Document:

ex10112011.htm

  

  

  

CONFIDENTIAL TREATMENT REQUESTED

Confidential portions of this document have been redacted and have been separately filed with the Securities and Exchange Commission

EXECUTION COPY

Exhibit 10.1

 

SUPPLY, DISTRIBUTION AND RELATED SERVICES AGREEMENT

THIS SUPPLY, DISTRIBUTION AND RELATED SERVICES AGREEMENT (the “Agreement”) is made as of May 29, 2011 between THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC., a Maryland corporation with principal offices located at 2 Paragon Drive, Montvale, New Jersey 07645 (and its current and future subsidiaries and affiliates) (collectively, “A&P”) and C&S WHOLESALE GROCERS, INC., a Vermont corporation with principal offices located at 7 Corporate Drive, Keene, New Hampshire 03431 (“C&S” and together with A&P, the “Parties”).

W I T N E S S E T H:

WHEREAS, C&S operates warehouse and distribution centers, performs procurement and wholesale supply services, and provides transportation-related services to its customers; and

WHEREAS, A&P has agreed to retain C&S to provide A&P certain warehousing and distribution services, transportation services and certain wholesale supply services, on the conditions set forth in this Agreement.

WHEREAS, on December 12, 2010, A&P and certain of its subsidiaries (each a “Debtor” and, collectively, the “Debtors”) commenced chapter 11 cases by filing voluntary petitions for relief under chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of New York, White Plains Division (the “Bankruptcy Court”), which cases are currently pending (collectively, the “Bankruptcy Cases”).

NOW, THEREFORE, in consideration of the mutual covenants and obligations hereinafter set forth, the Parties hereto, intending to be legally bound, hereby agree as follows:

ARTICLE 1

PRELIMINARY MATTERS

	
1.1  

	
Effective Date.  The “Effective Date” shall mean 12:01 a.m. May 29, 2011, understanding that the Debtors will seek, as soon as practicable, entry of, one or more orders entered by the Bankruptcy Court authorizing the Debtors’ entry into and performance of this Agreement, which orders shall be in form and substance reasonably satisfactory to each Party (collectively, the “Bankruptcy Court Orders”); provided, however, that the Effective Date shall be deemed to have never occurred if the Bankruptcy Court does not enter the Bankruptcy Court Orders.  Neither Party shall revoke its execution and delivery of this Agreement, or otherwise seek to amend any of the terms and conditions hereof, pending issuance of the Bankruptcy Court Orders.

	
1.2  

	
Prior Agreements. As of May 29, 2011, C&S and A&P are parties to that certain Warehousing, Distribution and Related Services Agreement dated March 7, 2008 (the “Prior C&S Agreement”) and that certain Interim Transportation Services Agreement dated February 6, 2011 (the “Interim Agreement,” which together with the Prior C&S Agreement and all amendments, modifications or letter agreements related thereto shall be referred to as the “Prior Agreements”).

	
(a)  

	
On the Effective Date, this Agreement shall replace and supersede the Prior Agreements in all respects, the Prior Agreements shall be terminated and no longer in effect, and the parties shall thereupon have no further obligation to each other thereunder, as of the Effective Date, except that the parties shall diligently and in good faith work with each other to conduct a final reconciliation under the Prior C&S Agreement for all applicable transactions for the period commencing September 26, 2011 through the date immediately preceding the Effective Date (the “Reconciliation Period”).  ****.  The Parties agree to use commercially reasonable efforts to complete the final reconciliation contemplated hereunder not later than the date on which the Bankruptcy Court enters the Bankruptcy Court Orders.

	
(b)  

	
This Agreement is a single agreement separately bargained for by and between the parties, separate and distinct from any and all other agreements and dealings between the Parties, and the Prior Agreements shall in no event constitute parol evidence or otherwise be instructive in the construction of this Agreement;  nor shall the execution of this Agreement be parol evidence or otherwise instructive on the interpretation or application of the Prior Agreements.  Similarly, the parties’ respective performance under the Prior Agreements shall in no way constitute past practice or otherwise be informative of the way any provision in this Agreement should be interpreted, construed or applied.

	
1.3  

	
Performance Standards.  Collectively, the Warehousing Services, the Transportation Services, and the Procurement and Purchasing Services (all defined below) shall be referred to as the “Services”. The Services shall be performed in accordance with the operating procedures set forth in Exhibit “B” to this Agreement (the “Service Specifications”) and the targeted performance levels set forth in Exhibit “C” to this Agreement (the “Key Performance Measures”).  The Service Specifications and Key Performance Measures are incorporated herewith and made a part of this Agreement.  The Warehousing Services Standards (defined in Section 2.4 below), the Transportation Services Standards (defined in Section 3.2, below) and the Procurement and Purchasing Standards (defined in Section 4.3, below) shall be collectively referred to as the “Performance Standards”.

 

	
1.4  

	
Prepetition Claims.                                  Claims against the Debtor arising under the Prior C&S Agreement shall be dealt with as follows:

	
  

	
(a)  C&S shall have an allowed claim in the amount of $15.1 million on account of merchandise supplied and services performed with respect to periods arising before the Petition Date (the "C&S Liquidated Claim").  Upon entry of the Bankruptcy Court Orders, C&S shall apply the $12.2 million of cash in its possession in respect of amounts owed to the Debtors as of the Petition Date under the Prior C&S Agreement to the satisfaction of the C&S Liquidated Claim.  The balance of the C&S Liquidated Claim, in the amount of $2.9 million shall constitute an allowed 503(b)(9) claim and be paid in full in cash on the effective date of a chapter 11 plan for A&P.

	
  

	
(b)  C&S hereby agrees to waive any claim for damages resulting from the rejection of the Prior C&S Agreement (the “Prepetition Rejection Damages Claim”);

  

  

  

	
  

	 	
provided, however, that if the Reorganization Plan Effective Date does not occur prior to the termination of this Agreement for any reason such waiver shall be null and void ab initio and the C&S Prior Agreement shall be deemed to have been rejected as of such termination date.  In such event, the Parties’ rights are fully reserved in all respects including, but without limitation, those rights regarding the validity, amount and allowance of any such Prepetition Rejection Damages Claim.

	
  

	
(c)

	
C&S and A&P agree to waive all other claims not described in subsections (a) or (b) above against the other Party that arose on or before December 12, 2010, except for i) claims resulting from the reconciliation under Section 1.2(a) above ****, with respect to which all parties reserve all rights, claims and defenses; ii) claims related to avoidance actions or preference payments, provided that A&P expressly waives any and all avoidance actions or preference claims with respect to the settlement of the C&S Liquidated Claim set forth in Section 1.4(a); and iii) third party claims that have not been asserted prior to the execution of this Agreement and for which one Party would be entitled to indemnification from the other under the Prior C&S Agreement.

ARTICLE 2

WAREHOUSING SERVICES

	
2.1  

	
Warehousing and Logistics Services.  During the Term of this Agreement, C&S shall provide to A&P comprehensive managed warehousing and logistics services with respect to the Merchandise (as defined in Article 4 below) distributed to the A&P Stores (defined in Section 4.4, below), all on the terms and conditions set forth in this Agreement (the “Warehousing Services”), including but not limited to: the daily operation and maintenance of the C&S Facilities; handling and confirming receipt of inbound orders; loading and unloading; storage; selection; pallet building; case labelling (where applicable); providing off-site resources for logistics management or analytical services; processing claims for recovery of lost or damaged Merchandise, as applicable; providing trained, skilled personnel; providing reverse logistics services including, but not limited to, the loading, unloading and handling of Merchandise and materials associated with A&P’s product reclamation, pallets, totes, cardboard bales and plastic recyclables programs; and interfacing with A&P personnel, all in accordance with the Performance Standards.

	
2.2  

	
Exclusivity.  Except as may be otherwise stated in this Agreement, A&P agrees that for the Term of this Agreement it shall not contract with any third party other than C&S for the rendering of the Warehousing Services; provided, A&P may perform the Warehousing Services (from facilities other than the C&S Facilities) on its own account or may contract with a third party to perform the Warehousing Services by providing C&S with prior written notice of A&P’s intent to source such Merchandise in the event C&S has failed, or where A&P has a reasonable basis (based on objective information) to believe that C&S will fail, to meet the Targeted Service Level for any Contract Week for any C&S Facility or for any Product Category within a C&S Facility.  In the event A&P exercises its rights under the preceding sentence, A&P agrees to perform or contract for only such scope and duration of Warehousing Services as are necessary to mitigate

****Confidential material redacted and filed separately with the Securities and Exchange Commission.

 

  

  

  

C&S’s actual or anticipated failure to meet the Targeted Service Level as abovedescribed.

	
2.3  

	
C&S Facilities.  Commencing on the Effective Date, C&S shall perform all Warehousing Services and Transportation Services hereunder (with the exception of Warehousing Services at the Edison GMDC Facility, which shall be performed by A&P) from the warehouse and/or distribution centers that are owned or leased by C&S and set forth on Exhibit “A” hereto (the “C&S Facilities”).  Exhibit “A” also lists each of the A&P Stores (defined in Section 4.4, below) for which each C&S Facility serves as the shipping origin as of the Effective Date. The parties agree that C&S may change the shipping origin for any A&P Store (including by shipping A&P Stores from distribution centers that are not listed on Exhibit “A”), provided that C&S will provide not less than thirty (30) days’ prior written notice to A&P of such change and that such change shall not:  a) result in an increase in the **** charged to A&P hereunder;  b) result in an increased fuel surcharge charged to A&P due to increased consumption of fuel; nor c) materially impact C&S’s ability to perform the Services in accordance with the  Performance Standards.  In the event C&S changes the shipping origin for a group of A&P Stores or unilaterally takes such other action which has the effect of increasing the routed miles for such A&P Stores or otherwise increases the Transportation Costs (e.g. incremental toll, tariffs and government levies), ****.

 

 

	
2.4

	
Warehousing Services Standards.  In addition to complying with the Services Specifications and Key Performance Measures and the representations set forth in Section 4.6 of this Agreement, C&S covenants and agrees to perform the Warehousing Services and to maintain and operate the C&S Facilities (including the cleanliness thereof) with the degree of care, skill and diligence consistent with an experienced, reputable warehouseman operating a warehouse and distribution service network for the Product Categories.  

	
  

	 

	
2.5

	
C&S Covenants.   In addition to any of its other obligations as set out in this Agreement, C&S covenants and agrees that during the Term it will:

	
(a)  

	
take all necessary and desirable steps and precautions to protect Merchandise from weather, water, theft, vandalism and all other reasonably foreseeable hazards and damages;

	
(b)  

	
comply with all federal, state and municipal governmental laws, rules, regulations, by-laws, zoning legislation, guidelines, ordinances, orders of any governmental body, and any other restrictions, covenants and other limitations (including, without limit, those in respect of environmental and health and safety matters) applicable to the occupation and operation of the C&S Facilities and the performance of the Warehousing Services and to otherwise comply with the terms and conditions of this Agreement.  C&S shall keep in full force and effect all licenses, registrations and other qualifications imposed by any applicable governmental authorities necessary to occupy and operate the C&S Facilities,

****Confidential material redacted and filed separately with the Securities and Exchange Commission.

 

  

  

  

and to provide the Warehousing Services and to otherwise fulfill the terms and conditions of this Agreement;

	
(c)  

	
except as otherwise instructed by A&P, not place any Merchandise in proximity to any other products or any material that is or may be noxious, flammable, hazardous or whose characteristics may adversely affect the quality, fitness or intended purpose, merchantability and other characteristics of the Merchandise or otherwise cause in any manner whatsoever Merchandise to be adulterated or deteriorate; and

	
(d)  

	
maintain all of the C&S Facilities and equipment utilized in the performance of the Services in good working order and promptly (or as soon as practicable in the case of refrigeration equipment) repair and/or replace any equipment that may prevent or hinder C&S’s ability to provide the Services in accordance with the terms and conditions of this Agreement.

	
2.6

	
Accounts Receivables Deductions.  The Parties agree that throughout the Term of this Agreement, A&P shall not contract with any third party for the performance of, and C&S will be the exclusive provider of, processing and collection services on A&P’s behalf with respect to A&P’s deductions for all accounts receivable amounts that are due A&P ****.

****Confidential material redacted and filed separately with the Securities and Exchange Commission.

 

  

  

  

	
2.7  

	
Other Services.

	
(a)  

	
Coupon Processing.  The parties agree that for the Term of this Agreement, A&P will not perform on its own behalf or contract with any third party other than C&S for, and C&S will be A&P’s exclusive provider of, manufacturer paper coupon processing services with respect to all of the A&P Stores. ****

	
(b)  

	
Reclamation.    C&S agrees that throughout the Term of this Agreement A&P will not perform on its own behalf or contract with any third party for the performance of, and C&S will be A&P’s exclusive provider of,  reclamation services (the “Reclamation Services”) with respect to all damaged, discontinued or unsaleable Merchandise located at the A&P Stores in accordance with the terms and conditions set forth in Schedule 2.7(b)  hereto.

****Confidential material redacted and filed separately with the Securities and Exchange Commission.

 

  

  

  

	
  

	
2.8  Variable Warehouse Upcharge.  As consideration for performing the Warehousing Services hereunder, A&P shall pay to C&S an amount (the “Variable Warehouse Upcharge”) equal to A&P’s dollar purchases of Merchandise from C&S **** for each of the following Product Categories, multiplied by such Product Category’s corresponding Variable Warehouse Upcharge, as stated below:

	
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Notwithstanding the foregoing, ****

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2.9

	
Fixed Warehouse Charge.

	
  

	
(a)  As additional consideration for performing the Warehousing Services hereunder, A&P shall pay to C&S a fixed amount (the “Fixed Warehouse Charge”) equal to **** per Contract Year (or prorated for any portion thereof), which is allocated across Product Category Groups as indicated in the below table.  The Product Category Groups shall be four (4) in number and consist of: ****.

	
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****Confidential material redacted and filed separately with the Securities and Exchange Commission.

 

  

  

  

	
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(b)

	
For each week between the Effective Date and the earlier of (x) the Reorganization Plan Effective Date or (y) the Effective Date of Termination, A&P shall pay an additional weekly fixed amount as set forth on Schedule 2.9 hereof (the “Interim Fixed Warehouse Charge”).

	
2.10  

	
 Payment.  Together, the Variable Warehouse Upcharge, the Fixed Warehouse Charge and the Interim Fixed Warehouse Charge shall be referred to as the Warehousing Costs.  The Warehousing Costs shall be payable to C&S in accordance with Article 5 hereof.

	
  

	
2.11 Adjustments to Fixed and Variable Charges Due to Volume Changes.  To the extent A&P’s actual purchase volume of Merchandise **** in any Contract Year after the Reorganization Plan Effective Date increases or decreases by more than **** from A&P’s purchase volume of ****, the Parties will negotiate in good faith an appropriate adjustment to the Fixed and Variable Warehouse Charges set forth in Sections 2.8 and 2.9 above, and Fixed and Variable Transportation Charges set forth in Sections 3.9 and 3.10 below.  ****.

	
  

	
2.12 CPI Adjustment.  Upon the **** anniversary of the Reorganization Plan Effective Date (the “Adjustment Date”), ****.

****Confidential material redacted and filed separately with the Securities and Exchange Commission.

 

  

  

  

	
  

	
ARTICLE 3

TRANSPORTATION SERVICES

	
3.1  

	
General.  During the Term of this Agreement, C&S shall provide comprehensive managed transportation services for the benefit of the A&P Stores.  C&S shall be responsible for the design, development and implementation of the transportation activities, including, but not limited to, the independent oversight and management of the inbound transportation of Merchandise to the C&S Facilities and/or the A&P Stores and the routing and overall management of outbound transportation and delivery of Merchandise from the C&S Facilities to the A&P Stores (the “Transportation Services”).  C&S shall arrange, through the hiring of reputable contract carriers, for the provision of Transportation Services, including such accessorial and special services that may relate to Transportation Services and may be requested by A&P, and to adhere to, and to cause its contract carriers to adhere to, the standards of service, delivery specifications, and other service requirements as may be set forth in the Service Specifications.  C&S acknowledges and agrees that it will be responsible to A&P for the performance of the Transportation Services by such contract carriers.  For the purposes of this Article 3, any reference to C&S shall also be deemed a reference to any contract carrier hired by C&S in performance of the Transportation Services.  A&P agrees that it shall provide C&S and/or its contract carrier suitable office space and telephone/Internet connectivity to operate an administrative office in or adjacent to the Edison GMDC facility at no additional cost to C&S. 

	
3.2  

	
Transportation Services Standards.  In addition to complying with the Services Specifications and Key Performance Measures and the representations set forth in Section 4.6 of this Agreement, C&S covenants and agrees to perform the Transportation Services with the degree of care, skill and diligence consistent with an experienced, reputable third party carrier performing trucking and related transportation services for the Product Categories. 

	
3.3  

	
A&P Right to Assume Transportation Services.   The Parties agree that, in its sole and exclusive discretion, A&P may elect, upon **** days prior written notice to C&S, to assume exclusive responsibility for, or to contract with any third party to manage, all or any of the Transportation Services, provided that:  a) A&P shall be responsible for (i) assuming from C&S such tractors, trailers or other similar assets or equipment owned or leased by C&S that were utilized by C&S in performing the Transportation Services and that C&S certifies will no longer be utilized elsewhere in C&S’s business once A&P assumes the Transportation Services (or portion thereof), giving due consideration to the ordinary and customary requirements of C&S’s business; (ii) paying reasonable severance and shut-down expenses, if any, related to the termination of any or all of the Transportation Services;  and (iii) paying to C&S the ****;  and b) the parties shall in good faith negotiate an adjustment to the Fixed Transportation Charge and Variable Transportation Charge provided for in Sections 3.9 and 3.10 below, to take effect upon A&P’s assumption of all or any of the Transportation Services.  ****.  C&S agrees that upon receipt of written notice of A&P’s intent to assume Transportation Services hereunder it will use commercially reasonable efforts to dispose of the assets and equipment referred to in the first sentence of this Section 3.3 (to the extent such equipment is not needed by A&P or its designee), to re-deploy employees (or to cause its third-party carriers to re-deploy employees)

****Confidential material redacted and filed separately with the Securities and Exchange Commission.

 

  

  

  

and take other action to minimize severance costs and to otherwise mitigate the costs and obligations to be assumed by A&P upon exercise of its rights under this Section 3.3.

	
3.4  

	
Title to Merchandise.  Title to and risk of loss to all Merchandise shall remain with C&S until such time as the Merchandise is delivered to A&P.  For the purposes of this Section, “delivery” shall be deemed to have occurred when the Merchandise arrives at the A&P Store and is unloaded from the trailer utilized by C&S.  Delivery shall be evidenced by route manifests maintained by C&S and countersigned by A&P.  However, if A&P directs that a trailer containing Merchandise be parked at an A&P Store drop area designated by A&P for later unloading, delivery will be deemed to have occurred when the trailer is parked as directed by A&P.  If A&P performs, or makes arrangements with contract carriers to perform the Transportation Services, or in the event A&P elects to have Merchandise picked up at C&S Facilities for any reason,  delivery will be deemed to have occurred at such time as the trailer containing Merchandise is sealed at the applicable shipping Facility.  The parties shall, respectively, be fully liable for loss of, theft of, destruction or damage to, any and all Merchandise while in its care, custody and/or control.

