Exhibit 10.3
CUSTOMIZED DISTRIBUTION SERVICE AGREEMENT
Commissary Operations, Inc., 0000 Xxxxxxx Xxx. Xxxxxxxxx, XX 00000
("COI") and Shoney's Restaurants, a division of Shoney's, Inc., 0000 Xxx Xxxx
Xxxx, Xxxxxxxxx, XX 00000 ("Customer"), enter into this customized
distribution service agreement as of 23rd day of October, 2000 effective as
of the 30th day of October, 2000.
WHEREAS, COI performs buying, order placement, warehousing,
transportation, inventory control, and distribution services for the food
service industry and
WHEREAS, CUSTOMER operates the establishments listed in Schedule A (the
company owned store locations), and
WHEREAS, CUSTOMER desires to contract with COI as its "Primary
Distributor" for the product categories described on Schedule B ("Products")
to all of its company locations and COI desires to perform these services and
WHEREAS, this agreement does not intend to control any agreements
between COI and Customer for any products manufactured or processed for
Customer except for the distribution of such products, and
In consideration of the mutual covenants and obligations set forth in
this agreement and other good and valuable consideration, the receipt and
sufficiency of which each party hereby acknowledge its, the parties agree as
follows:
1. APPOINTMENT OF DISTRIBUTOR
Customer appoints COI to serve as its "Primary Distributor" to the
Customer Locations of the Products. "Primary Distributor" shall be defined
to mean that Customer is required to purchase no less than 95% the first
year, 96% the second year, 97% the third year, and 98% the fourth year and
ongoing of the Customer's requirement for the Products from COI. Upon
request, COI agrees to offer services to franchisees of Shoney's Restaurants,
subject to the terms and conditions negotiated between COI and the Shoney's
Restaurant franchisee.
2. PRODUCTS COVERED BY THIS AGREEMENT
The Products covered by this agreement are listed on Schedule B attached
hereto. COI agrees not to substitute the brand and/or vendor of the Products
without prior written consent from the Customer. Customer agrees to provide
COI with written notice for changes in the "Products" and for promotional
and/or test items.
3. PURCHASE AND SALE
3.1 During the term of this agreement, COI agrees to sell and deliver
and Customer agrees to accept and pay for Products described on Schedule B
attached hereto.
Customer and COI will work together to maintain only one ordering template
for each distribution center.
3.2 COI and Customer agree that test products are a necessary part of
the restaurant business. Customer may bring in test product from time to time
providing such test products are monitored and phased out in a timely manner
in accordance with paragraph 3.4.
3.3 COI acknowledges that Customer needs to have certain proprietary
products; the two categories of products are 1. customized formulation
and/or specification and 2. logoed takeout items. Customer acknowledges
that proprietary items need to be minimized and should only be added to
Schedule B when absolutely necessary. In any event the total number of
proprietary items should not exceed 180. If that should happen, the Customer
agrees to pay a 1% additional xxxx-up for each item in excess of 180 items.
3.4 The Customer acknowledges that COI needs to be able to turn
inventory quickly. Therefore, COI will make Customer aware of any slow
moving or non-moving inventory (appropriately purchased; approved product,
approved supplier, and reasonable purchase quantity). Customer will pay a 1%
surcharge and any outside storage charges on slow moving or non-moving
inventory per month beginning 30 days after written notification of such
slow-moving or non-moving product.
3.5 If COI and Customer cease doing business for any reason, Customer
will purchase or cause a third party to purchase, in accordance with
paragraph 6.3, all remaining products in COI's inventory and product on order
(providing such quantities are appropriate and reasonable) at landed cost as
defined in paragraph 9.0 FOB COI's shipping dock. COI's policy is that all
suppliers provide indemnity agreements and insurance coverage for products
bought by COI. Therefore, COI will have no obligation to stock proprietary
products or special order products if the supplier if such proprietary
products or special order products will not provide COI with indemnity and
insurance satisfactory to COI.
4. CONTRACT LENGTH
This contract will begin with an initial term of five years and after
the initial term can be terminated by 180 days written notice by either
party.
