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EXHIBIT 10.12
INDEMNIFICATION ALLOCATION AGREEMENT
This Indemnification Allocation Agreement ("this Agreement") is
entered into as of April 20, 1994 by and among Thrifty PayLess Holdings, Inc.
(formerly TCH Corporation), a Delaware corporation ("TPH"), Gart Sports
Company, a Delaware corporation ("GSC"), and MC Sports Company, a Delaware
corporation ("MCSC"). All capitalized terms used but not elsewhere defined in
this Agreement shall have the meanings set forth in the Glossary attached to,
and forming part of, this Agreement.
RECITALS
(A) TPH, TPI and Kmart Corporation, a Michigan corporation ("Kmart"),
are parties to a Purchase and Sale Agreement dated as of December 1, 1993, as
amended (the "Acquisition Agreement"). The Acquisition Agreement contemplates
that, in connection with the closing thereunder of the purchase of all of the
outstanding stock of Pay Less Drug Stores Northwest, Inc., a Maryland
corporation, by TPH and TPI from Kmart, the stock of GSC and MCSC will be
distributed to those persons who were the stockholders of TPH immediately prior
to such closing (the "Distribution").
(B) Pursuant to the Thrifty Agreement, TPH has the right to assert PE
Indemnification Claims (subject to the limitations therein, including the
Minimum PE Claim Amount and the Maximum PE Claim Limitations), including Gart
Claims and MC Claims.
(C) In contemplation of the Distribution, the Parties desire that the
economic benefit of the Gart Claims be conferred on GSC, that the economic
benefit of the MC Claims be conferred on MCSC, and that TPH act as the agent of
GSC for the purpose of asserting Gart Claims against PE and the agent of MCSC
for the purpose of asserting MC Claims against PE.
ARTICLE 1
PROVISIONS RELATING TO PE INDEMNIFICATION CLAIMS
1.1 Economic Benefit of Party Claims. In accordance with this
Agreement, TPH's beneficial interest in all the economic benefit of its PE
Indemnification Claims is hereby irrevocably conferred on GSC with respect to
Gart Claims and on MCSC with respect to MC Claims, and is hereby retained with
respect to TPH Claims.
1.2 Right to Assert PE Indemnification Claims.
1.2.1 The Parties acknowledge that: (a) the Minimum PE Claim
Amount is applicable to the Party Claims of all of them in the aggregate, as
well as of each of them individually, so that the failure of any Party to
assert a Party Claim against PE may have the practical effect of delaying or
precluding the ability of the other Parties to assert against PE a separate
Party Claim that does not itself result in the Minimum PE Claim Amount being
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exceeded; and (b) the Minimum PE Claim Amount is to be applied by reference not
only to Party Claims but to PE Indemnification Claims arising under the Big 5
Agreement.
1.2.2 The Parties further acknowledge that the Maximum PE Claim
Limitations are applicable to the Party Claims of all Parties in the aggregate,
as well as of each of them individually, so that the assertion by any of them
of a Party Claim against PE may have the practical effect of limiting the
amount of, or precluding the assertion of, Party Claims another Party may
otherwise have against PE.
1.2.3 Notwithstanding Sections 1.2.1 and 1.2.2 of this Agreement,
but subject to Section 1.3 of this Agreement, each Party shall be free to
determine for itself whether or not to assert on its own behalf any Party Claim
and shall have no contractual, fiduciary or other obligation to the other
Parties with respect to any such determination except for those contractual
obligations expressly set forth below in this Agreement.
1.3 Agency of TPH with Respect to Gart Claims and MC Claims.
1.3.1 Each of GSC and MCSC (each being a "Principal") hereby
appoints TPH as its exclusive agent and attorney-in-fact (the "Agent"), with no
power of substitution or re-delegation, for the purpose of making, pursuing,
settling, compromising, negotiating with PE with respect to, and otherwise
disposing of all of such Principal's Party Claims. Each Principal further
agrees and acknowledges that all of its Party Claims shall be asserted on its
behalf by the Agent and that it has no right as against PE to assert its Party
Claims against PE other than through the Agent. However, the foregoing
appointment, and the powers of the Agent, are expressly subject to the other
provisions of this Section 1.3.
1.3.2 Each Principal shall have the right to direct the Agent as
to all aspects of its activities as Agent (including, without limitation, the
selection of counsel) with respect to such Principal's Party Claims and the
Agent shall take no action with respect to such Principal's Party Claims except
as expressly directed or approved in writing by such Principal. Without
limiting the foregoing:
(a) as promptly as practicable, and in no event later than
three Business Days, after receipt thereof from either
Principal, the Agent shall execute such documents as such
Principal shall direct in writing for the purpose of
asserting a Party Claim against PE on behalf of such
Principal (an "Agency Claim") and forward such documents to
PE in the manner specified in the Thrifty Agreement;
(b) the Agent shall promptly comply with all further written
instructions from either Principal relating to the
prosecution of an Agency Claim of such Principal,
including, without limitation, instructions as to
amendments, modifications and supplements thereto, any
settlement or compromise thereof, any arbitration of a
dispute with PE with
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respect thereto, and the execution and filing or delivery
of any documents in connection therewith;
(c) the Agent shall not amend, modify, supplement, settle,
compromise or discharge an Agency Claim of either Principal
without the prior written consent of such Principal;
(d) the Agent shall immediately remit to a Principal all monies
or property it receives from PE or any third party that
were paid or delivered to it as payment (in whole or in
part) of an Agency Claim of such Principal; and
(e) the Agent shall keep each Principal apprised on a current
basis of all developments regarding a pending Agency Claim
of such Principal.
