EXHIBIT 10.1
DISTRIBUTION AGREEMENT
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THIS DISTRIBUTION AGREEMENT (hereinafter the "Agreement") is made as of the 10th
day of October, 2001, by and between MARRIOTT DISTRIBUTION SERVICES, INC.
(hereinafter "Marriott"), a Delaware corporation having its principal offices at
10400 Fernwood Road, Bethesda, Maryland 20817 (mailing address: Marriott Drive,
Washington, D.C. 20058), and NATHAN'S FAMOUS, INC. (hereinafter "Buyer"), a
Delaware corporation having its principal offices at 1400 Old Country Road,
Suite 400, Westbury, NY 11590.
Recitals
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WHEREAS, Marriott operates certain distribution centers from which it
distributes food and related supplies to foodservice operations which are
located within the service area of such distribution centers; and
WHEREAS, Buyer presently operates certain restaurants listed on Exhibit A
in which it or an affiliate owns a controlling interest (hereinafter the
"Company Units") and licenses and permits others to operate or manage certain
restaurants listed on Exhibit A-1 (hereinafter the "Franchised Units") under the
service mark "Nathan's Famous, Kenny Rogers Roasters and Miami Subs". Company
Units and Franchised Units shall include additional locations opened within the
Service Area of the Distribution Centers (as those terms are defined
hereinafter) which have the same service requirements, characteristics and
economics and are sometimes hereinafter collectively referred to as the "Units";
and
WHEREAS, Marriott and Buyer desire to enter into a distribution services
agreement pursuant to which Marriott will provide certain warehousing and
distribution services in connection with Buyer's operation of the Company Units
and Marriott will offer to provide certain warehousing and distribution services
in connection with the operation of the Franchised Units by various franchisees.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties agree as follows:
1. Definitions. As used in this Agreement, the following capitalized
terms shall have the meanings indicated:
a. "Accounting Period" shall mean each of Marriott's thirteen (13)
four-week accounting periods.
b. "Agreed Markup Per Case" shall mean for each full or partial case
of Product Supplied by Marriott to the Units, the amount set forth in
Section 4(a) payable by the Units to Marriott in excess of the Cost of the
Product, which amount is intended as a distribution fee for Marriott to
Supply Products to the Units.
c. "Average Cases Per Delivery" shall mean the sum of the number of
full or partial cases of Products delivered to all Units in the aggregate
during a specified period of time divided by the number of deliveries made
to all Units in the aggregate during such period of time, in each such case
excluding any special deliveries.
d. "Cost" shall mean an amount for each Product based upon the sum of
the following: (i) the latest invoice price (which invoice price shall
reflect any on-invoice promotional and advertising allowances, free goods,
rebates, quantity discounts, and any other vendor provided discounts and
allowances, except cash discounts and distributor rebates and allowances as
described in Section 5 below) correctly billed to Marriott by a third party
for a Product Supplied by Marriott to the Units; (ii) plus a proportional
share of the transportation charge incurred by Marriott to transport the
Product to the Distribution Centers, or in those cases where Marriott picks
up the Product from a Supplier or arranges for freight consolidation, the
transportation charge Marriott would have been charged by the supplier to
deliver the Product to the Distribution Centers; (iii) plus the actual
charge per Product that Marriott is required to pay for procurement
services associated with obtaining contract pricing on Products for which
Buyer has not obtained a contracted price from the supplier; (iv) plus any
applicable sales, use, excise, or other taxes, whenever assessed. In
defining Cost in the manner described, it is the intention of the parties
as near as is practical to charge and pay for the actual price paid for a
Product by Marriott taking into account that deliveries to Marriott from
suppliers occur at different prices, due to the effective date of such
price changes, from time to time.
e. "Delivered Cost" shall have the meaning set forth in Section 4.
f. "Diesel Index" shall mean the index entitled "EIA Retail On-Highway
Diesel Prices - National U.S. Average" published from time to time by the
Energy Information Agency of the Department of Energy (as currently set
forth at www.eia.doe.gov), or in the event that such index is no longer
available, a substantially similar index that comes to be relied upon in
its place.
g. "Distribution Center(s)" shall mean the warehouse facilities
operated by Marriott as any of the same may be relocated or supplemented
from time to time.
h. "Pricing Period" shall have the meaning set forth in Section 4.
i. "Proprietary Items" shall mean Products which a Distribution Center
stocks exclusively for the Units or for which larger than normal
inventories are maintained by a Distribution Center or commitments entered
into primarily for the Units.
j. "Products" shall mean Proprietary Items and all other goods within
the categories of food, beverages, and supplies described on Exhibit B and
stocked by the Distribution Centers on the date hereof, except those goods
that are customarily distributed "store door delivery" by third parties
selected by Buyer, and such additional goods as the parties may agree in
writing to add.
k. "Service Area" shall mean the core geographic area as determined by
Marriott from time to time within which are located the preponderance of
the Units to which the Distribution Center's normally deliver goods.
l. "Service Level" shall mean the total number of items actually
received, in relationship to the total number of items ordered.
m. "Supply(ing)(ied)" shall have the meaning set forth in Section 2.
2. Distribution Services.
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a. Company Units. During the term of this Agreement, Buyer shall
purchase Products for the Company Units from Marriott, and Marriott shall
purchase, warehouse, and distribute for and sell Products to Buyer for such
Company Units (hereinafter collectively "Supply(ing)(ied)"), regardless of
the name under which they are operated, so long as there is no change in
the cost of Supplying the Company Units resulting from a material change in
the number or type of menu items or in the service requirements from the
manner in which the Company Units are being operated on the date hereof.
