Confidential Treatment
EXHIBIT 10.17
PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE
SECRETARY OF THE COMMISSION PURSUANT TO REGISTRANT'S APPLICATION OBJECTING TO
DISCLOSURE AND REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 406. THE OMITTED
PORTIONS HAVE BEEN MARKED WITH BRACKETS.
SUPPLY AGREEMENT
This Supply Agreement (this "Agreement"), executed as of March ___, 1996,
by and between SP Acquisition Co., a Delaware corporation ("Seller"), and Xxxxx
River Canada, Inc., a Canadian corporation ("Purchaser");
W I T N E S S E T H:
WHEREAS, Purchaser and Seller are executing this Agreement pursuant to
which Seller will sell to Purchaser, and Purchaser will purchase from Seller,
expandable polystyrene as described in Exhibit A hereto for use in foam cup
manufacturing ("EPS"), all in accordance with the terms, conditions and
provisions set forth in this Agreement;
NOW THEREFORE, in consideration of the premises and the mutual agreements
set forth herein, Seller and Purchaser agree as follows:
I. SALE AND PURCHASE
1.1 Effective Date. This Agreement shall be effective as of February 1,
--------------
1996.
1.2 Sale and Purchase. Subject to certain limitations of Seller's
-----------------
manufacturing capacity hereinafter described, during each twelve-month period of
this Agreement Seller will sell to Purchaser, and Purchaser will purchase from
Seller, for the "Purchase Price" (as determined pursuant to Sections 2.1) one
hundred percent (100%) of Purchaser's overall requirements for EPS.
Notwithstanding the forgoing, Purchaser shall not be restricted from purchasing
EPS from other sources for the purpose of testing, research, or experimentation,
or in any circumstance in which Seller is unable or unwilling to supply
Purchaser with EPS in accordance with the terms of this Agreement.
The current 100% requirement for EPS of Purchaser is approximately 9 million
pounds annually. If, during the term of this Agreement, Purchaser shall acquire
additional manufacturing capacity and therefore require EPS in excess of 9
million pounds annually, the parties will in good faith discuss increasing the
volume of EPS to accommodate such additional capacity.
If, during the term of this Agreement, Purchaser shall acquire another
manufacturer, or the assets of another manufacturer at another location, such
additional volume of EPS shall not be included in Purchaser's requirements
unless 1) there is no
1
existing EPS supply agreement which binds the acquired manufacturer or assets,
and 2) the parties hereto mutually agree to include such additional EPS volume
in this Agreement.
Nothing in this Agreement shall be construed to require Purchaser to take any
quantity of EPS during any year, to continue to operate its manufacturing
facilities at any location, to replace damaged or nonfunctional equipment, to
continue in the foam container business, to maintain ownership of any location
subject to this Agreement, or to maintain any certain mix of products or
materials. Purchaser shall, to the contrary, be free to operate its business in
any manner it sees fit, to produce such products and quantities thereof as it
deems appropriate, and to add or reduce capacity in its sole discretion without
being in breach hereof.
1.3 Order Placement. Purchaser shall supply Seller annually with an
---------------
estimate of the quantity of EPS required at each of Purchaser's foam cup
manufacturing facilities. Monthly, each such facility will provide Seller with
a firm order for deliveries required during the next calendar month and a
forecast of requirements for the second and third subsequent months. The first
month's orders will be firm, and the second and third month estimates are not
firm. The ordering location shall communicate orders to Seller's Ft. Worth
manufacturing plant on or before the 20th day of each month, and no less than 10
days prior to the first required delivery. Seller will accept reasonable changes
to a purchase order if advised of any such changes within seven (7) days of the
date the purchase order was placed. Seller will use its best efforts to
accommodate changes requested after seven (7) days from date of order placement
provided the subject order has not progressed to the point of shipment. Within
two (2) business days of Seller's receipt of a purchase order, Seller will
advise Purchaser of its inability to satisfy the conditions of the purchase
order. For those purchase orders where Seller cannot satisfy the conditions
thereof and Purchaser places an order with a third party, the Purchaser shall
not be in breach of this Agreement, and Seller shall be liable for any
additional costs incurred by Purchaser, including but not limited to price
differentials and extra freight charges, to obtain such replacement EPS.
