EXHIBIT 10.23
MANAGEMENT AGREEMENT
MANAGEMENT AGREEMENT (the"Agreement"), dated as of June 29, 1999 among
THE PENN TRAFFIC COMPANY, a Delaware corporation, (the "Company"), XXXXXX & XXX,
L.L.C., a Delaware limited liability company ("Manager"), Xxxx X. Xxxxxx
("Xxxxxx") and Xxxxxx X. Xxx ("Xxx"; and collectively with Xxxxxx, the
"Executives").
WHEREAS, the Company has successfully completed the reorganization of
certain outstanding indebtedness and liabilities of, and equity interests in,
the Company and certain of its subsidiaries through confirmation of a
"pre-negotiated" plan of reorganization for the Company (the "Plan") under
Chapter 11 of Title 11 of the United States Code, 11 X.X.X.xx. 101 et seq., (the
"Bankruptcy Code"); and
WHEREAS, the Company desires for Manager to provide executive
management services to the Company, and Manager is willing to provide such
services subject to the terms and conditions contained herein.
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto agree as follows:
1. Appointment. The Company hereby engages Manager for the services of
the Executives, and Manager hereby agrees under the terms and conditions set
forth herein, to provide the services of the Executives to the Company as
described in Section 3 herein. Manager agrees to assign to the Executives the
engagement hereunder and Xxxxxx and Xxx agree to accept such assignment to
fulfill the Manager's duties hereunder.
2. Term. The initial term (the "Initial Term") of this Agreement shall
be two years from the date hereof (the "Effective Date"). This Agreement shall
be renewed automatically for one additional two-year term (the "Renewal Term")
thereafter unless the Board of Directors of the Company (the "Board") or Manager
shall give notice in writing to the other within 120 days before the expiration
of the Initial Term of its desire to terminate this Agreement upon expiration of
such Initial Term. Notwithstanding anything to the contrary set forth herein,
Sections 5 and 8 shall survive any termination of this Agreement.
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3. Services. From and after the date hereof until the termination of
the Initial Term or the Renewal Term, as the case may be, Manager shall provide
the services of Xxxxxx and Fox as (i) members of the Board of Directors of the
Company and (ii) Chairman of the Executive Committee of the Board of Directors
of the Company (the "Executive Committee") and Vice Chairman of the Executive
Committee, respectively. These positions shall constitute corporate offices of
the Company and the Company's Amended and Restated By-laws shall so provide. In
these positions, Xxxxxx and Xxx shall (i) report directly and only to the
Company's Board of Directors, (ii) have all authority customarily delegated to
the most senior executive officers of a corporation, subject to the reasonable
oversight of the entire Board and (iii) perform such other duties as may be
requested from time to time by the Board as are consistent with their positions
as Chairman and Vice Chairman of the Executive Committee and senior executive
officers of the Company. Xxxxxx and Fox agree to perform their duties, as set
forth herein, in a faithful manner and to the best of their abilities. Xxxxxx
and Xxx also agree to devote predominantly all of their full working time and
energy to the business and affairs of the Company and to use their best efforts
and all of their skills, experience and knowledge to promote the interests of
the Company. During the Initial Term and the Renewal Term, if any, the Executive
Committee shall at all times consist of three members, Xxxxxx, Fox and Xx.
Xxxxxx X. Xxxxxx.
4. Compensation; Early Termination; Change of Control. (a) In
consideration of the services to be provided in accordance with Section 3, the
Company shall pay to the Manager an annual management fee of $1,450,000,
accruing from the date hereof and payable monthly in advance (or such pro rata
amounts for partial months) on the first day of each month, commencing on the
date of this Agreement. Neither the Manager nor the Executives shall be
considered employees of the Company. The Manager and the Executives, as the case
may be, shall bear sole responsibility for payment on behalf of itself and
Executives for any federal, state and/or local income tax withholding, social
security, workers' compensation coverage and unemployment insurance and, other
than as expressly provided herein, employee benefits. To this end, Manager and
the Executives shall provide the Company with reasonable proof demonstrating
compliance with the foregoing at the Company's request. Further, the Manager and
the Executives agree to indemnify and hold harmless the Company from and against
any claims, liabilities, or expenses, including reasonable attorney's fees and
disbursements, relating to such compensation, tax, insurance and/or benefit
matters.