1.3.3 Each Principal shall reimburse all of TPH's reasonable and
documented out-of-pocket costs and expenses incurred in the performance of its
duties as Agent for such Principal (including, without limitation, reasonable
attorneys' fees) ("Agent Expenses"). Agent Expenses shall be billed no more
frequently than monthly and shall be payable by each Principal within ten
Business Days of billing. Each Principal shall have the right to request
reasonably detailed substantiation of any Agent Expense billed to such
Principal and the purpose for which it was incurred. In addition, each
Principal shall indemnify and hold the Agent and its directors, officers,
shareholders, agents and representatives harmless from and against any and all
losses, damages, liabilities, claims, demands, judgments and settlements of any
nature resulting from or arising out of its conduct as Agent for such Principal
("Agent Losses"). Notwithstanding the foregoing, however, neither Principal
shall have any reimbursement or indemnification obligation to the extent that
an Agent Expense or an Agent Loss relating to such Principal is determined, by
agreement between the Agent and such Principal or by arbitration pursuant to
Article 3 of this Agreement, to have been caused by the Agent's gross
negligence or willful misconduct.
1.3.4 TPH shall indemnify and hold harmless each Principal and its
directors, officers, shareholders, agents and representatives from and against
any and all losses, damages, liabilities, claims, demands, judgments,
settlements, costs and expenses of any nature resulting from or arising out of
any action taken by it as Agent for such Principal without prior written
authorization from, or in violation of written instructions received from, such
Principal or otherwise in violation of the terms of the agency created by this
Section 1.2 ("Principal Losses") to the extent that a Principal Loss of either
Principal is determined, by agreement between the Agent and such Principal or
by arbitration pursuant to Article 3 of this Agreement, to have been caused by
the Agent's gross negligence or willful misconduct.
1.3.5 In the event of any dispute between or among any two or
more of the Parties as to the appropriate allocation of out-of-pocket costs and
expenses or losses,
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damages, liabilities, claims, demands or settlements, in any case incurred in
connection with their respective Party Claims (collectively "Claim Costs"),
such dispute shall be determined by mutual agreement between the applicable
Parties or, if they are unable to agree within thirty days of any Party giving
written notice under this Agreement of its desire to engage in negotiations
over the allocation of such Claim Costs, by arbitration pursuant to Article 3
of this Agreement.
1.4 Payment of PE Indemnification Claims. Without limiting Section
1.3.4 of this Agreement, but subject to Section 1.6 of this Agreement, TPH
shall have no obligation to make any payment from its own funds to either
Principal in respect of any of such Principal's Party Claims and such
Principal's sole remedy in respect thereof shall be to pursue such Party Claims
directly against PE (or its successors and assigns) through TPH as Agent.
Without limiting Section 1.2.3 of this Agreement, neither Principal shall have
any obligation to make any payment from its own funds to TPH in respect of
TPH's Party Claims and TPH's sole remedy in respect thereof shall be to pursue
such Party Claims directly against PE (or its successors or assigns).
1.5 Notice of Certain Matters. Without limiting the Agent's
obligations under Section 1.3.2(e) of this Agreement, each Party shall give the
other Parties prompt written notice of the assertion and disposition of Party
Claims and keep the other Parties promptly apprised of material developments
with respect thereto, subject to its right to preserve the attorney/client and
other privileges. However, no failure by any Party to comply with its
obligations under this Section 1.5 shall impair its rights under this
Agreement.
1.6 Certain Effects of Amendatory Agreement. Each of the Parties
acknowledges that, pursuant to the Amendatory Agreement, certain claims that
would or might otherwise have been PE Indemnification Claims have been
irrevocably waived and released in favor of PE and, as a result, do not
constitute Gart Claims or MC Claims for the purposes of, and will not give rise
to Indemnification Re-Allocation Claims under, this Agreement. No Party shall
have any rights or remedies against any other Party, under this Agreement or
otherwise, as a result of the execution, delivery or performance of the
Amendatory Agreement by TPH, all of which rights and remedies (if any) are
hereby fully and irrevocably waived and released.
ARTICLE 2
PROVISIONS RELATING TO INDEMNIFICATION RE-ALLOCATION CLAIMS
2.1 General Provisions.
2.1.1 It is not the intention of the Parties that any of them
should be substituted for PE as indemnitor vis-a-vis the others or otherwise be
subject to unlimited liability with respect to any Indemnification
Re-Allocation Claim either of the others may have. Rather, it is their
intention that, except for the provisions for re-allocation of Final PE
Recoveries expressly set forth in this Article 2 and the provisions of Article
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Implementation Agreement, none of them should have any recourse against either
of the others, any subsidiary of either of the others or any director, officer,
shareholder, agent or representative of either of the others or either of the
others' respective subsidiaries solely on the basis that an otherwise-valid
claim against PE is precluded by a Maximum PE Claim Limitation.
2.1.2 In order to give effect to the re-allocation provisions of
this Article 2, the Parties shall establish an intercompany account (the
"Intercompany Indemnity Re-Allocation Account"). Each Party shall designate
from time to time one of its officers to collaborate with the other Parties'
designated officers for the purpose of documenting all transactions in the
Intercompany Indemnity Re-Allocation Account and verifying the accuracy thereof
on a periodic basis.