The Units will be responsible for any increased costs resulting from
material changes in the overall average frequency or manner of delivery
requested by the Units.
b. Franchised Units. During the term of this Agreement, Marriott
agrees to offer to Supply any Franchised Units within the Service Area
having economic and service characteristics similar to those of the Company
Units on essentially the same terms and conditions as herein contained,
provided such Franchised Unit shall (i) have established and shall have
maintained its creditworthiness to Marriott's satisfaction, and (ii) does
not have any other contractual obligations under any other distribution
agreement of any kind or nature relating to the Products hereunder. Buyer
agrees to notify any Franchised Unit that meets the foregoing requirements
that any purchases of Products from Marriott shall be governed by the terms
and conditions of this Agreement. Buyer represents and warrants that
Franchised Units are required to purchase all of their Proprietary Items
under Buyer's Franchise Agreement and vendor contracts, and that Buyer
shall notify Marriott of any material change to the Franchise Agreement or
vendor contract regarding this purchase requirement. The separate
understanding with any Franchised Unit may provide for a security deposit
or different payment terms such as cash on delivery or cash in advance,
based upon the creditworthiness of an individual Franchised Unit. Any
adjustments to the pricing applicable to the Company Units under the terms
of this Agreement shall be made as well to the pricing for any Franchised
Unit. Authorized substitutions and Proprietary Items shall be determined by
Buyer, and wherever in this Agreement any other approvals, authorizations,
or consents are required to be obtained from Buyer, such terms shall mean
exclusively Buyer and any franchisee participating in the program
established by this Agreement agrees to be bound by such determination.
Buyer agrees to cooperate with Marriott by advising Marriott in a timely
manner of (i) any plans to convert a Company Unit to a Franchised Unit or a
Franchised Unit to a Company Unit and (ii) any credit or compliance issues
concerning a Franchised Unit that comes to Buyer's attention. Marriott
acknowledges that Buyer will not be responsible for payment for Products
Supplied to Franchised Units.
c. All Units. Deliveries to the Units will be made two (2) times per
week on the days of the week and at times of the day as mutually determined
by Marriott and Buyer. All deliveries shall be commenced prior to 11:00
a.m. or after 2:00 p.m. unless otherwise agreed upon by the Unit.
Initially, Marriott representatives from each Distribution Center will
contact representatives of the Units served by each respective Distribution
Center for the purpose of notifying the Units of the proposed routing
schedules. The delivery "window" for such established delivery schedules
shall be between one (1) hour prior to and one (1) hour after such
established delivery schedules. In the event such delivery is delayed
beyond Marriott's control, Marriott shall use its best efforts under the
circumstances to notify the Unit and establish an alternate delivery
schedule. Saturday and Sunday deliveries will be made at the discretion of
the appropriate Distribution Center. During the normal business hours of
the Units deliveries will be made inside the delivery door of the Units
with reasonable assistance (inside of the Units) provided by the Units, and
the Units will be responsible for putting the Products away in the
appropriate dry, cooler, or freezer storage area. Marriott will be
responsible for placing the Products within the appropriate dry, cooler, or
freezer storage area for deliveries made before or after the normal
business hours of the Units if no employee of the Unit is present at the
time of delivery, however, Marriott will not be responsible for shelving or
rotating stock. The Units shall be responsible for (i) keeping the delivery
door and storage aisles free of debris and obstructions to permit Marriott
free access during deliveries and (ii) ensuring there is sufficient area
for the delivery vehicle to park adjacent to the delivery door. Marriott
reserves the right to change the manner in which it Supplies the Units,
provided that the change is made at the same time for a majority of
Marriott's business locations within the Service Area and does not have a
material adverse effect on the quality of goods and services provided
Buyer.
d. Ordering and Delivery. Ordering and Delivery . Orders shall be
placed by the Units via Marriott-provided toll-free (800) phone numbers
using (i) Marriott's automated touch-tone order entry system or (ii) a PC
terminal automated entry system (the hardware to be provided by the Units
and Instill or comparable software to be provided by Marriott at its actual
cost), no later than the established order cut off time for the respective
Distribution Center two (2) days (also referred to as a "skip day") prior
to the scheduled delivery. At Marriott's option, deliveries during the
normal business hours of the Units shall be (i) checked in jointly by
Marriott's driver of the delivery vehicle and an employee at the Unit (both
of whom are to note on the invoice any items shorted or damaged), or (ii)
made on an honor system. Under the honor system Marriott agrees to replace
those items identified within twenty-four (24) hours after delivery as
shorted or damaged. Marriott reserves the right to require that all
Products be checked in jointly, particularly at any Units reporting an
unusual number of shorted or damaged items under the honor system. Shorted
items which are Proprietary Items shall be delivered at the cost of the
party responsible for the shortage within twenty-four (24) hours of such
request using a method of delivery approved by Marriott. Shorted items,
other than Proprietary Items, shall be delivered upon reasonable request,
taking into consideration the item requested and cost of the method of such
delivery, at the cost of the party responsible for the shortage within
twenty-four (24) hours of such request. In the event Marriott, in its
reasonable discretion, determines that the requested item and the cost of
delivery is unreasonable, the parties shall agree upon an alternative
method of delivery and time of delivery which exceeds the twenty-four (24)
hour objective. The invoice shall be deemed conclusive proof of delivery of
the items listed thereon if (i) no employee of the Unit is present at the
time of delivery or delivery is made under the honor system and Marriott is
not notified of the shorted or damaged items within twenty-four (24) hours,
or (ii) items are checked in jointly and no shorted or damaged items are
noted on the invoice at the time of delivery. Marriott shall ensure that
subsequent billings reflect a credit for shorted or damaged items noted on
the invoice. The Units may from time to time request that Marriott deliver
to the Units specially requested Products outside of the normal ordering
and delivery schedule. The Units shall be responsible to pay Marriott the
Delivered Cost of such specially requested Products plus (i) Twenty-five
Dollars ($25.00) if shipped as an unscheduled delivery to the Unit by a
Marriott delivery vehicle scheduled to be in the vicinity of the Unit, (ii)
One Hundred Dollars ($100.00) if shipped by an unscheduled Marriott
delivery vehicle specifically dispatched to the Unit, or (iii) Marriott's
actual shipping cost plus Twenty-Five Dollars ($25.00) if shipped via a
common carrier. The Units shall be responsible for a restocking fee of
Three Dollars and Fifty Cents ($3.50) per case for Products returned to the
Distribution Center due to an error by the Units and a late fee of Ten
Dollars ($10.00) per order for any orders accepted by a Distribution Center
after the established order cut off time. Notwithstanding the foregoing,
the Unit and the Distribution Center General Manager, upon mutual
agreement, may waive any such special order or restocking fees for up to
three (3) instances per contract year.
