EXHIBIT 10.50
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
WAREHOUSING, DISTRIBUTION AND RELATED SERVICES AGREEMENT
--------------------------------------------------------
THIS WAREHOUSING, DISTRIBUTION AND RELATED SERVICES AGREEMENT the
"Agreement") is made as of March 7, 2008 between THE GREAT ATLANTIC & PACIFIC
TEA COMPANY, INC., a Maryland corporation with principal offices located at 2
Paragon Drive, Montvale, New Jersey 07645 ("A&P") and C&S WHOLESALE GROCERS,
INC., a Vermont corporation with principal offices located at 7 Corporate Drive,
Keene, New Hampshire 03431 ("C&S" and together with A&P, the "Parties").
W I T N E S S E T H:
WHEREAS, C&S operates warehouse and distribution centers, performs
procurement and wholesale supply services, and provides related operational
services to its customers; and
WHEREAS, A&P has agreed to retain C&S to provide A&P certain warehousing
and distribution services, and certain wholesale supply services, on the
conditions set forth in this Agreement and the schedules hereto.
NOW, THEREFORE, in consideration of the mutual covenants and obligations
hereinafter set forth, the Parties hereto, intending to be legally bound, hereby
agree as follows:
1. PRELIMINARY MATTERS. The Parties agree that as of the Effective Date, this
Agreement shall supersede all prior agreements between C&S and A&P, and
between C&S and Pathmark Stores, Inc. ("Pathmark"), as more fully described
in Schedule 1.2 hereto. The Parties also agree that future Approved Budgets
will comport with the form of the Interim Budget attached hereto as
Exhibits 1.4(a)-(g) so as to facilitate the budget process described in
Schedule 8.
2. WAREHOUSING SERVICES. During the Term of this Agreement, C&S shall provide
to A&P comprehensive, managed warehouse, distribution and related services on
the terms and conditions set forth in this Agreement and the schedules
hereto, as more particularly described in Schedule 2. Together, the
Warehousing Services, the Transportation Services, the Procurement Services,
the Purchasing Services and the Additional Services shall be referred to as
the "Services."
3. FACILITIES AND FIXED ASSETS. Commencing upon the Effective Date, C&S shall
perform the Warehousing Services from the Facilities listed in Schedule 3,
and/or from such other warehouse facilities as the Parties may determine from
time to time, subject to the terms and conditions set forth in Schedule 3 of
this Agreement. C&S shall maintain the Facilities, and shall invest in such
Fixed Assets in support of the operations at the Facilities, as more
particularly described in Schedule 3.
4. TRANSPORTATION SERVICES. The Parties agree that A&P will be responsible for
the overall direction of all outbound transportation to the A&P Stores, and
that C&S will hire, on a sub-contracted basis, common carriers for the
delivery of Merchandise to certain A&P Stores all in accordance with the
terms and conditions set forth in Schedule 4. C&S shall manage inbound
transportation for the account of A&P in accordance with the terms set forth
in Schedule 4. In all events, A&P shall have the right to assume
responsibility for all inbound and outbound transportation and C&S shall
perform such transportation services as A&P may direct.
5. OTHER SERVICES. C&S agrees to provide certain Other Services on behalf of
A&P in accordance with the terms and conditions set forth in Schedule 5. In
consideration for providing the Other Services, C&S shall receive the
remuneration set forth in Schedule 5.
6. SERVICES FEES. As consideration for performing the Services under this
Agreement, C&S shall receive from A&P payment of the Services Fees as set
forth in Schedule 6 hereof.
7. PROCUREMENT AND PURCHASING SERVICES; [[*]]. Subject to the terms and
conditions of this Agreement, A&P agrees to buy from C&S certain Merchandise
for use or resale at the A&P Stores. The allocation of responsibilities for
the procurement and purchase of such Merchandise between A&P and C&S shall be
as set forth in Schedule 7 hereof. [*].
8. PREPARATION OF INITIAL BUDGET AND ANNUAL BUDGETS; SHARED SAVINGS. The
Parties shall agree upon and regularly review annual budgets for all Services
prepared to an engineered standard on a facility-by facility basis in
accordance with Schedule 8. The Initial Approved Budget and all subsequent
Approved Budgets shall be prepared and reviewed in accordance with the terms
and conditions set forth in Schedule 8.
9. REMUNERATION AND PAYMENT OF SERVICES FEES AND OPERATING COSTS. A&P will pay
C&S all Services Fees and will pay or reimburse C&S for all Costs incurred by
C&S in the provision of the Services under this Agreement, as set forth in
Schedule 9 hereto.
10.INDEMNIFICATION AND INSURANCE; FORCE MAJEURE. Schedule 10 sets forth
indemnification rights and insurance arrangements between the Parties.
11.TERM AND TERMINATION. This Agreement will commence on March 30, 2008 (the
"Effective Date"), and shall remain in effect through September 29, 2018,
unless earlier terminated in accordance with Schedule 11.
12.MISCELLANEOUS. The general conditions and definitions set forth in
Schedule 12 are incorporated herein by reference and made a part hereof.
- ------------------------------
* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act 1934, as amended.
2
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
first written above.
THE GREAT ATLANTIC AND C&S WHOLESALE GROCERS, INC.
PACIFIC TEA COMP.
By:/s/ Eric Claus By:/s/ Richard B. Cohen
-------------- --------------------
Name: Eric Claus Name: Richard B. Cohen
Title: President and Chief Title: Chairman and Chief
Executive Officer Executive Officer
3
SCHEDULE 1
PRELIMINARY MATTERS
-------------------
PRELIMINARY STATEMENT. The Parties wish to materially change their contracting
relationship as it exists under the Prior Agreements (as defined below).
Specifically, the Parties wish to establish, as of the Effective Date, a
strategic "open-book" relationship to merchandise, procure, warehouse and
distribute supermarket products to the A&P Stores in the most cost-efficient
manner possible. The Parties further desire to collaborate with respect to the
exploration, evaluation and implementation of practices and procedures to reduce
A&P's total supply chain costs and allow each Party to share equitably in the
benefits of such practices and procedures.
1.1 EFFECTIVE DATE. The "Effective Date" shall mean March 30, 2008.
1.2 PRIOR AGREEMENTS. The Parties agree that, subject to the terms hereof,
and except as expressly provided herein, the Master Supply Agreement by
and between A&P and C&S dated October 27, 2003 (the "Master Agreement"),
the Supply Agreement by and between A&P and C&S dated June 27, 2005 (the
"Ocean Agreement"), and the First Amended and Restated Supply Agreement by
and between Pathmark and C&S dated January 29, 1998 (the "Pathmark
Agreement"), together with all amendments thereto (collectively, the
"Prior Agreements") shall remain in force and effect until the Effective
Date. On the Effective Date, this Agreement shall replace and supersede
the Prior Agreements in all respects, the Prior Agreements shall be
terminated and no longer in effect as of the Effective Date, and neither
of the Parties hereto shall thereafter have any rights, duties or
obligations under the Prior Agreements; provided, however, with respect to
any claim or cause of action that becomes known subsequent to the
Effective Date (and should not have been known, through ordinary
diligence, prior to the Effective Date) and arises from or is related to
any set of facts or circumstances which arose or existed prior to the
Effective Date, the terms and conditions of the respective Prior Agreement
(including those related to dispute resolution) shall control. [[*]].
All claims that were known to a complaining Party, or through ordinary
diligence should have been known by such Party, prior to the Effective
Date shall be deemed waived and the complaining Party shall be forever
barred from raising such claims as against the other, except as otherwise
set forth in this Schedule 1.2 or with respect to such amounts as have
been properly billed before the date hereof but not paid as of the date
hereof. For the avoidance of doubt, no Affiliates of the Parties are or
shall be deemed to be Parties to this Agreement. Notwithstanding the
foregoing, each Party represents and warrants to the other Party that none
of its Affiliates possesses any claims against such other Party. A&P
hereby represents that as the sole shareholder of Pathmark, A&P has all
proper right and authority to consent to the termination of the Pathmark
Agreement and to waive any and all potential Pathmark claims and causes of
action in accordance with the terms of this Schedule 1.2.
- ------------------------------
* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act 1934, as amended.
4
1.3 SUPPLY CHAIN EVALUATION. A&P and C&S wish to work together to create a
network of distribution centers that, to the greatest extent possible, are
dedicated exclusively to the service of A&P and the delivery of products
to the A&P Stores. [[*]]. The Parties further wish to identify
opportunities to achieve warehousing and distribution efficiencies and to
implement practices and policies that will minimize A&P's costs throughout
the supply chain. In furtherance of these goals, the Parties agree to
jointly retain during the "Ramp-Up Period" (defined in Schedule 1.4 below)
and annually thereafter the consulting firm of [*] or an equivalent firm
("Consultant") to conduct a comprehensive evaluation of the entire A&P
supply chain and to make recommendations with respect to, among other
areas, supply chain network configuration, facilities design, technology
and systems design, loss prevention and health and safety, budgeting,
operating best practices and policies, performance standards and shared
cost-savings/incentive-sharing opportunities. The Parties by mutual
agreement shall retain Consultant and shall each pay fifty percent (50%)
of the fees incurred by Consultant in providing services pursuant to
Schedule 1.3. The Parties anticipate that they will spend no more than
[*] annually, in the aggregate, in fees and expenses paid to the
Consultant. The Parties shall incorporate the recommendations of
Consultant in the creation of the Initial Approved Budget and subsequent
Approved Budgets, the Service Specifications and Performance Measures, and
other warehousing practices and policies that will be implemented on or
after the Effective Date.
1.4 RAMP-UP PERIOD AND INTERIM BUDGET. The period commencing with the
Effective Date and continuing through September 28, 2008 shall be referred
to as the "Ramp-Up Period." During the Ramp-Up Period, the Parties shall
operate in accordance with the budgeted costs and income items set forth
in the following Exhibits: Exhibit 1.4(a) (Budget Summary),
Exhibit 1.4(b) (Total Warehousing Costs), Exhibit 1.4(c) (Total
Transportation Costs); Exhibit 1.4(d) (Total Direct Overhead Costs);
Exhibit 1.4(e) (Capital Expenditures); Exhibit 1.4(f) (Total Services
Fees); and Exhibit 1.4(g) ([*]) (collectively, Exhibits 1.4(a)-(g) shall
be referred to as the "Interim Budget"). Certain components of the
Interim Budget shall also serve as the "Baseline Budget" which the Parties
shall use for the purpose of computing whether and to what extent a Cost
Savings Gainshare Incentive Fee is payable to C&S as described in
Schedule 8.11 hereof. The Initial Approved Budget and all future Approved
Budgets will comport with the form of the Interim Budget, and will include
the same Budget Summary and categories of line item expenses and revenues.
1.5 INITIAL APPROVED BUDGET. Commencing promptly after the Effective Date,
the Parties shall conduct meetings for the preparation of the Initial
Approved Budget and the Service Specifications in accordance with
Schedule 8 hereof. The Parties shall collaborate with the Consultant with
respect to the preparation of the Initial Approved Budget and the Service
Specifications and the Parties shall make best efforts to complete them
not later than thirty (30) days prior to the commencement of the First
Contract Year. In the event
- ------------------------------
* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act 1934, as amended.
5
that any of the Initial Approved Budget and/or the Service Specifications
have not been agreed upon by the Parties at least thirty (30) days prior
to the first day of the First Contract Year, any such dispute shall be
resolved in accordance with the dispute resolutions provisions set forth
in Schedule 12 of this Agreement. The Initial Approved Budget shall be
the Approved Budget for the First Contract Year. The Parties agree that
the Initial Approved Budget and each subsequent Approved Budget shall
cover periods corresponding to C&S's fiscal year, which is a 52-week
period (or 53-week period every five to six years) that runs through the
last Saturday in September. The Parties will make any prorations
necessary to account for the Ramp-Up Period or any 53-week Contract Year.
The schedule of Contract Years for the Term is set forth on Exhibit 1.5
attached hereto.
6
SCHEDULE 2
WAREHOUSING SERVICES
--------------------
2.1 WAREHOUSING AND LOGISTICS SERVICES. During the Term of this Agreement,
C&S shall provide to A&P (and, with respect to any A&P Operated Facility,
A&P shall perform on its own account) comprehensive managed warehousing
and logistics services on the terms and conditions set forth in this
Agreement (the "Warehousing Services"), including but not limited to: the
daily operation and maintenance of the Facilities; handling and confirming
receipt of inbound orders; loading and unloading; storage; selection;
pallet building; case labelling (where applicable); providing off-site
resources for logistics management or analytical services; processing
claims for recovery of lost or damaged Merchandise, as applicable; the
Recyclable Material Processing Services; providing trained, skilled
personnel; and interfacing with A&P personnel, all in accordance with the
performance standards set forth below and the operating procedures and
Service Specifications (the "Services Standards") and targeted performance
levels (the "Performance Measures") that shall be set forth in the Service
Specifications and made a part of this Agreement. The Service
Specifications shall also set forth (i) A&P's obligations that relate to
the Services performed by C&S including, but not limited to, timely
provision of orders, ad forecasts, resolving issues with short-coded
product, product discontinuances, new items, etc., and (ii) the penalties
that shall be assessed to C&S for its failure to perform the Services in
compliance with the Service Specifications; provided that in no event
shall C&S be required to pay any such penalty to the extent: y) C&S has
already borne Costs resulting directly from the failure to perform for
which the penalty is being assessed (i.e., in the case of controllable
Costs in excess of the Approved Budget); and z) the amount of such Costs
exceeds the amount of the penalty prescribed under the Service
Specifications. The Service Specifications may be revised from time to
time in accordance with Schedule 8.
2.2 ADDITIONAL SERVICES. From time to time, A&P may request the provision of
additional services not within the scope of Services ("Additional
Services"). In such event, A&P and C&S shall negotiate in good faith to
mutually agree upon a description of such Additional Services, including
revisions to the Service Specifications, if necessary, and an adjustment
of the Approved Budget, as determined or adjusted in accordance with
Schedule 8. For the purposes of this Agreement, to the extent the
Additional Services are mutually acceptable to C&S and A&P, such
Additional Services shall form part of the Services hereunder and the
Parties will mutually determine an appropriate adjustment to the Services
Fee, if applicable.
2.3 EXCLUSIVITY. Except as may be otherwise stated in this Agreement, A&P
agrees that for the Term of this Agreement it shall not contract with any
third party other than C&S for the rendering of the Warehousing Services,
except with regard to promotional, seasonal, cross-dock, DSD and other
high-velocity or specialty Merchandise. Notwithstanding the foregoing,
nothing in this Agreement shall be deemed to prohibit or restrict A&P from
performing Warehousing Services on its own account or from contracting for
any Warehousing Services with any Affiliate of A&P, provided that neither
the Base Management Fee nor the Administrative Management Fee payable to
C&S under this
7
Agreement shall be reduced as a result of A&P exercising its rights under
this Schedule 2.3. Without limiting the foregoing in any way, the Costs
related to the Facilities and Fixed Assets shall continue to be chargeable
to A&P during the Term of the Agreement even to the extent such are
underutilized in the event of A&P's exercise of its rights under this
Schedule 2.3.
2.4 PERFORMANCE STANDARDS. In addition to the Services Standards and
Performance Measures, C&S covenants and agrees to perform the Services and
to maintain and operate the Facilities (including the cleanliness thereof)
with the degree of care, skill and diligence consistent with an
experienced, reputable warehouseman operating a warehouse and distribution
service network in the Northeast United States, to the extent C&S's
ability to perform the Warehouse Services in accordance with such
standards is not prohibited by the Approved Budget, the Flex Budget or the
withholding by A&P of any required approval. C&S covenants and agrees
that it shall use commercially reasonable efforts to identify for A&P all
necessary and desirable steps and measures to permit C&S to comply with
its obligations under this Schedule so as to provide A&P the opportunity
to include such steps and measures in the Approved Budget or the Flex
Budget and to provide any required approvals.
2.5 WAREHOUSING SERVICES TO BE PROVIDED FROM THE FACILITIES. The Warehousing
Services will be provided from the Facilities (as defined in Schedule 3.1)
and from such other applicable facilities as may be permitted under the
terms of this Agreement.
2.6 C&S COVENANTS. In addition to any of its other obligations as set out in
this Agreement, C&S covenants and agrees that during the Term it will,
consistent with the performance standards set forth in Schedule 2.4 above:
(a) take all necessary and desirable steps and precautions to protect
Merchandise from weather, water, theft, vandalism and all other
reasonably foreseeable hazards and damages;
(b) comply with all federal, provincial and municipal governmental laws,
rules, regulations, by-laws, zoning legislation, guidelines,
ordinances, orders of any municipal or other government body, and
any other restrictions, covenants and other limitations (including,
without limit, those in respect of environmental and health and
safety matters) applicable to the occupation and operation of the
Facilities, the providing of the Services and the Other Services and
to otherwise comply with the terms and conditions of this Agreement.
C&S shall keep in full force and effect all licenses, registrations
and other qualifications imposed by any applicable governmental
authorities necessary to occupy and operate the Facilities, and to
provide the Services and to otherwise fulfill the terms and
conditions of this Agreement;
(c) except as otherwise instructed by A&P, not place any Merchandise in
proximity to any other products or any material that is or may be
noxious, flammable, hazardous or whose characteristics may adversely
affect the quality, fitness or intended purpose, merchantability and
other characteristics of the Merchandise or
8
otherwise cause in any manner whatsoever Merchandise to be
adulterated or deteriorate; provided that C&S shall use commercially
reasonable efforts to notify A&P where any of the Service
Specifications or provisions in the Approved Budget are inconsistent
with the protections referred to in this sub-schedule (c); and
(d) maintain all of the Fixed Assets in good working order and promptly
(or as soon as practicable in the case of refrigeration equipment)
repair and/or replace any Fixed Assets that may prevent or hinder
C&S's ability to provide the Services in accordance with the terms
and conditions of this Agreement. C&S covenants and agrees that it
shall use commercially reasonable efforts to identify all necessary
and desirable maintenance and repair requirements outlined in this
sub-schedule (d) for A&P and to provide A&P with an opportunity to
include such requirements in the Approved Budget.
2.7 INDEPENDENT CONTRACTOR. It is expressly intended by the Parties hereto
and each Party hereby specifically warrants, represents and agrees, that
each Party (the "Performing Party" for the purposes of this Schedule) is
an independent contractor having its own established place of business and
all persons assisting the Performing Party in the performance of its
obligations under this Agreement are and shall be deemed the employees of
the Performing Party or under contract to the Performing Party for all
purposes, and not of the other Party or any Affiliate of the other Party.
It is further intended and agreed between the Parties that each Party
shall have sole control of the manner and means of performing its
obligations under this Agreement. The specific means of accomplishing the
purposes of this Agreement shall be left to the discretion of the
Performing Party, provided that the purpose of this Agreement is
accomplished in a cost-effective manner and otherwise in a manner intended
to benefit A&P and C&S. Each Party agrees that its officers, managers, or
other management or supervisory personnel employed by them shall effect
such management, direction and control in the sole and complete discretion
of such Party.