2.1.3 The only amounts which shall be subject to re-allocation
pursuant to this Article 2 shall be Final PE Recoveries. TPH shall notify the
other Parties of the receipt of Final PE Recoveries and of the identity of the
Party with respect to whose Party Claim such Final PE Recoveries were received,
which information shall be recorded in the Intercompany Indemnity Re-Allocation
Account.
2.1.4 In the event that any Party, pursuant to this Article 2,
wishes to assert an Indemnification Re-Allocation Claim, it shall give notice
to the other Parties of such Indemnification Re-Allocation Claim, setting forth
with reasonable particularity the basis therefor, and shall, without having to
waive any attorney/client or other privilege and subject to its right to
require reasonable protection with respect to confidential information and any
confidentiality obligations it may have under applicable law or contracts to
which it is a party, furnish to the other Parties such additional information
about the nature, basis and value of Indemnification Re-Allocation Claim as the
other may reasonably request. All defenses which would have been available to
PE (other than the preclusive effect of the applicable Maximum PE Claim
Limitation) shall be available to any Party in any dispute involving an
Indemnification Re-Allocation Claim by either of the other Parties.
2.1.5 Upon the resolution, as between the Parties, of any
Indemnification Re-Allocation Claim, by agreement or arbitration, if the outcome
of such resolution is that a reallocation of any Final PE Recoveries is
required an appropriate entry shall be made in the Intercompany Indemnity
Re-Allocation Account. Subject to Section 2.1.6 of this Agreement, all amounts
which any Party may owe to the other Parties as a result of the resolution of
Indemnification Re-Allocation Claims shall be netted against each other on the
last day of each calendar quarter and whichever Party is determined to owe
either of the other Parties any amount as a result of such calculation shall
pay the amount within ten Business Days.
2.1.6 Notwithstanding any other provision of this Article 2, no
Party shall be required to make any payment to either of the other Parties in
respect of any Indemnification Re-Allocation Claims unless and until the
aggregate of all Indemnification Re-Allocation
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Claims which have been resolved adversely to that Party and which, but for this
Section 2.1.6, would have resulted in an obligation of that Party to pay any
amount to such other Party under Section 2.1.5 of this Agreement, exceeds
$75,000 (the "Minimum ReAllocation Claim Amount"). However:
(a) the foregoing requirement relating to the Minimum
Re-Allocation Claim Amount shall not toll any statutory,
contractual or equitable statute of limitation or other
time bar relating to the initial assertion of an
Indemnification Re-Allocation Claim by any Party against
either of the other Parties pursuant to Section 2.1.4 of
this Agreement nor prevent any Party from asserting or
prosecuting against either of the other Parties to final
resolution an Indemnification Re-Allocation Claim;
(b) all recoveries to which any Party becomes entitled, but for
the Minimum Re-Allocation Claim Amount, as a result of the
resolution of an Indemnification Re-Allocation Claim shall
be recorded in the Intercompany Indemnity Re-Allocation
Amount; and
(c) once such recoveries of any Party exceed the Minimum
Re-Allocation Claim Amount, that Party shall be entitled,
as soon as payment becomes due from either of the other
Parties pursuant to Section 2.1.5 of the Agreement, to be
paid the full amount of the recoveries to which it has
become entitled, not only the portion thereof in excess of
the Minimum Re-Allocation Claim Amount.
2.2 Entitlement to Assert Indemnification Re-Allocation Claims
2.2.1 Subject to the other provisions of this Article 2, any Party
shall be entitled to assert all of its Indemnification Re-Allocation Claims
against the other Parties, including Potential Indemnification Re-Allocation
Claims.
2.2.2 Notwithstanding any other provision of this Article 2, to
the extent that the subsequent adverse disposition of one or more PE
Indemnification Claims pending against PE, and being disputed by it, at the
time any Party asserts against either of the other Parties a Potential
Indemnification Re-Allocation Claim results in the subject matter of such
Potential Indemnification Allocation Claim becoming eligible to the asserted as
a PE Indemnification Claim against PE:
(a) such Party shall cease to be entitled to pursue such
Potential Indemnification Re-Allocation Claim against
either of the other Parties;
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(b) if such Potential Indemnification Re-Allocation Claim has
by then been resolved in favor of the claimant Party, the
entry in the Intercompany Indemnification Re-Allocation
Account reflecting such resolution shall be reversed and
any payment made to the claimant Party on account thereof
by either of other Parties shall be immediately repaid; and
(c) such Potential Indemnification Re-Allocation Claim may not
thereafter be reasserted against either of the other
Parties (although the foregoing shall not impair the
claimant Party's right to assert any other Indemnification
Re-Allocation Claim against either of the other Parties to
the extent otherwise permitted by this Article 2).
2.3 Calculation of Re-Allocations of Final PE Recoveries
2.3.1 Whenever a re-allocation is required with respect to Final
PE Recoveries under Sections 2.1 and 2.2 of this Agreement as a result of the
resolution in favor of the claimant Party of an Indemnification Re-Allocation
Claim (a "Re-Allocable Claim"), the amount of the re-allocation shall be
calculated on the following basis:
(a) First: a determination shall be made as to which Maximum PE
Claim Limitation precluded (or potentially precludes) the
assertion of such Indemnification Re-Allocation Claim
directly against PE as a PE Indemnification Claim.