e. Phase In Schedule. Deliveries will begin for the Units to be
Supplied by the respective Distribution Centers on the date specified
opposite each of the Distribution Centers listed below:
Distribution Center Date(s)
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Groveland, FL November 2001
Los Alamitos, CA No later than November 2002
All others November - December 2001
3. Term. The initial term of this Agreement shall commence on the 1st
day of November, 2001, and shall remain in effect for a period of two (2)
years unless earlier terminated in accordance with the terms hereof. After
expiration of the initial term, this Agreement automatically shall renew
for successive renewal terms of one (1) year each, unless terminated by
either party by written notice to the other given not less than one hundred
twenty (120) days prior to the end of the then current term.
4. Price.
a. Delivered Cost. Buyer, for the Company Units, and the respective
franchisee for the Franchised Units, shall pay to Marriott for the goods
and services provided hereunder the Delivered Cost of all Products Supplied
by Marriott to the Units. "Delivered Cost" as used herein for full or
partial cases of Products (based upon cases as currently configured) shall
mean Cost plus the appropriate Agreed Markup Per Case, which initially
shall be the amount set forth below opposite the respective Average Cases
Per Delivery bracket.
Average Cases Per Delivery Agreed Markup Per Case Percent (%) Markup Per Case
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121 cases + $2.25 8.9%
101 to 120 $2.30 9.1%
81 to 100 $2.40 9.5%
71 to 80 $2.60 10.3%
61 to 70 $3.16 12.5%
51 to 60 $3.79 15.0%
Below 51 $3.79 plus $60.00 15.0% plus $60.00
After the initial nine (9) Accounting Periods of this Agreement, the parties
shall "true up" all purchases made during the final six (6) Accounting Periods
of the initial nine (9) Accounting Periods to the $2.40 Agreed Markup Per Case
(9.5% Markup Per Case) of the established average case cost of $25.28. Prior to
the beginning of each subsequent period of six (6) Accounting Periods (each, a
"Pricing Period"), using data from the last completed Pricing Period, Marriott
shall determine the appropriate Agreed Markup Per Case at which the Units will
be invoiced for the upcoming Pricing Period based upon the bracket in which the
Average Cases Per Delivery falls for all Units in the aggregate. In making this
determination, Marriott shall calculate whether there is a variance between the
Agreed Markup Per Case utilized during the current Pricing Period and the Agreed
Markup Per Case that would have been applicable based upon a calculation of the
Average Cases Per Delivery using the actual data from the last Pricing Period.
In the event there is such a variance, the Agreed Markup Per Case for each
respective bracket shall be adjusted for the upcoming Pricing Period to take
into account the amount Delivered Cost was overstated or understated, as the
case may be. In the event Delivered Cost was overstated or understated by any
amount during the last Pricing Period (or portion thereof) of the term of this
Agreement, Marriott shall deliver a check to Buyer (for Buyer and the respective
franchisees) or Buyer shall deliver a check to Marriott for Buyer's Company
Units only, and each respective franchisee shall be responsible to deliver a
check to Marriott for its respective number of Franchised Units within ten (10)
days after such amount is determined by Marriott.
b. Price Adjustment . The Agreed Markup Per Case for each respective
bracket shall be adjusted after the first (1st) year of the term of this
Agreement and for each year thereafter by multiplying the most recent
Agreed Markup Per Case by the "Percentage Change" (hereinafter defined) in
the "Price Index" (hereinafter defined).
(1) "Price Index" as used herein shall mean the Consumer Price Index
for All Urban Consumers (CPI-U), U.S. City Average, base period 1982-84 =
100, specified for "All items", as issued by the Bureau of Labor Statistics
of the United States Department of Labor.
(2) "Percentage Change" as used herein shall mean the percentage
increase in the Price Index represented by a fraction, the numerator of
which shall be the latest Price Index available during the month prior to
the last full month of the currently expiring adjustment period and the
denominator of which shall be the Price Index reported for the month which
was two (2) months before the currently expiring adjustment period
commenced (or such earlier month as may be required to base the calculation
on a full twelve month period, or multiple thereof).
