Agreement – Fleming Companies Inc. and Kmart Corp.
AGREEMENT
THIS AGREEMENT is made as of February 2, 2001 (the "Effective Date"),
by FLEMING COMPANIES, INC., an Oklahoma corporation ("Fleming"), and KMART
CORPORATION, a Michigan corporation ("Kmart"), with reference to the following
circumstances:
A. The parties desire to provide for the supply by Fleming of certain
products to all the "Big K" and "Super K" stores currently open and that will be
opened by Kmart or any subsidiary or affiliate of Kmart during the term of this
Agreement in the United States and the Caribbean (collectively, the "Stores").
The Stores open on the Effective Date are listed by number on Schedule A to this
Agreement. The Fleming Distribution Centers (the "Distribution Centers")
initially designated to service primarily each of the Stores are opposite the
Store served by such Distribution Center listed on Schedule A.
B. The objective of this Agreement is to create a strategic alliance
between Fleming and Kmart to merchandise, procure and distribute pantry and
supermarket products in the most cost efficient manner. The parties desire to
provide for the joint exploration, evaluation, and implementation of practices
and procedures to reduce total supply chain costs and allow each party to
equitably share the benefits of such practices and procedures.
The parties agree as follows:
1. Product Procurement and Pricing.
1.1 Procurement Services. Subject to the terms and conditions
of this Agreement, Fleming will be the sole provider to the Stores of certain
categories of warehouse delivered products listed on Schedule 1.1 (collectively,
the "Products"), except for the following: (i) typical direct to Store
shipments, (ii) all existing contractual arrangements of Kmart with Supervalu
Inc., TriCorp and Grocers Supply Company (the "Kmart Existing Arrangements"),
and other arrangements with third parties relating to the procurement and supply
of Products (the "Kmart Additional Arrangements"), (iii) Products that Fleming
decides not to source or carry, (iv) local orders that Fleming decides not to
source or carry, (v) annually, a basket of up to 5% of annual purchases of
Products under this Agreement for each year after the Transition Period, and
with respect to the Transition Period, a reasonable estimate by the parties of
5% of purchases under this Agreement during the Transition Period, (vi) Products
used or offered by Kmart in the restaurants in the Stores, and (vii) as
contemplated by Section 1.5. Kmart will be permitted to procure large block buys
of Products for the Stores and the Joint Venture Stores for the "Wall of
Values," in and out, or spot buys on perishable Products which purchases shall
count against the 5% basket contemplated in the immediately preceding sentence.
Because the intent of the parties is to work together to further reduce the cost
of goods, for so long as this Agreement remains in effect, Fleming's central
procurement organization will be in a position to negotiate the price of
Products for the total volume of the Stores and the Joint Venture Stores.
Subject to the terms and conditions of this Agreement, Kmart will carry Fleming
private label brands as the exclusive private label brand in the Stores for
Product categories covered by this Agreement, to the extent consistent with
Store format. Fleming shall maintain and operate in accordance with prudent
business practices its central procurement organization for procurement under
this Agreement and shall procure and pay for
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all Products acquired to meet the anticipated needs of Kmart for the Stores.
Such needs shall be estimated based upon (a) historic and forecasted Product
turn information and (b) advance estimates of promotional volumes, as provided
by Kmart to Fleming from time to time during the term of this Agreement. The
procurement services to be provided hereunder shall include purchasing (and
paying for) Products procured hereunder, and owning the inventory of Products.
With respect to consignment Products, the procurement services hereunder shall
include the right of Fleming to transfer title thereto to Kmart.
1.2 Future Procurement; Fuel.
1.2.1 Within ninety (90) days after the Effective
Date, the parties shall conduct good faith negotiations to expand the categories
of Products covered by this Agreement to include health and beauty aids and
cosmetics ("HBC"), and general merchandise ("GMD") described on Schedule 1.2A
(collectively, the "Additional Products"). The parties shall also conduct good
faith negotiations with respect to the potential expansion of the categories of
Products covered by this Agreement to cover Store supplies within 180 days
following the Effective Date. Fleming shall cause its wholly owned subsidiary,
Dunigan Fuels, Inc. ("Dunigan") to enter into a Supply Agreement for the sale of
fuel and other services to Kmart owned or operated fuel centers in accordance
with terms set forth on Schedule 1.2B and such other terms as are usual and
customary for fuel supply agreements of this nature within ninety (90) days
after the Effective Date. Fleming shall guarantee Dunigan's performance of its
obligations under such Supply Agreement. If Fleming fails to cause Dunigan to
enter into a Supply Agreement upon the terms set forth herein within the ninety
(90) day period following the Effective Date, then, at Kmart's option, the
provisions of Schedule 1.2B shall constitute a binding agreement between Kmart
and Fleming, whereby Fleming shall have all the rights, duties and obligations
of Dunigan pursuant to the terms of Schedule 1.2B; provided, however, that in
addition to the foregoing, Kmart shall be entitled to be indemnified and held
harmless by Fleming on terms usual and customary for fuel supply agreements.
1.2.2 (CONFIDENTIAL). The parties acknowledge that
the realization of such benefits may require, among other things, implementing
programs for the purchase of Additional Products for Kmart and the Joint Venture
Stores, the Fleming Stores and independent contractors serviced by Fleming (any
such programs, an "Additional Program"). The parties agree that if Fleming
unreasonably refuses to implement any Additional Program proposed by Kmart,
Fleming shall not be entitled to any adjustment of the Logistics Fee under this
Section 1.2.2. (CONFIDENTIAL)
1.3 Product Pricing. Fleming, with input, participation and
strategic direction from Kmart, will have primary responsibility for the
negotiation with vendors of Products with respect to the costs therefor to meet
the anticipated needs of Kmart based upon historic and forecasted turn movement
and Kmart provided advance estimates of promotional volumes. Kmart will be given
reasonable notice of all major program negotiations with any vendors and will be
permitted to participate in such negotiations. If Kmart so elects, it may
provide input and strategic direction whether or not it actually participates in
such negotiations. No pricing arrangement with respect to any major program with
vendors for Products procured exclusively for Kmart or the Joint Venture Stores
shall apply to the procurement of Products hereunder unless Kmart expressly
agrees thereto. No pricing arrangement with respect to any program (other than
major programs) with vendors for Products procured exclusively for Kmart or the
Joint Venture Stores shall apply to the procurement of Products hereunder unless
such pricing arrangements fall within the general parameters and benchmarks set
forth therefor by Kmart. Kmart shall not engage in any unilateral negotiations
with vendors regarding the procurement of Products hereunder without Fleming's
consent, except to the extent Kmart is permitted hereunder to procure Products
directly. If a national program (the "National Cost"), a regional program (the
"Regional Cost") or a local program (the "Local Cost") is negotiated in
accordance with the terms hereof or if Fleming commits to a cost for one or more
Products or program for all of the Stores with respect to such Products, and in
the case of negotiated costs with vendors such negotiations include floor stock
protection, Fleming will bill Kmart the respective National Cost, Regional Cost,
Local Cost or the cost to which Fleming committed, as the case may be, or the
actual cost paid by Fleming for such Products, whichever is less. If the parties
are unable to secure floor stock protection with respect to a Product, Fleming
will bill Kmart the actual cost paid by Fleming for such Product for a maximum
of four weeks from the date the Product cost is reduced and thereafter Fleming
will bill Kmart the respective National Cost, Regional Cost or Local Cost.
Product pricing for Products purchased pursuant to this Agreement (other than
the pricing arrangements specified in this Section 1.3) shall be as described on
Schedule 1.3.
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1.4 Third Party Supply. If Fleming fails to procure and supply
any advertised Products, Products to be specially displayed in Stores and Joint
Venture Stores and high velocity Products (which as of the Effective Date are
those specified on Schedule 1.4) ordered by Kmart hereunder, Kmart shall be
permitted to purchase any such Products that Fleming has failed to deliver from
any third parties. In addition, except where Fleming's failure is a result of a
condition beyond its control as described in Section 22.5, or where Fleming's
failure is due to product unavailability or materially inaccurate forecasting of
needed volume by Kmart, Fleming shall reimburse Kmart on demand any fees and
direct costs reasonably incurred by Kmart in excess of the costs that would have
been incurred by Kmart had Fleming procured and delivered such Products. If
Kmart purchases Products from any third party in the circumstances specified in
this Section 1.4, such purchases from third parties shall count toward
fulfilling volume requirements necessary to achieve graduated reductions in fees
based on purchase volume.
1.5 Excluded Stores. Nothing in this Agreement shall require
Fleming to supply Products to any Store the supply of which by Fleming would
cause Fleming to violate the Non-Compete Agreement dated June 20, 1994, between
Fleming and Di Giorgio Corporation, as amended, or the noncompete covenants in
the Asset Purchase Agreement between Fleming and Associated Grocers,
Incorporated dated as of September 10, 1998 ("Excluded Stores"). When the supply
of Products to any Excluded Stores would no longer violate either of such
agreements such Excluded Stores shall be deemed Stores for all purposes
hereunder and Fleming and Kmart shall cooperate in transitioning to Fleming's
supply of such Excluded Store as soon as reasonably practicable. Prior to the
time that the supply of an Excluded Store by Fleming would not violate either of
the agreements, if Kmart purchases any Products for such Excluded Store from a
third party, Fleming shall reimburse Kmart on demand for any fees and direct
costs reasonably incurred by Kmart over the costs that would have been incurred
had Fleming procured and delivered such Products, and such purchases shall count
toward fulfilling volume requirements necessary to achieve graduated reductions
in fees based on purchase volume. Fleming shall use commercially reasonable
efforts to cause the non-compete covenants described in this section to be
terminated or to obtain a consent or waiver, at Fleming's expense, necessary to
permit Fleming to supply Products to any Excluded Stores. Fleming shall give
Kmart notice of any such termination, consent, or waiver as soon as practicable
following such termination, consent or waiver.
2. Logistics Services. Fleming shall provide to Kmart the logistics
services described on Schedule 2 (the "Logistics Services"). Fleming reserves
the right to utilize third-party logistics providers, reasonably acceptable to
Kmart, as a part of its service package. To the extent that Fleming selects and
retains third party providers, Fleming shall bear all costs associated therewith
and shall remain liable for the acts and omissions of said third party providers
irrespective of any approval therefor by Kmart.
3. Transportation and Title. Kmart shall be directly responsible for
all direct costs associated with the delivery of Products from all Distribution
Centers (including GMD, if any) to the Stores and for the cost of the return of
pallets and totes to the Distribution Centers. In addition to the services which
relate to the transportation of Products and which are part of the Logistics
Services, Fleming shall arrange for transportation for Products from the
Distribution Centers to the Stores and select third party carriers for the
Products, unless Kmart elects to do so. All carriers shall be reasonably
acceptable to Fleming and Kmart. In cases where Fleming selects the carrier,
title and risk of loss to Products shall pass to Kmart upon receipt of Products
at the Stores, and Fleming shall be responsible for all shortages and damage to
Products until such time as such Products are actually received at the Stores.