2.8 INVENTORY CONTROL. The Parties hereto agree that they will agree to
appropriate inventory control procedures (e.g., physical inventories and
cycle counts, as applicable) as part of the Service Specifications. The
Parties will further include in the Service Specifications procedures for
regulating inventory levels (including investment buy formulas, taking
into account the cost of money, and allocations of responsibility for
inventory level overages or shortfalls) and handling short-coded or excess
product.
2.9 RECYCLABLE MATERIAL PROCESSING. C&S agrees that throughout the Term of
this Agreement it shall manage the processing of certain non-hazardous
recyclable materials located at the A&P Stores or held at the Facilities
for use or resale at the A&P Stores including, but not limited to,
cardboard, pallets and plastic materials (the "Recyclable Material") on
A&P's behalf (the "Recyclable Material Processing Services") and shall be
considered to be part of the Warehousing Services. Recyclable Material
expressly excludes: (i) Merchandise and other items traditionally handled
through reclamation; and (ii) environmentally hazardous materials or food
waste. Specifically, A&P agrees to bale or package in an orderly fashion
all Recyclable Material at the A&P Stores, and to label
9
all such packages, so as to permit their collection, inventory, and the
tracking of their movement, as set forth in the Service Specifications.
C&S agrees to package Recyclable Materials at the Facilities in the same
manner. C&S agrees to recover all Recyclable Materials from the A&P
Stores, and to assemble the packages of all Recyclable Materials at the
Facilities, and shall arrange for the transport of all such materials to
an appropriate location for processing. All Recyclable Materials will be
processed by C&S in accordance with the Service Specifications. C&S
agrees to establish and maintain a means of tracking and reporting the
movement of all Recyclable Materials from the A&P Stores and the
Facilities, as well as the redemption or other processing of such
Recyclable Materials on a unit-by-unit basis. The Parties acknowledge and
agree that such a tracking process does not exist as of the Effective
Date, but in no event will C&S establish and deploy a tracking system
later than ninety (90) days after the Effective Date. [[*]]. All labor,
transportation and other costs incurred by C&S in performing the
Recyclable Material Processing Services shall be deemed to constitute
Costs, as that term is hereinafter defined. Unless otherwise agreed in
the Service Specifications, the A&P Stores will not load dunnage or other
refuse on C&S's or its contractors' trailers. [*].
- ------------------------------
* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act 1934, as amended.
10
SCHEDULE 3
FACILITIES AND FIXED ASSETS
---------------------------
3.1 FACILITIES. Commencing on the Effective Date and continuing throughout
the Term of this Agreement, C&S (and, in the case of the Edison GMDC
Facility, A&P) shall perform all Warehousing Services and Transportation
Services hereunder from the following warehouse and/or distribution
centers that are owned or leased by C&S or one of its Affiliates, and any
new or replacement warehouse and/or distribution centers, subject to
Schedule 3.5 (the "Facilities"):
(a) Facilities Dedicated Exclusively to Service of A&P Stores (each, a
--------------------------------------------------------------------
"Dedicated Facility"):
----------------------
Facility Product Category(ies)
-------- ---------------------
[*] [*]
* [*]
** [*]
(b) Facilities Servicing A&P and at least one other C&S Customer (each,
--------------------------------------------------------------------
a "Shared Facility"):
---------------------
Facility Product Category(ies)
-------- ---------------------
[*] [*]
(c) Facilities Operated by A&P (each, an "A&P Operated Facility"):
--------------------------------------------------------------
Facility Product Category(ies)
-------- ---------------------
[*] [*]
(d) Shipping Origin. A schedule setting forth each of the A&P Stores
that are serviced by each of the Facilities listed above has been
annexed to this Agreement as Exhibit 3.1. Subject to a change in
the roster of Facilities set forth in 3.1(a) and (b) above by the
establishment of new, replacement or additional Facilities as set
forth in Schedule 3.5, the shipping origin of A&P Stores may be
changed in accordance with this Schedule 3.1(d). A&P may instruct
C&S to change the shipping origin of one or more A&P Stores;
provided, however, any change to the shipping origin of A&P Stores,
whether singly or in the aggregate, that could reasonably be
expected to (a) increase or decrease the volume of any Shared
- ------------------------------
* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act 1934, as amended.
11
Facility by [*] or more [[*]] shall require the mutual
written consent of C&S and A&P. In addition, the Parties may agree, at
any time, to change the shipping origin of any one or more A&P Stores.
Changes of shipping origin of A&P Stores that occur during the course of
any Contract Year shall be reflected in a Flex Budget.
3.2 DEDICATED FACILITIES. The Parties acknowledge and agree that the
Dedicated Facilities are exclusively utilized to support the A&P Stores
serviced from such Facilities. C&S covenants and agrees that it will not
perform any services or other activities of any sort whatsoever at any of
the Dedicated Facilities (a) on behalf of its other customers, (b) on its
own account, or (c) for A&P Stores other than the A&P Stores which are
normally serviced by such Dedicated Facilities, except to the extent
expressly consented to in advance and in writing by A&P. Furthermore, C&S
agrees it will not, without A&P's prior written approval, warehouse at or
transfer to or from any Dedicated Facility any Merchandise that is not
intended for use or resale at the A&P Stores serviced by such Dedicated
Facility, nor will C&S otherwise transfer Merchandise between any
Facilities. To the extent A&P gives written approval to C&S with regard
to the activities for other customers otherwise prohibited in the
preceding two (2) sentences, C&S will account for and record any
incremental expense incurred in connection with such activities and such
expenses will not be considered Costs under this Agreement and will
therefore not be chargeable to A&P. The Parties will periodically explore
additional opportunities to transfer the A&P Volume to Dedicated
Facilities. To the extent any Shared Facility ceases to hold any
significant amount of case volume for C&S customers other than A&P Volume
for a period of time not less than one Contract Quarter, A&P and C&S shall
jointly determine if such Shared Facility shall be treated as a Dedicated
Facility for the purposes of this Agreement.
3.3 A&P OPERATED FACILITIES. A&P shall be permitted to occupy and operate any
A&P Operated Facility, and to perform the Warehousing Services or any
other activities at such A&P Operated Facility in any manner of its
choosing, subject to A&P's obligations under this Agreement. [*].
3.4 REAL ESTATE OBLIGATIONS. A statement of all Real Estate Obligations as of
the Effective Date has been annexed to this Agreement as Exhibit 3.4.
Subject to Schedule 3.5, below, C&S covenants and agrees that it shall not
alter or add to any of the terms of the current Real Estate Obligations
(or any of the future Real Estate Obligations established pursuant to
Schedule 3.5 below) without first notifying A&P in writing. Furthermore,
C&S agrees that to the extent it enters into any real estate financing
transactions with respect to an existing Facility for the exclusive
benefit of C&S (e.g., a sale-leaseback transaction) which would give rise
to Costs in excess of what is set forth in the Approved Budget for the
Contract Year in which such real estate financing transaction was entered
into, C&S will hold A&P cost neutral with respect to such real estate
financing transactions for such
- ------------------------------
* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act 1934, as amended.
12
Contract Year and for all future Contract Years. The preceding sentence
shall not apply to renewals, extensions or modifications of existing or
future Real Estate Obligations in the ordinary course of business.
3.5 FACILITY RELOCATION, CLOSURE, OPENING OR CONSTRUCTION. From time to time,
C&S may propose to undertake a relocation or closure of a Facility;
material enhancement of a dedicated Facility requiring capital expenditure
that is not already reflected in the Capital Expenditures component of the
Approved Budget; or opening or construction of a new Facility dedicated to
A&P (each, a "Facility Decision"). Prior to undertaking a Facility
Decision, C&S covenants and agrees that it will consult with A&P with
regard to such Facility Decision. The Parties shall discuss in detail and
in good faith (a) any capital expenditure requirements related to the
Facility Decision and the impact of such expenditures on the Capex and
Approved Budgets, including ROI assumptions; (b) the costs related to the
Facility Decision, including any applicable shut-down expenses and
liabilities, severance, [[*]] and pension contributions for prior
underfunding, start-up costs, stranded facility costs, and cost of money
for either party (their respective "Facility Decision Costs"); (c) the
projected operational savings that will accrue once the Facility Decision
Costs have been fully mitigated; and (d) the impact of the Facility
Decision on C&S's compliance with the Service Specifications and other
performance of the Services under the Agreement. [*]
(i) [*]
(ii) [*]
(iii) [*]
(iv) [*]
[*].
3.6 FIXED ASSETS. A&P recognizes, understands and agrees that C&S may be
required to purchase, lease or license equipment or systems specifically
dedicated to support the Services and necessary to meet C&S's obligations
to A&P under this Agreement. Except with respect to any Emergency
Expenditures, the Parties agree that C&S shall not purchase, lease,
license or otherwise acquire any new Fixed Assets, or change the financing
terms of any current Fixed Asset financing arrangements, which would give
rise to Costs in any Fiscal Accounting Period in excess of what is set
forth in the Approved Budget without first obtaining the written consent
of A&P, which consent shall not be unreasonably withheld, delayed or
conditioned. Any and all Fixed Assets which give rise to Costs chargeable
to A&P hereunder shall be depreciated in accordance with C&S's
depreciation schedule for such Fixed Assets as set forth on the
Depreciation Schedule annexed hereto this Agreement as Exhibit 3.6.
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* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act 1934, as amended.
13
SCHEDULE 4
TRANSPORTATION SERVICES
-----------------------
4.1 GENERAL. For so long as A&P may direct during the Term of this Agreement,
C&S shall be responsible for inbound transportation of Merchandise to such
Facilities and A&P Stores as A&P may direct, and shall provide such
services in accordance with the terms of this Schedule 4. C&S will
further be responsible for the routing and overall management of outbound
transportation and delivery of Merchandise from such Facilities to such
A&P Stores as A&P may direct, and C&S shall hire third-party contract
carriers to deliver certain Merchandise to the A&P Stores, all in
accordance with this Schedule 4 or otherwise as directed by A&P.
Notwithstanding the foregoing, the A&P Stores bannered "Pathmark" are
currently serviced by Grocery Haulers, Inc. ("GHI") under a contract
directly with A&P, and C&S has no management or oversight responsibility
with respect to GHI or the outbound transportation of Merchandise to the
A&P Stores bannered "Pathmark". Until such time as A&P may amend its
contract with GHI, GHI shall be responsible for the routing and delivery
of all shipments of Merchandise to the A&P Stores bannered Pathmark.
Together, C&S's management of the inbound and outbound transportation and
hiring of contract carriers as set forth herein shall be referred to as
the "Transportation Services". The Parties agree that, in its sole and
exclusive discretion, A&P may elect, upon commercially reasonable notice
to C&S, to assume exclusive responsibility for, or to contract with any
third party to manage, the Transportation Services; provided that any Base
Management Fee or Administrative Management Fee payable to C&S hereunder
this Agreement shall not be reduced as a result of A&P exercising its
right under this Schedule 4.1; and provided further that A&P shall be
responsible for assuming from C&S such tractors, trailers and other
similar assets owned or leased by C&S that C&S can demonstrate were
utilized in its performance of the Transportation Services and which will
not be used by C&S as a result of A&P exercising its rights hereunder.
C&S agrees to act in a commercially reasonable fashion to mitigate any
expense or losses associated with such assets prior to A&P's assumption
thereof.
4.2 INBOUND TRANSPORTATION. Subject to A&P's rights in Schedule 4.1 above,
C&S shall manage inbound delivery of Merchandise as it is shipped from
A&P's vendors to the Facilities. C&S shall use commercially reasonable
efforts to solicit bids from, and to otherwise negotiate with, reputable
third-party contract carriers for inbound transport rate proposals to
obtain the lowest possible rate for the delivery of Merchandise from the
A&P vendors to the Facilities. A&P shall have the right to audit and/or
monitor C&S's bidding processes with regard to inbound transportation.
[[*]]. C&S shall provide to A&P, on a continuous and ongoing basis, a
report setting forth all negotiated contract rates for the transport of
Merchandise from the A&P vendors to the Facilities (the "Negotiated
Inbound Rates"). Subject to the availability and capacity of such
contract carriers, C&S
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* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act 1934, as amended.
14
shall invoice A&P the Negotiated Inbound Rates for any delivery of
Merchandise from the A&P vendors to the Facilities.
4.3 OUTBOUND TRANSPORTATION. The Parties agree that C&S, in cooperation with
A&P and subject to A&P's strategic direction and right to assume exclusive
responsibility for the Transportation Services, shall be responsible for
the design, development and implementation of the outbound transportation
activities, including, but not limited to, transportation network
configuration and routing, and for the overall management of
Transportation Services supporting the A&P Stores, except for the A&P
Stores serviced by GHI as set forth in Schedule 4.1. C&S agrees to
arrange, through the hiring of reputable contract carriers on a sub-
contracted basis, for the diligent, professional and expeditious transport
of such Merchandise to the A&P Stores, except for the A&P Stores serviced
by GHI. C&S agrees to arrange, through its contract carriers, for the
provision of transportation services, including such accessorial and
special services that may relate to transportation services and may be
requested by A&P, and to adhere to, and to cause its contract carriers to
adhere to, the standards of service, delivery specifications, and other
service requirements as set forth in the Service Specifications. C&S
acknowledges and agrees that it will be responsible to A&P for the
performance of the transportation services by such contract carriers.
C&S's performance of the Transportation Services set forth herein shall be
based upon the Service Specifications and other projections, information
and directions provided by A&P to C&S. All costs associated with outbound
transportation to the A&P Stores shall be estimated and agreed to by the
Parties, shall be regarded as Costs herein, and shall be incorporated into
and made a part of the Interim Budget and any Approved Budget. Title to
Merchandise shall remain with C&S until (i) such time as the trailer
containing Merchandise exits the loading dock of the applicable Facility,
in the case of Merchandise that is picked up from the Facility by a
contract carrier arranged for by A&P; or (ii) such time as the trailer
containing Merchandise is received at the destination A&P Store, in the
case of Merchandise that is picked up from the Facility by a contract
carrier arranged for by C&S. Theft of Merchandise or Fixed Assets from an
A&P Store location shall not be the responsibility of C&S, unless it is
theft committed by a contract carrier or other party for whom C&S is
responsible under this Schedule.
15
SCHEDULE 5
OTHER SERVICES
--------------
5.1 GENERAL. C&S agrees to perform certain services (the "Other Services") on
A&P's behalf that are incidental or in addition to the Services, as
specified in this Schedule 5. The Parties agree that the costs incurred
by C&S in connection with the rendering of the Other Services, and all
compensation earned by C&S in connection therewith, shall not constitute
Costs but shall remain the sole responsibility of C&S and shall be
excluded from the calculation of the Interim Budget and shall not be
incorporated into or made a part of any subsequent Approved Budgets under
Schedule 8.
5.2 COUPON PROCESSING SERVICES. C&S agrees that it will perform coupon
processing services with respect to all of the A&P Stores (excluding those
stores that as of the Effective Date are bannered as "Pathmark" and
excluding stores that A&P may acquire, unless otherwise agreed in writing
by the Parties). C&S agrees that it shall commence performing such
services as soon as reasonably practicable following the Effective Date
(which shall be no later than August 2008) [[*]]. The Coupon Processing
Services will be performed in accordance with terms and conditions
established by A&P and C&S and set forth in the Service Specifications,
[*]. A&P will pay to C&S a fee of [*] per Contract Year for such services,
which will be payable in accordance with Schedule 9 hereof. [*].
Notwithstanding the foregoing, the Parties further agree that: (a) if the
coupon business materially changes during the Term and there is a material
reduction in the prevalence of paper coupons, [*] then the Parties shall
discuss an appropriate modification to the coupon processing services
and/or the fee payable by A&P to C&S hereunder.
5.3 ACCOUNTS RECEIVABLES DEDUCTIONS. C&S agrees that throughout the Term of
this Agreement it shall process and collect on A&P's behalf all accounts
receivable deductions that are due A&P from the A&P vendors ("Accounts
Receivables Deductions") and which A&P may direct C&S to so collect. [*].
5.4 RECLAMATION. C&S agrees that throughout the Term of this Agreement it
shall perform reclamation services (the "Reclamation Services") with
respect to all damaged, discontinued or unsalable Merchandise located at
the A&P Stores in accordance with the terms and conditions set forth in
Exhibit 5.4 hereto. [*].
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* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act of 1934, as amended.
16
SCHEDULE 6
SERVICES FEES
-------------
6.1 GENERAL. In addition to any other amounts payable hereunder, as
consideration for performing the obligations under this Agreement, A&P
shall pay to C&S the Services Fees, as set forth and defined below. In
addition to the Base Management Fee and the Administrative Management Fee,
A&P shall also pay to C&S the Incremental Volume Fee, the Cost Savings
Gainshare Incentive Fee and the [*] if certain conditions are satisfied,
as described below. For purposes of this Agreement, the Base Management
Fee, the Administrative Management Fee, the Incremental Volume Fee, the
Cost Savings Gainshare Incentive Fee and the [*] shall be referred to
herein as the "Services Fees." Services Fees shall also include (a) the
fees and/or [*] by A&P with respect to the Other Services as
set forth in Schedules 5.2, 5.3 and 5.4 (together, the "Other Services
Fee") and (b) any fees later agreed to by the Parties, including for
Additional Services.
6.2 FEES.
(a) Base Management Fee. The "Base Management Fee" will be [[*]] per
Contract Year (prorated for the Ramp-Up Period) commencing on the
Effective Date, as adjusted pursuant to Schedule 6.4 hereof. The
Base Management Fee shall be payable to C&S in accordance with the
terms and conditions set forth in Schedule 9 hereof.
(b) Administrative Management Fee. In connection with C&S's provision
of corporate and administrative services and personnel, C&S shall be
entitled to an "Administrative Management Fee" in an amount equal to
[*] per Contract Year (prorated for the Ramp-Up Period) commencing
on the Effective Date, as adjusted pursuant to Schedule 6.4 hereof.
The Administrative Management Fee shall be payable to C&S in
accordance with the terms and conditions set forth in Schedule 9
hereof.
6.3 INCENTIVE COMPENSATION FEES. In addition to the Base Management Fee and
the Administrative Management Fee and the Other Services Fee, C&S may be
entitled to receive the following fees (the "Incentive Compensation
Fees").
(a) Incremental Volume Fee. To the extent A&P's total net sales (as
defined by US Generally Accepted Accounting Principles ("GAAP"),
consistently applied) exceeds [*] (the "Incremental Volume Fee
Trigger") in any Contract Year, C&S will be entitled to an
"Incremental Volume Fee" in the amount equal to [*]. The
Incremental Volume Fee, if any, shall be calculated in connection
with the reconciliation performed by A&P and C&S following the
completion of the year-
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* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act 1934, as amended.
17
end reconciliation at the end of each Contract Year, as set forth in
Schedule 8.5.3 and the Incremental Volume Fee will be invoiced to
A&P on the Weekly Statement immediately following completion of such
year-end reconciliation. The Incremental Volume Fee will not be in
effect for the Ramp-Up Period, but will be in effect for the
remainder of the Term. The Incremental Volume Fee Trigger will be
equitably adjusted by the Parties for any acquisition or divestiture
by A&P.
(b) Cost Savings Gainshare Incentive Fee. During the Ramp-Up Period and
in any Contract Year, C&S may be entitled to receive a "Cost Savings
Gainshare Incentive Fee" as calculated in accordance with
Schedule 8.11 hereof.
