SYGMA/EL CHICO RESTAURANTS, INC.
DISTRIBUTION SERVICE AGREEMENT
I. RECITALS
A. El Chico Restaurants, Incorporated (hereinafter "El Chico")
is the owner, operator and manager of El Chico, Casa Xxxx
and Cantina Laredo restaurants;
B. El Chico desires to designate The SYGMA Network, Inc., a
wholly-owned subsidiary of SYSCO Corporation, (hereinafter
"SYGMA") as its primary distributor for products to all of
its restaurants;
C. SYGMA is a firm which will carry and distribute products
required by El Chico restaurants;
D. SYGMA desire to perform the function of purchasing,
warehousing, and distributing of products for El Chico
restaurants.
II. BASIC AGREEMENT
A. El Chico agrees to purchase from SYGMA and SYGMA agrees to
purchase, warehouse, and distribute for and to sell, to El
Chico the complete needs of El Chico's restaurants for all
products ("Products") used in its restaurant operations
including but not limited to fresh dairy products, meat
products, other frozen and refrigerated items, including
avocado pulp, canned and dry goods, beverages, paper and
disposables, chemical and janitorial products, and other
non-food products requiring frequent replacement. The only
products to be exceptions from SYGMA distribution are
produce, coffee, gas products, beer, wine and other liquor.
SYGMA shall not sell or distribute any proprietary El Chico
products to other SYGMA customers without prior consent by
El Chico.
B. Those concept restaurants owned by El Chico, but operating
under other trade names, have the right to purchase products
from SYGMA under the same terms and conditions as specified
in the Agreement, but they are not obligated to do so.
Similarly, SYGMA is obligated to provide service to those
restaurants only from its regular inventory.
III. PRODUCT DESIGNATION
A. Product Selection - El Chico may designate the brands and/or
suppliers of Products it prefers to have SYGMA supply. El
Chico reserves the right to select all Product
CORPDAL:63523.1 14047-00001 1
suppliers and to negotiate price and terms with all
suppliers of Products and all freight service suppliers.
B. Inventory Management - SYGMA shall use reasonable,
good-faith effort to utilize proper inventory management to
assure a continuous supply of Products while minimizing the
risk of inventory obsolescence. SYGMA will provide El Chico
with a quarterly status report of slow-moving or close-coded
Products. Within two weeks of receipt of the quarterly
status report of slow-moving or close-coded products, El
Chico and SYGMA agree to review all products whose risk of
obsolescence is apparent. Joint resolutions to assign and
reduce obsolete inventory exposure will be initiated.
El Chico will communicate with SYGMA regarding anticipated
menu or Product mix changes to help avoid obsolete inventory
issues and will assist SYGMA in removal or disposition of
slow-moving and close-coded Products. If SYGMA purchases a
Product in reasonable anticipation of sale to El Chico and
the use of such Product by all or any of the Restaurants is
discontinued by El Chico or the volume of purchases of a
Product declines substantially to the point where El Chico
and SYGMA agree the risk of obsolescence is apparent, El
Chico will either: 1) assume financial responsibility for
the cost to return any unsold inventory of such product to
the supplier; unless the inventory obsolescence or a portion
thereof was caused by SYGMA in which case SYGMA will be
responsible for the cost of any unsold inventory of such
products; or 2) designate a specific restaurant or
restaurants to purchase and use the subject product
inventory within a reasonable period of time; or 3)
implement other disposal alternatives, to be mutually
determined; or 4) if such Product is not sold or otherwise
disposed of in accordance with this paragraph IIIB, El Chico
shall within 30 days, pay SYGMA the Cost herein defined of
any unsold inventory of such product. SYGMA will make such
Product available for pick up by El Chico or its designee.
Notwithstanding, anything to the contrary in this Agreement,
El Chico will not be responsible for SYGMA orders of
discontinued product after El Chico has given SYGMA written
notice of discontinuance of such product. SYGMA will use
reasonable good faith efforts to cancel or return vendor
product on order or in transit to reduce El Chico liability.
