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Exhibit 10.2
MANAGEMENT SERVICES AGREEMENT
THIS MANAGEMENT SERVICES AGREEMENT (this "Agreement") is made
and entered into as of May 23, 1996 by and between THE YUCAIPA COMPANIES, a
California general partnership ("Yucaipa"), and XXXXX'X FOOD & DRUG CENTERS,
INC., a Delaware corporation (the "Company").
RECITALS
A. The Company is in the business of operating
supermarkets in Arizona, Idaho, Nevada, New Mexico, Texas, Utah and Wyoming and
has elected to discontinue its supermarket operations in California;
B. The Company has entered into a Recapitalization
Agreement and Plan of Merger dated as of January 29, 1996 (the
"Recapitalization Agreement") pursuant to which the Company will acquire
certain additional supermarket operations in the State of Arizona through the
merger of a wholly-owned subsidiary of the Company with and into an affiliate
of Yucaipa (the "Merger") and consummate certain recapitalization transactions
(the "Recapitalization") described therein;
C. In connection with the consummation of the Merger and
Recapitalization, the Company wishes to supplement the resources available to
its senior management; and
D. Yucaipa is experienced in the management of
supermarket companies and has the ability to provide certain general business
and financial advice and management services to the Company in connection with
the operation of its business following the consummation of the Merger and the
Recapitalization and the Company wishes to obtain the benefits of such advice
and services.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the
mutual covenants of the parties hereto and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the undersigned parties agree as follows:
SECTION 1. MANAGEMENT SERVICES.
Subject to the provisions of this Agreement, and subject to
the supervision of the Board of Directors of the Company (the "Board of
Directors"), Yucaipa, through its partners, employees or other designated
representatives or agents, shall provide the Company with management
consultation and advice regarding strategic planning and development,
budgeting, future financing plans, selection and retention of management
employees, general business management and legal matters, and such other
similar management services as may be requested by the Board of Directors from
time to time. As used herein, the Company refers to the Company and its
subsidiaries, as the context requires. Without limitation of the foregoing,
Yucaipa's services pursuant to this Agreement shall include the following:
(a) Strategic Planning and Development. Yucaipa will
review management plans and provide advice with respect to (i) the formulation,
implementation and maintenance of the Company's
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marketing, operating and competitive strategies in its existing market areas
(as of the date of this Agreement) and (ii) any plans to enter new market
areas.
(b) Budgeting and Finance. Yucaipa will review, and
provide advice with respect to, (i) management's annual operating and capital
budgets and financial projections and any revisions or supplements thereto;
(ii) any proposals for material capital expenditures; and (iii) the evaluation
of any proposals regarding the sale or purchase of assets or additional debt or
equity financing for the Company and any retirement or redemption of existing
debt or equity of the Company.
(c) Management Personnel. Yucaipa will advise the Board
of Directors and management regarding the hiring, promotion, discharge, terms
of employment and compensation of the Company's senior management and other key
employees.
(d) Integration Strategy. Yucaipa will assist management
with the development, implementation and maintenance of a strategy concerning
the integration of the Company's supermarket operations in the State of Arizona
following the consummation of the Merger.
(e) Legal and Governmental Affairs. Yucaipa will advise
the Board of Directors and management, as requested, on legal and governmental
affairs related to the conduct of the Company's business.
(f) Board Presentations. Yucaipa will work with
management to develop and deliver presentations and recommendations for matters
to be considered by the Board of Directors. In the event that any material
management recommendation is made to the Board of Directors which is contrary
to Yucaipa's recommendations, Yucaipa will be provided with an opportunity to
present its views concerning such matter to the Board of Directors.
(g) Chief Executive Officer. Xxxxxx X. Xxxxxx shall, if
he so elects, have the right to serve as Chief Executive Officer of the Company
during the term of this Agreement, and shall have all rights and
responsibilities customarily vested in a Chief Executive Officer, provided that
he shall not receive any compensation for serving in such capacity beyond the
compensation paid to Yucaipa under this Agreement.