(b) Second: all Final PE Recoveries theretofore realized with
respect to TPH Claims shall be aggregated with all
re-allocations to which TPH has theretofore become entitled
in respect of previously-asserted and resolved Potential
Indemnification Re-Allocation Claims which have not been
reversed under Section 2.2.3 of this Agreement.
(c) Third: all Final PE Recoveries theretofore realized with
respect to Gart Claims shall be aggregated with all
re-allocations to which GSC has theretofore become entitled
in respect of previously-asserted and resolved
Indemnification Re-Allocation Claims which have not been
reversed under Section 2.2.3 of this Agreement.
(d) Fourth. all Final PE Recoveries theretofore realized with
respect to MC Claims shall be aggregated with all
re-allocations to with MCSC has theretofore become entitled
in respect of previously-asserted and resolved
Indemnification Re-Allocation Claims which have not been
reversed under Section 2.2.3 of this Agreement.
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(e) Fifth: The amount of the Re-Allocable Claim shall be added
to the aggregate amount determined with respect to the
successful claimant under (b) and/or (c) and/or (d), as
applicable.
(f) Sixth: the aggregate amounts determined under (b) and/or
(c) and/or (d), as applicable, with respect to the
non-claimant shall be added together and aggregated with
the amount determined under (e).
(g) Seventh: the amount determined under (e) shall be divided
by the total amount determined with respect to the
successful claimant under (f) to determine the total amount
of the successful claimant's resolved Indemnification
Claims as a percentage of the total amount of all resolved
Indemnification Claims.
(h) Eighth: the percentage determined under (g) shall be
multiplied by the amount of the applicable Maximum PE Claim
Limitation determined under (a).
(i) Ninth: to the extent that the amount determined under (h)
exceeds the actual amount of Final PE Recoveries
theretofore realized and attributable to the successful
claimant under Section 1.1 of this Agreement, such excess
shall constitute the amount of the re- allocation required
as a result of the Re-Allocable Claim and the successful
claimant shall be entitled to receive, in accordance with
Section 2.1.5 of this Agreement, a payment from one or both
of the other Parties.
(j) Tenth: the portion of the payment due to the successful
claimant under (i) that is payable by each of the other
Parties shall be calculated according to the following
formula:
A equals X divided by Y where:
A is the total amount of such payment;
X is the amount calculated under (b), (c) or
(d), as the case may be, with respect to
each of the other Parties; and
Y is the aggregate of the amounts calculated
under ((b) plus (c)) or ((b) plus (d)) or
((c) plus (d)), as the case may be, with
respect to both of the other Parties.
2.3.2 For illustrative purposes only, the following examples of
the calculation specified in Section 2.3.1 of this Agreement are set forth
below:
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FIRST EXAMPLE
(a) The applicable Maximum PE Claim Limitation is the general
$25,000,000 limitation specified in Section 5.5(b) of the
Thrifty Agreement.
(b) Final PE Recoveries of $12 million have heretofore been
realized with respect to TPH Claims and no Indemnification
Re-Allocation Claims have been made by TPH.
(c) Final PE Recoveries of $8 million have heretofore been
realized with respect to Gart Claims and no Indemnification
Re-Allocation Claims have been made by it GSC.
(d) Final PE Recoveries of $5 million have heretofore been
realized with respect to MC Claims and no Indemnification
Re-Allocation Claims have been made by MCSC except for the
Re-Allocable Claim that is the subject of this example,
which is in the amount of $3 million.
(e) The sum of the Re-Allocable Claim and the Final PE
Recoveries attributable to MC Claims is $8 million.
(f) The total amounts determined under (b), (c) and (e) is $28
million.
(g) The amount determined under (e) (namely $8 million),
divided by the total amount determined under (f) (namely
$28 million) computes to a percentage of 28.57%.
(h) 28.57% of the applicable Maximum PE Claim Limitation of $25
million equals $7,142,500.
(i) $7,142,500 exceeds the Final PE Recoveries of $5 million
attributable to MC Claims by $2,142,500.
(j) To determine what portion of $2,142,500 is due to MCSC from
TPH and GSC, the following calculation must be made:
TPH multiply $2,142,500 by 0.6 (i.e., $12 million (the
amount under (b)) divided by $20 million (the aggregate
of the amounts under (b) and (c)), yielding an amount
of $1,285,500; and
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GSC multiply $2,142,500 by 0.4 (i.e., $8 million (the
amount under (b)) divided by $20 million (the
aggregate of the amounts under (b) and (c)), yielding
an amount of $857,000.
Accordingly, subject to possible further re-allocations
pursuant to this Article 2, an entry shall be made in the
Intercompany Re-Allocation Account to reflect MCSC's
entitlement, at the next payment date applicable under
Section 2.1.5 of this Agreement, to be paid $1,285,500 by
TPH and $857,000 by GSC.
SECOND EXAMPLE
(a) The applicable Maximum PE Claim Limitation is the
$40,000,000 limitation specified in Section 5.5(b) of the
Thrifty Agreement.
(b) Final PE Recoveries of $12 million have heretofore been
realized with respect to TPH Claims and no Indemnification
Re-Allocation Claims have been made by TPH except for the
Re-Allocable Claim that is the subject of this example,
which is $8 million.
(c) Final PE Recoveries of $20 million have heretofore been
realized with respect to Gart Claims and no Indemnification
Re-Allocation Claims have been made by GSC.
