Exhibit 2.1
DISTRIBUTION AGREEMENT
between
PRICE ENTERPRISES, INC.
and
PRICESMART, INC.
dated as of
__________, 1997
DISTRIBUTION AGREEMENT
This DISTRIBUTION AGREEMENT (this "Agreement") is made as of this ___
day of __________, 1997 between Price Enterprises, Inc., a Delaware corporation
("PEI"), and PriceSmart, Inc., a Delaware corporation and wholly-owned
subsidiary of PEI ("SpinCo").
RECITALS
WHEREAS, PEI, directly and through subsidiaries, (i) acquires,
develops and owns certain real estate assets, including shopping centers and
power centers leased to major retail tenants (as more specifically defined
herein, the "Retained Business"), (ii) holds certain other real estate-related
assets (as more specifically defined herein, the "Other Real Estate Assets"),
(iii) holds certain notes issued in connection with loans to municipalities,
agencies and other entities (as more specifically defined herein, the "Notes"),
and (iv) operates certain merchandising businesses and programs (the
"Merchandising Business," and together with the Other Real Estate Assets and the
Notes, the "SpinCo Business");
WHEREAS, the Board of Directors of PEI has determined that it is in
the best interests of PEI and the stockholders of PEI to separate the Retained
Business and the SpinCo Business and, in order to effect such separation, to
transfer to SpinCo the stock of certain PEI subsidiaries principally engaged in
the SpinCo Business and certain other assets relating principally to the SpinCo
Business (the "Asset Transfers"), and thereafter to distribute all of the
outstanding shares of common stock, par value $.0001 per share, of SpinCo to the
holders of PEI common stock (the "Distribution"); and
WHEREAS, in connection with the Distribution, PEI and SpinCo have
determined that it is necessary and desirable to set forth the principal
corporate transactions required to effect the Asset Transfers and the
Distribution, and to set forth the agreements that will govern certain matters
following the Distribution.
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained in this Agreement, the parties hereby agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.011 GENERAL. As used in this Agreement, the following
terms shall have the following meanings:
ACTION: Any action, claim, suit, arbitration, inquiry, proceeding or
investigation by or before any court, any governmental or other regulatory or
administrative agency or commission or any arbitration tribunal.
AFFILIATE: With respect to any specified Person, any other Person
directly or indirectly controlling or controlled by, or under direct or indirect
common control with, such specified Person. For purposes of this definition,
"control," when used with respect to any Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" shall have meanings correlative to the foregoing.
Notwithstanding the foregoing, (i) the Affiliates of PEI shall not include
SpinCo, the SpinCo Subsidiaries or any other Person which would be an Affiliate
of PEI by reason of PEI's ownership of the capital stock of SpinCo prior to the
Distribution or the fact that any officer or director of SpinCo or any of the
SpinCo Subsidiaries shall also serve as an officer or director of PEI or any of
the Retained Subsidiaries, and (ii) the Affiliates of SpinCo shall not include
PEI, the Retained Subsidiaries or any other Person which would be an Affiliate
of SpinCo by reason of PEI's ownership of the capital stock of SpinCo prior to
the Distribution or the fact that any officer or director of SpinCo or any of
the SpinCo Subsidiaries shall also serve as an officer or director of PEI or any
of the Retained Subsidiaries.
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AGENT: The distribution agent appointed by PEI to distribute the
SpinCo Common Stock pursuant to the Distribution.
ASSIGNMENT AGREEMENT: The Assignment Agreement between PEI and
SpinCo, pursuant to which PEI will convey certain intellectual property rights
to SpinCo, which agreement shall be entered into on or prior to the Distribution
Date in substantially the form of Exhibit A attached hereto.
COMMISSION: The Securities and Exchange Commission.
CONVEYANCING AND ASSUMPTION INSTRUMENTS: Collectively, the various
agreements, instruments and other documents to be entered into to effect the
Asset Transfers and the assumption of Liabilities in the manner contemplated by
this Agreement and the Related Agreements.
DISTRIBUTION DATE: The date determined by the PEI Board as the date
on which the Distribution shall be effected, which Distribution Date is
contemplated by the PEI Board to occur on or about __________, 1997.
DISTRIBUTION RECORD DATE: The date established by the PEI Board as
the date for taking a record of the Holders of PEI Common Stock entitled to
participate in the Distribution, which Distribution Record Date has been
established as __________, 1997, subject to the fulfillment on or before
__________, 1997 of certain conditions to the Distribution as provided in
Section 4.02.
EMPLOYEE BENEFITS ALLOCATION AGREEMENT: The Benefits and Other
Employment Matters Allocation Agreement between PEI and SpinCo, which agreement
shall be entered into on or prior to the Distribution Date in substantially the
form of Exhibit B attached hereto.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.