(3) In the event that 1982-84 = 100 is no longer used as the basis of
calculation of the Price Index, or if a substantial change is made in the
terms or number of items contained in the Price Index, then the Price Index
shall, if the data required therefor is readily available, be adjusted to
the figure that would have been arrived at had the manner of computing the
Price Index as in effect at the date of this Agreement not been altered. In
the event such Price Index (or a successor or substitute index) or such
data is not available, a reliable governmental or non-partisan publication
evaluating the information theretofore used in determining the Price Index
shall be used.
c. Business Data . Buyer hereby represents that the data and other
information set forth on Exhibit C attached hereto and made a part hereof,
accurately reflects the business of the Units to be covered by the terms of
this Agreement as such business is currently being operated. Marriott and
Buyer agree that in the event that the six (6) month review discloses a
variance from the data and information set forth on Exhibit C, the Agreed
Markup Per Case will be adjusted accordingly.
d. Taxes and Fuel. In the event that during the term of this Agreement
there is any increase in taxes or a surcharge on fuel or utilities, or an
extraordinary increase in fuel or utility rates, Marriott and Buyer agree
there will be a commensurate increase in the Agreed Markup Per Case to
cover such increased costs which adjustment shall be part of the Pricing
Period adjustment in Section 4(a) . With respect to increases or decreases
in fuel rates, if the average Diesel Index during such Pricing Period
increases or decreases $0.25 or more compared to a base fuel cost of $1.39,
then the applicable Agreed Markup Per Case for the immediately following
Pricing Period shall be increased or decreased by $0.01 for each full $0.10
increase or decrease in the Diesel Index.
e. Review of Invoices. Buyer may upon written notice to Marriott and
at times mutually agreed upon by the parties, examine a reasonable sample
of Marriott's invoices from the prior twelve (12) months to verify Cost,
but not in excess of two (2) times per year. Buyer shall include in such
written notice to Marriott the Products and the time period to be reviewed.
5. Rebates and Allowances.
a. Promotional and advertising allowances and discounts and rebates
provided by third party suppliers to Marriott which are not reflected on
invoices from suppliers but which are attributable to goods Supplied to
Buyer by Marriott (except (i) cash discounts, (ii) new warehouse opening
allowances, and (iii) allowances or rebates that are only available to a
distributor and which are intended to offset damaged product costs and for
performing warehousing and distribution or usage reporting functions on
behalf of a supplier) shall be paid over to Buyer as soon as practical
after the end of each year of the term of this Agreement, to the extent
permitted under the terms of Marriott's contract with the supplier.
Notwithstanding the foregoing, if Marriott is able to obtain better pricing
for Products through membership in a buying co-op than Buyer is able to
obtain, and Marriott and Buyer agree on the Cost for such Products, then
Marriott will purchase such Products through the buying co-op and Marriott
shall be entitled to retain any rebates and allowances, without limitation
or restriction, on such purchases made available through the buying co-op.
The Units agree to be responsible for any performance requirements
associated with any rebates or allowances they receive and to refund any
rebates or allowances paid or credited to the Units by Marriott for which
the Units do not purchase the requisite Products. Marriott shall have
rights of setoff and/or recoupment against any rebates or allowances or any
other sums owed to Buyer (or any franchisee, as applicable) by Marriott (or
any affiliate), any of Buyer's (or such franchisee's, as applicable)
obligations to Marriott (or any affiliate).
b. As referenced in Section 5(a) above, certain suppliers such as
Ecolab, Pepsi, and Coca-Cola may provide distributor allowances or rebates
which are intended to offset costs of performing warehousing and
distribution functions on behalf of the supplier. In the event Buyer has
negotiated a delivered price with a supplier and the supplier provides a
distributor allowance to Marriott intended as a distribution fee, Marriott
may Supply the relevant products of such supplier to the Units at the
delivered price agreed upon between Buyer and the supplier and retain the
distributor allowance in lieu of the Agreed Markup Per Case provided the
distribution allowance is not less than the Agreed Markup Per Case.
6. Volume . The Units shall order from the Distribution Centers
substantially all of their requirements for Products during the term of this
Agreement, the Delivered Cost of which is estimated to be Seventy Eight Million
Seven Hundred Thousand Dollars ($78,700,000.00) per year. In the event that the
annualized Delivered Cost of Products Supplied to the Units in the Service Area
drops below Sixty Million Dollars ($60,000,000.00) per year and Marriott and
Buyer cannot agree on an appropriate adjustment to the Agreed Markup Per Case,
Marriott may discontinue Supplying Units in the Service Area upon ninety (90)
days' prior written notice to Buyer.
7. Buy-Ins and Proprietary Items.
a. Marriott shall, upon Buyer's written request, make long-range
purchases of goods in excess of normal inventories to take advantage of
promotional prices or market conditions and in anticipation of promotions
planned by the Units (the "Promotional Periods"). Buyer shall provide
Marriott with four (4) weeks' advance notice of larger than normal
quantities required for promotions planned by the Units and of orders for
new items and new Unit openings and closings. Buyer shall be responsible
for any increased carrying costs incurred by Marriott prior to, during and
after any such Promotional Periods related to the purchase of a Product in
quantities which would exceed on average a thirty (30) day supply,
including, but not limited to, interest and storage costs. Notwithstanding
anything to the contrary in Section 9 herein, Buyer within fifteen (15)
days after termination of this Agreement with respect to any Distribution
Center, shall purchase from Marriott, pay for, and arrange for removal from
the Distribution Center, of all Proprietary Items and of any goods held by
the Distribution Center for the Units pursuant to long range purchases
requested by the Units. It shall be the responsibility of Buyer to arrange
for and contract with sources of supply for all Proprietary Items for the
Units. Marriott shall advise Buyer about any Proprietary Items at a
Distribution Center for which no Units have placed an order for more than
thirty (30) days, and Buyer shall have thirty (30) days thereafter within
which to take possession of such Products, sell such Products to a
liquidator, or have such Products shipped to the Units. In no event shall
Proprietary Items exceed Three Hundred Forty Eight (348) in number for any
Distribution Center. Marriott also shall advise Buyer about any Proprietary
Items or Promotional Period buy-ins at a Distribution Center for which the
Units have placed orders of less than Twenty (20) for Proprietary Items and
for Promotional Period buy-ins during a thirty-day period (hereinafter
"Slow Moving Items"). If Slow Moving Items exceed Ten (10) in number,
within thirty (30) days Buyer agrees to either (i) ask Marriott to
discontinue in inventory the excess Slow Moving Items by discontinuing the
use of such items or (ii) pay to Marriott an additional One Dollar ($1.00)
per case for such Slow Moving Items that are Proprietary Items in excess of
the limit and a fair and reasonable fee determined by Marriott for Slow
Moving Items that are Promotional Period buy-ins..