(b) In the event this Agreement is terminated by the Company before the
expiration of the Initial Term or the Renewal Term, as the case may be, for
reasons other than for Cause (as defined), then the Company shall immediately
pay to Manager the entire amount of all remaining unpaid management fees that
would have been payable through the end of such term but for such early
termination. For purposes of this Agreement, "Cause" shall mean a conviction or
guilty plea of a felony or any other crime involving fraud or embezzlement.
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The Company may immediately terminate this Agreement in the event both
Xxxxxx and Fox shall do or cause to be done any act which constitutes Cause. If
only one of Xxxxxx or Xxx does or causes to be done any act which constitutes
Cause (other than any such act that relates to the services to be provided for
herein by Xxxxxx and Fox) (a "Cause Reduction Event"), then the Agreement may
not be terminated by the Company but the management fee paid to Manager under
Section 4(a) shall be reduced in accordance with Section 8(c); provided,
however, that the Agreement may be terminated if such act constitutes Cause and
relates to the services to be provided for herein by Xxxxxx and Xxx. Should this
Agreement be terminated by the Company for Cause, the Company shall only be
required to pay the Manager the portion of management fee provided for in
Section 4(a) that has accrued to the effective date of such termination and
shall reimburse all expenses incurred by the Manager that are reimbursable
pursuant to Section 5 through such effective date.
(c) If at any time prior to the expiration of the Initial Term or the
Renewal Term, as the case may be, a "Change of Control" (as defined) occurs,
Manager shall have the option, within 12 months from the date of such occurrence
and only in the event that the Executives' duties and responsibilities provided
for herein have significantly reduced, diminished, altered or amended following
such Change of Control, to terminate this Agreement and continue to receive its
management fee in accordance with Section 4(a) for the remainder of such term as
if the Agreement were still in effect.
For purposes of this Agreement, "Change of Control" shall mean the
occurrence of any event where (i) any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934,
except that a person shall be deemed to have "beneficial ownership" of all
shares that any such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of 50% or more of the outstanding shares of common stock of the
Company or securities representing 50% or more of the combined voting power of
the Company's voting stock, (ii) the Company consolidates with or merges into
another Person or conveys, transfers, sells or leases all or substantially all
of its assets to any Person, or any Person consolidates with or merges into the
Company, in either event pursuant to a transaction in which the outstanding
voting stock of the Company is changed into or exchanged for cash, securities or
other Property, other than any such transaction between the Company and its
wholly owned subsidiaries (which wholly owned subsidiaries are United States
corporations), with the effect that any "person" becomes the "beneficial owner,"
directly or indirectly, of 50% or more of the outstanding shares of common stock
of the Company or securities representing 50% or more of the combined voting
power of the Company's voting stock or (iii) during any consecutive two-year
period, individuals who at the beginning of such period constituted the Board
(together with any new directors whose election by the Board, or whose
nomination for election by the Company's stockholders, was approved by a vote of
at least a majority of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the directors then in office.
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5. Reimbursement. Manager, Xxxxxx and Fox shall be entitled to
reimbursement of all reasonable out-of-pocket expenses (including travel
expenses) incurred in connection with the performance of this Agreement, which
amounts shall be promptly reimbursed by the Company upon request, provided that
the Manager shall be required to account to the Company for such expenses in the
manner prescribed by the Company.
6. Equity Purchase; Options. (a) Subject to the restrictions and
limitations imposed by federal securities law (including Rule 10b-5 promulgated
under Section 16 of the Securities Exchange Act of 1934, as amended), Xxxxxx,
within six months from the date hereof, will acquire in a public or private
transaction shares of Common Stock or warrants to acquire such Common Stock that
have an initial acquisition price of at least $500,000 in the aggregate.
