MANAGEMENT AGREEMENT
This MANAGEMENT AGREEMENT, effective as of January 1, 1996, is by and among
Xxxx-Xxxxx Company, a Delaware corporation ("NFC"), Military Distributors of
Virginia, Inc., a Virginia corporation (the "MANAGEMENT COMPANY"), Xxxxx X.
Xxxxx, an individual resident of the State of Virginia, Xxxxx X. Xxxxxx, Xx., an
individual resident of the State of Virginia, and Xxxx X. Xxxxx III, an
individual resident of the State of Virginia, which individuals are the holders
of all of the issued and outstanding shares of the capital stock of the
Management Company (such individuals are hereinafter referred to individually as
a "MANAGER" and collectively as the "MANAGERS").
RECITALS
A. The parties hereto have entered into an Asset Purchase Agreement as of
October 12, 1995 (the "ASSET PURCHASE AGREEMENT") whereby NFC proposes to
purchase substantially all of the assets of the Management Company; all of the
parties acknowledge this Management Agreement to be a material condition to the
asset purchase.
B. The Management Company, as a result of the asset purchase will change
its name to Military Distributors of Virginia Management Company and will
continue to be owned and operated by the Managers.
C. The Management Company has been in the business of supplying groceries
and related products to U.S. Military commissaries in the United States and
Europe since 1974.
D. The Management Company has demonstrated its management ability to
develop and keep its customers and maintain a high proficiency supplying the
U.S. Military commissary demands in the United States and abroad.
E. NFC recognizes the success achieved by the Management Company and the
expertise of the Managers.
F. The parties hereto wish to provide for the terms and conditions upon
which NFC will engage the Managers, through the Management Company, to manage
the business and operations of the Military Division of NFC, all as hereinafter
set forth.
G. The parties hereto wish to make certain covenants and agreements in
connection with the management of the business and operations of the Military
Division of NFC, all as hereinafter set forth.
Accordingly, and in consideration of the covenants and agreements herein
contained, the parties hereto agree as follows:
SECTION 1
1. DEFINITIONS. The following terms, when used with initial capital letters,
shall have the following meanings for purposes of this Agreement.
"ACTUAL WORKING CAPITAL" shall mean the actual amount of accounts
receivable and inventory (based on the "first-in, first-out" method of
accounting for inventories) less the actual amount of accounts payable
(exclusive of outstanding checks for payment of accounts payable that have not
cleared the bank), as such amounts are carried on the accounting records of the
Military Division from time to time in each case determined in accordance with
GAAP.
"BASE COMPENSATION" shall be as defined in Section 3(a)(i) hereof.
"BASE PROFITS" shall mean the sum of Fifteen Million Seven Hundred Ninety-
Six Thousand Dollars ($15,796,000). NFC acknowledges that its decision to
purchase the assets of the Management Company pursuant to the terms of the Asset
Purchase Agreement was based largely on the audited December 1993 and December
1994 financial statements and proforma adjustments to cash flow of the
Management Company for those years and the interim balance sheet and income
statement as of and for the 8-month period ended August 31, 1995 prepared by the
Management Company on a "first-in, first-out" basis. If for any reason the
foregoing financial statements are found to be materially inaccurate, if the
parties are unable to agree upon an adjustment of the Base Profits, then at
NFC's option, in its sole discretion, NFC may terminate the Asset Purchase
Agreement, this Agreement and any other agreement entered into in connection
with the Asset Purchase Agreement. Notwithstanding the foregoing, the Base
Profits figure set forth above is dependent upon the accuracy of the add-back
items provided by the Management Company and the Managers to NFC for purposes of
calculating the Base Profits. If during the course of the due diligence
investigation to be conducted by NFC prior to the effective date of this
Agreement, it is determined by NFC that any of the add-back items listed on
Exhibit A hereto have been materially misstated, if the parties are unable to
agree upon an adjustment of the Base Profits, then at NFC's option, in its sole
discretion, NFC may terminate the Asset Purchase Agreement, this Agreement and
any other agreement entered into in connection with the Asset Purchase
Agreement.
In addition, NFC represents and warrants that its base profit calculation
for the 13 accounting periods ending July 15, 1995 for its Tidewater and
Baltimore divisions used to calculate the Base Profits fairly presents the
results of operations of such divisions in conformance with generally accepted
accounting principles consistently applied, except for such matters noted on
such calculation. The parties hereto agree that, in connection with the audit
of NFC's books and records to be conducted by NFC's
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independent auditors ("NFC AUDITORS") for the year ended December 30, 1995,
which will include an observation of the physical inventory taken at the
Tidewater and Baltimore divisions, NFC Auditors will review the books and
records of the Tidewater and Baltimore divisions and prepare a report thereon on
or before January 31, 1996. If such report reveals that there has been
material adjustments that would have affected the base profit calculation for
the 13 accounting periods ending July 15, 1995 for the Tidewater and
Baltimore divisions, then the Base Profits figure set forth above will be
adjusted accordingly to reflect such misstatement, subject to the approval of
NFC Auditors.
