies by acceding to the demands of the opposing
party or parties.
L. Assignment.
This Agreement shall be binding upon and inure to the benefit of the
successors of the parties hereto but shall not be assignable by either party
without the written consent of the other party except in connection with a
merger of such party or the sale of substantially all of the assets of such
party.
M. Notices.
All notices, requests or other communications hereunder shall be in
writing, addressed to Xxxxxxxx'x or Smithfield, at the following addresses:
(i) If to Xxxxxxxx'x:
Xx. Xxxxxx Mules, Chairman
Xxxxxxxx'x Foods, Inc.
X.X. Xxx 0000
000 Xxxxxxxxxx Xxxxxx
Xxxxxxxxxx, XX 00000
Telephone (000) 000-0000
with copy to:
Xxxxxxx X. Xxxxxxx, Esquire
McGuire, Woods, Battle and Xxxxxx, L.L.P.
Xxxxx Xxxxx Xxxxxx - Xxxxx 0000
000 Xxxx Xxxx Xxxxxx
Xxxxxxx, XX 00000-0000
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
(ii) If to Smithfield:
Xx. Xxxxx X. Xxxxxx, III, President
The Smithfield Ham & Products Company, Incorporated
P. O. Xxx 000
Xxxxxxxxxx, XX 00000
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
with copy to:
Xxxxxxx X. Xxxxxxx, III, Esquire
Edmunds & Xxxxxxxx, P.C.
000 Xxxx Xxxxxx (24504)
P. O. Box 958 (24505)
Lynchburg, VA
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
The address of either party may be changed by giving notice in writing at any
time to the other party. Any notice to be given under this Agreement shall be
deemed duly given if (i) delivered personally, (ii) sent by telecopy and
acknowledged by recipient, (iii) delivered by overnight express, or (iv) sent by
United Stated registered or certified mail, postage prepaid. Any notice that is
delivered personally, or sent by telecopy or overnight express in the manner
provided herein shall be deemed to have been duly given to the party to whom it
is directed upon actual receipt (and, in the case of telecopy acknowledgement)
by such party. Any notice that is addressed and mailed in the manner provided
herein shall be conclusively presumed to have been given to the party to which
it is addressed at the closed of business, local time of the recipient, on the
third day after it is so placed in the mail.
N. Termination.
1. Except as otherwise provided in the paragraph dealing with Force
Majeure Event, in the event either of the parties hereto fails to perform in any
material respect any of the terms or conditions of this Agreement to be
performed by such party, and such failure continues for a period of 30 days
after written notice by the other party to the non-performing of such failure
and of a demand for performance, then this Agreement shall, at the option of the
injured party, terminate.
2. In the event of any voluntary or involuntary bankruptcy,
receivership, insolvency or reorganization proceedings involving either party or
its property, or the assignment of all, or substantially all, of the assets of
either party for the benefit of creditors, or a receiver is appointed for it or
any substantial part of its property, the other party may terminate its
obligations hereunder by giving written notice of such termination which shall
become effective upon the giving of such notice.
3. The parties' right of termination shall be in addition to, and
not in lieu of, any other rights or remedies available to the non-breaching
party.
4. The parties hereto acknowledge that damages may not be a
sufficient remedy in the event of the breach of this Agreement and, as a result,
agree that an injured party may have as a remedy against the other party, the
specific performance of the provisions of this Agreement.
O. Non-Waiver.
The failure of either party to insist in any one or more instances upon
strict performance of any of the provisions of this Agreement or to take
advantage of any of its rights hereunder shall not be construed as a waiver of
any such provisions or the relinquishment of any such rights, but the same shall
continue and remain in
full force and effect.
P. Entire Agreement.
This Agreement sets forth the entire agreement between the parties with
respect to the subject matter hereof, and the parties shall not be bound by any
representations or agreements which are not expressly set forth in this
Agreement.
Q. Amendments.
No modification, amendment or waiver of any provision of this Agreement
shall be effective unless in writing signed by an authorized officer of each of
the parties hereto.
R. Counterparts.
This Agreement may be executed in one or more counterparts, each of
which shall for all purposes be deemed to be an original and all of which
together shall constitute one and the same instrument.
S. Captions.
The captions of the various paragraphs of this Agreement are for
convenience of reference only and shall not affect the interpretation of the
provisions hereof.
T. Governing Law.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of Virginia (other than its choice of law principles).
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by the respective officers as of the date first written above.
SMITHFIELD HAM & PRODUCTS COMPANY,
INCORPORATED
By: Xxxxx X. Xxxxxx, III
(signature)
President
XXXXXXXX'X FOODS, INC.
By: Xxxxxx X. Xxxxxxxxx, Xx.
(signature)
Senior Vice President