(c) [*]. During the Ramp-Up Period and in any Contract Year, C&S may be
entitled to receive a [*] as calculated in accordance with
Schedule 7.15(c) hereof.
6.4 CPI ADJUSTMENTS TO CERTAIN SERVICES FEES.
(a) The Base Management Fee and the Administrative Management Fee shall
be adjusted at the beginning of each Contract Year, including the
First Contract Year, by a percentage equal to that percentage by
which the non-seasonally adjusted Northeast Urban Average All Items
Consumer Price Index for All Urban Consumers (1982 - 1984 = 100), as
available on the first day of the new Contract Year from the Bureau
of Labor Statistics of the United States Department of Labor, or any
successor index ("CPI"), varies from the same on such day of the
prior year. The Parties agree that they will use the CPI report for
the month of August each year as the basis for comparing to the
prior year, as such report becomes available generally within two
weeks of the close of August. For purposes of illustration, for the
CPI adjustment that will occur effective upon the second full
Contract Year commencing September 26, 2009, assume that the CPI for
August 2008 is 258.1 and the CPI for August 2009 is 260.4, then the
CPI adjustment effective September 26, 2009 is 260.4 - 258.1 = 2.3 /
258.1 = 0.89%. The then current Base Management Fee would be
multiplied by 0.89% to arrive at the increase to the Base Management
Fee. If the then current Base Management Fee was [[*]], then the
adjustment would be [*] and the new Base Management Fee would be
[*]. Notwithstanding the above, the adjustment shall have an annual
cap of (i) 2.5% for the Base Management Fee only and (ii) 1.5% for
the Administrative Management Fee only, provided in each case that
the excess over the capped amount shall be accumulated and applied
to future adjustments to the extent the CPI adjustment in any year
is less than the capped amount. For example, if in the first
adjustment cycle the CPI is 3.0%, the second adjustment cycle the
CPI is 3.2% and the third adjustment cycle the CPI is 0.5%, for
purposes of calculating the adjustment in the third cycle to the
Base Management Fee, the accumulated excess for the prior two cycles
is 1.2%, thus the adjustment is 0.5%
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* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act 1934, as amended.
18
+ 1.2% = 1.7%. In the case of the Administrative Management Fee,
the accumulated excess would be 3.2%, so the adjustment in the third
adjustment cycle would be 0.5% + 1.0% = 1.5%, leaving an accumulated
excess of 2.2% (3.2% less the applied deficit of 1.0%).
(b) The Incentive Volume Fee Trigger shall be adjusted at the beginning
of each Contract Year, including the First Contract Year, for the
"CPI for All Food" for most recent period for which such calculation
is "Final" as reported by the United States Department of
Agriculture Economic Research Service (or, if not available from the
USDA, then as reported by such other similar authority).
As set forth in Schedule 8.11, the Baseline Budget is also subject
to a CPI adjustment pursuant to this Schedule 6.4.
19
SCHEDULE 7
PROCUREMENT AND PURCHASING SERVICES; [*]
----------------------------------------
I. GENERAL
7.1 MERCHANDISE. Subject to the terms and conditions set forth in this
Agreement, A&P agrees to purchase from C&S, and C&S agrees to sell to A&P,
certain quantities of grocery, produce, dry bakery, candy, fresh meat,
fresh deli, fresh seafood, dairy, frozen (mainline), frozen bakery, frozen
meat, frozen commodities, ice cream, ice, HBC/GM, private label products,
spices and supplies, and certain other merchandise in the product
categories carried by C&S or A&P, but excluding the products set forth in
Schedule 7.4(a) (collectively, "Merchandise") for use or resale at the A&P
Stores.
7.2 EXCLUSIVITY. Except as may be otherwise expressly stated in this
Agreement, A&P agrees that for the Term of this Agreement it shall not
contract with any unaffiliated third party other than C&S to procure
and/or purchase Merchandise.
7.3 A&P STORES. The term "A&P Stores" means all supermarket stores owned and
operated by A&P or any of its Affiliates as set forth on Exhibit 3.1,
attached hereto. In addition, the term "A&P Stores" shall include any new
or replacement stores of A&P or any of its Affiliates in the geographic
region of any of the A&P Stores, except that A&P Stores shall not be
deemed to include any acquisition of ten (10) or more stores at one time
by A&P, nor shall it include those stores which are acquired by A&P and
which, at the time of such acquisition, are already serviced by a third
party logistics, procurement and/or purchasing services provider other
than C&S and A&P was required to assume such third party contract as a
condition of acquiring such stores. Likewise, should C&S acquire a
business that supplies A&P, whatever contracts are then in existence shall
continue and shall not be automatically subsumed into this Agreement.
7.4 EXCLUSIONS.
(a) Merchandise does not include the following products:
(i) products that are available for purchase by A&P
through direct store delivery ("DSD") or from cross
dock vendors and designated as DSD or cross dock by
A&P from time to time;
(ii) certain seasonal GM or specialty products, which may
include natural, organic and private label products,
which are procured and purchased by A&P (such as
those products stored at the A&P Crown Facility) from
specialty suppliers who at the time of this Agreement
are, or in the future may become, authorized
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* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act 1934, as amended.
20
by A&P in A&P's sole discretion to procure such product
on behalf of A&P, provided however that A&P will in
good faith support C&S and purchase such products
through C&S if, in the reasonable opinion of A&P, C&S
is cost competitive and provides similar services to
the other vendors of such products;
(iii) Floral;
(iv) Tobacco;
(v) Pharmacy (prescription medications); or
(vi) Liquor.
(b) Nothing in this Agreement shall prohibit or otherwise limit A&P's
ability to (i) purchase either now or in the future any item that is
available to A&P via DSD or cross dock, or (ii) designate on a
temporary or long term basis any Merchandise as DSD or cross dock.
7.5 PROCUREMENT GENERALLY. For purposes of this Agreement, to "procure" shall
mean to negotiate directly or indirectly with the applicable vendor with
respect to all terms of the purchase of goods including, but not limited
to (as applicable), price, specifications, quantity, freight and [[*]]
(the "Purchase Terms"). Both Parties shall, with respect to the
Merchandise it procures hereunder: (a) procure such Merchandise, and
otherwise operate, in accordance with all applicable law and with prudent
and ethical business practices; (b) maintain a right-sized procurement
organization staffed with competent and appropriately skilled buyers, and
supported by a commercially reasonable systems infrastructure, all taking
into account the level and nature of procurement activity; and (c) in all
cases negotiate for its most competitive price available with respect to
the Merchandise that it procures. The Parties acknowledge and agree that,
in its sole and exclusive discretion, A&P may elect upon commercially
reasonable written notice to C&S to assume exclusive or partial
responsibility for procuring any or all of the Merchandise intended for
use or resale at the A&P Stores as more fully set forth in Schedule 7.7(e)
hereof; provided that any Base Management Fee or Administrative Management
Fee payable to C&S under this Agreement shall not be reduced as a result
of A&P exercising its right under this Schedule 7.5. Subject to any
exceptions contained in this Agreement, C&S shall continue to purchase all
such Merchandise as set forth in Schedule 7.6, below. A&P shall have
exclusive responsibility for procuring the goods that are excluded from
Merchandise as set forth in Schedule 7.4(a), hereof. C&S shall not engage
in the procurement of any Merchandise in connection with the A&P Volume
except as is expressly stated in this Agreement.
[*].
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* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act 1934, as amended.
21
7.6 PURCHASING GENERALLY. For the purposes of this Agreement, to "purchase"
shall mean to: (a) perform the physical act of purchasing goods through
the execution and tender of purchase orders to an applicable vendor;
(b) to pay for such goods; and (c) to own such goods for the period
immediately preceding their resale to A&P. [*]. A&P
shall have exclusive responsibility for purchasing the goods that are
excluded from Merchandise as set forth in Schedule 7.4(a), hereof.
II. PROCUREMENT AND PURCHASE OF CENTER-STORE CATEGORIES OF PRODUCTS
7.7 CENTER-STORE PROCUREMENT AND PURCHASING.
(a) [*].
(b) C&S shall purchase and manage the regular turn Center-Store Products
inventory intended for use or resale at the A&P Stores. C&S's
management of A&P's regular turn Center-Store Products inventory
shall be based upon historic Center-Store Products turn information
maintained by C&S, volume forecast requirements provided by A&P,
product specifications supplied by A&P, and other projections and
other information and direction provided by A&P to C&S.
(c) C&S shall purchase promotional or other high-velocity Center-Store
Products inventory intended for use or resale at the A&P Stores as
directed by A&P. C&S's purchase of promotional or high-velocity
Center-Store Products shall be based upon A&P's advance estimates of
promotional volumes, product specifications, purchase quantities,
delivery dates, store-specific volume allocations (as further set
forth in the Service Specifications) and other Center-Store Products
information supplied by A&P to C&S, and other projections and other
information and direction provided by A&P to C&S.
(d) C&S agrees that it shall maintain and provide A&P on a daily basis
detailed inventory date code viewing and close dated reports with
respect to all Center-Store Products that have code dates, intended
for use or resale at the A&P Stores, along with any other reports or
information required under the Service Specifications. The Parties
recognize that C&S as of the Effective Date does not have a systemic
solution for this obligation and is working with vendors on "open"
code dating and external labeling to facilitate more efficient
tracking of code dates on Center-Store Products, but that C&S shall
establish such a system within a commercially reasonable time
following the Effective Date.
(e) [*].
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* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act 1934, as amended.
22
(f) [*].
7.8 [*] WITH RESPECT TO CENTER-STORE PRODUCTS.
(a) [*]. On the first Tuesday following the end of each Fiscal
Accounting Period (but in no event sooner than 2 days following the
end of the Fiscal Accounting Period), C&S will provide to A&P
movement reports that will permit A&P to bill vendors for A&P's [*]
for all Center-Store Products. C&S will not collect any [*] from
A&P vendors with respect to Center-Store Products unless expressly
consented to in writing by A&P.
(b) [*]. C&S agrees it shall not make
any communication to any vendor or other third party, or engage in
any other conduct, that directly or indirectly reduces any economic
benefits realized by A&P under its [*] programs in connection with
the Center-Store Products Volume or that otherwise has an adverse
impact on A&P's negotiations regarding such [*] programs. In no
event shall any [*] program negotiated by C&S on its own account or
that of its customers in any way prevent, interfere with, or
otherwise take from A&P's realization of the full economic benefit
of the [*] programs A&P may negotiate for its own account with
respect to the Center-Store Products Volume. A&P shall provide or
substantiate a direct nexus between the prohibited actions described
in this Schedule 7.8(b) and any adverse economic impact suffered by
A&P.
III. PROCUREMENT AND PURCHASE OF FRESH CATEGORIES OF PRODUCTS
7.9 FRESH PRODUCTS PROCUREMENT AND PURCHASING.
(a) Terms Applicable to all Fresh Products.
(i) General. [*]. Under no circumstances shall C&S
substitute for any Fresh Products alternative goods
that do not possess the identical product
specifications as those designated by A&P without
A&P's express written consent. A&P agrees to respond
in a timely manner to C&S requests to substitute
Fresh Products in order to meet A&P's service
requirements in the event a vendor designated by A&P
is unable to fulfill an order. The
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* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act 1934, as amended.
23
processes governing the substitution of Fresh Products
shall be set forth in the Service Specifications.
(ii) Procurement. [[*]]. C&S shall purchase all Fresh
Products as instructed by A&P, all in strict
accordance with the product specifications, vendor
designations and other terms of purchase established
by A&P.
(iii) Purchases - Regular Turn Inventory. C&S shall
purchase and manage the regular turn Fresh Products
inventory intended for use or resale at the A&P
Stores. C&S's management of A&P's regular turn Fresh
Products inventory shall be based upon historic Fresh
Products turn information maintained by C&S, volume
forecast requirements provided by A&P, product
specifications and vendor designations supplied by
A&P, and other projections and other information and
direction provided by A&P to C&S. C&S shall be
responsible for determining the quantity and delivery
date of regular turn inventory for Fresh Products.
C&S's purchase of replenishment Fresh Products
inventory shall be in strict accordance with all
terms of purchase established by A&P in its
procurement of Fresh Products.
(iv) Purchases - Promotional. C&S shall purchase
promotional or other high-velocity Fresh Products
inventory intended for use or resale at the A&P
Stores. C&S's purchase of promotional or high-
velocity Fresh Products (which shall include turkey,
shrimp, crab and other high-tonnage categories of
frozen commodities) shall be based upon A&P's advance
estimates of promotional volumes, product
specifications, vendor designations, purchase
quantities, delivery dates, store specific volume
allocations (as further set forth in the Service
Specifications), and other Fresh Products information
supplied by A&P to C&S, and other projections and
other information and direction provided by A&P to
C&S.
(v) Short Supply. If C&S fails to maintain the Fresh
Products turn inventory, or to otherwise purchase any
Fresh Products in accordance with instructions
received from A&P hereunder, so as to result in
"stock-outs" or short supplies of Fresh Products, C&S
shall promptly notify A&P of such fact and A&P shall
instruct C&S as to the manner and vendor from whom
C&S shall purchase such amount of replenishment Fresh
Products as may be required to cure the short supply.
In the case of a short
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* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act 1934, as amended.
24
supply, at A&P's request C&S shall be required to
prove that it made a good faith attempt to purchase
all Fresh Products from the Fresh Products vendors
designated by A&P.
(vi) Inventory; Purchase Orders; Inspections. Subject to
the confidentiality provisions set forth in this
Agreement, C&S will provide A&P, at the end of each
business day, a report providing detailed transaction
information with respect to the purchase orders for
Fresh Products processed during such business day.
A&P will review such purchase order information
provided by the reports for Fresh Products and will
provide C&S with such changes to the purchase orders
as A&P may request prior to 10:00 a.m. on the next
day following the delivery of such reports. Such
reports will enable A&P to verify that C&S is
purchasing Fresh Products in conformity with product
specifications and vendor designations supplied by
A&P. C&S will be responsible for the inspection of
all Fresh Products prior to their acceptance at the
Facilities by C&S to ensure strict compliance with
A&P's Fresh Products specifications. C&S will
provide A&P prompt notice of any Fresh Products that,
in C&S's judgment, warrant complete or partial
refusal. A&P and C&S shall collaborate, in good
faith, to interact with vendors with respect to such
Fresh Products and the Parties will minimize any out-
of-code Fresh Products, including distribution of
such Fresh Products to the A&P Stores. If A&P
requests that C&S accept any Fresh Products that C&S
would otherwise reject, A&P and C&S will agree on a
plan of distribution for such Fresh Products and C&S
will not be responsible for out-of-code or quality
issues related to such product.
(vii) Forward Buying. [*].
(viii)Information and Reports. C&S agrees that it shall
maintain and provide to A&P on a daily basis detailed
inventory date code viewing with respect to short
coded items and close dated reports with respect to
all Fresh Products intended for use or resale at the
A&P Stores, along with any other reports or
information required under the Service
Specifications. In addition, C&S will provide A&P on
a daily basis a daily inventory report on all fresh
seafood slots/SKUs at the Facilities, which shall be
prepared and maintained by C&S in accordance
25
with mutually agreed upon polling schedules and other
specifications. The Parties agree to collaborate
closely on minimizing out-of-code Fresh Product.
(ix) Exact Weight - Meat. C&S shall invoice A&P for the
exact weight of all fresh and frozen meat products in
Facilities with voice selection technology, which
information shall be scanned from the case packaging
of the meat products as they are selected by C&S for
delivery to the A&P Stores. In Facilities that do
not have voice selection technology, C&S will
continue to bill on an average weight basis. The
Parties will agree on a method of calculating average
weight, which will be set forth in the Service
Specifications.
(x) Product Handling Requirements. C&S shall receive,
store, handle and distribute all Fresh Products in
strict accordance with the Fresh Products handling
requirements set forth in the Service Specifications.
7.10 FLORAL PRODUCTS PROCUREMENT AND PURCHASING. A&P shall determine all
Floral Product specifications and shall exclusively negotiate with vendors
all terms of purchase for Floral Products including, but not limited to,
cost and quantity, delivery date and allowances, rebates, [[*]] and any
other monetary or non-monetary funding for all Floral Product intended for
use or resale at A&P Stores. A&P shall purchase all Floral Products. A&P
shall purchase and manage the regular turn Floral Products inventory
intended for use or resale at the A&P Stores. C&S shall have neither
procurement nor purchasing responsibility with respect to Floral Products
under this Agreement. C&S agrees that, except as otherwise expressly
stated herein, C&S shall not communicate in any fashion, whether directly
or indirectly, with any of A&P's vendors with respect to Floral Products
volume intended for use or resale at the A&P Stores.
7.11 [*] WITH RESPECT TO FRESH PRODUCTS.
(a) [*].
(b) [*]. In no event shall any [*] program negotiated by C&S on its own
account or that of its customers in any way prevent, interfere with,
or otherwise take from A&P's realization of the full economic
benefit of the [*] programs A&P may negotiate for its own account
with respect to A&P's Fresh Products Volume. A&P shall provide or
substantiate a direct nexus between the prohibited actions described
in this Schedule 7.11(b) and any adverse economic impact suffered by
A&P.
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* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act 1934, as amended.
26
(c) [*].
(d) [*].
IV TERMS COMMON TO ALL PROCUREMENT AND PURCHASING
7.12 PROCUREMENT SERVICE LEVELS.
(a) Target and Required Purchasing Service Level. C&S agrees that,
commencing on the Effective Date and continuing during the Term of
this Agreement, the targeted service level for all Merchandise
purchased by C&S on A&P's behalf will be [*] (the "Targeted
Purchasing Service Level"), and the Required Purchasing Service
Level shall be [*] for the first 18 months following the Effective
Date and [*] thereafter (the "Required Purchasing Service Level").
The punitive service level shall be [*] for the first 18 months
following the Effective Date and [*] thereafter (the "Punitive
Service Level"). The Purchasing Service Level will be measured each
Contract Week (the "Measurement Period") during the Contract Year
for all A&P Volume purchased from C&S: (i) by Facility; (ii) by
Department within Facilities; and (iii) aggregated for all
Facilities.
(b) Definitions.
The "Purchasing Service Level" in each instance is calculated as a
quotient, the numerator of which shall be the number of cases (or
shipping units, in the case of HBC/GM) invoiced, plus "Ad
Overpulls," short supplies due to untimely or inaccurate volume
forecasts provided by A&P (subject to the information requirements
set forth in the Service Specifications), and "Manufacturer Out-of-
Stocks," and the denominator shall be the number of cases (or
shipping units, in the case of HBC/GM) ordered, less unauthorized
cases and discontinued items. The Purchasing Service Level
calculation shall be adjusted at the end of each
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* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act of 1934, as amended.
27
week to reflect any shortages from the prior week that are in excess
of [*] (based on audited results).
"Ad Overpull" shall be defined as any promotional volume in excess
of the forecast timely provided by A&P (with respect to whether A&P
has provided information "timely" being determined in accordance
with the Service Specifications and the subject vendor's lead-time
requirements).