5. QUANTITY
5.1 COI agrees to provide all of Customer's requirements of the
products during the term of this agreement for use at Customer locations. It
will be COI's responsibility to maximize inventory turns while maintaining a
99.2% fill rate of cases delivered of cases ordered with the exception of
promotional items, test items and the inability to get an adequate supply
from the specified vendor. Failure to maintain a 99.2% fill rate, calculated
on a rolling three period basis, will allow Customer, at its option, to give
180 days termination notice.
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5.2 COI agrees to allow Customer to use a qualified independent party or
the Customer to audit the purchasing, warehousing, and distribution records
of COI to confirm pricing, diesel costs, inventory levels, etc. at Customer's
expense. Customer agrees to allow COI or qualified representative of COI to
inspect Customer's purchasing records to ensure compliance with paragraph 1
"Appointment of Distributor" at COI's expense. Each party is required to
give a five business day notice of the intent to review the records. Any
overcharge or undercharge by COI to Customer will be settled within 30 days
after receipt of notice. If customer does not comply with the requirements
of paragraph 1, Customer will pay to COI the lost gross profits on the sales
deficiency within 30 days after receipt of notice.
6. TERMINATION
6.1 Prior to May 1, 2005, either party may terminate this agreement only for
failure of the other party to consistently comply with the terms of this
contract, including any applicable cure period, and then by giving the other
party 180 days written notice.
6.2 After May 1, 2005, either party may terminate this agreement by giving
the other party 180 days written notice.
6.3 In the case of termination, Customer agrees to purchase or cause a third
party to purchase and remit payment within 10 calendar day for all reasonable
and appropriate quantities of proprietary, special, and test items in COI's
inventory at Landed Cost as defined in paragraph 9.0 FOB COI's shipping dock.
The termination date of the contract will be the required pickup date. Upon
notice of termination, Customer will be required to monitor the required
amount of product to order.
6.4 Notwithstanding termination of this Agreement, those provisions of this
Agreement with continuing applicability shall survive and remain in full
force and effect. In other words, when this agreement terminates, certain
provisions of this agreement will survive after the termination including,
but not limited to, the pricing formula.
7. PRICE
7.1 Customer agrees to pay to COI the Landed Cost as defined in paragraph
9 plus the Xxxx Up as defined in Schedule C less any rebates or incentives in
compliance with paragraph 7.3.
7.2 Customer agrees to pay COI an additional fee per delivery for stores
more than 600 miles from the closest COI distribution center which currently
includes Nashville, TN; Tifton, GA; and Ripley WV. The fee is determined by
calculating the total miles per route in excess of 600 miles, doubling the
miles and multiplying that by the current transportation fee of $1.30 per
mile. The total is then allocated to each store based on the additional
distance of each store over the initial 600 mile radius to derive the fee per
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delivery for each store. The per mile transportation fee is subject to
change based on actual costs. See example below of the calculation.
Delivery Miles Add'l Miles From Add'l Miles as % Allocated
From DC 600 Miles of total miles Fee
-------------------------------------------------------------
Minimum No
Fee Distance 600
Store A 640 40 3.92% $ 40.78
Store B 680 80 7.84% $ 81.57
Store C 800 200 19.61% $ 203.92
Store D 900 300 29.41% $ 305.88
Store E 1,000 400 39.22% $ 407.84
Total Fees at
$1.30 mile $1,040.00 1,020 100.00% $1,040.00
7.3 Promotional and advertising allowances, discounts and rebates provided
by suppliers to COI which are attributable to goods supplied to Customer by
COI (except (i) cash discounts, (ii) new warehouse opening allowances, and
(iii) allowances that are only available to a distributor and which are
intended to offset costs of performing marketing, warehousing and
distribution functions on behalf of a supplier, as long as such discounts and
allowances, no matter the source or service to which attributed, do not
increase Customer's net delivered cost of product) shall be paid over to
Customer.
7.4 Current established vendor payment terms will not be modified by
Customer during this agreement without COI's prior written consent.
7.5 Number of cases delivered, miles driven, average dollar value of cases,
and diesel cost are the major variables affecting pricing on Schedule C.
Diesel cost is addressed in paragraph 14.1. Any significant changes in
total miles driven, number of cases delivered and/or the average dollar value
of cases would be a reason to review Schedule C. Both parties agree to
negotiate on good faith an adjustment to Schedule C should a change in any or
all of the items aforementioned occur. In any event, the pricing should not
be reviewed more than once every twelve months.
