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[***] TEXT OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST UNDER RULE 406 UNDER
THE SECURITIES ACT OF 1933, AS AMENDED AND 17 C.F.R. SECTION 200.80(b)(4)
EXHIBIT
10.5
DISTRIBUTION
SERVICE AGREEMENT
This Distribution Service Agreement
(the "AGREEMENT") is made and entered
into as of the 1st day of January, 2005, by and between MAPCO EXPRESS, INC, a
Delaware corporation (hereinafter referred to as "MAPCO") and McLANE
COMPANY,
INC. DBA McLANE GROCERY DISTRIBUTION, a Texas corporation (hereinafter referred
to as "MCLANE").
RECITALS
WHEREAS, Mapco is in the business of
operating retail convenience food
stores; and
WHEREAS, McLane is in the business
of wholesale distribution of food and
non-food/general merchandise products throughout the United States of America;
NOW, THEREFORE, in consideration of
the foregoing premises and the mutual
covenants contained herein, the parties hereto agree as follows:
ARTICLE I
SCOPE OF
AGREEMENT
1.1
Mapco Stores. For purposes of this Agreement, the term
"STORES"
means the owned, operated or managed convenience food stores located in the
United States of Mapco, or any affiliate of Mapco. Should Mapco, or any
affiliate of Mapco, build new or otherwise acquire or operate additional stores
after the date of this Agreement, such additional stores shall be included
within the definition of stores and subject to the terms and conditions of this
Agreement, except to the extent Mapco, with respect to acquired store(s),
assumes an existing distribution agreement with another distributor to which
such stores are subject at the time of Mapco's acquisition of such store(s);
provided however, that in the event such assumption occurs, such acquired
stores shall become subject to this Agreement upon the expiration or other
termination of such existing distribution agreement, and no extension or
renewal options contained therein shall be exercised; and provided further,
that at the time of such acquisition Mapco will provide McLane with the
opportunity to negotiate a buy-out of such other wholesale supply agreement(s)
for such store(s).
For purposes of this Agreement, an
"AFFILIATE" of Mapco shall mean any
person or entity directly or indirectly controlling, controlled by, or under
common control with Mapco. Without limitation, an entity shall be deemed to
control another if it owns or has the power to vote, directly or indirectly,
more than 50% of the voting rights of such other entity.
1.2
Franchisees and Licensees. During the term of this Agreement, McLane
shall be the recommended supplier to any franchisees and licensees of Mapco, or
any affiliate of Mapco, if any. It is understood Mapco can only recommend
suppliers to franchisees and licensees and cannot require purchases by these
entities from the recommended suppliers.
[*** CONFIDENTIAL TREATMENT REQUESTED]
<PAGE>
1.3
Purchase of Products and Services. During the term of this Agreement,
Mapco and all affiliates of Mapco will purchase from McLane, and McLane will
sell and deliver to Mapco and any affiliate of Mapco all of the stores'
requirements of wholesale food and non-food/general merchandise products
customarily supplied by convenience food wholesalers in accordance with the
prices and other terms and conditions outlined in the Exhibits A, B and C
attached hereto and incorporated herein for all purposes. Such products shall
include all standard convenience food store items, including, but not limited
to, the following (the "PRODUCTS"):
(a)
Groceries, including coffee, tea, cereal, canned meats, condiments,
juice, baby food, canned and
dry goods and eggs;
(b)
Deli foods, including meats and salads, breakfast foods, nachos and
bulk sausage, franks, cheese
and fish;
(c)
Frozen foods, such as fruits, vegetables and juices;
(d)
Frozen fast foods, such as burritos, pizza, pizza pieces, frozen
sandwiches, and salads;
(e)
Candy, snacks and popcorn;
(f)
Cigarettes and tobacco products (other than "fourth tier"
products
not distributed by McLane);
(g)
Cold packaged meats, lunch meats and cheeses;
(h)
Shortening, breading and kitchen supplies;
(i)
Prepaid phone cards and cellular phones;
(j)
Post mix products including CO(2) Tanks;
(k)
Store supply items, i.e., wraps, fast food supplies (including
napkins, individual condiments
and cleaners);
(l)
Cooler items, i.e., cheese, biscuits, dips, cultured products, butter
and margarine;
(m)
Health and beauty aids, hosiery, and film and flash; and,
(n)
General merchandise items, including motor oil, other automotive
products, housewares, hardware,
electrical supplies, baby supplies,
sunglasses, lighters, toys and
pet supplies.