SECTION 2. MANAGEMENT FEES.
(a) Commencing on the date hereof (the "Effective Date"),
the Company shall pay to Yucaipa an annual management fee, in consideration of
the services rendered by Yucaipa pursuant to Section 1 above, equal to
$1,000,000, one-twelfth (1/12th) of which shall be payable in advance on the
first day of each calendar month; provided that a prorated portion of such fee
will be payable in advance on the Effective Date for the partial month
beginning on the Effective Date and ending on the last day of the then current
month.
(b) The Company may, if it so elects, prepay a portion of
the fee provided for in Section 2(a) above through the issuance concurrently
with the execution of this Agreement of up to 200,000 shares of the Company's
Class B Common Stock. Such prepayment shall offset the fees otherwise payable
under Section 2(a) above in an amount equal to the product of (i) the number of
shares of Class B Common Stock issued multiplied by (ii) a price per share
equal to $16.50. The amount of the prepayment, as calculated in accordance
with the preceding sentence, is referred to herein as the "Prepayment Amount."
Any shares issued to Yucaipa pursuant to this Section 2(b) shall be deemed to
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be "Registrable Securities" for all purposes under that certain Registration
Rights Agreement dated as of May 23, 1996 among the Company, Xxxxxxx X. Xxxxx,
Yucaipa and certain other holders of Class B Common Stock named therein (the
"Registration Rights Agreement").
SECTION 3. REIMBURSEMENT OF EXPENSES.
The Company shall reimburse Yucaipa for all of its reasonable
out-of-pocket costs and expenses incurred in connection with the performance of
its obligations under this Agreement. Yucaipa shall xxxx the Company for the
amount of all such costs and expenses monthly, and shall provide the Company
with a reasonable itemization of such costs and expenses.
SECTION 4. ADDITIONAL SERVICES.
In the event that, during the term of this Agreement, the
Board of Directors requests Yucaipa to provide (i) consulting services in
connection with any proposed acquisition or divestiture transaction or any debt
or equity financing or (ii) any other services not contemplated by Section 1
above, Yucaipa shall be entitled to such additional compensation for such
services as may be agreed upon by Yucaipa and the Company (and approved by a
majority of the Company's disinterested directors).
SECTION 5. TERM OF AGREEMENT.
The term of this Agreement shall commence on the Effective
Date and continue for a period of five (5) years ending on the fifth
anniversary of the Effective Date.
SECTION 6. TERMINATION.
6.1 Termination by the Company. The Company may elect to
terminate this Agreement:
(a) at any time following a determination of the Board of
Directors of the Company to effect such a termination by giving Yucaipa at
least ninety (90) days' written notice of such termination;
(b) if Yucaipa shall fail to reasonably perform any
material covenant, agreement, term or provision of this Agreement to be kept,
observed or performed by it (other than any failure or alleged failure
occasioned by or resulting from force majeure, directly or indirectly) and such
failure shall continue for a period of sixty (60) days after written notice
from the Company, which notice shall describe the alleged failure with
particularity;
(c) at any time if, in connection with the performance of
its duties hereunder, Yucaipa or any of its partners commits (or is grossly
negligent in its supervision or hiring of any employee or agent of Yucaipa who
commits) any act of fraud, dishonesty or gross negligence which is materially
detrimental to the business or reputation of the Company as reasonably
determined by the Board of Directors;
(d) if an event of default shall have occurred under the
Company's bank credit facility or senior or senior subordinated debt indentures
entered into in connection with the Recapitalization or any other material debt
agreements entered into to refinance such indebtedness (the "Specified
Indebtedness") and such event of default (i) results from the failure to pay
principal or interest on any
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Specified Indebtedness when due (after the expiration of any grace periods),
(ii) results from a default in any financial covenant in such bank credit
facility or any other material covenant contained in the instruments governing
such Specified Indebtedness (after the expiration of any grace periods) and, in
the case of the foregoing clauses (i) and (ii), such event of default has not
been cured or waived within 90 days after the date on which the Company is
required to notify the applicable lenders of the occurrence of such event of
default in accordance with the terms of the applicable instrument; provided,
however, that in no event shall such 90-day period commence prior to the time
that the Chief Financial Officer of the Company has actual knowledge of such
default or event of default, or (iii) is not cured or waived within 90 days
following the disclosure of the same in any periodic report filed by the
Company with the Securities and Exchange Commission;
(e) if Yucaipa or any person in the "Yucaipa Group" (as
defined in the Standstill Agreement, dated as of January 29, 1996, by and among
the Company, Yucaipa and the other parties thereto (the "Standstill
Agreement")), is in material default under the Standstill Agreement, which
default shall not have been cured or waived within 90 days thereafter; or
(f) if, at any time, the Yucaipa Group shall own less
than 50% of the shares of Class B Common Stock of the Company originally
acquired by them on the closing of the Merger.