	
3.5  

	
Transportation Covenants.  C&S shall cause its contract carriers to, comply with, and to ensure compliance with, all applicable material federal, state and local laws and regulations of the respective regulatory bodies having jurisdiction over the rendering of the Transportation Services (collectively, the “Transportation Laws”) including, but not limited to, such Transportation Laws governing the ownership, operation and use of vehicles to be used by C&S in connection with its performance hereunder.  C&S agrees to ensure that all drivers are properly licensed in accordance with applicable Transportation Laws and that all drivers are thoroughly familiar with the equipment and operations of any vehicles and operate each vehicle in a safe and workmanlike manner.  Without limiting the foregoing, C&S shall pay any and all fees, taxes, assessments, fines, penalties and other amounts payable in respect of C&S’s compliance (or non-compliance) with Transportation Laws directly related to the Transportation Services, maintain all books and records, display all identifying symbols showing C&S’s carrier classification, and maintain all workman’s compensation and liability insurance or other protection as required by the Transportation Laws and/or otherwise related to performance of the Transportation Services.

	
3.6  

	
Licenses and Permits.  C&S will ensure that its contract carriers have obtained, and will maintain in full force and effect during the Term, all permits, licenses and authorizations required by the Transportation Laws or otherwise necessary or appropriate for it to carry out the Transportation Services under the Agreement.  Without limiting the generality of the foregoing, C&S will use contract carriers that hold valid and effective permits as a highway carrier from the Departments of Transportation (or the relevant analogs thereto) in all applicable jurisdictions, and has and will maintain in full force and effect at all times during the term hereof all other permits, licenses, certifications and other authorizations from said Departments and any other federal or state agencies having jurisdiction over the Transportation Services.

	
3.7  

	
Equipment.  C&S shall, and shall cause its contract carriers to, maintain all vehicles and other equipment used in connection with the Transportation Services in good and safe condition, both as to operation and appearance, and shall perform in accordance with applicable Transportation Laws with respect to the maintenance and operation of such vehicles and other equipment.

	
3.8  

	
A&P Store Requirements.  C&S will cause its contract carriers to comply with commercially reasonable direction provided by A&P with respect to any real estate lease for any A&P Store that is applicable to the Transportation Services, as communicated by A&P (it being understood that C&S shall not be liable for A&P’s compliance with the terms of any real estate lease, but shall only be responsible for fulfilling its obligations under this Agreement).

	
3.9  

	
Variable Transportation Upcharge.  As consideration for performing the Transportation Services hereunder, A&P shall pay to C&S an amount (the “Variable Transportation Upcharge”) equal to ****, as stated below:

	
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3.10  

	
Fixed Transportation Charge.  As additional consideration for performing the Transportation Services hereunder, A&P shall pay to C&S ****.  Where applicable, the Fixed Transportation Charge is subject to adjustment in accordance with Section 2.11 above. Together, the Variable Transportation Upcharge and the Fixed Transportation Charge shall be referred to as the Transportation Costs.

The Transportation Costs shall be payable to C&S in accordance with Article 5 hereof.

 

	
3.11

	
Transportation Start-Up Costs.  As additional consideration for performing the Transportation Services hereunder, A&P shall pay to C&S ****.  The Weekly Transportation Start-Up Charge shall be billed in accordance with Article 5.

	
3.12

	
****.

 

	
3.13

	
Weekly Fuel Cost Adjustment.  C&S and A&P agree that a fuel surcharge (“Total Miles Fuel Surcharge”) for the total miles driven to service the A&P Stores will be assessed weekly, and paid by (or credited to) A&P, as applicable, in the event that the applicable DOE index price in the previous week exceeds (or is below) the Baseline Cost.  For purposes of this provision, the Baseline Cost shall be ****.  For reefer fuel, the DOE index price will be used, less road and other inapplicable taxes.   The Total Miles Fuel Surcharge shall be assessed pursuant to the example attached on Schedule 3.12 and shall be made up of both the Delivery Fuel Surcharge and the Reefer Fuel Surcharge.

 

The Delivery Fuel Surcharge shall be applied to Total Miles.  Fuel consumption will initially be set at **** miles per gallon, and will be reviewed and adjusted as necessary to reflect actual consumption once per quarter hereunder.

In addition to the Delivery Fuel Surcharge, the Reefer Fuel Surcharge shall be applied to all A&P refrigerated or frozen loads  (“Chill/Frozen Miles”).  The following assumptions will be used to calculate the Reefer Fuel Surcharge:****.

****Confidential material redacted and filed separately with the Securities and Exchange Commission.

 

  

  

  

The Total Miles Fuel Surcharge will be billed (or credited) to A&P weekly.  For purposes of this Agreement, Total Miles shall equal the routed delivery miles to service A&P plus an appropriate adjustment to more accurately capture actual miles.  

	
3.14

	
Transportation Modeling Assumptions.  The Transportation Costs stated herein are based on the operating assumptions and parameters as set forth in Schedule 3.14.  The Transportation Costs are inclusive of store delivery and associated routine returns of product, pallets, totes and recyclables only. Special services, transfers, additional drop trailers and other requests from A&P shall be billed to A&P at cost.  C&S shall provide a detailed accounting of all charges relating to special services hereunder.  Any material change to (i) the average distance to service the A&P Stores caused by closures, openings or acquisitions of stores that are serviced under this Agreement; (ii) the composition of Edison-based direct store delivery versus cross dock shuttles; or (iii) a **** variation (up or down) in C&S’s actual cost per case of providing the Transportation Services (excluding fuel) resulting from a change in the operating assumptions or parameters as set forth in Schedule 3.14, will necessitate that the parties in good faith negotiate an appropriate adjustment to the applicable Transportation Costs.  Notwithstanding the foregoing, the parties shall not be under any obligation to negotiate adjustments to the Transportation Costs to the extent C&S has changed shipping origins under Section 2.3 and A&P’s has not specifically agreed in writing to negotiate adjustments as a result of such change(s), or to the extent there occur changes in the assumptions or parameters in Schedule 3.14, or C&S has implemented changes in its business or operations, that were not necessitated by a change in A&P’s business or due to the actions or omissions of A&P.

A&P further agrees that it will cooperate with C&S to ensure, where commercially reasonable, that trucks are full, including adjusting schedules and permitting split deliveries.

	
3.15

	
Adjustment of Transportation Costs.

	
  

	
(a)

	
During the Term, ****.

	
  

	
(b)

	
At C&S’s option, ****.  A&P will work with C&S in good faith to assume tractors, trailers or other assets or equipment owned or leased by C&S and used in performing the Transportation Services to the extent (i) such equipment will no longer be used in C&S’s business, (ii) such equipment has not been specially modified or customized for C&S’s use in any way that would render such equipment unusable to A&P or its agent, (iii) such equipment reflects, as a whole,

****Confidential material redacted and filed separately with the Securities and Exchange Commission.

 

  

  

  

	
  

	
the average lease term for such type of equipment as used in the Transportation Services (e.g. an average of approximately 2.5 years remaining on tractor leases and an average of approximately 3.5 years remaining on trailer leases), (iv) A&P will not be requested to assume more equipment than A&P reasonably determines would be required to perform the Transportation Services for the A&P Stores;  and (v) the C&S equipment is offered to A&P on commercially reasonable terms.  Noting in the foregoing shall be construed to limit or restrict A&P’s ability to assume any or all Transportation Services as otherwise provided under Section 3.3 hereof.

	
  

	
ARTICLE 4

PROCUREMENT AND PURCHASING SERVICES

I.  GENERAL

	
4.1

	
Merchandise.  Subject to the terms and conditions set forth in this Agreement, A&P agrees to purchase from C&S, and C&S agrees to sell to A&P, A&P’s entire requirements of merchandise customarily associated with the following product categories (each, a “Product Category” and, collectively, the “Product Categories”):  ****.

	
4.2

	
Exclusivity.  Except as may be otherwise expressly stated in this Agreement, A&P agrees that for the Term of this Agreement it shall not contract with any unaffiliated third party other than C&S to procure and/or purchase the Merchandise.   Notwithstanding the preceding paragraph, nothing in this Agreement shall be deemed to prohibit or restrict A&P from temporarily performing the procurement and/or purchasing function with respect to any Merchandise where C&S has failed, or where A&P has an objectively  reasonable basis to believe that C&S will fail, to meet the Targeted Service Level during any Contract Week for any C&S Facility or for any Product Category within a C&S Facility. In the event A&P exercises its rights under the preceding sentence, A&P agrees to perform only such scope and duration of procurement and/or purchasing functions as are necessary to mitigate C&S’s actual or anticipated failure to meet the Targeted Service Level as above described.

	
4.3

	
Procurement and Purchasing Standards.    In addition to complying with the Services Specifications and Key Performance Measures and the other C&S covenants, warranties and representations contained in this Agreement, C&S covenants and agrees to perform the Procurement and Purchasing Services with the degree of care, skill and diligence consistent with an experienced, reputable grocery wholesale supplier providing procurement, purchasing and related grocery wholesale supply services.

****Confidential material redacted and filed separately with the Securities and Exchange Commission.

 

  

  

  

	
4.4

	
A&P Stores.  The term “A&P Stores” means all retail supermarket stores operated by A&P  set forth on Exhibit “A”, attached hereto.  In addition, the term “A&P Stores” shall include any retail supermarket store(s) that are  replacement(s) for one or more A&P Stores, or any new, incremental “in-market” retail supermarket store opened (or acquired) and operated by A&P.  For the purposes of the preceding sentence, a store shall qualify as “in-market” where such store is located within:  (i) the states in which A&P Stores are operated as of the Effective Date; or (ii) the states that are contiguous to the states in which A&P Stores are operated as of the Effective Date ****.  Nothing in this Section 4.4 or this Agreement shall limit the ability of A&P to close any of the A&P Stores set forth on Exhibit “A” hereto (which closure(s) shall automatically result in the definition of “A&P Stores” changing to exclude any store closed after the date hereof).

	
4.5

	
Exclusions.

	
  

	
(a)

	
Merchandise does not include the following products:

	
(i)  

	
products that are available for purchase by A&P through direct store delivery (“DSD”) or from cross dock vendors and designated as DSD or cross dock by A&P from time to time, with the understanding that A&P shall in no respect be prohibited or limited from designating on a temporary or long-term basis any Merchandise or other products as DSD or cross-dock, provided that A&P’s discretion under this section shall be limited to:  (x) private label products;  (y) seasonal and/or promotional products;  and (z) no more than **** of all other Center Store Products that are not currently designated by A&P as DSD or cross-dock (A&P will provide C&S with advance notice of its intention to designate any Center-Store Products as cross-dock or DSD); and ****;

	
(ii)  

	
seasonal GM or other specialty products as may from time to time, or at any time, be so designated by A&P in its sole discretion, which may include (by way of example but not exclusion) natural, organic and private label products, which are now or in the future may be procured and purchased by A&P from specialty suppliers, except as may be otherwise agreed to by the parties in writing;  provided that if C&S can offer competitive pricing, services (including pack-out services), payment terms, credit requirements or other program attributes with respect to products falling under this subsection “(ii)”, A&P will agree to purchase such products from C&S (subject to any contractual commitments A&P may have with any alternative supplier of such products);

 

	
(iii)  

	
distribution of private label products or other proprietary brands outside of A&P’s market and in all cases outside of the A&P Stores;

 

	
  

	
(iv)

	
   tobacco;

 

	
  

	
(v)

	
   pharmacy (prescription medications); or

 

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(vi)

	
   liquor.

 

If any product excluded from Merchandise is proposed by either party to be included as Merchandise under the Agreement, and if A&P agrees in its sole discretion to include such product as Merchandise, the parties shall negotiate in good faith as to the terms governing such inclusion, or shall enter into a separate agreement thereto.

4.6  C&S Representations. C&S makes the following representations, warranties and guarantees, which with respect to the Merchandise C&S’s commitments apply only to the period of time such Merchandise is in C&S’s or its contract carriers’ care, custody or control:

	
  

	
(a)  C&S shall not adulterate or misbrand Merchandise within the meaning of the Federal Food, Drug and Cosmetic Act, as amended, (“FDCA”), including, without limitation, the Food Additives Amendment and any other amendment thereto, and any state food and drug law, and shall not add to Merchandise any articles that may not, pursuant to Sections 404 or 505 of the FDCA, the Federal Hazardous Substances Act (“FHSA”), or otherwise, be introduced into interstate commerce; C&S shall comply with the Federal Meat Inspection Act, the Poultry Products Inspection Act, and all other applicable federal, state and local food safety related laws, rules and regulations.

	
  

	
(b) C&S shall not misbrand or mislabel Merchandise within the meaning of the FHSA or any other law or regulation, and will not add to Merchandise any articles that constitute or contain an economic poison as defined in the Federal Insecticide, Fungicide, and Rodenticide Act, and comply with all other applicable provisions of such Act (7 U.S.C.A. 135-135k); C&S shall comply with all applicable Occupational Safety and Health Administration Standards.

	
  

	
(c) C&S shall not alter the packaging, advertising, labels and other materials contained on, with, or relating to the Merchandise so as to infringe any patent, copyright, trademark, trade name or other proprietary interest of any third party.

	
  

	
(d)  The Merchandise and C&S’s sale, storage, handling, transportation and billing for the Merchandise comply with all provisions of applicable law and with all applicable promulgations of governmental authority.

	
  

	
(e)  C&S is the lawful owner of the Merchandise, has good right to sell same and convey good and merchantable title, and the Merchandise is and will be conveyed free of any and all claims, liens, security interests or other encumbrances.

	
  

	
(f)  C&S shall not do anything that shall render the Merchandise of a less than merchantable quality.  C&S and the Merchandise complies (or prior to the Effective Date will be in full compliance) with all federal, state and local Country of Origin labeling and related requirements, including those required by the U.S. Customs Service, those contained in the Agricultural Marketing Act, as amended by the 2002 Farm Bill, and the implementing regulations (collectively, “Country of Origin Requirements”), and will provide to A&P all reasonable assistance requested by A&P and information necessary to enable A&P to comply with the Country of Origin Requirements as they apply to Merchandise sold under this Agreement.  In particular, C&S will:

	
  

	
(i)  ship Merchandise appropriately labeled by the manufacturer with Country of Origin declarations;

	
  

	
(ii)  comply with all record keeping and product segregation standards required by the Country of Origin Requirements; and

	
  

	
(iii)  provide to A&P upon written request no more often than once each Contract Year a certification that C&S is in compliance with the Country of Origin Requirements.

	
  

	
(g)  C&S will perform the Services in compliance with, and in every manner of its respective business related to the Agreement obey and conform to, all applicable laws, rules and regulations, both domestic and foreign, now existing or which may be later adopted.

The representations, warranties and guarantees contained in this Section 4.6 run solely to A&P and its successors and assigns.  The representations, warranties and guarantees set forth in this Section 4.6 are continuing in nature and survive A&P’s payment, acceptance, inspection or failure to inspect the Merchandise.

Except as otherwise expressly stated in this Agreement, C&S expressly disclaims any unstated or implied warranties, including warranties of merchantability or fitness for a particular purpose.

II. PROCUREMENT

	
4.7  

	
Procurement Generally.  For purposes of this Agreement, to “procure” or to perform “Procurement Services” shall mean to negotiate directly or indirectly with the applicable vendor with respect to terms of the purchase of goods including, but not limited to (as applicable), price, specifications, quantity, freight and **** (collectively, the “Purchase Terms”).  The responsibility for procuring Merchandise is allocated between A&P and C&S under this Article 4. A&P shall have exclusive responsibility for procuring the goods that are excluded from Merchandise as set forth in Section 4.5(a), hereof. 

	
  

	
(a)    Allocation of Procurement Responsibility - General.  ****.

	
(b)  

	
Fresh Meat and Produce - Product Specifications.  A&P, in its sole discretion and with such frequency as it shall decide (provided there is reasonable advance notice), shall determine and provide to C&S, in writing, detailed item specifications for all Fresh Meat and other Fresh Products.  Except as otherwise set forth below, such item specifications shall not prescribe a specific vendor from which to purchase the item.

	
(c)  

	
Fresh Meat - Procurement.   A&P shall have the authority to direct, in its discretion, all procurement activities in the Fresh Meat category, including vendor selection and contracted product pricing; provided, ****.

  

  

  

****. A&P will preorder all poultry products so as to permit C&S to effectively manage inventory levels and avoid code dating or availability issues.

	
(d)  

	
Produce - Procurement.   Subject to meeting A&P’s product specifications as set forth in subparagraph (b) of this Section 4.7, ****.

III.  PURCHASING

	
  

	
4.8  Purchasing Generally.  For the purposes of this Agreement, to “purchase” or to perform “Purchasing Services” shall mean to: (a) perform the physical act of purchasing goods through the execution and tender of purchase orders to an applicable vendor;  (b) to pay for such goods; and (c) to own such goods for the period immediately preceding their resale to A&P.  A&P shall have exclusive responsibility for purchasing the goods that are excluded from Merchandise as set forth in Section 4.5(a), hereof.

4.9  Center Store Products Purchasing

	
  

	
(a)

	
C&S shall purchase and manage the regular turn Center-Store Products inventory intended for use or resale at the A&P Stores.  C&S’s management of A&P’s regular turn Center-Store Products inventory shall be based upon historic Center-Store Products turn information maintained by C&S, product specifications supplied by A&P, and other projections and other information provided by A&P to C&S. C&S shall be responsible for determining the quantity and delivery date of the regular turn Center-Store Products inventory.

	
  

	
(b)

	
C&S shall purchase promotional or other high-velocity Center-Store Products inventory intended for use or resale at the A&P Stores as directed by A&P.  C&S’s purchase of promotional or high-velocity Center-Store Products shall be based upon A&P’s advance estimates of promotional volumes, product specifications, purchase quantities, delivery dates, store-specific volume allocations (as further set forth in the Service Specifications) and other Center-Store Products information supplied by A&P to C&S, and other projections and other information and direction provided by A&P to C&S.

	
(c)  

	
C&S agrees that it shall maintain and provide A&P, on a daily basis, detailed inventory date code viewing and close dated reports with respect to all Center-Store Products that have code dates.  In addition, C&S will work with A&P to maintain and provide such other reports or information required under the Service Specifications, or develop such reports to the extent they are not already provided. On the first Tuesday following the end of each Fiscal Accounting Period (but in no event sooner

****Confidential material redacted and filed separately with the Securities and Exchange Commission.

 

  

  

  

than 2 days following the end of the Fiscal Accounting Period), C&S will provide to A&P movement reports ****.

4.10  Fresh Products Purchasing.

	
  

	
(a) General.  ****. Under no circumstances shall C&S substitute for any Fresh Products alternative goods that do not possess the identical product specifications as those designated by A&P without A&P’s express written consent.  A&P agrees to respond in a timely manner to C&S requests to substitute Fresh Products in order to meet A&P’s service requirements in the event a vendor designated by A&P (only as such designation is permitted under this Agreement) is unable to fulfill an order.