(b) Pursuant to the terms of The Penn Traffic Company 1999 Equity
Incentive Plan (the "EIP"), Xxxxxx and Fox will, on the date hereof, receive
fully-vested options to acquire 360,000 and 130,000 shares of Common Stock,
respectively, at an exercise price equal to $18.30 per share pursuant to Option
Agreements attached hereto as Exhibits A-1 and A-2. In addition, Xxxxxx and Xxx
will, on the date hereof, receive options to purchase 240,000 and 87,000 shares
of Common Stock, respectively, 50% of which will vest on each of the 3rd and 4th
anniversaries of the Effective Date, assuming Messrs. Fox and Xxxxxx continue to
provide services to the Company on such dates pursuant to the Option Agreements
attached hereto as Exhibits B-1 and B-2. The exercise price for the unvested
options granted to each of Fox and Xxxxxx under this Section will also be $18.30
per share. The options referred to in this paragraph shall be granted pursuant
to stock option agreements, which shall be in a form identical to those entered
into by other executives of the Company, and shall otherwise be governed by the
terms and conditions of the EIP. To the extent permitted by the Internal Revenue
Code of 1986, as amended ("IRC") all such options granted to Xxxxxx and Fox will
qualify as incentive stock options under the IRC. The shares of Common Stock
issuable upon exercise of such options shall be registered by the Company
pursuant to a Registration Statement on Form S-8 under the Securities Act of
1933, as amended.
7. Employee Benefits. During the Initial Term or the Renewal Term, as
the case may be, Xxxxxx and Xxx shall have the right to participate in the
Company's medical, dental, disability, life and other insurance plans maintained
during such time by the Company for executives of similar stature and rank, and
any other plans and benefits, if any, generally maintained by the Company for
executives of similar stature and rank, in each case in accordance with the
terms and conditions of such plan as from time-to-time in effect or have the
Company reimburse Xxxxxx and Fox for such benefits at a annual cost not to
exceed $25,000 per Executive. In connection with the execution of this
Agreement, the Company agrees to provide Fox and Xxxxxx with pension benefits in
accordance with the terms of The Penn Traffic Supplemental Retirement Plan for
Non-Employee Executives, attached hereto as Exhibit C.
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8. Termination of Agreement by Reason of Death or Disability. (a) If
either Xxxxxx or Fox shall die or become Disabled (as defined below) during
either the Initial Term or the Renewal Term, as the case may be, the Manager's
engagement and this Agreement shall continue, subject to Section 8(c), for the
balance of such term; provided, however, that if Xxxxxx and Xxx both die or
become Disabled during the Initial Term or the Renewal Term, then the Manager's
engagement and this Agreement shall terminate automatically as of the date both
Xxxxxx and Fox are terminated as a result of their being deceased or the date
that either is terminated in accordance with Section 8(b) due to their
disability, whichever date is later. If both Xxxxxx and Xxx'x engagement are
terminated due either to their respective deaths and/or disabilities, then the
Company shall only be obligated to pay the Manager the portion of management fee
provided for in Section 4(a) that has accrued to the effective date of such
termination; provided, however, that upon such termination, their respective
options and other rights that would have vested within one year of such date
shall be deemed vested.
(b) For purposes of this Agreement, the term "Disabled" shall mean that
Xxxxxx or Fox has suffered a disability which, in fact, prevents him from
substantially performing his duties hereunder for a period of 180 consecutive
days or 230 days in the aggregate, in any period of 12 consecutive months. In
such event, the Company may terminate Hirsch's or Xxx'x services hereunder only
by a written notice to either, as applicable, setting forth the grounds for such
termination with specificity, which termination will take effect 30 days after
such notice is given. Xxxxxx or Fox may only be terminated for disability if the
Company's termination notice is given within 60 days following the end of the
aforementioned 180- or 230-day period, whichever the Company relies upon. The
existence of Hirsch's or Xxx'x disability for the purposes of this Agreement
shall be determined by a physician mutually selected by the Company and Xxxxxx
or Fox, as the case may be, and Xxxxxx and Xxx agree to submit to an examination
by such physician for purposes of such determination.
(c) If Hirsch's engagement is terminated due to his death or disability
or due to a Cause Reduction Event during either the Initial Term or the Renewal
Term, as the case may be (and Fox's engagement continues), then the management
fee to be paid under Section 4(a) shall be reduced to $500,000 as of the date of
such termination. If Fox's engagement is terminated due to his death or
disability or due to a Cause Reduction Event during either the Initial Term or
the Renewal Term, as the case may be (and Hirsch's engagement continues), then
the management fee to be paid under Section 4(a) shall be reduced to $950,000 as
of the date of termination.