HOLDERS: The holders of record of PEI Common Stock as of the
Distribution Record Date.
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INSURANCE PROCEEDS: Those moneys (i) received by an insured from an
insurance carrier or (ii) paid by an insurance carrier on behalf of the insured,
in either case net of any applicable premium adjustment, retrospectively-rated
premium, deductible, retention, cost or reserve paid or held by or for the
benefit of such insured.
INSURED CLAIMS: Those Liabilities that, individually or in the
aggregate, are covered within the terms and conditions of any of the Policies,
whether or not subject to deductibles, co-insurance, uncollectability or
retrospectively-rated premium adjustments, but only to the extent that such
Liabilities are within applicable Policy limits, including aggregates.
LIABILITIES: Any and all debts, liabilities and obligations, absolute
or contingent, matured or unmatured, liquidated or unliquidated, accrued or
unaccrued, known or unknown, whenever arising, including all costs and expenses
relating thereto, and including, without limitation, those debts, liabilities
and obligations arising under any law, rule, regulation, Action, threatened
Action, order or consent decree of any governmental entity or any award of any
arbitrator of any kind, and those arising under any contract, commitment or
undertaking.
NASDAQ: The National Stock Market's National Market System.
NOTES: The notes listed on Schedule 1.01(a).
OTHER REAL ESTATE ASSETS: The real estate assets listed on Schedule
1.01(b).
PEI BOARD: The Board of Directors of PEI.
PEI BOOKS AND RECORDS: The books and records (including computerized
records) of PEI and the Retained Subsidiaries and all books and records owned by
PEI and its Subsidiaries which relate to the Retained Business, are necessary to
operate the Retained Business, or are required by law to be retained by PEI,
including, without limitation, all such books and records relating to Retained
Employees, all files relating to any Action pertaining to the Retained
Liabilities, original corporate minute books, stock ledgers and certificates and
corporate seals, and all licenses, leases, agreements
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and filings, relating to PEI, the Retained Subsidiaries or the Retained Business
(but not including the SpinCo Books and Records, provided that PEI shall have
access to, and shall have the right to obtain duplicate copies of, the SpinCo
Books and Records in accordance with the provisions of Article VII).
PEI COMMON STOCK: The common stock, par value $.0001 per share, of
PEI.
PEI GROUP: PEI and the Retained Subsidiaries, collectively.
PEI INITIAL CASH BALANCE: Forty Million Dollars ($40,000,000).
PEI PRO FORMA BALANCE SHEET: The Pro Forma Consolidated Balance Sheet
for PEI as of __________, 1997 attached hereto as Exhibit C.
PERSON: Any individual, corporation, partnership, association, trust,
estate or other entity or organization, including any governmental entity or
authority.
POLICIES: Insurance policies and insurance contracts of any kind
relating to the SpinCo Business or the Retained Business as conducted prior to
the Distribution Date, including without limitation primary and excess policies,
comprehensive general liability policies, automobile and workers' compensation
insurance policies, and self-insurance and captive insurance company
arrangements, together with the rights, benefits and privileges thereunder.
PRIVILEGES: All privileges that may be asserted under applicable law,
including, without limitation, privileges arising under or relating to the
attorney-client relationship (including but not limited to the attorney-client
and work product privileges), the accountant-client privilege, and privileges
relating to internal evaluative processes.
PRIVILEGED INFORMATION: All Information as to which PEI, SpinCo or
any of their Subsidiaries are entitled to assert the protection of a Privilege.
RELATED AGREEMENTS: All of the agreements, instruments,
understandings, assignments or other arrangements which are entered into in
connection with the transactions contemplated hereby and which are set forth in
a writing, including, without limitation (i) the Conveyancing and
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Assumption Instruments, (ii) the Employee Benefits Allocation Agreement, (iii)
the Tax Sharing Agreement, (iv) the Assignment Agreement, and (v) the
Transitional Services Agreements.
RETAINED ASSETS: The assets of PEI other than the SpinCo Assets,
including without limitation (i) the capital stock of the Retained Subsidiaries,
(ii) assets relating to the Retained Business, determined on a basis consistent
with the determination of assets included on the PEI Pro Forma Balance Sheet (as
reflected in the "Distribution Pro Forma" column), (iii) all of the assets
expressly allocated to PEI or any of the Retained Subsidiaries under this
Agreement or the Related Agreements, including those set forth on Schedule
1.01(c), and (iv) any other assets of PEI and its Affiliates relating to the
Retained Business.
RETAINED BUSINESS: The businesses conducted by PEI and its
Subsidiaries pursuant to or utilizing the Retained Assets, including without
limitation the acquisition, development and ownership of real estate assets,
including shopping centers and power centers leased to major retail tenants.