	
  

	
(b) Purchases – Regular Turn Inventory.  C&S shall purchase and manage the regular turn Fresh Products inventory intended for use or resale at the A&P Stores.  C&S’s management of A&P’s regular turn Fresh Products inventory shall be based upon historic Fresh Products turn information maintained by C&S, product specifications and vendor designations (only as such designation is permitted under this Agreement)  supplied by A&P, and other projections and other information provided by A&P to C&S.  ****.

	
  

	
(c) Purchases – Promotional. C&S shall purchase promotional or other high-velocity Fresh Products inventory intended for use or resale at the A&P Stores.  C&S’s purchase of promotional or high-velocity Fresh Products (which shall include turkey, shrimp, crab and other high-tonnage categories of frozen commodities) shall be based upon A&P’s advance estimates of promotional volumes, product specifications, vendor designations (only as such designation is permitted under this Agreement), purchase quantities, delivery dates, store specific volume allocations, and other Fresh Products information supplied by A&P to C&S.

	
  

	
(d) Inspections.  C&S will be responsible for the inspection of all Fresh Products prior to their acceptance at the Facilities by C&S to ensure strict compliance with A&P’s Fresh Products specifications.  If A&P requests that C&S accept any Fresh Products that C&S would otherwise reject, A&P and C&S will agree on a plan of distribution for such Fresh Products and C&S will not be responsible for out-of-code or quality issues related to such product.  The parties agree that they shall use USDA/PACA standards for determining whether Fresh Products should be accepted or pulled from received inventory.  Product that meets US Grade # 1 or “Good” delivery shall be acceptable for C&S to receive.

	
  

	
(e)  Information and Reports.  C&S agrees that it shall maintain and provide to A&P, on a daily basis, detailed inventory date code viewing with respect to short coded items and close dated reports with respect to all Fresh Products intended for use or resale at

****Confidential material redacted and filed separately with the Securities and Exchange Commission.

 

  

  

  

	
  

	
the A&P Stores, along with any other reports or information required under the Service Specifications.  In addition, C&S will provide A&P on a daily basis a daily inventory report on all fresh seafood slots/SKUs at the C&S Facilities, which shall be prepared and maintained by C&S in accordance with mutually agreed upon polling Sections and other specifications.  The Parties agree to collaborate closely on minimizing out-of-code Fresh Product.

	
  

	
(f)  Exact Weight - Meat.  C&S shall invoice A&P for the exact weight of all fresh and frozen meat products in Facilities with voice selection technology, which information shall be scanned from the case packaging of the meat products as they are selected by C&S for delivery to the A&P Stores.

	
  

	
(g)  Product Handling Requirements.  C&S shall receive, store, handle and distribute all Fresh Products in strict accordance with the Fresh Products handling requirements set forth in the Service Specifications.

	
  

	
(h)

	
Holiday and Seasonal Commodities.  A&P shall be responsible for all pre-distribution, storage and handling of frozen holiday and seasonal commodities (primarily, but not exclusively, holiday turkeys and shrimp).  A&P shall purchase such goods, place them in outside storage, and will be responsible for all outside storage expenses.  With respect to the initial distribution of such goods, C&S will receive such products from the outside storage facilities two days prior to the agreed upon distribution or store order billing date for such goods.  All such product must be distributed (i) no later than the Sunday immediately following Thanksgiving for Thanksgiving items and (ii) by February 1 for all Christmas and New Year’s items.  It is the intent of this section that C&S shall not have to store in its facilities any frozen holiday or seasonal commodities for more than two weeks.

	
IV.

	
TERMS COMMON TO ALL PROCUREMENT AND PURCHASING

	
4.11

	
Quality Assurance.  The parties agree that A&P shall maintain, at its own expense, Quality Assurance inspectors at each C&S Facility to determine whether the product specifications, Performance Standards, and C&S’s other obligations under this Agreement are being met and maintained.

	
4.12

	
Assumptions.  The pricing provisions set forth in this Agreement are based upon the parties mutual assumption that:  a) deal activity and other manufacturers’ promotions will remain at levels throughout the Term that are essentially the same as those prior to the execution of this Agreement;  b) that no fundamental changes will occur in the structuring of promotions or other facts affecting the wholesale cost of Merchandise;  c) ****;  and d) ****.  If the parties’ mutual assumptions cease to be true to a material degree at any time during the Term, or if A&P implements a material change in its sales mix, store delivery schedules or other similar change in the way it operates the A&P Stores that has a material effect on C&S’s costs of performing the Warehousing Services or Transportation Services (but specifically excluding cost impacts relating to changes in A&P Volume which are addressed in Section 2.11 hereof), the parties agree to negotiate in good faith to reach agreement on new, mutually acceptable Warehousing Costs and Transportation

****Confidential material redacted and filed separately with the Securities and Exchange Commission.

 

  

  

  

	
  

	
Costs (as the case may be) that will to the greatest extent possible restore the respective economic expectations held by the Parties as of the Effective Date.  The parties further agree that any willful breach of sub-section “d” above shall constitute a material breach for which the non-breaching party shall be entitled to terminate this Agreement in accordance with Article 7.

	
4.13

	
Service Levels.  C&S agrees that, commencing on the Effective Date and continuing during the Term of this Agreement, the target service level and punitive service level for all Merchandise purchased by C&S on A&P’s behalf (the “Targeted Service Level” and “Penalty Service Level”, respectively and each a “Purchasing Service Level”), together with the penalties for failing to meet any Penalty Service Level, shall be as set forth in the Key Performance Measures attached hereto this Agreement as Exhibit “C”.  ****.

The “Purchasing Service Level” in each instance is calculated as a ****.  The Purchasing Service Level calculation shall be adjusted at the end of each Contract Week to reflect any shortages from the prior week that are in excess of **** (based on audited results).

“Ad Overpull” shall be defined as any promotional volume in excess of the forecast timely provided by A&P (with respect to whether A&P has provided information “timely” being determined in accordance with the subject vendor’s lead-time requirements).

An item will qualify as a “Manufacturer Out-of-Stock” if:  (i) such item was subject to a product recall; (ii) such Fresh Products item was rejected by C&S on quality-based grounds and such rejection was confirmed by A&P or a USDA inspector; (iii) C&S provides within seven (7) days after shipment to the A&P Stores written proof of out-of-stock status (e.g., a letter from the manufacturer indicating the quantity of the item that was unavailable from the manufacturer for the period in question, or a received purchase order issued within proper lead time indicating the quantity of the item that was cut by the manufacturer); or (iv) the manufacturer has refused to ship product due to a dispute over an A/R Deduction and C&S provides such evidence as described in sub-schedule (iii) in this paragraph.

“Product Category” shall have the meaning set forth in Section 4.1 hereof.

C&S will provide A&P, throughout the Term of this Agreement, on a daily, weekly and Fiscal Accounting Period basis, a “Purchasing Service Level Report” showing, with respect to all orders processed for the given period, the actual Purchasing Service Levels (i) by C&S Facility; (ii) by Product Category within individual C&S Facilities; and (iii) in the aggregate for all C&S Facilities (each, respectively, the “Actual Purchasing Service Level”).

	
  

	 

****.  Other consequences or and remedies for Service Level defaults are set forth in Article 7.

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4.14

	
****.

****:

	
  

	
****.

	
  

	
****.

	
  

	
****.

 

 

	
  

	
****.

	
  

	
****.

****Confidential material redacted and filed separately with the Securities and Exchange Commission.

 

  

  

  

	
  

	
****.

	
  

	 

	
  

	
****.

	
  

	
****.

	
4.15

	
****.

	
  

	
4.16  Standard Credit Policy.  The Parties agree to the terms and conditions of the Standard Credit

	
  

	
Policy set forth in the Services Specifications attached hereto this Agreement as Exhibit “C”.

	
  

	
4.17  Leftover, Discontinued, Slow Moving and Out of Code Product.   The parties will work together to eliminate items that have limited to no movement for four consecutive weeks, including without limitation working together to have the responsible manufacturer repurchase and remove the inventory.  To minimize such inventory, A&P will give C&S advance notice of any discontinuance to avoid unnecessary ordering.  The parties will likewise work together to minimize (i) leftover ad product through regular communications about ad quantities and promotional forecasts and histories, and (ii) out of code product

****Confidential material redacted and filed separately with the Securities and Exchange Commission.

 

  

  

  

	
  

	
through regular communication about product that is at or reaching its terminal code life.  A&P agrees that it will work with C&S to re-merchandise all such product and authorize distributions of such product to its stores, and the parties will work together to maximize vendor support where possible.  In the event that there is no disposition or outlet of the product despite all of the mutual efforts cited in this section, C&S shall bill A&P for **** on the next applicable Weekly Statement.

ARTICLE 5

 PAYMENT

	
5.1

	
Weekly Statements.  Commencing on the Effective Date and continuing on each Sunday thereafter during the Term of this Agreement, C&S will electronically transmit to A&P a statement (the “Weekly Estimate”) setting forth the estimated amounts payable to C&S for: **** (b) Warehousing Costs, **** and (d) Transportation Costs, in each case (a)-(d) for the forthcoming Contract Week (the “Estimated Weekly Payment Amount”).  In addition, each Sunday during the Term, C&S will electronically transmit to A&P files (such files shall be referred to collectively as the “Weekly Statement”) setting forth all amounts actually due and owing to C&S including, but not limited to, ****, (b) the Warehousing Costs, **** and (d) the Transportation Costs, in each case (a)-(d) for the immediately preceding seven day period ending Saturday (the “Weekly Actual Amount”). The Weekly Statement will include a shipment file with all Merchandise charged to the A&P Stores at the ****; a gross profit file indicating the ****; an Expense/Charge File with all Warehousing Costs, ****, the Transportation Costs and the Fuel Surcharge; and ****. Upon the commencement of the payment terms set forth in Section 5.3 below, the Weekly Estimate, the Estimated Weekly Payment Amount, the Weekly Actual Amount and the Weekly Statement will identify the portion of A&P’s weekly purchases which is comprised of PACA Eligible Merchandise (defined below) and account for such PACA Eligible Merchandise separately.  The Variable Warehouse Upcharge and Variable Transportation Upcharge will be estimated and billed weekly as part of the Estimated Weekly Payment Amount.  ****. The upcharges will not be billed at the invoice level.

	
  

	
****:

	
  

	
****.

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****. Should the due date of A&P's payment fall on a date on which banks in New York are required to be closed, the due date shall be accelerated to the previous day that banks in New York may legally open.

	
  

	
****

 

 

	
  

	
****

	
  

	
****

****

****.

	
·  

	
****:

****.

	
·  

	
****:

****.

****

****Confidential material redacted and filed separately with the Securities and Exchange Commission.

 

  

  

  

****

	
  

	
****.

****:

	
·  

	
****.

****:

	
·  

	
****.

	
  

	
****:

****Confidential material redacted and filed separately with the Securities and Exchange Commission.

 

  

  

  

****

	
  

	 	
****.

	
5.4

	
Miscellaneous Billing and Payment Matters.

	
  

	
(a)

	
Time is of the essence.  If A&P has failed to make any payment when due pursuant to this Article 5 and A&P has failed to cure the default within seventy-two (72) hours after receiving written notice from C&S, then C&S shall have the right (which rights shall be nonexclusive, cumulative of and additional to all other remedies) to defer further deliveries until all payments in default have been made, or if such payment is in default for more than five (5) business days following notice from C&S, to terminate this Agreement in accordance with Article 7 hereof.  If either of the Parties in good faith disputes any portion of the Weekly Statement, absent manifest error, such Party shall nonetheless pay the full amount of the statement by the payment due date, without any deductions or offsets; provided, such Party may avail itself of the dispute resolution provision set forth below and in Article 8 hereof with respect to such disputed amount.

	
(b)

	
Set-off; Recoupment.  (i)  In the event that A&P fails to pay any undisputed amounts due under this Agreement, C&S may set-off or recoup such amounts due against any amounts due by C&S to A&P under this Agreement.  C&S may determine the application of any monies received from A&P against amounts owed to it by A&P.  (ii)  In the event that C&S fails to pay, or to credit, to A&P any undisputed amounts due A&P under this Agreement, A&P may set-off or recoup such amounts due against any amounts due from A&P to C&S.

	
  

	
(c)

	
Bank Holidays.  Should the due date of any of A&P's payments fall on a date on which banks in New York are closed, the due date shall be accelerated to the previous day that banks in New York are open;  provided, however that commencing on the earlier of (i) the thirty-six (36) month anniversary of the Reorganization Plan Effective Date, and (ii) the date on which the fourth week of payment terms for PACA Eligible Merchandise is

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 repaid under Section 5.3(a) above, the due date shall thereafter be decelerated to the next subsequent day on which banks in New York are open.

5.5  PACA Compliance.  A&P affirms and acknowledges that upon a failure by A&P to make any payment when due pursuant to this Article 5, C&S may fully enforce against A&P any and all rights that C&S may possess pursuant to PACA, with respect to payments subject to such Act.  A&P shall execute and deliver to C&S, from time to time during the term of this Agreement, such documents (including paper or electronic invoices with the required PACA legend) as C&S may reasonably request to create, maintain, acknowledge or confirm the rights of C&S, as affirmed and acknowledged by A&P pursuant to this Article 5.  A&P will cooperate with C&S to add (now and in the future) any appropriate or necessary language to the Weekly Statement, account statements, purchase orders, invoices and other documents and to take any other actions (now and in the future) reasonably requested by C&S to ensure that both Parties are in compliance with PACA, and that, with respect to PACA regulated commodities sold hereunder, C&S can preserve its rights to the PACA trust.

ARTICLE 6

INDEMNIFICATION AND INSURANCE; FORCE MAJEURE

	
6.1

	
Indemnification.

	
  

	
(a)   C&S.  C&S shall defend, indemnify and hold harmless A&P and its Affiliates, and their respective employees, servants, agents, independent contractors, successors and assigns from any and all losses, damages, claims, liabilities, causes of action, costs and expenses, including but not limited to reasonable legal fees and costs of settlement (collectively, “Losses”) arising out of or related to any third party claim in connection with or resulting from (i) C&S’s acts, omissions or negligence in its performance of the Services or its other obligations under this Agreement; (ii) C&S’s failure to comply with any applicable laws related to its performance of the Services or its other obligations under this Agreement; or (iii) the acts, omissions or negligence of any third party hired by C&S or its Affiliates in connection with this Agreement;  provided, however, this indemnification and hold harmless with respect to sub-sections (i)-(iii) shall not apply to the extent of any claims arising out of or resulting from the negligence or willful misconduct of A&P, its Affiliates or their respective employees, representatives or agents.    Whenever A&P receives notice of a claim or demand that would be covered by this provision, A&P shall in turn provide C&S with prompt written notice of such claim or demand.

	
 (b)

	
A&P.  A&P shall defend, indemnify and hold harmless C&S and its Affiliates, and their respective employees, servants, agents, successors and assigns from any and all Losses arising out of or related to any third party claim in connection with or resulting from (i) A&P’s acts, omissions or negligence related to this Agreement; (ii) A&P’s failure to comply with any applicable laws related to Merchandise procured, handled, packaged, used, possessed, transported or stored by A&P; or (iii) acts, omissions or negligence of any Affiliate of A&P or any third party hired by A&P or its Affiliates in connection with this Agreement; provided, however, this indemnification and hold harmless with respect to sub-sections (i)-(iii) shall not apply to the extent of any claims arising out of or resulting from the negligence or willful misconduct of C&S, its Affiliates or their respective employees, representatives or agents.  Whenever C&S receives notice of a claim or demand that would be covered by this provision, C&S shall in turn provide A&P with prompt written notice of such claim or demand.

	
  

	
(c) Product Liability - Infringement. The Parties hereto agree that each shall use commercially reasonable efforts to seek indemnity from the manufacturer of any Merchandise with respect to any and all Losses arising out of or relating to any third party claim in connection with or resulting from (i) actual or alleged product liability or the handling, possession, storage, use or any other dealing by any person of any Merchandise or (ii) any actual or alleged infringement of any trademark, patent, copyright or other intellectual property right.  To the extent C&S has exhausted its efforts to seek indemnity from the manufacturer as set forth in this Section 6.1(c), but was unable to secure such indemnity, A&P shall indemnify C&S with respect to Losses to the extent such Losses are related to private label or A&P unique items (provided such private label or unique item Losses do not arise from or are not related to the negligence or willful misconduct of C&S).  To the extent A&P has utilized commercially reasonable efforts to seek indemnity from the manufacturer as set forth in this Section 6.1(c), but was unable to secure such indemnity, C&S shall indemnify A&P with respect to any Losses arising out of or relating to any third party product liability claim related to C&S’s handling, possession, storage or use of Merchandise, to the extent such claim does not relate to any actual or alleged negligence or willful misconduct of A&P.  Notwithstanding anything to the contrary set forth herein, this paragraph shall not be deemed to prohibit or restrict either Party in any way from seeking indemnification from the other Party under this Article 6.

	
6.2

	
 Insurance by C&S

	
  

	
(a)

	
Insurance Policies. During the Term of this Agreement, C&S shall carry and maintain the following policies of insurance issued by recognized, reputable insurers reasonably acceptable to A&P and possessing an AM Best rating of AVIII, and naming A&P as an additional insured on all policies except the Workers Compensation and Disability Benefits policies of insurance:

	
(i)  

	
All Risks of physical damage property insurance for the Facilities and Fixed Assets including Boiler & Machinery coverage, all on a full replacement cost basis,

	
(ii)  

	
All Risks of physical damage property insurance (including coverage against acts of terrorism and coverage for goods in transit) on all inventories of Merchandise on a full replacement cost basis.

	
(iii)  

	
Commercial General Liability coverage with a limit of not less than **** per occurrence for bodily injury, personal injury and property damage (with the parties agreement that such threshold limit may be achieved through a combination of primary and umbrella coverage).  Such policy shall include blanket contractual liability coverage and products/completed operations liability coverage.  Products/completed operations liability coverage shall remain in effect for not less than two (2) years after expiration or earlier termination of this Agreement.

	
(iv)  

	
Workers Compensation and Disability Benefits coverage as required by statute and Employers Liability coverage in a minimum amount of **** per accident/disease.

	
(v)  

	
Automobile Liability Insurance coverage with a limit of not less than **** per occurrence for bodily injury, personal injury and property damage.

	
  

	
(b)

	
Primary Coverage.  The policies set forth in this Section 6.2 shall be primary with respect to the acts or omissions of C&S.

 

	
(c)

	
Subrogation.  C&S agrees to waive all rights of subrogation against A&P and its employees, for damages to the extent such damages are covered by the proceeds of the insurance required by this Agreement.  If the policies of insurance referred to in this Agreement require an endorsement to provide for continued coverage where there is a waiver of subrogation, C&S shall cause them to be so endorsed.