"BASE WORKING CAPITAL" shall mean the amount of Sixty-One Million Five
Hundred Thousand Dollars ($61,500,000) as of the date of this Agreement, which
shall be increased or decreased, on a cumulative basis, proportionately with the
percentage change in the CPI during each calendar month or portion thereof
during the term of this Agreement. Notwithstanding the foregoing, the Base
Working Capital figure set forth above is subject to confirmation in due
diligence. If during the course of the due diligence investigation to be
conducted by NFC and the Management Company prior to the effective date of this
Agreement, it is determined by NFC or the Management Company that any of the
components provided by the Management Company or NFC to arrive at such figure
have been materially misstated, then either NFC, at its option, or the
Management Company, at its option, may terminate the Asset Purchase Agreement,
this Agreement and any other agreement entered into in connection with the Asset
Purchase Agreement.
"CPI" shall mean the Consumer Price Index for food for all urban consumers
as determined and published periodically by the Bureau of Labor Statistics of
the United States Department of Labor.
"CONTINGENT COMPENSATION" shall be as defined in Section 3(a)(ii) hereof.
"GAAP" shall mean generally accepted accounting principles as applied by
NFC on a basis consistent with prior periods for NFC, except that inventories
shall be accounted for on the basis of the "first-in, first-out" method of
accounting for purposes of this Agreement.
"MILITARY DIVISION" shall mean the business of the distribution of
groceries and related products to military commissaries on the East Coast of the
United States and in Europe, as such business has been conducted by NFC through
its warehouses in Baltimore, Maryland and in the Norfolk, Virginia area, and as
such business has been conducted by the Management Company through its
warehouses in the Norfolk, Virginia area prior to the acquisition by NFC of
substantially all of the assets of the Management Company used by it in such
business, and shall include as well any unrelated business developed and managed
by the
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Management Company by mutual agreement of NFC and the Management Company for the
mutual benefit of NFC and the Management Company.
"MILITARY DIVISION PROFITS" shall mean the profits before interest and
taxes of the Military Division determined in accordance with GAAP, except that:
(i) The calculation of the profits before interest and taxes of the
Military Division will include a quarterly charge for interest expense or
credit for interest income equal to the Short Term Rate (multiplied by a
fraction, the numerator of which is the number of weeks in the fiscal
quarter and the denominator of which is the number of weeks in the fiscal
year) in effect at the end of each fiscal quarter multiplied by the
difference between the Actual Working Capital at the end of such fiscal
quarter less the Base Working Capital (such amount to be a charge for
interest expense if it is a positive amount and a credit for interest
income if it is a negative amount).
(ii) Depreciation charges will be calculated without any step up in
the basis of the assets acquired by NFC from the Management Company, which
assets will continue to be depreciated on the basis used by the Management
Company prior to the acquisition of such assets by NFC. All fixed assets
placed in service from and after the date hereof will be depreciated based
on NFC's standard depreciation policies.
(iii) No gain or loss will be recognized with respect to any
transfers of fixed assets between the Military Division and any other unit
of NFC. Any gain or loss that is realized on any sale or other disposition
of fixed assets of the Military Division to any third party will be
recognized in determining Military Division Profits.
(iv) The "first-in, first-out" method of accounting for inventories
will be used for purposes of calculating Military Division Profits.
(v) NFC will not assess arbitrary administrative charges, pursuant
to NFC's normal practices of allocating corporate overhead costs to
operating units, to the Military Division, provided, however, NFC will
charge to the Military Division the actual costs of (a) administrative
services provided by NFC to the Military Division other than in the
ordinary course of business, consistent with NFC's practices with other
operating units, by mutual agreement of NFC and the Management Company,
and (b) other special services purchased by NFC or special services
provided by the personnel of NFC not normally included in intercompany
administrative charges and for the direct benefit of the Military Division.
NFC will provide reasonable prior notice to the Management Company prior
to assessing such charges to the Military Division.
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(vi) The Military Division will be assessed a cost of capital charge
for excess capital expenditures as follows:
(A) Solely for purposes of calculating the cost of capital
charge for excess capital expenditures, the Military Division will
have an assumed annual capital expenditure budget for each fiscal year
equal to One Million Three Hundred Fifty-Nine Thousand Dollars
($1,359,000), which will be increased or decreased, on a cumulative
basis, proportionately with the percentage increase in the PPI from
the end of 1994 to the beginning of the applicable fiscal year (it
being expressly understood and agreed that this assumed capital
expenditure budget is solely for purposes of calculating the cost of
capital charge for excess capital expenditures, and all actual capital
expenditures shall be subject to NFC's standard capital expenditure
approval process and neither the Management Company nor any of the
Managers is authorized to make any capital expenditure except in
accordance with such capital expenditure approval process).