(d) Final PE Recoveries of $8 million have heretofore been
realized with respect to MC Claims and no Indemnification
Re-Allocation Claims have been made by MCSC.
(e) The sum of the Re-Allocable Claim and the Final PE
Recoveries attributable to TPH Claims is $20 million.
(f) The total amounts determined under (c), (d) and (e) is $48
million.
(g) The amount determined under (e) (namely $20 million),
divided by the total amount determined under (f) (namely
$48 million) computes to a percentage of 41.67%.
(h) 41.67% of the applicable Maximum PE Claim Limitation of $40
million equals $16,668,000.
(i) $16,668,000 exceeds the Final PE Recoveries of $12 million
attributable to TPH Claims by $4,668,000.
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(j) To determine what portion of $4,668,000 is due to TPH from
GSC and MCSC, the following calculation must be made:
GSC multiply $4,668,000 by 0.71 (i.e., $20 million (the
amount under (c)) divided by $28 million (the aggregate of
the amounts under (c) and (d)), yielding an amount of
$3,314,280; and
MCSC multiply $4,668,000 by 0.29 (i.e., $8 million (the
amount under (d)) divided by $28 million (the aggregate of
the amounts under (c) and (d)), yielding an amount of
$1,353,720.
Accordingly, subject to possible further re-allocations
pursuant to this Article 2, an entry shall be made in the
Intercompany Re-Allocation Account to reflect TPH's
entitlement, at the next payment date applicable under
Section 2.1.5 of this Agreement, to be paid $3,314,280 by
GSC and $1,353,720 by MCSC.
2.3.3 In the event that Final PE Recoveries are realized with
respect to a PE Indemnification Claim which is, or is claimed by any Party to
be, attributable to Party Claims of more than one Party, the allocation of such
Final PE Recoveries between or among TCH Claims, Gart Claims and MC Claims,
respectively, shall be as determined by mutual agreement between or among the
interested Parties or, if they are unable to agree within thirty days of any
Party giving written notice under this Agreement of its desire to engage in
negotiations upon the allocation of such Final PE Recoveries, by arbitration
pursuant to Article 3 of this Agreement.
ARTICLE 3
ARBITRATION
3.1 Agreement to Arbitrate Disputes.
3.1.2 Subject to Section 3.1.2 of this Agreement, any and all
disputes between or among any two or all of the Parties arising out of or
relating to a claim by any Party against either or both of the other Parties
pursuant to this Agreement shall be finally settled by arbitration in the City
of Los Angeles, California in accordance with the Commercial Arbitration Rules
of the American Arbitration Association then in effect (except as otherwise
specified below in this Article 3), and judgment upon the award rendered by the
Arbitrator(s) may be entered in any court having jurisdiction thereof. The
Parties hereby submit to the in personam jurisdiction of the Superior Court of
the State of California for purposes of confirming any such award and entering
judgment thereon.
3.1.2 Notwithstanding Section 3.3.1 of this Agreement, no Party
may initiate any arbitration under this Article 3 more frequently than once in
any twelve-month period measured from the date of this Agreement and subsequent
anniversaries thereof, and all
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claims and disputes then pending between the applicable Parties and covered by
said Section 3.3.1 shall be consolidated and arbitrated in a single arbitration
proceeding; provided, however, that any Party may initiate any arbitration
under this Article 3 at any time when either (i) such Party seeks arbitration
with respect to one or more claims or disputes which, individually or in the
aggregate, involve at least $1 million, as determined by a signed certification
accompanying its notice of intent to arbitrate and setting forth its good faith
estimate of the aggregate amount of such claim(s) or dispute(s) and the basis
for such estimate, or (ii) such Party's ability effectively to present its case
could be materially adversely affected by any delay in the initiation of such
arbitration and such Party so states in a signed certification accompanying its
notice of intent to arbitrate and setting forth the nature of such material
adverse effect.
3.2 Certain Rules Governing Arbitration. Notwithstanding anything to
the contrary which may now or hereafter be contained in the Commercial
Arbitration Rules of the American Arbitration Association:
3.2.1 Any arbitration under this Article 3 shall be conducted
before one or more arbitrators (an "Arbitrator"). Arbitrators shall be
compensated for their services at a rate to be determined by the American
Arbitration Association in the event the Parties participating in such
arbitration are not able to agree upon the rate of compensation. Arbitrators
shall be chosen in accordance with the following provisions:
(a) In the event the Parties participating in such arbitration
agree on the designation of a single Arbitrator within ten
Business Days from the date when the Party initiating an
arbitration files and delivers a notice of intent to
arbitrate, such arbitration shall be conducted by such
single Arbitrator.
(b) In the event the Parties participating in such arbitration
fail to agree upon the designation of a single Arbitrator
within the period of the ten Business Days specified in
Section 3.2.1(a) of this Agreement, then: (i) each Party
participating in such arbitration shall have the right,
within a further period of ten Business Days, to designate
one Arbitrator and if, within such period, any such Party
has failed to appoint an Arbitrator, the American
Arbitration Association shall make the appointment; and
(ii) in the event only two Arbitrators are designated
pursuant to clause (ii) above, such arbitrators shall agree
upon and designate a third Arbitrator within five Business
Days from the date of the designation of the
later-designated of such two Arbitrators and if they fail
to do so the American Arbitration Association shall appoint
the third Arbitrator.