IV. SERVICE
A. On order and delivery schedules determined by SYGMA and
agreed upon by El Chico, SYGMA will make two deliveries per
week to new or existing El Chico Restaurants in the dark
grey shaded area depicted in Exhibit 1. SYGMA will make one
delivery per week to new or existing El Chico Restaurants in
the light grey shaded area depicted in Exhibit 1.
CORPDAL:63523.1 14047-00001 2
B. SYGMA will also provide regular distribution service, special
distribution service or expanded delivery frequency to future
Restaurants El Chico may own or franchise outside the once per
week or twice per week boundaries of this Agreement as
depicted in Exhibit 1 but at an additional charge for all
incremental round-trip mileage
CORPDAL:63523.1 14047-00001 3
or other additional costs due to extraordinary routing SYGMA
may incur from its closest customer to the new Restaurants.
The rate per mile will be negotiated in good faith between
both parties.
C. Delivery may be scheduled seven days per week during the
following times:
11:00 p.m. - 11:00 a.m.
1:30 p.m. - 5:00 p.m.
During the meal windows of 11:00 a.m. to 1:30 p.m. and 5:00
p.m. to 11:00 p.m., there should be no SYGMA trucks on the
lot so as not to conflict with customer traffic.
D. For those El Chico Restaurants receiving more than one
delivery per week, it is understood that El Chico Restaurant
managers will reasonably balance the orders to within a 10%
weekly variance from the weekly average order, such that all
deliveries consist of approximately the same number of cases
(excluding holiday weeks). For those restaurants not
achieving this variance requirement, El Chico Restaurant
management and SYGMA will work in good faith to reduce
variances in excess of 10%. If after 30 days following
notification of such variance, a Restaurant has not
reasonably balanced at least three of the next four weeks'
orders, SYGMA shall have the option to add a $50.00 drop
charge to subsequent orders that are not reasonably
balanced, until such time as the Restaurant is reasonably
balancing at least 75% of their orders.
E. SYGMA delivery drivers will bring all products into all El
Chico Restaurants where it is possible to roll a two-wheel
cart. Further, where it is possible to roll a two-wheel
cart, the SYGMA delivery drivers will separate the order to
the Restaurants' freezer, cooler, and storeroom.
V. PRICING
A. SYGMA will price all products to El Chico on the basis of
the following pricing formula:
All Meat Products, including $0.10 per pound over cost
Ground Beef, Seafood and
Poultry
All Cheese products $0.10 per pound over cost
CORPDAL:63523.1 14047-00001 4
Avocado Pulp $1.75 xxxx-up over cost
All other Fresh Produce 16% gross margin on selling price
Soft Drink Syrups Coca-Cola and Xx. Xxxxxx
National Account Pricing
Chile Con Carne Concentrate $0.1425 per pound over cost
Proprietary Products 12.5% gross margin on selling price
All other food products 12.5% gross margin on selling price
including Fresh Dairy
Canned and Dry Goods 12% gross margin on selling price
Ecolab Products National Account Pricing
Equipment/Smallwares 12% gross margin on selling price
All other Non-Food Products 16% gross margin on selling price
CORPDAL:63523.1 14047-00001 5
SYGMA and El Chico agree to monitor gross margins with the
goal of achieving an overall 9.5% gross margin on selling
price prior to any discount or rebates in Sections V.D., V.E.
and VIII. If in any period of three consecutive months, the
overall gross margin on selling price exceeds 9.6% or is below
9.4%, both parties agree that pricing will be adjusted on
mutually agreed upon categories with the goal of achieving a
9.5% overall gross margin on selling price.