In cases where Kmart selects the carrier, title and risk of loss shall pass to
Kmart upon loading of the Products at Fleming's dock at the Distribution Center
assigned to the applicable Store, and Fleming shall not be responsible for any
claims for shortages or damages to Products after the carrier leaves Fleming's
dock, subject to the shrink allowance described in Schedule 4C. Fleming shall be
responsible for all packaging and loading costs, provided that Kmart will be
responsible for the cost of packaging and shipping all Products shipped from a
Distribution Center to the Stores by a third-party parcel delivery service
(e.g., UPS, FedEx) at Kmart's request. However, if the third-party parcel
delivery service must be used because of Fleming's inability to deliver the
Products, Fleming will be responsible for the cost of packaging and shipping.
Kmart will store all pallets and totes in designated areas of the Stores. Kmart
shall be entitled to all revenues, net of Fleming unloading costs, resulting
from back-haul generated from Kmart contracted carriers on Kmart exclusive
routes. Fleming shall arrange for the return of pallets and totes in a manner
that seeks to minimize, to the extent reasonably practicable, Kmart's costs
associated therewith.
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4. Service Requirements. The service requirements and the consequences
of achieving or not achieving the service levels are set forth on Schedule 4A.
These service requirements will be the key performance indicators applicable to
Fleming. The parties shall establish the quality program described on Schedule
4B, including provision for quality control inspectors and reporting procedures.
The parties shall establish a shrink audit procedure as described on Schedule
4C. The parties shall establish a mechanism for the conduct of audits of the
parties' performance under this Agreement as provided in Schedule 4D. Fleming
shall provide to Kmart from time to time during the term of this Agreement the
management reports of key performance indicators set forth on Schedule 4E.
5. Ordering, Fees and Payment. For services provided by Fleming under
this Agreement, Fleming will accumulate by Distribution Center all weekly
billings by Store (described in Schedule 5), in accordance with Kmart's fiscal
week (Thursday to Wednesday). The weekly accumulated billings will be in the
form of a single hard copy Kmart "chain statement" for each servicing
Distribution Center, and will summarize all charges, whether for Product, fees,
drop shipments or any other miscellaneous charges, by Store. Kmart shall pay in
full the aggregated total of all chain statements each week as to all items that
are not subject to a good faith dispute by Kmart. Kmart shall give Fleming
prompt written notice of items that are disputed in good faith, in which case
such items shall be addressed promptly by the parties in accordance with the
dispute resolution procedures of this Agreement. Fleming will also endeavor to
provide Kmart throughout each week, electronic transmissions, including both
advance shipment notifications (ASN's) and EDI invoices, containing all amounts
included in the weekly chain statements. Kmart shall provide Fleming weekly, a
file of pending claims with the specific reason for each, in which case such
items shall be addressed promptly (within fourteen (14) days) by the parties in
accordance with the dispute resolution procedures of this Agreement. Payments
under this Agreement shall be made by automated clearing house transfer on
Friday for invoices billed during Kmart's immediately preceding fiscal week, as
summarized on the Kmart chain statements. The parties shall, within a reasonable
period of time after the Effective Date, address and use commercially reasonable
efforts to resolve any disputes under the Existing Agreement, process
bottlenecks and inefficiencies regarding account receivable in accordance with
the terms of Schedule 5B. Initially and until the parties change the ordering
procedure, Kmart shall order Products under this Agreement in the same manner as
under the Existing Agreement.
6. Best Practices. Fleming and Kmart shall establish a "best practices
team" consisting initially of two members, of which Kmart and Fleming shall each
designate a senior executive as its designated member (the "BPT"). The BPT may
consist of the same individuals appointed to the Account Management Team
described in Section 11.1. Among other things, the BPT will focus on reducing
costs and achieving greater efficiencies in the product supply chain in
accordance with the strategies and goals of management of the parties. The
members of the BPT shall be subject to approval of both parties and shall be
vested with authority within their respective organizations to engage the
appropriate officers and employees in achieving the strategies and goals agreed
upon by the parties. The following terms shall govern the operation and
responsibilities of the BPT.
6.1 Employment. The BPT shall be based in Troy, Michigan, but
each member of the BPT shall continue to be employed by the party appointing
such member who shall be responsible for all compensation and benefits for its
team members serving on the BPT.
6.2 Replacement. Either party may replace its designated
member of the BPT at any time, provided that any replacement shall require the
prior approval of the other party.
6.3 Compensation Incentive. A portion of the compensation
payable to members of the BPT by the employer of such members shall be linked to
the achievement of lower costs and greater efficiencies in the product supply
chain under this Agreement.
6.4 Priorities. Among the priority matters for the BPT shall
be the following, in order of initial priority:
(i) Uniform common item codes;
(ii) Accurate advance shipment notices ("ASN");
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(iii) Joint procurement contracts;
(iv) Paperless payment process;
(v) Transportation services;
(vi) Plant direct shipment; and
(vii) Distribution flow.
6.5 Costs and Expenses. Each party shall bear the costs and
expenses associated with the implementation by such party of the recommendations
of the BPT.
7. Delivery of Products. Each Super K Store will receive at least three
grocery, frozen, and dairy deliveries per week. Each Pantry Store with average
orders of at least 1,000 cases per week over a thirty (30) day period
immediately preceding the delivery will receive two deliveries per week;
otherwise the Pantry Stores will receive at least one delivery per week. The
foregoing notwithstanding, for all Stores, perishable Products will be delivered
a minimum of three times per week, fresh meat and produce will be delivered four
times per week, and bakery/deli will be delivered two times per week. If there
are increases in average order size resulting in the number of deliveries
specified in this Section 7 being insufficient to deliver the increased orders,
the parties will adjust the number of deliveries per week so that such orders
are properly sourced in a cost efficient manner.
8. Labor Disputes. To the extent permitted under applicable law, with
respect to labor disputes involving Distribution Centers whose volume is more
than 40% but that are not Dedicated Distribution Centers, Fleming will consult
with Kmart regarding actions taken to mitigate the effect of any labor dispute.
With respect to any Dedicated Distribution Centers, Fleming and Kmart shall
consult and agree on any actions to be taken to mitigate such disputes. If the
parties fail to reach agreement within a reasonable period of time, Fleming can
take such actions as it deems appropriate in the exercise of its reasonable
business judgment so as to minimize detriment to both parties.
9. Term and Early Termination.
9.1 Term. The term of this Agreement will be ten (10) years
commencing on the Effective Date.
9.2 Termination for Cause. Each party may provide the other
party with a notice of intent to terminate this Agreement (a "Notice of Intent
to Terminate") in the event of:
9.2.1 A default by the other party of an obligation
to pay an amount exceeding, in the aggregate, $1 million due under this
Agreement within seven (7) days following written notice to the other party of
non-payment;
9.2.2 A material breach of any covenant or agreement,
representation, or warranty of the other party set forth herein other than as a
result of a breach of 9.2.1;
9.2.3 A material failure of the other party to be in
compliance with all applicable federal, state, and local laws and regulations
relating to the performance of this Agreement;
9.2.4 The insolvency of, or the institution of
proceedings by or against, the other party under any federal or state bankruptcy
or insolvency law;
9.2.5 An assignment by the other party for the
benefit of all or substantially all of its creditors or the appointment of a
receiver for all or a substantial part of the party's assets; or
9.2.6 A cessation of all or substantially all
operations by the other party.
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Except with respect to Sections 9.2.1, 9.2.4, 9.2.5, and 9.2.6 as to
which no cure period shall apply, if the breaching party fails to cure or
provide evidence of cure to the non-breaching party within ninety (90) days of
receipt of the related Notice of Intent to Terminate or, if the event giving
rise to the right to terminate is not reasonably capable of being cured within
such ninety (90) days, and the breaching party fails to promptly and diligently
commence to cure such event within such ninety (90) days, the non-breaching
party may provide the breaching party a written notice of termination (a "Notice
of Termination") effective as of the expiration of the applicable Termination
Period as provided in Section 9.5. However, the non-breaching party in the case
of a breach that cannot reasonably be cured within ninety (90) days after
receipt of the related Notice of Intent to Terminate may in any event provide
the breaching party with a Notice of Termination effective as of the expiration
of the applicable Termination Period as provided in Section 9.5 if the breaching
party fails to cure its breach or to provide evidence of cure to the
non-breaching party within one hundred eighty (180) days of receipt of the
Notice of Intent to Terminate.
9.3 Other Termination.
9.3.1 By Kmart. Kmart may terminate this Agreement
upon twelve (12) months written notice if any of the following events have
occurred:
(a) A Change in Control of Fleming; or
(b) The fifth anniversary of the
Effective Date.
9.3.2 By Fleming. Fleming may terminate this
Agreement upon twelve (12) months written notice if any of the following events
have occurred:
(a) A Change in Control of Kmart; or
(b) The fifth anniversary of the
Effective Date.
9.3.3 By Either Party. Either party may terminate
this Agreement upon twelve (12) months written notice if any of the following
events have occurred:
(a) If during the term of this
Agreement, the volume of Products purchased by Kmart hereunder, on an aggregate
basis, declines by more than thirty percent (30%) for any consecutive 180 day
period as compared to the corresponding period from the prior year; or
(b) If Kmart makes a public
announcement of its intention to close thirty percent (30%) or more of its
Stores open at the time of such announcement, or its intention to discontinue or
significantly reduce the sale of all or a substantial portion of the Products in
the Stores.
9.4 Change of Control.
9.4.1 Fleming. For purposes of Section 9.3.1(a),
"Change of Control of Fleming" shall mean the acquisition of a majority or
controlling interest in, or the acquisition of all or substantially all the
assets of, Fleming by a Competitor; and the term "Competitor" shall mean a
discount mass merchandiser or any affiliate thereof with average annual sales
during the immediately preceding two years of at least $(CONFIDENTIAL), such as,
as of the Effective Date (CONFIDENTIAL).
9.4.2 Kmart. For purposes of Section 9.3.2(a),
"Change of Control of Kmart" shall mean the acquisition of a majority or
controlling interest in, or the acquisition of all or substantially all the
assets of, Kmart by a Competitor; and the term "Competitor" shall mean a company
or any affiliate thereof engaged in the wholesale business of selling or
distributing food, grocery or related products, with average annual sales during
the immediately preceding two years of at least $(CONFIDENTIAL) such as, as of
the Effective Date, (CONFIDENTIAL).