1.4 Point of Manufacture; Shipping. Seller will have the option to
------------------------------
manufacture the EPS to fill any particular order at either the Fort Worth, Texas
or Baie D'Urfe, Quebec facilities. Freight will be paid by Purchaser, with rates
equalized to Seller's Baie D'Urfe facility, for all shipments to Purchaser's
Edmonton and Brampton facilities. EPS will be shipped by Seller to Purchaser
F.O.B. Seller's manufacturing facility freight not allowed. Seller acknowledged
that Purchaser's facilities utilize load control receiving and shipping
practices, and therefore cannot accept shipments early or late. Any excess
freight costs
2
experienced by Purchaser as a result of Seller not dispatching deliveries as
requested will be charged back to Seller. Seller will ship EPS in clean,
watertight trailers in sealed containers and will not ship EPS to Purchaser in
the same containers or trucks together with any products or materials other
than EPS. The parties recognize that the EPS to be shipped by Seller is
considered hazardous material under transportation regulations. Seller shall be
responsible for losses caused by leakage or contamination in transit from any
causes. Other than Seller's responsibilities set forth herein, Purchaser
shall bear the risk of loss for products after the load is moved from Seller's
facility, and shall pursue freight claims in its own name.
1.5 Reporting Requirements. So that Purchaser is kept fully aware of the
----------------------
volume in pounds of EPS purchased by it hereunder by the various manufacturing
facilities, Seller will provide to Xxxxx River Canada headquarters in Xxxxxxx,
Xxxxxxx, with a copy to Norwalk, Connecticut, a report at the end of each month,
in writing, indicating the EPS purchases during the previous month, and year-to-
date, by location, and will furnish each ordering location, with a report at the
same time indicating the total purchases during the previous month by that
location and year-to-date.
II. PURCHASE PRICE
2.1 Purchase Price. The purchase price for each pound of conforming
--------------
EPS purchased during the first Annual Period under this Agreement shall be the
lower of:
a) the most recent price paid during the last 60 days by any
other North American customer of Seller purchasing EPS of equivalent quality in
volumes of 25 million pounds per year or greater; or
b) the beginning low price per pound for contract styrene
monomer as reported in the first issue of the XxXxxx Benzene Newsletter in the
immediately preceding month plus [ ] per pound in U.S. Dollars.
2.2. Second and Third Year Pricing. No more than 90 nor less than 30
-----------------------------
days prior to the end of the first Annual Period of this Agreement, the parties
shall meet to discuss in good faith the price to be paid by Purchaser for EPS
during the Second and third Annual Periods. If the parties agree upon such a
price, it shall remain firm for the second and third Annual Periods. If the
parties are unable to agree upon such revised pricing, the price during the
second and third Annual Periods of the Agreement shall be established in
accordance with the procedure described in Paragraphs 2.1, and the Agreement
shall terminate after the third Annual Period.
3
2.3 Billing; Terms of Payment. Seller will invoice Purchaser at
-------------------------
Xxxxx River Canada Inc., 000 Xxxxxxxxx Xxxxxx, Xxxxxxx, Xxxxxxx, Xxxxxx X0X 0X0,
Attention Xxxx Xxxxxxxx, on a bi-monthly basis for EPS purchased by each
manufacturing facility. Purchaser will pay Seller the Purchase price for such
EPS within [ ] days after the date of shipment. Past due payments will
bear interest accruing from the due date until payment at an annual rate equal
to the lesser of the average Prime Rate as reported in The Wall Street Journal
from time to time plus two (2) points or the maximum rate permitted by
applicable law.
III. MISCELLANEOUS PROVISIONS
3.1 Term; Annual Periods. The "Term" of this Agreement will be the
--------------------
three (3) consecutive twelve-month periods commencing on February 1, 1996. An
"Annual Period" is each of the three periods of twelve (12) consecutive calendar
months during the Term.
3.2 Research and Development Activities; Improvements. It is
-------------------------------------------------
contemplated that during the Term Seller will engage in research and development
activities for the purpose of improving its EPS product and/or facilities,
equipment or manufacturing methods or procedures related to producing such
product (collectively, and "Improvements"). In connection with the forgoing,
the parties agree as follows:
(a) During the Term Seller will, at its sole cost and expense,
employ the equivalent of at least one employee to engage in such research and
development activities related to possible Improvements.
(b) Subject to the conditions set forth in Section 3.2(c) below, if
as a result of Seller's research and development activities Seller and Purchaser
agree to implement any Improvements relative to the EPS sold to Purchaser
hereunder, then during the six month period immediately following the agreement
of Purchaser and Seller to implement such Improvements for Purchaser's benefit,
Seller agrees not to sell any EPS manufactured using such improvements to any
third party; provided, however, if any such Improvements are a result of the
joint research and development activities of Purchaser and Seller, the period
during which Seller agrees not to sell to third parties EPS manufactured using
such Improvement shall be eighteen (18) months after the agreement of Seller and
Purchaser to implement such Improvements.