b. Prior to Marriott commencing service to the Units, Buyer shall
arrange for and Marriott shall purchase and transport to the Distribution
Centers reasonable quantities of the saleable inventory of Buyer's
proprietary items held by Buyer's current distributor. The price paid by
Marriott plus the costs of transporting such inventory to the Distribution
Centers and of handling shall be considered Marriott's Cost. Buyer shall
pre-approve those items to be purchased by Marriott from Buyer's current
distributor and thereafter Buyer shall be responsible for the purchase of
such items from Marriott in accordance with the terms applicable to
Proprietary Items set forth in Section 7(a). In order that Marriott's
Distribution Centers may coordinate their own planned inventory levels of
such proprietary items, Buyer shall obtain from its current distributor a
schedule of inventory levels of such proprietary items on hand for each of
the following number of days prior to the Distribution Centers commencing
service to the Units: thirty (30) days, twenty- one (21) days, fourteen
(14) days, seven (7) days, and then daily thereafter.
c. As part of the Pricing Period adjustment in Section 4(a), Buyer and
Marriott agree to take into account any increase or decrease in costs as a
result of a change in terms such as cash discounts or shipping terms of
Buyer's vendor contracts. Buyer agrees to give Marriott reasonable notice
of any price changes Buyer anticipates receiving from Buyer's suppliers.
8. Payment.
a. The Units shall pay Marriott the Delivered Cost of all Products
Supplied hereunder by check or wire transfer of immediately available funds
so that payment for all Products is received by Marriott within twenty one
(21) days after the date the Products were delivered by Marriott. The Units
will not during any Pricing Period be subject to the per case adjustments
referenced below in this paragraph or the late charges set forth in Section
8(b) below, so long as the average balance of outstanding sales payable was
twenty one (21) days or less. Prompt payment discount for Units paying by
electronic funds transfer within one (1) day after delivery shall be ten
cents ($.10) per case.
b. Any payments not made to Marriott when due shall bear interest from
the date due to the date of payment at an annual rate of eighteen percent
(18%). In the event of the failure to make any payments when due (after the
notice and opportunity to cure required in accordance with Section 15(a)),
in addition to any other remedies herein provided, Marriott shall have the
right to immediately require that all future deliveries be made on a C.O.D.
basis only, notwithstanding any credit terms herein provided. Any
forbearance by Marriott or failure by Marriott (i) to insist on timely
payment or (ii) to exercise any remedies herein provided in the event
timely payment is not made, shall not constitute a waiver of the right of
Marriott in the future to insist on timely payment in accordance with the
terms of this Agreement or to exercise any such remedies herein provided.
c. At any time during the term of this Agreement Marriott may request
information or documentation concerning Buyer's or any Franchised Unit's
continuing ability to make payments on the balance of outstanding sales
payable. This information may include the classification of outstanding
debt by Standard and Poor's, Moody's, or such other recognized authority,
or may include the status of a bank credit facility, loan commitments, loan
maturities, or other sources of operating cash flow. In the event of a
material adverse change in the financial condition of Buyer or the owner of
particular Franchised Units (which shall be deemed to affect only such
Franchised Units), including an event of default, a downgrade, or a refusal
to renew a credit facility or any other loan on the part of a lender,
notwithstanding any credit terms herein provided Marriott shall have the
right immediately, as it pertains to the Buyer or said Franchised Units'
owner, to require that all outstanding amounts, not subject to a bonafide
written dispute, be paid in full upon demand and require all future
deliveries be made on a C.O.D. basis only. In the event that the Buyer or
Franchised Units' owner fails to pay all outstanding amounts not subject to
a bonafide dispute or pay for a C.O.D. delivery, when delivered, to
Marriott's reasonable satisfaction, Marriott may terminate the Agreement as
to Buyer or any individual Franchised Units. Notwithstanding the foregoing,
Marriott shall not terminate the Buyer or a Franchised Unit which owes
Marriott outstanding amounts which are subject to a bonafide written
dispute so long as said Unit continues to pay C.O.D. for deliveries when
made to Marriott's reasonable satisfaction.
9. Title and Risk of Loss. Title to goods shall pass upon delivery to the
Units. Marriott shall bear the risk of loss, damage, or destruction until title
passes to the Units.
10. Reports. Marriott agrees to provide usage reports to Buyer upon
request. The parties acknowledge that Marriott may provide Buyer with some
reports reasonably requested by Buyer that do not necessarily measure
performance criteria in accordance with the terms of this Agreement but that may
nevertheless be useful as a management tool.
11. Liaison. Marriott and Buyer shall each designate a managerial level
person to answer any questions which may arise relating to performance of this
Agreement.