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9. No Liability. The Company hereby agrees to indemnify each
Indemnified Party to the fullest extent permitted by law from and against all
losses, liabilities, damages, deficiencies, demands, claims, actions, judgments
or causes of action, assessments, costs or expenses (including, without
limitation, interest, penalties and reasonable fees, expenses and disbursements
of attorneys, experts, personnel and consultants reasonably incurred by the
Indemnified Party in any action or proceeding) based upon, arising out of or
otherwise in respect of each Executive's services as, and/or for activities
engaged in by each Executive while each Executive is, an officer and/or director
of the Company or any affiliate thereof, including either paying or reimbursing
each Executive, promptly after request, for any reasonable and documented
expenses and attorney's fees and costs actually incurred by each Executive in
connection with defending, or himself instituting and/or maintaining, any claim,
action, suit or proceeding arising from circumstances to which the Company's
above indemnification relates (other than any claim, action, suit or proceeding
brought by the former principals of Xxxxxx Xxxxx & Xxxxxx & Company against the
Manager or the Executives); provided, however, that no such indemnification
shall be paid for damages or losses incurred by each Executive that result from
actions by him that Delaware law explicitly prohibits a corporation from
indemnifying its directors or officers against, including, without limitation,
to the extent any such damages or losses arise through gross negligence, bad
faith or misconduct. This indemnity shall survive the termination of this
Agreement. The Company represents and warrants that it has $15 million dollars
of director's and officer's insurance available on the date hereof and that it
will use its reasonable commercial efforts to maintain such policy throughout
the Term; provided further that the Company shall obtain "tail" coverage under
its existing director's and officer's policy covering its current directors and
officers for any claims brought against them, which coverage shall extend for a
period of not less than six (6) years after the Effective Date.
10. Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, sent by
facsimile transmission or sent by certified, registered or express mail, postage
prepaid. Any such notice shall be deemed given when so delivered personally or
sent by facsimile transmission or, if mailed, five days after the date of
deposit in the United States mails, as follows:
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(A) IF TO THE COMPANY TO:
The Penn Traffic Company
0000 Xxxxx Xxxx Xxxxxxxxx
Xxxxxxxx, Xxx Xxxx 00000
Attention: Xxxxxxx X. Xxxxx, Esq.
TELEPHONE: (000) 000-0000
FACSIMILE: (000) 000-0000
(B) IF TO MANAGER OR THE EXECUTIVES TO:
Xxxxxx & Fox, L.L.C.
000 Xxxxxxxx Xxxxx Xxxxxx
Xxx, Xxx Xxxx 00000
Attention: Xxxx X. Xxxxxx
TELEPHONE: (000) 000-0000
FACSIMILE: (000) 000-0000
Any party may by notice given in accordance with this Section to the other
parties designate another address or person for receipt of notices hereunder.
11. Governing Law. ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY
AND INTERPRETATION OF THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAW (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF
NEW YORK.
12. Assignment. This Agreement shall not be assignable by either party
hereto without the express written consent of the other party; provided, that,
Manager may assign this Agreement to any other entity that is controlled by the
Manager or Xxxxxx and Xxx and which entity assumes the obligations of Manager
and provides the services of Xxxxxx and Fox under this Agreement.
13. Confidentiality. (a) During the Initial Term, the Renewal Term and
thereafter, each of the Executives and the Manager agree that they shall not,
directly or indirectly, for their own account or as agent, employee, officer,
director, trustee, consultant or shareholder of any corporation, or any member
of any firm or otherwise, divulge, furnish or make accessible to any person, or
himself or itself make use other than for the sole benefit of the Company, any
material confidential or proprietary information of the Company obtained by him
or it while in the employ or engagement of the Company other than disclosures
made by Executive based on Executive's reasonable belief that such disclosures
were in furtherance of his duties as set forth herein, including, without
limitation, information with respect to any products, services, improvements,
formulas, designs, styles, processes, research, analyses, suppliers, customers,
methods of distribution or manufacture, contract terms and conditions, pricing,
financial condition, organization, personnel, business activities, budgets,
plans, objectives or strategies of the Company or its proprietary products or of
any subsidiary or affiliate of the Company and that he or it will, prior to or
upon the termination of his or its engagement by the Company, return to the
Company all such confidential or non-public information, whether in written or
other physical form or stored electronically on computer disks or tapes or any
other storage medium, and all copies thereof, in his or its possession or
custody or under his or its control; provided, however, that (x) the
restrictions of this Paragraph shall not apply to publicly available information
or information known generally to the public (without any action on the part of
the Executive prohibited by the restrictions of this paragraph), (y) the
Executive may disclose such information known generally to the public (without
any action on the part of the Executive prohibited by the restrictions of this
paragraph), and (z) the Executive may disclose such information as may be
required pursuant to any subpoena or other lawful process issued pursuant to any
applicable law, rule or regulation.
