EXHIBIT 1
MANAGEMENT SERVICES AGREEMENT
THIS MANAGEMENT SERVICES AGREEMENT (this "Agreement") is made and
entered into as of September 9, 1997 by and between THE YUCAIPA COMPANIES LLC,
a Delaware limited liability company ("Yucaipa"), and Xxxx Xxxxx, Inc., a
Delaware corporation formerly known as Xxxxx-Xxxxx Holdco, Inc. (the
"Company").
RECITALS
A. FM Stores, Inc., a Delaware corporation and predecessor to
Company formerly known as Xxxx Xxxxx, Inc. ("Xxxx Xxxxx Stores") is in the
business of operating multidepartment stores and specialty stores and is a
leading regional retailer of a wide range of food, apparel, fine jewelry and
products for the home;
X. Xxxxx'x Food & Drug Centers, Inc. ("Xxxxx'x") is in the business
of operating combination food and drug centers and is a leading regional
supermarket and drug store chain;
C. Xxxx Xxxxx Stores and Xxxxx'x, pursuant to the Agreement and
Plan of Reorganization and Merger, dated as of May 11, 1997 (the "Merger
Agreement"), have combined their operations through the mergers contemplated
therein (the "Mergers"), and each of them have become wholly-owned subsidiaries
of the Company;
D. Yucaipa is experienced in the management of supermarket
companies and has been providing certain general business and financial advice
and management services to Xxxxx'x;
E. The Company wishes to obtain the continuing benefits of
Yucaipa's advice and services following the consummation of the Mergers; and
F. In connection with the Mergers, Xxxxxx X. Xxxxxx has been
elected to serve as the Chairman of the Board of Directors of the Company.
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.
(a) 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 members, 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 governmental affairs, and such other
similar management services as may be requested by the Board of Directors
and/or the Chief Executive Officer from time to time. As used herein, the
Company refers to the Company and its subsidiaries, as the context requires.
(b) Chairman of the Board of Directors. Xxxxxx X. Xxxxxx shall, if
he so elects, have the right to serve as Chairman of the Board of Directors of
the Company during his initial three year term as a director of the Company,
and shall have all rights and responsibilities customarily vested in a Chairman
of the Board of Directors, provided that he shall not receive any compensation
for serving in such capacity beyond the compensation paid to Yucaipa under this
Agreement.
(c) Best Practices. During the term of this Agreement the Company
will be afforded the opportunity to participate in the "Best Practices" program
as conducted by Yucaipa and certain of its affiliated businesses.
SECTION 2. MANAGEMENT FEES.
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 Five Hundred Thousand
Dollars ($500,000.00), 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.
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
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; and
(c) at any time if, in connection with the performance of its duties
hereunder, Yucaipa or any of its members 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.
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 Xxxxxx X. Xxxxxx ceases to be Chairman of the Board of
Directors, 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 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 members or affiliates) or any
group of persons (excluding any group which includes Yucaipa or any of its
members or affiliates) 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; 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 members or affiliates). As used herein the term "affiliate" refers
to any person controlled by, or under common control with, the specified
person.
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) Two
Million Five Hundred Thousand Dollars ($2,500,000) 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.
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 7 hereof shall survive any such termination for the period of time
specified therein; and (iii) the provisions of Sections 8, 9 and 10 shall
survive any such termination.
SECTION 7. STANDSTILL.
Yucaipa agrees that during the term of this Agreement and for a
period of 90 days from the later of (i) the date on which this Agreement is
terminated or (ii) the date on which Xxxxxx X. Xxxxxx ceases to be the Chairman
of the Board of Directors, neither it nor any of its affiliates, alone or with
others, will in any manner, without the prior approval of the Company's Board
of Directors, (a) enter into or agreed to enter into, singly or with any other
person, any form of business combination, acquisition, restructuring,
recapitalization, liquidation or other similar transaction relating to the
Company or any subsidiary of the Company, (b) hold, acquire, or offer or agree
to acquire, become the beneficial owner of or obtain any rights in respect of,
in each case by purchase or otherwise, any securities entitled to vote
generally in the election of directors of the Company, or any direct or
indirect rights or options to acquire any such securities or any securities
convertible or exercisable into or exchangeable for such securities ("Voting
Securities") of the Company, in excess of 15% of the Company's outstanding
Voting Securities (including for these purposes any shares of Company Common
Stock acquired pursuant to the Mergers or upon the exercise of any currently
exercisable option or warrant), (c) make, or in any way participate in, any
solicitation of proxies with respect to any such Voting Securities (including
by the execution of action by written consent), become a participant in any
election contest with respect to the Company, seek to influence any person with
respect to any such Voting Securities, (d) participate in or encourage the
formation of any partnership, syndicate, voting trust or other group which owns
or seeks or offers to acquire beneficial ownership of any such Voting
Securities or which seeks control of the Company or has the purpose of
circumventing any provision of this Agreement, (e) otherwise act, alone or in
concert with other (including, without limitation, by providing financing for
another Person), to seek or to offer to control or influence, in any manner
(except pursuant to its services under this Agreement or through its
representatives on the Board of Directors, or policies of the Company, (f) make
any formal demand, request or proposal to amend, waive or terminate any
provision of this Section 7, (g) make any proposal or other communication or
take any other action that would compel the Company to make a public
announcement or disclosure thereof in respect of any matter referred to in this
Section 7 or (h) publicly propose or announce or otherwise publicly disclose an
intent to propose or that it is considering proposing any of the matters
referred to in this Section 7. Yucaipa shall be released from its obligations
hereunder in the event that the Company enters into an agreement which would
result in a Change of Control with any person other than Yucaipa or its
affiliates. As used herein the terms "beneficial ownership," "person" and
"group" shall have the meanings ascribed to such terms pursuant to Regulation
13D-G adopted by the SEC under the Securities Exchange Act of 1934, as amended,
and as in effect on the date hereof; provided, however, that for purposes of
determining beneficial ownership under this Section 7 any Voting Securities
issuable upon the exercise of any option or warrant shall only be included in
such determination to the extent of the number of such Voting Securities which
would be issuable under such option or warrant on a "net" or "cashless" basis
at such time. In addition, Yucaipa agrees that it will exercise any such
option or warrant on a "net" or "cashless" basis if and to the extent the
exercise on any other basis would result in its aggregate beneficial ownership
of Voting Securities exceeding 15% of the Company's outstanding Voting
Securities.