(c) The restrictions set forth in Section 3.2(b) on Seller's right
to sell EPS to third parties shall only apply to EPS manufactured using
Improvements that (i) are based solely on a change in the formula or composition
of EPS, (ii) do not
4
require any material modification in or additions to Seller's facilities, plant
or equipment (iii) do not limit, increase the cost of, or otherwise adversely
affect Sellers' ability to manufacture EPS without using such Improvements, and
(iv) are not incorporated (or similar Improvements are not incorporated) in EPS
offered for sale by any company in competition with Seller.
(d) If Purchaser, independent from any research and development activities
conducted with or by Seller, develops Improvements that Seller wishes to
utilize, the parties agree to negotiate the terms of a mutually acceptable
license agreement for Seller's use of such Improvements.
(e) Nothing in this Section 3.2 shall limit or otherwise apply to any
research and development activities of Seller conducted together with or for any
of its other customers or suppliers, or to Seller's right to implement or use
any Improvement resulting from such activities.
3.3 Insurance. During the Term Seller shall maintain at least the
---------
insurance coverage described in Exhibit B hereto. Seller will include Purchaser
as an additional insured with respect to such insurance, and will provide that
written notice of cancellation or material reduction in any coverage thereunder
will be given to Purchaser at least thirty (30) days prior to any such
cancellation or reduction.
3.4 Inspection and Acceptance. Seller shall inspect each shipment of EPS
-------------------------
before it is shipped from Seller's manufacturing facilities. Seller shall
cooperate with the Purchaser to develop mutually acceptable statistical quality
assurance measurements. Notwithstanding the foregoing, Purchaser may inspect
all EPS upon receipt. Purchaser's sole and exclusive remedy in the event of
any rejection, revocation of acceptance or non-conformance of any EPS shall be
replacement of the non-conforming EPS, FOB Purchaser's affected location, plus
any direct costs of storage and/or disposal of the non-conforming product. The
Purchaser shall provide notice of short-shipments to Seller within 30 days of
receipt, or such claims are deemed waived.
3.5 Warranty. Seller warrants that EPS manufactured by Seller will conform
--------
to the specifications set forth on Exhibit A hereto and with the express
warranties set forth in sections 3.8 and 3.9. Purchaser's sole and exclusive
remedy in the event of any breach of these warranties shall be as specified in
Section 3.6. This warranty shall apply only if (a) Purchaser notifies Seller of
the alleged defect within thirty (30) days of discovery; and (b) Seller received
from Purchaser written notice of the alleged defect within 180 days of the date
of delivery. Seller's warranty does not apply to EPS which has been
(i) improperly stored, handled or used by any other party; (ii) in any way
tampered with or altered by anyone other than Seller;
5
(iii) misused, abused or subjected to conditions in excess of those for which
such EPS was designed; or (iv) damaged in shipment or otherwise without fault
of Seller. SELLER MAKES NO WARRANTY, EXPRESSED OR IMPLIED, INCLUDING WITHOUT
LIMITATION ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE,
OTHER THAN THE EXPRESS WARRANTIES STATED IN THIS SECTION 3.5 OR IN SECTIONS 3.8
AND 3.9 BELOW.
3.6 Exclusive Remedies. Purchaser's sole and exclusive remedy for
------------------
any breach of warranty hereunder for any nonconforming EPS is to require Seller
to replace the non-conforming EPS FOB Purchaser's affected location, plus direct
storage and/or disposal costs. Purchaser's remedy against Seller for breach of
warranty, as provided and limited herein, is exclusive of all other remedies
provided by law for such breaches, but this limitation shall not limit Seller's
obligations under Section 3.10. EXCEPT AS EXPRESSLY SET FORTH HEREIN OR IN
SECTION 3.10 BELOW, SELLER SHALL HAVE NO LIABILITY FOR DAMAGES TO PURCHASER OR
ANY PERSON OR ENTITY FOR DAMAGES OF ANY TYPE, INCLUDING BUT NOT LIMITED TO
INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES (WHETHER DIRECT OR INDIRECT), LOSS
OF PROFITS OR OTHER COMMERCIAL LOSS, OR ANY OTHER LOSS, DAMAGE OR EXPENSE
ARISING OUT OF OR IN CONNECTION WITH THE USE, LOSS OF USE, NONPERFORMANCE OR
REPLACEMENT OF ANY EPS, WHETHER ARISING OUT OF SELLER'S BREACH OF WARRANTY,
NEGLIGENCE OR OTHER TORT LIABILITY OF SELLER, SELLER'S STRICT LIABILITY OR ANY
OTHER LEGAL THEORY.