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9.5 Termination Transition. Upon delivery of a Notice of
Termination pursuant to Section 9.2 (except as a result of an event specified in
Section 9.2.6) or a written notice pursuant to Section 9.3.1 or 9.3.2, at
Kmart's option, a termination transition period (the "Termination Period") shall
begin. Upon delivery of a written notice pursuant to Section 9.3.3, a 12-month
Termination Period shall begin. The Termination Period shall extend for the
period reasonably determined by Kmart, such period not to exceed twenty (24)
months following delivery of a Notice of Termination or a written notice
pursuant to Section 9.3.1 or 9.3.2. In the case of a termination pursuant to
Section 9.3 (except a termination pursuant to 9.3.3), the Termination Period
shall be the twelve (12) month notice period contemplated by Sections 9.3.1 and
9.3.2 and an additional wind down period reasonably determined by Kmart, such
additional wind down period not to exceed twelve (12) months. In the case of a
material breach of this Agreement giving rise to a cure period pursuant to
Section 9.2, the Termination Period shall extend for up to a maximum of
twenty-one (21) months following expiration of any ninety (90) day cure period,
or eighteen (18) months following the expiration of any 180-day cure period
rather than twenty-four (24) months. During the Termination Period, the parties
shall cooperate with each other in terminating and winding down the business
relationship contemplated by this Agreement, subject to the service level
requirements set forth on Schedule 4A. In connection therewith, the parties
shall take the following additional actions:
9.5.1 Kmart shall purchase and take delivery from
Fleming of the Products identified in Section 19 in accordance with the terms
thereof.
9.5.2 If Fleming gives Kmart a Notice of Termination
pursuant to Section 9.2.1, the obligation of Fleming to cooperate with Kmart in
terminating and winding down the business relationship contemplated by this
Agreement during the Termination Period pursuant to Section 9.5 (including
without limitation, the continued extension of credit to Kmart) shall be
conditioned upon Fleming's receipt of adequate assurances of future performance
by Kmart failing which Fleming shall be entitled to condition its continued
support on C.O.D. payments, letters of credit, or other assurances of payment
satisfactory to Fleming. The foregoing shall not apply: (i) with respect to
unpaid amounts by Kmart that are the subject of a good faith dispute if
reasonable steps are being taken in good faith to resolve such dispute and (ii)
if Kmart is contesting in good faith the grounds for the termination hereof
pursuant to Section 9.2.1. Nothing set forth in this Section 9.5.2 shall limit,
restrict or otherwise affect in any manner the right of either party to demand
adequate assurance of future performance in accordance with applicable law.
9.5.3 Fleming shall discontinue all diverting and
forward buying for Kmart during the Termination Period.
9.6 Additional Obligations on Termination.
9.6.1 If the termination is a result of a material
breach of this Agreement by Fleming, a Change of Control of Fleming, or pursuant
to Section 9.3.2(b), Fleming shall reimburse Kmart for the Start-Up Costs
incurred under this Agreement. The reimbursement shall be an amount equal to the
product of (a) the total Start-Up Costs paid to Fleming by Kmart multiplied by
(b) a fraction, the numerator of which is the sum of (x) the number of full
years remaining in the term of this Agreement and (y) any partial year remaining
in the term of this Agreement, and the denominator of which is ten.
9.6.2 Upon a termination or expiration of this
Agreement, Kmart, directly or through any affiliate thereof, shall have the
right to purchase from Fleming, and Fleming shall be obligated to sell to Kmart,
any Distribution Center from which at least 80% of the annual sales are
attributable to Kmart business (a "Dedicated Distribution Center"). Upon a
termination of this Agreement by Fleming, Fleming may require Kmart to purchase
any Dedicated Distribution Center. The purchase price for any Dedicated
Distribution Center shall be the then current fair market value. The purchase of
any Distribution Center will include (i) the acquisition of the real property
and improvements of an owned Distribution Center, (ii) the acquisition of all
furniture, fixtures, equipment (including racking) and other personal property
used in the operation of the Distribution Center, (iii) the assignment and
assumption of the lease of any leased Distribution Center, (iv) to the extent
legally assignable, and subject to the last sentence of this Section 9.6.2, the
assignment and assumption of any lease of any personal property or license of
any software used exclusively in the operation of the Distribution Center, (v) a
transfer free of all liens, claims, and encumbrances, and (vi) a warranty of
title to the transferred assets. Any such purchase shall be without any warranty
as to the physical condition of the transferred assets, except that Fleming
shall remain liable
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for any release of any hazardous substance in, on, or under the Distribution
Center caused by Fleming. Fleming shall use commercially reasonable efforts to
obtain the consent of any third party (e.g., landlords, software licensors and
equipment lessors) necessary for the transfer of any Distribution Center to
Kmart.
10. Transition Period. The first year of this Agreement commencing on
the Effective Date shall be a transition period (the "Transition Period").
During the Transition Period, Fleming and Kmart will take the actions specified
on Schedule 10.
10.1 Transition Team. Each party will designate a team to
coordinate all actions taken by the parties during the Transition Period (the
"Transition Team"). The Transition Team shall establish or modify milestones to
achieve a complete transition to this Agreement such milestones to be consistent
with the actions specified on Schedule 10 (the "Transition Milestones"). The
leaders of the Transition Team shall consist of designated officers of each
party and shall include senior executive officers with expertise and
responsibility for procurement, logistics and administration functions within
their respective organizations.
10.2 Transition Milestones. If the parties fail to achieve the
Transition Milestones (which shall be deemed to include Fleming's obligations
under Section 10.3) within agreed upon time frames and such failure by Fleming
is not attributable to Kmart or any of Kmart's existing suppliers, Fleming shall
reimburse Kmart on demand for any fees and direct costs reasonably incurred by
Kmart over the costs that would have been incurred had the Transition Milestones
been met on time. If Kmart purchases products from any third party due to
Fleming's failure to achieve the Transition Milestones, such purchases from
third parties shall count toward fulfilling volume requirements necessary to
achieve graduated reductions in fees based on purchase volumes under this
Agreement.
10.3 Distribution Centers. Within 149 days following the
Effective Date, Fleming will make investments in existing Distribution Centers
and establish new Distribution Centers both as required to service the Stores
commencing as promptly as practicable and in no event later than the expiration
of the 149-day period referred to above and continuing during the term of this
Agreement; provided, however, that with respect to the Distribution Center
located in Massillon, Ohio, such investments shall be made in 2002. At Kmart's
request, Fleming shall make its general plans for implementation of the Start-Up
Costs (as defined in Schedule 5) available to Kmart for review.
10.4 Commencement of Fees. For each Distribution Center
currently servicing Stores, the fees for services and costs of goods described
in this Agreement will commence to apply with respect to all Products when Kmart
begins to transfer the procurement of any such Products from current Kmart
wholesale suppliers to Fleming for such Distribution Center. For each
Distribution Center currently servicing Stores and which is not expected to
receive additional volume of Products, the fees for services and costs of
Products described in this Agreement will commence to apply with respect to all
Products when such fees are applied for the first time pursuant to the
immediately preceding sentence. Prior to the time for which the fee for services
and prices for Products contemplated in this Agreement commence to apply in the
manner contemplated in the two immediately proceeding sentences, product pricing
and fees for Products being supplied to Kmart shall be the same as are charged
to Kmart under the existing Supply Agreement between the parties dated October
11, 1999 (the "Existing Agreement"). For all new Distribution Centers, the fees
for services and price of Products contemplated in this Agreement shall apply
immediately.
10.5 Termination of Existing Agreement. Pricing and fees
charged for Products in the circumstances contemplated in the first sentence of
Section 10.4 shall be those set forth in the Existing Agreement, which to that
effect are hereby incorporated by reference. On the Effective Date, the Existing
Agreement shall be terminated without further action by either party and neither
party shall have any obligations to the other thereunder, except for the first
two sentences of Section 5(d). On June 1, 2001, Kmart shall repay to Fleming an
amount equal to a proportionate part of the unamortized portion of the
Conversion Allowance (as defined in the Existing Agreement) as of such date
calculated pursuant to Exhibit E.2 thereof. As soon as practicable after the
Effective Date, Kmart and Fleming shall attempt to resolve any disputes
regarding unpaid charges for product purchases under the Existing Agreement,
resolution of all outstanding accounts receivable, pallet reconciliation, and
other claims and disputed charges in accordance with the terms of Schedule 5B
hereof.
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Kmart shall not be required to purchase any inventory maintained by Fleming
pursuant to Section 5(d) of the Existing Agreement.
11. The Account Team.
11.1 The Account Management Team. Within fifteen (15) days
after the Effective Date, the parties shall create an account management team
(the "Account Management Team"). The Account Management Team shall have
responsibility for the overall operational implementation of the provisions
hereof and the recommendations of the BPT.
11.2 Meetings. The Account Management Team shall conduct
weekly video conferences, and participate in the weekly operations meetings of
each party pertaining to the implementation of the provisions of this Agreement.
The Account Management Team shall conduct monthly meetings in Troy, Michigan and
in Dallas, Texas, on an alternating basis. On a quarterly basis, the Account
Management Team shall meet at locations to be determined from time to time, to
(a) evaluate the parties activities under this Agreement, (b) discuss real
estate opportunities and issues pertinent to the Agreement, (c) develop,
implement and monitor future supply chain efficiencies and improvements, and (d)
develop six month promotional planning.
11.3 Resolution of Operational and Performance Issues. The
Account Management Team shall be responsible for addressing and resolving
operational issues that arise during the term of the Agreement, including
without limitation the parties failure to meet the minimum or target service
level requirements as described on Schedule 4A, as well as other issues
regarding the parties performance or non-performance under this Agreement. If
the Account Management Team is unable to resolve the issues within thirty (30)
days, such issues shall be referred to the BPT for further consideration. If the
BPT is unable to resolve the issues within thirty (30) days, such issues shall
be referred to a designated group of senior executive officers of each party. If
the parties are unable resolve the issues, either party shall be entitled to
pursue its rights and remedies under this Agreement, including the right to
pursue arbitration of the dispute in accordance with Section 16 hereof.
12. Joint Venture.
12.1 Formation. Following the Effective Date, Fleming and
Kmart shall explore in good faith the possibility of establishing a limited
liability company or other mutually agreeable form of business organization (the
"Joint Venture") to develop and operate a chain of price impact retail stores
(the "Joint Venture Stores") which may include, if the parties so agree, some or
all of the price impact stores currently operated by Fleming under the Food 4
Less(R) banner or any successor banner, if such stores continue to be owned by
Fleming (the "Fleming Stores"), subject to any existing contractual agreements
with respect to such stores. This Agreement contains references to the Joint
Venture Stores and the Fleming Stores in respect of cumulative volumes of
purchases, merchandising and other matters. If the Joint Venture contemplated in
this Section is not formed and the Joint Venture Stores are not created, then
all provisions in this Agreement regarding the Joint Venture Stores, the Joint
Venture and the Fleming Stores shall be deemed to be deleted, except with
respect to the references to the Fleming Stores contained in the proviso in the
last sentence of Section 12.2.