(B) The cost of capital charge for excess capital expenditures
will be calculated by applying the Short Term Rate to the average of
the amounts of the excess capital expenditures, less depreciation
charges using NFC's standard depreciation policies, at the beginning
of the year and the end of the year, provided that if the beginning of
the year or the end of the year excess capital expenditure calculation
results in a negative number, then zero will be used in place of such
negative number for purposes of calculating the average.
(C) If the Military Division does not utilize all of its assumed
capital expenditures in any fiscal year, such unused amount may be
carried over to successive years.
(D) All capital expenditures will be deemed to have occurred in
the middle of each fiscal year in which the purchase actually occurs.
(E) There will be no cost of capital charge for capital
expenditures made in the fifth and sixth fiscal years under this
Agreement, but the cost of capital charges for excess purchases made
in prior years will continue to be applied during the fifth and sixth
fiscal years.
Solely for purposes of clarification, the following is an example of
an application of the foregoing principles:
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Facts:
The Military Division makes $1,000,000 in capital expenditures in
year one, $2,500,000 in year two, $1,300,000 in year three, $1,400,000
in year four and $1,600,000 in year five. The CPI increase is two
percent (2%) per year. The Short Term Rate is seven percent (7%) per
year.
Computation:
YEAR 1: The allowable capital expenditures for year one are
$1,386,000 ($1,359,000 x 1.02). The Military Division made $1,000,000
in capital expenditures so there is an unused credit of $386,000.
YEAR 2: In year two the allowable capital expenditures are $1,413,000
($1,359,000 x 1.04). The Military Division made $2,500,000 in capital
expenditures resulting in $1,087,000 in annual excess expenditures.
From the annual excess capital expenditures, the depreciation
adjustment is required of $109,000 ($1,086,000 using a five year life
for one half of a year). After the depreciation adjustment the
adjusted annual excess is now $978,000 less a credit from year one of
$386,000 resulting in $592,000 of cumulative excess expenditures at
the end of year two. The capital charge is calculated at $20,720
using a seven percent rate on the average excess capital from years
one and two (($0 + $592,000)/2) x .07 = $20,720).
YEAR 3: In year three the allowable capital expenditures are
$1,441,000 ($1,359,000 x. 1.06). The actual capital expenditures are
$1,300,000. The credit for year three is $141,000. The cost of
capital charge is $28,910 determined by taking the beginning of the
year $592,000 and subtracting the year three credit of $141,000 and
subtracting depreciation of $217,000 (from the year two excess) which
results in $234,000 as the end of the year cumulative excess. The
average of the $234,000 and the $592,000 is $413,000 times seven
percent results in the cost of capital charge of $28,910.
YEAR 4: In year four the allowable capital expenditures are
$1,468,000 ($1,359,000 x 1.08) the amount actually spent is $1,400,000
resulting in a credit for year four of $68,000. The cost of capital
charge is $8,190 determined by taking the beginning of the year
$234,000 and subtracting the year three credit of $68,000 and
subtracting depreciation of $217,000 (from the year two excess) which
results in -$51,000 as the end of the year cumulative excess. The
average of the $234,000 at the beginning of the year and the $0 at the
end of the year
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is $117,000 times seven percent results in the cost of capital charge
of $8,190.
YEAR 5: In year five the cost of capital charge is zero determined by
taking the beginning of the year balance of -$51,000 and subtracting
depreciation of $217,000 (from the year two excess) resulting in an
end of the year balance of -$268,000. Because both the beginning and
ending figures are less than zero, no capital charge is assessed. The
excess capital expenditures in year five are not considered since it
is year five of the agreement.
(vii) The Base Compensation, as defined in Section 3(a)(i) hereof,
payable pursuant hereto will be charged against the income of the Military
Division in determining the Military Division Profits.
(viii) Military Division Profits will include the incremental benefit
to NFC of special tax credits arising from the operations of the Military
Division, including the Virginia Neighborhood Assistance Tax Credit,
Enterprise Zone Tax Credit, Highway Use Tax Credit, Job Tax Credits and
other similar state or federal tax credits that may become available during
the term of this Agreement. Notwithstanding the foregoing, the final
authority with respect to all tax planning and policy matters rests with
NFC and all tax planning and policy decisions shall be made in accordance
with the best interests of NFC as a whole.
(ix) NFC warrants that the accounts receivable, inventory, fixed
assets and accounts payable set forth on the books and records of NFC's
Tidewater and Baltimore divisions are or will be as of the effective date
of this Agreement, to the best of NFC's knowledge, true and accurate. NFC
warrants that such accounts receivable are collectible within one hundred
eighty (180) days, that the inventory quantities and cost prices are
accurate and the inventory is salable in the ordinary course of business,
that all fixed assets are in good condition and reflected at the actual
cost thereof less accumulated depreciation, and that the accounts payable
will reflect all trade payables as of the effective date of this Agreement.