SECTION 8. CONFIDENTIALITY.
8.1 Definitions. For purposes of this Section:
(a) The term "Confidential Material" means all information,
whether oral, written or otherwise (including any information furnished prior
to the execution of this Agreement), furnished or otherwise disclosed by the
Company to Yucaipa and its affiliates or any of the Representatives (as defined
below), and all notes, reports, analyses, compilations, studies and other
materials prepared by Yucaipa or any of the Representatives (in whatever form
maintained, whether documentary, computer storage or otherwise) containing or
based upon, in whole or in part, any such information. The term "Confidential
Material" does not include information which is or becomes generally available
to the public other than as a result of a disclosure by Yucaipa or any of the
Representatives or becomes available to Yucaipa or any of the Representatives
on a non-confidential basis from any source that is not known by Yucaipa or
such Representative to be bound by an obligation of confidentiality to the
Company.
(b) The term "Representatives" shall mean any and all members,
partners, directors, officers, employees, agents, prospective financing
sources, affiliates or representatives (including representatives of advisors)
of Yucaipa.
8.2 Yucaipa and its affiliates and each of the Representatives
shall preserve the confidentiality of the Confidential Material and shall not
disclose any of the Confidential Material in any manner whatsoever; provided,
however, that (i) Yucaipa or its affiliates may make any disclosure of such
information to which the Company gives its prior written consent, (ii) Yucaipa
and its affiliates and the Representatives may make disclosures of such
information within the scope of their authority under this Agreement, and (iii)
any of such information may be disclosed to the Representatives who need to
know, and who are informed of the confidential nature of the Confidential
Material and of the terms of this Section and who agree to keep such
information confidential. In any event, Yucaipa and its affiliates shall
inform each of their Representatives which have, or will have, access to any or
all of the Confidential Material, of the existence and content of this
Agreement and will take all reasonable action necessary to cause such
Representatives to observe the confidentiality requirements of this Agreement.
In any event, Yucaipa shall be responsible for any breach of this Agreement by
any of its Representatives.
8.3 If Yucaipa or its affiliates or any of the Representatives
are requested or required (by oral questions, interrogatories, requests for
information or documents, subpoena, civil investigative demand, any informal or
formal investigation by any government or governmental agency or authority or
otherwise) to disclose any Confidential Material or such person's opinion,
judgment, view or recommendation concerning the Company as developed from the
Confidential Material, Yucaipa agrees (i) to immediately notify the Company in
writing of the existence, terms and circumstances surrounding such a request,
(ii) to consult with the Company on the advisability of taking legally
available steps to resist or narrow such request and shall exercise its best
efforts to obtain reliable assurance that confidential treatment required
hereby will be accorded such Confidential Material, and (iii) if disclosure of
such information is required, to furnish only that portion of the Confidential
Material which, in the opinion of counsel to Yucaipa, Yucaipa is legally
compelled to disclose, and to cooperate with any action by the Company to
obtain an appropriate protective order or other reliable assurance that
confidential treatment will be accorded the Confidential Material.
8.4 Yucaipa hereby acknowledges on behalf of itself and its
affiliates (and agrees to advise its affiliates and the Representatives who are
informed in accordance with the terms of this Section as to the matters which
are the subject of this Section), that the United States securities laws
prohibit any person who has received from an issuer material, non-public
information, including certain information that may be part of the Confidential
Material, while such information is non-public, from purchasing or selling
securities of such issuer or from communicating such information to any other
person under circumstances in which it is reasonably foreseeable that such
person is likely to purchase or sell such securities.
SECTION 9. INDEMNIFICATION.
(a) The Company (the "Indemnifying Party") agrees to indemnify and
hold harmless Yucaipa and each of its affiliates, members, 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 Merger 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; 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.
(c) Notwithstanding anything contained in this Section 9, each
Indemnified Party who is also a director, officer or employee of the Company
shall not be entitled to any greater indemnification under clause (a) of this
Section 9 and contribution under clause (b) of this Section 9 than such
Indemnified Party would otherwise be entitled to under the charter and by-laws
of the Company or any other indemnification agreement to which such Indemnified
Party is a signatory.
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 LLC
00000 Xxxxx Xxxxxx Xxxxxxxxx
Xxxxx Xxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxx
If to the Company: Xxxx Xxxxx, Inc.
0000 X.X. 00xx Xxxxxx
Xxxxxxxx, Xxxxxx 00000
Attention: Xxxxxx X. Xxxxxx
with a copy to the General Counsel of the Company at the same address.
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.
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.
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 LLC
By: /S/ XXXXXX X. XXXXXX
Name: Xxxxxx X. Xxxxxx
Title: Managing Member
XXXX XXXXX, INC.
By: /S/ XXXXXXX XXXXXXXX
Name: Xxxxxxx Xxxxxxxx
Title: Executive Vice President