B. Definition of Cost - The price to El Chico for all products
sold under this Distribution Service Agreement will be
calculated on the basis of cost. Cost is defined as the cost
of the product as shown on the invoice to SYGMA plus
applicable freight. The invoice used to determine cost will be
the invoice issued to SYGMA by the vendor or by the
Merchandising Services Department of SYSCO Corporation.
Cost is not reduced by cash discounts for prompt payment
available to SYGMA. Promotional allowances reflected on
invoices to SYGMA will be passed along as a temporary
reduction in cost for the term of the promotion.
Applicable freight, in those cases where the invoice cost to
SYSCO is not a delivered cost, means that a reasonable freight
charge for delivering products to SYGMA has been added.
Freight charges may include common or contract charges by the
product vendor or a carrier, or charges billed by Alfmark,
SYSCO Corporation's freight management service, or charges for
shipments back hauled via SYGMA truck.
CORPDAL:63523.1 14047-00001 6
Applicable freight for any product will not exceed the rate
charged by reputable carriers operating in the same market
with the same type of freight service.
SYGMA and SYSCO Corporation perform value-added services for
suppliers of SYSCO brand and other products over and above
procurement activities typically provided. These value-added
services include regional and national marketing, freight
management, consolidated warehousing, quality assurance and
performance based product marketing. SYGMA and SYSCO
Corporation may be reimbursed for the costs of providing these
services and may also be compensated for these services and
consider this compensation to be earned income, but such
reimbursements and compensation shall not reduce SYGMA's
invoice cost for the related product. Receipt of such cost
recovery or earned income for such services does not diminish
SYGMA's commitment to provide competitive prices to its
customers. Notwithstanding such cost recovery or earned income
for such services, (i) promotional allowances reflected on
invoices to SYGMA will continue to reduce SYGMA's cost and
(ii) SYGMA's cost will continue to reflect volume bracket
pricing discounts made available to SYGMA by vendors, and
(iii) SYGMA represents that its margins used to calculate
prices under this agreement reflect promotional allowances or
volume discounts realized by SYGMA through SYSCO purchasing
programs.
C. Pricing assumes that SYGMA investment in inventory will
average 14 days of sales. No one item is assumed to be
purchased in excess of three weeks inventory with the
exception of smallwares. The parties will mutually agree upon
order quantities for new items.
In those cases where SYGMA is requested to purchase in
quantities exceeding three weeks, except for smallwares, El
Chico will compensate SYGMA for any additional costs incurred
in carrying the additional inventory.
D. A SYGMA item selection rebate will be paid on a quarterly
basis on all items purchased from a mutually agreed upon list
of products for which SYGMA has discretion to choose the
source. To qualify, El Chico must be purchasing a full line of
products and must be remitting payment within the stated
terms.
Mutually agreed upon dry items 0.75%
Mutually agreed upon frozen or refrigerated items 1.5%
E. All SYSCO branded items qualify for a 1% rebate paid
quarterly. To qualify, El Chico must be purchasing a full line
of products and must be remitting payment within the stated
terms.
F. All restaurants will be served from SYGMA-Dallas.
CORPDAL:63523.1 14047-00001 7
G. El Chico agrees to require its restaurants to purchase a full
line of all products previously identified in Section II,
Paragraph A.
VI. AUDIT AND FINANCIAL REPORTING
A. El Chico's authorized representative shall have the right at
all reasonable times to examine SYGMA's product cost records
and invoices. El Chico will provide reasonable notice of its
intent to conduct any such examination and shall conduct such
examination so as to not unreasonably interfere with SYGMA's
operations.
B. SYGMA will deliver to El Chico quarterly reports of SYSCO
Corporation's financial position.
C. El Chico will deliver to SYGMA quarterly reports of its
financial position and any other public reports filed (i.e.,
10-K's, etc.).
VII. REPORTING
SYGMA will provide El Chico with regular product pricing reports,
product usage reports, and other managerial information reports similar
to those SYGMA currently provides its other chain restaurant customers.