An item will qualify as a "Manufacturer Out-of-Stock" if: (i) such
item was subject to a product recall; (ii) such Fresh Products item
was rejected by C&S on quality-based grounds and such rejection was
confirmed by A&P or a USDA inspector; (iii) C&S provides within
seven (7) days after shipment to the A&P Stores written proof of
out-of-stock status (e.g., a letter from the manufacturer indicating
the quantity of the item that was unavailable from the manufacturer
for the period in question, or a received purchase order issued
within proper lead time indicating the quantity of the item that was
cut by the manufacturer); or (iv) the manufacturer has refused to
ship product due to a dispute over an Accounts Receivables Deduction
as set forth in Schedule 5.3 and C&S provides such evidence as
described in sub-schedule (iii) in this paragraph.
"Department" shall mean each of the following [*] groupings of
product categories:
[*]
(c) Calculation and Reporting. C&S will provide A&P, throughout the
Term of this Agreement, on a weekly and Fiscal Accounting Period
basis, a "Purchasing Service Level Reconciliation Report" showing,
with respect to all orders processed for the given period, the
actual Purchasing Service Levels
(each, respectively, the "Actual Purchasing Service
Level") [*].
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* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act of 1934, as amended.
28
(d) Service Level Breaches.
A "Minor Service Level Violation" [*]
shall occur when C&S fails to meet the Required
Purchasing Service Level [*] in any
Contract Week.
[*]
[*]
A "Punitive Service Level Breach" is a failure to meet Punitive
Service Level measured across all Facilities in the aggregate for:
a) [*] consecutive Contract Weeks during any twelve month rolling
period; or b) any [*] Contract Weeks during any twelve month rolling
period.
(e) Penalties.
Minor Service Level Violation: [*].
[*]
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* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act of 1934, as amended.
29
Punitive Service Level Breach: [*] for every [*] (pro-rated) by
which the Punitive Service Level measured across all Facilities is
not met, for each week comprising the Punitive Service Level Breach
and for each additional week thereafter that C&S fails to meet the
Punitive Service Level (measured across all Facilities) during any
twelve month rolling period.
Termination Level Breach: A&P shall have the right to terminate
this Agreement in the event that the Purchasing Service Level
measured across all Facilities in the aggregate is below the
Punitive Service Level for [*] consecutive Contract Weeks or any [*]
Contract Weeks during any twelve month rolling period. However, A&P
shall have the right to terminate this Agreement in the event that
the Purchasing Service Level measured across all Facilities in the
aggregate is below [*] for [*] consecutive Contract Weeks or any [*]
Contract Weeks during any twelve month rolling period.
Measurement Periods must be distinct and not overlapping. Penalties
likewise may be assessed only a single time for cases or units that
comprise a Service Level Shortfall, meaning that if C&S been
assessed a penalty for such volume, it cannot be assessed another
penalty for that same volume shortfall.
(f) Exceptions. This Schedule 7.12 shall be void with respect to any
Merchandise for which A&P assumes responsibility for turn or
promotional buying. If A&P assumes a portion of the turn or
promotional buying responsibility, this Schedule 7.12 shall apply
only to that A&P Volume with respect to which C&S has retained
buying responsibility. With regard to Merchandise for which A&P
assumes turn or promotional buying responsibility, C&S shall
notwithstanding be responsible for shipping (or making available for
pickup where outbound transportation is arranged for by A&P) [*] of
all Merchandise ordered by A&P, unless C&S can provide adequate
proof that there was not sufficient inventory of such Merchandise at
the Facility to meet the order placed by A&P and such was not
attributable to C&S's failure to properly execute purchase order.
7.13 LEFTOVER AD. For the purposes of this Agreement, "Leftover Ad Volume"
shall mean the volume of any Merchandise originally comprising a
promotional order that remains
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* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act 1934, as amended.
30
unshipped as of the date upon which the applicable promotion concluded
minus the average regular turn inventory on-hand of such Merchandise for
the prior Contract Quarter. C&S and A&P will work together to minimize
Leftover Ad Volume, including, remerchandising items where possible,
canceling trucks and having vendors pick up Leftover Ad Volume, or
providing other instructions to C&S with regard to the disposition of such
items prior to any Merchandise going out of code. If the Parties are not
successful in disposing of such Leftover Ad Volume, A&P shall reimburse
C&S for its [[*]] for such items, less any salvage value received. The
specific procedures to be followed by the Parties shall be as set forth in
the Service Specifications.
7.14 [*].
(a) [*].
(i) [*].
(x) [*].
(y) [*].
(ii) [*].
(iii) [*].
(iv) [*]. For the purpose of clarification, to the extent
an A&P Store changes banner during the period between
the date hereof and the commencement of the third
Contract Year, the terms applicable to such A&P Store
shall be those terms set forth in the Prior Agreement
in effect with respect to such A&P Store on the
Effective Date. As of the commencement of the [*]
Contract Year, all such pre-existing billing
practices will be terminated and C&S will charge A&P
the [*] for such Center-Store Products, as set forth
in Schedule 7.14(a)(i)(x).
(v) With respect to sub-schedule (iv) in this
Schedule 7.14(a), the Parties agree that they will
re-examine such practices in light of the [*] results
as measured in the year-end reconciliation and
mutually determine whether such practices may be
terminated before the end of the [*] Contract Year,
making any necessary changes to the [*].
(b) [*].
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* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act 1934, as amended.
31
(c) Audit Rights. A&P may audit C&S's records in order to confirm that
[*] are calculated and administered in accordance with the terms and
conditions of this Agreement. Such audits shall be conducted in
accordance with the terms of Schedule 12.5 hereof. [*]. To the
extent A&P seeks to review any contracts or other records pursuant
to such an audit and which are subject to a confidentiality
agreement between C&S and any of C&S's vendors, A&P will execute an
appropriate "clean room" protocol or other confidentiality agreement
that will permit access to such confidential information but only to
members of A&P's internal audit team or to any third-party external
auditor A&P has engaged for that purpose and that are approved by
C&S.
(d) Restricted Information. A&P understands and agrees that information
related to [*] ("Restricted Information") is highly sensitive and
shall be subject to a heightened level of confidentiality and
restricted access. Accordingly, in order for C&S to agree to
provide such Restricted Information, A&P agrees that it will allow
access to such Restricted Information only to those A&P employees or
third party agents who have a need to know such Restricted
Information in connection with A&P's confirmation of [*] and [*]
(the "Permitted Use"), who have been approved of by C&S, and who
will each individually be required to execute affirmations of the
confidentiality obligations stated herein ("Permitted Individuals").
A&P agrees that other than to the Permitted Individuals, A&P shall
not disclose such information to any other person or party. All
such Restricted Information may not be copied or reproduced by A&P
in any form, and may only be used pursuant to the Permitted Use.
(e) Interim Pricing Methodology. C&S shall complete testing of and
shall be prepared to commercially deploy its Lot Management System
within ninety (90) days of the Effective Date (the "Interim
Period"). However, A&P shall have the right to conduct a pre-
deployment LMS audit and the LMS shall not be deployed until
approved by A&P (which approval shall not be unreasonably withheld).
[*].
(f) [*].
(g) [*].
7.15 C&S [*].
(a) [*].
(b) [*]. In connection with the year-end reconciliations, A&P and C&S
shall determine whether any amounts are due and owing to A&P
pursuant to this Schedule 7.15(b). Any amounts due to A&P in
connection with the [*] shall be paid to A&P in accordance with this
Schedule 7.15(b) and Schedule 9 hereof and
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* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act 1934, as amended.
32
shall be credited to A&P on the next Weekly Statement immediately
following the conclusion of the year-end reconciliation. [*].
(c) [*]. This sub-schedule "c" shall be deemed null and void to the
extent A&P elects to assume control over all aspects of procurement
of Center-Store Products pursuant to Schedule 7.5 hereof.
(d) [*].
7.16 [*].
7.17 STANDARD CREDIT POLICY. The Parties agree to the terms and conditions of
the Standard Credit Policy attached hereto as Exhibit 7.17. A&P and C&S
will work together in good faith to revise the Standard Credit Policy
currently in effect to the Parties' mutual satisfaction. The purpose of
such revision is to agree upon terms that comport with the open-book
nature of the relationship between the Parties and to create costs savings
and efficiencies wherever possible, while at the same time ensuring high
quality selection and service level to the A&P Stores. When such revised
terms have been mutually agreed to in writing by the Parties, such revised
Standard Credit Policy will be included in the Service Specifications.
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* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act 1934, as amended.
33
SCHEDULE 8
PREPARATION OF INITIAL BUDGET AND ANNUAL BUDGETS; SHARED SAVINGS
----------------------------------------------------------------
8.1 BUDGET AND REMUNERATION PROCEDURES. The procedures for the establishment
of the Initial Approved Budget and subsequent Approved Budgets, and Flex
Budgets and budget variances which the Parties agree shall apply for the
Term is set forth below. A&P agrees to pay to C&S the Costs and
remuneration due under this Agreement in the time and manner set forth in
Schedule 9.
8.2 INITIAL APPROVED BUDGET. Not less than thirty (30) days prior to the end
of the Ramp-Up Period and the commencement of the First Contract Year, C&S
and A&P will agree upon a budget that has been developed in accordance
with the form of the Interim Budget attached hereto as Exhibits 1.4(a)-
(g). The "Approved Budget" shall be comprised of the budgets for the
Total Warehousing Costs, Total Transportation Costs, Total Direct Overhead
Costs, Capital Expenditures, Total Services Fees and [*]. The Approved
Budget for the First Contract Year shall be referred to herein as the
"Initial Approved Budget". The Initial Approved Budget and all subsequent
Approved Budgets will be prepared in accordance with the Interim Budget
format. For the purposes of this Agreement, all calculations related to
the Approved Budget and any other matters in connection with the terms of
this Agreement shall be calculated consistent with GAAP.
8.3 BUDGETED COSTS. The Initial Approved Budget, and all subsequent Approved
Budgets, shall set forth in absolute dollars all Costs agreed upon by the
Parties to be incurred in connection with the performance of the Services,
the operation of the Facilities by C&S, and purchases and other
investments in Fixed Assets (in the applicable Contract Year) and shall be
broken out on a Facility-by-Facility basis (except for the [*] and Direct
Overhead). The Approved Budgets shall be prepared according to an
engineered standard, provided however that the Parties acknowledge and
agree that C&S, as of the Effective Date, has partially embarked on a
project to convert its facilities from a cost-per-piece compensation
system to engineered standards. Accordingly, to the extent that costs,
bargaining obligations, and other factors bear on the rollout of
engineered standards across the Facilities, C&S shall provide to A&P a
business case setting forth all such costs and obligations as well as the
return on investment (ROI) associated with such costs and obligations, and
the Parties shall agree on an appropriate capital expenditure budget
addressing such costs and obligations.
(a) Costs will include costs and expenses reasonably incurred in
connection with the performance of the Services and the operation of
the Facilities during the Term as further set forth on the Approved
Budget. Without limiting the foregoing, the term "Costs" shall
include the following categories of costs and expenses:
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* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act 1934, as amended.
34
(i) "occupancy costs" for all Facilities, which shall be
comprised of:
a. With respect to leased Facilities - all rent, additional
rent, leasehold improvements, rental subsidies and other
costs, liabilities and obligations relating to any leases
or subleases of the Facilities;
b. With respect to owned Facilities - an imputed rental
amount for the applicable Facility; and
c. such other customary periodic real estate carrying costs
including, but not limited to, common area maintenance,
real estate, personal property and business taxes,
utilities, insurance and customary maintenance and repair
expenses;
(ii) imputed rental amount for all Fixed Assets owned by
C&S;
(iii) all equipment maintenance, repair and rentals and all
charges under any leases of equipment assumed by C&S
or entered into by C&S in accordance with the terms
of this Agreement (including without limitation
leases which constitute capital leases under GAAP)
and relating to the provision of the Services;
(iv) all reasonable and necessary transportation and
freight costs, including fuel, tolls and payments
made to contract carriers for freight services,
directly relating to the provision of the
Transportation Services;
(v) all direct and indirect labor costs (including
without limitation salaries, wages, benefits,
worker's compensation expenses incurred or accrued by
C&S on a GAAP basis) relating to the provision of the
Services, provided however that the Parties agree
beginning with the First Contract Year A&P shall be
responsible to pay the amount of workers'
compensation expense set forth in the Approved
Budget, plus or minus a maximum of [*] (meaning that
if the expense is greater than [*] over the budgeted
amount, C&S will be responsible for such excess over
[*], and if the amount is greater than [*] below the
budgeted amount, C&S shall retain the benefit below
[*]);
(vi) costs of third party contractors;
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* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act 1934, as amended.
35
(vii) all reasonable pay in lieu of notice, reasonable
termination and severance payments and like amounts
(other than those resulting from termination of this
Agreement in accordance with Schedule 11 of this
Agreement or from any Facility Decision, unless
otherwise agreed to by the Parties pursuant to
Schedule 3.5), and all related costs and expenses in
accordance with C&S's procedures and policies,
relating to the termination of employment of any one
or more employees employed in connection with the
provision of the Services;
(viii)direct overhead charges representing the reasonable
and necessary administrative and systems costs
incurred by C&S to the extent they are necessary to
directly support the rendering of Services performed
by C&S hereunder but shall not include those in
support of C&S's rendering of the Other Services (the
"Direct Overhead Costs"). These costs primarily
relate to the use of financial, human resources,
procurement, purchasing and other management
personnel and information systems;
(ix) premiums payable with respect to the policies of
insurance referred to in Schedule 10.2 of this
Agreement;
(x) deductibles, retentions, expenses and out-of-pocket
settlements paid by C&S from time to time with
respect to any of the policies of insurance referred
to in Schedule 10.2 of this Agreement;
(xi) product shrink, out of code, damaged or unsalable
Merchandise;
(xii) all reasonable and necessary costs with respect to
any information processing and related communications
devices, equipment, systems, information, data, or
software (collectively "Systems") used in connection
with the Services; and
(xiii)all other costs of whatever nature properly incurred
by C&S in connection with the provision of the
Services and approved in advance by A&P, other than
in the case of an Emergency Expenditure or other
exigent circumstances, which, in C&S's commercially
reasonable judgment, such costs were required to be
incurred prior to such approval by A&P.
(b) "Costs" shall not include:
(i) imputed rent or depreciation related to any
additional capital expenditures not included in the
Capital Expenditures portion of the Approved Budget,
unless C&S and A&P otherwise agree in writing, except
in the case of an Emergency Expenditure;
36
(ii) Subject to Schedule 1.2, any costs, claims,
liabilities, charges or obligations of any sort
whatsoever that have been incurred by C&S, or have
accrued or arisen, prior to the Effective Date,
regardless of when asserted or when effective,
whether in connection with the Prior Agreements, or
in connection with Services rendered by C&S on behalf
of A&P, Pathmark, any of C&S's other customers, or in
connection with C&S's other activities prior to the
Effective Date, including but not limited to
judgments, claims, suits, actions or other
obligations, subject to the treatment of workers'
compensation expense as set forth in
Schedule 8.3(a)(v) above; provided, however that
claims such as personal injury claims in which the
triggering incident occurred prior to the Effective
Date but expenses associated therewith are
experienced during the Term, such expenses as
incurred and recorded on a GAAP basis during the Term
shall properly be included as Costs under this
Agreement, but in no event shall A&P be responsible
for any such expenses incurred and recorded on a GAAP
basis outside the Term of this Agreement;
(iii) except for the pension plan contribution obligations
as set forth in the applicable collective bargaining
agreements, any costs, claims, liabilities, charges
[*] or any underfunded pension plan payment
obligations and any surcharges or assessments from
multi-employer funds, subject to agreements that may
be entered into pursuant to Schedule 3.5 [*];
(iv) costs resulting from any violation of Law, any labor
or employment claims (other than workers'
compensation claims), any costs related to C&S's or
its subcontractors' negligence or third party
personal injury claims outside of the Costs set forth
in Schedule 8.3(a)(v) or Schedule 8.3(a)(ix)-(x),
third-party contractual claims or other third-party
judgments, claims, losses, suits, actions, or other
obligations of any sort whatsoever, except to the
extent such cost is subject to A&P's indemnification
obligation to C&S under Schedule 10 hereof;
(v) any costs resulting from any breach by C&S of its
obligations under this Agreement, or from C&S's acts
or omissions constituting gross negligence or willful
misconduct; or
(vi) costs in connection with the performance of Other
Services by C&S.
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* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act 1934, as amended.
37
(c) Costs for Shared Facilities.
(i) Costs in connection with any Shared Facility during a
Fiscal Accounting Period shall be allocated to A&P
according to a ratio (expressed as a percentage)
equal to (x) A&P's actual shipped case volume for
such Shared Facility for the trailing twelve-month
period ending on the last day of such Fiscal
Accounting Period divided by (y) the total case
volume, expressed as a percentage (the "Actual
Allocation Amount"). For purposes of this
Schedule 8.3(c), the "Baseline Allocation Amount"
shall mean A&P's Actual Allocation Amount as of the
last day of the first Fiscal Accounting Period of the
Term. In the event of a change of shipping origin of
one or more A&P Stores that results in a material
volume shift, including but not limited to changes
that occur as a result of a Facility Decision, the
Actual Allocation Amount will be reset in accordance
with A&P's volume in the new Facilities and will be
modified every Fiscal Accounting Period using only
the trailing volumes that reflect such changes in
shipping origin.
(ii) To the extent a reduction in the case volume of other
C&S customers at a Shared Facility results in an
increase of A&P's Actual Allocation Amount by [*] or
more compared to the Baseline Allocation Amount for
such Facility, A&P's Actual Allocation Amount for
such Fiscal Accounting Period shall be deemed to be
no more than the Baseline Allocation Amount plus [*].
For the avoidance of doubt, any increase in the
Actual Allocation Amount due to an increase in A&P
Volume at such Facility shall not be counted for
purposes of the aforementioned calculation.
(d) The Parties agree that to the extent the Actual Costs in an
Aggregate Cost Grouping (as set forth on Exhibit 1.4(a)) exceed the
Approved Budget for such Aggregate Cost Grouping in any Contract
Year (or the Ramp-Up Period) after taking into account the budget
Flex as described below (the "Excess Costs"), A&P will not pay or
reimburse C&S for such Excess Costs, unless: (i) the Excess Costs
were necessary or advisable in the discretion of C&S to perform the
Services or to otherwise comply with its obligations under this
Agreement and C&S obtained A&P's prior written authorization to
incur the Excess Costs, to the extent obtaining such advance
authorization was feasible under the circumstances; (ii) the Excess
Costs were of the nature of an uncontrollable cost, which shall
include all costs that are not within the reasonable control of C&S,
including but not limited to inflation in the cost rate of fuel,
electricity or like commodities
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* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act 1934, as amended.
38
(e.g., natural gas); medical costs; out of code product resulting
from investment buys made in accordance with the agreed investment
buy procedures, provided such product is located in the Dedicated
Facilities or is product unique to A&P in the Shared Facilities;
costs related to materially adverse weather conditions; costs
related to actions or omissions on the part of A&P; or costs related
to Force Majeure; or (iii) the Excess Cost is related to an
Emergency Expenditure. In the case of (iii), above, C&S shall
provide notice to A&P promptly after incurring such Emergency
Expenditure and A&P shall have the right to direct C&S to cease
incurring such non-budgeted Costs; provided, however, that C&S shall
have no liability for any loss or adverse consequences resulting
from such cessation. Notwithstanding the foregoing, A&P shall have
no responsibility for any uncontrollable cost to the extent such
uncontrollable cost is incurred or exacerbated by the negligence,
gross negligence or intentional misconduct of C&S.