12. Service Level. Marriott shall each year during the term of this
Agreement maintain a Service Level of Ninety-Eight and One-Half percent (98.5%)
on all Products Supplied to the Units, unless due to (i) an act or omission on
the part of Buyer or the Units, (ii) the causes set forth in the force majeure
provision of this Agreement, or (iii) other causes beyond the reasonable control
of Marriott. Recovery shipments made by Marriott the same or next day shall be
counted toward satisfaction of the foregoing Service Level requirement. Buyer
shall provide Marriott with a list of pre-approved substitutions which may
automatically be substituted for items ordered. All other substitutions may only
be made upon the approval of Buyer's designated liaison, who shall authorize the
substitution or direct that the order be shorted. The Delivered Cost for any
substituted items which are not pre-approved, provided the substitution is not
due to an act or omission on the part of Buyer or other causes beyond the
reasonable control of Marriott, shall be based upon the lower of (i) the Cost of
the substituted item or (ii) the Cost of the original item ordered.
13. Confidentiality. Marriott and Buyer agree that (i) the specific terms
of this Agreement, (ii) all information as to source, quantity, and price of
goods and services, and (iii) all information regarding either party's products,
business, customers, or methods of operation learned during the term of this
Agreement or in anticipation of entering into this Agreement shall be maintained
in confidence and not be released to any private third party for any reason
whatsoever other than pursuant to a validly issued subpoena from a court or
governmental authority having jurisdiction over the party or pursuant to a
discovery request made under the Federal Rules of Civil or Criminal Procedure or
similar state court rules and to which the party is required to respond and
except as may be required to implement the terms of this Agreement pertaining to
Franchised Units. All confidential and proprietary information which either
party has obtained from the other shall be returned upon the expiration or
earlier termination of this Agreement. Neither party, without the prior written
consent of the other, shall disclose the information contemplated in this
Section 13 to any person or entity, except as otherwise required by law or by
applicable rules of any national securities exchange. The provisions of this
paragraph shall survive the expiration or earlier termination of this Agreement.
14. Warranties. The Products Supplied comprising each shipment or other
delivery hereafter made by Marriott to, or in order of, Buyer is hereby
guaranteed, as of the date of such shipment or delivery, to be on such date, not
adulterated or misbranded within the meaning of the Federal Food, Drug and
Cosmetic Act, and not an article which may not under the provisions of Section
404 of the Federal Food, Drug and Cosmetic Act, be introduced into interstate
commerce. Marriott will assign to Buyer all assignable rights against
manufacturers and suppliers of goods Supplied to Buyer by Marriott under
warranties and indemnifications Marriott receives from such manufacturers and
suppliers. Marriott agrees to cooperate with Buyer, at Buyer's sole cost and
expense, in the enforcement of any such warranties or indemnifications against
manufacturers or suppliers. Marriott represents that to the best of its
knowledge all Products Supplied to the Units by Marriott shall conform to
applicable specifications, brands, samples, or other rendered descriptions, and
shall be merchantable. It is understood that Marriott is only responsible for
such defects which it should have knowledge of, it being understood that
Marriott is not the manufacturer of any of the Products. Marriott agrees to
indemnify, defend, and hold Buyer, its officers, directors, employees, agents,
representatives and affiliates harmless from and against any liability, cost, or
expense (including reasonable attorneys' fees) arising out of the negligent act
of any negligence on the part of Marriott, its employees, and/or its authorized
representatives.
15. Default. If either party materially defaults hereunder, the
non-defaulting party may terminate this Agreement with respect to the affected
Company Units effective immediately upon written notice to the defaulting party
(following the end of any cure period provided for herein). The non-defaulting
party shall be entitled to declare all amounts payable hereunder to be due and
payable immediately and, subject to Section 28 herein, shall be entitled to all
remedies provided by law or equity (including reasonable attorneys' fees and
costs of suit incurred whether or not a suit is commenced). The following events
shall be deemed to be material defaults hereunder:
a. Failure by Buyer to make any payment required to be made to
Marriott hereunder, which failure is not remedied within five (5) days
after receipt of written notice thereof from Marriott (provided that if two
(2) or more notices of default and opportunities to correct have been given
within any twelve (12) month period, no further notice and opportunity to
correct need be given); or
b. Failure by either party substantially to perform in accordance with
the terms and conditions of this Agreement, which failure is not remedied
within sixty (60) days , or in the event the nature of such failure can not
be remedied within sixty (60) days the remedy shall be commenced within
said sixty (60) days, (unless a different time period is specifically
herein provided) after receipt of written notice from the other party
specifying the nature of such default; or
c. (i) Filing of a voluntary bankruptcy petition by either party; (ii)
filing of an involuntary bankruptcy petition against either party which is
not withdrawn or otherwise dismissed within ninety (90) days after filing;
(iii) assignment for the benefit of creditors made by either party; or (iv)
appointment of a receiver for either party; or
d. Acquisition of the capital stock of Buyer (or any of its
affiliates) and such acquiring entity substantially controls the management
or equity of Buyer or substantially all of the assets of Buyer (or any of
its affiliates) by a competitor of Marriott shall not constitute a default
giving rise to monetary damages, but shall entitle Marriott to terminate
this Agreement upon one hundred twenty (120) days prior written notice to
Buyer (and as otherwise provided in Section 18 below).
16. Force Majeure . Marriott and Buyer shall incur no liability (except for
payments for Products delivered hereunder) to each other due to a default under
the terms and conditions of this Agreement resulting from fire, flood, war,
strike, lock-out, work stoppage, slow-down, or other labor disturbances, power
failure, major equipment breakdowns, construction delays, accident, riots, acts
of God, acts of United States' enemies, laws, orders or at the insistence or
result of any governmental authority or any other similar delay beyond each
other's reasonable control. In the case of any of the foregoing delays, the
parties will be obligated to perform within a reasonable time after the causes
interfering with performance have been removed.