[*** CONFIDENTIAL TREATMENT REQUESTED]
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<PAGE>
McLane acknowledges that Mapco may use Liberty Wholesale Co., Inc. or a
third-party distributor to supply items other than those customarily supplied
by convenience food wholesalers, including without limitation close-outs,
one-time special buys, non major brand fourth tier cigarettes, imported novelty
times; provided, however, that Mapco shall first offer McLane the right to
include any such product this Agreement.
1.4
Cost of Products: All Products (whether purchased by McLane directly
from a manufacturer or from another source), other than cigarettes, shall be
billed at Cost (as herein defined), plus the applicable percentage markups for
each UIN department or category as set forth on the Billing Plan attached
hereto as Exhibits "A" and "C", plus any federal, state or
local taxes
prescribed by law. This total shall then be reduced by promotional deals and
allowances granted by manufacturers specifically to retailers for the time
period provided by the manufacturer during their buy period. For purposes of
this Agreement, "COST" shall mean the manufacturer's current published
or
publicly quoted delivered list price based on the buying bracket in which
McLane normally buys that Product for the McLane division or subsidiary
servicing the respective store(s) at date of delivery of Products to such
stores (notwithstanding the fact that a particular Product may have been
purchased from a person or entity other than the manufacturer) without regard
to any cash discounts or volume discounts or rebates allowed by the
manufacturer to McLane, plus any applicable freight charges from the
manufacturers' shipping point to the appropriate McLane division or subsidiary
(including sort and segregate charges). Backhaul income generated by McLane
using its own or another authorized carrier, at McLane's expense, shall be
retained by McLane. McLane reserves the right to impute cash discounts of up to
two percent (2%), or more if such higher discount is standard for that category
of Product, or any portion thereof which is not allowed by the manufacturer to
McLane, and to do so based upon Cost. For purposes of this Agreement, the term
"MANUFACTURER" means the person or entity that manufactures or causes
others to
manufacture goods or products which are marketed under brands or labels
controlled by such person or entity, or any affiliate of such person or entity.
Cigarettes shall be billed in
accordance with Exhibit B.
1.5
Core Item Mix. The stores' product mix will be developed using the
currently existing items in each McLane division inventory mix, including store
use items; provided, however, that McLane agrees to stock Mapco's proprietary
or other specialty items. Mapco agrees to review the stores' product mix each
quarter and replace slow moving items with an item reflecting greater unit
sales within the McLane division. Slow moving items are defined as those items
within each respective McLane division which do not meet the following McLane
annual inventory category days sales in inventory standards, which standards
may be changed by McLane from time to time for all customers of such McLane
division upon no less than 60 days prior notice to Mapco:
<TABLE>
<S> <C>
Category Days Sales In Inventory
-------- -----------------------
Cigarettes [* * *]
</TABLE>
[* * *] CONFIDENTIAL TREATMENT REQUESTED
-
3 -
<PAGE>
<Table>
<Caption>
<S>
<C>
Confection [***]
Snacks [***]
Perishable (meats/cheese) [***]
Frozen [***]
Grocery Standard [***]
Retail Beverages [***]
Supplies (cups/lids) [***]
Health & Beauty Care [***]
General Merchandise [***]
Other Tobacco Products [***]
</Table>
If the slow-moving item is a proprietary item of Mapco or other specialty item
stocked by McLane at Mapco's request, Mapco shall purchase from McLane all such
slow-moving items within thirty (30) days after the end of the month in which
such item should be replaced at a cost equal to the [***] for such item plus
all
[***]. Furthermore, upon expiration/termination of this Agreement, all such
Mapco proprietary/specialty items shall be purchased by Mapco from McLane at a
cost determined in accordance with the immediately preceding sentence.
It is understood and agreed that McLane shall make available at each McLane
division one national brand of bottled water and the best selling regional
brand of bottled water at the respective McLane division. If any store desires
a different brand of bottled water, it shall be entitled to purchase it from
another vendor.