(e) With respect to Direct Overhead Costs only, it is the intent of the
Parties that Direct Overhead Costs will be budgeted by the Parties
each Contract Year in the Approved Budget, subject to Flex for
material changes that occur during such Contract Year, and A&P will
be responsible to pay only such budgeted amount (as Flexed) and such
amounts will not be subject to true-up to actuals or reconciliation
(as set forth in Schedule 8.5 hereof).
8.4 FLEX BUDGETS, FUEL, EMERGENCY EXPENDITURES.
8.4.1 Flexing an Approved Budget. Prior to the commencement of each
Fiscal Accounting Period and in connection with the year end
reconciliation, or as otherwise agreed to by the Parties hereto, the
Approved Budget will be adjusted (a "Flex Budget") for the following
factors:
i) changes in regulatory requirements, compliance with GAAP,
and compliance with Laws (provided such adjustment is not
required to correct C&S's non-compliance for any prior
Fiscal Accounting Period),
ii) market fluctuations in C&S's actual cost of fuel (except
to the extent of A&P's participation in C&S's fuel hedging
program), or other uncontrollable costs,
iii)Emergency Expenditures (defined below),
iv) changes in Facilities' case volumes, Daily Peaking and
other volume fluctuations,
v) changes to the Product Mix or Service Specifications, and
vi) any other such similar factors as may be appropriate or
mutually agreed to by the Parties hereto.
39
The Capital Expenditures portion of the Approved Budget is not
subject to budget Flexing, but shall be subject to amendment at the
mutual agreement of the Parties.
8.4.2 Fuel Cost Adjustment. It is the intent of the parties that A&P pay
the actual delivered cost of fuel, exclusive of any financial
hedging unless the Parties otherwise agree in writing. Prior to the
Ramp-Up Period and each Contract Year, as part of the budget
process, the parties shall agree upon a "Base Cost of Fuel" for the
Approved Budget for the forthcoming Ramp-Up Period or Contract Year
(as applicable). Each Contract Quarter, the Base Cost of Fuel used
to calculate fuel costs as a component of the Total Transportation
Costs for such Contract Quarter will be adjusted for any changes to
reflect the actual delivered cost of fuel incurred by C&S in
connection with the Services hereunder. The Service Specifications
shall set forth in detail the formula for calculating Base Cost of
Fuel for each Facility.
8.4.3 Emergency Expenditures. An "Emergency Expenditure" shall be any
cost, expense or liability incurred by C&S in an emergency in
connection with the performance of the Services which C&S deems, in
its reasonable business judgment, necessary in order to (a) protect
or preserve the Merchandise, any Facility or any Fixed Assets used
in connection with the performance of the Services, (b) comply with
any Laws, or (c) avoid harm to persons or property, whether C&S, A&P
or a third party. To the extent feasible, C&S will attempt to
obtain A&P's prior written consent before undertaking any such
Emergency Expenditure, and C&S shall use commercially reasonable
best efforts to mitigate the costs of such Emergency Expenditures.
Where it was not feasible for C&S to obtain A&P's prior written
consent before incurring the Emergency Expenditure, C&S shall
provide notice to A&P promptly after incurring such Emergency
Expenditure. In such case, A&P shall have the right to direct C&S
to cease incurring such non-budgeted Costs; provided, however, that
C&S shall have no liability for any loss or adverse consequences
resulting from cessation of such Cost. The Parties will make a good
faith effort to include Emergency Expenditures in a Flex Budget. In
any event, Emergency Expenditures will be billed to A&P in
accordance with the monthly reconciliation as set forth in
Schedule 8.5.1.
8.5 REPORTING OF VARIANCES.
-----------------------
8.5.1 Monthly Reconciliations. Within twenty (20) days of the end of each
Fiscal Accounting Period, C&S shall provide to A&P a detailed report
(the "Monthly P&L") containing a comparison of variances between
(i) Costs actually incurred by C&S in performing the Services (the
"Actual Costs"); (ii) the Approved Budget Costs; and (iii) Flex
Budget Costs for the immediately preceding period, on a line item
basis. A&P will either (a) receive a credit on its next Weekly
Statement equal to the amount of C&S's Actual Costs set forth on the
Monthly P&L for such month were less than the Approved Budget Costs
(or Flex Budget Costs, as applicable) paid by A&P for such month or
(b) pay C&S, in connection with the next Weekly Statement, any
amount by which C&S's Actual Costs set
40
forth on the Monthly P&L for such month were greater than the Costs
set forth on the Approved Budget (or Flex Budget as applicable)
which were paid by A&P for such month less any Emergency
Expenditures not reflected in a Flex Budget.
8.5.2 Quarterly Reconciliations. Within forty-five (45) days of the end
of each Contract Quarter, C&S will reconcile the Monthly P&Ls for
such Contract Quarter and either (i) provide to A&P a credit on
A&P's next Weekly Statement equal to the amount C&S's Actual Costs
set forth on the Monthly P&Ls for such Contract Quarter were less
than the amount of Costs set forth on the Approved Budget (or Flex
Budget as applicable) for such Contract Quarter paid by A&P or
(ii) A&P will pay C&S any amount C&S's Actual Costs set forth on the
Monthly P&Ls for such Contract Quarter were in excess of the Costs
set forth on the Approved Budget (or Flex Budget as applicable) for
such Contract Quarter and paid by A&P for such Contract Quarter, in
either case (i) or (ii) taking into account any amounts credited to
or paid by A&P in connection with the monthly reconciliations.
Quarterly reconciliations will be completed in conjunction with the
closing of the accounts for the C&S fiscal quarter in which such
Contract Quarter concludes.
8.5.3 Year-End Reconciliations. Within ninety (90) days of the end of
each Contract Year, C&S will reconcile the final Contract Quarter
for such Contract Year and either (i) provide to A&P a credit on
A&P's next Weekly Statement equal to the amount C&S's Actual Costs
for such Contract Year were less than the amount of Costs set forth
on the Approved Budget (or Flex Budget, as applicable) for such
Contract Year paid by A&P, plus any Excess Costs previously paid by
A&P or (ii) A&P will pay C&S any amount C&S's Actual Costs for such
Contract Year were in excess of the Costs set forth on the Approved
Budget (or Flex Budget as applicable) for such Contract Year and
paid by A&P for such Contract Year, minus any Excess Costs
previously paid by A&P, in either case (i) or (ii) taking into
account any amounts credited to or paid by A&P in connection with
the monthly and quarterly reconciliations. The year-end
reconciliations will be completed in conjunction with the closing of
the accounts for the C&S fiscal year, which is coterminous with the
Contract Year. The Parties shall also include a reconciliation
pursuant to Schedule 8.3(d) as a part of the year-end reconciliation
to determine whether and to what extent there were Excess Costs
during such Contract Year.
8.5.4 Review of Reconciliations. Within seven (7) days after the receipt
of each of the monthly and quarterly reconciliation reports or
within fourteen (14) days after the receipt of the yearly
reconciliation report, representatives of the parties shall meet to
review the report. The Flex Budget shall be subject to adjustment
based on such review. A&P shall have access to C&S internal
accounting records to verify Costs incurred by C&S and presented to
A&P are accurate. C&S will bring to each meeting sufficient
authentic documentation of costs incurred (e.g., general ledger to
verify depreciation taken on equipment, invoices to verify any
material/equipment purchased, etc.) to support and permit analysis
of all reconciliations.
41
8.6 FORECASTING. On a quarterly basis (or more often as needed), C&S shall
provide to A&P an updated estimate of Actual Costs and Services Fees
compared against the Approved Budget, which shall include material changes
in budget assumptions with respect to case volume, Daily Peaking and other
volume fluctuations, as well as Product Mix, Service Specifications,
timeliness of order advice, level of stocking and other factors as may be
appropriate.
8.7 RECONCILIATION OF VARIANCES. Any dispute between the parties relating to
this Schedule 8 which cannot be resolved after the parties have used all
reasonable efforts to do so shall be resolved in accordance with
Schedule 12 hereof.
8.8 PREPARATION OF SUBSEQUENT APPROVED BUDGETS. A&P and C&S will meet
annually, beginning at least 90 days prior to the end of the Contract
Year, to negotiate subsequent Approved Budgets, which shall be completed
within thirty (30) days prior to the commencement of the upcoming Contract
Year. The parties understand and agree that timely completion of the
Approved Budget is a critical component of the open-book relationship and
that if there is a delay in the budgeting process the parties will
dedicate whatever executive-level resources are necessary to ensure
completion. In the event the parties cannot agree on a subsequent
Approved Budget then either Party may invoke the dispute resolution
procedure set forth in Schedule 12 to determine or establish an Approved
Budget. Until such subsequent Approved Budget is determined, the Approved
Budget for the immediately preceding Contract Year shall remain in full
force and effect.
8.9 FAILURE TO SETTLE SERVICE SPECIFICATIONS. If, at any time during the Term
of this Agreement, C&S and A&P are unable to agree on revised Service
Specifications, the matter shall be resolved in accordance with the
dispute resolution procedures set forth in Schedule 12 and current Service
Specifications shall continue to apply to the provision of Services until
such time as new Service Specifications are established.
8.10 QUARTERLY CHANGES TO INFORMATION. Prior to each Contract Quarter, A&P
shall advise C&S of any anticipated changes to the forecasted case
volumes, and other volume fluctuations, Product Mix, Service
Specifications and other information used as the basis for preparation of
the Approved Budget.
8.11 SHARED SAVINGS; COST SAVINGS GAINSHARE INCENTIVE FEE.
(a) Baseline Budget. The "Baseline Budget" is defined as the sum of the
Interim Budgets for the: a) Total Warehousing Costs (excluding
HBC/GM and occupancy); b) Total Occupancy Costs (excluding HBC/GM);
c) Total Transportation Costs (excluding HBC/GM); d) Total HBC/GM
Operating Costs (warehousing, transportation and occupancy); and
e) Total Direct Overhead Costs. The Baseline Budget (as adjusted
under sub-schedule (c) below) will be utilized in this Agreement for
the calculation of the Cost Savings Gainshare Incentive Fee
("Gainshare"), if any, payable to C&S for actual cost savings
realized by A&P against such Baseline Budget in the Ramp-Up Period
or any Contract Year, as calculated in accordance with this
Schedule 8.11.
42
The Baseline Budget is annexed to this Agreement as Exhibit 8.11(a).
The Baseline Budget for the below categories are expressed either on
a rate basis expressed as cost per case or as a percentage of sales
(the "Cost Rate") or on the basis of absolute dollars ("Fixed
Absolute Dollars"), as follows:
a. Total Warehousing Costs (excluding HBC/GM and occupancy) -
cost per case
b. Total Occupancy Costs (excluding HBC/GM) - Fixed Absolute
Dollars
c. Total Transportation Costs (excluding HBC/GM) - cost per
case
d. Total HBC/GM Operating Costs - cost expressed as
percentage of sales
e. Total Direct Overhead Costs - Fixed Absolute Dollars
The Cost Rate or Fixed Absolute Dollars measure shall be utilized in
calculating the Shared Savings and the resulting Gainshare payable
to C&S, if any, in the Ramp-Up period or any Contract Year in
accordance with sub-schedule (d) below.
(b) Non-C&S Managed Outbound Transportation. The outbound
transportation expense to the Pathmark-bannered stores is not
included in the Interim Budget, as that is an A&P-managed function
currently performed by GHI and paid for directly by A&P. [*]. The
parties agree further that all savings associated with the non-C&S-
managed outbound transportation (the "Non-C&S Managed Outbound
Transportation") shall be calculated as part of the Gainshare,
including the savings that may later result from relocations,
openings or closures of Facilities, except that the Gainshare shall
not include fee or cost reductions that A&P negotiates directly with
GHI, or that A&P negotiates on its own, and that do not include
C&S's participation or cooperation. As more fully set forth in sub-
schedule "d" below, the savings associated with the Non-C&S Managed
Outbound Transportation shall be calculated as a separate component
of the Shared Savings and added to the Gainshare calculation.
Further, the base cost (non-fuel) for the Non-C&S-Managed Outbound
Transportation shall be adjusted for CPI (as defined in Schedule 6.4
above). Fuel will be adjusted as set forth in sub-schedule "c",
below. Attached as Exhibit 8.11(b) are the base costs of the Non-
C&S Managed Outbound Transportation which shall operate as the
baseline for the calculation of this component of the Shared
Savings. The Costs outlined on Exhibit 8.11(b) are subject to
further due diligence and confirmation by C&S and will be adjusted
if necessary pursuant to sub-schedule "c" below. C&S shall further
have the right to audit the actual costs related to the Non-C&S
Managed Outbound Transportation for the purpose of the Gainshare.
(c) Adjustments to Baseline Budget. The Baseline Budget will be
adjusted annually as follows ("Adjusted Baseline Budget"):
- ------------------------------
* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act 1934, as amended.
43
(i) All costs (other than fuel) comprising the Baseline
Budget will be adjusted annually in the following
manner:
Total Warehousing Costs - adjusted for CPI (as defined in
Schedule 6.4, above)
Total Occupancy Costs - adjusted for CPI (as defined in
Schedule 6.4 above)
Total Transportation Costs - adjusted for CPI (as defined in
Schedule 6.4, above)
Total Direct Overhead Costs - adjusted for CPI (as defined in
Schedule 6.4, above)
Fuel will be adjusted in the Baseline Budget annually
consistent with Schedule 8.4.2 above to accurately reflect the
actual current cost of fuel.
Total HBC/GM Operating Costs will be adjusted only for fuel.
(ii) If there is any material change in A&P's service
requirements that increases the cost of providing
services to A&P (including, by way of example only
and not limited to, C&S's assumption of the Edison
GMDC operation), the parties will meet and in good
faith negotiate a revision to the savings calculation
and, if necessary, a revision to the Baseline Budget
to better reflect the performance of C&S against such
Baseline Budget.
(iii) For any fifty-three (53) week Contract Year, the
Baseline Budget will be adjusted for the additional
Costs arising from an additional week of operation.
(iv) If there is case or unit volume deviation of more
than [*] from the volume reflected in the Baseline
Budget, up or down, the Parties agree that they will
examine the fixed and variable cost components within
the Baseline Budget and make any necessary
adjustments to the Baseline Budget to allow an
appropriate comparison of the costs incurred in the
applicable Contract Year to the costs set forth in
the Baseline Budget.
(v) If there is any other matter or development that
prevents a legitimate and meaningful comparison of
the Baseline Budget to the Actual Costs, then the
parties shall meet and in good faith adjust the
Baseline Budget to permit such a meaningful
comparison.
- ------------------------------
* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act 1934, as amended.
44
The Cost Rates or Fixed Absolute Dollars for the Baseline
Budget shall be re-calculated following any adjustment to the
Baseline Budget in accordance with this sub-schedule (c).
(d) Calculation of Shared Savings and Cost Savings Gainshare Incentive
Fee. In the event that the Actual Costs paid by A&P for the Ramp-Up
Period or any Contract Year are lower than the Adjusted Baseline
Budget, as calculated in accordance with sub-schedules 8.11(d)(i)-
(vi) below, thereby resulting in cost savings as against such
Adjusted Baseline Budget, then the favorable difference between the
Actual Costs paid by A&P and the Adjusted Baseline Budget (the
"Shared Savings") shall be allocated between A&P and C&S on [*]
basis.
(i) Total Warehousing Cost savings (non HBC/GM) shall be
calculated by multiplying: A) the difference between
the Cost Rate for Total Warehousing Costs under the
Adjusted Baseline Budget and the Cost Rate for the
actual Total Warehousing Cost paid by A&P for the
Contract Year for which the Gainshare is being
determined; and B) the number of cases for the
Contract Year for which the Gainshare is being
determined.
(ii) Total Occupancy Cost savings shall be calculated by
taking the difference, in Fixed Absolute Dollars,
between the Total Occupancy Cost under the Adjusted
Baseline Budget and the actual Total Occupancy Costs
paid by A&P for the Contract Year for which the
Gainshare is being determined
(iii) Total Transportation Cost savings (non HBC/GM) shall
be calculated by multiplying: A) the difference
between the Cost Rate for the Total Transportation
Cost under the Adjusted Baseline Budget and the Cost
Rate for the actual Total Transportation Cost paid by
A&P for the Contract Year for which the Gainshare is
being determined; and B) the number of cases for the
Contract Year for which the Gainshare is being
determined.
(iv) Total HBC/GM Operating Cost savings shall be
calculated by multiplying: A) the difference between
the Cost Rate for the Total HBC/GM Operating Cost
under the Adjusted Baseline Budget and the Cost Rate
for the actual Total HBC/GM Operating Cost paid by
A&P for the Contract Year for which the Gainshare is
being determined; and B) the total HBC/GM sales for
the Contract Year for which the Gainshare is being
determined.
- ------------------------------
* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act 1934, as amended.
45
(v) Direct Overhead Cost savings shall be calculated by
taking the difference, in Fixed Absolute Dollars,
between the Total Direct Overhead Cost under the
Adjusted Baseline Budget and the actual Total Direct
Overhead Cost paid by A&P for the Contract Year for
which the Gainshare is being determined.
(vi) The Non-C&S-Managed Outbound Transportation savings
shall be calculated by multiplying A) the difference,
on a cost-per-case basis, the costs that existed as
of the Effective Date, as adjusted per sub-
schedule 8.11(b) above, with the cost per case for
the Contract Year for which the Gainshare is being
determined; and B) the number of cases applicable to
the Non-C&S-Managed Outbound Transportation for the
Contract Year for which the Gainshare is being
determined. Savings that do not qualify for the
Gainshare as set forth in sub-schedule 8.11(b) hereof
shall not be included in the calculation of savings
under this sub-schedule 8.11(d)(vi).
The Shared Savings for the Ramp-Up Period or any Contract Year
shall be determined by adding (i) through (vi) above. An
illustrative example of the calculation of the Shared Savings
has been annexed hereto as Exhibit 8.11(d).
(e) Payment of Cost Savings Gainshare Incentive Fee.
(i) C&S and A&P shall reconcile the Gainshare in
connection with the year-end reconciliation (as set
forth in Schedule 8.5.3 hereof). To the extent any
portion of the Cost Savings Gainshare Incentive Fee
is disputed, A&P shall nonetheless pay to C&S the
undisputed portion of such Fee on the next Weekly
Statement and the parties shall resolve any disputed
portion in accordance with the terms and conditions
as set forth in Schedule 12 hereof;
(ii) Payment of the Cost Savings Gainshare Incentive Fee
shall be made to C&S in accordance with the terms and
conditions set forth in this Schedule 8.11 and
Schedule 9 hereof.