6.2 Termination by Yucaipa. Yucaipa may elect to
terminate this Agreement:
(a) if the Company shall fail to reasonably perform any
material covenant, agreement, term or provision of this Agreement to be kept,
observed or performed by it (other than any failure or alleged failure
occasioned by or resulting from force majeure, directly or indirectly) and such
failure shall continue for a period of sixty (60) days after written notice
from Yucaipa, which notice shall describe the alleged failure with
particularity;
(b) if the Company shall fail to make any payment due to
Yucaipa hereunder, if such payment is not made in full within thirty (30) days
after written notice of such failure; or
(c) if the designees of the Yucaipa Group cease to be
members of the Board of Directors of the Company following the Effective Date,
as required by the Standstill Agreement;
(d) if the Board of Directors fails to approve two or
more recommendations by Yucaipa to the Board of Directors pursuant to Section 1
hereof, which recommendations relate to matters of corporate strategy or
management which have been designated in writing by Yucaipa as material
(provided that Yucaipa may not designate more than four (4) such matters during
any calendar year as "material" for purposes of the foregoing), or if the Board
of Directors otherwise takes action which materially interferes with the
ability of Yucaipa to perform its responsibilities under this Agreement and
such interference shall continue for sixty (60) days after written notice from
Yucaipa; or
(e) if Xxxxxx X. Xxxxxx ceases to be Chief Executive
Officer of the Company, other than by reason of his death, disability,
termination for Cause or voluntary resignation. For purposes of the foregoing,
"Cause" shall mean the commission by Xxxxxx X. Xxxxxx of any act described in
Section 6.1(c) or any felony conviction.
6.3 Termination for Change of Control. This Agreement
may be terminated, at the election of either Yucaipa or the Company, if during
the term hereof there shall have been a change in control of the Company, which
for purposes of this Agreement shall be deemed to have occurred upon
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any of the following events: (a) the acquisition after the Effective Date, in
one or more transactions, of "beneficial ownership" (within the meaning of Rule
13d-3(a)(1) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) by any person (other than Yucaipa or any of its partners or
affiliates or any Qualified Xxxxx Holder) or any group of persons (excluding
any group which includes Yucaipa or any of its partners or affiliates or any
Qualified Xxxxx Holder) who constitute a group (within the meaning of Section
13(d)(3) of the Exchange Act) of any securities of the Company such that, as a
result of such acquisition, such person or group beneficially owns (within the
meaning of Rule 13d-3(a)(1) under the Exchange Act) 40% or more of the
Company's then outstanding voting securities entitled to vote on a regular
basis for a majority of the Board of Directors of the Company; or (b) the sale
of all or substantially all of the assets or capital stock of the Company
(including, without limitation, by way of merger, consolidation, lease or
transfer) in a transaction or series of related transactions (excluding any
sale to Yucaipa or any of its partners or affiliates or any Qualified Xxxxx
Holder). For purposes of this Section, "Qualified Xxxxx Holder" shall mean any
member of the Xxxxx Group (as defined in the Standstill Agreement) or any
"Family Member" or "Family Entity" (as such terms are defined in the Company's
Certificate of Incorporation) of any such member of the Xxxxx Group.