 

	
  

	
(d)

	
Proof of Insurance.  Not later than ten (10) days prior to the Effective Date, C&S shall provide to A&P certificates evidencing the insurance coverages required of C&S under this Section 6.2, and such certificates shall state that all policies of insurance evidenced therein may not be terminated, cancelled or modified except upon no less than thirty (30) days prior written notice to A&P.  In addition, C&S shall deliver renewal certificates to A&P promptly upon receipt by C&S, and C&S will provide evidence that such coverage did not lapse.

	
  

	
(e) Self-Insurance.  C&S may satisfy certain of its requirements to carry insurance hereunder under a program of self-insurance, subject to A&P’s approval of the risks and coverage amounts to be covered through self insurance, which approval shall not be unreasonably withheld, conditioned or delayed.

	
6.3

	
Insurance by A&P.

	
  

	
(a)

	
Insurance Policies.  During the Term of this Agreement A&P shall carry and maintain the following, naming C&S as an additional insured with respect to “i” and “iii” below, policies of insurance issued by recognized, reputable insurers reasonably acceptable to C&S and possessing an AM Best rating of AVIII:

	
  

	
(i)

	
Commercial General Liability coverage with a limit of not less than **** per occurrence for bodily injury, personal injury and property damage (with the parties agreement that such threshold limit may be achieved through a combination of primary and umbrella coverage).   Such policy shall include blanket contractual liability coverage and products/completed operations liability coverage.  Products/completed operations liability coverage shall remain in effect for not less than two (2) years after expiration or earlier termination of this Agreement.

	
  

	
(ii)

	
Workers Compensation and Disability Benefits coverage as required by statute and Employers Liability coverage in a minimum amount of **** per accident/disease.

	
  

	
(iii)

	
Automobile Liability coverage for all vehicles owned, non owned, leased and hired with a limit of not less than **** combined single limit

  

  

  

	
(a)  

	
Primary Coverage.  The policies set forth in this Schedule 6.3 shall be primary with respect to the acts or omissions of A&P.

	
  

	
(c)

	
Subrogation.  A&P agrees to waive all rights of subrogation against C&S, its employees and transportation vendors, for damages to the extent such damages are covered by the proceeds of the insurance required by this Agreement.  If the policies of insurance referred to in this Agreement require an endorsement to provide for continued coverage where there is a waiver of subrogation, A&P shall cause them to be so endorsed.

 

	
(d)  

	
Proof of Insurance.  Not later than ten (10) days prior to the Effective Date, A&P shall provide to C&S certificates evidencing the insurance coverages required of A&P under this Section 6.3 and such certificates shall state that all policies of insurance evidenced therein may not be terminated or cancelled except upon no less than thirty (30) days prior written notice to C&S.  In addition, A&P shall deliver renewal certificates to C&S promptly upon receipt by A&P.

	
(e)  

	
Self-Insurance.  A&P may satisfy certain of its requirements to carry insurance hereunder under a program of self-insurance, subject to C&S’s approval of the risks and coverage amounts to be covered through self insurance, which approval shall not be unreasonably withheld, conditioned or delayed.

	
6.4

	
Force Majeure.

	
(a)  

	
If either Party is rendered unable at any time, wholly or in part, to perform or comply with any of its obligations under this Agreement, other than obligations regarding the payment of money, by reason of act of God, force of nature, fire, or other casualty, eminent domain, war-like activity, utility failure, insurrection, or civil commotion, shortage of raw materials or supplies, any law, regulation or order by any governmental body or authority of competent jurisdiction, or any other cause beyond its reasonable control, or beyond the control of any person directly or indirectly engaged by it (any such event being referred to as a “Force Majeure”), the obligations of such Party shall be suspended for the duration of the Force Majeure, but only to the extent such event of Force Majeure impairs the Party’s ability to perform its obligations under this Agreement.

	
(b)  

	
As soon as the Party whose performance is affected by the Force Majeure (the “Affected Party”) becomes aware that an event of Force Majeure has occurred or is likely to occur, such Affected Party will notify the other Party.  Upon receipt of such notice by the other Party, representatives of the Parties shall meet to establish plans and procedures to overcome or mitigate the effects of the Force Majeure and the Affected Party shall use all reasonable efforts to minimize any adverse effects on the other Party.

	
(c)  

	
The foregoing notwithstanding, if the Force Majeure causes C&S to be unable to render substantial performance of its obligations under this Agreement, which inability causes substantial damage to A&P and A&P can either render such performance itself or obtain such performance from a third party, then A&P may perform or engage third parties to perform the Services until A&P is satisfied, in its sole discretion, that C&S is able to resume the performance of the Services.

	
(d)  

	
Either party shall have the right to terminate this Agreement (but only to the extent of the Services that are impacted by the Force Majeure) without penalty if, due to a Force Majeure event which has occurred and is continuing, C&S is unable to perform any material obligation, as and when required, under this Agreement for more than sixty (60) consecutive days.

	
6.5

	
Disaster and Recovery Plans. Each of the Parties shall maintain a disaster and recovery plan that is specific to the performance of their respective obligations under this Agreement and to the information systems maintained by the respective Parties in connection with this Agreement.  Each Party shall have the right to audit, test and review the other Party’s disaster and recovery plan, and may conduct on-site interviews with relevant officers and employees.

ARTICLE 7

TERM AND TERMINATION

	
7.1

	
Term.  This Agreement will commence on the Effective Date and terminate on the effective date of a chapter 11 plan for A&P, subject to earlier termination as provided in this Article 7; provided, however, that if such plan effective date is a Reorganization Plan Effective Date, then either C&S or A&P may elect, on or before the seventh day prior to the commencement of the hearing by the Bankruptcy Court to approve a Reorganization Plan, to extend the term of this Agreement through the date when A&P has purchased no less than **** of Merchandise from C&S (exclusive of Warehouse Costs, Transportation Costs, the Weekly Transportation Start-Up Charge, and other fees, charges and taxes applicable to the sale of Merchandise hereunder, but including any purchases of Merchandise that may be made by A&P through alternative sources of supply as a result of C&S’s failure to meet its obligations hereunder). The failure of either Party to elect to extend the Term of this Agreement no later than the seventh day prior to the commencement of the hearing by the Bankruptcy Court to approve a Reorganization Plan shall be deemed a Special Circumstances Termination pursuant to Section 7.6 hereof.  Upon the extension of the Term, ****. Unless the Parties otherwise agree in writing, the Parties shall cooperate in good faith to ensure that upon the expiration or earlier termination of this Agreement, the Services and inventory of Merchandise purchased by C&S on A&P’s behalf are transitioned or sold, as applicable, to A&P or A&P’s designee in accordance with Section 7.8.  ****.  All volume thresholds, purchase requirements, ****, guarantees, payment obligations or other obligations under this Agreement, and any actual amounts measured against such thresholds, requirements, etc., which are measured in Contract Years, Contract Quarters and/or Contract Weeks shall be prorated for the actual number of days in the first and final Contract Year, Contract Quarter and/or Contract Week, as applicable.

	
7.2

	
C&S Events of Default.

	
Subject to any applicable cure period set forth in this Section 7.2 or elsewhere in this Agreement, each of the following is a “C&S Event of Default” and in case of occurrence of one or more of the following, C&S will be in default hereunder:

  

  

  

(a) C&S fails to make any material, undisputed payment, **** required underthis Agreement, and such non-payment remains uncured for a period of ten(10) days after written notice thereof from A&P.

 

	
(b)  

	
C&S fails a Facility Audit for any C&S Facility and such failure continues for fourteen (14) days from C&S’s receipt of notice from A&P, provided the following conditions occur:  i) A&P promptly delivers to C&S a written notice of the Facility Audit failure (the “Facility Audit Default Notice”);  ii) the failure continues for fourteen (14) days following C&S’s receipt of the Facility Audit Default Notice, and iii), not sooner than the fifteenth day following C&S’s receipt of the Facility Audit Default Notice, A&P delivers to C&S a notice of its intent to partially terminate this Agreement in accordance with Section 7.3(b) (the “Partial Termination Notice”).  Acknowledging that some warehouse quality and control issues may take longer than the cure period provided above, if, in A&P’s reasonable judgment, C&S has promptly taken demonstrable, sustainable, material steps to remedy the matters listed as unsatisfactory on the Housekeeping Audit Check Sheet for Warehousing (included as Exhibit “B”) after receipt of a Facility Audit Default Notice (and such efforts are continuing), A&P will cooperate with C&S to resolve the issues to A&P’s satisfaction.  At any time between the receipt of the Facility Audit Default Notice and the day that is fourteen (14) days following C&S’s receipt of the Partial Termination Notice, C&S shall have the right to demand a walk-through of the C&S Facility with A&P to determine whether the failure has been cured.  C&S shall have the right to refer any default hereunder to the Dispute Resolution process described in Section 8.1;  however, no such referral will operate to toll the cure period described in this Section 7.2(b).   Notwithstanding the foregoing, if the failure under this Section 7.2(b) represents an immediate, substantial and emergent threat to the health, safety or welfare of the public, then such failure shall be deemed to constitute a “C&S Event of Default” if it continues uncured for forty-eight (48) hours.  For the purposes of this Section 7.2(b), a Facility Audit “failure” shall mean ****.

	
(c)  

	
C&S fails to perform the Services in accordance with any material Performance Standard or material Performance Standards, and such has a material adverse impact on C&S’s overall operating performance, and such failure continues for fourteen (14) days from C&S’s receipt of a notice of termination from A&P, provided the following conditions occur:  (i) A&P promptly delivers to C&S a written notice of the Performance Standard failure (the “Performance Standard Default Notice”);  (ii) the failure continues for fourteen (14) days following C&S’s receipt of the Performance Standard Default Notice and (iii), not sooner than the fifteenth day, A&P delivers to C&S a notice of its intent to terminate the agreement in accordance with Section 7.3(c).  C&S shall have the right to refer any default hereunder to the Dispute Resolution process described in Section 8.1;  however, no such referral will operate to toll the cure period described in this Section. Notwithstanding the foregoing, if the failure under this Section 7.2(c) represents an immediate, substantial and emergent threat to the health, safety or welfare of the public, then such failure shall be deemed to constitute a “C&S Event of Default” if it continues uncured for forty-eight (48) hours.

	
(d)  

	
C&S fails to perform any of its material obligations (not contemplated in sub-sections “(b)” or “(c)” above) as and when required under this Agreement and such

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failure continues uncured for fourteen (14) days after receipt of written notice from A&P of its intention to terminate this Agreement pursuant to this Section 7.2(d) if such default is not cured within the fourteen (14) day cure period.  Notwithstanding the foregoing, if the failure under this Section 7.2(d) represents an immediate, substantial and emergent threat to the health, safety or welfare of the public, then such nonperformance shall be deemed to constitute a “C&S Event of Default” if it continues uncured for forty-eight (48) hours.

	
(e)  

	
Any of C&S’s material representations or warranties in Sections 4.6 or 8.11 of this Agreement is breached or not true in any respect, and such breach has a material adverse impact on C&S’s overall operating performance, and such breach of representation or warranty remains breached or untrue for fourteen (14) days after written notice thereof from A&P of its intention to terminate this Agreement pursuant to this Section 7.2(e) if such default is not cured within the fourteen (14) day cure period.  Notwithstanding the foregoing, if the breach of such representation or warranty under this Section 7.2(e) presents an immediate and emergent threat to the health, safety or welfare of the public, then such breach of representation or warranty shall be deemed to constitute a “C&S Event of Default” if it continues uncured for seven (7) days.

	
(f)  

	
An Event of Insolvency with respect to C&S.

	
(g)  

	
C&S is in default with respect to any financial covenant of C&S’s most senior tranche of indebtedness and such default remains uncured or un-waived beyond the applicable cure period or any extension thereof. With respect to this sub-section “g”, C&S agrees to provide to A&P within 120 days of the completion of its fiscal year a copy of the annual certification of covenant compliance that C&S’s auditors provide to C&S lenders for the just-completed fiscal year.

	
(h)  

	
C&S is in breach of Section 4.14(e) or the last sentence of Section 4.12.

(i)  A majority of the assets or voting stock of C&S is acquired by a competitor of A&P.

	
7.3

	
Remedies Upon C&S Event of Default.

	 

Upon the occurrence of any C&S Event of Default and subject to any applicable cure periods:

	
(a)  

	
A&P shall have all remedies available to it under this Agreement, at law and/or in equity in each case subject to the terms of this Agreement.

	
(b)  

	
In the case of a Default under Section 7.2(b) above, A&P shall have the right to partially terminate this Agreement only with respect to the Product Category Grouping that is distributed from the C&S Facility that is the subject of the default.

	
(c)  

	
In all other cases, A&P shall have, at its discretion, the right to terminate this Agreement upon written notice to C&S, such termination to occur at the termination date specified in such notice.

	
7.4

	
A&P Events of Default.

	
  Subject to any applicable cure period set forth in this Section 7.4 or elsewhere in this Agreement, each of the following is an “A&P Event of Default” and in the occurrence of one or more of the following, A&P will be in default hereunder:

  

  

  

	
(a)  

	
A&P fails to make any material, undisputed payment required under this Agreement, and such non-payment remains uncured for a period of ten (10) days after written notice thereof from C&S.

	
(b)  

	
A&P fails to perform any of its other material obligations as and when required under this Agreement and such non-performance continues uncured for fourteen (14) days after written notice thereof from C&S.  Notwithstanding the foregoing, if the non-performance under this Section 7.4(b) represents an immediate and emergent threat to the health, safety or welfare of the public, then such nonperformance shall be deemed to constitute an “A&P Event of Default” if it continues uncured for forty-eight (48) hours.

	
(c)  

	
Any of A&P’s material representations or warranties in this Agreement is breached or not true in any respect, and such representation or warranty remains breached or untrue for fourteen (14) days after written notice thereof from C&S and  such continuing breach materially adversely affects A&P’s ability to perform its obligations hereunder.

	
(d)  

	
An Event of Insolvency with respect to A&P occurring any time after the Reorganization Plan Effective Date.

	
(e)  

	
A&P is in breach of the last sentence of Section 4.12.

	
7.5

	
Remedies Upon A&P Event of Default or Termination.

	
  

	
(a)

	
  

	
Upon the occurrence of any A&P Event of Default, and subject to any applicable cure periods:

	
  

	
(i)

	
C&S shall have all remedies available to it under this Agreement, at law and/or in equity in each case subject to the terms of this Agreement.

	
  

	
(ii)

	
C&S shall have, at its discretion, the right to terminate this Agreement upon written notice to A&P, such termination to occur at the termination date specified in such notice. If such right to terminate this Agreement arises prior to the Reorganization Plan Effective Date, no further order will be required by the Bankruptcy Court for C&S to exercise its right to terminate hereunder.

 

 

	
7.6  

	
Special Circumstances Termination.  Commencing on the Effective Date until the earlier of (x) the termination of this Agreement under Sections 7.3, 7.5 or 7.7 hereof and (y) the effective date of a chapter 11 plan for A&P, either Party shall be permitted to immediately terminate this Agreement via written notice to the other party (a) upon the filing by a Debtor of a motion to sell substantially all of the Debtors' assets pursuant to 11 U.S.C. § 363, (b) written notice to C&S from the Debtors stating that the Debtors do not intend to pursue a Reorganization Plan, (c) the filing of any plan by A&P other than a Reorganization Plan, (d) acceleration of the obligations and termination of the commitments to lend under the Debtors' postpetition financing facility (excluding a refinancing where replacement commitments are in effect immediately following such termination), (e) the conversion of the Debtors' chapter 11 cases to cases under chapter 7 of the Bankruptcy Code, (f) the appointment of a chapter 11 trustee, or (g) if neither Party has elected to extend the Term of this Agreement as provided in Section 7.1 (each of “(a)” through “(g)” above or a termination of this Agreement pursuant to Section 7.7 (below) being considered a “Special Termination Event”).  

	
7.7  

	
Special Circumstances Termination by C&S.  In the event the Reorganization Plan Effective Date does not occur on or prior to June 12, 2012, C&S may terminate this Agreement without any further order of the Bankruptcy Court by providing written notice to A&P, such termination to occur as of the termination date specified in such notice.

7.8           Effects of Termination

	
(a)  

	
Notwithstanding termination of this Agreement, C&S shall remain obligated to fully perform, to the extent permitted by Law and for a period of up to (but no more than) one hundred and eighty (180) days, the Services pursuant to this Agreement (including without limitation, making whatever arrangements are necessary to continue such Services without interruption or diminution in the Performance Standards), and C&S shall continue to be compensated for such Services in accordance with this Agreement including, but not limited to, payment of the ****, until such time during such one hundred and eighty (180) days (the “Effective Date of Termination”) as may be reasonably required to transition or transfer to A&P or its designee responsibility for performing all Services.  The Parties shall cooperate to ensure that the Services and, where applicable, the inventory of Merchandise, are transferred or transitioned to A&P or A&P’s designee in an orderly and professional manner.  This Section 7.8(a) shall be void in the event that the termination by C&S of this Agreement was due to nonpayment by A&P and such nonpayment is not immediately cured.

	
(b)  

	
If this Agreement terminates by reason of a C&S Event of Default, C&S agrees to:

	
(i)  

	
pay **** to A&P all sums due to A&P under the Agreement through the specified date of termination and for such further period during which Services are rendered in accordance with sub-section (a) above; and

	
(ii)  

	
pay and/or reimburse A&P for all direct damages made against or suffered or incurred by A&P arising from or in any way related to the termination of this Agreement.

	
(c)  

	
If this Agreement terminates following the effective date of a chapter 11 plan for A&P by reason of an A&P Event of Default, A&P agrees to:

	
  

	
(i)

	
pay C&S all sums due to C&S under the Agreement through the specified date of termination and for such further period during which Services are rendered in accordance with sub-section (a) above;

	
  

	
(ii)  pay and/or reimburse C&S for all direct damages made against or suffered or incurred by C&S arising from or in any way related to the termination of this Agreement;

  

  

  

	
  

	
(iii) pay to C&S the ****, if applicable, as set forth in Section 3.11; and

	
  

	
(iv) pay to C&S  ****.

	
  

	
(d)

	
If this Agreement terminates (a) pursuant to Section 7.4(a) or 7.4(e) prior to the Reorganization Plan Effective Date, or (b) pursuant to Sections 7.6 or 7.7, C&S’s sole remedies, shall be as follows:

	
  

	
(i)  A&P will pay C&S all sums due to C&S under the Agreement through the specified date of termination and for such further period during which Services are rendered in accordance with sub-section (a) above;

	
  

	
(ii) A&P will within two (2) business days of the specified date of termination pay to C&S:  (A) any applicable ****, (B) the ****,  and (C) ****, to the extent payable in accordance with Section 2.8.

	
(iii)  

	
The amounts specified in the immediately preceding clause (ii) shall constitute allowed superpriority administrative expenses, junior only to the superpriority claims granted under the Final DIP Order.

	
  

	
(e)

	
Notwithstanding anything to the contrary herein, if this Agreement terminates prior to the Reorganization Plan Effective Date for any reason, A&P will either (1) within two (2) business days, pay to C&S **** or (2) **** (e) shall constitute allowed superpriority administrative expenses, junior only to the superpriority claims granted under the Final DIP Order.