46
SCHEDULE 9
REMUNERATION AND PAYMENT OF SERVICES FEES AND OPERATING COSTS
-------------------------------------------------------------
9.1 PAYMENT OF COSTS AND SERVICES FEES.
----------------------------------
(a) Weekly Statements. Commencing on the Effective Date and on each
Sunday thereafter during the Term of this Agreement, C&S will
electronically transmit to A&P a statement (the "Weekly Estimate")
setting forth (a) the estimated amounts payable to C&S for the [*]
of A&P's purchases of Merchandise and (b) the Costs and Services
Fees for the forthcoming Contract Week, as set forth in the Approved
Budget (or Flex Budget, as the case may be) (the "Estimated Weekly
Payment Amount"). In addition, each Sunday during the Term, C&S
will electronically transmit to A&P files (such files shall be
referred to collectively as the "Weekly Statement") setting forth
all amounts actually due to C&S (including the [*] of A&P's
purchases of Merchandise, Services Fees, and Costs) for the
immediately preceding Contract Week (the "Weekly Actual Amount").
The Weekly Statement will include a shipment file with all
Merchandise charged to the A&P Stores at the [*]; a gross profit
file indicating the [*]; and an Expense/Charge File with all Costs
and the Services Fees allocated to such week as set forth on the
Approved Budget or Flex Budget, as applicable. With respect to the
Cost Savings Gainshare Incentive Fee, for the First Contract Year
only, such amounts will be paid to C&S in connection with the year-
end reconciliation related to any Contract Year. Thereafter, the
Cost Savings Gainshare Incentive Fee will be budgeted in the
Approved Budget (or the Flex Budget, if applicable) for each
succeeding Contract Year, based on the amounts realized in the
immediately preceding Contract Year and trued up in connection with
the year-end reconciliations. Each week, the Weekly Statement will
reflect, and A&P will pay in accordance with Schedule 9.1(b) below,
[*] of the budgeted amount of the Cost Savings Gainshare Incentive
Fee budgeted for the preceding Contract Week.
(b) Payment. [*]
- ------------------------------
* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act 1934, as amended.
47
Should the due date of A&P's payment fall
on a date on which banks in New York are required to be closed, the
due date shall be accelerated to the previous day that banks in New
York may legally open. If at any time A&P's S&P corporate credit
rating is B+ or above, then C&S will adjust A&P's payment terms for
a Friday payment of such Contract Week's Estimated Weekly Payment
Amount with a true-up payment the following Wednesday.
(c) Miscellaneous Billing and Payment Matters. Time is of the essence.
If any payment under Schedule 9.1 is in default, and A&P has failed
to cure the default within seventy-two hours after receiving written
notice from C&S, then C&S shall have the right (which rights shall
be nonexclusive, cumulative of and additional to all other remedies)
to defer further deliveries until all payments in default have been
made, or if such payment is in default for more than five (5)
business days following notice from C&S, to terminate this Agreement
in accordance with Schedule 11 hereof. If either of the Parties
disputes any portion of the Weekly Statement, absent manifest error,
such Party shall nonetheless pay the full amount of the statement by
the payment due date, without any deductions or offsets; provided,
such Party may avail itself of the dispute resolution provision set
forth below and in Schedule 12 hereof with respect to such disputed
amount. The Party disputing the payment shall give the other Party
notice of any billing adjustments it believes should be made, and
the Parties shall attempt to reach agreement on any adjustments
within seven days. If either Party believes a billing adjustment
should be made, it shall give notice to the other Party and the
Parties shall attempt to reach agreement on any adjustments within
seven days from the date notice is received. In the event an
agreement cannot be reached on disputed adjustments within said
seven days, the Parties will settle the dispute in accordance with
the dispute resolution procedures for accounting disputes set forth
in Schedule 12 hereof.
9.2 TAXES. All amounts payable by A&P under this Agreement shall be paid
together with any applicable taxes and duties including any sales taxes
and any other miscellaneous taxes related to the provision of Services
hereunder (such as the New Jersey Litter Tax or the Delaware Gross
Receipts Tax) which are assessed against C&S or its Affiliates, other than
income taxes related to the collection of the Services Fees.
9.3 PAYMENTS FOR ASSUMPTION OF PERFORMANCE. If any provision of this
Agreement requires C&S to make any payment to any third person or perform
specific actions and C&S fails to make such payment or perform such
actions within 5 days of notice thereof from A&P to C&S, and provided that
C&S is not in dispute with such third person with respect to such
obligation, A&P may elect (but in no event shall A&P be obligated) to make
all or part of such required payment or perform all or part of such
actions, in which event C&S shall immediately reimburse A&P for such
payment or performance, provided that A&P shall have the right, as an
alternative to such reimbursement, to set-off the amount of any such
required payment made by A&P against any amount owed by A&P to C&S. In
the event that A&P exercises such right of set-off, it shall provide C&S
with a copy of supporting documentation including evidence of payment.
48
SCHEDULE 10
INDEMNIFICATION AND INSURANCE; FORCE MAJEURE
--------------------------------------------
10.1 INDEMNIFICATION.
----------------
(a) C&S. C&S shall defend, indemnify and hold harmless A&P and its
Affiliates, and their respective employees, servants, agents,
independent contractors, successors and assigns from any and all
losses, damages, claims, liabilities, causes of action, costs and
expenses, including but not limited to reasonable legal fees and
costs of settlement (collectively, "Losses") arising out of or
related to any third party claim in connection with or resulting
from (i) C&S's acts, omissions or negligence in its performance of
the Services or its other obligations under this Agreement;
(ii) C&S's failure to comply with any applicable Laws related to its
performance of the Services or its other obligations under this
Agreement; or (iii) the acts, omissions or negligence of any third
party hired by C&S or its Affiliates in connection with this
Agreement; provided, however, this indemnification and hold harmless
with respect to sub-schedules (i)-(iii) shall not apply to the
extent of any claims arising out of or resulting from the negligence
or willful misconduct of A&P, its Affiliates or their respective
employees, representatives or agents. Whenever A&P receives notice
of a claim or demand that would be covered by this provision, A&P
shall in turn provide C&S with prompt written notice of such claim
or demand. Notwithstanding anything to the contrary set forth
herein, nothing in this Schedule 10.1(a) shall be interpreted to
excuse A&P from its obligation to reimburse C&S for Costs as set
forth in Schedule 8.
(b) A&P. A&P shall defend, indemnify and hold harmless C&S and its
Affiliates, and their respective employees, servants, agents,
successors and assigns from any and all Losses arising out of or
related to any third party claim in connection with or resulting
from (i) A&P's acts, omissions or negligence related to this
Agreement; (ii) A&P's failure to comply with any applicable Laws
related to Merchandise procured, handled, packaged, used, possessed,
transported or stored by A&P; or (iii) acts, omissions or negligence
of any Affiliate of A&P or any third party hired by A&P or its
Affiliates in connection with this Agreement including, but not
limited to, GHI; provided, however, this indemnification and hold
harmless with respect to sub-schedules (i)-(iii) shall not apply to
the extent of any claims arising out of or resulting from the
negligence or willful misconduct of C&S, its Affiliates or their
respective employees, representatives or agents. Whenever C&S
receives notice of a claim or demand that would be covered by this
provision, C&S shall in turn provide A&P with prompt written notice
of such claim or demand.
(c) Product Liability - Infringement. The Parties hereto agree that
each shall use commercially reasonable efforts to seek indemnity
from the manufacturer of any Merchandise with respect to any and all
Losses arising out of or relating to any third party claim in
connection with or resulting from (i) actual or alleged product
49
liability or the handling, possession, storage, use or any other
dealing by any person of any Merchandise or (ii) any actual or
alleged infringement of any trademark, patent, copyright or other
intellectual property right. To the extent C&S has exhausted its
efforts to seek indemnity from the manufacturer as set forth in this
Schedule 10(c), but was unable to secure such indemnity, A&P shall
indemnify C&S with respect to Losses to the extent (a) such Losses
are related to private label or A&P unique items and (b) such Losses
do not arise from or are not related to the negligence or willful
misconduct of C&S. To the extent A&P has exhausted its efforts to
seek indemnity from the manufacturer as set forth in this
Schedule 10(c), but was unable to secure such indemnity, C&S shall
indemnify A&P with respect to any Losses arising out of or relating
to any third party product liability claim related to C&S's
handling, possession, storage or use of Merchandise, to the extent
such claim does not relate to any actual or alleged negligence or
willful misconduct of A&P. Notwithstanding anything to the contrary
set forth herein, this paragraph shall not be deemed to prohibit or
restrict either Party in any way from seeking indemnification from
the other Party under this Schedule 10.
10.2 INSURANCE BY C&S.
(a) Insurance Policies. During the Term of this Agreement, C&S shall
carry and maintain the following policies of insurance issued by
recognized, reputable insurers reasonably acceptable to A&P, in
forms satisfactory to A&P acting reasonably, and naming A&P as an
additional insured on all policies except the Workers Compensation
and Disability Benefits policies of insurance:
(i) All Risks of physical damage property insurance for
the Facilities and Fixed Assets including Boiler &
Machinery coverage, all on a full replacement cost
basis,
(ii) All Risks of physical damage property insurance
(including coverage against acts of terrorism and
coverage for goods in transit) on all inventories of
Merchandise on a full replacement cost basis.
(iii) Commercial General Liability coverage with a limit of
not less than [*] per occurrence for bodily injury,
personal injury and property damage. Such policy
shall include blanket contractual liability coverage
and products/completed operations liability coverage.
Products/completed operations liability coverage
shall remain in effect for not less than two (2)
years after expiration or earlier termination of this
Agreement.
- ------------------------------
* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act 1934, as amended.
50
(iv) Workers Compensation and Disability Benefits coverage
as required by statute and Employers Liability
coverage in a minimum amount of [*] per
accident/disease.
(v) Automobile Liability Insurance coverage with a limit
of not less than [*] per occurrence for bodily
injury, personal injury and property damage.
(b) Primary Coverage. The policies set forth in this Schedule 10.2
shall be primary with respect to the acts or omissions of C&S.
(c) Subrogation. C&S agrees to waive all rights of subrogation against
A&P.
(d) Proof of Insurance. Not later than ten (10) days prior to the
Effective Date, C&S shall provide to A&P certificates evidencing the
insurance coverages required of C&S under this Schedule 10.2, and
such certificates shall state that all policies of insurance
evidenced therein may not be terminated, cancelled or modified
except upon no less than thirty (30) days prior written notice to
A&P. In addition, C&S shall deliver renewal certificates to A&P
promptly upon receipt by C&S, and C&S will provide evidence that
such coverage did not lapse.
10.3 INSURANCE BY A&P.
(a) Insurance Policies. During the Term of this Agreement A&P shall
carry and maintain the following, naming C&S as an additional
insured with respect to "i" below, policies of insurance issued by
recognized, reputable insurers reasonably acceptable to C&S, in
forms satisfactory to C&S acting reasonably:
(i) Commercial General Liability coverage with a limit of
not less than [*] per occurrence for bodily injury,
personal injury and property damage. Such policy
shall include blanket contractual liability coverage
and products/completed operations liability coverage.
Products/completed operations liability coverage
shall remain in effect for not less than two (2)
years after expiration or earlier termination of this
Agreement.
(ii) Workers Compensation and Disability Benefits coverage
as required by statute and Employers Liability
coverage in a minimum amount of [*] per
accident/disease.
(b) Primary Coverage. The policies set forth in this Schedule 10.3
shall be primary with respect to the acts or omissions of A&P.
(c) Subrogation. A&P agrees to waive all rights of subrogation against
C&S.
- ------------------------------
* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act 1934, as amended.
51
(d) Proof of Insurance. Not later than ten (10) days prior to the
Effective Date, A&P shall provide to C&S certificates evidencing the
insurance coverages required of A&P under this Schedule 10.3 and
such certificates shall state that all policies of insurance
evidenced therein may not be terminated or cancelled except upon no
less than thirty (30) days prior written notice to C&S. In
addition, A&P shall deliver renewal certificates to C&S promptly
upon receipt by A&P, and A&P will provide evidence that such
coverage did not lapse.
10.4 SELF-INSURANCE. Notwithstanding anything to the contrary contained
herein, if any Party required to carry insurance hereunder has a net worth
in excess of $100.0 Million ($100,000,000) Dollars, then such insurance
may be carried whole or in part under a program of self-insurance.
10.5 FORCE MAJEURE.
(a) If either Party is rendered unable at any time, wholly or in part,
to perform or comply with any of its obligations under this
Agreement, other than obligations regarding the payment of money, by
reason of act of God, force of nature, fire, or other casualty,
eminent domain, war-like activity, utility failure, insurrection, or
civil commotion, shortage of raw materials or supplies, any law,
regulation or order by any governmental body or authority of
competent jurisdiction, or any other cause beyond its reasonable
control, or beyond the control of any person directly or indirectly
engaged by it (any such event being referred to as a "Force
Majeure"), the obligations of such Party shall be suspended for the
duration of the Force Majeure, but only to the extent such event of
Force Majeure impairs the Party's ability to perform its obligations
under this Agreement.
(b) As soon as the Party whose performance is affected by the Force
Majeure (the "Affected Party") becomes aware that an event of Force
Majeure has occurred or is likely to occur, such Affected Party will
notify the other Party. Upon receipt of such notice by the other
Party, representatives of the Parties shall meet to establish plans
and procedures to overcome or mitigate the effects of the Force
Majeure and the Affected Party shall use all reasonable efforts to
minimize any adverse effects on the other Party. A&P shall pay all
reasonable costs and expenses incurred by C&S in overcoming or
mitigating the effects of the Force Majeure and shall continue to
pay to C&S all Costs and Services Fees otherwise payable under this
Agreement.
(c) The foregoing notwithstanding, if the Force Majeure causes C&S to be
unable to render substantial performance of its obligations under
this Agreement, which inability causes substantial damage to A&P and
A&P can either render such performance itself or obtain such
performance from a third party, then A&P may perform or engage third
parties to perform the Services until C&S is able to resume the
performance of the Services.
10.6 DISASTER AND RECOVERY PLANS. Each of the Parties shall maintain a
disaster and recovery plan that is specific to the performance of their
respective obligations under this
52
Agreement and to the information systems maintained by the
respective Parties in connection with this Agreement. Each Party
shall have the right to audit, test and review the other Party's
disaster and recovery plan, and may conduct on-site interviews with
relevant officers and employees.
53
SCHEDULE 11
TERM AND TERMINATION
--------------------
11.1 TERM. This Agreement will commence on March 30, 2008 (the "Effective
Date"), and shall remain in effect through September 29, 2018, unless
earlier terminated in accordance with this Schedule 11. The Parties shall
meet and in good faith discuss an extension of the Term if C&S makes
material capital expenditures exclusively to service A&P during the Term.
However, under no circumstances shall A&P be deemed to be under any
obligation whatsoever to agree to any extension of this Agreement for any
reason. Unless the Parties otherwise agree in writing, the Parties shall
cooperate in good faith to ensure that upon the expiration of this
Agreement, the Services, Other Services and inventory of Merchandise held
on A&P's behalf at the Facilities is transitioned and transferred to A&P
or A&P's designee in accordance with Schedule 11.7.
11.2 C&S EVENTS OF DEFAULT. Subject to any applicable cure period set forth in
this Schedule 11.2 or elsewhere in this Agreement, each of the following
is a "C&S Event of Default" and in case of occurrence of one or more of
the following, C&S will be in default hereunder:
(a) C&S fails to make any material, undisputed payment required under
this Agreement, and such non-payment remains uncured for a period of
ten (10) days after written notice thereof from A&P.
(b) C&S fails to perform any of its material obligations as and when
required under this Agreement and such nonperformance continues
uncured for thirty (30) days after written notice thereof from A&P.
Notwithstanding the foregoing, if the non-performance under this
Schedule 11.2 represents an immediate and emergent threat to the
health, safety or welfare of the public, then such nonperformance
shall be deemed to constitute a "C&S Event of Default" if it
continues uncured for ten (10) days.
(c) Any of C&S's material representations or warranties in this
Agreement is breached or not true in any respect, and such
representation or warranty remains breached or untrue for
thirty (30) days after written notice thereof from A&P and such
continuing breach materially adversely affects C&S's ability to
perform its obligations hereunder. Notwithstanding the foregoing,
if the breach of such representation or warranty under this
Schedule 11.2 presents an immediate and emergent threat to the
health, safety or welfare of the public, then such breach of
representation or warranty shall be deemed to constitute a "C&S
Event of Default" if it continues uncured for ten (10) days.
(d) C&S (i) becomes insolvent; (ii) commits an act of bankruptcy;
(iii) becomes subject to any voluntary or involuntary bankruptcy
proceedings; (iv) makes an assignment for the benefit of creditors;
(v) appoints or submits to the appointment of a receiver or a
receiver manager for all or any of its assets; (vi) admits in
54
writing its inability to pay its debts as they become due; or
(vii) enters into any type of voluntary or involuntary liquidation.
(e) C&S is in default with respect to any financial covenant of C&S's
most senior tranche of indebtedness and such default remains uncured
or un-waived beyond the applicable cure period or any extension
thereof. (With respect to this sub-schedule "e", C&S agrees to
provide to A&P within 120 days of the completion of its fiscal year
a copy of the annual certification of covenant compliance that C&S's
auditors provide to C&S lenders for the just-completed fiscal year).
(f) C&S is in material breach of Schedule 7.8(b), 7.11(a) or 7.11(b).
(g) A majority of the assets or voting stock of C&S is acquired by a
competitor of A&P.
(h) C&S has breached any obligation under any provision of this
Agreement other than this Schedule 11.2 which gives rise to A&P's
ability to terminate this Agreement as specifically set forth in
such provision, subject to any applicable cure period set forth
therein.
11.3 REMEDIES UPON C&S EVENT OF DEFAULT. Upon the occurrence of any C&S Event
of Default and subject to any applicable cure periods:
(a) A&P shall have all remedies available to it under this Agreement, at
law and/or in equity in each case subject to the terms of this
Agreement.
(b) A&P shall have, at its discretion, the right to terminate this
Agreement upon written notice to C&S, such termination to occur at
the termination date specified in such notice.
11.4 A&P EVENTS OF DEFAULT. Subject to any applicable cure period set forth in
this Schedule 11.4 or elsewhere in this Agreement, each of the following
is an "A&P Event of Default" and in the occurrence of one or more of the
following, A&P will be in default hereunder:
(a) A&P fails to make any material, undisputed payment required under
this Agreement, and such non-payment remains uncured for a period of
ten (10) days after written notice thereof from C&S.
(b) A&P fails to perform any of its other material obligations as and
when required under this Agreement and such non-performance
continues uncured for 30 days after written notice thereof from C&S.
Notwithstanding the foregoing, if the non-performance under this
Schedule 11.4 represents an immediate and emergent threat to the
health, safety or welfare of the public, then such nonperformance
shall be deemed to constitute an "A&P Event of Default" if it
continues uncured for ten (10) days.
55
(c) Any of A&P's material representations or warranties in this
Agreement is breached or not true in any respect, and such
representation or warranty remains breached or untrue for
thirty (30) days after written notice thereof from C&S and such
continuing breach materially adversely affects A&P's ability to
perform its obligations hereunder. Notwithstanding the foregoing,
if the nonperformance under this Schedule 11.4 represents an
immediate and emergent threat to the health, safety or welfare of
the public, then such nonperformance shall be deemed to constitute
an "A&P Event of Default" if it continues uncured for ten (10) days.