Except as set forth below, if after the effective date of this Agreement it
is determined that any of such accounts receivable are uncollectible, that
the value of inventory was misstated or inventory proved to be unsalable in
the ordinary course of business, that fixed assets were overstated, or that
accounts payable were understated, then any charge or loss recorded
subsequent to the effective date of this Agreement as a result of such
misstatements will not be taken into account in determining Military
Division Profits for purposes of determining the Contingent Compensation.
Notwithstanding the foregoing, any such charges shall be taken into account
in determining Military Division Profits to the
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extent that Military Division Profits include (i) any credit balance taken
into income by NFC in 1996, consistent with NFC's past accounting policy of
taking into income credits over six months old relating to (A) all credit
balances of NFC's vendors outstanding as of December 31, 1995 or (B) credit
balances that have arisen for payment by such vendors that are dated prior
to January 1, 1996; and (ii) credits to NFC's income in 1996 relating to
adjustments to NFC's accounts payable included in the Military Division
under this Agreement, PROVIDED, HOWEVER, that all such foregoing credits
shall be reduced by any disallowed credits and bad debt offsets that NFC is
subject to relating to the accounts receivable of NFC included in the
Military Division under this Agreement. If the cumulative amount of the
net charges to be excluded from Military Division Profits pursuant to this
paragraph for purposes of determining Contingent Compensation is less than
$20,000, then there shall be no exclusion required by this paragraph.
"PPI" shall mean the Producer Price Index for capital equipment as
determined and published periodically by the Bureau of Labor Statistics of the
United States Department of Labor.
"SHORT TERM RATE" shall mean NFC's cost of short term funds as it may
fluctuate from time to time during the term of this Agreement. The Short Term
Rate shall be determined on a quarterly average basis, effective as of the end
of each fiscal quarter, and shall be equal to the average of the daily rates for
each of the business days during the applicable fiscal quarter.
SECTION 2
2. APPOINTMENT OF THE MANAGEMENT COMPANY AND THE MANAGERS.
(a) APPOINTMENT. NFC hereby appoints the Management Company and the
Managers to manage the business and operations of the Military Division, and
hereby grants to the Management Company and the Managers, subject to the terms
and conditions of this Agreement, and subject to the general control of NFC, and
pursuant to the general direction, orders, policies, regulations and standards
of NFC, the authority and discretion to manage the business and operations of
the Military Division on behalf of and for the account of NFC. The Management
Company and the Managers shall report to the Chief Executive Officer of NFC in
the course of performing their duties under this Agreement in accordance with
the organizational chart attached hereto as Exhibit B, PROVIDED, HOWEVER, that
nothing contained herein shall be construed to prevent the Chief Executive
Officer of NFC from delegating any duties to other members of senior management
or staff of NFC. The Management Company and each of the Managers hereby accepts
such appointment and assumes such responsibility and, during the term of this
Agreement, each of them will devote its and his best efforts to ensuring the
success of the Military Division.
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(b) DUTIES OF THE MANAGEMENT COMPANY AND THE MANAGERS. In furtherance of
the foregoing and not in limitation thereof, the duties and responsibilities of
the Management Company and the Managers, subject to the terms and conditions of
this Agreement, and subject to the general control of NFC, and pursuant to the
general direction, orders, policies, regulations and standards of NFC, shall be
as follows:
(i) To use their respective best efforts to manage and supervise the
business and operations of the Military Division in all respects in a
professional, competent, careful and proper manner, and in full compliance
with all applicable statutes, ordinances, rules and regulations of all
governmental authorities having jurisdiction over the business and
operations of the Military Division, and to notify NFC if the conduct of
the business of the Military Division will require NFC to qualify to do
business in any state where NFC is not already so qualified;
(ii) To obtain and maintain, on NFC's behalf, all licenses, permits,
certificates and other governmental or non-governmental approvals or
consents necessary to conduct the business and operations of the Military
Division;
(iii) To make all decisions with respect to the hiring and firing and
to otherwise manage in all respects all personnel matters necessary to
conduct the business and operations of the Military Division, all in
accordance with the human resources and personnel standards, policies and
guidelines of NFC from time to time;
(iv) To develop, implement and maintain all systems and procedures
for the Military Division, including, without limitation, management
information, inventory control and accounting systems and procedures
necessary to conduct the business and operations of the Military Division,
in each case compatible with the systems and procedures of NFC;
(v) To obtain and maintain all necessary facilities, capital
improvements, equipment, utilities and other assets and services necessary
to conduct the business and operations of the Military Division;
(vi) To obtain and maintain insurance coverage relating to the
facilities, assets and business and operations of the Military Division, in
all respects consistent with the risk management standards, policies and
guidelines of NFC, which may include coverage under NFC blanket policies;
(vii) To develop, implement, manage and supervise all public
relations, marketing and sales activities related to the business and
operations of the Military Division;
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(viii) To develop and submit to senior management of NFC on a timely
basis all operating and capital budgets relating to the business and
operations of the Military Division, and to implement such budgets as are
approved by the senior management and Board of Directors of NFC (it being
expressly understood and agreed that NFC retains ultimate authority and
control for all capital expenditures);