RETAINED EMPLOYEES: The employees listed on Schedule 1.01(d).
RETAINED LIABILITIES: (i) All of the Liabilities arising out of or in
connection with the Retained Assets or the Retained Business, determined on a
basis consistent with the determination of the Liabilities of PEI included on
the PEI Pro Forma Balance Sheet (as reflected in the "Distribution Pro Forma"
column), (ii) all of the Liabilities of PEI under, or to be retained or assumed
by PEI or any of the Retained Subsidiaries pursuant to, this Agreement or any of
the Related Agreements, including those set forth on Schedule 1.01(e), and (iii)
all Liabilities for the payment of outstanding drafts of PEI attributable to the
Retained Business existing as of the Distribution Date.
RETAINED POLICIES: All Policies, current or past, which are owned or
maintained by or on behalf of any member of the PEI Group (or any of its
predecessors) which relate to the Retained Business but do not relate to the
SpinCo Business.
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RETAINED SUBSIDIARIES: Price Real Estate, Inc., a Delaware
corporation, and Price Self Storage, L.L.C., a Delaware limited liability
company.
SHARED POLICIES: All Policies, current or past, which are owned or
maintained by or on behalf of PEI or any of its Subsidiaries or their respective
predecessors which relate to both the Retained Business and the SpinCo Business,
and all other Policies not constituting SpinCo Policies or Retained Policies.
SPINCO BOARD: The Board of Directors of SpinCo.
SPINCO BOOKS AND RECORDS: The books and records (including
computerized records) of SpinCo and the SpinCo Subsidiaries and all books and
records owned by PEI and its Subsidiaries which relate to the SpinCo Business or
are necessary to operate the SpinCo Business, including, without limitation, all
such books and records relating to SpinCo Employees, all files relating to any
Action being assumed by SpinCo as part of the SpinCo Liabilities, original
corporate minute books, stock ledgers and certificates and corporate seals, and
all licenses, leases, agreements and filings, relating to SpinCo, the SpinCo
Subsidiaries or the SpinCo Business (but not including the PEI Books and
Records, provided that SpinCo shall have access to, and have the right to obtain
duplicate copies of, the PEI Books and Records in accordance with the provisions
of Article VII).
SPINCO BYLAWS: The Bylaws of SpinCo, substantially in the form of
Exhibit D, to be in effect at the Distribution Date.
SPINCO CERTIFICATE: The Restated Certificate of Incorporation of
SpinCo, substantially in the form of Exhibit E, to be in effect at the
Distribution Date.
SPINCO COMMON STOCK: The common stock, par value $.0001 per share, of
SpinCo.
SPINCO EMPLOYEES: All of the PEI employees at the time of the
Distribution, other than the Retained Employees.
SPINCO GROUP: SpinCo and the SpinCo Subsidiaries, collectively.
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SPINCO LIABILITIES: (i) All of the Liabilities of the SpinCo Group
under, or to be retained or assumed by SpinCo or any of the SpinCo Subsidiaries
pursuant to, this Agreement or any of the Related Agreements, including those
set forth on Schedule 1.01(f), (ii) all Liabilities arising out of or in
connection with any lawsuits relating to the Distribution (other than those
Liabilities relating to employee claims which shall be allocated pursuant to the
Employee Benefits Allocation Agreement), (iii) all Liabilities for payment of
outstanding drafts of PEI attributable to the SpinCo Business existing as of the
Distribution Date, (iv) all Liabilities arising out of or in connection with any
of the SpinCo Assets or the SpinCo Business, determined on a basis consistent
with the determination of the Liabilities of SpinCo included on the SpinCo Pro
Forma Balance Sheet (as reflected in the "Distribution Pro Forma" column), and
(v) all other Liabilities of PEI not constituting Retained Liabilities.
SPINCO POLICIES: All Policies, current or past, which are owned or
maintained by or on behalf of PEI or any of its Affiliates or predecessors,
which relate to the SpinCo Business but do not relate to the Retained Business,
and which Policies are either maintained by the SpinCo Group or assignable to
the SpinCo Group.
SPINCO PRO FORMA BALANCE SHEET: The Pro Forma Consolidated Balance
Sheet for SpinCo as of __________, 1997 attached hereto as Exhibit F.
SPINCO SUBSIDIARIES: The Transferred Subsidiaries and all
Subsidiaries of SpinCo or the Transferred Subsidiaries at the time of the
Distribution.