3.7 Force Majeure. Seller or Purchaser shall not be liable for any
-------------
default or for delays in deliveries hereunder due to strikes, fires, floods,
wars, accidents, delays of carriers, shortages of supplies or materials, delays
or default of a supplier or a contractor, government regulation, disruption
due to failure of production facilities, disruption due to failure of
transportation facilities or any other causes beyond Sellers' or Purchaser's
reasonable control. If delivery of any EPS is delayed for any period of time
because of any circumstances described above and such force majeure continues
for more than fifteen (15) days, Purchaser may buy elsewhere without liability
until the force majeure is relieved. If delivery of any EPS is delayed for an
unreasonable period of time because of any circumstances described above, either
Purchaser or Seller, upon 180 days written notice to the other, may cancel the
undelivered or unperformed portion of this Agreement.
3.8 FDA Compliance Statement. Seller warrants to Purchasers the EPS sold
------------------------
by Seller to Purchaser hereunder in natural, uncolored bead form, is composed
exclusively of (a) polystyrene that complies with all of the U.S. Food and Drug
Administration's (the "FDA") requirements of 21 CFR, Part 177, Subpart B,
Section 177.1640, entitled "Polystyrene and Rubber Modified Polystyrene" and
(b) a pentane blowing agent that complies with the FDA requirements of Subpart
D, Section
6
178.3010, entitled "Adjuvant Substances Used in the Manufacture of Foamed
Polystyrene". Therefore, EPS, if fabricated unmodified, unadulterated, and in
accordance with good manufacturing practices, may be safely used as articles or
components of articles intended for use in contact with food. Additionally,
since EPS complies with the above referenced FDA regulations, EPS also complies
with the U.S. Department of Agriculture's regulations for packaging meat and
poultry and meat and poultry food products under the Federal Inspection Program.
3.9 Acknowledgement by Seller. Seller warrants to Purchaser that it has no
--------------------------
present knowledge that EPS to be sold under this Agreement, when used in the
foreseeable manner to mold polystyrene food service items, involves a serious
concealed danger or a serious exposure to individuals, as those terms are used
in Section 387 of the California Penal Code, and will notify Purchaser if such a
danger or exposure become known to Seller.
3.10 Indemnity. Notwithstanding anything contained herein to the contrary,
----------
Seller shall indemnity, defend and hold Purchaser and its customers harmless for
any claims, losses, liabilities, suits, fines or penalties Purchaser or its
customers may suffer as the result of third party actions arising directly or
indirectly from Seller's manufacture or sale of EPS, including product liability
claims and/or product recalls ordered by governmental authorities; provided,
however, that such claims, loss or liability is (a) a result of a breach by
Seller of any of the warranties of Seller set forth in Sections 3.5, 3.8, or 3.9
above, and (b) not due in whole or in part to the acts or omissions of Purchaser
or the customer claiming indemnity and Purchaser or its customer advised Seller
of such claim promptly upon discovery.
3.11 Notices. All notices, requests, demands, and other communications
--------
required or permitted to be given or made hereunder by any party hereto shall be
in writing and shall be deemed to have been duly given if delivered personally
or transmitted by first class registered or certified mail, postage prepaid,
return receipt requested, or sent by prepaid overnight delivery service, or sent
by cable, telegram, or telefax, to the parties at the following addresses (or at
such other addresses as shall be specified by the parties by like notice):
If to Purchaser: Xxxxx River Paper Canada Inc.
000 Xxxxxxxxx Xxxxxx
Xxxxxxx, Xxxxxxx
Xxxxxx X0X 0X0
Attention: Xxxx Xxxxxxxx
Telefax: (000) 000-0000
7
With a copy to: Xxxxx River Corporation
000 Xxxxxxxxxxx Xxxxxx
Xxxxxxx, Xxxxxxxxxxx
Attention: Xxxxx Xxxxxxxx
Telefax: (000) 000-0000
If to Seller: 0000 Xx. Xxxxxxxx
Xxxx Xxxxx, Xxxxx 00000
Attn: Xxxxxxx Xxxxxxxxxx
Telefax: 000-000-0000
3.12 Entire Agreement. This Agreement, including the Exhibits referred to
----------------
herein, constitutes the entire agreement between the parties hereto with respect
to the sale and purchase of EPS and supersedes all prior agreements and
understandings, both written and oral, between the parties with respect to the
sale and purchase of EPS. The parties acknowledge that there exist other
agreements between them, including the so-called Shareholder's Agreement. It is
agreed by both parties that a breach by either party of the Shareholder's
Agreement may be considered as a breach of this Supply Agreement by the other
party, and that a breach of this Supply Agreement may be considered by the other
party as a breach of the Shareholder's Agreement.