(ix) To obtain, maintain, document and manage all contractual
relationships necessary to conduct the business and operations of the
Military Division;
(x) To collect for the account of NFC all of the revenues from the
business and operations of the Military Division, and remit the same to NFC
in accordance with NFC's cash management policies and procedures, and with
the assistance of the treasury department of NFC and in accordance with
NFC's cash management policies and procedures, pay out of such revenues all
operating expenses and other sums properly payable by NFC relating to the
business and operations of the Military Division;
(xi) To maintain the system of books and records and all accounting
and reporting functions of the Military Division consistent with the
accounting methods specified by this Agreement and consistent with the
accounting and reporting systems and procedures of NFC; to generate
financial statements and reports regarding the financial condition and
results of operations of the Military Division within such deadlines and in
such form as NFC may reasonably require consistent with NFC's current
accounting and reporting systems and procedures; and to cooperate with the
internal auditors of NFC and independent outside auditors designated by NFC
in connection with periodic audits of the books and records of the Military
Division as may be reasonably required by NFC; and
(xii) To develop jointly with NFC a plan for the succession of the
management of the Military Division following the termination of this
Agreement; and to train and develop appropriate personnel, as approved by
NFC and who will be employees of NFC, to succeed to the management of the
Military Division following the termination of this Agreement. The
selection of personnel to succeed to the management of the Military
Division and the development of the plan of succession shall commence
during the first fiscal year of this Agreement and be substantially
complete by the end of the fourth fiscal year of this Agreement, and shall
be subject in all respects to the approval of NFC. If mutually agreeable
to each of the parties hereto, the first offer of management succession
following the expiration of this Agreement will be to the then existing two
non-owner employees of the Management Company.
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(c) AUTHORITY AND CONTROL IN NFC. Notwithstanding anything in this
Agreement to the contrary, the ultimate authority and control with respect to
the business and operations of the Military Division rests with the Chief
Executive Officer and Board of Directors of NFC. The Management Company and
each of the Managers acknowledges and agrees that they will perform the services
outlined in this Agreement subject to the direction and control by the Chief
Executive Officer and the Board of Directors of NFC.
SECTION 3
3. COMPENSATION OF THE MANAGEMENT COMPANY.
(a) CALCULATION OF COMPENSATION. The aggregate annual compensation
payable to the Management Company by NFC for each full fiscal year under this
Agreement, in consideration of the management services to be performed by the
Management Company and the Managers hereunder, shall be equal to:
(i) Nine Hundred Six Thousand Dollars ($906,000) (the "BASE
COMPENSATION"); plus
(ii) Fifty percent (50%) of the amount, if any, by which Military
Division Profits for the fiscal year exceed the Base Profits (the
"CONTINGENT COMPENSATION").
(b) PAYMENT OF COMPENSATION. The Base Compensation shall be payable by
NFC to the Management Company during each fiscal year of the term of this
Agreement in equal weekly installments due at the end of each week during the
term of this Agreement in accordance with NFC's standard payroll practices. The
Contingent Compensation, if any, for each fiscal year will be paid by NFC to the
Management Company in one lump sum within thirty (30) days following the
conclusion of the audit of the financial statements of the Military Division for
such fiscal year by the independent auditors of NFC; PROVIDED, HOWEVER, in no
event shall such payment be made later than April 15 of the year subsequent to
the year for which the payment is due. NFC will provide detailed accounting for
the Contingent Compensation computation and all supporting documentation.
SECTION 4
4. TERM AND TERMINATION.
(a) TERM. The term of this Agreement shall commence on the date hereof
and continue through the fiscal year of NFC ended on or about December 31, 2001,
subject to earlier termination as set forth below.
(b) TERMINATION. During the term of this Agreement, this Agreement shall
be subject to termination, at the option of the party indicated, only as
follows:
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(i) By the Management Company and the Managers at any time upon
notice to NFC if (A) all or substantially all of the business and assets of
NFC are acquired by any person or group of related persons, in either case
unaffiliated with NFC, (B) all or substantially all of the issued and
outstanding shares of the voting stock of NFC are acquired by any person or
group of related persons, in either case unaffiliated with NFC, in a
transaction or series of related transactions that results in NFC ceasing
to be required to file periodic reports under Section 13 or 15 of the
Securities Exchange Act of 1934, or (C) NFC is merged with or into or
combined with or into any other person or entity in a transaction in which
NFC is not the surviving entity and the shareholders of NFC immediately
prior to the transaction become the holders of fifty percent (50%) or less
of the voting stock of the surviving entity; in the event that the
Management Company and the Managers terminate this Agreement pursuant to
this clause, the Management Company shall be entitled to compensation equal
to the greater of: (A) the following respective amounts:
Year of Termination Amount of Minimum Compensation
------------------- ------------------------------
1996 $15,400,000
1997 $14,500,000
1998 $11,600,000
1999 $ 8,700,000
2000 $ 5,800,000
2001 $ 2,900,000
or (B) the sum of the Contingent Compensation paid with respect to the
fiscal year immediately prior to the year in which the termination occurs
plus $906,000, all multiplied by the number of fiscal years remaining in
the original term of this Agreement including the fiscal year in which such
termination occurs. Such funds due under this subsection 4(b)(i) shall be
immediately due upon the later of (i) the date of closing of any such
transaction described above, or (ii) the effective date of the termination
of this Agreement pursuant thereto.