SUBSIDIARY: With respect to any Person, (a) any corporation of which
at least a majority in interest of the outstanding voting stock (having by the
terms thereof voting power under ordinary circumstances to elect a majority of
the directors of such corporation, irrespective of whether or not at the time
stock of any other class or classes of such corporation shall have or might have
voting power by reason of the happening of any contingency) is at the time,
directly or indirectly,
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owned or controlled by such Person, by one or more Subsidiaries of such Person,
or by such Person and one or more of its Subsidiaries, or (b) any non-corporate
entity in which such Person, one or more Subsidiaries of such Person, or such
Person and one or more Subsidiaries of such Person, directly or indirectly, at
the date of determination thereof, has at least majority ownership interest.
TAX SHARING AGREEMENT: The Tax Sharing Agreement between SpinCo and
PEI, which agreement shall be entered into on or prior to the Distribution Date
in substantially the form of Exhibit G attached hereto.
TRANSFERRED SUBSIDIARIES: The Subsidiaries identified on Schedule
1.01(g).
TRANSFERRED SUBSIDIARY STOCK: All of the issued and outstanding
capital stock of the Transferred Subsidiaries.
TRANSITIONAL SERVICES AGREEMENTS: The agreements to be entered into
between PEI and SpinCo on or prior to the Distribution Date, providing for
furnishing of certain services by SpinCo after the Distribution Date, in
substantially the forms of the following: the Employee Benefits Administration
Agreement attached hereto as Exhibit H and the Tax Administration Agreement
attached hereto as Exhibit I.
Section 1.02. TERMS DEFINED ELSEWHERE IN AGREEMENT.
Each of the following terms is defined in the Section set forth
opposite such term:
TERM SECTION
---- -------
Asset Transfers Recitals
Consents 4.01(c)
Distribution Recitals
Indemnifiable Loss 5.02
Indemnifying Party 5.03
Indemnitee 5.03
Information 7.02
Merchandising Business Recitals
PEI Recitals
PEI Cash 2.06(a)
PEI Indemnitees 5.02
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Pending Action 5.04(h)
Remaining Cash 2.06(c)
SpinCo Recitals
SpinCo Assets 2.01
SpinCo Business Recitals
SpinCo Indemnitees 5.01
Third-Party Claim 5.04(a)
ARTICLE II.
TRANSFER OF ASSETS
Section 2.01 TRANSFER OF ASSETS TO SPINCO. Prior to the Distribution
Date, PEI shall take or cause to be taken all actions necessary to cause the
transfer, assignment, delivery and conveyance to SpinCo of all of PEI's and its
Subsidiaries' right, title and interest in the SpinCo Assets. The "SpinCo
Assets" shall consist of the following assets:
(a) the Transferred Subsidiary Stock;
(b) the Other Real Estate Assets;
(c) the Notes;
(d) the PEI Cash, other than the PEI Initial Cash Balance;
(e) the trademarks, servicemarks, goodwill and other intangible
properties and rights to be conveyed to SpinCo pursuant to the Assignment
Agreement;
(f) the SpinCo Books and Records;
(g) all of the other assets to be assigned to SpinCo under this
Agreement or the Related Agreements; and
(h) all other assets relating to the SpinCo Business, determined on a
basis consistent with the determination of the assets included on the SpinCo Pro
Forma Balance Sheet (as reflected in the "Distribution Pro Forma" column).
Section 2.02 TRANSFERS NOT EFFECTED PRIOR TO THE DISTRIBUTION. To
the extent that any transfers contemplated by this Article II shall not have
been fully effected on the Distribution Date,
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the parties shall cooperate to effect such transfers as promptly as shall be
practicable following the Distribution Date. Nothing herein shall be deemed to
require the transfer of any assets or the assumption of any Liabilities which by
their terms or operation of law cannot be transferred or assumed; PROVIDED,
HOWEVER, that PEI and SpinCo and their respective Subsidiaries and Affiliates
shall cooperate in seeking to obtain any necessary consents or approvals for the
transfer of all assets and Liabilities contemplated to be transferred pursuant
to this Article II. In the event that any such transfer of assets or
Liabilities has not been consummated effective as of the Distribution Date, the
party retaining such asset or Liability shall thereafter hold such asset in
trust for the use and benefit of the party entitled thereto (at the expense of
the party entitled thereto) and retain such Liability for the account of the
party by whom such Liability is to be assumed pursuant hereto, and take such
other actions as may be reasonably required in order to place the parties,
insofar as reasonably possible, in the same position as would have existed had
such asset been transferred or such Liability been assumed as contemplated
hereby. As and when any such asset or Liability becomes transferable, such
transfer and assumption shall be effected forthwith. The parties agree that,
except as set forth in this Section 2.02, as of the Distribution Date, each
party hereto shall be deemed to have acquired complete and sole beneficial
ownership over all of the assets, together with all rights, powers and
privileges incidental thereto, and shall be deemed to have assumed in accordance
with the terms of this Agreement all of the Liabilities, and all duties,
obligations and responsibilities incidental thereto, which such party is
entitled to acquire or required to assume pursuant to the terms of this
Agreement.