8 DELIVERY
8.1 COI and Customer agree to make best efforts to regularly review the
route schedule in order to minimize transportation costs and maximize
operational efficiencies.
8.2 Delivery days are Sunday through Saturday.
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8.3 Delivery times are preferred 5:00 a.m. to 11:00 a.m. and 1:30 p.m.
to 5:00 p.m., however, for mutual benefit it may be possible to schedule
deliveries outside of these times.
8.4 All stores will receive at least two deliveries a week with volume
sometimes dictating a third delivery. Deliveries will be tailgate
deliveries. COI agrees to have the truck loaded properly and driver trained
to assist in prompt deliveries. Customer agrees to use all reasonable best
efforts to unload the truck in a very efficient and reasonable time frame
ensure prompt deliveries for Customers stores and other customers of COI.
8.5 Schedule A, attached hereto, contains the schedule by Customer
locations with times for placing orders. If Customer's store does not have
their order in by their order time, COI will ship that store the order it
placed the same day the week before. The store will not be able to return or
refuse any of the products unless it is damaged or out of code date.
8.6 Any Customer stores will have to accept all product ordered and
delivered to them unless the product is damaged and/or out of code date. If
the product was ordered by the store and is in code date and is not damaged,
it may not be returned.
8.7 If COI fails to deliver any item ordered by a Company store, other
than a discontinued item, it will be the responsibility of COI to get the
product to the store as quickly as reasonably possible and at the sole
expense of COI. If the item is not a critical item, it will be delivered on
the next scheduled order. If a special delivery is required, no other items
will be delivered without an additional delivery charge of $50.00 plus any
actual freight charges if delivered by a third party.
8.8 If a store requests a special delivery or picks up any item at a
COI distribution center, there will be a $50.00 charge in addition to the
product cost and any delivery cost.
8.9 If a Company store wants to pick up any item at a COI distribution
center, there will be a $50.00 charge in addition to the product cost.
9 LANDED COST
"Landed Cost" shall be defined as all costs from the vendor and all costs
incurred by COI to get the products from vendor's shipping point to COI's
final distribution center. The cost will include the cost of the item plus
freight and handling charges. Any freight costs as a result of backhaul
arrangements will be limited to the delivered price from the vendor. Landed
Cost is not to be reduced by and cash discounts for prompt payment available
to COI. Landed Cost will be provided to the Customer prior to implementation
each period and will not be changed except for produce, which will change as
often as twice a week. Any errors in the landed cost will be corrected as
needed.
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10 MANNER AND TIME OF PAYMENT
10.1 COI will invoice customer electronically. Customer shall pay all
invoices by Wednesday for all deliveries for the previous week via electronic
payment. The payment terms will be net of the invoice amount. During the
term of this contract, if ownership of Customer changes, COI will evaluate
the current payment terms based on the financial net worth and credit history
of the new owner. Any increase in the payment terms will require a cash
payment from Customer to COI equal to the average for the three prior weeks
purchases for each additional week added to the payment term. In the event
that COI's invoices have not been paid by Customer by due date, COI reserves
the right to (a) demand payment in full on delivery, (b) assess a late charge
of 1% on all such unpaid invoices and/or (c) charge a finance charge of 1%
per month in excess of 30 days after date of invoice or the highest rate
allowed by law, whichever is lesser, on all such unpaid invoices.
10.2 COI will provide to Customer, at no charge, information on
cost and freight that is reasonably available on a weekly
basis.
10.3 COI and Customer agree to supply one another with public
financial information (i.e. quarterly, annual financial
statements, etc.) within 45 days after the end of each
applicable accounting period upon request.
11 SCHEDULES
Schedules A, B, C and D will need to be updated from time to time. They may
only be modified by COI with Customer's prior mutual written consent, which
consent may not be unreasonably withheld.
12 FORCE MAJEURE
If either party is prevented from complying, either totally or in part, with
any of the terms of this agreement by reason of fire, war, rebellion,
accident, acts of God, strikes, lockouts and/or any other causes of casualty
beyond its reasonable control, then, upon written notice to the other party,
the requirements of this agreement, or the affected provisions hereof to the
extent affected, shall be suspended during the period of such disability.