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(b) Notwithstanding the foregoing, in the event that Manager and/or
either Executive receives a subpoena or other process or order which may require
it or him to disclose any confidential information, the Manager and Executive
agree (i) to notify the Company promptly of the existence, terms and
circumstances surrounding such process or order, and (ii) to cooperate with the
Company, at the Company's reasonable request and at its expense, including, but
not limited to, attorneys' fees and expenses, in taking legally available steps
to resist or narrow such process or order and to obtain an order (or other
reliable assurance reasonably satisfactory to the Company) that confidential
treatment will be given to such information that is required to be disclosed.
(c) The obligations of the Manager and the Executives under this
Section 13 shall survive any termination of this Agreement.
14. Non-Competition. During the Initial Term and the Renewal Term, if
this Agreement is extended pursuant to Section 2, each of the Executives and
Manager agree that they will not, directly or indirectly, for their own account
or as agent, employee, officer, director, trustee consultant or shareholder of
any corporation or a member of any firm or otherwise: (i) engage in any way in
any wholesale and/or retail food business which operates within 30 miles of any
retail store operated by the Company at the time during the Initial Term or the
Renewal Term, as the case may be, that the Executives or the Manager wish to so
engage; (ii) induce or attempt to induce any person with an annual salary in
excess of $75,000 who is in the employ of the Company or any subsidiary or
affiliate thereof to leave the employ of the Company or such subsidiary or
affiliate; or (iii) induce or attempt to induce or assist any other person, firm
or corporation to do any of the actions referred to in (i) or (ii) above
(provided, that this Section 14 shall not prohibit (A) Executive from owning
less than 5% of the equity of any entity that engages in the actions described
in (i), (ii) or (iii) above and (B) the Executives from providing references for
employees of the Company or its subsidiaries or affiliates who have been
solicited by a prospective employer without violation of (ii) above); provided,
however, that in the event the Company terminates the Agreement prior to the end
of the Initial Term or the Renewal Term, if this Agreement is extended pursuant
to Section 2, for reasons other than Cause and fails to provide the Executives
with the payments required by Section 4(b) and in the manner provided therein,
the provisions of this Section shall not survive such termination.
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15. Equitable Remedies. The Executives acknowledge that the remedy at
law for any breach or threatened breach of Sections 13 or 14 will be inadequate
and, accordingly, that the Company shall, in addition to all other available
remedies (including, without limitation, seeking damages sustained by reason of
such breach), be entitled to specific performance or injunctive relief without
being required to post bond or other security and without having to prove the
inadequacy of the available remedies at law. In addition, the Executives
acknowledge and agree that in the event the time limitation or geographic scope
of the restriction set forth in Section 14 is found to be unreasonable by a
court of competent jurisdiction, such time limitation and geographic scope shall
be deemed to be reduced to the broadest area or period as the court may
determine to be reasonable.
16. Integration. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes all prior negotiations, understandings and writings, whether oral or
written between the parties hereto relating to the subject matter hereof.
17. Counterparts. This Agreement may be executed in counterparts, each
of which, when so executed and delivered, shall be an original, but all of which
together constitute one document.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
THE PENN TRAFFIC COMPANY
By: /s/ Xxxxxxx X. Xxxxx, Xx.
--------------------------------------
Name: Xxxxxxx X. Xxxxx, Xx.
Title: General Counsel
XXXXXX & XXX, LLC
By: /s/ Xxxx X. Xxxxxx
--------------------------------------
Name:
Title:
/s/ Xxxx X. Xxxxxx
--------------------------------------
Xxxx X. Xxxxxx
/s/ Xxxxxx X. Xxx
--------------------------------------
Xxxxxx X. Xxx