(d) A&P (i) becomes insolvent; (ii) commits an act of bankruptcy;
(iii) becomes subject to any voluntary or involuntary bankruptcy
proceedings; (iv) makes an assignment for the benefit of creditors;
(v) appoints or submits to the appointment of a receiver or a
receiver manager for all or any of its assets; (vi) admits in
writing its inability to pay its debts as they become due; or
(vii) enters into any type of voluntary or involuntary liquidation.
(e) A&P has breached any obligation under any provision of this
Agreement other than this Schedule 11.4 which gives rise to C&S's
ability to terminate this Agreement as specifically set forth in
such provision, subject to any applicable cure period set forth
therein.
11.5 REMEDIES UPON A&P EVENT OF DEFAULT. Upon the occurrence of any A&P Event
of Default, and subject to any applicable cure periods:
(a) C&S shall have all remedies available to it under this Agreement, at
law and/or in equity in each case subject to the terms of this
Agreement.
(b) C&S shall have, at its discretion, the right to terminate this
Agreement upon written notice to A&P, such termination to occur at
the termination date specified in such notice.
11.6 FORCE MAJEURE. Either party shall have the right to terminate this
Agreement without penalty if due to a Force Majeure event which has
occurred and is continuing, C&S is unable to perform any material
obligation, as and when required, under this Agreement for more than
twenty-six (26) consecutive weeks.
11.7 PROCEDURES ON TERMINATION.
(a) Notwithstanding termination of this Agreement by reason of a C&S
Event of Default or an A&P Event of Default or as otherwise
stipulated herein, C&S shall remain obligated to fully perform, to
the extent permitted by Law and for a period of up to (but no more
than) one hundred and eighty (180) days, the Services and the Other
Services pursuant to this Agreement (including without limitation,
making whatever arrangements are necessary to continue such Services
without interruption or diminution in the Service Specifications),
and C&S shall continue to be compensated for such Services and Other
Services in accordance with this Agreement, until such time (the
"Effective Date of Termination") as may be reasonably required to
transition or transfer to A&P or its designee responsibility
56
for performing all Services and Other Services, and all inventory of
Merchandise ordered on behalf of A&P and held at the Facilities.
The Parties shall cooperate to ensure that the Services and Other
Services, and the inventory described above, are transferred or
transitioned to A&P or A&P's designee in an orderly and professional
manner. A&P's payment obligations for Services under this Agreement
shall not be subject to any increase as a direct or indirect result
of any termination of this Agreement. This Schedule 11.7(a) shall
be void in the event that the termination by C&S of this Agreement
was due to nonpayment by A&P and such nonpayment is not immediately
cured.
(b) If this Agreement terminates by reason of a C&S Event of Default,
C&S agrees to:
(i) pay or rebate to A&P all sums due to A&P under the
Agreement through the effective date of termination
and for such further period during which Services or
Other Services are rendered in accordance with sub-
schedule (a) above; and
(ii) pay and/or reimburse A&P for all proven direct
damages made against or suffered or incurred by A&P
arising from or in any way related to the termination
of this Agreement.
(c) If this Agreement terminates by reason of an A&P Event of Default,
A&P agrees to:
(i) pay C&S all sums due to C&S under the Agreement
through the effective date of termination and for
such further period during which Services or Other
Services are rendered in accordance with sub-
schedule (a) above;
(ii) additionally pay and/or reimburse C&S for all proven
direct damages made against or suffered or incurred
by C&S arising from or in any way related to the
termination of this Agreement and the Services
hereunder including, but not limited to, early
termination fees and equipment pay-out amounts
related to any early termination of a lease or
licensing agreement related to the Facilities or any
Fixed Assets.
(d) IN NO EVENT WILL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR ANY
SPECIAL, INDIRECT, CONSEQUENTIAL, PUNITIVE OR EXEMPLARY DAMAGES,
INCLUDING LOST SALES OR LOST PROFITS; PROVIDED THAT THIS LIMITATION
OF LIABILITY SHALL NOT APPLY IN INSTANCES OF WILLFUL BREACH OR
MISCONDUCT OR TERMINATION PURSUANT TO SCHEDULE 7.12(e).
11.8 FACILITIES AND FIXED ASSETS. Notwithstanding anything contained in this
Agreement to the contrary, but without limiting A&P's obligations in
Schedule 11.7(c), in no event shall A&P have any responsibility or
obligation to take title to any of the Facilities or Fixed
57
Assets, or to assume any Real Estate Obligations relating to the
Facilities, or to assume any leases, licenses or other agreements relating
to the Fixed Assets or otherwise, upon the expiration or earlier
termination of this Agreement (regardless, in the case of an early
termination, of the reason for such early termination).
58
SCHEDULE 12
MISCELLANEOUS
-------------
12.1 NEGOTIATION. If a dispute arises under this Agreement which cannot be
resolved by the personnel directly involved, either Party may invoke the
dispute resolution procedure set forth below by giving written notice to
the other Party of the dispute and designating its chief legal officer as
its representative in negotiations relating to the dispute. The chief
legal officers of both Parties, acting in good faith and using reasonable
efforts, shall work toward a reasonable and equitable resolution of the
dispute. In the event the chief legal officers are unable to reach
resolution, the Parties will designate their respective Chief Executive
Officers to negotiate resolution of the dispute.
12.2 APPOINTMENT OF MEDIATOR - NON ACCOUNTING DISPUTES. If the respective
designated officers of C&S and A&P are unable to resolve the dispute
within ten (10) business days from the receipt of written notice of the
dispute, the Parties shall agree on the appointment of a mediator to
assist in resolving the matter. A mediator shall be appointed by the
American Arbitration Association upon the request of either Party if the
Parties cannot agree in the selection of such person within five (5)
business days of a request to agree. The person so appointed shall,
within one month of appointment, render his decision on the matter. Such
decision shall not be binding on the Parties. The Parties shall cooperate
with any person appointed pursuant to this Schedule 12.2 and shall provide
him with such information and other assistance as he shall require and his
costs shall be paid by such Party as he shall determine.
12.3 RESOLUTION OF ACCOUNTING DISPUTES. Any accounting disputes, including
disputes relating to specific amounts and numerical assumptions to be used
in the preparation or modification of budgets, shall be resolved in the
following manner: If the Parties exhaust all good faith efforts to reach
agreement within 10 days, the matter shall be referred to each Parties'
independent accountants and such independent accountants shall agree upon
the appointment of a third independent accountant to resolve the matter.
The independent accountant so appointed shall, within 20 days of
appointment, render a decision on the matter and such decision shall be
final and binding on the Parties.
12.4 RESOLUTION OF ALL OTHER DISPUTES. Failing resolution by the Parties
through negotiation or mediation, any controversy, claim, or dispute
between the Parties, directly or indirectly, concerning this Agreement or
the breach hereof, or the subject matter hereof, including questions
concerning the scope and applicability of this arbitration clause, shall
be finally settled by arbitration before a single arbitrator in New York
City pursuant to the applicable rules of the American Arbitration
Association, with the sole exception for a breach of confidentiality
requiring injunctive relief. The single arbitrator shall be selected
within 20 days after the commencement of the arbitration proceeding. The
Parties agree that the arbitrator's award shall be duly made in writing
within thirty (30) days after the hearings in the arbitration proceedings
are closed, and that such award shall be binding and conclusive on all of
the Parties to this Agreement. The arbitrator shall have the right and
authority to assess the cost of the arbitration proceedings and to
determine how its decision as to each issue or matter in dispute may be
implemented or
59
enforced. Judgment upon the award may be sought and entered in any
competent federal or state court located in the United States of America.
An application may be made to such court for confirmation of the award and
for any other equitable or legal remedies that may be necessary to
effectuate such award or otherwise preserve any rights for which no
adequate remedy at law exists. Notwithstanding anything to the contrary
contained in this Schedule 12, neither Party shall be prohibited from
opting out of the arbitration process set forth hereunder and litigating
in court any claim arising under Schedule 11 of this Agreement; provided,
however, each of the Parties hereby expressly waives a right to a jury
trial with respect to any such claim or cause of action.
12.5 AUDIT AND ACCESS RIGHTS.
(a) Books and Records. C&S shall maintain complete and detailed
records, data, information and statements in auditable form and
quality in respect of all activities related to the provision of
Services on behalf of A&P and to all of C&S's other obligations
under this Agreement, as information fully integrated into the
overall financial statements maintained by C&S in the ordinary
course of business. C&S shall maintain all such records consistent
with GAAP. Without limiting the generality of the foregoing, C&S
shall maintain and provide to A&P such other separate records,
information and reports in such forms and for such periods of time
as are set forth in the Service Specifications. C&S shall prepare
and maintain for a period of not less than five (5) years following
the end of each of its fiscal years, adequate books and records with
respect to: (i) C&S's performance of Services, Other Services and
all of its other obligations under this Agreement; (ii) all amounts
charged or credited by C&S to A&P hereunder; (iii) all Costs arising
under this Agreement; (iv) C&S's compliance with Laws governing its
performance hereunder; [*] and (vi) such other records, data or
information as may be set forth under the Service Specifications or
as may be otherwise required under this Agreement or by A&P from
time to time (collectively, the "Books and Records"). The Books and
Records shall also be deemed to include any other books, records,
data or other materials that relate to the activities described in
subsections (i) through (vi) above and which may be maintained by
C&S or its employees, representatives or third-party vendors. The
Books and Records shall be maintained consistent with GAAP,
consistently applied, and shall be in a form suitable for audit,
review and copying and shall be made available as reports produced
from C&S's overall financial statements maintained by C&S for its
entire operations in the ordinary course of business. All Books and
Records shall be maintained in accordance with C&S's document
retention policy. A&P will be provided access to, and the right to
audit, any information A&P determines it needs in order to verify
any of the items listed in (i)-(vi) above, provided however, A&P
will not be provided access to data or information relating to other
customers of C&S or information unrelated to the
- ------------------------------
* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act 1934, as amended.
60
performance of the Services, except as may be necessary to verify
cost allocations at the Shared Facility.
(b) Financial Statements. Each Party shall promptly deliver to the
other audited financial statements for the year-end period, which
have been certified to by a registered public accounting firm, after
such financial statements have been issued by such public accounting
firm.
(c) Access to Books and Records. C&S shall permit A&P and its officers,
directors, representatives, counsel, advisors and other agents
(collectively, "Agents"), upon reasonable notice and during normal
business hours, to inspect, have access to the Facilities and to
inspect, have access and audit all of the Books and Records for the
purpose of auditing: a) the performance of the Services and the
Other Services; [*] c) preparation and maintenance of records
related to such Services; and d) any other matter relating to C&S's
performance or obligations under this Agreement. The right of
access under this Schedule 12.5(c) shall include the right to
discuss such documentation with C&S's employees, representatives and
outside vendors having knowledge of their contents, and C&S shall
instruct all such employees, representatives or third-party vendors
to fully cooperate with any request for information made by A&P to
such employee, representative or third-party vendor.
(d) Frequency and Scope. During the Term of this Agreement, and for a
period of one (1) year thereafter, A&P or A&P's duly authorized
auditor or agent shall have the right at any time to audit and
review the Books and Records. The scope of the audit shall
encompass no more than the prior 24-month period, except in the
event that the auditor determines reasonably that there is a
specifically identified irregularity that requires further
inspection, in which case the audit shall be permitted to look back
an additional three (3) years but solely with respect to the
identified irregularity. All Books and Records are subject to audit
and review by A&P in accordance with this Agreement including the
confidentiality provisions set forth in Schedule 12.23 below.
Notwithstanding anything to the contrary set forth herein, failure
by A&P to challenge the amount of any [*], Cost, or the Services Fee
within the audit periods described herein shall be deemed to be
A&P's agreement and consent to such billed amounts, and A&P shall
thereafter waive any claim or right to adjust such amounts.
(e) Deficiencies. If an audit or review reveals that any amounts to be
paid or charged to A&P have been overstated or understated, then C&S
shall issue a charge or credit, as applicable, to correct such
overstatement or understatement. If an audit or review reveals that
amounts paid or charged to A&P were overstated or understated by ten
percent (10%) or more during the period audited, the Party required
to pay such amount to the other Party shall reimburse the other
Party for
- ------------------------------
* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act 1934, as amended.
61
all costs and expenses incurred in connection with the audit or
review. The foregoing remedies shall be in addition to any other
remedies available to A&P and C&S at law or in equity.
(f) Confidentiality. Any and all information provided to A&P pursuant
to this Schedule 12.5 including, but not limited to any audited
financial statements and other financial information, will be
subject to the Confidential Information provisions set forth in
Schedule 12.23 below.
12.6 HEADINGS. The division of this Agreement into Schedules and the insertion
of headings are for convenience of reference only and shall not affect the
construction or interpretation of this Agreement. Unless inconsistent
with the context, references in this Agreement to Schedules are to
Schedules of this Agreement.
12.7 EXTENDED MEANINGS. In this Agreement words importing the singular number
only include the plural and vice versa, words importing the masculine
gender include the feminine and neuter genders and vice versa and words
importing persons include individuals, partnerships, associations, trusts,
unincorporated organizations and corporations.
12.8 ACCOUNTING PRINCIPLES. Wherever in this Agreement reference is made to a
calculation to be made in accordance with GAAP (generally accepted
accounting principles consistently applied), such reference shall be to
generally accepted accounting principles of the United States of America
from time to time recommended by the Financial Accounting Standards Board
(FASB), or any successor, applicable as at the date on which such
calculation is made or required to be made.
12.9 CURRENCY. All references to dollar amounts in this Agreement are to
lawful money of The United States of America.
12.10 PROPER LAW OF CONTRACT; CONSENT TO JURISDICTION. This Agreement shall be
governed by the laws of the State of New York and the laws of The United
States of America as applicable in such State.
12.11 LEGAL RELATIONSHIP. The legal relationship of C&S and A&P to each other
shall be that of independent contractors, and neither Party shall be the
agent or legal representative of the other for any purpose. Neither Party
shall have the right or authority to bind or obligate the other to any
third party for any purpose whatsoever.
12.12 NOTICES. Any demand, notice or other communication to be given in
connection with this Agreement shall be in writing and shall be given by
personal delivery, by overnight courier, by registered mail or by
facsimile or electronic means of communication addressed to the recipient
at the address set forth below or to such other address, individual or
electronic communication number as may be designated by notice given by
either Party to the other. Any demand, notice or other communication
shall be conclusively deemed to have been given (i) on the day of actual
delivery if given by personal delivery; (ii) on the next business day if
given by overnight courier; (iii) on the third business day following
deposit in the mail if given by registered mail; and (iv) on
62
the day of transmittal if given by facsimile or electronic communication
during the normal business hours of the recipient and on the next
following business day if not given during such hours on any day.
If to C&S:
C&S Wholesale Grocers, Inc.
7 Corporate Drive
Keene, NH 03431
Attn: Richard B. Cohen, Chairman and Chief Executive Officer
Phone: (603) 354-4601
Fax: (603) 354-4692
with a copy to:
General Counsel
Phone: (603) 354-5885
Fax: (603) 354-4694
If to A&P:
The Great Atlantic & Pacific Tea Company, Inc.
2 Paragon Drive
Montvale, NJ 07645
Attention: Eric Claus, President and Chief Executive Officer
Phone: (201) 571-8770
Fax: (201) 571-8715
with a copy to:
Vice President - Legal Services
Phone: (201) 571-8161
Fax: (201) 571-8106
12.13 FURTHER ASSURANCES. Each of C&S and A&P shall from time to time execute
and deliver all such further documents and instruments and do all acts and
things as the other Party may reasonably require to effectively carry out
or better evidence or perfect the full intent and meaning of this
Agreement.
12.14 BENEFIT OF THE AGREEMENT. This Agreement shall inure to the benefit of
and be binding upon C&S, A&P and their respective assigns and successors,
including any transferee of substantially all of the assets of either
Party.
12.15 THIRD PARTY AGREEMENTS. Neither C&S nor A&P shall enter into any
agreement with any Person that would have the effect of impairing any of
the other Party's rights hereunder this Agreement or limiting either
Party's ability to amend this Agreement in accordance with the terms
hereof, without the prior written consent of the other Party hereto.
63
12.16 CONTINUED PROVISIONS. Notwithstanding any expiration or termination of
this Agreement, (i) the indemnification obligation of both Parties as set
forth in Schedule 10; (ii) the obligations of the both Parties upon
termination of this Agreement as set forth in Schedule 11; (iii) the
confidentiality and non-solicitation provisions set forth below; and (iv)
any other provision which expressly or by its nature is intended to
survive termination of this Agreement, shall continue in full force and
effect.
12.17 GENERAL REPRESENTATIONS AND WARRANTIES BY A&P. A&P represents and
warrants to C&S as follows:
(a) A&P is a corporation duly incorporated and validly existing under
the laws of its jurisdiction of incorporation and has all necessary
corporate power, authority and capacity to enter into this Agreement
and to carry out its obligations under this Agreement. The
execution and delivery of this Agreement and the performance of
A&P's obligations under this Agreement have been duly authorized by
all necessary corporate action on the part of A&P.
(b) A&P is not a party to, bound or affected by, or subject to, any
indenture, mortgage, lease, agreement, collective bargaining
agreement, obligation, instrument, charter or by-law provision,
statute, regulation, order, judgment, decree, license, permit or law
which would be violated, contravened or breached as a result of the
execution and delivery of this Agreement, or the performance by A&P
of any of its obligations under this Agreement.
12.18 GENERAL REPRESENTATIONS AND WARRANTIES BY C&S. C&S represents and
warrants to A&P as follows:
(a) C&S is a corporation duly incorporated and validly existing under
the laws of its jurisdiction of incorporation and has all necessary
corporate power, authority and capacity to enter into this Agreement
and to carry out its obligations under this Agreement. The
execution and delivery of this Agreement and the performance of
C&S's obligations under this Agreement have been duly authorized by
all necessary corporate action on the part of C&S.
(b) C&S is not a party to, bound or affected by, or subject to, any
indenture, mortgage, lease, agreement, collective agreement,
obligation, instrument, charter or by-law provision, statute,
regulation, order, judgment, decree, license, permit or law which
would be violated, contravened or breached as a result of the
execution and delivery of this Agreement, or the performance by C&S
of any of its obligations under this Agreement.
(c) C&S is not in breach of any Laws that could reasonably be expected
to have a material, adverse effect on C&S's ability to perform the
Services or perform its other obligations under this Agreement,
including without limitation and to the extent applicable all Laws
pertaining to human rights, labor or employment standards, labor
relations and employment, protection of personal information,
64
occupational health and safety, workers' compensation and workplace
safety insurance and environmental Laws.
12.19 ENTIRE AGREEMENT. This Agreement together with all schedules and exhibits
hereto constitutes the entire agreement between the Parties with respect
to its subject matter and cancels and supersedes any prior understandings
and agreements between the Parties with respect to such subject matter.
There are no representations, warranties, terms, conditions, undertakings
or collateral agreements, express, implied or statutory, between the
Parties other than as expressly set forth in this Agreement.
12.20 AMENDMENTS AND WAIVER. No modification of or amendment to this Agreement
shall be valid or binding unless in writing and duly executed by both of
the Parties and no waiver of any breach of any term or provision of this
Agreement shall be effective or binding unless made in writing and signed
by the Party purporting to give the same and, unless otherwise provided,
shall be limited to the specific breach waived.