VIII. PAYMENT TERMS
El Chico will remit weekly to SYGMA's Dallas lockbox. El Chico will
mail the remittance in sufficient time to allow SYGMA's receipt at the
lockbox. every Wednesday, and the remittance will pay for all SYGMA
invoices from the week ended two Saturdays prior, thereby effectively
resulting in 14-day payment terms. SYGMA will ensure that El Chico
receives by Wednesday of every week a complete register of invoices and
credits, by Restaurants, detailing all such transactions for the week
ended the prior Saturday.
SYGMA offers El Chico the flexibility to remit on a 7 day, or cash
equivalent basis and receive an early-payment discount, provided that
the payment for a particular week's shipments (Sunday through Saturday)
is received at SYGMA's designated bank by:
A. The first Wednesday after shipment week a rebate for one
quarter of one percent (0.25%) of the invoice amount early
payment allowance for net 7 day payment determined as follows:
(S M T W TH F S) (shipment week)
7 days S M T W TH F S
^
^
Receipt of payment
CORPDAL:63523.1 14047-00001 8
B. The second Wednesday after a shipment week provided cash
collateral equal to two weeks' worth of purchases is on
deposit with SYGMA, a rebate for one half of one percent
(0.5%) early payment allowance for cash equivalent payment.
(S M T W TH F S) (shipment week)
Net 0 days S M T W TH F S
S M T W TH F S
^
^
Receipt of payment
IX. FRANCHISEE PARTICIPATION
SYGMA will extend service and pricing to any El Chico franchisees equal
to that offered to El Chico as specified in this agreement, provided
those franchisees perform their obligations equal to those required of
El Chico, as specified in this Agreement. At SYGMA's ' election, El
Chico franchisees will provide to SYGMA either standby irrevocable
letters of credit or personal guarantees supported by acceptable
personal financial statements. In no case shall El Chico be responsible
for the debts of its franchisees. It is SYGMA's responsibility to
establish an independent good faith relationship with all franchisees.
El Chico will formally designate to SYGMA the extent of all franchisee
participation in El Chico product contracts. SYGMA reserves the right
to grant less liberal payment terms to any franchisee whose financial
condition does not warrant it.
X. INDEMNIFICATION AGAINST FRANCHISEES
El Chico is a franchisor and permits distribution under this
Distribution Service Agreement to franchisees of El Chico. If for any
reason El Chico terminates this Distribution Service Agreement and
directs SYGMA to cease distribution or sales of proprietary items
bearing trademarks or trade dress owned by El Chico to one or more of
such franchisees, El Chico will defend, indemnify and hold SYGMA
harmless from and against any and all losses, damages or claims by
terminated franchisees which may arise from SYGMA ceasing further sales
to such franchisees under this Distribution Service Agreement.
XI. CONFIDENTIAL INFORMATION
It is understood that SYGMA may be privy, in the course of performing
its role as El Chico's exclusive distributor, to certain information as
to product ingredients, specifications, and restaurant volumes which
are confidential to El Chico. It is understood that El Chico may be
privy, in the course of the parties' relationship hereunder, including,
without limitation, in the course of conducting examinations the
parties' relationship hereunder, including, certain confidential
financial information of SYGMA.
A. This Confidential Information is and shall remain the sole,
exclusive and valuable property of the disclosing party (the
"Discloser"), and the receiving party (the "Recipient") shall
acquire no right, title or interest therein. Unless the
Recipient can
CORPDAL:63523.1 14047-00001 9
prove that such Confidential Information came to the
Recipient's attention or was in the public domain prior to the
Discloser having disclosed such Confidential Information,
directly or indirectly, to the Recipient, the Recipient
covenants and agrees that it shall hold in confidence all
Confidential Information and shall not, without the
Discloser's prior written consent, use Confidential
Information which may come to its attention, or authorize or
permit the use of, any Confidential Information (except as may
be required by applicable law or as may be necessary for SYGMA
to act as El Chico's exclusive distributor) or disclose or
otherwise make available, directly or indirectly, any
Confidential Information to any person (except to such
employees or agents of the Recipient or SYSCO Corporation as
must have access to such information in order to permit SYGMA
to act or attempt to act as El Chico's exclusive distributor).