12.2 Merchandising. Kmart will be responsible for the
merchandising functions relating to Products supplied to the Stores and the
Joint Venture Stores, including pricing, promotional planning, assortment
planning, and display planning. If the product assortment for other parties
sourced by Fleming differs from that requested by Kmart, the parties will try to
coordinate product selection and will review in good faith the Product
assortment that is most cost effective at a given quality level. If Kmart and
Fleming cannot agree upon the Product assortment, they shall refer the matter to
the BPT for a recommendation. In any event, Kmart shall have the ultimate
discretion regarding the merchandise assortment for the Stores, and the Joint
Venture Stores. Fleming shall have the ultimate discretion as to the merchandise
assortment for the Fleming Stores and its independent customers; provided,
however, until such time as the Joint Venture is formed Fleming shall be
responsible for the merchandising functions for the Fleming Stores but Fleming
shall coordinate with Kmart and cooperate in merchandising for the Fleming
Stores and shall align strategies to achieve the benefits contemplated by this
Agreement.
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13. Confidentiality.
13.1 As used in this Agreement, the term "Confidential
Information" means any non-public and/or proprietary information that is
disclosed by one party to this Agreement (the "Disclosing Party") to the other
party ("Recipient") or otherwise learned by Recipient as a result of this
Agreement. The Confidential Information will include all information derived
from the foregoing Confidential Information. The provisions of this Agreement
and all information relating to the prices charged to Kmart, Products, services,
fees and allowances is deemed Confidential Information.
13.2 Recipient agrees to hold Confidential Information it
receives from the Disclosing Party in confidence, treating such Confidential
Information as if it were Recipient's own confidential information. However,
Recipient must at a minimum take commercially reasonable steps to ensure that
the Disclosing Party Confidential Information is not disclosed to, or used by
any person, firm or entity except Recipient's own employees and agents and then
only to the extent necessary for performance of this Agreement. The
confidentiality obligations set forth above do not apply to information (a)
available to the public through no fault of Recipient; (b) released by
Disclosing Party on a non-confidential basis without restrictions on disclosure;
and (c) to the extent disclosure of information is required by law, including
under any valid court or governmental order, and Recipient provides Disclosing
Party immediate notice thereof so that Disclosing Party will have an opportunity
to contest disclosure or seek an appropriate protective order. Notwithstanding
the foregoing, the parties shall be entitled to disclose this Agreement,
including the Exhibits and Schedules hereto to the Securities and Exchange
Commission and any securities exchange on which the securities of either party
are listed; provided however, the parties shall use commercially reasonable
efforts to secure permission not to disclose the commercial or economic terms of
this Agreement and will cooperate with each other in good faith to prevent such
disclosure if legally permitted to do so. The confidentiality and non-disclosure
obligations in this Agreement survive and continue for three years following
termination of this Agreement for any reason and bind Recipient's legal
representatives, successors and assigns.
13.3 The parties will consult with each other prior to making
any press release or similar public announcements regarding this Agreement.
13.4 This Section 13 supersedes the terms of any previous
confidentiality agreements between the parties, including, without limitation,
the letter agreement dated November 28, 2000.
14. Representations and Warranties.
14.1 Both Parties. Each party represents and warrants to the
other party that:
14.1.1 it is a duly organized, validly existing and
in good standing in each jurisdiction where necessary to perform this Agreement;
14.1.2 it has the full legal right, power and
authority to execute, deliver, and perform this Agreement;
14.1.3 to its knowledge, no litigation or
governmental, regulatory, or administrative agency investigation or proceeding
is pending or threatened against it that might adversely affect its ability to
perform this Agreement;
14.1.4 the signing and delivery of this Agreement by
the person signing for the party and the performance of this and any agreement
relating to this Agreement by the party have been duly authorized by all
necessary action of its board of directors and do not conflict with (a) any law,
order, writ, injunction, decree, rule, or regulation of any court,
administrative agency, or any other governmental authority, (b) any agreement to
which it is a party or by which it is otherwise bound, or (c) any provision of
its certificate of incorporation or bylaws, and does not result in any breach
of, constitute a default under or result in the creation of any lien, charge,
security interest, or other encumbrance upon the Products;
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14.1.5 no approval, consent, or withholding of
objection is required from any governmental authority or any other party with
respect to the entering into or performing this Agreement; and
14.1.6 this Agreement has been authorized, executed,
and delivered by the party and constitutes a legal, valid, and binding
obligation of the party, enforceable against the party in accordance with its
terms.
14.2 Kmart. Kmart represents and warrants that not later than
the expiration date of the Transition Period, all Kmart Additional Arrangements
shall have been terminated and that not later than July 1, 2001, all Kmart
Existing Arrangements shall have been terminated and that such arrangements
shall not have been extended or renewed. To the best of its knowledge, Kmart has
no material existing contractual relationship with suppliers of products
comparable to the products to be supplied under this Agreement other than the
Kmart Existing Arrangements.
15. No Implied Covenants/Reliance. Each party has relied solely and
exclusively on its own judgment and the advice of its own attorneys in entering
into this Agreement. No representative or agent of a party has made any
statement or representation to the other beyond those in this Agreement that
have induced signing of this Agreement. There are no implied or otherwise
unstated covenants, rights, or obligations by, of, or against either party. The
parties expressly disclaim the existence of any implied covenant of good faith
and/or fair dealing.
16. Applicable Law / Arbitration. THIS AGREEMENT, AND ALL OTHER ASPECTS
OF THE BUSINESS RELATIONSHIP BETWEEN THE PARTIES, SHALL BE CONSTRUED,
INTERPRETED AND ENFORCED UNDER AND IN ACCORDANCE WITH THE LAWS OF THE STATE OF
MICHIGAN WITHOUT REGARD TO CHOICE OF LAW PROVISIONS. Any controversy, claim or
dispute of whatever nature arising out of or in connection with this Agreement
or the breach, termination, performance or enforceability hereof or out of the
relationship created by this Agreement (a "Dispute") in which the amount in
controversy exceeds One Million Dollars ($1,000,000), shall be resolved by
mediation and, if mediation fails to settle the Dispute, by binding arbitration.
Any such binding arbitration will be held in Detroit, Michigan. The procedures
to be followed by the parties are as follows:
16.1 Mediation. Neither party shall commence an arbitration
proceeding unless such party shall first give a written notice (a "Dispute
Notice") to the other party setting forth the nature of the Dispute. The parties
shall attempt in good faith to resolve the Dispute by mediation under the CPR
Institute for Dispute Resolution ("CPR") Model Mediation Procedure for Business
Disputes in effect at the time of this Agreement. If the parties cannot agree on
the selection of a mediator within twenty (20) days after receipt of the Dispute
Notice, the mediator will be selected in accordance with the CPR Procedure.
16.2 Arbitration. If the Dispute has not been resolved by
mediation as provided above within sixty (60) days after receipt of the Dispute
Notice, or if a party fails to participate in a mediation, then the Dispute
shall be determined by binding arbitration in Detroit, Michigan. The arbitration
shall be conducted in accordance with the Commercial Arbitration Rules of the
American Arbitration Association ("AAA") in effect on the Effective Date,
subject to any modifications in this Agreement.
16.2.1 Three arbitrators will be employed to hear
disputes under this provision. Persons eligible to serve as arbitrators shall be
members of the AAA Large, Complex Case Panel or any person mutually acceptable
to all parties. The arbitrators shall base the award on the applicable law and
judicial precedent that would apply if the Dispute were decided by a United
States District Court, and the arbitrators shall have no authority to render an
award that is inconsistent therewith. The award shall be in writing and include
the findings of fact and conclusions of law upon which is it based if so
requested by either party. Absent of showing a good cause, the hearing shall be
conducted within ninety (90) days from the service of the statement of claim.
Except as contemplated in Section 16.6, each party shall bear the expense of its
own attorneys, experts, and out of pocket costs as well as 50% of the expense of
administration and arbitrators' fees.
16.2.2 Depositions, other than those taken in lieu of
live testimony, shall not be taken except under the arbitrators' finding of
special need. The parties shall be entitled to conduct document discovery in
accordance with a procedure where responses to information requests shall be
made within twenty (20)
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days from their receipt. The parties knowingly and voluntarily waive their
rights to have any Dispute tried and adjudicated by a judge or a jury.
16.2.3 The arbitration shall be governed by the laws
of the State of Michigan, without regard to conflicts-of-law rules, and by the
arbitration law of the Federal Arbitration Act (Title 9, U.S. Code). Judgment
upon the award rendered may be entered in any court having jurisdiction.
Notwithstanding the foregoing, upon the application by either party to a court
for an order confirming, modifying, or vacating the award, the court shall have
the power to review whether, as a matter of law based on the findings of fact
determined by the arbitrator(s), the award should be confirmed, modified or
vacated in order to correct any errors of law made by the arbitrator(s). In
order to effectuate such judicial review limited to issues of law, the parties
agree (and shall stipulate to the court) that the findings of fact made by the
arbitrator(s) shall be final and binding on the parties and shall serve as the
facts to be submitted to and relied upon by the court in determining the extent
to which the award should be confirmed, modified or vacated.
16.2.4 Except as otherwise required by law, the
parties and the arbitrator(s) shall keep confidential and not disclose to third
parties any information or documents obtained in connection with arbitration
process, including the resolution of the Dispute. If either party fails to
proceed with arbitration as provided in this Agreement, or unsuccessfully seeks
to stay the arbitration, or fails to comply with the arbitration award, or is
unsuccessful in vacating or modifying the award pursuant to a petition or
application for judicial review, the other party may be entitled to be awarded
costs, including reasonable attorneys' fees, paid or incurred in successfully
compelling such arbitration or defending against the attempt to stay, vacate, or
modify such arbitration award and/or successfully defending or enforcing the
award, the determination of awarding costs to be made by the arbitrator(s).
16.2.5 Notwithstanding anything to the contrary in
this Agreement:
(a) The parties recognize that their
business relationships may give rise to the need for one or more of the parties
to seek emergency, provisional, or summary judicial relief to, among other
things, repossess and sell or otherwise dispose of goods, equipment and/or
fixtures, to prevent the sale or transfer of goods, equipment, fixtures, and
other real and personal property, to protect real or personal property from
injury, to obtain possession of real property, to enforce indemnification
rights, and for temporary injunctive relief. Immediately following the issuance
of any such relief, the parties agree to the stay of any judicial proceedings
pending mediation or arbitration of all underlying claims between the parties.