ARTICLE II
SUPPLY
SERVICES
2.1
Product Delivery. McLane, by and
through its divisions and/or
subsidiaries, shall supply and deliver those Products described hereinabove
which are ordered by the stores on a weekly basis except as otherwise agreed to
in writing by the parties. In servicing the stores, McLane shall utilize a
[***]
schedule. However, it is understood that some store locations, due to limited
hours of operations or local governmental restrictions may be unable to
accommodate this preference. In such instances, the parties hereto will attempt
to achieve the most flexible delivery window possible considering the
aforementioned restrictions, if any.
Each store shall order and McLane
shall deliver Products to each store once
per week and the stores must accept these deliveries. Mapco may request that
McLane commence delivering Products twice per week at any time during the term
of this Agreement to any store that made average purchases of Products of at
least [***] per week during the immediately preceding two (2) month period.
McLane shall grant such requests provided (a) McLane has other deliveries
scheduled in the general area in which the store is located, (b) McLane is able
to deliver to such store during the delivery hours set forth above, and (c) the
store places balanced orders consisting of
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[***] CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
all categories of Products for both deliveries. McLane shall act on granted
requests during McLane's Spring and Fall re-routing processes. McLane shall
continue any twice per week deliveries granted by it until such time as the
store ceases purchasing, on average, at least [***] of Products per week during
any two (2) month period. The [***] per week amount specified above shall be
adjusted (i) with respect to non-cigarette purchases, on each anniversary date
of this Agreement in a manner to reflect the latest annual change in the U.S.
Department of Labor, Bureau of Labor Statistics Producer Price Index, Series
Id: WPUSOP3110, Not Seasonally Adjusted, ("PPI"), and (ii) with
respect to
cigarette purchases, on the first day of the McLane fiscal accounting period
immediately succeeding a manufacturer's price increase on cigarettes and/or a
federal, state, local or other tax increase on cigarettes in a manner to
reflect the actual increase in taxes or the price of cigarettes to McLane. If
the PPI is no longer published, then another similar index generally recognized
as authoritative shall be substituted.
2.2
Other Customers of McLane. This Agreement shall in no way act to
foreclose McLane from supplying and delivering products or services to any
other customer or entity.
2.3
Item Maintenance and Store Traits. Mapco agrees to perform store and
item maintenance using McLane provided Quasar, StarGazer and Document Direct
software via the Internet, or any future software products McLane may make
available in the future at no additional charge, or provide this information to
McLane in a format mutually agreed between Mapco and McLane.
2.4
Account Management. McLane shall provide [***] full-time account
representatives to be located in [***], in order to facilitate the ordering and
distribution processes under this Agreement and to implement new programs
across all of McLane's divisions servicing Mapco. The account representatives
shall serve as the primary points of contact for Mapco. Additionally, McLane
will reimburse Mapco up to [***] for payroll costs incurred by Mapco for [***]
field representatives to be hired by Mapco to coordinate the services to be
performed by McLane's account representatives.
2.5
Cigarette Clean Up. McLane will reimburse Mapco up to a maximum of
[***] for damaged, overstocked or discontinued cigarettes in the Mapco stores
at the beginning of this Agreement that are removed from the stores by McLane
at the request of Mapco.
ARTICLE
III
PAYMENT
TERMS
3.1
Payment Terms for Products Purchases. Mapco shall cause payment to be
made by ACH Credit (or ACH Debit if approved by McLane) or wire transfer to
McLane for all Products purchased by the stores not later than 12:00 Noon,
Central Standard Time or if applicable, Central Daylight Savings Time, [***]
days from statement date. Such payments shall be in the full amount of the
statement to which they relate. Any amounts not paid when due shall bear
interest at
[***] CONFIDENTIAL TREATMENT REQUESTED
-5-
<PAGE>
the lesser of (i) eighteen percent (18%) per annum, or (ii) the maximum rate
allowed by applicable law. McLane shall be entitled to offset any or all
rebates
or other amounts due Mapco against any amounts due and owing McLane pursuant to
this Agreement, including any accrued interest thereon.