3.13 Binding Effect; Assignment. This Agreement shall be binding upon and
--------------------------
inure to the benefit of the parties hereto and their respective successors and
assigns; provided, however, that neither this Agreement nor any of the rights,
interest, or obligations hereunder shall be assigned by any party hereto (by
operation of law or otherwise) without the prior written consent of the other
party, except that Seller shall have the right from time to time to designate
any of its affiliates to be responsible for all or any part of its duties,
liabilities or obligations under this Agreement, provided that no such
designation shall relieve Seller of any of its duties, liabilities or
obligations hereunder. Purchaser agrees that, as a condition to any sale,
transfer or other disposition of by Purchaser of its foam cup business
(regardless of whether such transaction is effected by merger, sale of stock,
sale of assets or otherwise), the person or entity acquiring such business will
assume the obligations and liabilities of Purchaser under this Agreement,
subject to the consent of Seller as provided above.
3.14 Amendment and Waiver. This Agreement may be amended, superseded,
--------------------
canceled, renewed or extended, and the terms hereof may be waived, only by
written instrument signed by the parties or, in the case of a waiver, by the
party waiving compliance. No delay on the part of any party in exercising any
right, power or privilege hereunder shall operate as a waiver thereof, nor shall
any waiver on the part of either party of any such right, power
8
or privilege, preclude any further exercise thereof or the exercise of any other
such right, power or privilege.
3.15. Severability. If any provision of this Agreement is held to be
------------
unenforceable, this Agreement shall be considered divisible and such provision
shall be deemed inoperative to the extent it is deemed unenforceable, and in all
other respects this Agreement shall remain in full force and effect; provided,
however, that if any such provision may be made enforceable by limitation
thereof, then such provision shall be deemed to be so limited and shall be
enforceable to the maximum extent permitted by applicable law.
3.16 Governing Law. This Agreement shall be governed by and construed
-------------
and enforced in accordance with the laws of the Commonwealth of Virginia,
without regard to the principals of conflicts of laws thereof.
3.17 Descriptive Headings. The descriptive headings herein are inserted
--------------------
for convenience of reference only, do not constitute a part of this Agreement,
and shall not affect in any manner the meaning or interpretation of this
Agreement.
3.18 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original, but all of which shall
constitute the same agreement.
3.19 Contingency. This Agreement shall not be binding upon the parties
-----------
if the Shareholder Agreement is voided, terminated or breached by either party.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its representative thereunto duly authorized, all as
of the date set forth above.
XXXXX RIVER CANADA INC.
By: [SIGNATURE APPEARS HERE]
--------------------------------------
Title: Director Xxxxx Canadian Operations
-----------------------------------
SP ACQUISITION CO.
By: [SIGNATURE APPEARS HERE]
--------------------------------------
Title:
-----------------------------------
9
EXHIBIT A
---------
--------------------------------------------------------------------------------
Screen Analysis
---------------
on #35 Max. 4.0% +++
+ Should not be
+ less than 76.4%
on #45 Balance +++
on #50 Max 24% +++
+ Should be
on #60 Max 2.5% + less than
+ 26.7%
Through #60 Max. 0.1% +++
Total Volatiles should be 5.3% + 0.15% by weight
-
----------------------------------------
Original Dated: Nov. '93
Revised: Mar. '96
(Pentane content weight 5.6% + 0.1% changed to
-
Total Volatiles should be 5.3% + 0.15% by weight)
--------------------------------------------------------------------------------
EXHIBIT B
---------
1. Commercial General Liability Insurance
$2 million per occurrence
$4 million annual aggregate per location
Deductible not to exceed $10,000 per occurrence
Including:
Contractual Coverage
Products
U.S. and Canadian coverage
Vendors Endorsement
2. Fire and Allied Perils
Coverage: Full Repair and Replacement of Physical
Damage
Actual Business Interruption
3. Statutory Worker's Compensation or Equivalent, U.S. and Canada