(b) The parties recognize that, under
applicable law, the arbitrators may not have the power to order equitable relief
and the parties do not by this Agreement waive any rights they may have to seek
and enforce equitable relief. Therefore, any claims for equitable relief that
cannot be fully awarded by the arbitrators are outside the scope of this
Agreement and the parties are free to pursue civil remedies for such claims. Any
such claim(s) shall be brought in the United States District Court for the
Eastern District of Michigan.
(c) Nothing shall restrict the right of a
party to file counterclaims, cross claims or third party claims in any
litigation brought by a third party.
(d) Except with respect to the
confidentiality obligations contained in Section 13 that involve willful
misconduct or gross negligence, EACH PARTY WAIVES THE RIGHT IN ANY ARBITRATION
OR JUDICIAL PROCEEDING TO RECEIVE CONSEQUENTIAL, PUNITIVE, EXEMPLARY, OR
STATUTORILY PRESCRIBED DAMAGES. THE ARBITRATORS SHALL NOT HAVE THE POWER TO
AWARD CONSEQUENTIAL, PUNITIVE, EXEMPLARY OR STATUTORILY PRESCRIBED DAMAGES,
unless the arbitrator(s) or a court of competent jurisdiction determines that
this limitation, under the circumstances, violates public policy.
17. Independent Contractor. Fleming is an independent contractor of
Kmart in the performance of this Agreement, and nothing in this Agreement may be
construed to create or constitute a joint venture, partnership, agency,
franchise, lease, or any other arrangement other than as expressly described in
this Agreement. Each party is responsible for its own operations. Each party
must exercise control over its employees,
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agents, representatives, subcontractors, and suppliers and is solely responsible
for the verification of identity and employment eligibility, for the payment of
any wages, salaries, or other remuneration of its employees, agents,
representatives, subcontractors and suppliers, and for the payment of any
payroll taxes, contributions for unemployment or workers compensation, social
security, pensions or annuities that are imposed as a result of the employment
of its employees, agents, representatives, subcontractors, and suppliers.
Neither party may pledge credit, incur any obligation or liability, hire any
employee, nor purchase any products or services in the name of the other party
or any subsidiary or affiliate of the other party.
18. Notices. Any notice required by this Agreement shall be written and
shall be given or sent personally, by national overnight courier, by facsimile
copy or by first-class certified mail, postage prepaid, return receipt
requested. All notices shall be addressed as follows:
18.1 Notices to Fleming:
Fleming Companies, Inc.
1945 Lakepointe Dr.
Lewisville, Texas 75057-6424
Attn: Executive Vice President, President of Wholesale
Fax: (972) 906-1541
With a copy to:
Fleming Companies, Inc.
1945 Lakepointe Dr.
Lewisville, Texas 75057-6424
Attn: General Counsel
Fax: (972) 906-1530
18.2 Notices to Kmart:
With a copy to:
Kmart Corporation
3100 West Big Beaver Road
Troy, Michigan 48084
Attn: General Counsel
Fax: (248) 463-1054
A party may designate another address on fifteen (15) days prior notice to the
other party in accordance with the foregoing.
19. Purchase of Store Supplies and Control Label Products. Upon the
expiration of this Agreement, or the Termination Period, if any, Kmart will
purchase from Fleming (a) all store supplies that Fleming has purchased or
obtained as supplies for Kmart, (b) Products procured exclusively for Kmart, (c)
booked promotional merchandise, and (d) any inventory in Dedicated Distribution
Centers attributable to Kmart purchases. Kmart shall pay for and remove such
items from Fleming’s Distribution Centers within thirty (30) days after the
termination of this Agreement at the purchase price otherwise provided in this
Agreement.
20. Office Space; Solicitation of Employees.
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20.1 Office Space. From time to time, employees of Kmart may
perform tasks relating to this Agreement at Fleming’s premises, and employees of
Fleming may perform tasks relating to this Agreement at Kmart’s premises. Each
party shall make available at its expense, appropriate office space and related
support services for such purposes to employees of the other party performing
tasks relating to this Agreement at its premises.
20.2 Solicitation of Employees. The parties agree that, during
the term of this Agreement and for a period of one year following termination of
this Agreement, neither of them will, without the prior written consent of the
other party directly or indirectly, solicit for employment or hire any employee
(director level or above) of the other party or any of its subsidiaries with
whom they have had contact or who first became known to them in connection with
the Agreement, provided, however, that the foregoing provision will not prevent
them from employing any such persons (i) who initiate discussions regarding such
employment without any direct or indirect solicitation by them, (ii) who respond
to any public advertisements placed by them, or (iii) whose employment with
either party or its subsidiaries terminated prior to employment discussions with
the other party.
21. Insurance and Indemnity.
21.1 Insurance Coverages. During the term of this Agreement,
Fleming shall maintain the following insurance coverages:
21.1.1 Commercial general liability written on an
occurrence coverage form including bodily injury and property damage liability,
products and completed operations liability, contractual liability, and personal
and advertising liability, with coverage limits of at least $3,000,000 per
occurrence; $3,000,000 aggregate (products and completed operations); and
$3,000,000 general aggregate;
21.1.2 Automobile liability for all owned, leased, or
rented vehicles with property damage and bodily injury coverage with combined
single limit not less than of $3,000,000 per each occurrence;
21.1.3 Workers compensation (statutory) and
employers’ liability with minimum limits of not less than $1,000,000 per
accident, $1,000,000 disease (each employee), and $1,000,000 disease (policy
limit), but in no event less than the minimum amounts required by law; and
21.1.4 Umbrella/excess liability with minimum limits
of $5,000,000 each occurrence and aggregate.
21.2 Forms of Policies; Evidence. The insurance required by
this section may have deductibles in such amounts as Fleming reasonably
determines. Kmart shall be named as an additional insured under such insurance,
except the workers compensation insurance. Fleming may fulfill these insurance
obligations through blanket coverage and through any combination of primary and
excess policies. Fleming will provide Kmart certificates of insurance evidencing
the insurance coverage required by this section. The certificates shall provide
that the issuing company will endeavor to mail 30 days prior written notice to
Kmart of any cancellation of coverage before the stated expiration date. Fleming
shall give Kmart thirty (30) days prior written notice of the cancellation or
non-renewal of any insurance coverage before the stated expiration date. Fleming
shall maintain such coverage with one or more insurance companies reasonably
acceptable to Fleming and Kmart and licensed to do business in the states where
such licensing is required to provide the required insurance.
21.3 Fleming Limited Warranty. Fleming warrants that (i) it
will convey to Kmart good and marketable title to all Products supplied
hereunder, and (ii) all Products sold to Kmart shall (a) be free and clear of
all liens, claims and encumbrances, (b) properly stored, handled and
transported, and (c) shall be free of defects created by the negligence or
willful misconduct of Fleming. THE FOREGOING WARRANTIES ARE IN LIEU OF ALL OTHER
WARRANTIES WITH RESPECT TO THE PRODUCTS, EXPRESS OR IMPLIED. FLEMING DISCLAIMS
ALL IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
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21.4 Vendor Warranties. Fleming shall assist and cooperate
with any effort by Kmart to avail itself of the benefits of any warranties made
by any manufacturer, vendor, or supplier of Products and any services relating
to Products and of any insurance relating thereto. Fleming shall use
commercially reasonable efforts to obtain the written confirmation by all
manufacturers, vendors, and suppliers of Products and services relating to
Products that their warranties with respect to Products and such services and
the related insurance coverage extend to Kmart and Kmart’s customers. If Kmart
is unable to avail itself directly of any such benefits, such efforts may
include, upon Kmart’s request, Fleming seeking indemnification or contribution
from any such manufacturers, vendors, or suppliers directly and passing on any
proceeds therefrom to Kmart, except and to the extent Fleming shall have paid
the claim arising under the vendor’s warranty. Fleming shall indemnify and hold
harmless Kmart, and its affiliates, and their respective officers, directors,
and employees, from all claims, liabilities, losses, damages, expenses, and
costs (including reasonable attorneys’ fees) arising out of matters covered by
the warranties of such manufacturers, vendors, and suppliers of Products and
services relating to Products. The foregoing indemnity obligation is only to the
extent Fleming receives payment under or with respect to such warranties and has
not paid the related claim arising under the warranty, if any.
21.5 Survival. The provisions of Sections 21.3 and 21.4 shall
survive the termination of this Agreement.
22. Miscellaneous.
22.1 Assignment. The provisions of this Agreement are binding
upon and inure to the benefit of the parties hereto and their respective
permitted successors and assigns; provided, however, neither this Agreement nor
the rights and obligations of either party hereunder shall be assignable without
the prior written consent of the other party, which a party may grant or
withhold in its sole discretion. However, either party may assign this Agreement
to a subsidiary or affiliate that is owned or controlled by, or is under common
ownership or control with that party. Any prohibited assignment is void. With
respect to any permitted assignment, the assigning party remains fully
responsible for performance and for all acts and omissions of its assignee.
22.2 Incorporation and Integration. This Agreement, including
the schedules attached hereto, is the final and complete agreement between Kmart
and Fleming with respect to the subject matter hereof. No representations,
inducements, promises, or understandings in relation to the subject matter
hereof, whether oral or written, exist unless they are expressly set forth in
this Agreement. This Agreement supersedes all prior understandings, agreements,
contracts, or arrangements between the parties, whether oral or written, unless
otherwise expressly incorporated in this Agreement. No agreement or other
understanding purporting to add to or to modify the terms and conditions hereof
is binding unless agreed to by the parties in writing. Any terms or conditions
in any invoices, statements, or other forms of the parties used in the
performance of this Agreement that are in addition to or conflict with the terms
and conditions hereof are void.
22.3 Headings. Headings or captions of the sections in this
Agreement are for convenience of reference only and in no way define or limit or
describe the intent of this Agreement or any provision hereof.
22.4 Limitation of Actions. An action for breach of this
Agreement must be commenced within three years after the cause of action
accrued. A party shall commence an action by sending the other party a statement
of claim and demand for arbitration under the provisions of this Agreement.
22.5 Force Majeure. Neither party shall be deemed in default
of this Agreement if such party’s non-performance is the result of a condition
beyond its control, including, but not limited to, labor strikes (subject to
Section 8), government rationing and acts of God. A party’s financial condition
is not a condition beyond its control. If any event beyond Fleming’s control
affects Fleming’s ability to source any Store from any Distribution Center but
does not otherwise affect Fleming’s operations as a whole, then Fleming shall
use reasonable efforts to source the affected Stores from another Distribution
Center; provided, however, that any reasonable incremental cost arising from
such sourcing shall be paid by Kmart.