17. Relationship of Parties . Nothing in this Agreement shall be deemed or
construed by the parties or any third party as creating the relationship of
principal and agent, partnership or joint venture between the parties, it being
understood and agreed that no provision contained herein, and no act of the
parties, shall be deemed to create any relationship between the parties other
than the relationship of buyer and seller.
18. Assignment. Neither Buyer or Marriott may assign its rights and
obligations under this Agreement to any third party without the consent of the
other party, which consent shall not be unreasonably withheld; except that
Marriott may assign its rights and obligations under this Agreement without
Buyer's consent to any party controlled by, or under the common control with
Marriott, or to any purchaser of all or a substantial part of Marriott's
business or assets.
a. A sale of stock or other equity interest of Company Units resulting
in a change in control shall be deemed an assignment for purposes of this
paragraph. In the event of such an assignment, or the sale of any material
segment of the business of any of the Company Units (together or
separately, a "Covered Transaction"), Marriott, in its discretion, may
require the Buyer to require the purchaser of such business segment to
assume the terms of this Agreement applicable to the Company Units included
in such segment acquired. Any such purchaser in a Covered Transaction shall
provide Marriott with adequate assurances of its ability to perform all of
the obligations and terms and conditions of this Agreement applicable to
the Units, including the provision of the following to Marriott's
satisfaction:
(i) security deposit equivalent to three (3) weeks' of purchases;
(ii) financial statements for the last five (5) years or from the time
of formation of the purchasing entity, whichever is less;
(iii) disclosure of the assets of all individuals and business
entities having an interest in the purchasing entity; and
(iv) tax returns for the last five (5) years for each of such
individuals and business entities.
b. In the case of a sale of the stock of Buyer (or its ultimate
parent), the purchasers shall not be required to comply with subsections
18a(i) - 18a(iv) above.
c. If the purchaser in a Covered Transaction does not fulfill the
conditions set out in Sections 18a(i) - 18a(iv) above to Marriott's
reasonable satisfaction, then Marriott's sole remedy shall be to exercise
the rights as provided in Section 15 d above with respect to the Company
Units included in the Covered Transaction.
d. Marriott shall have the right to assign this Agreement at any time
provided it remains liable under the terms of this Agreement
notwithstanding any assignment, and Marriott provides Buyer with written
notice of such assignment.
e. In recognition that both Marriott and Buyer are publicly-traded
companies, the parties agree that the sale of issuance of stock, other
forms of equity, and/or any other transaction involving the other's
ownership shall not be subject to the other party's approval (although
Section 15 d above shall apply notwithstanding this Section 18 e).
19. Headings . The headings used in this Agreement are inserted only for
the purpose of convenience and reference, and in no way define or limit the
scope or intent of any provision or part hereof.
20. Severability of Provisions . Neither Marriott nor Buyer intend to
violate statutory or common law by executing this Agreement. If any section,
sentence, paragraph, clause or combination of provisions in this Agreement is in
violation of any law, such sections, sentences, paragraphs, clauses or
combinations shall be inoperative and the remainder of this Agreement shall be
binding upon the parties.
21. Parties Bound . This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and permitted
assigns. Nothing herein, expressed or implied, shall be construed to give any
other person any legal or equitable rights hereunder.
22. Notices . All notices required or permitted to be given hereunder shall
be in writing and delivered personally or sent by United States registered or
certified mail, postage prepaid, return receipt requested, or by reputable
overnight delivery service which provides for return receipts, and shall be
addressed to the parties as follows:
If to Marriott, addressed to it in care of:
Marriott Distribution Services, Inc.
Marriott Drive
Washington, D.C. 20058
Attention: Executive Vice President and General Manager
with a required copy to:
Marriott Distribution Services, Inc.
Marriott Drive
Washington, D.C. 20058
Attention: Law Department (MDS)
If to Buyer, addressed to it in care of:
Nathan's Famous, Inc.
1400 Old Country Road, Suite 400
Westbury, NY 11590
Attention: Chief Financial Officer
With a required copy to:
Nathan's Famous, Inc.
6300 N.W. 31st Avenue
Fort Lauderdale, FL 33309
Attention : Senior Director Corporate Food Service
or to such other address as the parties may direct by notice given as
hereinabove provided. Notice shall be deemed given when received as evidenced by
the return receipt or the date such notice is first refused, if that be the
case.
23. Further Action . Marriott and Buyer each shall cooperate in good faith
and take such steps and execute such papers as may be reasonably requested by
the other party to implement the terms and provisions of this Agreement,
including Buyer assisting Marriott in obtaining any indemnification agreements
which Marriott may wish to obtain from manufacturers or suppliers of Buyer's
Proprietary Items.
24. Waiver . Marriott and Buyer each agree that the waiver of any default
under any term or condition of this Agreement shall not constitute any waiver of
any subsequent default or nullify the effectiveness of that term or condition.
25. Governing Law . All controversies and disputes arising out of or under
this Agreement shall be determined pursuant to the laws of the State of
Maryland, United States of America, regardless of the laws that might be applied
under applicable principles of conflicts of laws. The parties irrevocably submit
to the exclusive jurisdiction of (i) the Courts of the State of Maryland in
Montgomery County, and (ii) if federal jurisdiction exists, to the Federal
District Court, Maryland District for the purposes of any suit, action, or other
proceeding arising out of this Agreement. The parties acknowledge that
substantial elements of performance of this Agreement will occur in such
jurisdiction. To the extent permitted by law, the parties mutually agree to
waive any right either may have to a jury trial in any action, proceeding, or
counterclaim brought by either of the parties hereto against the other on any
matters whatsoever arising out of or in any way connected with this Agreement.