	
  

	
(f)

	
In no event will either Party be liable to the other Party for any special, indirect, consequential, punitive or exemplary damages, including third party lost sales; provided that this limitation of liability shall not apply in instances of gross negligence, willful breach or willful misconduct.

	
  

	
(g)

	
Nothing in this Section 7.8, however, shall amend, restrict or otherwise modify the Parties’ agreements as set forth in Section 1.4 hereof, which shall remain in full force and effect.

	
7.9

	
Facilities and Fixed Assets.  Notwithstanding anything to the contrary set forth in this Agreement, but without limiting A&P’s obligations in Section 7.9 hereof, in no event shall A&P be required to assume any responsibility or obligation to take title to any of the C&S Facilities or fixed assets used in the performance of the Services (except for those fixed assets used in connection with the Edison GMDC Facility which are, and shall remain, A&P’s liability), or to assume any real estate obligations relating to the C&S Facilities, or to assume any leases, licenses or other agreements relating to C&S’ fixed

 

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assets or otherwise, upon the expiration or earlier termination of this Agreement (regardless, in the case of an early termination, of the reason for such early termination).

 

ARTICLE 8

MISCELLANEOUS

	
8.1

	
Dispute Resolution. If A&P issues a Default Notice under Sections 7.2(b) or (c), or if any other dispute arises under this Agreement which cannot be resolved by the personnel directly involved, either Party may invoke the dispute resolution procedure set forth below by giving written notice to the other Party of the dispute and designating its chief legal officer as its representative in negotiations relating to the dispute.  The chief legal officers of both Parties, acting in good faith and using reasonable efforts, shall work toward a reasonable and equitable resolution of the dispute.  In the event the chief legal officers are unable to reach resolution, the Parties will designate their respective Chief Executive Officers to negotiate resolution of the dispute.  The dispute resolution procedure above shall not apply to intellectual property claims or to any claim for injunctive relief or other form of equitable relief in the aggrieved party’s sole discretion. Notwithstanding anything to the contrary contained in this Article 8, neither Party shall be prohibited from litigating in court any claim arising under this Agreement. Prior to the effective date of a chapter 11 plan for A&P, the Parties stipulate that any claim or dispute arising under this Agreement shall be adjudicated in the Bankruptcy Court, provided that if the Bankruptcy Court abstains from hearing such claim or dispute, the provisions of Section 8.5 of this Agreement shall control.  By executing this Agreement, C&S voluntarily submits to the Bankruptcy Court’s personal jurisdiction until the effective date of a chapter 11 plan for A&P. 

 

 

8.2           Audit and Access Rights

	
  

	
(a)

	
Books and Records. C&S shall prepare and maintain for a period of not less than five (5) years following the end of each of its fiscal years, such complete and detailed records, data, information and statements in auditable form and quality suitable to permit A&P to verify the following: (i) C&S’s performance of Services, Other Services, compliance with the Performance Standards, and all of its other obligations under this Agreement;  ****; (iii) ****;  (iv) C&S’s compliance with laws governing its performance hereunder; and (v) such other records, data or information as may be required to validate or enforce the parties respective rights and obligations under this Agreement (collectively, the “Books and Records”).  The Books and Records shall be maintained consistent with GAAP, consistently applied, and shall be in a form suitable for audit, review and copying and shall be made available as reports produced from C&S’s overall financial statements maintained by C&S for its entire operations in the ordinary course of business.  A&P will be provided access to, and the right to audit, any information A&P reasonably requires in order to verify any of the items listed in (i)-

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(iv) above; provided, however, A&P will not be provided access to data or information relating to ****.

	
  

	
(b)

	
Financial Statements. Each Party shall promptly deliver to the other audited financial statements for the year-end period, which have been certified to by a registered public accounting firm, after such financial statements have been issued by such public accounting firm.

	
  

	
(c)

	
Access to Books and Records.  C&S shall permit A&P and its officers, directors, representatives, counsel, advisors and other agents (collectively, “Agents”), upon reasonable notice and during normal business hours, to inspect, have access to the Facilities and to inspect, have access to and audit all of the Books and Records for the purpose of verifying the items listed in Section 8.2.a(i)-(iv) above. The right of access under this Section 8.2(c) shall include the right to discuss such documentation with C&S’s employees, representatives and outside vendors having knowledge of their contents, and C&S shall instruct all such employees, representatives or third-party vendors to fully cooperate with any request for information made by A&P to such employee, representative or third-party vendor.  The parties agree that A&P shall have the right to maintain an A&P associate on premises at the C&S Facilities during all normal hours of operation for such C&S Facilities, and that such A&P associate shall have access to all operating areas, and all employees, of such C&S Facilities as would permit the reasonable monitoring of Services performed at the C&S Facilities.

	
  

	
(d)

	
Frequency and Scope. During the Term of this Agreement (but not more frequently than once during any twelve-month period), and for a period of one (1) year thereafter, A&P or A&P’s duly authorized auditor or agent shall have the right at any time to audit and review the Books and Records.  The scope of the audit shall encompass no more than the prior 12-month period, except in the event that the auditor determines reasonably that there is a specifically identified irregularity that requires further inspection, in which case the audit shall be permitted to look back an additional twelve (12) months but solely with respect to the identified irregularity.

	
  

	
(e)

	
Special Audit Provisions for ****.  As stated above, A&P may audit C&S’s records in order to confirm that ****.

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****.

	
  

	 

	
  

	
(f) Restricted Information.  ****.  Accordingly, in order for C&S to agree to provide such Restricted Information, A&P agrees that it will allow access to such Restricted Information only to those A&P employees or third party agents who have a need to know such Restricted Information in connection with A&P’s confirmation of ****, who have been approved by C&S and who will each individually be required to execute affirmations of the confidentiality obligations stated herein (“Permitted Individuals”).  A&P agrees that other than to the Permitted Individuals, A&P shall not disclose such information to any other person or party.  All such Restricted Information may not be copied or reproduced by A&P in any form, and may only be used pursuant to the Permitted Use.

	
  

	
(g)

	
Confidentiality.  Any and all information provided to A&P pursuant to this Section 8.2 including, but not limited to any audited financial statements and other financial information, will be subject to the Confidential Information provisions set forth in Section 8.16 below.

	
  

	
(h) Reciprocal Application to A&P.  All of the terms of this Section 8.2 shall have reciprocal application to A&P to the extent necessary to verify A&P’s compliance with its obligations under this Agreement including, but not limited to, Sections 4.5(a)(iii) and 4.7(d) and to permit C&S to audit or validate the assumptions under Section 4.12(c) of this Agreement.

	
  

	
(i)  Deficiencies.  If an audit or review reveals that any amounts to be paid or charged to either Party have been overstated or understated, then the deficient Party shall issue a charge or credit to correct same.  If an audit or review reveals that amounts paid or charged to either Party were overstated or understated by **** or more during the period audited, then the Party required to pay such amount shall reimburse the other Party for all costs and expenses incurred in connection with the audit or review.  The foregoing remedies shall be in addition to any other remedies available to the parties at law or in equity.

	
8.3

	
Headings.  The division of this Agreement into Articles and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of

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this Agreement. Unless inconsistent with the context, references in this Agreement to Articles are to Articles of this Agreement.

	
8.4

	
Extended Meanings.     In this Agreement words importing the singular number only include the plural and vice versa, words importing the masculine gender include the feminine and neuter genders and vice versa and words importing persons include individuals, partnerships, associations, trusts, unincorporated organizations and corporations.

	
8.5

	
Proper Law of Contract; Venue. This Agreement shall be governed by the laws of the State of New York and the laws of The United States of America as applicable in such State. Subject to the last two sentences of Section 8.1 above, any action or proceeding against any of the parties hereto relating in any way to this Agreement or the subject matter hereof shall be brought and enforced exclusively in the federal or state courts of the State of New York.

	
8.6

	
Independent Contractor.   It is expressly intended by the Parties hereto and each Party hereby specifically warrants, represents and agrees, that each Party (the “Performing Party” for the purposes of this Article) is an independent contractor having its own established place of business and all persons assisting the Performing Party in the performance of its obligations under this Agreement are and shall be deemed the employees of the Performing Party or under contract to the Performing Party for all purposes, and not of the other Party or any Affiliate of the other Party.  It is further intended and agreed between the Parties that each Party shall have sole control of the manner and means of performing its obligations under this Agreement.  The specific means of accomplishing the purposes of this Agreement shall be left to the discretion of the Performing Party, provided that the purpose of this Agreement is accomplished in a cost-effective manner and otherwise in a manner intended to benefit A&P and C&S.  Each Party agrees that its officers, managers, or other management or supervisory personnel employed by them shall effect such management, direction and control in the sole and complete discretion of such Party.

	
8.7

	
Notices. Any demand, notice or other communication to be given in connection with this Agreement shall be in writing and shall be given by personal delivery, by overnight courier, by registered mail or by facsimile or electronic means of communication addressed to the recipient at the address set forth below or to such other address, individual or electronic communication number as may be designated by notice given by either Party to the other.  Any demand, notice or other communication shall be conclusively deemed to have been given (i) on the day of actual delivery if given by personal delivery; (ii) on the next business day if given by overnight courier; (iii) on the third business day following deposit in the mail if given by registered mail; and (iv) on the day of transmittal if given by facsimile or electronic communication during the normal business hours of the recipient and on the next following business day if not given during such hours on any day.

If to C&S:

C&S Wholesale Grocers, Inc.

7 Corporate Drive

Keene, NH 03431

  

  

  

Attn: Richard B. Cohen, Chairman and Chief Executive Officer

Phone: (603) 354-4601

Fax: (603) 354-4692

with a copy to:

General Counsel

Phone: (603) 354-5885

Fax: (603) 354-4694

If to A&P:

The Great Atlantic & Pacific Tea Company, Inc.

2 Paragon Drive

Montvale, NJ 07645

Attention: Sam Martin, President and Chief Executive Officer

Phone:  (201) 571-8770

Fax:  (201) 571-8715

with a copy to:

General Counsel

Phone:  (201) 571-8161

Fax:  (201) 571-8106

	
8.8

	
Third Party Agreements.  Neither C&S nor A&P shall enter into any agreement with any Person that would have the effect of impairing any of the other Party’s rights hereunder this Agreement or limiting either Party’s ability to amend this Agreement in accordance with the terms hereof, without the prior written consent of the other Party hereto.

	
8.9

	
Continued Provisions.  Notwithstanding any expiration or termination of this Agreement, (i) the indemnification obligation of both Parties as set forth in Article 6; (ii) the obligations of the both Parties upon termination of this Agreement as set forth in Article 7; (iii) the confidentiality and non-solicitation provisions set forth below; (iv) provisions related to C&S’s prepetition claims, including the Liquidated Damages Claim and the Prepetition Rejection Damages Claim, as set forth in Section 1.4 and Article 7 and (v) any other provision which expressly or by its nature is intended to survive termination of this Agreement, shall continue in full force and effect.

	
8.10

	
General Representations and Warranties by A&P. A&P represents and warrants to C&S as follows:

	
  

	
(a)

	
A&P is a corporation duly incorporated and validly existing under the laws of its jurisdiction of incorporation and has all necessary corporate power, authority and capacity to enter into this Agreement and to carry out its obligations under this Agreement, subject to entry of the Bankruptcy Court Orders.  The execution and delivery of this Agreement and the performance of A&P’s obligations under this Agreement have been duly authorized by all necessary corporate action on the part of A&P.

  

  

  

	
  

	
(b)

	
A&P is not a party to, bound or affected by, or subject to, any indenture, mortgage, lease, agreement, collective bargaining agreement, obligation, instrument, charter or by-law provision, statute, regulation, order, judgment, decree, license, permit or law which would be violated, contravened or breached as a result of the execution and delivery of this Agreement, or the performance by A&P of any of its obligations under this Agreement, taking into account the effect of the United States Bankruptcy Code during the pendency of the Bankruptcy Case.

	
  

	
(c)

	
A&P is not in breach of any laws that could reasonably be expected to have a material, adverse effect on A&P’s ability to perform its obligations as a whole under this Agreement, taking into account the effect of the United States Bankruptcy Code during the pendency of the Bankruptcy Case.

	
8.11

	
General Representations and Warranties by C&S. C&S represents and warrants to A&P as follows:

	
  

	
(a)

	
C&S is a corporation duly incorporated and validly existing under the laws of its jurisdiction of incorporation and has all necessary corporate power, authority and capacity to enter into this Agreement and to carry out its obligations under this Agreement.  The execution and delivery of this Agreement and the performance of C&S’s obligations under this Agreement have been duly authorized by all necessary corporate action on the part of C&S.

	
  

	
(b)

	
C&S is not a party to, bound or affected by, or subject to, any indenture, mortgage, lease, agreement, collective agreement, obligation, instrument, charter or by-law provision, statute, regulation, order, judgment, decree, license, permit or law which would be violated, contravened or breached as a result of the execution and delivery of this Agreement, or the performance by C&S of any of its obligations under this Agreement.

	
  

	
(c)

	
C&S is not in breach of any laws that could reasonably be expected to have a material, adverse effect on C&S’s ability to perform the Services or perform its other obligations under this Agreement, including without limitation and to the extent applicable all laws pertaining to human rights, labor or employment standards, labor relations and employment, protection of personal information, occupational health and safety, workers’ compensation and workplace safety insurance and environmental Laws.

 

	
8.12

	
Entire Agreement.  This Agreement together with all Articles, exhibits and schedules hereto constitutes the entire agreement between the Parties with respect to its subject matter and cancels and supersedes any prior understandings and agreements between the Parties with respect to such subject matter.  There are no representations, warranties, terms, conditions, undertakings or collateral agreements, express, implied or statutory, between the Parties other than as expressly set forth in this Agreement.

	
8.13

	
Amendments and Waiver.   No modification of or amendment to this Agreement shall be valid or binding unless in writing and duly executed by both of the Parties and no waiver of any breach of any term or provision of this Agreement shall be effective or binding unless made in writing and signed by the Party purporting to give the same and, unless otherwise provided, shall be limited to the specific breach waived.

	
8.14

	
Assignment. Except as provided below, this Agreement may not be assigned, either directly or by operation of law, by either Party without the written consent of the other Party, such consent not to be unreasonably withheld; provided, however, that in the event of any assignment the assignor shall continue to be bound by all obligations under this Agreement as if such assignment had not occurred and shall perform such obligations to the extent that the assignee fails to do so.  This Agreement may be assigned by either Party without the consent of the other Party to an affiliate of the assignor, provided that the affiliate enters into a written agreement with the other Party to be bound by the provisions of this Agreement in all respects and to the same extent as the assignor is bound and provided that the assignor shall continue to be bound by all obligations under this Agreement as if such assignment had not occurred and shall perform such obligations to the extent that the affiliate fails to do so.   Notwithstanding anything to the contrary in the two preceding sentences, A&P may assume and assign this Agreement to a reorganized entity in connection with a Reorganization Plan to the extent legally necessary.

	
8.15

	
Non-Solicitation. During the Term of this Agreement and for a period of **** following the expiration or termination of this Agreement for any reason whatsoever, A&P shall not, and shall not permit any of its Affiliates to, directly or indirectly, hire, solicit, induce or encourage any person who is a managerial employee or agent employed or engaged by C&S or any of its Affiliates within **** prior to such solicitation, to leave or otherwise cease being employed or engaged by C&S or any of its Affiliates (other than a person whose pay in lieu of notice, termination, and severance payments has been reimbursed pursuant to this Agreement).

	
8.16

	
Confidentiality. Each Party shall not, during the Term of this Agreement or at any time thereafter, transmit Confidential Information of the other Party to any third person either in whole or in part;  provided that A&P may share the contents of this Agreement during the pendency of its Bankruptcy Cases with the Official Unsecured Creditors’ Committee and other parties that have signed confidentiality agreement reasonably acceptable to the Parties, with the understanding that neither party shall unreasonably withhold, condition or delay its approval of the form of such confidentiality agreement.  Each Party shall take all reasonable precautions to safeguard the Confidential Information of the other Party from unauthorized disclosure and, at a minimum, shall afford the Confidential Information of the other Party such precautions and safeguards as it affords to its own confidential information of a similar nature.  A&P also agrees to the heightened confidentiality restrictions related to Restricted Information as set forth in Section 8.2(f). “Confidential Information” for purposes of this Agreement shall mean this Agreement and  the terms and conditions hereof and all non-public, confidential or proprietary information of either Party and its clients and customers, including but not limited to information regarding ****, received by the other Party in the course of the negotiation of, or performance of its obligations under, this Agreement.  The above restrictions shall not apply to the extent that Confidential Information comes into the public domain through no fault of the other Party, is received by the other Party from a third party having a bona fide right to disclose such information, or disclosure is required by Law as set forth in subsection (b) below.

  

  

  

	
  

	
(a)

	
Public Notices. Neither Party shall make any press release or public announcement regarding this Agreement or otherwise publicly disclose any of the terms of this Agreement without the prior written consent of the other Party,  except where required to do so by Law or by the applicable regulations or policies of any Federal, State or other regulatory agency of competent jurisdiction or any stock exchange in circumstances but only after prior consultation with the other Party, and the disclosing Party shall use reasonable best efforts to ensure that all Confidential Information and other information that is required to be disclosed in accordance with Laws will be accorded confidential treatment.

	
  

	
(b)

	
Requirement to Disclose. Wherever in this Agreement disclosure is permitted if "required by Law",

	
  

	
(i)

	
the term "Law" shall be deemed to include (A) any applicable statute, regulation or policy of The United States of America or other government, any State or local government or any agency or authority of any of them having jurisdiction over a Party or its business or any stock exchange or self-regulatory organization in the securities industry and (B) any order, demand or subpoena of any such government, agency, authority, exchange or organization or any court of competent jurisdiction; and

	
  

	
(ii)

	
such disclosure shall be permitted only if, as promptly as practicable after determining that disclosure is required or after receipt of any such order, demand or subpoena, the Party intending to make such disclosure shall notify the other Party of such requirement and the scope of the proposed disclosure and shall simultaneously deliver to the other Party a copy of such order, demand or subpoena or, if there is none, a written opinion of its counsel describing the legal basis upon which such disclosure is required.  The Party intending to make such disclosure shall cooperate with all reasonable requests of the other Party for assistance in preventing or limiting such disclosure.

	
  

	
(iii)

	
A&P will use its reasonable best efforts to obtain a Bankruptcy Court order authorizing this Agreement to be filed under seal.

	
  

	
(iv)

	
Each Party may disclose Confidential Information to obtain approval of this Agreement from the Bankruptcy Court, and defend any appeals or take actions in conjunction therewith, provided that (a) any such disclosure is limited to the extent reasonably necessary and is (x) subject to a customary Bankruptcy Court order requiring any recipient of such Confidential Information to maintain it as confidential and otherwise restricting its use and dissemination, including requiring that such Confidential Information be filed under seal or (y) any such recipient shall have previously executed and delivered a confidentiality agreement that conforms with the requirements set forth in Section 8.16, and (b) in the case of any court filing, the Party proposing to file such Confidential Information uses its reasonable best efforts to file such Confidential Information under seal.