22.6 State and Local Taxes. Kmart represents and warrants that
all Products and other tangible personal property purchased from Fleming shall
be purchased for resale in the ordinary course of
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Kmart’s business and that Kmart shall comply with pertinent state and local laws
regarding the collection and payment of sales, use, and other taxes applicable
to all such resale transactions and furnish evidence thereof to Fleming. If any
such tangible personal property is put to a taxable use by Kmart or is purchased
by Kmart other than for resale, Kmart shall make timely return and payment to
the proper taxing authority of all sales, use, and like taxes applicable
thereto, and shall indemnify Fleming against such taxes and all penalties and
interest related thereto. Kmart shall reimburse Fleming for all transaction
taxes paid by Fleming (including, without limitation, bottle and other recycling
taxes and service taxes) imposed on the sale of property and services
contemplated by this Agreement.
22.7 Severable. If any provision of this Agreement is
determined by a court of competent jurisdiction or arbitrators appointed
pursuant to this Agreement to be void or unenforceable, then the remaining
provisions of this Agreement shall be given effect as if such void or
unenforceable provision was not a part of this Agreement.
22.8 Counterparts. This Agreement may be executed in multiple
counterparts, all of which taken together will constitute one instrument and
each of which will be considered an original for all purposes.
22.9 Authority to Sign. Each person signing below warrants and
represents that he has full power and authority to execute this Agreement on
behalf of the party he represents. Upon request, each party must provide a
certified resolution or certificate of authority authorizing the undersigned to
enter into and sign this Agreement.
22.10 Waivers. No waiver of any breach or default is a waiver
of any subsequent breach or default.
22.11 Approval. Wherever this Agreement provides for the
consent or approval of a party as a condition to an action by the other party,
except as otherwise provided in Section 22.1, the party whose consent or
approval is required shall not unreasonably withhold, condition or delay its
consent.
EXECUTED as of the day and year first written above.
FLEMING COMPANIES, INC.
By
——————————————-
Name: Mark S. Hansen
Title: Chairman and Chief Executive Officer
KMART CORPORATION
By
——————————————–
Name: Charles C. Conaway
Title: Chairman and Chief Executive Officer
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SCHEDULES
Schedule A Stores
Schedule 1.1 Products
Schedule 1.2A HBC and GMD
Schedule 1.2B Dunigan Fuel Terms
Schedule 1.3 Product Pricing
Schedule 1.4 High Velocity Products
Schedule 2 Logistics Services
Schedule 4A Service Requirements
Schedule 4B Quality Assurance and Food Safety Guidelines
Schedule 4C Shrink Audit Procedure
Schedule 4D Audit Procedures
Schedule 4E Management Reports
Schedule 5 Product and Service Fees and Charges
Schedule 5A Bid Values
Schedule 5B Accounts Receivable Reconciliation
Schedule 10 Transition Milestones
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SCHEDULE A
STORES
The following list of Stores will be deemed to be automatically
amended from time to time without further action of the parties to provide for
(a) the removal of Stores from the list as a result of closure, relocation,
sale, or other disposition by Kmart, and (b) the addition of Stores to the list
as a result of the opening or acquisition of new Stores through the term of this
Agreement, whether designated “Super K,” “Big K” or by any successor names to
such stores. Kmart will provide to Fleming at least sixty (60) days prior
written notice of Stores to be removed or added, as the case may be, during the
term of this Agreement so that Fleming may commence or terminate service.
Initially, each Store shall be primarily supplied by the Distribution Center
named opposite to such Store.
NOTE: Super K stores with a * in the “Fres./Sac. Note” column will utilize the
following supply arrangement:
From Fresno: Grocery, Dairy, Frozen, Candy, Cigarettes
From Sacramento: Lunch/Frozen Meat, Smoked IQF, Bakery, Deli,
Seafood, Commodity Meat
From Tracy: Produce, Floral
Products from Tracy will be straight runs to
stores or crossdocked through
Fresno
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2
20
3
21
4
22
5
23
6
24
7
25
8
26
9
27
10
28
11
29
12
30
13
31
14
32
15
33
16
34
17
35
18
36
19
37
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SCHEDULE 1.1
PRODUCTS
Product List:
Meat Department Category and Item Assumptions
Beef (All Private Brands, National, Regional, and Local Brands)
– ALL FRESH AND FROZEN BEEF PRIMALS AND SUB-PRIMALS
– INCLUSIVE OF ALL RETAIL READY PRE-PACKAGED BEEF
– INCLUSIVE OF ALL PRE-COOKED BEEF PRODUCTS
– INCLUSIVE OF ALL HOTEL AND CASE READY CUTS AND PRIMALS
– ALL FRESH AND FROZEN GROUND MEAT PRODUCTS
– INCLUSIVE OF ALL BULK, PRE-PACKAGED AND RETAIL READY PRODUCTS
– INCLUSIVE OF ALL FRESH AND FROZEN BY PRODUCTS
Pork (All Private Brands, National, Regional, and Local Brands)
– ALL FRESH AND FROZEN PORK PRIMALS AND SUB-PRIMALS
– INCLUSIVE OF ALL RETAIL READY PRE-PACKAGED PRODUCTS
– INCLUSIVE OF ALL BONE-IN AND BONELESS PRODUCT
– INCLUSIVE OF ALL FRESH AND FROZEN BY PRODUCTS
– INCLUSIVE OF ALL SMOKED AND COUNTRY CURED PRODUCTS (BONELESS AND
BONE-IN)
Poultry (All Private Brands, National, Regional, and Local Brands)
– ALL FRESH, FROZEN, AND CHILL PACK PRODUCTS
– BULK, PRE-PACKAGE, IQF POULTRY AND BREADED POULTRY PRODUCTS
– TRAYED, BAGGED OR BULK (C02)
– INCLUSIVE OF ALL FRESH AND FROZEN TURKEYS
– WHOLE AND PARTS
– DUCKS, GEESE, CAPONS, AND GAME HENS
Packaged Meat Products (All Private Brands, National, Regional, and Local
Brands)
– INCLUSIVE OF ALL ITEMS PACKAGED, BULK, COOKED, RAW, FRESH OR FROZEN
PRODUCTS SOLD FROM THE MEAT DEPARTMENT OR DAIRY DEPARTMENT IN THE FOLLOWING
CATEGORIES:
– BACON
– FRESH SAUSAGE
– SMOKED SAUSAGE
– CANNED HAMS AND ALL OTHER REFRIGERATED CANNED MEAT ITEMS
– ALL REFRIGERATED PICKLES AND SAUERKRAUT
– HOT DOGS, WIENERS, CONIES
– ALL CUP SALADS AND BULK SALAD ITEMS TRADITIONALLY SOLD IN THE MEAT
DEPARTMENT OR DAIRY CASE
Packaged Meat Products (All Private Brands, National, Regional, and Local
Brands)
– ALL PREPACKAGED REFRIGERATED PROCESS COLD CUTS
– ALL BULK COLD CUTS THAT ARE PROCESSED AND SOLD IN THE MEAT
DEPARTMENT
– ALL MARKET STYLE – BULK AND PRE-CUT CHEESE (SOLD IN THE MEAT
DEPARTMENT)
– ALL MEALS TO GO – MEAL KITS – QUICK TO FIX ITEMS – HOME MEAL
REPLACEMENT
ITEMS TO INCLUDE BUT NOT LIMITED TO:
– PIZZAS (MARKET STYLE)
– LUNCHABLES
– TYSON/ONCOR/ADVANCED PRODUCTS
39
Seafood (All Private Brands, National, Regional, and Local Brands)
– ALL FROZEN, PROCESSED, PACKAGED AND BULK SEAFOOD INCLUSIVE OF:
– WHOLE H&G
– FILLETS AND STEAKFISH
– ALL FROZEN SHELL FISH
– SHRIMP (RAW, COOKED, FRESH, FROZEN)
– IMITATION SEAFOOD PRODUCTS
– PRE-COOKED HEAT AND SERVE PRODUCTS
– ALL GLASS AND PLASTIC CONTAINER PRODUCT RELATED TO THE CATEGORY
PRODUCE
In support of Kmart, Fleming will source and negotiate all Branded, Non-Branded
and Private Label Produce for the following products/categories, including but
not limited to:
– All Fresh Categories (Including Value Added Products)
– All Non-Fresh Manufactured Categories
– All Floral Accessories (Including Balloons, Planters, Pots, Supplies,
etc.)
– All Silk Flowers and Plants
– Christmas Trees
GFD
Catsup & Mustard
BBQ Sauce & Misc. Sauces
Sauces-Ital, Cooking, Paste
Salad Drsng, Mayo, Vinegar
Pickles & Relishes
Olives & Red Cherries
Jellies, Jams, Preserves
Peanut Butter & Honey
Juices & Drinks
Fruits – Canned & Glass
Vegetables – Canned & Glass
Low Cal & Health Foods
Fish & Seafood
Canned Meat
Prepared & Nationality Fd
Soup – Canned & Dry
Baby Food & Formula
Milk – Canned & Powdered
Coffee & Creamers
Tea
Cocoa & Milk Modifiers
Powdered Fruit Flav Drnks
Cereal, Pop Trts, Ins Bkfst
Cookies & Crackers
Chips, Snacks & Nuts
Dried Fruit
Dry Beans, Veg & Grains
Popcorn
Spaghetti & Macaroni
Prep Dinners & Box Pizza
Baking Accessories
Cake Mix, Frstg, Prep Mix
Pancake Mix
Breadings & Coatings
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40
Flour & Cake Flour
Salt, Seasngs, Spices, Extr, Gravies
Desserts, Toppng, Puddings
Syrup & Molasses
Shortening & Oil
Sugar & Sugar Substitutes
Candy & Gum
Butter
Margarine
Refrig Dough Products
Cheese – Retail Packaged
Bulk Cheese
Cultured Products
Juice Products
Fish/Hrsradish/Sce/Mustrd
Pickles
Refrigerated Salads
Desserts & Topping
Yeast
Juice
Fruit
Vegetables – Frozen
Potatoes
Frozen Prepared
Frozen Bakery & Desserts
Non-Dairy
Frozen Fish
Frozen Meat Packaged
Frozen Poultry Packaged
Frozen Bake-off
Other Frozen for Resale
Hispanic Foods
Oriental Foods
Italian Foods
Natural Foods
Diet Foods
Natural HABA
Baby Diapers & Pants
Dog Foods
Other Pet Foods & Litter
Dish Detergents
Laundry Detergents
Hand & Bath Soaps
Laundry Supplies & Bleach
All Prpose Clnr/Disinfect
Household Clnrs, Compounds
Household Supplies
Waxes & Polish – Furniture
Pesticides
Paper Products
Picnic Supplies & Drink Cup
Wraps, Foil, Freezer Supply
Sandwich, Storg, Trash Bags
Cigarettes
Cigars, Tobacco, Snuff, Misc.
