<PAGE>
[***] 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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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
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<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
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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
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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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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
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within ten (10) business days after receipt of such notification,
[***]
multiplied b