3.2.2 In any arbitration proceedings under this Article 3:
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(a) all testimony of witnesses shall be taken under oath;
(b) it is specifically contemplated and agreed by the Parties
that the provisions of Section 1283.05 of the California
Code of Civil Procedure, as presently in force, be
incorporated into and made a part of, and be applicable to,
the arbitration agreement set forth in this Article 3;
(c) without limiting the generality of Section 3.2.2(c) of this
Agreement, no Party participating in such arbitration shall
object to the issuance of orders by the Arbitrator(s)
granting access to relevant books and records of PE and
compelling relevant testimony from PE to the extent such
orders are permissible under said Section 1283.05 and the
relevant information is not otherwise available to the
applicable Party; and
(d) upon conclusion of any arbitration proceedings under this
Article 3, the Arbitrator(s) shall render findings of fact
and conclusions of law in a written opinion setting forth
the basis and reasons for any decision reached and deliver
such documents to each Party participating in such
arbitration along with a signed copy of the award in
accordance with Section 1283.6 of the California Code of
Civil Procedure.
3.3 Certain Powers of Arbitrators.
3.3.1 Arbitrators shall have the power to issue any award, and
order any relief, which they adjudge appropriate to give effect to their
findings as to the purpose of this Agreement and to effect a fair and equitable
resolution of the dispute. However, they shall not have the power to award any
punitive damages and the limitations set forth on their powers in Sections
3.3.2 and 3.4.2 shall also apply.
3.3.2 Arbitrators shall not have the power to alter, amend or
otherwise affect the provisions of this Article 3.
3.4 Costs of Arbitration.
3.4.1 The prevailing Party shall be entitled to recover all costs
incurred in preparation for and as a result of any arbitration pursuant to this
Article 3, including without limitation filing fees, attorneys' fees, the
compensation to be paid to the Arbitrator(s) in any such arbitration and costs
of transcripts. In the event that both of the other Parties participated in
such arbitration, such costs shall be divided between them as determined by the
Arbitrator(s) or, in the absence of any such determination, equally.
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3.4.2 In an award of any such costs, Arbitrators shall not have power
or competence to allocate between the Parties expenses, fees or shares of
Arbitrators' compensation except as provided in Section 3.4.1 of this
Agreement.
ARTICLE 4
EFFECT OF IMPLEMENTATION AGREEMENT
4.1 Acknowledgment of Implementation Agreement. Each of the Parties
acknowledges the fact that TPH and United Merchandising Corp., a California
corporation ("UMC") that is the successor by merger to Big 5 Holdings, Inc., a
Delaware corporation, are parties to an Amended and Restated Indemnification
Implementation Agreement dated as of the date hereof (the "Implementation
Agreement") which implements and supplements, as between TPH and UMC, the
provisions of the Acquisition Agreements relating to PE Indemnification Claims
and makes no distinction between TPH Claims, Gart Claims and MC Claims, all of
which constitute PE Indemnification Claims of TPH for purposes of the
Implementation Agreement and are therefore aggregated with the PE
Indemnification Claims of UMC for purposes of the Minimum PE Claim Amount and
the Maximum PE Claim Limitations. Except as otherwise provided in this Article
4, the rights and obligations of the Parties under this Agreement shall not be
affected or impaired by the rights and obligations of TPH and UMC under the
Implementation Agreement.
4.2 Effect of Payments by TPH to UMC. Notwithstanding any other
provision of this Agreement, in the event that TPH is required to make any
payment to UMC under Article 2 of the Implementation Agreement and such payment
is calculated on a basis which takes into account Final PE Recoveries received
by TPH in respect of PE Indemnification Claims that constitute Gart Claims or
MC Claims for purposes of this Agreement, TPH shall be entitled (irrespective
of the provisions of Article 2 of this Agreement) to retain amounts then held
by it that would otherwise be payable to GSC or MCSC, as the case may be, under
any provision of this Agreement, and immediately to recover from GSC or MCSC,
as the case may be, any amounts that have previously been paid by it to GSC or
MCSC, as the case may be, under any provision of this Agreement to the extent
necessary to avoid TPH incurring a financial loss as a result of its compliance
with the Implementation Agreement in connection with such Final PE Recoveries.
4.3 Effect of Payments by UMC to TPH. To the extent that, as against
UMC, TPH has a right to seek re-allocation under Section 2 of the
Implementation Agreement in respect of claims that constitute "Indemnification
Re-Allocation Claims" for purposes of the Implementation Agreement and also
constitute Gart Claims or MC Claims for purposes of this Agreement: (a) TPH
shall pursue such right to re-allocation as the agent of GSC or MCSC, as the
case may be; (b) the provisions of Article 1 of this Agreement shall apply to
such agency to the same extent and on the same terms as they apply to the
activities of TPH as agent for GSC or MCSC, as the case may be, in pursuing PE
Indemnification Claims against PE; and (c) all amounts recovered by TPH from
UMC with respect to such
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Gart Claims or MC Claims, as the case may be, shall for all purposes of this
Agreement be treated in the same way as Final PE Recoveries.
ARTICLE 5
MISCELLANEOUS
5.1 Notices. All notices and other communications under this Agreement
shall be in writing and shall be deemed given upon receipt if delivered
personally or sent by facsimile transmission (receipt of which is confirmed) or
by courier service promising overnight delivery (with delivery confirmed the
next day) or three Business Days after deposit in the U.S. Mails, first class
postage prepaid. Notices to any Party shall be addressed as follows:
To TPH: Thrifty PayLess Holdings, Inc.