Section 2.03 COOPERATION RE: ASSETS. In the case that at any time
after the Distribution Date, SpinCo reasonably determines that any of the
Retained Assets are essential for the conduct of the SpinCo Business, or PEI
reasonably determines that any of the SpinCo Assets are essential for the
conduct of the Retained Business, and the nature of such assets makes it
impracticable for SpinCo or PEI, as the case may be, to obtain substitute assets
or to make alternative
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arrangements on commercially reasonable terms to conduct their respective
businesses, and reasonable provisions for the use thereof are not already
included in the Related Agreements, then SpinCo (with respect to the SpinCo
Assets) and PEI (with respect to the Retained Assets) shall cooperate to make
such assets available to the other party on commercially reasonable terms, as
may be reasonably required for such party to maintain normal business operations
(provided that such assets shall be required to be made available only until
such time as the other party may reasonably obtain substitute assets or make
alternative arrangements on commercially reasonable terms to permit it to
maintain normal business operations).
Section 2.04 NO REPRESENTATIONS OR WARRANTIES; CONSENTS. Each of the
parties hereto understands and agrees that no party hereto is, in this Agreement
or in any other agreement or document contemplated by this Agreement or
otherwise, representing or warranting in any way (i) as to the value or freedom
from encumbrance of, or any other matter concerning, any assets of such party or
(ii) as to the legal sufficiency to convey title to any asset transferred
pursuant to this Agreement or any Related Agreement, including, without
limitation, any Conveyancing and Assumption Instruments. It is also agreed and
understood that there are no warranties, express or implied, as to the
merchantability or fitness of any of the assets either transferred to or
retained by the parties, as the case may be, and all such assets shall be "as
is, where is" and "with all faults" (provided, however, that the absence of
warranties shall have no effect upon the allocation of liabilities under this
Agreement). Similarly, each party hereto understands and agrees that no party
hereto is, in this Agreement or in any other agreement or document contemplated
by this Agreement or otherwise, representing or warranting in any way that the
obtaining of any consents or approvals, the execution and delivery of any
amendatory agreements and the making of any filings or applications contemplated
by this Agreement will satisfy the provisions of any or all applicable laws or
judgments or other instruments or agreements relating to such assets.
Notwithstanding the
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foregoing, the parties shall use their good faith efforts to obtain all consents
and approvals, to enter into all reasonable amendatory agreements and to make
all filings and applications which may be reasonably required for the
consummation of the transactions contemplated by this Agreement, and shall take
all such further reasonable actions as shall be reasonably necessary to preserve
for each of the SpinCo Group and the PEI Group, to the greatest extent feasible,
the economic and operational benefits of the allocation of assets and
liabilities provided for in this Agreement. In case at any time after the
Distribution Date any further action is necessary or desirable to carry out the
purposes of this Agreement, the proper officers and directors of each party to
this Agreement shall take all such necessary or desirable action.
Section 2.05 CONVEYANCING AND ASSUMPTION INSTRUMENTS. In connection
with the Asset Transfers and the assumptions of Liabilities contemplated by this
Agreement, the parties shall execute or cause to be executed by the appropriate
entities the Conveyancing and Assumption Instruments in such forms as the
parties shall reasonably agree, including the transfer of real property with
deeds as may be appropriate, and the assignment of trademarks and other
intellectual property rights. The transfer of capital stock shall be effected
by means of delivery of stock certificates and executed stock powers and
notation on the stock record books of the corporation or other legal entities
involved and, to the extent required by applicable law, by notation on public
registries.
Section 2.06. CASH ALLOCATION; CASH MANAGEMENT.
(a) CASH ALLOCATION ON THE DISTRIBUTION DATE. As of the close of
business on the Distribution Date, PEI shall retain, out of the domestic and
international cash bank balances and short-term investments of PEI and its
Subsidiaries recorded on the books of PEI and its Subsidiaries (the "PEI Cash"),
an amount of PEI Cash equal to the PEI Initial Cash Balance, and SpinCo shall be
allocated all other PEI Cash. To the extent practicable, the parties shall use
their reasonable best efforts to take all necessary action to cause the cash
balances of PEI and the Retained Subsidiaries
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immediately prior to consummation of the Distribution to equal the PEI Initial
Cash Balance. In the event the actual cash balances of PEI and the Retained
Subsidiaries as of the Distribution are less than the PEI Initial Cash Balance,
the amount of the deficiency shall be recorded in the accounts of PEI and SpinCo
as of the Distribution Date as a payable from SpinCo to PEI (which payable will
be paid as promptly as practicable following the Distribution); and in the event
the actual cash balances of PEI and the Retained Subsidiaries as of the
Distribution Date exceed the PEI Initial Cash Balance, the amount of such excess
shall be recorded in the accounts of PEI and SpinCo as of the Distribution Date
as a payable from PEI to SpinCo (which payable will be paid as promptly as
practicable following the time it is determinable).