  

  

  

	
8.17

	
Bankruptcy Court Orders. Subject to the proviso contained in Section 8.16(b)(iv), C&S agrees to cooperate with A&P in providing any information and evidence that may be required to demonstrate to the Bankruptcy Court’s satisfaction (i) that A&P’s execution of and performance under this Agreement is a reasonable exercise of A&P’s business judgment and in the best interests of A&P’s chapter 11 estates, and/or (ii) that this Agreement was the result of a fair process.

	
8.18

	
Benefit of the Agreement. This Agreement shall inure to the benefit of and be binding upon C&S, A&P and their respective successors and, to the extent permissible under Section 8.14, assigns.

	
8.19

	
Closing Conditions.

	
The respective obligations of each party hereto to consummate the transactions contemplated by this Agreement shall not become effective and/or binding on any party unless and until each of the conditions set forth below has been satisfied or otherwise waived by both Parties hereto:

	
  

	
(a)

	
The Bankruptcy Court has entered the Bankruptcy Court Orders, such Bankruptcy Court Orders have become final and non-appealable, and no court order staying, reversing, modifying or amending the Bankruptcy Court Orders shall have been entered or be in effect on the Effective Date; and

 

	
8.20

	
Definitions.

“A&P” is a Maryland corporation with its principal offices located at 2 Paragon Drive in Montvale, New Jersey 07645, together with its current and future subsidiaries and affiliates.

“A&P Event of Default” has the meaning set forth in Section 7.4.

“A&P Stores” has the meaning set forth in Section 4.4.

“A&P Volume” means any volume of Merchandise intended for use or resale at the A&P Stores or otherwise procured or purchased on A&P’s behalf, at A&P’s direction or with any other reference to A&P’s account, business, operations or name.

“Accounts Receivables Deductions” has the meaning set forth in Section 2.6.

“Adjustment Date” has the meaning set forth in Section 2.12 hereof.

“Affiliate” means a corporation or business entity that, directly or indirectly, is controlled by, controls or is under common control, with respect to A&P or C&S, as applicable.

“Agents” has the meaning set forth in Section 8.2(c).

“Agreement” means this Supply, Distribution and Related Services Agreement, including the Articles, Exhibits and Schedules to this Agreement, as it or they may be amended or supplemented from time to time, and the expressions “hereof”, “herein”, “hereto”, “hereunder” and similar expressions refer to this Agreement and not to any particular portion or section of this Agreement;

“All Risk” means losses are covered with respect to all perils unless a peril is specifically excluded under the policy.

	
  

	
“Bankruptcy Cases” has the meaning set forth in the Preamble.

	
  

	
“Bankruptcy Code” has the meaning set forth in the Preamble.

	
  

	
“Bankruptcy Court” has the meaning set forth in the Preamble.

	
  

	
“Bankruptcy Court Orders” has the meaning set forth in Section 1.1.

	
  

	
****.

	
  

	
“Books and Records” has the meaning set forth in Section 8.2(a).

	
  

	
“C&S” is a Vermont corporation with its principal offices located at 7 Corporate Drive, Keene, New Hampshire 03431.

	
  

	
“C&S Event of Default” has the meaning set forth in Section 7.2.

	
  

	
“C&S Facilities” has the meaning set forth in Section 2.3.

	
  

	
“C&S Liquidated Claim” has the meaning set forth in Section 1.4(a).

	
  

	
“Center-Store Products” means grocery, spices, candy, dairy, frozen (mainline), ice cream, ice, and HBC/GM, and supplies.

	
  

	
“Confidential Information” has the meaning set forth in Section 8.16.

 

	
  

	
“Contract Week” means any period of seven (7) consecutive calendar days commencing on a Sunday and concluding on a Saturday during any Contract Year.

	
  

	
“Contract Quarter” means the thirteen (13) consecutive Contract Weeks, with the first Contract Quarter commencing on the Effective Date.

	
  

	
“Contract Year” means each successive 52-week period commencing with the 52-week beginning on the Effective Date.

	
  

	
****.

	
  

	
“CPI” has the meaning set forth in Section 2.12.

	
  

	
****.

	
  

	
“DSD” has the meaning set forth in Section 4.5(a)(i).

	
  

	
“Effective Date” has the meaning set forth in Section 1.1.

	
  

	
“Effective Date of Termination” has the meaning set forth in Section 7.8(a).

	
  

	
****.

	
  

	
“Event of Insolvency” means that, with respect to any person or entity, such person or entity shall admit in writing its inability to pay its debts generally or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against such person or entity seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, relief or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it), either such proceeding shall remain undismissed or unstayed for a period of sixty (60) days, or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or for any substantial part of its property) shall occur; or such person or entity shall take any corporate action to authorize any of the actions set forth above in this definition.

	
  

	
****.

	
  

	
“Facility Audit Default Notice” has the meaning set forth in Section 7.2(b).

	
  

	
“Final DIP Order” means the Final Order (I) Authorizing Debtors (A) to Obtain Post-Petition Financing Pursuant to 11 U.S.C. §§ 105, 361, 362, 364(c)(1), 364(c)(2), 364(c)(3), 364(d)(1) and 364(e) and (B) to Utilize Cash Collateral Pursuant to 11 U.S.C. § 363 and (II) Granting Adequate Protection to Pre-Petition Secured Parties Pursuant to 11 U.S.C. §§ 361, 362, 363 and 364 [Docket No. 479] entered by the Bankruptcy Court on January 11, 2011 in A&P’s Bankruptcy Cases.

	
  

	
“Fiscal Accounting Period” means periods of four consecutive Contract Weeks beginning with the first of A&P’s fiscal accounting periods next following the Effective Date.  Thirteen (13) Fiscal Accounting Periods comprise each Contract Year.

	
  

	
“Force Majeure” has the meaning set forth in Section 6.4(a).

	
  

	
****.

	
  

	
“Fresh Products” shall include, but not be limited to, ****.

	
  

	
****.

	
  

	
“Interim Agreement” has the meaning set forth in Section 1.2.

 

	
  

	
“Interim Fixed Warehouse Charge” has the meaning set forth in Section 2.9(b).

 

	
  

	
“Key Performance Measures” has the meaning set forth in Section 1.3.

 

  

  

  

	
  

	
****.

 

	
  

	
“Measurement Period” has the meaning set forth in Section 4.13.

 

	
  

	
“Merchandise” has the meaning set forth in Section 4.1.

 

	
  

	
****.

	
  

	
“PACA” has the meaning set forth in Section 5.3(a)(i).

	
  

	
“PACA Eligible Merchandise” has the meaning set forth in Section 5.3(a)(i).

	
  

	
“Parties” means C&S together with A&P.

	
  

	
“Partial Termination Notice” has the meaning set forth in Section 7.2(b).

 

	
  

	
“Penalty Service Level” has the meaning set forth in Section 4.13.

 

	
  

	
“Performance Standards” has the meaning set forth in Section 1.3.

 

	
  

	
“Permitted Individuals” has the meaning set forth in Section 8.2(f).

	
  

	
“Permitted Use” has the meaning set forth in Section 8.2(f).

 

	
  

	
“Performance Standard Default Notice” has the meaning set forth in Section 7.2(c).

 

	
  

	
“Person” is to be interpreted broadly and includes an individual or group of individuals, an entity or group of entities, a corporation, a partnership, a trust, an unincorporated organization, the government of a country or any political subdivision thereof, or any agency or department of any such government, and the executors, administrators or other legal representatives of an individual in such capacity.

 

	
  

	
“Prepetition Rejection Damages Claim” shall have the meaning set forth in Section 1.4(b).

 

	
  

	
“Procurement Services” shall be those services described in Article 4 related to the procurement of Merchandise.

 

	
  

	
 “Purchase Services” shall mean those services described in Article 4 related to the purchase of Merchandise.

	
  

	
“Purchasing Service Level” has the meaning set forth in Section 4.13.

	
  

	
“Purchase Terms” has the meaning set forth in Section 4.7.

****Confidential material redacted and filed separately with the Securities and Exchange Commission.

 

  

  

  

	
  

	
“Reorganization Plan” means a Chapter 11 plan for A&P and its operating subsidiaries that contemplates A&P's assumption of and continuing performance under the terms of this Agreement following the effective date of such plan and under which the Debtors' operating assets owned as of such date are to remain a going concern, operating enterprise and are not sold in one or more transactions under Section 363(b) of the Bankruptcy Code to one or more third-party retailers in lieu of a reorganization.

	
  

	
“Reorganization Plan Effective Date” means the date of substantial consummation (as used in Section1127 of the Bankruptcy Code) of a Reorganization Plan.

	
  

	
****.

	
  

	
****.

	
  

	
“Service Specifications” shall mean the standard operating procedures to be followed by the Parties in connection with the performance of the Services, which are annexed to this Agreement as Exhibit “B” and incorporated and made a part hereof.

	
  

	
“Services” means Warehousing Services, the Transportation Services, the Purchase Services and Procurement Services allocated to C&S under Article 4 hereof.

	
  

	
 “Special Termination Event” shall have the meaning set forth in Section 7.6.

	
  

	
“Targeted Service Level” has the meaning set forth in Section 4.13.

	
  

	
“Term” has the meaning set forth in Section 7.1.

	
  

	
****.

	
  

	
****.

	
  

	
“Transportation Laws” has the meaning set forth in Section 3.5.

	
  

	
“Transportation Services” has the meaning set forth in Section 3.1.

	
  

	
“Warehousing Services” has the meaning set forth in Section 2.1.

	
  

	
****.

	
  

	
“Weekly Actual Amount” has the meaning set forth in Section 5.1.

	
  

	
“Weekly Estimate” has the meaning set forth in Section 5.1.

	
  

	
“Weekly Statement” has the meaning set forth in Section 5.1.

****Confidential material redacted and filed separately with the Securities and Exchange Commission.

 

  

  

  

EXHIBIT “A” – List of C&S Facilities;  List of A&P Stores by Shipping Origin

EXHIBIT “B” – Services Specifications

EXHIBIT “C” – Key Performance Measures

SCHEDULE 2.7(b) – Reclamation Terms and Conditions

SCHEDULE 2.9 –Interim Fixed Warehouse Charge

SCHEDULE 3.12 – Fuel Surcharge Calculation

SCHEDULE 3.14 – Transportation Assumptions and Parameters

[Remainder of page intentionally left blank]

[Signature Page to follow]

  

  

  

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first written above.

THE GREAT ATLANTIC AND                                                                                     C&S WHOLESALE GROCERS, INC.

PACIFIC TEA COMPANY, INC.

By:      /s/ Samuel Martin_________                                                                                     By:     /s/ Richard Cohen________

Name:           Samuel Martin                                                                           Name:                      Richard B. Cohen

	
Title:

	
President and Chief Executive Officer

	
Title:

	
Chairman and Chief Executive Officer

  

  

  

EXHIBIT “A”

LIST OF C&S FACILITIES;  LIST OF A&P STORES BY SHIPPING ORIGIN

*****

****Confidential material redacted and filed separately with the Securities and Exchange Commission

  

  

  

EXHIBIT “B” – SERVICES SPECIFICATIONS

*****

****Confidential material redacted and filed separately with the Securities and Exchange Commission

  

  

  

EXHIBIT “C” – KEY PERFORMANCE MEASURES

Service Level and Audit Addendum

*****

****Confidential material redacted and filed separately with the Securities and Exchange Commission

  

  

  

SCHEDULE 2.7(b)

Terms and Conditions – Reclamation

The Parties agree that C&S will be the exclusive Reclamation Services provider for A&P with respect to the A&P Stores, in accordance with the terms and conditions set forth in this Exhibit 2.7(b). A&P will not contract with any other third party for the performance of Reclamation Services as set forth herein, nor will A&P perform such services for its own account.

Applicable Merchandise

A&P will process all damaged or unsaleable Merchandise (including all private label products) through C&S’s reclamation program. ****.

 

A&P will package all non-perishable damaged and unsaleable Merchandise from the A&P Stores in banana boxes and C&S and will pick up such product on a regular basis. For perishable Merchandise, Merchandise requiring refrigeration ****.

 

 

****

 

****Confidential material redacted and filed separately with the Securities and Exchange Commission

  

  

  

SCHEDULE 2.9

Interim Fixed Warehouse Charge

****

****Confidential material redacted and filed separately with the Securities and Exchange Commission

  

  

  

SCHEDULE 3.12

Fuel Surcharge Calculation

****

****Confidential material redacted and filed separately with the Securities and Exchange Commission

  

  

  

SCHEDULE 3.14

Transportation Assumptions and Parameters

****

****Confidential material redacted and filed separately with the Securities and Exchange Commissionex_10-1.htm

 

RUBY TUESDAY, INC. STOCK INCENTIVE AND

DEFERRED COMPENSATION PLAN FOR DIRECTORS

(AS AMENDED AND RESTATED AS OF OCTOBER 8, 2008)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

  

  

 

	
TABLE OF CONTENTS

	  	  
	
SECTION 1 DEFINITIONS  1

	
1

	
1.1           Definitions

	
1

	
SECTION 2 THE STOCK INCENTIVE AND DEFERRED COMPENSATION PLAN

	
5

	
2.1           The Purpose of the Plan

	
5

	
2.2           Stock Subject to the Plan

	
5

	
2.3           Administration of the Plan

	
5

	
2.4           Eligibility

	
5

	
SECTION 3 ANNUAL OPTIONS AWARDS

	
5

	
3.1           Grants of Annual Options

	
5

	
3.2           Annual Options

	
6

	
3.3           Rights as a Shareholder

	
7

	
3.4           Restrictions on Transfer of Annual Option Shares

	
7

	
SECTION 4 RESTRICTED STOCK AWARDS

	
8

	
4.1           Awards

	
8

	
4.2           Shares Subject to Each Award

	
8

	
4.4           Escrow of Shares

	
8

	
4.5           Limitations on Transfer

	
9

	
4.6           Withholding

	
9

	
SECTION 5 DEFERRAL OF COMPENSATION

	
9

	
5.1           Deferral to Deferred Compensation Accounts

	
9

	
5.2           Revocation of Elections

	
10

	
5.3           Revocation of Prior Elections

	
10

	
SECTION 6 DEFERRED COMPENSATON ACCOUNTS

	
10

	
6.1           Establishment of Accounts

	
10

	
6.2           Crediting of Deferrals

	
10

	
6.3           Crediting Income

	
10

	
6.4           Distribution of Accounts

	
10

	
6.5           Distribution upon Death

	
11

	
6.6           Statement of Account

	
11

	
6.7           Participant’s Rights Unsecured

	
11

	
SECTION 7 STOCK AWARDS AND GRANT OF OPTIONS

	
12

	
7.1           Elections to Purchase Shares

	
12

	
7.2           Number of Shares Issued

	
12

	
7.3           Option Grants

	
13

	
7.4           Option Term

	
13

	
7.5           Payment

	
13

	
7.6           Restrictions on Transfer and Exercise of Options

	
13

	
7.7           Cessation of Future Activity

	
14

	
SECTION 8 GENERAL PROVISIONS

	
14

	
8.1           Changes in Capitalization; Merger; Liquidation

	
14

	
8.2           Right to Remove Director

	
15

	
8.3.          Restrictions on Delivery and Sale of Shares; Legends

	
15

	
8.4           Non-alienation of Benefits

	
15

	
8.5           Termination and Amendment of the Plan

	
15

	
8.6           Stockholder Approval

	
16

	
8.7           Choice of Law

	
16

	
8.8           Effective Date of Plan

	
16

  

  

  

RUBY TUESDAY, INC. STOCK INCENTIVE AND

DEFERRED COMPENSATION PLAN FOR DIRECTORS

(AS AMENDED AND RESTATED AS OF OCTOBER 8, 2008)

The Ruby Tuesday, Inc. Stock Incentive and Deferred Compensation Plan for Directors contained herein constitutes an amendment and restatement of the Morrison Restaurants Inc. Stock Incentive and Deferred Compensation Plan for Directors (the “Prior Plan”).  The Prior Plan constituted, in part, an amendment and restatement of the Morrison Incorporated Stock Incentive and Deferred Compensation Plan for Directors, which replaced the Morrison Incorporated Deferred Compensation Plan for Directors.

 

SECTION 1  DEFINITIONS

 

1.1 Definitions.  Whenever used herein, the masculine pronoun shall be deemed to include the feminine, and the singular to include the plural, unless the context clearly indicates otherwise, and the following capitalized words and phrases are used herein with the meaning thereafter ascribed:

 

(a) “Annual Option” means a non-qualified option to purchase shares of Stock pursuant to Plan Section 3.

 

(b) “Annual Retainer Compensation” means the retainer fee payable to a Participant by the Company for the then current fiscal year of the Company, but shall not include any meeting or committee fees or expense reimbursements paid to a Participant, as determined on the first day of the fiscal year or, if later, as of the first day an individual becomes a Participant.

 

(c) “Award Value” means an amount equal to $110,000 on the Effective Date, adjusted cumulatively thereafter on an annual basis for inflation based on the twelve months’ percent change in the national Consumer Price Index for all Urban Consumers (CPI-U), US City Average for All Items, not seasonally adjusted, for the fiscal year of the Company ending prior to the date of grant.

 

(d) “Board of Directors” means the board of directors of the Company.

 

(e) “Cause” means conduct amounting to

 

       (i) fraud or dishonesty against the Company or affiliate(s);

 

      (ii) Participant’s willful misconduct or knowing violation of law in the course of Participant’s service with the Company or affiliate(s);

 

      (iii) repeated absences from required meetings and other commitments of members of the Board of Directors of the  Company or an affiliate without a reasonable excuse;

 

      (iv) repeated intoxication with alcohol or drugs while on the Company's or affiliate(s) premises;

   

  

  

  

 

       (v) a conviction or plea of guilty or nolo contendere to a felony or a crime involving dishonesty; or

 

      (vi) a breach or violation of the terms of any agreement to which the Participant and the Company or affiliate(s) are party.

 

(f) “Change in Control” means any one of the following events:

 

         (i) the acquisition by any individual, entity or ‘group’ (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act (a ‘Person’) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of voting securities of the Company where such acquisition causes any such Person to own twenty-five percent (25%) or more of the combined voting power of the then outstanding voting securities then entitled to vote generally in the election of directors (the ‘Outstanding Voting Securities’); provided, however, that the following shall not constitute a Change in Control:  (1) any acquisition directly from the Company, unless such a Person subsequently acquires additional shares of Outstanding Voting Securities other than from the Company; or (2) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any affiliate.

 

          (ii) within any twelve-month period (beginning on or after July 9, 2002), the persons who were directors of the Company immediately before the beginning of such twelve-month period (the ‘Incumbent Directors’) shall cease to constitute at least a majority of the Board of Directors of the Company; provided that any director who was not a director as of July 9, 2002 shall be deemed to be an Incumbent Director if that director was elected to the Board of Directors by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors; and provided further that no director whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of directors shall be deemed to be an Incumbent Director;

 

          (iii) the approval by the stockholders of the Company of a reorganization, merger or consolidation, with respect to which persons who were the stockholders of the Company immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than fifty percent (50%) of the combined voting power entitled to vote in the election of directors of the reorganized, merged or consolidated company’s then outstanding voting securities.