(ii) By NFC at any time within one hundred twenty (120) days after
the completion of the third fiscal year hereunder upon notice to the
Management Company and the Managers if the amount of the Military Division
Profits for the third fiscal year under this Agreement shall not have
exceeded the Base Profits by at least One Million Dollars ($1,000,000);
in the event that NFC terminates this Agreement pursuant to this clause,
then no further compensation shall be payable by NFC to the Management
Company or the Managers with respect to any period after the date of
termination, except that NFC will continue to pay base compensation in an
aggregate amount of $300,000 per year to the two non-owner employees of
the Management Company that are retained by the Management Company
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or NFC for their services to the Military Division for the three fiscal
years following such third fiscal year.
(iii) By NFC at any time upon notice to the Management Company and the
Managers if each of the Managers shall have died or become permanently
disabled or retired, or any combination of the foregoing; in the event that
NFC terminates this Agreement pursuant to this clause, then no further
compensation shall be payable by NFC to the Management Company or the
Managers with respect to any period after the date of termination, except
that, so long as the Military Division Profits are at least equal to or
exceed the Base Profits, NFC will continue to employ the then-existing two
non-owner employees of the Management Company that are retained by the
Management Company or NFC for their services to the Military Division at
their then existing base salary (not to exceed an aggregate of $300,000 per
year without the express written consent of NFC) for the period remaining
in the original term of this Agreement.
(iv) By NFC upon not less than thirty (30) days prior written notice
to the Management Company and the Managers in the event of a material
breach of this Agreement by the Management Company or any of the Managers
that has not been cured by the Management Company and the Managers to the
reasonable satisfaction of NFC after not less than thirty (30) days prior
written notice specifying such breach; in the event that NFC terminates
this Agreement pursuant to this clause, then no further compensation shall
be payable by NFC to the Management Company or the Managers with respect to
any period after the date of termination.
SECTION 5
5. COMPETITIVE ACTIVITIES.
The Management Company and each of the Managers agree that, during the term
of this Agreement, neither the Management Company nor any of the Managers will,
directly or indirectly, engage in any commercial activity that is competitive
with the civilian or military business of NFC as such business may be conducted
by NFC on and after the date hereof in any market in which NFC may conduct such
business, except that the foregoing shall apply with respect to the military
business only in the U.S. military commissary markets served by NFC as of the
date of this Agreement and in the U.S. military commissary markets east of the
Mississippi River, in the State of Texas and in Europe, whether or not NFC is
actually supplying any U.S. military commissaries in any of such markets at any
given time during the term of this covenant, nor will any of them participate in
the management or operation of, or become an investor in (other than with
respect to ownership of less than five percent (5%) of any entity required to
file reports pursuant to the Securities Exchange Act of 1934, as amended), any
venture or enterprise of whatever kind, the business of which is competitive
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with the civilian or military business of NFC as such business may be conducted
by NFC on and after the date hereof in any market in which NFC may conduct such
business, except that the foregoing shall apply with respect to the military
business only in the U.S. military commissary markets served by NFC as of the
date of this Agreement and in the U.S. military commissary markets east of the
Mississippi River, in the State of Texas and in Europe, whether or not NFC is
actually supplying any U.S. military commissaries in any of such markets at any
given time during the term of this covenant. In addition, the foregoing
provisions as they apply to the military business of NFC shall continue to
remain in full force and effect for a period of two (2) years after the
termination of this Agreement.