(b) CASH MANAGEMENT AFTER THE DISTRIBUTION DATE. SpinCo shall
establish and maintain a separate cash management system and accounting records
with respect to the SpinCo Business effective as of 12:01 a.m. on the day
following the Distribution Date; thereafter, (i) any payments by PEI or the
Retained Subsidiaries on behalf of SpinCo or the SpinCo Subsidiaries in
connection with the SpinCo Business (including, without limitation, any such
payments in respect of Liabilities or other obligations of SpinCo or the SpinCo
Subsidiaries under the Employee Benefits Allocation Agreement) shall be recorded
in the accounts of the SpinCo Group as a payable from the SpinCo Group to the
PEI Group; (ii) any payments by SpinCo or the SpinCo Subsidiaries on behalf of
PEI or the Retained Subsidiaries in connection with the Retained Business
(including, without limitation, any such payments in respect to Liabilities or
other obligations of PEI or the Retained Subsidiaries under the Employee
Benefits Allocation Agreement) shall be recorded in the accounts of the PEI
Group as a payable from the PEI Group to the SpinCo Group; (iii) any cash
payments received by PEI and the Retained Subsidiaries relating to the SpinCo
Business or the SpinCo Assets shall be recorded in the accounts of the PEI Group
as a payable from the PEI Group to the SpinCo Group; (iv) any cash payments
received by SpinCo or the SpinCo Subsidiaries relating to the Retained
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Business or the Retained Assets shall be recorded in the accounts of the SpinCo
Group as a payable from the SpinCo Group to the PEI Group; (v) SpinCo and PEI
shall make adjustments for late deposits, checks returned for not sufficient
funds and other post-Distribution Date transactions as shall be reasonable under
the circumstances consistent with the purpose and intent of this Agreement; and
(vi) the net balance due to the PEI Group or the SpinCo Group, as the case may
be, in respect of the aggregate amounts of clauses (i), (ii), (iii), (iv) and
(v) shall be paid by SpinCo or PEI, as appropriate, as promptly as practicable.
For purposes of this Section 2.06(b), the parties contemplate that the Retained
Business and the SpinCo Business, including but not limited to the
administration of accounts payable and accounts receivable, will be conducted in
the normal course.
(c) All transactions contemplated in this Section 2.06 shall be
subject to audit by the parties, and any dispute thereunder shall be resolved by
Ernst & Young LLP (or, if Ernst & Young LLP is not available, by such other
independent firm of certified public accountants mutually acceptable to PEI and
SpinCo), whose decision shall be final and unappealable.
ARTICLE III.
ASSUMPTION AND SATISFACTION OF LIABILITIES
Section 3.01. ASSUMPTION AND SATISFACTION OF LIABILITIES. Except as
set forth in the Employee Benefits Allocation Agreement, the Tax Sharing
Agreement or the other Related Agreements, effective as of and after the
Distribution Date, (a) SpinCo shall, and/or shall cause the SpinCo Subsidiaries
to, assume, pay, perform and discharge in due course all of the SpinCo
Liabilities and (b) PEI shall, and/or shall cause the Retained Subsidiaries to,
pay, perform and discharge in due course all of the Retained Liabilities.
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ARTICLE IV.
THE DISTRIBUTION
Section 4.01. COOPERATION PRIOR TO THE DISTRIBUTION.
(a) PEI and SpinCo shall cooperate in preparing, filing with the
Commission and causing to become effective any registration statements or
amendments thereof which are appropriate to reflect the establishment of, or
amendments to, any employee benefit plans and other plans contemplated by the
Employee Benefits Allocation Agreement.
(b) PEI and SpinCo shall take all such action as may be necessary or
appropriate under the securities or blue sky laws of states or other political
subdivisions of the United States in connection with the transactions
contemplated by this Agreement and the Related Agreements.
(c) PEI and SpinCo shall use all reasonable efforts to obtain any
third-party consents or approvals necessary or desirable in connection with the
transactions contemplated hereby ("Consents").
(d) PEI and SpinCo will use all reasonable efforts to take, or cause
to be taken, all actions, and to do, or cause to be done, all things necessary
or desirable under applicable law, to consummate the transactions contemplated
under this Agreement and the Related Agreements.