6.4 Payments upon Termination.
(a) In the event of any termination pursuant to Section
6.1(a), Section 6.2 or Section 6.3, the Company shall pay, or cause to be paid,
to Yucaipa a cash termination payment in an amount equal to the greater of (i)
$5,000,000, and (ii) twice the total consulting fees that would have been
earned by Yucaipa under Section 2 hereof during the remaining term of this
Agreement as if the Agreement had not been terminated, without regard to any
sums previously paid by the Company to Yucaipa pursuant to Section 2 above.
(b) Such amount, if any, which shall be due Yucaipa
pursuant to this Section 6.4 in the event of any such termination shall be due
and payable to Yucaipa, in full, as of the date of such termination. The
parties intend that should the foregoing payments be determined to constitute
liquidated damages, such payments shall in all events be deemed reasonable.
(c) In the event that the Company has elected to prepay a
portion of Yucaipa's consulting fees in accordance with Section 2(b) of this
Agreement, Yucaipa shall repay the unearned portion of the Prepayment Amount
(the "Unearned Amount"). Such repayment by Yucaipa shall be made through an
offset against the amount payable to Yucaipa pursuant to Section 6.4(a) above,
or, in the event that no payment is required to be made under Section 6.4(a),
Yucaipa shall repay the Unearned Amount by making a cash payment to the Company
no later than 90 days after the termination date (provided, however, that such
date shall be extended during any time in which the Company is in default of
the obligations under the Registration Rights Agreement).
6.5 Effect of Termination. Upon any such termination of
this agreement the obligations of the parties hereunder shall also terminate,
except (i) the Company shall continue to be obligated to Yucaipa for any
payments to be received pursuant to Section 6.4(a), and for any unpaid fees or
expenses incurred prior to any such termination, (ii) the Company's obligations
under Section 9 hereof shall survive any such termination; and (iii) the
provisions of Sections 8 and 10 shall survive any such termination.
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SECTION 7. NON-COMPETITION.
As an inducement for the Company and Yucaipa to enter into
this Agreement, Yucaipa agrees that during the term of this Agreement, Yucaipa
shall not, without the Company's prior written consent, provide management or
consulting services to, or make investments in, any Significant Competitor.
Notwithstanding the foregoing, Yucaipa may, without the Company's prior written
consent, acquire or hold equity securities of any Significant Competitor, which
class of equity securities is registered under Section 12 of the Exchange Act,
provided that the securities so acquired or held by Yucaipa do not exceed 5% of
the total number of outstanding equity securities of such Significant
Competitor. For purposes of this Section, "Significant Competitor" shall mean
any business which operates in excess of five retail supermarket stores in any
market in which the Company operates in excess of five retail supermarket
stores. Nothing in this Section shall be deemed to prevent Yucaipa from
performing services under, or renewing, any management or consulting agreement
to which it is a party on the date hereof (which agreements have been
identified to the Company).
SECTION 8. CONFIDENTIALITY.
The parties hereto agree to be bound by the confidentiality
provisions of Section 3.9 of the Standstill Agreement during the entire term of
this Agreement, regardless of whether the Standstill Agreement is earlier
terminated.
SECTION 9. INDEMNIFICATION.
(a) The Company (the "Indemnifying Party") agrees to
indemnify and hold harmless Yucaipa and each of its affiliates, partners,
officers, agents and the employees of each of them (each an "Indemnified Party"
and collectively, the "Indemnified Parties"), from and against all losses,
claims, damages or liabilities resulting from any claim, lawsuit or other
proceeding by any person to which any Indemnified Party may become subject
which is related to or arises out of the performance of the services to be
provided hereunder (or under the Recapitalization Agreement), and will
reimburse any Indemnified Party for all reasonable out-of-pocket expenses
(including reasonable counsel fees and disbursements) incurred by such
Indemnified Party in connection with investigating or defending any such claim.