3.2
Confirmation. MAPCO shall have the right at any time during the term
------------
of this Agreement (and upon termination of this Agreement) to nominate an
independent certified public accountant, reasonably acceptable to McLane, who
shall have access to McLane's records during reasonable business hours for the
purpose of verifying the payments due by MAPCO under this Agreement; provided,
however, that MAPCO may not exercise this right more than once in any calendar
year. Such independent certified public accountant shall disclose to MAPCO
information limited only to the accuracy of the payments made in accordance
with
this Agreement. The expense of such independent certified public accountant
shall be paid by MAPCO unless verification indicates that MAPCO has overpaid
McLane by [***] or more, in which case such expenses shall be paid by McLane.
ARTICLE IV
TERM AND
TERMINATION
4.1
Term. This Agreement shall commence on the Effective Date and,
----
unless earlier terminated in accordance with terms of this Agreement, or by
mutual consent of the parties, will continue thereafter until December 31,
2007;
provided, however, that Mapco shall be entitled to extend the term of this
Agreement for an additional two (2) year period through December 31, 2009 by
delivering to McLane written notice of its exercise of such extension right on
or before October 1, 2007. In the event Mapco exercises such extension right
all
terms and conditions of this Agreement would apply during the extended term
except that the Signing Bonus for the two year extension term would be [***]
which would be paid on or before [***] and would be amortized over the two year
extension term using the straight-line method of amortization in accordance
with generally accepted accounting principles. Upon termination of this
Agreement, McLane and Mapco will each fulfill their respective obligations
hereunder with respect to all orders that have been placed by the stores and/or
delivered by McLane prior to the effective date of such termination.
4.2
Effective Date. The "Effective Date" of this Agreement shall
be
--------------
as of January 1, 2005.
4.3
Termination Due to Payment Default by Mapco. In the event Mapco fails
-------------------------------------------
to make payments for any Products or services purchased by the stores from
McLane at such time as payment is required to be made by this Agreement
("PAYMENT DEFAULT"), McLane will have the immediate right to suspend
performance of its obligations under this Agreement until such time as the
Payment Default is cured. If a Payment Default is not cured within 24 hours
after Mapco receives notice of such default from McLane, then McLane may
terminate this Agreement at any
[***] CONFIDENTIAL TREATMENT REQUESTED
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<PAGE>
time while such Payment Default continues. However, nothing in this Agreement
shall constitute a waiver of McLane's remedies under applicable law.
4.4
Termination Remedies to Both Parties.
------------------------------------
(a) Either party may immediately
terminate this Agreement or suspend its
performance under this
Agreement at such party's sole discretion
without notice upon: (i) the
institution by or against the other party
to this Agreement of
insolvency, bankruptcy or similar proceedings;
(ii) any assignment or
attempted assignment for the benefit of
creditors by the other party;
(iii) any appointment, or application
for such appointment, of a
receiver for the other party; (iv) the
other party becoming insolvent
or unable to pay its debts as they come
due; (v) an involuntary lien
being filed or levied against, or
foreclosure or seizure of
materially all or a significant portion of,
the other party's assets,
including, without limitation, inventory, by
a creditor, lienholder, lessor,
governmental authority or other
person, which has not been
removed within ten (10) days; (vi) the
other party's material
falsification of any records or reports
required hereunder; or (vii) a
material adverse change in the other
party's financial condition or
results of operations.
(b) Either party may terminate this
Agreement in the event of other
party's breach of, or failure
to comply with, any material term or
provision of this Agreement and
the continuance of such breach or
failure for thirty (30) days
after such party has received written
notice of such breach or failure from the
other party; provided,
however that this Section
4.4(b) shall not apply to a Payment Default.
4.5
Repayment of Unamortized Amounts. Upon any termination of this
--------------------------------
Agreement (i) Mapco shall immediately pay to McLane the unamortized portion of
any amounts paid to Mapco pursuant to Section 4.1, Section 5.1 or Section 5.2
hereof; (ii) McLane shall immediately pay to Mapco any unpaid amounts that have
been earned by Mapco and are then payable and due pursuant to Article V or
Exhibit B of this Agreement.
ARTICLE V
COMPENSATION
5.1 Signing Bonus. Upon the
execution of this Agreement, McLane agrees to
-------------
pay Mapco a signing bonus (the "SIGNING BONUS") of [***] for the
[***]. Such
amount shall be amortized over the January 1, 2005 through December 31, 2007
period using the straight-line method of amortization in accordance with the
generally accepted accounting principles.