3
41
Frozen bagels and breakfast foods
Charcoal and lighter fluids
Rock salt, water softener salt and pellets
Deli Department
– All Turkey and Poultry products including smoked, browned, flavored, dark
meat, pre-cooked holiday birds (fresh and frozen)
– All Beef products including all roast beef, corned beef, pastrami, further
processed beef products etc.
– All ham products including Honey, Virginia, Cooked, Water added, Chopped,
Capacola, Prosciutto, Flavored, canned etc.
– All Cheese categories including domestic, imports, imitations, shreds,
balls and logs, specialty
– All Smoked Meats including Canadian bacon, bacon, brats, smoked sausage,
metts, wieners, links etc
– All Luncheon meats including bologna, braunschweiger, head cheese, liver
loaf, flavor loaves
– All Dry Sausage including hard, genoa, pepperoni, summer sausage
– All “Lite” and “Lo-Salt” deli meats and cheeses
– All Salads – fresh garden salads, coleslaw, macaroni salad, potato salads,
desserts, dips, puddings, specialty, etc. (bilk and pre-packaged)
– All pizza products both fresh, frozen and pre-made
– All deli beverages including coffee, juice, tea, soft drinks etc.
– All Deli snacks, tortilla chips, crackers and mustards
– All Chicken products including fresh 8 pc and wogs, 8 pc. MRB and frozen
WOGS as well as all further processed and wing products
– All vegetables and fruits used in a deli operation both dry and frozen
– All condiments used in a Deli operation including dry, refrigerated and
frozen
– All spices used in the Deli kitchen
– All Hot Foods including entrees, vegetables, fish, BBQ, ribs, lamb,
lasagna, pork, sausage, shrimp, egg rolls, corn dogs, steaks etc.
– All Deli breads and bread board items including pita breads, lavosh etc.
– All salad bar ingredients
– All breakfast items including sausage patties, biscuits, pre-cooked bacon
etc.
– All frozen and fresh soups pre packaged or bulk
– All thaw and sell prepackaged deli products including ready to serve
entrees and vegetables,
– All other deli products including but not limited to herring, lox, olives,
pickles, cooking oils, ethnic foods,
– All seasonal and promotional items for all holidays not listed including
gift packs, seasonal candies.
BAKERY DEPARTMENT
– All Breads and Rolls including bake off and thaw and sell
– All Bread and roll mixes and bases
– All Commodity flours, sugars, yeast
– All Donuts including frozen dough, ready to finish, mixes and thaw and sell
/ ready to sell
– All cream products including refrigerated or frozen ice cream cakes,
eclairs, cream horns, pie shells, puffs, tart shells, ice cream tortes and
all other cream products
– All Sweet Goods including all frozen bake off, ready to sell or thaw and
finish Danish, cinnamon rolls, coffee cakes, turnovers, puff dough, etc,
– All Cakes either the mix, frozen uniced or pre-iced
– All cakes ready to sell or ready to finish including angel foods, brownies,
cupcakes, pound cakes, creme cakes, bundt cakes or any other product made
from cake style batters
– All pies either made in store from scratch, ready to bake or ready to thaw
and sell including all fruit, cremes, meringues etc.
– All Hispanic and other ethnic breads, pastries and desserts
– All cookies either from mix, frozen pucks or ready to thaw and sell either
in bulk or pre-packaged
– All muffin products either from mix, or thaw and sell prepackaged or bulk
– All bagel products
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42
– All Bakery ingredients including shortenings and oils, sugars, icings,
toppings, fruit fillings, eggs, spices. Decorretes, flavors, emulsions,
cheese for baking, sanding sugars, nuts and toppings, etc.
– All cake decorating supplies
– All retail cake accessories including candles, lay-ons, napkins, party
plates, hats etc.
– All “fat free” and “sugar free” items listed above
– All seasonal and holiday items including seasonal flavors of above listed
items and commodities
– All other products sold today in the traditional Bakery department
including shop around pallets of bakery thaw and sell products
5
43
SCHEDULE 1.2A
HBC AND GMD
The Fleming / Kmart GM and HBC synergies teams, headed by Jeff Manning and Cecil
Kearse, will identify the procurement and distribution strategies and potential
benefits by category for presentation on or before May 2, 2001. The categories
will be broken out as follows:
HEALTH & BEAUTY CARE
GENERAL MERCHANDISE
44
SCHEDULE 1.2B
DUNIGAN FUEL TERMS
Fuel Management Services Agreement
Term Sheet
PURPOSE:
To establish business guidelines for how Dunigan Fuels will provide fuel
inventory and other related services for Kmart.
1. Services Provided:
Dunigan Fuels will provide the following services to Kmart.
A. Fuel Inventory Management – Dunigan Fuels will monitor Kmart’s Fuel
Center location remotely and schedule the delivery of fuel 7 days a
week. Fuel will be automatically dispatched on an as needed basis.
B. Help Desk – Dunigan Fuels will provide a 7 day 24 hours a day help
desk. The help desk will support fuel operations only. Dunigan Fuels
will dispatch fuel maintenance companies on an as needed basis per
Kmart guidelines.
C. Environmental Monitoring – Dunigan Fuels will provide Environmental
compliance monitoring during the term of the fuel management services
agreement. Environmental Monitoring will commence once Kmart and
Dunigan Fuels execute an Environmental Monitoring Plan. This plan
should be executed within 180 days from the commencement of this
agreement.
D. Accounting – Dunigan Fuels will invoice using Electronic Data
Interchange. Kmart will pay all invoices using automated clearinghouse
transfers (“ACH”).
2. Term:
The term will be the same as this Agreement.
3. Termination:
Termination of this agreement will be the same as this Agreement.
(CONFIDENTIAL)
(CONFIDENTIAL)
5. Payments/ Payment Terms/ Invoicing:
Dunigan Fuels shall invoice Kmart for all Products sold by Dunigan Fuels to
Kmart via Electronic Data Interchange (EDI), or other mutually acceptable
methods. Payment of the Product will be due to Seller based on net ten (10)
days from delivery of each load of Product. Payment will be made via ACH.
6. Invoice Reconciliation:
Dunigan Fuels will provide all goods on a cost plus its pre-negotiated
fees. Services are considered to be included in fees generated by gallons
processed. From time to time there will be a need to correct a billing due
to an over or under charge for a good or services provided. These billing
errors will be accrued and settled on a quarterly basis. A complete
accounting by store and by invoice will be kept to justify all invoice
reconciliation.
7. Access to Tank Monitors:
Kmart will always allow Dunigan Fuels, during the term of the fuel
management services agreement, phone line access to its automatic tank
monitors. This access is necessary for Dunigan Fuels to perform its duties.
45
8. Environmental Monitoring:
Dunigan Fuels will help with the Environmental Monitoring of Kmart’s
locations. This monitoring will be secondary to on-site monitoring of fuel
leaks and alarms. Environmental Monitoring will commence upon the signing
of a mutually agreed upon Environmental Monitoring Plan. This plan will be
established within 180 days of the signing of this agreement. If, in fact,
on-site monitoring is unavailable by Dunigan Fuels due to lack of systems
or other reasons, fees (margin) will be reduced by (CONFIDENTIAL) per
gallon.
9. Federal and Local Fuel Taxes:
Dunigan Fuels shall collect for Kmart all required federal, state, and
local taxes, including, without limitation, any additional fees or taxes
which may be levied or imposed in connection with the sale, transportation,
delivery or use of the Products at the Locations. Dunigan Fuels shall pay
all such taxes promptly to the appropriate authority within the time frame
required and indemnify, defend and hold Kmart harmless therefrom.
10. Fuel Procurement
It is the intent of Dunigan Fuels and Kmart to use whichever method
necessary to procure fuel at the lowest available cost. The current methods
used to procure fuel for this agreement will be having Dunigan Fuels buy
the fuel on its account, Kmart buying the fuel on their account, and using
Internet based auctions. In the future other methods may be identified and
used. Under all methods Dunigan Fuels will still monitor and perform its
services and still be entitled to the margin addressed in this agreement.
Any rebates earned and received by Dunigan Fuels from a specific refiner
will be prorated to Kmart based on Kmart’s item percentage of Dunigan
Fuels’ volume with that specific refiner. If Dunigan’s pricing is below
OPIS Low after taking into account any such rebates, Dunigan will share the
savings below OPIS Low with Kmart on the basis of (CONFIDENTIAL) of such
savings to Dunigan and (CONFIDENTIAL) of such savings to Kmart.
11. Performance Reporting:
Dunigan Fuels will provide to Kmart on a quarterly basis performance
reporting. Performance reporting will be how well fuel was procured
compared to the Oil Price Information System. The price fuel was procured
at will be compared to the OPIS Average and OPIS Low price for every
location. Racks to be mutually agreed upon by Kmart and Dunigan Fuels.
Failure to perform at or below the OPIS Low published price over any
quarter for any location will be grounds for termination of that location
from the fuel management services agreement at Kmart’s discretion. In times
of Natural Disaster, Government Intervention, or other events out of the
control of both parties that create abnormal price conditions, may affect
the performance reporting, these days will be excluded from any performance
reporting. Days excluded to be agreed upon by both parties. In addition, if
Dunigan is buying fuel on its own account, failure to perform at OPIS Low,
after taking into account all applicable rebates will result in a
(CONFIDENTIAL) reduction in fees to Dunigan based on gallons purchased in
that period for the specific location. Performance below OPIS Low will
result in a sharing of savings with Kmart on the basis of (CONFIDENTIAL) of
such savings to Dunigan and (CONFIDENTIAL) of such savings to Kmart for the
location.
12. Freight:
Dunigan Fuels will coordinate the delivery of fuel to Kmart’s fuel centers
using common carriers. Freight rates will be provided to Kmart on a cost
basis.
13. Handling Credits and Float Rebates:
The Handling Credits collected by Dunigan Fuels from paying taxes for the
fuel sold to Kmart will be rebated to Kmart on a quarterly basis. The
rebate will be payable 30 days following Kmart’s quarter end. A complete
accounting by fuel center of the handling credits will be kept and provided
to Kmart with each payment.
Float Credit – An interest float credit of $.0008 per gallon purchased will
be credited on a quarterly basis. The gallons used to determine the amount
rebated will be the gallons sold to Kmart that Dunigan Fuels collected and
2
46
paid the federal and state taxes. Any gallons that Kmart has not paid for
within the agreed upon payment term will be excluded from the rebate.