 

  (iv) the sale, transfer or assignment of all or substantially all of the assets of the Company and its affiliates to any third party; or

 

           (v) the liquidation or dissolution of the Company.

 

(g) “Code” means the Internal Revenue Code of 1986, as amended.

 

(h) “Committee” means the committee appointed by the Board of Directors to administer the Plan or, in the absence of appointment of such committee, the Board of Directors.

 

  

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(i) “Company” means Ruby Tuesday, Inc., a Georgia corporation, or its successor.

 

(j) “Compensation” means Nonretainer Compensation and Annual Retainer Compensation.

 

(k) “Deferred Compensation Account” means an account established and maintained on behalf of each Participant and Prior Participant which shall be credited with certain amounts deferred by Participants under the Plan and with a rate of return as described in Plan Section 6.3.

 

(l) “Disability” means that condition described in Code Section 22(e)(3), as amended from time to time.  In the event of a dispute, the determination of Disability shall be made by the Board of Directors and shall be supported by advice of a physician competent in the area to which such Disability relates.

 

(m) “Disposition” means any conveyance, sale, transfer, assignment, pledge or hypothecation, whether outright or as security, inter vivos or testamentary, with or without consideration, voluntary or involuntary.

 

(n) “Effective Date” means the date the Plan, as amended and restated herein, is approved by the stockholders of the Company.

 

(o) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

(p) “Fair Market Value” with regard to a date means the closing price of the Stock on the last trading date prior to that date as reported by the New York Stock Exchange (or, if applicable, as reported by any other national securities exchange selected by the Committee on which the shares of Stock are then actively traded).

 

(q) “Grant Value” means, with respect to Annual Options, the value of the Annual Option determined under the Black-Scholes-Merton valuation methodology, or other generally accepted valuation methodology selected by the Committee, as of the date of the annual meeting of the Company’s shareholders as of which the Annual Option is granted and, with respect to Restricted Stock Awards, means the Fair Market Value of a share of Stock as of the date of the annual meeting of the Company’s shareholders as of which the Restricted Stock Award is granted.

 

(r) “Nonretainer Compensation” means the meeting and committee fees paid to a Participant by the Company, but does not include any Retainer Compensation or expense reimbursement paid to a Participant.

 

(s) “Old Plan” means the Morrison Incorporated Stock Incentive and Deferred Compensation Plan for Directors, successor to the Morrison Incorporated Deferred Compensation Plan for Directors, as it existed prior to its amendment and restatement as the Prior Plan.

 

(t) “Option” means an option granted under the Plan to buy shares of Stock as set forth in Plan Section 7.

 

  

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(u) “Ownership Level Measurement Date” means the date of each annual shareholders meeting.

 

(v) “Participant” means an individual who, pursuant to Plan Section 2.4, is eligible to participate in the Plan.

 

(w) “Plan” means the Ruby Tuesday, Inc. Stock Incentive and Deferred Compensation Plan for Directors; provided, however, in the event Ruby Tuesday, Inc. is replaced by a successor in interest, the title of the Plan shall thereafter be the name of the successor in interest followed by the phrase “Stock Incentive and Deferred Compensation Plan for Directors.”

 

(x) “Plan Year” means the calendar year.

 

(y) “Prior Participant” means a former Participant whose benefits have not been fully distributed from the Plan.

 

(z) “Restricted Stock Award” means a restricted stock award under Plan Section 4.1.

 

(aa) “Retainer Compensation” means the quarterly retainer fee paid to a Participant by the Company, but shall not include any meeting or committee fees or expense reimbursements paid to a Participant.

 

(bb) “Stock” means the Company’s common stock, $.01 par value.

 

(cc) “Stock Awards” means the shares of Stock issued pursuant to Plan Section 7.2.

 

(dd) “Stock Incentive Agreement” means an agreement between the Company and a Participant or other documentation evidencing an award of a Stock Incentive.

 

(ee) “Stock Incentives” means Annual Options, Options, Stock Awards and Restricted Stock Awards.

 

(ff) “Target Ownership Level” means the number of shares of Stock owned by the Participant with a Fair Market Value at least equal to $250,000 as of an Ownership Level Measurement Date.  For purposes of this Section 1.1(ff), Fair Market Value, as defined by Section 1.1(p), shall be modified to mean the highest closing price of the Stock for any day during the thirty (30) day period ending on the Ownership Level Measurement Date.  For purposes of this Section 1.1(ff), a Participant shall be considered to ‘own’ shares of Stock (i) if the Participant has any legal or beneficial interest in the shares of Stock; or (ii) if a legal or beneficial interest in the shares of Stock is held by the Participant’s spouse or any child under age 21.

 

(gg) “Termination from Service” means the Participant’s separation from service with the Company and its affiliates as contemplated under Code Section 409A(a)(2)(A)(i) for reasons other than death.  Whether a Termination from Service takes place is determined based on the facts and circumstances surrounding the termination of the Participant’s service relationship and whether there is an intent for the

 

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Participant to provide significant services for the Company or any affiliate following such termination.

 

SECTION 2   THE STOCK INCENTIVE AND

DEFERRED COMPENSATION PLAN

 

2.1 The Purpose of the Plan.  The Plan is intended to (a) provide incentive to non-employee directors of the Company to stimulate their efforts toward the continued success of the Company and to manage the business of the Company in a manner that will provide for the long-term growth and profitability of the Company; (b) encourage stock ownership by non-employee directors by providing them with a means to acquire a proprietary interest in the Company; and (c) provide a means of obtaining and rewarding non-employee directors.

 

2.2 Stock Subject to the Plan.  Subject to adjustment in accordance with Plan Section 8.1, 950,000 shares of Stock (the ‘Maximum Plan Shares’) are hereby reserved exclusively for issuance pursuant to Stock Incentives.  At no time shall the aggregate of shares of Stock issuable pursuant to outstanding Stock Incentives, shares of Stock issued pursuant to Stock Incentives, and shares of Stock issued pursuant to Stock Awards and Restricted Stock Awards exceed the Maximum Plan Shares.  If a Stock Incentive expires or terminates for any reason without being exercised in full, the shares subject to the unsettled portion of such Stock Incentive shall again be available for purposes of the Plan.

 

2.3 Administration of the Plan.  The Plan shall be administered by the Committee.  Subject to the provisions of the Plan, the Committee shall have full and conclusive authority to interpret the Plan; to prescribe, amend and rescind rules and regulations relating to the Plan; to determine the terms and provisions of the respective Stock Incentive Agreements consistent with the provisions of the Plan and to make all other determinations necessary or advisable for the proper administration of the Plan.  The Committee’s decisions shall be final and binding on all Participants.  The Plan shall be interpreted in view of the intention that the grant and exercise of Annual Options and Options and the grant of Stock Awards and Restricted Stock Awards are all intended to qualify as exempt transactions under Rule 16b-3 promulgated under the Exchange Act.

 

2.4 Eligibility.  Any member of the Board of Directors who is not an employee of the Company shall be a Participant.  A Participant shall cease to be eligible for continued participation in the Plan as of the date the Participant ceases to serve upon the Board of Directors.  A Participant who ceases to be eligible to participate in the Plan will no longer be eligible to make further deferrals under the Plan pursuant to Plan Section 5 but shall continue to be subject to all other terms of Plan Sections 5 and 6, and related ancillary provisions, until the Participant’s Deferred Compensation Account is fully paid.  Any deferral election under Plan Section 5 then in effect as of the date the Participant ceases to be eligible to participate in the Plan will be cancelled immediately following the close of the fiscal quarter in which the Participant’s eligibility ceases, subject to any restrictions on the implementation of the cancellation under Code Section 409A, including any regulatory guidance issued thereunder.

 

SECTION 3 ANNUAL OPTION AWARDS

 

3.1 Grants of Annual Options.  Each Participant who is a director and who is not an employee of the Company may be granted an Annual Option as of the date of each annual 

 

  

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meeting of the shareholders, if such Participant is elected or re-elected as a director of the Company at that meeting or otherwise continues to serve as a director of the Company immediately following that meeting.  In the event the number of Maximum Plan Shares, reduced by the number of such Maximum Plan Shares previously issued or issuable under the Plan, is insufficient to fund all of the Annual Options to be granted as of any annual meeting of the shareholders of the Company, then no Annual Options with respect to that meeting or any subsequent meeting shall be granted unless and until the Plan is amended to increase the number of Maximum Plan Shares; provided, further, that no Annual Options shall be granted with respect to annual meetings that take place prior to the effective date of any such amendment.

3.2 Annual Options.  An Annual Option shall represent the right to purchase shares of Stock at a per share exercise price equal to the Fair Market Value of a share of Stock on the date of grant, which is the date of the annual meeting of the shareholders of the Company for which the award is made.  The number of shares of Stock subject to each Annual Option shall be the resultant of the Award Value divided by the Grant Value attributable to the Annual Option (rounding down to the nearest whole number), reduced (but not below zero) by the product of the number of shares of Stock subject to the corresponding Restricted Stock Award granted to the Participant, if any, pursuant to Plan Section 4 respecting the same annual meeting of shareholders, multiplied by the Grant Value attributable to the Restricted Stock Award (rounding down to the nearest whole number).  Upon the grant of an Annual Option hereunder, the Committee shall prepare (or cause to be prepared) a Stock Incentive Agreement reflecting the option terms, which shall contain the provisions set forth below and such other terms and conditions as the Committee may determine are appropriate from time to time hereafter:

 

(a) Vesting.  Each Annual Option granted under this Plan shall not be exercisable until the 30-month anniversary of the date the Annual Option was granted at which point the Annual Option shall be fully exercisable.  If the Participant terminates service as a director of the Company due to death, Disability, or retirement at or after age 50 upon expiration of any normal term of appointment, the unvested portion of the Annual Option shall become fully vested. Each Annual Option also shall become fully vested and exercisable immediately prior to any Change in Control.  If the Participant’s service as a director of the Company is terminated involuntarily other than due to Cause, a portion of the Annual Option shall become vested and exercisable as follows:  that portion determined by multiplying the total number of shares subject to the Annual Option by a fraction, the numerator of which shall be the number of full months of the Participant’s service with the Company from the date of grant to the date of involuntary termination and the denominator of which shall be thirty (30).  If the Participant’s service as a director of the Company is terminated involuntarily for Cause, the unvested portion of the Annual Option shall be forfeited.

 

(b) Option Period.  Each Annual Option shall have a maximum term of five (5) years, but shall expire no later than (i) ninety (90) days following any earlier termination of the Participant’s service as a director of the Company due to a voluntary resignation or involuntary termination other than for Cause; and (ii) fifteen (15) days following any earlier involuntary termination of the Participant’s service as a director of the Company for Cause.

 

  

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(c) Method of Exercise.  All Annual Options granted hereunder shall be exercised by written notice directed to the Secretary of the Company at its principal place of business or to such other person as the Committee may direct.  Each notice of exercise shall identify the Annual Option which the Participant is exercising (in whole or in part) and shall be accompanied by payment of the applicable exercise price for the number of shares specified in such notice.  The exercise price shall be payable upon the exercise of an Annual Option in an amount equal to the number of shares then being purchased times the per share exercise price.  Payment at the election of the Participant (or his successors) shall be (i) in cash; (ii) by delivery to the Company of a certificate or certificates for shares of Stock held by the Participant for at least six (6) months duly endorsed for transfer to the Company; or (iii) by a cashless exercise executed through a broker, dealer, or other creditor, as defined by Regulation T promulgated by the Board of Governors of the Federal Reserve System, following delivery by the Participant to the Company of instructions in a form acceptable to the Company.

 

(d) Restrictions on Transfer and Exercise of Annual Options.  No Annual Option shall be assignable or transferable by the Participant except by will or the laws of descent and distribution; provided, however, that the Chairperson of the Committee may (but need not) permit other transfers where the Chairperson concludes that such transferability (i) does not result in accelerated taxation, and (ii) is otherwise appropriate and desirable, taking into account any state or federal tax or securities laws or accounting consequences applicable to transferable options.  During the lifetime of a Participant, the Annual Option shall be exercisable only by him or her or such permitted transferee; provided, however, that in the event the Participant is subject to a Disability and unable to exercise an Annual Option, such Annual Option may be exercised by such Participant’s legal guardian, legal representative, fiduciary or other representative whom the Chairperson deems appropriate based on applicable facts and circumstances.

 

(e) Notwithstanding any other provision in the Plan, without the prior approval of the stockholders of the Company, (i) no amendment shall be made to reduce the per share exercise price of an Annual Option following its grant, except in connection with an adjustment effected pursuant to Section 8.1, and (ii) no action shall be taken to cancel an Annual Option having an exercise price that is lower than the Stock's per share fair market value at the time of cancellation in exchange for cash or to exchange an Annual Option for another option or other equity incentive having a lower per share exercise or strike price.

 

3.3 Rights as a Shareholder.  A Participant shall have no rights as a shareholder with respect to shares covered by an Annual Option until the date of the issuance of the shares of Stock to him or her and only after the applicable exercise price of such shares is fully paid.  No adjustment will be made for dividends or other rights for which the record date is prior to the date of such issuance.

 

3.4 Restrictions on Transfer of Annual Option Shares.  A Participant may not assign or transfer, except by will or the laws of descent and distribution, any shares of Stock attributable to the exercise of an Annual Option granted on or after October 5, 2005, unless and until the Participant attains the Target Ownership Level as of the Ownership Level Measurement Date coincident with the grant date of the Annual Option to which the shares of Stock are attributable or any subsequent Target Ownership Effective Date.  If a Participant attains the Target

  

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Ownership Level but then falls below the Target Ownership Level as of any subsequent Ownership Level Measurement Date, shares of Stock attributable to the exercise of the Annual Option granted on that date and each subsequent Ownership Level Measurement Date shall be subject to the transfer restrictions contemplated by this Section 3.4 unless and until the Participant again attains the Target Ownership Level.  Transfer restrictions imposed under this Section 3.4 shall remain in effect until the earlier of (i) the date they may be removed pursuant to the preceding provisions of this Section 3.4 or (ii) the Participant’s death.  Certificates reflecting shares of Stock issued upon the exercise of any Annual Option shall bear an appropriate legend reflecting these transfer restrictions, to the extent applicable, as determined by the provisions of this Section.

 

SECTION 4  RESTRICTED STOCK AWARDS

 

4.1 Awards.  Each Participant who is a director and who is not an employee of the Company may be granted a Restricted Stock Award as of the date of each annual meeting of the shareholders of the Company beginning with the 2006 annual shareholder meeting, if such Participant is elected or re-elected as a director of the Company at that meeting or otherwise continues to serve as a director of the Company immediately following that meeting and if the Board of Directors affirmatively approves the grant of Restricted Stock Awards to otherwise eligible directors with respect to each such annual meeting no later than the date of that annual meeting.  In the event the number of Maximum Plan Shares, reduced by the number of such Maximum Plan Shares previously issued or issuable under the Plan, is insufficient to fund all of the Restricted Stock Awards to be granted as of any annual meeting of the shareholders of the Company, then no Restricted Stock Awards with respect to that meeting or any subsequent meeting shall be granted unless and until the Plan is amended to increase the number of Maximum Plan Shares; provided, further, that no Restricted Stock Awards shall be granted with respect to annual meetings that take place prior to the effective date of any such amendment.  Each Restricted Stock Award shall be evidenced by a Stock Incentive Agreement which shall incorporate the applicable terms of the Plan.

 

4.2 Shares Subject to Each Award.  The number of shares of Stock subject to each Restricted Stock Award shall be determined by the Board of Directors at the time a determination is made to grant Restricted Stock Awards with respect to any particular annual meeting of shareholders, but in no event shall that number exceed the maximum potential Award Value divided by the Grant Value of the number of shares of Stock subject to the Restricted Stock Award (rounding down to the nearest whole number).

 

4.3 Vesting.  One-third (1/3) of the shares of Stock subject to a Restricted Stock Award shall vest on each of the first three (3) anniversary dates of the original grant date for that Restricted Stock Award, provided the Participant remains a member of the Board of Directors as of the applicable anniversary date.  In the event a Participant ceases to be a member of the Board of Directors prior to the third anniversary of the grant date of a Restricted Stock Award, any unvested shares under that Restricted Stock Award shall be forfeited.  Notwithstanding the preceding, all shares of Stock subject to the Restricted Stock Award shall become vested on the date the Participant ceases to be a member of the Board of Directors on account of death, Disability, upon attaining age 70 or upon a Change in Control.

 

4.4 Escrow of Shares.  Any certificates representing the shares of Stock awarded pursuant to a Restricted Stock Award shall be issued in the Participant's name, but shall be held by 

 

  

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a custodian designated by the Committee (the “Custodian”) until such time as such shares of Stock become vested or are forfeited.  Each Stock Incentive Agreement governing a Restricted Stock Award shall appoint the Custodian as the attorney-in-fact for the Participant until such time as shares of Stock become vested or are forfeited in accordance with Plan Section 4.3 with full power and authority in the Participant's name, place and stead to transfer, assign and convey to the Company any shares of Stock held by the Custodian for such Participant if the Participant forfeits such shares.  In the event the shares of Stock subject to the Restricted Stock Award become vested, the Custodian shall deliver the certificate for such shares to the Participant.  In the event the Participant forfeits any or all of the shares of Stock subject to the Restricted Stock Award, the Custodian shall deliver the certificate for such shares to the Company.  During the period that the Custodian holds the shares subject to this Section, the Participant shall be entitled to all rights, except as provided in the Stock Incentive Agreement, applicable to shares of Stock not so held.

 

4.5 Limitations on Transfer.  The Participant shall not have the right to make or permit to exist any Disposition of the shares of Stock held by the Custodian until the applicable vesting date determined pursuant to Plan Section 4.3 and any Disposition attempted prior to that date shall be void.  The Company shall not recognize and shall not have the duty to recognize any Disposition not made in accordance with the Plan.

 

4.6 Withholding.  Upon the vesting of any Restricted Stock Award or the making of any election under Section 83(b) of the Code, the Company has the right to require the Participant to remit to the Company an amount sufficient to satisfy any federal, state and local tax withholding requirements. A Participant may pay the withholding obligation in cash, or, if the applicable Stock Incentive Agreement provides, a Participant may elect (a “Withholding Election”) to tender back to the Company the smallest number of whole shares of Stock which, when multiplied by the Fair Market Value of the shares of Stock determined as of the date of vesting or election (as applicable), is sufficient to satisfy the minimum required federal, state and local, if any, withholding taxes arising from vesting of the Restricted Stock Award or the making of the Section 83(b) election. A Participant may make a Withholding Election by executing and delivering to the Company a properly completed notice of Withholding Election prior to the date on which the amount of tax required to be withheld is determined in such manner as may be further prescribed by the Committee.  Any Withholding Election made will be irrevocable; provided further, however, that the Committee may in its sole discretion disapprove and give no effect to any Withholding Election.  Any failure of a Participant to satisfy his or her tax withholding obligations in the manner provided in this Section 4.6 shall result in a forfeiture of the shares of Stock as to which the tax withholding obligations apply and to any other shares of Stock still subject to the Restricted Stock Award.