SECTION 6
6. INDEMNIFICATION.
The Management Company shall defend, indemnify and save NFC and NFC's
affiliates, and their respective directors, officers, employees and agents,
harmless from and against any and all claims, demands, actions, controversies,
suits, liabilities, losses, damages, costs, charges, and reasonable attorneys'
fees and other expenses, of every nature and character (collectively,
"LOSSES"), arising by reason of or resulting from (i) any material breach by
the Management Company or the Managers of any material obligation in
accordance with the terms hereof that results in material Losses; (ii) any gross
negligence, or willful or wanton misconduct, of the Management Company or the
Managers, or any director, officer, employee, agent, contractor or subcontractor
of the Management Company or the Managers that results in material Losses; (iii)
any act of the Management Company or the Managers, or any director, officer,
employee or agent of the Management Company or the Managers, outside the scope
of the Management Company's or the Managers' authority hereunder and not
expressly approved or ratified by NFC that results in material Losses; and (iv)
any serious violation of any material law by the Management Company or the
Managers, or any director, officer, employee, agent, contractor or subcontractor
of the Management Company or the Managers that results in material Losses. NFC
shall defend, indemnify and save the Management Company and the Managers, and
their respective directors, officers, employees and agents harmless from and
against any and all Losses arising by reason of or resulting from (i) any
material breach by NFC of any material obligations in accordance with
the terms hereof that results in material Losses; (ii) any gross negligence, or
willful or wanton misconduct, of NFC, or any director, officer, employee (other
than any employee under the direction and control of the Management Company and
the Managers), agent (other than the Management Company and the Managers),
contractor or subcontractor of NFC (other than any contractor or subcontractor
doing business with the Military Division that results in material Losses; and
(iii) any serious violation of any material law by NFC, or any director,
officer, employee or agent (other than the Management Company and the
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Managers) of NFC that results in material Losses. Any indemnification payable
to any party under the terms of this Section shall be limited to the
consideration due and owing or that may become due and owing to such party
under the terms of this Agreement. The remedies under this Section are not
in lieu of, but are in addition to, any other remedies that may be available
to the parties at law or in equity with respect to this Agreement for claims
brought under or pursuant to violations of other Sections of this Agreement.
Remedies for claims brought under this Section shall be limited as set forth
herein, but such limitations shall not apply to claims brought for breach or
violation of, or for remedies under, any other Section of this Agreement.
SECTION 7
7. RIGHTS OF OFFSET.
Notwithstanding any other provision of this Agreement, NFC shall be
entitled to withhold from any amount that may be due and owing to the Management
Company or the Managers pursuant to Section 3 hereof for any amount that NFC
reasonably believes is due and owing to NFC by the Management Company or the
Managers pursuant to Section 6 hereof or pursuant to Section 8 of the Asset
Purchase Agreement, PROVIDED, THAT, NFC shall immediately pay such amount to a
mutually agreed upon escrow agent or to any court of competent jurisdiction to
be held by such escrow agent or court pending the final resolution of any
dispute between NFC and the Management Company and the Managers relating to any
such payments, and NFC shall immediately notify the Management Company and the
Managers that it is exercising its rights under this Section 7, specifying the
name and address of the escrow agent or court to which such amount has been
paid.
SECTION 8
8. MISCELLANEOUS PROVISIONS.
(a) AMENDMENT AND MODIFICATION. Subject to applicable law, this Agreement
may be amended or modified by the parties hereto at any time; PROVIDED, HOWEVER,
that all such amendments and modifications must be in writing duly executed by
all of the parties hereto.
(b) WAIVER OF COMPLIANCE; CONSENTS. Any failure of a party to comply with
any obligation, covenant, agreement or condition herein may be expressly waived
in writing by the party entitled hereby to such compliance, but such waiver or
failure to insist upon strict compliance with such obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure. No single or partial exercise of a
right or remedy shall preclude any other or further exercise thereof or of any
other right or remedy hereunder. Whenever this Agreement requires or permits
the consent by or on behalf of a party, such consent shall be given in writing
in the same manner as for waivers of compliance.
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(c) NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement shall entitle
any person or entity (other than a party hereto and its respective successors
and assigns permitted hereby) to any claim, cause of action, remedy or right of
any kind.
(d) NOTICES. All notices, requests, demands and other communications
required or permitted hereunder shall be made in writing and shall be deemed to
have been duly given and effective:
(i) on the date of delivery, if delivered personally;
(ii) on the date of the return receipt acknowledgement, if sent by
reputable nation-wide overnight courier; or
(iii) on the date such transmission is made and confirmation of
receipt obtained, if sent by facsimile, telecopy, telegraph, telex or
other similar telegraphic communications equipment:
If to the Management Company or the Managers:
To: Military Distributors of Virginia, Inc.
0000 Xxxxxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000
Attention: Xxxx X. Xxxxx, Vice President
Fax No. (000) 000-0000
With a copy to:
Wolcott, Rivers, Xxxxxx, Xxxxxxxx and
Xxxxx, P.C.
0000 Xxx Xxxxxxxx Xxxxxx
Xxxxxxxx Xxxxx, Xxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxx, Esquire
Fax No. (000) 000-0000
or to such other person or address as the Management Company or the Managers
shall furnish to the other parties hereto in writing in accordance with this
subsection.
If to NFC:
To: Xxxx-Xxxxx Company
0000 Xxxxxx Xxxxxx Xxxxx
X.X. Xxx 000
Xxxxxxxxxxx, Xxxxxxxxx 00000-0000
Attention: Xxxxxx X. Xxxxxx, CEO
Fax No. (000) 000-0000
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With a copy to:
Xxxx-Xxxxx Company
0000 Xxxxxx Xxxxxx Xxxxx
X.X. Xxx 000
Xxxxxxxxxxx, Xxxxxxxxx 00000-0000
Attention: Xxxxxx X. Xxxxxx, General
Counsel
Fax No. (000) 000-0000
or to such other person or address as NFC shall furnish to the other parties
hereto in writing in accordance with this subsection.