0000 XX Xxxxxx Xxxx
Xxxxxxxxxxx, Xxxxxx 00000
Attention: Chief Financial Officer
Facsimile: (000) 000-0000
To GSC: Gart Sports Company
0000 Xxxxxxxx
Xxxxxx, Xxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxx
Secretary
Facsimile: (000) 000-0000
To MCSC: MC Sports Company
0000 Xxxxxxx Xxxx, X.X.
Xxxxx Xxxxxx, Xxxxxxxx 00000
Attention: Xxxxx X. Xxxxxx
President
Chief Executive Officer and Secretary
Facsimile: (000) 000-0000
In Each Case
With Copies To: Xxxxxxx Xxxxx & Partners
000 Xxxxx Xxxxx Xxxxxx
Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxxx X. Xxxxxxxx
Facsimile: (000) 000-0000
and
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Irell & Xxxxxxx
000 Xxxxx Xxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxxx, Esq.
Facsimile: (000) 000-0000
Any Party may from time to time change its address for the purpose of notices
by a similar notice specifying the new address but no such change shall be
effective as against any other Party until such other Party shall have actually
received it.
5.2 Entire Agreement. This Agreement (including the Glossary) contains
the entire agreement between the Parties with respect to the subject matter of
this Agreement and supersedes all written or verbal representations,
warranties, commitments and other understandings prior to the date of this
Agreement.
5.3 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
5.4 Severability. If any provision of this Agreement shall be held to
be, or shall hereafter become, unenforceable or invalid by any court of
competent jurisdiction or as a result of future legislative action, such
holding or action shall be strictly construed and shall not alter the
enforceability, validity or effect of any other provision hereof.
5.5 Assignability. This Agreement shall be binding upon and shall
inure to the benefit of the successors and assigns of the Parties. However,
neither this Agreement nor any right or obligation hereunder may be assigned by
any Party without the prior written consent of the other.
5.6 Captions. The descriptive headings herein are inserted for
convenience only and are intended to be part of or to affect the meaning or
interpretation of this Agreement.
5.7 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of California without regard to any
principles of conflict of laws.
5.8 Amendment and Waiver. This Agreement may be amended, modified or
supplemented only by an instrument in writing signed by all Parties. No waiver
by any Party of any of the provisions of this Agreement shall be effective
unless set forth in writing and executed by the Party so waiving.
5.9 Confidentiality. Each Party shall maintain, and instruct its
agents and representatives to maintain, as confidential information both the
existence and terms of this Agreement except to the extent that such
information (a) was known by a third party
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recipient when received, (b) is or hereafter becomes lawfully obtainable from
other sources, (c) as may otherwise be required by law or (d) to the extent
such duty as to confidentiality is waived in writing by the other Party;
provided, however, that (i) the existence and terms of this Agreement may be
made to the "Lender Parties" as defined in the Credit Agreement dated as of the
date hereof among TPI and the other parties set forth therein, and (ii) the
existence of this Agreement may be made known to UMC and PE.
* * * * * *
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IN WITNESS WHEREOF, the Parties have caused this Agreement to be
signed by their respective officers therewith duly authorized as of the date
first written above.
THRIFTY PAYLESS HOLDINGS, INC. GART SPORTS COMPANY
By: By:
-------------------------------- -------------------------------
Name: Name:
Title: Title:
MC SPORTS COMPANY
By:
--------------------------------
Name:
Title:
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GLOSSARY
Each capitalized term used and not defined in this Agreement shall
have the meaning set forth below or, in the case of a capitalized terms not
listed below, the meaning set forth in the Thrifty Agreement, and in each case
shall include the plural as well as the singular.
"ACQUISITION AGREEMENTS" means the Big 5 Agreement and the Thrifty
Agreement.
"AMENDATORY AGREEMENT" means the Agreement and Release dated as of
Xxxxx 00, 0000 xxxxx XX, XXX, XXX and UMC.
"AGENCY CLAIM" has the meaning set forth in Section 1.3.2(a) of this
Agreement.
"AGENT" has the meaning set forth in Section 1.2.1 of this Agreement.
"AGENT EXPENSES" has the meaning set forth in Section 1.2.4 of this
Agreement.
"AGENT LOSSES" has the meaning set forth in Section 1.2.4 of this
Agreement.
"ARBITRATOR" has the meaning set forth in Section 3.2.1 of this
Agreement.
"BIG 5 AGREEMENT" means the Purchase and Sale Agreement dated as of
May 22, 1992 by and between Big 5 Holdings, Inc., a Delaware corporation, PE
and Thrifty Corporation, a California corporation, as amended (including
pursuant to the Amendatory Agreement) through and including the date of this
Agreement and as affected and interpreted (other than by way of amendment) by
the Amendatory Agreement).
"DISTRIBUTION" has the meaning set forth in Recital (A) to this
Agreement.
"CLAIM COSTS" has the meaning set forth in Section 1.3.5 of this
Agreement.
"FINAL PE RECOVERIES" means amounts which TPH has recovered from PE in
respect of TPH Claims, Gart Claims or MC Claims and as to which any dispute
with PE has been finally resolved by arbitration, agreement or the preclusive
effect of any statutory, contractual or equitable statute of limitation or time
bar.
"GART" means Gart Bros. Sporting Goods Distributors, Inc., a Colorado
corporation which is a wholly-owned subsidiary of GSC.