Each Indemnifying Party further agrees that the indemnification and
reimbursement commitments herein shall apply whether or not such Indemnified
Party is a formal party to any such lawsuit, claim or other proceedings. The
foregoing provision is expressly intended to cover reimbursement of reasonable
legal and other expenses incurred in a deposition or other discovery
proceeding.
Notwithstanding the foregoing, the Indemnifying Party shall
not be liable to any Indemnified Party (a) in respect of any loss, claim,
damage, liability or expense to an Indemnified Party to the extent the same is
determined, in a final judgment by a court having jurisdiction, to have
resulted from the gross negligence or willful misconduct of such Indemnified
Party or any intentional, material breach by such Indemnified Party of its
obligations under this Agreement or (b) for any settlement effected by such
Indemnified Party without the written consent of such Indemnifying Party, which
consent shall not be unreasonably withheld.
In the event of the assertion against any Indemnified Party of
any such claim or the commencement of any such action or proceeding, each
Indemnifying Party shall be entitled to participate in such action or
proceeding and in the investigation of such claim and, after written notice
from such Indemnifying Party to such Indemnified Party, to assume the
investigation or defense of such claim, action or proceeding with counsel of
the Indemnifying Party's choice at the Indemnifying Party's expense;
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provided, however, that such counsel shall be reasonably satisfactory to the
Indemnified Party. Notwithstanding anything to the contrary contained herein,
the Indemnifying Party may retain one firm of counsel to represent all
Indemnified Parties in such claim, action or proceeding; provided that the
Indemnified Party shall have the right to employ a single firm of separate
counsel (and any necessary local counsel) and to participate in the defense or
investigation of such claim, action or proceeding, and the Indemnifying Party
shall bear the expense of such separate counsel (and local counsel, if
applicable), if (i) in the written opinion of counsel to the Indemnified Party
use of counsel of the Indemnifying Party's choice could reasonably be expected
to give rise to a conflict of interest, (ii) the Indemnifying Party shall not
have employed counsel reasonably satisfactory to the Indemnified Party to
represent the Indemnified Party within a reasonable time after notice of the
assertion of any such claim or institution of any such action or proceeding or
(iii) the Indemnifying Party shall authorize the Indemnified Party to employ
separate counsel at the Indemnifying Party's expense.
(b) If for any reason (other than the gross negligence
or willful misconduct of an Indemnified Party referred to above) the
foregoing indemnification is unavailable to any Indemnified Party or
insufficient to hold it harmless as and to the extent contemplated by the
preceding paragraph (a), then the Indemnifying Party shall contribute to the
amount paid or payable by the Indemnified Party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect the
relative benefits received by the Indemnifying Party and its affiliates, on the
one hand, and the Indemnified Party, as the case may be, on the other hand, as
well as any other relevant equitable considerations.
SECTION 10. NOTICES.
All notices, demands, requests, consents or approvals required
or permitted to be given hereunder or which are given with respect to this
Agreement shall be in writing and shall be personally served and mailed,
registered or certified, return receipt requested, postage prepaid (or by a
substantially similar method), or delivered by a reputable overnight courier
service with charges prepaid, or transmitted by hand delivery, telegram, telex
or facsimile, addressed as set forth below, or such other address as such party
shall have specified most recently by written notice. Notice shall be deemed
given or delivered on the date of service or transmission if personally served
or transmitted by telegram, telex or facsimile. Notice otherwise sent as
provided herein shall be deemed given or delivered on the third business day
following the date mailed or on the next business day following the delivery of
such notice to a reputable overnight courier service.