12.21 ASSIGNMENT. Except as provided below, this Agreement may not be assigned,
either directly or by operation of law, by either Party without the
written consent of the other Party, such consent not to be unreasonably
withheld; provided, however, that in the event of any assignment the
assignor shall continue to be bound by all obligations under this
Agreement as if such assignment had not occurred and shall perform such
obligations to the extent that the assignee fails to do so. This
Agreement may be assigned by either Party without the consent of the other
Party to an affiliate of the assignor, provided that the affiliate enters
into a written agreement with the other Party to be bound by the
provisions of this Agreement in all respects and to the same extent as the
assignor is bound and provided that the assignor shall continue to be
bound by all obligations under this Agreement as if such assignment had
not occurred and shall perform such obligations to the extent that the
affiliate fails to do so. Notwithstanding anything to the contrary, this
Agreement shall be binding on any transferee of substantially all of the
assets of either Party.
12.22 NON-SOLICITATION. During the Term of this Agreement and for a period of
twelve (12) months following the expiration or termination of this
Agreement for any reason whatsoever, A&P shall not, and shall not permit
any of its Affiliates to, directly or indirectly, hire, solicit, induce or
encourage any person who is a managerial employee or agent employed or
engaged by C&S or any of its Affiliates within one year prior to such
solicitation, to leave or otherwise cease being employed or engaged by C&S
or any of its Affiliates (other than a person whose pay in lieu of notice,
termination, and severance payments has been reimbursed pursuant to this
Agreement).
12.23 CONFIDENTIALITY. Each Party shall not, during the Term of this Agreement
or at any time thereafter, transmit Confidential Information of the other
Party to any third person either in whole or in part. Each Party shall
take all reasonable precautions to safeguard the Confidential Information
of the other Party from unauthorized disclosure and, at a minimum, shall
afford the Confidential Information of the other Party such precautions
and safeguards as it affords to its own confidential information of a
similar nature. A&P also agrees to the heightened confidentiality
restrictions as set forth in Schedule 7.14(d).
65
"Confidential Information" for purposes of this Agreement shall mean all
non-public, confidential or proprietary information of either Party and
its clients and customers, including but not limited to information
regarding costing, merchandising, procurement, inventory systems,
technology, formulations, transportation, warehouse, administrative and
other technical and economic data and information, received by the other
Party in the course of the negotiation of, or performance of its
obligations under, this Agreement. The above restrictions shall not apply
to the extent that Confidential Information comes into the public domain
through no fault of the other Party, is received by the other Party from a
third party having a bona fide right to disclose such information, or
disclosure is required by law.
(a) PUBLIC NOTICES. Neither Party shall make any press release or
public announcement regarding this Agreement or otherwise publicly
disclose any of the terms of this Agreement without the prior
written consent of the other Party, except where required to do so
by Law or by the applicable regulations or policies of any Federal,
State or other regulatory agency of competent jurisdiction or any
stock exchange in circumstances but only after prior consultation
with the other Party, and the disclosing Party shall use
commercially reasonable best efforts to ensure that all Confidential
Information and other information that is required to be disclosed
in accordance with Laws will be accorded confidential treatment.
(b) REQUIREMENT TO DISCLOSE. Wherever in this Agreement disclosure is
permitted if "required by Law",
(i) the term "Law" shall be deemed to include (A) any
applicable statute, regulation or policy of The
United States of America or other government, any
State or local government or any agency or authority
of any of them having jurisdiction over a Party or
its business or any stock exchange or self-regulatory
organization in the securities industry and (B) any
order, demand or subpoena of any such government,
agency, authority, exchange or organization or any
court of competent jurisdiction; and
(ii) such disclosure shall be permitted only if, as
promptly as practicable after determining that
disclosure is required or after receipt of any such
order, demand or subpoena, the Party intending to
make such disclosure shall notify the other Party of
such requirement and the scope of the proposed
disclosure and shall simultaneously deliver to the
other Party a copy of such order, demand or subpoena
or, if there is none, a written opinion of its
counsel describing the legal basis upon which such
disclosure is required. The Party intending to make
such disclosure shall cooperate with all reasonable
requests of the other Party for assistance in
preventing or limiting such disclosure.
66
12.24 DEFINITIONS.
"A&P" is a Maryland corporation with its principal offices located at 2
Paragon Drive in Montvale, New Jersey 07645.
"A&P EVENT OF DEFAULT" has the meaning set forth in Schedule 11.4.
"A&P OPERATED FACILITY(IES)" has the meaning set forth in Schedule 3.5(c).
"A&P STORES" has the meaning set forth in Schedule 7.3.
"A&P VOLUME" means any volume of Merchandise intended for use or resale at
the A&P Stores or otherwise procured or purchased on A&P's behalf, at
A&P's direction or with any other reference to A&P's account, business,
operations or name.
[*].
"ACCOUNTS RECEIVABLES DEDUCTIONS" has the meaning set forth in
Schedule 5.3.
"ACTUAL ALLOCATION AMOUNT" has the meaning set forth in
Schedule 8.3(c)(i).
[*]
"ACTUAL COSTS" has the meaning set forth in Schedule 8.5.1.
"ACTUAL PURCHASING SERVICE LEVEL" has the meaning set forth in
Schedule 7.12(c).
"AD OVERPULL" has the meaning set forth in Schedule 7.12(b).
"ADDITIONAL SERVICES" has the meaning set forth in Schedule 2.2.
"ADJUSTED BASELINE BUDGET" has the meaning set forth in Schedule 8.11(c).
"ADMINISTRATIVE MANAGEMENT FEE" has the meaning set forth in
Schedule 6.2(b).
"AFFECTED PARTY" has the meaning set forth in Schedule 10.5(b).
"AFFILIATE" means a corporation or business entity that, directly or
indirectly, is controlled by, controls or is under common control, with
respect to A&P or C&S, as applicable.
"AGENTS" has the meaning set forth in Schedule 12.5(c).
"AGGREGATE COST GROUPING" is a grouping of Cost items as depicted on
Exhibit 1.4(a).
"AGREEMENT" means this Warehousing and Distribution Services Agreement,
including the Schedules and Exhibits to this Agreement, as it or they may
be amended or supplemented from time to time, and the expressions
"hereof", "herein", "hereto",
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* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act 1934, as amended.
67
"hereunder" and similar expressions refer to this Agreement and not to any
particular portion or section of this Agreement.
"ALL RISK" means losses are covered with respect to all perils unless a
peril is specifically excluded under the policy.
[*]
"APPROVED BUDGET" has the meaning set forth in Schedule 8.2.
[*]
"BASE COST OF FUEL" has the meaning set forth in Schedule 8.4.2.
[*]
"BASELINE ALLOCATION AMOUNT" has the meaning set forth in
Schedule 8.3(c)(i).
"BASELINE BUDGET" has the meaning set forth in Schedule 8.11(a).
"BASE MANAGEMENT FEE" has the meaning set forth in Schedule 6.2(a).
"BOOKS AND RECORDS" has the meaning set forth in Schedule 12.5(a).
"C&S" is a Vermont corporation with its principal offices located at 7
Corporate Drive in Keene, New Hampshire 03431.
"C&S EVENT OF DEFAULT" has the meaning set forth in Schedule 11.2.
"CAPITAL EXPENDITURE" means an expense related to the acquisition
(including any rent or lease payments), replacement, repair, maintenance
or improvement of any Fixed Asset, Facility or real estate used in
connection with the performance of the Services.
"CAPITAL EXPENDITURES BUDGET" means that portion of any Approved Budget
that reflects the Capital Expenditures and which comports with the form of
Exhibit 1.4(e).
[*]
[*]
"CENTER-STORE PRODUCTS" means grocery, spices, candy, dairy, frozen
(mainline), frozen meat, packaged meat, frozen and processed meat, ice
cream, ice, and HBC/GM, and supplies.
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* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act 1934, as amended.
68
"CENTER-STORE PRODUCTS VOLUME" means any A&P Volume comprised of Center-
Store Products.
"CONFIDENTIAL INFORMATION" has the meaning set forth in Schedule 12.23.
"CONSULTANT" has the meaning set forth in Schedule 1.3.
"CONTRACT QUARTER" means C&S's four (4) fiscal quarters, which together
comprise C&S's fiscal year.
"CONTRACT WEEK" means any period of seven (7) consecutive calendar days
commencing on a Sunday and concluding on a Saturday during any Contract
Year.
"CONTRACT YEAR" means C&S's fiscal year which is a 52-week period (or 53-
week period every five to six years) that runs through the last Saturday
in September. Each Contract Year is comprised of four (4) Contract
Quarters. A schedule of Contract Years for the Term is set forth on
Exhibit 1.5. The "Ramp-Up Period" shall be treated as a "stub period" and
all amounts calculated on a Contract Year basis shall be prorated
accordingly for the Ramp-Up Period.
"COST RATE" has the meaning set forth in Schedule 8.11(a).
"COSTS" has the meaning set forth in Schedule 8.3(a).
"COST SAVINGS GAINSHARE INCENTIVE FEE" has the meaning set forth in
Schedule 6.3(b).
[*]
"CPI" has the meaning set forth in Schedule 6.4.
"CURRENCY" has the meaning set forth in Schedule 12.9.
"DAILY PEAKING" means that the volume of product units within any product
category in the Product Mix which C&S actually receives or ships in a day
varies by more than [*] from the average number of product units received
or shipped, as the case may be, in a Fiscal Accounting Period (based on
the total number of product units received or shipped in the period
divided by the number of business days within that period).
"DEDICATED FACILITY(IES)" has the meaning set forth in Schedule 3.1(a).
"DEPARTMENT" has the meaning set forth in Schedule 7.12(b).
[*]
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* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act of 1934, as amended.
69
"DIRECT OVERHEAD COSTS" has the meaning set forth in
Schedule 8.3(a)(viii).
"DSD" means direct store delivery.
"EFFECTIVE DATE" has the meaning set forth in Schedule 11.1.
"EFFECTIVE DATE OF TERMINATION" has the meaning set forth in
Schedule 11.7.
"EMERGENCY EXPENDITURE" has the meaning set forth in Schedule 8.4.3.
"ESTIMATED WEEKLY PAYMENT AMOUNT" has the meaning set forth in
Schedule 9.1(a).
"EXCESS COSTS" has the meaning set forth on Schedule 8.3(d).
"FACILITIES" has the meaning set forth in Schedule 3.1.
"FACILITY DECISION" has the meaning set forth in Schedule 3.5.
"FACILITY DECISION COSTS" has the meaning set forth in Schedule 3.5.
"FIRST CONTRACT YEAR" means the contract year commencing September 28,
2008 and ending September 26, 2009.
"FISCAL ACCOUNTING PERIOD" means periods of four consecutive Contract
Weeks beginning on the Effective Date. In a 53-week Contract Year, one
Fiscal Accounting Period will be comprised five (5) consecutive Contract
Weeks. Thirteen (13) Fiscal Accounting Periods comprise each Contract
Year.
"FIXED ABSOLUTE DOLLARS" has the meaning set forth in Schedule 8.11(a).
"FIXED ASSETS" means the fixed assets or items of plant, machinery,
equipment and leasehold improvements, together with any additional items
of plant, machinery, equipment and leasehold improvements acquired by C&S
in accordance with the terms of this Agreement and relating to the
provision of Services.
"FLEX BUDGET" has the meaning set forth in Schedule 8.4.1.
"FLEX" or "FLEXING" shall mean the process of adjusting an Approved Budget
in accordance with the terms and conditions set forth in Schedule 8.4
hereto.
"FLORAL PRODUCTS" means non-food plants and flowers.
"FORCE MAJEURE" has the meaning set forth in Schedule 10.5(a).
"FRESH DISCOUNTS" has the meaning set forth in Schedule 7.11(c).
70
"FRESH PRODUCTS" shall include, but not be limited to, produce, fresh
meat, fresh deli, dry bakery, frozen bakery, non-warehouse-delivered
candy, fresh seafood, and frozen commodities (e.g., turkey, shrimp and
crab), and shall exclude Floral Products and any Center-Store Products.
"FRESH PRODUCTS VOLUME" means any A&P Volume comprised of Fresh Products.
"GAAP" has the meaning set forth in Schedule 6.3(a).
"GAINSHARE" has the meaning set forth in Schedule 8.11(a).
"GHI" means Grocery Haulers Inc., a Delaware corporation.
[*]
[*]
"INCENTIVE COMPENSATION FEES" has the meaning set forth in Schedule 6.3.
"INCREMENTAL VOLUME FEE" has the meaning set forth in Schedule 6.3(a).
"INCREMENTAL VOLUME FEE TRIGGER" has the meaning set forth in
Schedule 6.3(a).
"INITIAL APPROVED BUDGET" has the meaning set forth of Schedule 8.2
"Interim Budget" has the meaning set forth in Schedule 1.4.
"INTERIM PERIOD" has the meaning set forth in Schedule 7.14(e).
"LAWS" has the meaning set forth in Schedule 12.22(b)(i).
"LEASE" means the leases for the Facilities set forth on Exhibit 3.4.
"LEFTOVER AD VOLUME" has the meaning set forth in Schedule 7.13.
[*]
"LOSSES" has the meaning set forth in Schedule 10.1(a).
"MANUFACTURER OUT-OF-STOCK" has the meaning set forth in Schedule 7.12(b).
"MASTER AGREEMENT" is the Supply Agreement by and between A&P and C&S
dated October 27, 2003.
"MEASUREMENT PERIOD" has the meaning set forth in Schedule 7.12(a).
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* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act 1934, as amended.
71
"MERCHANDISE" has the meaning set forth in Schedule 7.1.
"MINOR SERVICE LEVEL VIOLATION" has the meaning set forth in
Schedule 7.12(d).
"MONTHLY P&L" has the meaning set forth in Schedule 8.5.1.
"NEGOTIATED INBOUND RATES" has the meaning set forth in Schedule 4.2.
"NEW JERSEY FACILITIES" has the meaning set forth in Schedule 4.1.
"NON-C&S MANAGED OUTBOUND TRANSPORTATION" has the meaning set forth in
Schedule 8.11(b).
"OCCUPANCY COSTS" has the meaning set forth on Schedule 8.3(a)(i).
"OCEAN AGREEMENT" means the Supply Agreement by and between A&P and C&S
dated June 27, 2005.
"OTHER SERVICES" has the meaning set forth in Schedule 5.1.
"OTHER SERVICES FEE" has the meaning set forth in Schedule 6.1.
"PATHMARK" means Pathmark Supermarkets, Inc., a Delaware corporation and a
wholly-owned subsidiary of A&P.
"PATHMARK AGREEMENT" is the First Amended and Restated Supply Agreement by
and between Pathmark and C&S dated January 29, 1998.
"PARTIES" means C&S together with A&P.
"PERFORMANCE MEASURES" has the meaning set forth in Schedule 2.1.
"PERFORMING PARTY" has the meaning set forth in Schedule 2.7.
"PERMITTED INDIVIDUALS" has the meaning set forth in Schedule 7.14(d).
"PERMITTED USE" has the meaning set forth in Schedule 7.14(d).
"PERSON" is to be interpreted broadly and includes an individual or group
of individuals, an entity or group of entities, a corporation, a
partnership, a trust, an unincorporated organization, the government of a
country or any political subdivision thereof, or any agency or department
of any such government, and the executors, administrators or other legal
representatives of an individual in such capacity.
"PRIOR AGREEMENTS" means Master Agreement, Ocean Agreement, Pathmark
Agreement and all amendments thereto.
72
"PROCUREMENT SERVICES" shall be those services described in Schedule 7
related to the procurement of Merchandise.
"PRODUCT MIX" means the mix of categories of Merchandise handled by C&S
calculated on a unit basis with the categories being as more particularly
described in the variance analysis included in the Service Specifications,
as they may be amended from time to time in new Service Specifications.
"PUNITIVE SERVICE LEVEL" has the meaning set forth in Schedule 7.12(a).
"PUNITIVE SERVICE LEVEL BREACH" has the meaning set forth in
Schedule 7.12(d).
"PURCHASE SERVICES" shall mean those services described in Schedule 7
related to the purchase of Merchandise.
"PURCHASE TERMS" has the meaning set forth in Schedule 7.5.
"PURCHASING SERVICE LEVEL" has the meaning set forth in Schedule 7.12(b).
"PURCHASING SERVICE LEVEL RECONCILIATION REPORT" has the meaning set forth
in Schedule 7.12(c).
"RAMP-UP PERIOD" has the meaning set forth in Schedule 1.4.
"REAL ESTATE OBLIGATIONS" means any lease or sublease to occupy any
Facility in connection with the performance of Services hereunder as set
forth on Exhibit 3.4.
[*]
"RECLAMATION SERVICES" has the meaning set forth in Schedule 5.4.
"RECYCLABLE MATERIAL" has the meaning set forth in Schedule 2.9.
"RECYCLABLE MATERIAL PROCESSING SERVICES" has the meaning set forth in
Schedule 2.9.
"REQUIRED PURCHASING SERVICE LEVEL" has the meaning set forth in
Schedule 7.12(a).
"RESTRICTED INFORMATION" has the meaning set forth in Schedule 7.14(d).
[*]
"SERVICE LEVEL SHORTFALL" has the meaning set forth on Schedule 7.12(e).
"SERVICE SPECIFICATIONS" shall mean the standard operating procedures to
be followed by the Parties in connection with the performance of the
Services, the Other Services, and in
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* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act 1934, as amended.
73
connection with their respective obligations under this Agreement, as may
be amended from time to time.
"SERVICES" means Warehousing Services, the Transportation Services, the
Procurement Services, Purchasing Services and Additional Services.
"SERVICES FEES" has the meaning set forth in Schedule 6.1.
"SERVICES STANDARDS" has the meaning set forth in Schedule 2.1.
"SHARED FACILITY(IES)" has the meaning set forth in Schedule 3.1(b).
"SHARED SAVINGS" has the meaning set forth in Schedule 8.11(d).
"SYSTEMS" has the meaning set forth in Schedule 8.3(a)(xii).
"TARGETED PURCHASING SERVICE LEVEL" has the meaning set forth in
Schedule 7.12(a).
"TERM" has the meaning set forth in Schedule 11.1.
"TOTAL TRANSPORTATION COSTS" shall mean those Costs set forth on
Exhibit 1.4(c).
"TOTAL WAREHOUSING COSTS" shall mean those Costs set forth on
Exhibit 1.4(b).
[*]
"TRANSPORTATION SERVICES" has the meaning set forth in Schedule 4.1.
[*]
"WAREHOUSING SERVICES" has the meaning set forth in Schedule 2.1.
"WEEKLY ACTUAL AMOUNT" has the meaning set forth in Schedule 9.1(a).
"WEEKLY ESTIMATE" has the meaning set forth in Schedule 9.1(a).
"WEEKLY STATEMENT" has the meaning set forth in Schedule 9.1(a).
"WEEKLY ACTUAL AMOUNT" has the meaning set forth in Schedule 9.1(a).
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* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment under Rule 24b-2 of
the Securities Exchange Act 1934, as amended.
74