Chip Supply Agreement

PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT. SUCH PORTIONS ARE DESIGNATED [REDACTED].


CHIP SUPPLY AGREEMENT


EXHIBIT (10Z)


This CHIP SUPPLY AGREEMENT, made and entered into this the 19th day of June, 2003, by and between NAN YA PLASTICS CORP., AMERICA, a Delaware corporation ("Seller") , and UNIFI Manufacturing, Inc., a North Carolina corporation ("Buyer"), with executive offices in Greensboro, North Carolina.


W I T N E S S E T H:


WHEREAS, the Buyer owns and operates a partially oriented yarn ("POY") spinning plant in Yadkinville, North Carolina ("Yadkinville"), and desires to purchase from Seller fiber grade polyester dull, semi-dull and bright luster chip (also known as polyethylene terephthalate chip) ("Chip") and Seller produces Chip at its plant in Lake City, South Carolina ("Lake City"), and has heretofore sold and agrees to continue to sell Chip to Buyer; and


WHEREAS, Buyer and Seller entered into a chip supply Agreement under date of March 18, 1997 which this Agreement updates and supercedes;


NOW, THEREFORE, the parties hereto, for and in consideration of the sum of ten and no/100 dollars ($10.00) and in consideration of these presents and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, agree as follows:


SECTION 1. ORIGINAL TERM - The original term of this Agreement shall be for a period of two (2) years, commencing on the first day of July, 2003, and terminating on the 30th day of June, 2005, unless extended or sooner terminated, as hereinafter provided.


SECTION 2. PURCHASE AND SALE OF CHIP -


(a) The Chip must be produced by Seller and delivered to Buyer in accordance with the specifications as presented on the Chip Specification Sheets, Exhibit "A", attached hereto ("Specification Sheets") for each luster supplied or in accordance with other specifications agreed upon in advance by both Buyer and Seller. Seller shall provide Buyer with a continuous supply of Chip which is in strict compliance with, and within ranges specified for physical and chemical properties presented in the Specification Sheets. Unless previously agreed upon by the parties hereto, the continuous supply of each luster of Chip shall be delivered from specific continuous polymerization units located at Seller's Lake City plant.


(b) Beginning on July 1, 2003, Seller shall manufacture and deliver to Buyer, and Buyer shall purchase and take from Seller, all Buyer's requirement of Chip during the term of this Agreement needed for its POY spinning plant operations in Yadkinville, North Carolina, except for such amount of Chip that Buyer shall manufacture or have manufactured for it from bulk


fiber waste and cationic Chip, made to Buyer's specifications. This Agreement obligates Buyer to purchase all its requirement of Chip from Seller, but does not obligate Buyer to purchase a minimum amount of Chip from Seller.


The Chip, as provided in section 2(a), will be delivered in accordance with the production plan heretofore established between the Buyer and Seller and presently in place, or as otherwise agreed upon by the parties hereto. Further production and delivery will be conducted as provided in Section 2(e) herein.


(c) Upon request by Buyer, Seller shall deliver to Buyer information regarding the production and process for the Chip being manufactured by Seller for shipment to Buyer, which may be required for vendor or material "certification of compliance" as required by ISO 9000 or other inbound material quality monitoring process being used by Buyer or its customers.


(d) During the term of this Agreement, or any extension thereof, Seller shall make the Chip available for loading and transport to Buyer's plant continuously between Mondays at 7:00 AM until Saturdays at 5:00 PM, or at other times as agreed upon by the parties hereto.


(e) Buyer shall furnish to Seller a copy of its projected daily needs of the next month Chip by luster on a monthly basis by the 22nd of the current month for the next succeeding month. Such projections are for planning purposes only and shall not constitute a binding commitment of Buyer. Actual orders shall be delivered to the Seller by the Buyer on a monthly basis.


(f) Seller shall maintain at its Lake City plant a minimum Chip inventory of five (5) days of each luster, at no cost to Buyer, to insure that it will have sufficient Chip to meet Buyer's orders. Inventory shall be maintained on a rotating basis, first in first out, and no Chip shall be delivered to Buyer from inventory that does not meet the conditions provided for in Section 2(a) without the Buyer's written consent.