26. [Intentionally Omitted]
27. Entire Agreement . This Agreement constitutes the entire understanding
between the parties hereto, and supersedes all prior written or oral
communications, relating to the subject matter hereof. All purchase orders
submitted after the effective date hereof shall be subject to the terms of this
Agreement, conflicting terms contained in any purchase order to the contrary
notwithstanding. No amendment, modification, extension or failure to enforce any
condition of this Agreement by either party shall be deemed a waiver of any of
its rights herein. This Agreement shall not be amended except by a writing
executed by both of the parties hereto.
28. Limitation on Damages. NOTWITHSTANDING ANY OTHER PROVISION HEREIN,
NEITHER PARTY SHALL HAVE LIABILITY TO THE OTHER UNDER ANY CIRCUMSTANCES FOR
SPECIAL, CONSEQUENTIAL OR PUNITIVE DAMAGES (INCLUDING WITHOUT LIMITATION FOR
LOSS OF PROFITS OR DAMAGE TO REPUTATION) RESULTING FROM ITS FAILURE TO COMPLY
WITH THIS AGREEMENT OR RESULTING FROM ANY CESSATION OR INTERRUPTION OF THIS
AGREEMENT, OR THE SERVICES PROVIDED BY MARRIOTT HEREIN.
29. No Interference with Contract. Buyer acknowledges and agrees that it
approached Marriott and initiated the discussions which are the subject matter
of this Agreement. Marriott would not engage in such discussions nor execute
this Agreement except in reliance on the factual representations and covenants
set forth in this Section 29. Buyer represents and warrants that neither it nor
the Units are bound by any distribution agreement of any kind or nature relating
to the Products or any food, beverage or related supplies other than one or more
distribution agreements which, by their terms, may be terminated by Buyer prior
to the commencement of the term of this Agreement, without any liability to
Buyer (other than payment by Buyer of the termination fees, if any, stipulated
in such distribution agreement(s)). Buyer has determined based upon its own
business judgment and independently of the subject matter of this Agreement to
terminate these distribution agreement(s). Buyer shall be solely responsible for
payment of any termination fees and any costs, expenses, claims and damages of
any kind resulting from, relating to or arising in connection with such
termination. Buyer shall indemnify, defend and hold harmless Marriott, its
directors, officers, employees, representatives, agents and affiliates from any
and all claims, actions, demands, and damages (including reasonable attorney's
fees and expenses) of any nature resulting from, relating to or arising in
connection with any distribution agreement(s) or the termination or attempted
termination thereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
ATTEST: MARRIOTT DISTRIBUTION SERVICES, INC.
By: /s/ William J. Sardella By:/s/Victor L. Crawford
--------------------------------- --------------------------------
Printed Name: William J. Sardella Printed Name: Victor L. Crawford
Title: Corporate Counsel Title: Executive Vive President
ATTEST: NATHAN'S FAMOUS, INC.
By: /s/Ronald DeVos By: /s/Wayne Norbitz, Pres
------------------------------- ---------------------------
Printed Name: Ronald DeVos Printed Name: Wayne Norbitz
Title: Vice President - Finance Title:President
EXHIBIT A
COMPANY UNITS
EXHIBIT A-1
FRANCHISED UNITS
EXHIBIT B
*PRODUCTS
Frozen Foods
Refrigerated Foods
Dry Storage Foods and Beverages
Related Supplies (e.g., paper products and cleaning supplies)
*Except all goods customarily distributed "store door delivery" by third parties
selected by Buyer.
EXHIBIT C
BUSINESS DATA AND
SERVICE CHARACTERISTICS
Annual Number of Cases for all Units: 2,882,452
Number of Units: 315
Average Number of deliveries per Unit per week: 2
Average Number of cases per delivery: 88
Average Cost per case: $25.28
Average case cube: 1.0
DISTRIBUTION AGREEMENT
1. Definitions..........................................................19
2. Distribution Services................................................20
a Company Units......................................................20
b.Franchised Units...................................................20
c All Units..........................................................21
d Ordering and Delivery..............................................21
e Phase In Schedule..................................................22
3. Term.................................................................22
4. Price................................................................22
a.Delivered Cost.....................................................22
b.Price Adjustment...................................................22
c.Business Data......................................................23
d.Taxes and Fuel.....................................................23
f.Review of Invoices.................................................23
5. Rebates and Allowances...............................................23
6. Volume...............................................................24
7. Buy-Ins and Proprietary Items........................................24
8. Payment..............................................................25
9. Title and Risk of Loss...............................................25
10. Reports..............................................................25
11. Liaison..............................................................25
12. Service Level........................................................25
13. Confidentiality......................................................26
14. Warranties...........................................................26
15. Default..............................................................26
16. Force Majeure........................................................27
17. Relationship of Parties..............................................27
18. Assignment...........................................................27
19. Headings.............................................................28
20. Severability of Provisions...........................................28
21. Parties Bound........................................................28
22. Notices..............................................................28
23. Further Action.......................................................28
24. Waiver...............................................................28
25. Governing Law........................................................29
26. [Intentionally Omitted]..............................................29
27. Entire Agreement.....................................................29
28. Limitation on Damages................................................29
29. No Interference with Contract........................................29
Exhibit A.........Company Units
Exhibit A-1.......Franchised Units
Exhibit B.........Products
Exhibit C.........Business Data and Service Characteristics