 

SECTION 5  DEFERRAL OF COMPENSATION

 

5.1 Deferral to Deferred Compensation Accounts.

 

(a) Each Participant may elect to defer his or her Nonretainer Compensation and/or Retainer Compensation, each in twenty-five percent (25%) increments to his or her Deferred Compensation Account.  An election to defer Compensation hereunder shall be in writing and shall be made prior to the first day of each Plan Year for which such Compensation shall be earned.  Except as provided in Plan Section 5.1(b), all elections to defer Compensation under this Section 5.1 shall be irrevocable as of the last day of the Plan Year immediately preceding the Plan Year for which it is effective and may only be

 

 

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made pursuant to an agreement between the Participant and the Company, which shall be in such form and subject to such rules and limitations as the Plan Administrator may prescribe and shall specify the amount of the Compensation of the Participant that the Participant desires to defer.

 

(b) Notwithstanding the provisions of Plan Section 5.1(a), in the case of the first year a Participant becomes eligible to defer Compensation hereunder, such election must be made no later than thirty (30) days following the date the Participant becomes eligible to participate in the Plan, but only with respect to Compensation payable for services to be performed after the election is made.  All elections to defer Compensation under this Section 5.1(b) shall be irrevocable as of the last day of the applicable thirty (30) day period.  A Participant who has ceased to be eligible to participate in the Plan may be treated as a new Participant in accordance with Plan Section 5.1(a) only if the Participant has not been eligible to participate in the Plan (other than with respect to the receipt of earnings credits under Plan Section 6.3) for a period of at least twenty-four (24) months.

 

5.2 Revocation of Elections.  A Participant may not revoke or modify an election made pursuant to Plan Section 5.

 

5.3 Revocation of Prior Elections.  Participants’ deferral elections under the Plan, Old Plan or under the Prior Plan, as applicable, shall continue to be effective until a Participant makes a timely new deferral election under Plan Section 5.1.  Any previously outstanding deferral election shall be deemed to be revoked by any new, timely deferral election.

 

SECTION 6  DEFERRED COMPENSATION ACCOUNTS

 

6.1 Establishment of Accounts.  A Deferred Compensation Account shall be established for each Participant and each Prior Participant.

 

6.2 Crediting of Deferrals.  A Participant's Deferred Compensation Account shall be credited with that portion of the Participant's Compensation that the Participant has elected to defer to his or her Deferred Compensation Account pursuant to Plan Section 5.1 as of the date such Compensation would otherwise have been paid to the Participant.

 

6.3 Crediting Income.  Each Deferred Compensation Account shall be credited as of the last day of each fiscal quarter of the Company with an assumed rate of income equal to the then prevailing rate payable with respect to ninety (90) day U.S. Treasury Bills, based on the weighted average balance of such account during such fiscal quarter.

 

6.4 Distribution of Accounts.

 

(a) Amounts credited to a Participant’s Deferred Compensation Account shall be distributed in either a single lump sum or annual installments (not to exceed five (5)), as designated by the Participant or the Prior Participant in his or her initial election under the Plan, Prior Plan or Old Plan, as applicable.  A Participant’s one-time payment election pursuant to this Plan Section 6.4 must be made no later than the date his or her election pursuant to Plan Section 5.1 becomes irrevocable.  A Participant may not revoke or modify an election made pursuant to this Section 6.4.

 

  

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(b) If an election pursuant to Plan Section 6.4(a) is not validly in effect, the Participant’s Deferred Compensation Account shall be paid in a lump sum in the calendar month following the calendar month in which the Participant experiences his or her Termination from Service.

 

(c) Distribution of a Deferred Compensation Account shall be made (in the case of a lump sum payment) or commence (in the case of installment payments) in the calendar month immediately following the Participant’s or the Prior Participant’s seventieth (70th) birthday, or, if earlier, the January 15 or July 15 immediately following the date of the Participant’s Termination from Service.  However, if the Participant or Prior Participant so elects in his or her one-time payment election under the Plan, Prior Plan or Old Plan, as applicable, the distribution (in the case of a lump sum payment) or the commencement of the distribution (in the case of installment payments) of the Participant’s or Prior Participant’s Deferred Compensation Account shall occur on any January 15 or July 15 subsequent to his or her Termination from Service as the Participant may elect in his or her one-time payment election; provided, however, that no such election shall have the effect of delaying the payment or commencement of payment (as applicable) beyond a Participant’s or Prior Participant’s seventieth (70th) birthday.  If a Participant elects to have his or her Deferred Compensation Account distributed in installments, the amount of the first installment shall be a fraction of the value of the Participant’s Deferred Compensation Account, the numerator of which is one and the denominator of which is the total number of installments elected, and the amount of each subsequent installment shall be a fraction of the value (including income credited pursuant to Plan Section 6.3) on the date preceding each subsequent payment, the numerator of which is one and the denominator of which is the total number of installments elected minus the number of installments previously paid.

 

6.5 Distribution upon Death.  In the event of the death of a Participant or Prior Participant prior to the date on which he or she is entitled to the commencement of payments of his or her Deferred Compensation Account in full, the value of such Deferred Compensation Account shall be determined as of the day immediately following the Participant’s or Prior Participant’s death and such amount shall be distributed in a single lump sum payment to the Participant’s or Prior Participant’s designated beneficiary and payment shall be made in the calendar month following the calendar month in which the Participant died.  Upon the death of a Participant on or after the date on which he or she is entitled to the commencement of payments of his or her Deferred Compensation Account, the Participant’s designated beneficiary shall be entitled to receive the unpaid portion of the Participant’s Deferred Compensation Account.  These payments shall be made according to the manner and method by which payments were payable to the Participant.

 

6.6 Statement of Account.  During March and September of each Plan Year, each Participant and Prior Participant shall be provided with statements of his or her Deferred Compensation Account as of the end of the third and first fiscal quarters of the Company, respectively.

 

6.7 Participant’s Rights Unsecured.  The right of any Participant or Prior Participant to receive future distributions under the provisions of Plan Section 6 shall constitute an unsecured claim against the general assets of the Company.

 

  

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SECTION 7  STOCK AWARDS AND GRANT OF OPTIONS

 

7.1 Elections to Purchase Shares.

 

(a) Each Participant that has not attained his Target Ownership Level will be deemed to have elected to direct that sixty percent (60%) of his or her Retainer Compensation payable for each fiscal quarter of the Company following the Effective Date be allocated to the purchase of shares of Stock on his or her behalf pursuant to this Section 7.  Once a Participant has been deemed to have elected to purchase Stock pursuant to this subsection (a), such deemed election will continue in effect until that Participant modifies or revokes this deemed election, in accordance with the provisions of Plan Section 7.1(b), after attaining the Target Ownership Level.

 

(b) Each Participant who has attained his Target Ownership Level as of the first day of a fiscal quarter may make a discretionary election directing that up to sixty percent (60%) of his or her Retainer Compensation, in ten percent (10%) increments, be allocated to the purchase of Stock on his or her behalf.  Such a discretionary election will be effective on the first day of the fiscal quarter of the Company that is at least six (6) months after the date it is filed with the Committee in the manner required by the Committee.  Discretionary elections are irrevocable, as required by Rule 16b-3 under the Exchange Act as in effect prior to the effective date of Rule 16b-3 as adopted in 1991.  As of the date the new Rule 16b-3 which was adopted in 1991 applies to the Company, discretionary elections may be revoked or modified effective on the first day of the fiscal quarter of the Company that begins at least six (6) months following the date the modified election is filed with the Committee in the manner required by the Committee.  Notwithstanding the preceding, a discretionary election or a modification or revocation of a discretionary election may be given effect on an earlier date, if the Committee, in its sole discretion, permits, provided the Committee is satisfied such election, modification or revocation would not trigger the recovery of short-swing profits under Section 16 of the Exchange Act.

 

(c) In the event a Participant ceases to be a member of the Board of Directors prior to earning that portion of his or her Retainer Compensation with respect to which the Participant has elected to purchase Stock under the Plan, the direction to purchase Stock shall terminate.  For purposes of this Section, a Participant shall be deemed to have earned the Retainer Compensation payable for a fiscal quarter of the Company if he or she serves as a member of the Board of Directors of the Company for at least one day of that fiscal quarter.

 

(d) Participants’ elections under the Prior Plan, other than an election made under Section 5.1 of the Prior Plan, shall be rendered null and void as of the Effective Date, provided stockholder approval of the Plan is obtained.

 

7.2 Number of Shares Issued.  As of the first day of each fiscal quarter for which a Participant has elected or is deemed to have elected to direct that Retainer Compensation be used for the purchase of Stock pursuant to Plan Section 7.1, the Participant shall be issued a number of shares of Stock equal to the amount, if any, of the Participant’s Retainer Compensation allocated to the purchase of Stock, multiplied by 1.15 and divided by the Fair Market Value of a share of Stock as of the issue date.  Any Stock issued to a Participant pursuant to this Section 7.2

 

  

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may not be transferred within three (3) years of the date of purchase, unless the Committee waives this restriction, in which case a waiver may not occur prior to the six-month anniversary of the date of the Stock issuance, unless the Committee is satisfied that the earlier waiver will not trigger recovery of short-swing profits under Section 16 of the Exchange Act.

7.3 Option Grants.  As of the first day of each fiscal quarter for which a Participant has been issued Stock pursuant to Plan Section 7.2, the Participant shall be granted an Option to purchase a number of shares of Stock equal to three (3) times the number of shares of Stock issued pursuant to Plan Section 7.2 for such fiscal quarter (the “Option Shares”).  The Option Shares shall be exercisable at Fair Market Value as of the date of the option grant.  Each Option granted pursuant to the Plan shall be evidenced by a Stock Incentive Agreement.

 

7.4 Option Term.  Each Option granted under this Plan shall not be exercisable or vested until six (6) months from the date the Option was granted.  If the Participant terminates service as a director of the Company due to death, Disability, or retirement at or after age 50 upon expiration of any normal term of appointment, the unvested portion of the Option shall become fully vested and exercisable. Each Option also shall become fully vested and exercisable immediately prior to any Change in Control.  If the Participant’s service as a director of the Company is terminated involuntarily other than due to Cause, a portion of the Option shall become vested and exercisable as follows:  that portion determined by multiplying the total number of shares subject to the Option by a fraction, the numerator of which shall be the number of full months of the Participant’s service with the Company from the date of grant to the date of involuntary termination and the denominator of which shall be six (6).  If the Participant’s service as a director of the Company is terminated involuntarily for Cause, the unvested portion of the Option shall be forfeited.  Each Option shall have a maximum term of five (5) years, but shall expire no later than (i) ninety (90) days following any earlier termination of the Participant’s service as a director of the Company due to a voluntary resignation or involuntary termination other than for Cause; and (ii) fifteen (15) days following any earlier involuntary termination of the Participant’s service as a director of the Company for Cause.

 

7.5 Payment.  Payment for all shares of Stock purchased pursuant to exercise of an Option shall be made (a) in cash; (b) by delivery to the Company of a number of shares of Stock which have been owned by the holder for at least six (6) months prior to the date of exercise having an aggregate Fair Market Value of not less than the product of the exercise price multiplied by the number of Option Shares the Participant intends to purchase; or (c) in a cashless exercise through a broker.  Payment shall be made at the time that the Option or any part thereof is exercised, and no shares shall be issued or delivered upon exercise of an Option until full payment has been made by the Participant.  The holder of an Option, as such, shall have none of the rights of a stockholder.

 

7.6 Restrictions on Transfer and Exercise of Options.  No Option shall be assignable or transferable by the Participant except by will or the laws of descent and distribution; provided, however, that the Chairperson of the Committee may (but need not) permit other transfers where the Chairperson concludes that such transferability (a) does not result in accelerated taxation, and (b) is otherwise appropriate and desirable, taking into account any state or federal tax or securities laws or accounting consequences applicable to transferable options.  During the lifetime of a Participant, Options shall be exercisable only by him or her or such permitted transferee; provided, however, that in the event the Participant is subject to a Disability and unable to exercise an Option, such Option may be exercised by such Participant’s legal guardian, 

  

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legal representative, fiduciary or other representative whom the Chairperson deems appropriate based on applicable facts and circumstances.

7.7 Cessation of Future Activity.  Notwithstanding any other provision of this Section 7, a Participant shall neither be deemed to have elected nor be able to elect voluntarily to direct that his or her Retainer Compensation be paid to purchase shares of Stock pursuant to Plan Section 7.1 nor will a Participant be granted any Option to purchase a number of shares of Stock pursuant to Plan Section 7.3 effective for fiscal quarters of the Company beginning on or after August 31, 2005.

 

SECTION 8  GENERAL PROVISIONS

 

8.1 Changes in Capitalization; Merger; Liquidation.

 

(a) The number of shares of Stock reserved for the award of Stock Incentives, the number of shares of Stock subject to outstanding Stock Incentives, the number of shares to be awarded under an Annual Option or Restricted Stock Award and the exercise price of each outstanding Annual Option and Option shall be proportionately adjusted for any increase or decrease in the number of shares of Stock resulting from a subdivision or combination of shares or the payment of a stock dividend (including, but not limited to, an extraordinary dividend) in shares of Stock to holders of outstanding shares of Stock or any other increase or decrease in the number of shares of Stock outstanding effected without receipt of consideration by the Company.

 

(b) If the Company shall be the surviving corporation in any merger or consolidation, recapitalization, reclassification of shares or similar reorganization, an appropriate adjustment shall be made to each Stock Incentive such that the Participant shall be entitled to receive or purchase, as applicable, the number and class of securities to which a holder of the number of shares of Stock at the time of the transaction would have been entitled to receive as a result of such transaction, and a corresponding adjustment shall be made in the exercise price of each outstanding Annual Option and Option.  A dissolution or liquidation of the Company shall cause all Stock Incentives to terminate as to any portion thereof not vested and/or exercised as of the effective date of the dissolution or liquidation.  In the event of a sale of substantially all of the Stock or property of the Company or the merger or consolidation of the Company into another entity where the acquiror does not agree to the assumption of the Annual Options and Options, the Committee shall be authorized to terminate the outstanding Annual Options and Options in consideration of the payment to each Participant holding such a Stock Incentive of an amount equal to the difference between the Fair Market Value of the Stock subject to the unexercised portion of the Annual Option or Option, as the case may be, and the aggregate exercise price of such Annual Option or Option.

 

(c) The existence of the Plan and the Stock Incentives granted pursuant to the Plan shall not affect in any way the right or power of the Company to make or authorize any adjustment, reclassification, reorganization or other change in its capital or business structure, any merger or consolidation of the Company, any issue of debt or equity securities having preferences or priorities as to the Stock or the rights thereof, the dissolution or liquidation of the Company, any sale or transfer of all or any part of its business or assets, or any other corporate act or proceeding.

 

  

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8.2 Right to Remove Director.  Nothing in the Plan or in any Stock Incentive Agreement shall confer upon any Participant the right to continue as a member of the Board of Directors or affect the right of the Company to terminate a Participant’s directorship at any time.

 

8.3 Restrictions on Delivery and Sale of Shares; Legends.  Each Stock Incentive is subject to the condition that if at any time the Committee, in its discretion, shall determine that the listing, registration or qualification of the shares covered by such Stock Incentive upon any securities exchange or under any state or federal law is necessary or desirable as a condition of or in connection with the granting of such Stock Incentive or the purchase or delivery of shares thereunder, the delivery of any or all shares pursuant to such Stock Incentive may be withheld unless and until such listing, registration or qualification shall have been effected.  If a registration statement is not in effect under the Securities Act of 1933 or any applicable state securities laws with respect to the shares of Stock purchasable or otherwise deliverable under Stock Incentives then outstanding, the Participant shall, as a condition of exercise of any Annual Option or Option or as a condition to any other delivery of Stock pursuant to a Stock Incentive, represent, in writing, that the shares received pursuant to the Stock Incentive are being acquired for investment and not with a view to distribution and agree that the shares will not be disposed of except pursuant to an effective registration statement, unless the Company shall have received an opinion of counsel that such disposition is exempt from such requirement under the Securities Act of 1933 and any applicable state securities laws.  The Company may include on certificates representing shares delivered pursuant to a Stock Incentive such legends referring to the foregoing representations or restrictions or any other applicable restrictions on resale as the Company, in its discretion, shall deem appropriate.

 

8.4 Non-alienation of Benefits.  Other than as specifically provided with regard to the death of a Participant, no benefit under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge; and any attempt to do so shall be void.  No such benefit shall, prior to receipt by the Participant, be in any manner liable for or subject to the debts, contracts, liabilities, engagements or torts of the Participant.

 

8.5 Termination and Amendment of the Plan.

 

(a) The Board of Directors at any time may amend or terminate the Plan without stockholder approval; provided, however, that the Board of Directors may condition any amendment on the approval of stockholders of the Company if such approval is necessary or advisable with respect to tax, securities or other applicable laws.  No termination, modification or amendment of the Plan, without the consent of a Participant who has been awarded a Stock Incentive or with respect to whom amounts have been credited to a Deferred Compensation Account, shall adversely affect the rights of that Participant under such Stock Incentive or with respect to such Deferred Compensation Account.

 

(b) Notwithstanding the provisions of Plan Section 8.5(a), the Company reserves the right to:

 

(i) amend the Plan in any respect solely to comply with the provisions of Code Section 409A so as not to trigger any unintended tax consequences prior to the distribution of benefits provided herein;

 

  

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(ii) pay the lump sum value of Participants’ Deferred Compensation Accounts if the Company determines that such payment benefits will not constitute an impermissible acceleration of payments under one of the exceptions provided in Treasury Regulations Section 1.409A-3(j)(4)(ix), or any successor guidance; in such an event, payment shall be made at the earliest date permitted under such guidance; and/or

 

(iii) make payments hereunder before such payments are otherwise due if it determines that the provisions of the Plan fail to meet the requirements of Code Section 409A and the rules and regulations promulgated thereunder; provided, however, that such payment(s) may not exceed the amount required to be included in income as a result of such failure to comply the requirements of Code Section 409A and the rules and regulations promulgated thereunder.

 

8.6 Stockholder Approval.  The Plan shall be submitted to the stockholders of the Company for their approval at the next meeting of stockholders held after the adoption of the Plan by the Board of Directors of the Company.  If such approval is not obtained at such meeting, any Stock Incentives granted pursuant to this amendment and restatement prior to such meeting shall be deemed null and void to the extent they would not have been permissible under the terms of the Prior Plan and the Prior Plan otherwise shall remain as in effect immediately prior to this amendment and restatement.

 

8.7 Choice of Law.  The laws of the State of Georgia shall govern the Plan, to the extent not preempted by federal law.

 

8.8 Effective Date of Plan.  The Plan, as amended and restated herein, shall become effective on the Effective Date, except as otherwise provided herein.

 

RUBY TUESDAY, INC.

 

By:  /s/ Samuel E. Beall, III

 

Title: Chairman of the Board

Chief Executive Officer and President

 

ATTEST:

 

By: /s/ Scarlett May

Title: Secretary

[CORPORATE SEAL]

 

 

 

 

 

 

 

 

 

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