The Recipient's obligations hereunder, with respect to the
Confidential Information, shall continue for so long as this
Agreement remains in effect and following the termination
hereof . The Recipient's obligations hereunder with respect to
any particular Confidential Information shall in any event
cease at such time as such part of the Confidential
Information is or becomes a part of the public domain through
publication or communication by others, through no fault of
the Recipient. The Recipient shall take all such other steps
reasonably necessary to ensure that the Confidential
Information is not disclosed by any of the Recipient's
officers, directors, employees, or agents to any other person
or entity.
B. The Recipient covenants that it will not copy or reproduce in
whole or in part, any of the Confidential Information, and
upon termination of this Agreement for any reason whatsoever,
the Recipient will promptly deliver to the Discloser's all
documents, data, records, and other written Confidential
Information.
C. The Recipient acknowledges that, irrespective of other causes
for terminations specified elsewhere in this Agreement, the
Recipient's breach of protection of the Discloser's
Confidential Information shall constitute sufficient cause of
termination of this Agreement at any time with ninety days
written notice.
XII. CONTINUATION
In the event that either El Chico or SYGMA should sell its stock or
assets to another entity or be merged into another entity, this
contract shall remain in full force and effect.
XIII. SPECIAL PRODUCT INDEMNIFICATION
SYGMA's policy is that all suppliers provide indemnity agreements and
insurance coverage for products purchased by SYGMA. In order to protect
SYGMA when stocks proprietary/special order items at El Chico's request
and the vendor of such items will not provide a reasonable indemnity
and/or insurance coverage, El Chico will defend, Indemnify and hold
harmless SYGMA and its employees, officers and directors from all
actions, claims and proceedings, and any judgments, damages and
expenses resulting therefrom, brought by any person or entity for
injury, illness and/or death or for damage to property in either case
CORPDAL:63523.1 14047-00001 10
arising out of the delivery, sale, resale, use or consumption of' any
proprietary/special order item except to the extent such claims are
caused by the negligence of SYGMA, its agents or employees.
XIV. FORCE MAJEURE
If SYGMA is unable to perform its obligations under this agreement by
reason of labor disputes, strikes, fire, flood, accident, weather,
civil disturbances, war, acts of God, failure of sources of supply, and
like causes, El Chico may secure its requirements from other sources
for such periods of time as are reasonable under the circumstances.
XV. NOTICES
All notices required or permitted to be given hereunder shall be in
writing and sent by United States registered or certified mail, postage
prepaid, return receipt requested or (b) reputable express delivery
service, such as Federal Express, Express Mail, DHL or UPS, addressed
to the parties as follows: to El Chico Restaurants, Inc., 00000
Xxxxxxxx Xxxxxxx, Xxxxxx, Xxxxx 00000, Attention: Xxxxx Xxxxx and to
The SYGMA Network, Inc., 0000 Xxxx Xxxxxxxxx Xxxxxx, Xxxxx 000,
Xxxxxxxx, Xxxxxxxx 00000, Attention: Xxxxx X. Xxxxxxxxxx. All notices
shall be effective on receipt.
XVI. WARRANTY
SYGMA hereby expressly warrants that all goods furnished hereunder
shall conform to applicable specifications, brands, samples or other
rendered descriptions, that they shall be unadulterated and of high
quality and they shall be merchantable and fit for the purpose for
which they are intended.
XVII. TERM OF AGREEMENT
This Agreement will be remain in effect for a minimum three-year term
beginning June 30, 1996. This Agreement terminates and supersedes all
prior agreements of the parties, whether written or oral.