13 BINDING EFFECT
This agreement shall be binding upon and enforceable against the parties
hereto and their respective successors and permitted assigns. Neither party
may assign any of its rights and obligations under this agreement without the
prior written consent of the other party. Notwithstanding the provisions of
this paragraph, either party may, with the other party's consent, assign this
agreement to a party purchasing all or substantially all of the assets of the
first party and, further, a sale of all or
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substantially all of the equity securities of either party shall not be
deemed an assignment of the agreement.
14 DIESEL
14.1 Diesel fuel is a major cost factor affecting distribution costs. This
agreement is based on diesel at $1.30 per gallon. For each initial change in
the price of diesel fuel of $.05 a gallon from $1.30, no change will be made
to the markup on Schedule C. Any additional increases or decreases, in
increments of $.10, will result in a $.03 change to the markup on Schedule C.
The calculated cost of diesel fuel will be based on the most recent three
month average. COI will provide Customer with documented fuel costs monthly,
subject to audit by Customer, to support any fuel cost adjustments to the
markup. During the first twelve weeks of this contract, Customer will pay no
more than, or receive no less than, a $.03 markup for changes in diesel fuel
costs.
15 CONSTRUCTION
The captions, headings and arrangements used in this agreement are for
convenience only and do not affect, limit or amplify the terms and provisions
hereof and shall not be used in the interpretation of the agreement. When
used in this agreement, references to the singular shall include the plural
and vice versa as the context may require.
16 NOTICES
All notices or other communications required or permitted hereunder shall be
in writing, executed by an officer of the party giving notice, and shall be
deemed to have been duly given when personally delivered, or upon receipt if
delivered by express mail or other similar method or by facsimile
transmission, or certified U.S. Mail, with postage prepaid to the addresses
set forth below, or by e-mail sent by an officer of the party giving notice
to an officer of the other party, or such other addresses as the parties
shall furnish in writing:
Commissary Operations, Inc.:
ATTN: President and COO
0000 Xxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
(000) 000-0000
xxxxx_xxxx@xxxxxxx.xxx
Customer:
ATTN: President and CEO
0000 Xxx Xxxx Xxxx, Xxxxx X-0
Xxxxxxxxx, XX 00000
(000) 000-0000
xxxx_xxxxx@xxxxxxx.xxx
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17 GOVERNING LAW
The terms of the agreement shall be interpreted and construed in accordance
with the laws of the state of Tennessee. The federal and state courts in
Davidson County, Tennessee shall constitute the proper, sole, and exclusive
venue and forum for any action arising out of or in any way related to this
agreement. Each party to this agreement hereby consents to any of those
courts' exercise of personal jurisdiction over the party in that type of
action and expressly waives all objections the party otherwise might have to
that exercise of personal jurisdiction.
18 PERISHABLE AGRICULTURAL COMMODITIES
This agreement may cover sales of "perishable agricultural commodities" as
those terms are defined by federal law. Generally, all fresh and frozen
fruits and vegetables which have not been processed beyond cutting,
combining, and/or steam balancing are considered perishable agricultural
commodities, as are oil balanced French fried potato products. All
perishable agricultural commodities sold under the agreement are sold subject
to the statutory trust authorized by Section 5c of the Perishable
Agricultural Commodities Act, 1930 (7U.S.C. 499ec). The seller of these
commodities retains a trust claim over these commodities and all inventories
of food or other products derived from these commodities until full payment
is received.