14. Margin
(CONFIDENTIAL)
3
47
SCHEDULE 1.3
(CONFIDENTIAL)
48
SCHEDULE 1.4
HIGH VELOCITY PRODUCTS
(CONFIDENTIAL)
49
SCHEDULE 2
LOGISTICS SERVICES
Inbound receiving and storage of product
Order selection and loading, routing and scheduling
Maintaining an inventory to enable Fleming to supply products timely
Inventory control and quality assurance, and stock rotation
Fruit ripening
Inventory management
Transportation management (backhaul, consolidation, carrier selection, freight
bill audit and forward to Kmart for payment, pallet and tote return pursuant to
agreed procedures) – At Kmart’s option, Fleming shall provide transportation
services and select third party transportation providers reasonably acceptable
to Kmart
50
SCHEDULE 4A
SERVICE REQUIREMENTS
Fleming shall exercise commercially reasonable efforts to
achieve service levels for Product categories described below:
(1) The “Target” service level in Year 1 shall be effective beginning on
the 90th day following the commencement of supply by Fleming to Kmart
for each Distribution Center.
The failure to achieve the service level requirements set forth herein
as targets does not constitute a material breach of this Agreement, except as
provided below. Upon failure to achieve any minimum service level for any sixty
(60) days during any 365 consecutive day period at any Distribution Center, a
member of the Account Team appointed by Kmart shall present the matter to a
designated committee of executive officers of each party to resolve the issue.
If such officers are unable to agree on a plan to resolve the matter, or if the
service level deficiencies persist after implementing the actions recommended by
the executive officers, Kmart shall have the right, but not the obligation, to
refer the matter to an independent third party consultant approved by Fleming
(the “Consultant”) to review the situation and recommend an action plan to
increase service levels to an acceptable level. The recommendations of the
Consultant shall not be binding on the parties, but the parties shall seek in
good faith to implement any such recommendations. The fees and expenses of the
Consultant shall be borne by the parties equally.
A material breach of this Agreement with respect to service level
requirements shall occur only if Fleming fails to achieve any minimum service
level for any 120 days during any 365 consecutive day period.
“Service level” shall be measured weekly by the number of full cases
delivered as compared to the number of full cases ordered (net of discontinued
items ordered inadvertently). The failure to deliver Products ordered by Kmart
due to vendor outs or unavailable Products, if either of such conditions exist
for a continuous period of thirty (30) days, except with respect to seasonal
Perishables, if such conditions exist for a continuous period of seven days, or
due to discontinued items, materially inaccurate forecasting of Product needs by
Kmart or materially inadequate order lead time by Kmart shall not be included in
the calculation of the service level.
Nothing contained herein shall establish service levels for Stores in
Hawaii, which shall be evaluated separately, and the parties shall, within a
reasonable time, agree upon standards for service levels for Products sold to
Stores in Hawaii.
51
SCHEDULE 4B
QUALITY ASSURANCE AND FOOD SAFETY GUIDELINES
1. Each Distribution Center will receive two unannounced ASI Inspections
annually. Scores of 900 or above are required. Any Distribution Center
receiving a score of less than 900 will require a re-inspection after
corrections of the deficiencies. ASI inspection documents will be
available for review by Kmart.
2. Each Distribution Center supplying perishable Products to Super K
Stores will have a minimum of two Quality Control Inspectors (one for
Deli/Bakery & Meat, one for Produce).
3. Kmart will provide perishable product specifications by department to
Fleming for receiving and shipping of product to be shipped to Kmart
stores. No product will be shipped outside of specifications without
prior approval from Kmart. Dating standards as shown below will apply
to these specifications.
4. All existing quality assurance guidelines will continue as shown below,
including unannounced quality audits to insure processes are in place
to meet specifications.
5. All inbound shipments must adhere to an incoming goods inspections
process as identified by ASI.
6. Minimum dating standards for retail delivery are as follows:
52
– All dry grocery Products delivered to the Stores shall have at least 45
days remaining until their expiration date (except for private label
Products which will have the time remaining until their respective
expiration dates. All perishable Products shall have at least the
number of days remaining until the expiration date as is usual and
customary in the supermarket industry for products of that kind. Other
Products will be handled by the parties on a case by case basis by
rejection or with appropriate consideration for price reductions.
– Upon delivery, refrigerated and frozen foods will be the proper
temperature and show no evidence of temperature abuse, i.e., thaw and
refreeze. The Stores will reject any Product shipment that has evidence
of temperature abuse.
– Fleming’s distribution centers, both refrigerated and dry, must comply
with all federal, state and local health codes. Inspection reports,
including internal Fleming reports will be made available to Kmart upon
request. This includes pest control inspection reports.
– All deliveries must be free of infestation or any evidence of
infestation by rodents and insects, including stored product pests. The
Stores will reject any Product shipment that has evidence of
infestation.
– Products will be shipped in a manner so as to prevent contamination and
adulteration between food and chemicals.
– Delivery vehicles must be clean, free of infestation, and odors, which
could indicate improper cleaning and sanitizing of delivery trucks.
Trailers used to ship food products may not be used to back haul
garbage, chemicals, trash or any items that may impart noxious odors
that could penetrate food.
– Fleming must immediately notify Kmart of any product recalls from
manufacturers.
– Fleming will accept the return of damaged or otherwise contaminated
cases and issue a full credit to Kmart for the return.
– Kmart food safety personnel will be permitted to visit all Fleming’s
Distribution Centers supplying Products to Kmart with appropriate
coordination with Fleming.
53
SCHEDULE 4C
SHRINK AUDIT PROCEDURE
FLEMING / KMART SHORTAGE STANDARD
Fleming will develop a Shortage Standard from actual YTD 2000 shortage credits
issued to Big K and Super K. The Shortage Standard will be calculated by
Distribution Center. Payment will be made by check within fours week after each
quarter end. Distribution Centers with no Kmart credit history will be
calculated as a composite average of all Distribution Centers excluding from the
calculation those Divisions with the highest and lowest shortage history. Rates
will be adjusted quarterly. As soon as practicable after the Effective Date, and
in any event prior to March 31, 2001, the parties shall establish an initial
shortage standard rate to be applicable upon the commencement of Fleming’s
supply of incremental volume of Products pursuant to this Agreement.
Kmart will randomly supply associates to participate in the case count audit
process on Fleming’s dock. Quarterly, the Shortage Standard will be based on
collaborative audit team findings by Kmart and Fleming associates from these
dock audits. Absent Kmart input, the rollup of Fleming internal 4% case count
audit results from the preceding quarter will apply.
All case count audits will be conducted on Fleming’s dock during normal shipping
hours. Both parties agree to minimize disruption to shipping and on time
dockout.
Large identifiable shortages (e.g. missing pallets) will be addressed on an
individual basis. Kmart and Fleming loss control will work together at retail to
address consistent claims outside the program. Fresh Meat, Frozen Shrimp,
Cigarettes and Produce Nut Meats will be piece counted at time of delivery.
Fleming and Kmart will enforce the current Seal Procedure and identify lapses.
Seal Procedure is set forth below.
Label errors (mis-picks) will be addressed as part of Fleming’s retail credit
policy.
KMART SEAL PROCEDURE
1. Once the trailer loading is completed, a Fleming associate will close
the doors and secure the load consistent with the specific division
security procedures.
2. Billing clerk will then process the necessary paperwork, and assign the
security seals for the load. The seal number for each of the stops will
be written directly on the delivery receipt or driver run document. An
additional seal will be issued for use if the trailer has a side door.
3. Before the trailer leaves the yard, Fleming Security or the driver will
attach the seal for the first stop of the load. Security will verify
that the seal number(s) matches the paperwork. At this point, the
trailer is sealed and ready to leave Fleming.
4. Upon arrival to the first stop, the driver will ask the store receiving
personnel to break the rear door seal, verify the number and sign the
Delivery Receipt or the driver run document confirming that the seal
was intact at time of delivery. The driver will also ask the store
personnel to confirm, but not remove the seal number for any side
doors.
5. If there is more than one stop on the trailer, the driver will ask the
store receiving personnel at the first stop to place a second seal on
the trailer, verify the number, and note their name directly on the
Delivery Receipt. This process will continue for additional stops.
6. In the event a seal is broken or does not correspond with the number
recorded on the Delivery Receipt, the driver and store receiving
personnel must call Fleming Customer Service immediately. Fleming will
verify the seal number and confirm that Fleming Security did not make
any changes. At this point, the load must be counted by the driver and
verified by the store.
54
SCHEDULE 4D
AUDIT PROCEDURES
Kmart has the right to audit Fleming’s books and records regarding Product cost
files and selling prices and charges, allowances, and freight calculations
relating to Fleming’s performance of and compliance with this Agreement upon
reasonable advance notice to Fleming. Fleming must maintain its books and
records in a manner that facilitates a full and complete review of Fleming’s
performance of and compliance with this Agreement. All such books and records
will be available for audit by Kmart for the current prior 12 accounting periods
(i.e. for a “rolling” thirteen periods). The books and records will be
maintained on-site at each Distribution Center for the Stores serviced by that
Distribution Center for the current and six prior accounting periods (a
“rolling” seven periods), and thereafter, the books and records will be
maintained off-site by Fleming and will be made available and retrieved by
Fleming upon a specific request by Kmart to audit an identified issue. The
audits may be conducted by Kmart or its third party designee and will be
conducted at each individual Distribution Center. Kmart and Fleming will each
bear their own costs associated with the audits.
55
SCHEDULE 4E
MANAGEMENT REPORTS
KEY PERFORMANCE INDICATORS
Service Level
Delivery
Outstanding A/R Balance
Ordering and Case Value
56
Item Assortment & Movement
Items with low movement
Super K Going In Gross Reports as current
57
SCHEDULE 5
(CONFIDENTIAL)
LOGISTICS FEES
(CONFIDENTIAL)
58
SCHEDULE 5A
(CONFIDENTIAL)
59
SCHEDULE 5B
ACCOUNTS RECEIVABLE RECONCILIATION
The parties shall commit to apply required joint Kmart / Fleming team resources
to work with diligence and good faith to eliminate in next sixty (60) days
current inter-company process bottlenecks and inefficiencies that lead to
increased A/R balances and delivery errors. These inefficiencies include, but
are not limited to:
– Centralized control, setup and propagation of new items to all
Kmart supplying divisions;
– Develop a process to handle invoice charges not specific to
one line item and miscellaneous (“hand invoice”) charges;
– Address processing summary drops in lieu of “line-item” drops;
– ASN failures
– Lack of a fully implemented ASN system; and
– Lack of uniform common items codes.
60
SCHEDULE 10
TRANSITION MILESTONES
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