XVIII. TERMINATION
A. After the initial three-year term of this Agreement, this
Agreement can be terminated by either party with written
notice one year in advance of termination.
B. El Chico has the right to terminate this Agreement upon the
following circumstances:
1. If El Chico has information and knowledge that SYGMA or
SYSCO Corporation has significant financial problems
and will have difficulty meeting the terms of this
Agreement, or
CORPDAL:63523.1 14047-00001 11
2. If SYGMA has significantly breached the terms of this
Agreement and has failed to cure such breach within 30
days following written notice thereof.
C. SYGMA has the right to terminate this Agreement upon the
following circumstances:
1. If SYGMA has information and knowledge that El Chico
has significant financial problems and will have
difficulty meeting the payment terms of this Agreement,
or
2. If El Chico has significantly breached the terms of
this Agreement and has failed to cure such breach
within 30 days following written notice thereof, with
respect to non-monetary breaches, or within one week
following written notice thereof, with respect to
monetary breaches.
D. Upon termination, El Chico agrees to purchase, at SYGMA's
invoice cost plus freight to SYGMA's distribution centers, all
products in SYGMA's inventory which SYGMA has purchased for
distribution to El Chico. El Chico also agrees to absorb all
freight costs, if any, associated with removing such inventory
from the SYGMA distribution centers.
XIX. GOVERNING LAW
This Agreement shall be governed and construed in accordance with the
laws of Texas.
Accepted this day of , 19 .
------------- --------------------------- ----
EL CHICO RESTAURANTS, INC.
/s/Xxxxxxxx X. Xxxxx
--------------------
Xxxxxxxx X. Xxxxx
Executive Vice President and Chief Financial Officer
THE SYGMA NETWORK, INC.
/s/Xxxxx X. Xxxxxxxxxx
----------------------
Xxxxx X. Xxxxxxxxxx
President
CORPDAL:63523.1 14047-00001 12
EXHIBIT I
El Chico Service Area
[GRAPHIC OMITTED]
Twice a week delivery
Once a week delivery
Twice/Week Delivery Area
---------------------------
The Northern boundary to be Interstate 70 (1-70), extending East and West
between the boundaries of the Central Standard Time Zone (CST). From the
juncture of I-70 at each boundary of the CST, extending South to the Gulf of
Mexico on the East and US.-Mexico border on the West. The southern boundary is
the natural boundaries formed by the U.S.-Mexico border and/or the Gulf of
Mexico.
Once/Week-Delivery Area
-----------------------------
On the East, Interstate 25 (1-25) extending North from, El Paso, TX to
Denver, CO. On the North, Interstate 80 (I-80) extending East to Cleveland, OH.
On the East, Interstate 77 (1-77) extending South to Columbia, S.C. From
Columbia, Interstate 20 (1-20) west to U.S. Highway I (U.S. 1) at Augusta, GA;
and South on U.S. 1 to the juncture of U.S. 1 and U.S. 84. U. S. 84 extending
West to the Eastern boundary of the CST and from there, South to the Gulf of
Mexico. The Southern boundary is formed by the natural boundaries referred to in
the twice per week delivery area.
CORPDAL:63523.1 14047-00001 00
XXXXX/ XX XXXXX
XXXXXXXXXX PARTICIPATION AGREEMENT
I, the undersigned, by signature hereon, agree to all terms and conditions of
the Distribution Service Agreement (attached) (the Agreement) by and between The
SYGMA Network, Inc., (hereinafter "SYGMA") and El Chico Restaurants, Inc.
(hereinafter "El Chico") with respect to purchases of Products (as defined in
the Agreement) from SYGMA as if Franchisee were El Chico as such term is used in
the Agreement.
---------------------------- ------------------------------
Entity Name Number of Restaurants
----------------------------
Signed by
----------------------------
Title
----------------------------
Date
CORPDAL:63523.1 14047-00001 14