If to Yucaipa: The Yucaipa Companies
00000 Xxxxx Xxxxxx Xxxxxxxxx
Xxxxx Xxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxx X. Xxxxxx
If to the Company: Xxxxx'x Food & Drug Centers, Inc.
0000 Xxxxx Xxxxxxx Xxxx
Xxxx Xxxx Xxxx, Xxxx 00000
Attention: Chairman of the Board
with a copy to the General Counsel of the Company at the same
address.
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SECTION 11. MISCELLANEOUS.
11.1 Entire Agreement; Amendments. This Agreement
contains all of the terms and conditions agreed upon by the parties hereto in
connection with the subject matter hereof. This Agreement may not be amended,
modified or changed except by written instrument signed by all of the parties
hereto.
11.2 Assignment; Successors. This Agreement shall not be
assigned and is not assignable by any party without the prior written consent
of each of the other parties hereto; provided, however, that Yucaipa may
assign, without the prior consent of the Company, its rights and obligations
under this Agreement to any partnership or limited liability company controlled
by Xxxxxx X. Xxxxxx, and provided further, that Yucaipa may assign the right to
receive any payment hereunder (but not its duties and obligations hereunder) to
any other person or entity. Subject to the preceding sentence, this Agreement
shall inure to the benefit of and be binding upon the parties hereto and their
respective permitted successors and assigns.
11.3 Governing Law. This Agreement shall be governed by
and construed in accordance with the internal domestic laws of the State of New
York, without regard to the choice of law provisions thereof.
11.4 Attorneys' Fees. If any legal action is brought
concerning any matter relating to this Agreement, or by reason of any breach of
any covenant, condition or agreement referred to herein, the prevailing party
shall be entitled to have and recover from the other party to the action all
costs and expenses of suit, including attorneys' fees.
11.5 Relationship. Nothing in this Agreement shall
constitute or be construed to be a partnership or joint venture between the
Company and Yucaipa. To the extent appropriate to the duties and obligations
hereunder, Yucaipa shall be an independent contractor and none of its employees
shall be deemed employees of the Company by reason of this Agreement or the
performance of its duties hereunder. This Agreement is for the benefit of the
Company and Yucaipa and shall not create third party beneficiary rights.
11.6 Construction and Interpretation. This Agreement
shall not be construed for or against either party by reason of the authorship
or alleged authorship of any provision hereof or by reason of the status of the
respective parties. This Agreement shall be construed reasonably to carry out
its intent without presumption against or in favor of either party. The
natural persons executing this Agreement on behalf of each party have the full
right, power and authority to do and affirm the foregoing warranty on behalf of
each party and on their own behalf. The captions on sections are provided for
purposes of convenience and are not intended to limit, define the scope of or
aid in interpretation of any of the provisions hereof. References to a party
or parties shall refer to the Company or Yucaipa, or both, as the context may
require. All pronouns and singular or plural references as used herein shall
be deemed to have interchangeably (where the sense of the sentence requires) a
masculine, feminine or neuter, and/or singular or plural meaning, as the case
may be.
11.7 Severability. If any term, provision or condition of
this Agreement is determined by a court or other judicial or administrative
tribunal to be illegal, void or otherwise ineffective or not in accordance with
public policy, the remainder of this Agreement shall not be affected thereby
and shall remain in full force and effect and shall be construed in such manner
so as to preserve the validity hereof and the substance of the transactions
herein contemplated to the extent possible.
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11.8 Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which taken together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this
Management Services Agreement to be duly executed as of the date first above
written.
THE YUCAIPA COMPANIES
By: /s/ Xxxx X. Xxxxxx
--------------------------------
Name: Xxxx X. Xxxxxx
Title: General Partner
XXXXX'X FOOD & DRUG CENTERS, INC.
By: /s/ Xxxxxxx X. Xxxxx
--------------------------------
Name: Xxxxxxx X. Xxxxx
Title: Senior Vice President and
Chief Financial Officer
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