19 BINDING ARBITRATION
All actions, disputes, claims, or controversies of any kind between the
parties to this agreement, including, but not limited to any action, dispute,
claim, or controversy arising out of this agreement or obligations herein
shall be resolved by binding arbitration in Nashville, Tennessee,
administered by the American Arbitration Association (the "AAA") in
accordance with the Commercial Arbitration Rules of the AAA (the "Rules")
and, to the maximum extent applicable, the Federal Arbitration Act, as
supplemented by the Tennessee Arbitration Act. Arbitrations shall be
conducted before one arbitrator mutually agreeable to Customer and COI. If
the parties cannot agree on an arbitrator within thirty days after the
request for arbitration, then the arbitration shall take place before an
arbitrator selected in accordance with the Rules. The arbitrator shall not
have the power (a) to alter, modify, amend, add to, or subtract from any term
or provision of this agreement or (b) to grant interim injunctive relief
prior to the award. Judgment of any award rendered by an arbitrator may be
entered in any court having jurisdiction. All fees of the arbitrator and
other costs and expenses of the arbitration shall be paid by COI and Customer
equally unless otherwise awarded by the arbitrator; provided, however, that
the non-prevailing party in an arbitration shall pay all reasonable
attorneys' fees and expenses incurred by the prevailing party in connection
with the Dispute and the arbitration. In addition to the grounds set forth
in Section 29-5-313 of the Tennessee Arbitration Act, any court described in
paragraph 17 of this
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agreement may vacate an award of the arbitrator, in whole or in part, to the
extent the award is contrary to applicable law or contrary to the clear and
convincing evidence otherwise presented to the arbitrator. The court shall
have the authority to reverse an award (in whole or in part) for rehearsing
by the arbitrator.
20 AMENDMENTS
This agreement may only be amended by a written document signed by each of
the parties.
21 DATA PROCESSING
COI will provide product and cost reports and other available information to
Customer weekly at no charge. COI will provide direct order entry software
that will enable Customer locations to place orders directly with COI.
Customer must supply computer hardware and communications connections
necessary to enable Customer to utilize such order entry software. COI will
provide additional reports to Customer at no charge, providing no additional
programming effort is required.
22 CONFIDENTIALITY AGREEMENT
COI and Customer shall maintain the terms and conditions of this agreement
and the attached schedules ("Confidential Information") in strict confidence
and shall not disclose any of the Confidential Information to any person
other than employees or agents of COI and Customer with a need to know or as
otherwise required by securities, franchise, or other laws. COI shall
maintain the Customer Direct Pricing Agreements disclosed to COI by Customer
in strict confidence ("Confidential Information") and shall not disclose any
of the Confidential Information to any person other than employees or agents
of COI with a need to know or as otherwise required by securities, franchise
or other laws. Customer and COI shall not use the Confidential Information
for any other purpose other than in order to provide the products and
services covered by this agreement, each party shall return all Confidential
Information to the other party, or destroy it and furnish an affidavit
confirming its destruction.
23 INSURANCE
In the event COI and Customer are not owned by the same parent company, COI
must provide Customer with a current certificate of insurance providing COI
with a minimum of $1,000,000 in general liability and products liability
insurance listing Customer as an additional insured with 30 days of change.
24 NATURE OF RELATIONSHIP
This agreement shall not create any partnership, agency, or other type of
business relationship between COI and Customer.
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25 WAIVER
The failure of a party to insist in any one or more instances on the
performance of any term or condition of this agreement shall not operate as
a waiver of any future performance of that term or condition.
26 SEVERABILITY
If a court of competent jurisdiction holds any provision of this agreement
invalid or ineffective with respect to any person or circumstances, the
holding shall not affect the remainder of this agreement or the application
of this agreement to any other person or circumstance. If a court of
competent jurisdiction holds any provision of this agreement too broad to
allow enforcement of the provision to its full extent, the court shall have
the power and authority to enforce the provision to the maximum extent
permitted by law and may modify the scope of the provision accordingly
pursuant to an order of the court.
27 CUSTOMER DIRECT PRICING AGREEMENTS
Schedule D will have all Customer Direct Pricing Agreements with suppliers
listed by Customer. It will be Customer's responsibility to give written
notice to COI of any supplier direct price agreements or special supplier
direct allowances given to Customer by supplier. COI agrees to buy under
such agreements and reflect supplier direct pricing in the Landed Cost under
paragraph 9, providing they have received written notice from Customer.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement dated and
effective as first written above.
Commissary Operations, Inc. (COI)
By: /s/ Xxxxx X. Xxxx, Xx.
----------------------------------------------
Title: President and COO
Customer:
Shoney's, Inc.
By: /s/ Xxxxxxx X. Xxxxx
---------------------------------------------
Title: President and CEO - Shoney's Restaurants
By: /s/ J. Xxxxxxx Xxxxxx
--------------------------------------------
Title: President and CEO - Shoney's, Inc.
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Schedules omitted due to immateriality.