"GART CLAIM" means a PE Indemnification Claim arising under Article 5
of the Thrifty Agreement by reason of any breach of representation, warranty or
covenant of PE in the Thrifty Agreement relating to Gart.
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"IMPLEMENTATION AGREEMENT" has the meaning set forth in Section 4.1 of
this Agreement.
"INDEMNIFICATION CLAIM" means an Indemnification Re-Allocation Claim
and a PE Indemnification Claim.
"INDEMNIFICATION RE-ALLOCATION CLAIM" means a claim which one Party
has against either of the other Parties, the sole remedy for which is
re-allocation of Final PE Recoveries under Article 2 of this Agreement, to
assert a claim (or a portion of a claim) which would be assertable against PE
as a PE Indemnification Claim but for the fact that such assertion is precluded
by a Maximum Claim Limitation. A claim which is precluded from assertion
against PE by any other bar, including, without limitation, any statutory,
contractual or equitable statute of limitation or time bar, shall not
constitute an Indemnification ReAllocation Claim. A Potential Indemnification
Re-Allocation Claim shall constitute an Indemnification Re-Allocation Claim.
"INTERCOMPANY INDEMNITY RE-ALLOCATION ACCOUNT" has the meaning set
forth in Section 2.1.2 of this Agreement.
"KMART" has the meaning set forth in Recital (A) of this Agreement.
"MAXIMUM PE CLAIM LIMITATION" means, with respect to any claim for
indemnification that would otherwise be a PE Indemnification Claim, the
limitation on the aggregate amount of claims of that category for which PE is
required to provide indemnification under Article 5 of the Thrifty Agreement
that is applicable under Section 5.5 of the Thrifty Agreement (as made
applicable to the Big 5 Agreement by Section 5.5(b) thereof).
"MC" means Michigan Sporting Goods Distributors, Inc., a Michigan
corporation which is a wholly-owned subsidiary of MCSC.
"MC CLAIM" means a PE Indemnification Claim arising under Article 5 of
the Thrifty Agreement by reason of any breach of representation, warranty or
covenant of PE in the Thrifty Agreement relating to MC.
"MINIMUM RE-ALLOCATION CLAIM AMOUNT" has the meaning set forth in
Section 2.1.6 of this Agreement.
"MINIMUM PE CLAIM AMOUNT" means the amount of $1,500,000 specified in
Section 5.5(a) of the Thrifty Agreement and Section 5.5(a)(i) of the Big 5
Agreement (in each case, as amended by Section 4(d) of the Amendatory
Agreement) as the minimum aggregate amount of PE Indemnification Claims which
must be exceeded before PE is required to indemnify either TPH under Article 5
of the Thrifty Agreement or UMC under Article 5 of the Big 5 Agreement.
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"PARTY" means any of TPH, GSC or MCSC as a party to this Agreement.
"PARTY CLAIM" means a Gart Claim, an MC Claim or a TPH Claim.
"PE" means Pacific Enterprises, a California corporation.
"PE INDEMNIFICATION CLAIM" means a claim arising against PE either (i)
by TPH under Article 5 of the Thrifty Agreement or (ii) by UMC under Article 5
of the Big 5 Agreement, but does not, under either clause (i) or clause (ii) of
this definition, include an Indemnification Re-Allocation Claim.
"POTENTIAL INDEMNIFICATION RE-ALLOCATION CLAIM" means a claim (or a
portion of a claim): (i) the assertion of which against PE under the Thrifty
Agreement is potentially precluded by a Maximum PE Claim Limitation as a result
of the aggregate amount of all other PE Indemnification Claims of TPH and UMC
which are subject to the same applicable Maximum PE Claim Limitation and which
are pending against PE and being disputed by it at the time the status of such
claim is required to be determined under Article 2 of this Agreement; but (ii)
which has not by then become definitively precluded by such Maximum PE Claim
Limitation because the final resolution of such pending PE Indemnification
Claims has not yet occurred. However: (a) no such claim (or portion of a claim)
is a Potential Indemnification Re-Allocation Claim during any period when it is
in fact being asserted against PE; and (b) no claim of TPH arising under
Section 5.2(c) of the Thrifty Agreement shall constitute a Potential
Indemnification Re-Allocation Claim.
"PRINCIPAL" has the meaning set forth in Section 1.3.1 of this
Agreement.
"PRINCIPAL LOSSES" has the meaning set forth in Section 1.2.5 of this
Agreement.
"RE-ALLOCABLE CLAIM" has the meaning set forth in Section 2.3.1 of
this Agreement.
"THRIFTY AGREEMENT" means the Purchase and Sale Agreement dated as of
May 22, 1992 by and between TPH and PE, as amended (including pursuant to the
Amendatory Agreement) through and including the date of this Agreement and as
affected and interpreted (other than by way of amendment) by the Amendatory
Agreement.
"TPH CLAIM" means a PE Indemnification Claim arising under Article 5
of the Thrifty Agreement (and not under Article 5 of the Big 5 Agreement
notwithstanding that TPH has been appointed as UMC's agent under said Article 5
to pursue PE Indemnification Claims arising in favor of UMC thereunder) other
than a Gart Claim or an MC Claim.
"TPI" means Thrifty PayLess, Inc. (formerly Thrifty Holdings, Inc.), a
Delaware corporation.
"UMC" has the meaning set forth in Section 4.1 of this Agreement.
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