(e) ASSIGNMENT. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, but neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned (whether
voluntarily, involuntarily, by operation of law or otherwise) by any of the
parties hereto without the prior written consent of the other parties, PROVIDED,
HOWEVER, that, subject to the approval of the Management Company, which approval
will not be unreasonably withheld, NFC may assign this Agreement, in whole or in
any part, and from time to time, to a wholly owned, direct or indirect,
subsidiary of NFC, but any such assignment shall not relieve NFC of its
obligations hereunder.
(f) GOVERNING LAW; JURISDICTION. This Agreement and the legal relations
among the parties hereto shall be governed by and construed in accordance with
the internal substantive laws of the Commonwealth of Virginia (without regard to
the laws of conflict that might otherwise apply) as to all matters, including
without limitation matters of validity, construction, effect, performance and
remedies. Each of the parties hereto hereby irrevocably and unconditionally
consents to submit to the exclusive jurisdiction of the courts of the
Commonwealth of Virginia or the United States of America located in the
Commonwealth of Virginia for any action, suit or proceeding arising out of or
relating to this Agreement and the transactions contemplated hereby or relating
to the other agreements referred to herein, and agrees not to commence any
action, suit or proceeding relating thereto except in such courts, and further
agrees that service of any process, summons, notice or document by United States
registered or certified mail shall be effective service of process for any
action, suit or proceeding brought in any such court. Each of the parties
hereto hereby irrevocably and unconditionally waives any objection to personal
jurisdiction and the laying of venue of any action, suit or proceeding arising
out of this Agreement or the transactions contemplated hereby or the agreements
referred to herein, in the courts of the Commonwealth of Virginia or the United
States of America located in the Commonwealth of Virginia, and hereby further
irrevocably and unconditionally waives and agrees not to plead or claim in any
such court that any such action, suit or proceeding
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brought in any such court has been brought in an inconvenient forum.
(g) SEVERABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
(h) COUNTERPARTS. This Agreement may be executed simultaneously in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(i) HEADINGS. The headings of the sections and subsections of this
Agreement are inserted for convenience only and shall not constitute a part
hereof.
(j) ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding of the parties hereto in respect of the subject matter of this
Agreement and it is referred to as "THIS AGREEMENT" or the "AGREEMENT". There
are no restrictions, promises, warranties, agreements, covenants or
undertakings, other than those expressly set forth or referred to in this
Agreement, with respect to the subject matter of this Agreement. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to the subject matter of this Agreement. Provisions of this Agreement
shall be interpreted to be valid and enforceable under applicable law to the
extent that such interpretation does not materially alter this Agreement;
PROVIDED, HOWEVER, that if any such provision shall become invalid or
unenforceable under applicable law such provision shall be stricken to the
extent necessary and the remainder of such provisions and the remainder of this
Agreement shall continue in full force and effect.
(k) INJUNCTIVE RELIEF AND SPECIFIC PERFORMANCE. It is expressly agreed
among the parties hereto that monetary damages would be inadequate to compensate
a party hereto for any breach by any other party of its covenants and agreements
herein. Accordingly, the parties agree and acknowledge that any such violation
or threatened violation will cause irreparable injury to the other and that, in
addition to any other remedies which may be available, such party shall be
entitled to injunctive relief against the threatened breach of this Agreement or
the continuation of any such breach without the necessity or proving actual
damages and may seek to specifically enforce the terms of this Agreement.
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(l) EFFECTIVENESS OF THIS AGREEMENT. Notwithstanding anything in this
Agreement to the contrary, this Agreement shall become effective and enforceable
only upon the consummation of the transactions contemplated by the Asset
Purchase Agreement. In the event that such transactions are not consummated for
any reason, then this Agreement shall be void and of no further force or effect.
(m) ATTORNEYS' FEES. The prevailing party or parties in any legal action
commenced to (i) enforce the terms and conditions of this Agreement or (ii)
recover damages or any other relief for the breach by another party or parties
of this Agreement, shall be entitled to recover such prevailing party's or
parties' reasonable attorneys' fees, including expenses of such attorneys, from
the non-prevailing party or parties in any such legal action.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
XXXX-XXXXX COMPANY
By: /s/ Xxxxxx X. Xxxxxx
------------------------------------------
Its: President
-----------------------------------------
MILITARY DISTRIBUTORS OF
VIRGINIA, INC.
By: /s/ Xxxx X. Xxxxx
------------------------------------------
Its: Treasurer
-----------------------------------------
By: /s/ Xxxxx X. Jared
------------------------------------------
Xxxxx X. Xxxxx
By: /s/ Xxxxx X. Xxxxxx, Xx.
------------------------------------------
Xxxxx X. Xxxxxx, Xx.
By: /s/ Xxxx X. Xxxxx III
------------------------------------------
Xxxx X. Xxxxx III
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