Section 4.02. PEI BOARD ACTION; CONDITIONS PRECEDENT TO THE
DISTRIBUTION. The PEI Board shall, in its discretion, establish any appropriate
procedures in connection with the Distribution. In no event shall the
Distribution occur unless the following conditions shall have been satisfied:
(a) the transactions contemplated by Section 2.01 shall have been
consummated in all material respects;
(b) the SpinCo Board, comprised as contemplated by Section 6.01,
shall have been elected by PEI, as sole stockholder of SpinCo, and the SpinCo
Certificate and SpinCo Bylaws shall have been adopted and shall be in effect;
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(c) PEI and SpinCo shall have obtained all Consents, the failure of
which to obtain would, in the determination of the PEI Board, have a material
adverse effect on PEI or SpinCo;
(d) the Registration Statement on Form 10 under the Exchange Act
filed by SpinCo shall have been declared effective by the Commission;
(e) the SpinCo Common Stock shall have been approved for trading on
Nasdaq subject to official notice of issuance; and
(f) PEI and SpinCo shall have entered into the Related Agreements;
PROVIDED, HOWEVER, that (i) any such condition may be waived by the PEI Board in
its sole discretion, and (ii) the satisfaction of such conditions shall not
create any obligation on the part of PEI or any other party hereto to effect the
Distribution or in any way limit PEI's power of termination set forth in Section
9.07 or alter the consequences of any such termination from those specified in
such Section.
Section 4.03. THE DISTRIBUTION. On the Distribution Date, subject to
the conditions and rights of termination set forth in this Agreement, PEI shall
deliver to the Agent a share certificate representing all of the then
outstanding shares of SpinCo Common Stock owned by PEI and shall instruct the
Agent to distribute, on or as soon as practicable following the Distribution
Date, such SpinCo Common Stock to the Holders. SpinCo agrees to provide all
share certificates that the Agent shall require in order to effect the
Distribution.
Section 4.04. CASH IN LIEU OF FRACTIONAL SHARES. No certificate or
scrip representing fractional shares of SpinCo Common Stock shall be issued as
part of the Distribution and in lieu thereof, each holder of PEI Common Stock
who would otherwise be entitled to receive a fractional share of SpinCo Common
Stock will receive cash for such fractional share. PEI shall instruct the Agent
to determine the number of whole shares and fractional shares of SpinCo Common
Stock
17
allocable to each holder of record of PEI Common Stock as of the Distribution
Record Date. PEI shall instruct the Agent to aggregate all such fractional
shares into whole shares and sell the whole shares obtained thereby in the open
market as soon as practicable following the Distribution Date at then prevailing
prices on behalf of Holders who otherwise would be entitled to receive
fractional share interests and to distribute to each such Holder such Holder's
ratable share of the proceeds of such sale as soon as practicable after the
Distribution Date. PEI shall bear the costs of commissions incurred in
connection with such sales.
ARTICLE V.
INDEMNIFICATION
Section 5.01. INDEMNIFICATION BY PEI. Except as otherwise
expressly set forth in a Related Agreement, PEI shall indemnify, defend and
hold harmless SpinCo and each of the SpinCo Subsidiaries, and each of their
respective directors, officers, employees, agents and Affiliates and each of
the heirs, executors, successors and assigns of any of the foregoing (the
"SpinCo Indemnitees") from and against the Retained Liabilities and any and
all losses, Liabilities, damages, including, without limitation, the costs
and expenses of any and all Actions, threatened Actions, demands,
assessments, judgments, settlements and compromises relating to the Retained
Liabilities and attorneys' fees and any and all expenses whatsoever
reasonably incurred in investigating, preparing or defending against any such
Actions or threatened Actions (collectively, "SpinCo Indemnifiable Losses"
and, individually, a "SpinCo Indemnifiable Loss") of the SpinCo Indemnitees
arising out of or due to the failure or alleged failure of PEI or any of its
Affiliates prior to or after the Distribution Date to pay, perform or
otherwise discharge in due course any of the Retained Liabilities.
Section 5.02. INDEMNIFICATION BY SPINCO. Except as otherwise
expressly set forth in a Related Agreement, SpinCo shall indemnify, defend and
hold harmless PEI and each of the Retained Subsidiaries, and each of their
directors, officers, employees, agents and Affiliates and each
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of the heirs, executors, successors and assigns of any of the foregoing (the
"PEI Indemnitees") from and against the SpinCo Liabilities and any and all
losses, Liabilities, damages, including, without limitation, the costs and
expenses of any and all Actions, threatened Actions, demands, assessments,
judgments, settlements and compromises relating to the SpinCo Liabilities and
attorneys' fees and any and all expenses whatsoever reasonably incurred in
investigating, preparing or defending against any such Actions or threatened
Actions (collectively, "PEI Indemnifiable Losses" and, individually, a "PEI
Indemnifiable Loss") of the PEI Indemnitees arising out of or due to the
failure or alleged failure of SpinCo or any of its Affiliates prior to or
after the Distribution Date to pay, perform or otherwise discharge in due
course any of the SpinCo Liabilities. The "SpinCo Indemnifiable Losses" and
the "PEI Indemnifiable Losses" are collectively referred to as the
"Indemnifiable Losses."