SECTION 3. PRICING TERMS -


(a) Base Bulk Purchase Price - The base bulk purchase price ("base price") for SEMI-DULL CHIP, effective as of July 1, 2003, shall be [REDACTED] above Seller's FOB raw material cost for Pure Terephthalic Acid ("PTA") and Mono-Ethylene Glycol ("MEG").


The base price for FULL BRIGHT CHIP, effective as of July 1, 2003, shall be [REDACTED] above the base price for semi-dull Chip as provided above.


The base price for FULL DULL CHIP, effective as of July 1, 2003, shall be [REDACTED] above the base price for semi-dull Chip as provided above.


(i) The cost of PTA - In determining said base price as of July 1, 2003, the cost of PTA for the month beginning July 1, 2003, and for each month thereafter during the term of this Agreement, or any extension thereof, shall be the published July, 2003 market price as quoted in


[REDACTED], hereinafter referred to as the "[REDACTED] Report". The price shall come from the [REDACTED] line item reported in cents/pound for July, 2003. PTA is quoted as "Delivered" so no freight adjustment shall be made. For the term of this Agreement, or any extension thereof, the stoichiometric material conversion ("conversion") used to calculate Seller's raw material cost for PTA shall be [REDACTED];


(ii) The cost of MEG - In determining said base price as of July 1, 2003, the cost of MEG for the month beginning July 1, 2003, and for each month thereafter during the term of this Agreement, or any extension thereof, shall be the published market price, as quoted in the [REDACTED]. The price shall come from the [REDACTED] line item reported in cents/pound for July, 2003. MEG is quoted FOB so freight shall be added as provided in section 3(a) iii). If a range is reported, the lower of the prices quoted shall be used. Any retroactive adjustments indicated will be reflected in debits or credits for the affected period as indicated. For the term of this Agreement, or any extension thereof, the stoichiometric material conversion ("conversion") used to calculate Seller's raw material cost for MEG will be [REDACTED];


(iii) MEG Freight Cost From Point Comfort, TX. - Seller shall be reimbursed by Buyer for actual cost for freight from Point Comfort, Texas, to Lake City, South Carolina. As of the effective date of this Agreement, the said freight cost is [REDACTED] per pound ($[REDACTED]/pound). Seller and Buyer are to review the rates annually and upon evidence of change of the actual rate (based on a per pound amount) this amount will be adjusted accordingly.


(b) Material Price Modifications -The base price, as set forth in Section 3(a) above, shall be adjusted for changes in FOB market price for MEG and DELIVERED market price for PTA (increased or decreased) as of the first day of each month thereafter. For Chip delivered to the Buyer during months where the current month's PTA or MEG prices have not been finalized, as provided in section 3(a), the base price invoiced to the Buyer shall be the market price for the previous month. Upon establishment of a market price for the quarter, adjustments to all previous invoices during the quarter shall be made. The price modifications as set forth above are illustrated on Exhibit "B", entitled Chip Pricing Terms, attached hereto.


A new Exhibit "B-1", entitled Chip Pricing Terms, setting forth the bulk purchase price of Chip per pound, effective as of July 1, 2003, FOB Lake City and updating the market price of PTA and MEG, set forth under Price Modifications on Exhibit "B", shall be signed by both parties and attached to this Agreement prior to July 1, 2003.


(c) Annual Adjustments to Base Price - If this Agreement is extended as provided for in Section 9, beginning on June 30, 2004 and annually thereafter (if extended), annual adjustments to the base price, as provided in section 3(a) , shall be made, allowing for increases or decreases in Seller's cost of Labor and Energy.


In determining said annual adjustments to the base price:


(i) Labor Cost Adjustment: On or before June 30, 2003, the average hourly gross


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earnings per production worker in "[REDACTED]", as reported in the [REDACTED], shall be presented to Buyer by Seller. This shall be the baseline upon which annual adjustments will be made. Beginning on June 30, 2004, and continuing at the end of each year of the contr ...