If Mapco acquires any stores from a
non-affiliated entity, Mapco shall
notify McLane of such acquisition(s) and with respect to each such acquired
store(s) McLane will pay to Mapco,
[***] CONFIDENTIAL TREATMENT REQUESTED
-7-
<PAGE>
within ten (10) business days after receipt of such notification, [***]
multiplied by the number of months from the date of such acquisition through
December 31, 2007. All such amounts shall be amortized over such date of
acquisition through December 31, 2007 period using the straight-line method of
amortization in accordance with the generally accepted accounting principles.
5.2
Service Allowance. Subject to the
terms and conditions of Section
6.16 hereof, McLane agrees to pay Mapco the amount of [***] (the "Service
Allowance") (i) within ten (10) business days after the Effective Date of
this
Agreement, and (ii) provided this Agreement has not been terminated and such
store has not been sold, closed or otherwise ceased operation, within ten (10)
business days after each anniversary date of this Agreement. The Service
Allowance shall grant to McLane the right to be the exclusive wholesaler for
the
sale and delivery of the Products specified in Section 1.3 and shall be
amortized over the twelve-month period immediately suceeding its payment
applying the straight-line method of amortization in accordance with generally
accepted accounting principles.
In the event that Mapco or any
affiliate of Mapco should build, purchase or
acquire any new store(s) during the term of this Agreement, Mapco shall notify
McLane of such built, purchased or acquired stores and McLane shall pay to
Mapco
[***] multiplied by the number of months remaining until the next anniversary
date of this Agreement after the opening, purchase or acquisition of such store
by Mapco or any affiliate of Mapco (except in the case of a store subject to a
conflicting agreement with a third party as provided in Section 1.1 of this
Agreement, in which case such payment shall be due only with respect to months
during which such store subject to this Agreement). Such amount shall be paid
simultaneously with the payment of the Service Allowance payment due on the
anniversary date of this Agreement immediately following such opening,
purchase,
or acquisition (or, if sooner, upon the expiration of this Agreement).
In the event Mapco or any affiliate
of Mapco should sell, close or
otherwise cease operation of any stores subject to this Agreement, Mapco shall
promptly notify McLane of such sales, closures, or cessation of operation. For
each such store which is sold, closed or has ceased operation, Mapco shall
refund to McLane on the anniversary date of this Agreement immediately
succeeding such sale, closure or cessation of operation, [***] multiplied by
the
number of months from the date of such sale, closure or cessation of operation
through such anniversary date (or, if sooner, upon the expiration of this
Agreement).
5.3
Marketing Allowance. Subject to
the terms and conditions of Section
6.16 hereof, within ten (10) business days after the end of each McLane
accounting quarter during the term of this Agreement McLane agrees to pay Mapco
a marketing allowance (the "Marketing Allowance") in the amount of
[***], in
operation and subject to this Agreement during such quarter, such amount to be
prorated for stores that were not in operation and subject to this Agreement
for
the entire quarter.
[***] CONFIDENTIAL TREATMENT REQUESTED
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<PAGE>
ARTICLE VI
MISCELLANEOUS
6.1
Organization, Good Standing, Etc.
Mapco hereby represents and
warrants to McLane that it and any of its affiliates operating stores subject
to
this Agreement are duly organized, validly existing and in good standing under
the laws of the state of their respective formation and have all requisite
power
and authority, and all material licenses, permits and certificates to own and
operate their respective properties and assets and to carry on their respective
businesses. Mapco further represents and warrants that it and any affiliate is
duly qualified to do business and is in good standing as a foreign corporation
or other entity in each other jurisdiction in which the ownership or operation
of its properties or assets or the nature of its business requires such
qualification. Mapco further represents and warrants that execution of this
Agreement has been duly and validly authorized and that the persons executing
this Agreement have all power and authority to bind Mapco to all terms and
conditions of this Agreement.
6.2
Assignment. This Agreement shall
be binding upon, and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns, but may not be assigned by any party hereto without the prior written
consent of the other party; provided, however, that this Agreement may be
assigned by MAPCO to any entity acquiring all or substantially all of the
business or assets of MAPCO, including all or substantially all of the stores
then-currently subject to this Agreement.
6.3
Notices. Any