Section 5.03. INSURANCE PROCEEDS. The amount which any party (an
"Indemnifying Party") is or may be required to pay to any other Person (an
"Indemnitee") pursuant to Section 5.01 or Section 5.02 shall be reduced
(including, without limitation, retroactively) by any Insurance Proceeds or
other amounts actually recovered by or on behalf of such Indemnitee in reduction
of the related Indemnifiable Loss. If an Indemnitee shall have received the
payment required by this Agreement from an Indemnifying Party in respect of an
Indemnifiable Loss and shall subsequently actually receive Insurance Proceeds,
or other amounts in respect of such Indemnifiable Loss as specified above, then
such Indemnitee shall pay to such Indemnifying Party a sum equal to the amount
of such Insurance Proceeds or other amounts actually received.
Section 5.04. PROCEDURE FOR INDEMNIFICATION.
(a) Except as may be set forth in a Related Agreement, if an
Indemnitee shall receive notice or otherwise learn of the assertion by a Person
(including, without limitation, any governmental entity) who is not a party to
this Agreement or to any of the Related Agreements of any claim or of the
commencement by any such Person of any Action (a "Third-Party Claim") with
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respect to which an Indemnifying Party may be obligated to provide
indemnification pursuant to this Agreement, such Indemnitee shall give such
Indemnifying Party written notice thereof promptly after becoming aware of such
Third-Party Claim; PROVIDED that the failure of any Indemnitee to give notice as
required by this Section 5.04 shall not relieve the Indemnifying Party of its
obligations under this Article V, except to the extent that such Indemnifying
Party is prejudiced by such failure to give notice. Such notice shall describe
the Third-Party Claim in reasonable detail, and shall indicate the amount
(estimated if necessary) of the Indemnifiable Loss that has been or may be
sustained by such Indemnitee.
(b) An Indemnifying Party may elect to defend or to seek to settle or
compromise, at such Indemnifying Party's own expense and by such Indemnifying
Party's own counsel, any Third-Party Claim, provided that the Indemnifying Party
must confirm in writing that it agrees that the Indemnitee is entitled to
indemnification hereunder in respect of such Third-Party Claim. Within 30 days
of the receipt of notice from an Indemnitee in accordance with Section 5.04(a)
(or sooner, if the nature of such Third-Party Claim so requires), the
Indemnifying Party shall notify the Indemnitee of its election whether to assume
responsibility for such Third-Party Claim (provided that if the Indemnifying
Party does not so notify the Indemnitee of its election within 30 days after
receipt of such notice from the Indemnitee, the Indemnifying Party shall be
deemed to have elected not to assume responsibility for such Third-Party Claim),
and such Indemnitee shall cooperate in the defense or settlement or compromise
of such Third-Party Claim. After notice from an Indemnifying Party to an
Indemnitee of its election to assume responsibility for a Third-Party Claim,
such Indemnifying Party shall not be liable to such Indemnitee under this
Article V for any legal or other expenses (except expenses approved in advance
by the Indemnifying Party) subsequently incurred by such Indemnitee in
connection with the defense thereof; PROVIDED that if the defendants in any such
claim include both the Indemnifying Party and one or more Indemnitees and in
such
20
Indemnitees' reasonable judgment a conflict of interest between such Indemnitees
and such Indemnifying Party exists in respect of such claim, such Indemnitees
shall have the right to employ separate counsel and in that event the reasonable
fees and expenses of such separate counsel (but not more than one separate
counsel reasonably satisfactory to the Indemnifying Party) shall be paid by such
Indemnifying Party. If an Indemnifying Party elects not to assume
responsibility for a Third-Party Claim (which election may be made only in the
event of a good faith dispute that a claim was inappropriately tendered under
Section 5.01 or 5.02, as the case may be) such Indemnitee may defend or (subject
to the following sentence) seek to compromise or settle such Third-Party Claim.
Notwithstanding the foregoing, an Indemnitee may not settle or compromise any
claim without prior written notice to the Indemnifying Party, which shall have
the option within ten days following the receipt of such notice (i) to
disapprove the settlement and assume all past and future responsibility for the
claim, including reimbursing the Indemnitee for prior expenditures in connection
with the claim, or (ii) to disapprove the settlement and continue to refrain
from participation in the defense of the claim, in which event the Indemnifying
Party shall have no further right to contest the amount or reasonableness of the
settlement if the Indemnitee elects to proceed therewith, or (iii) to approve
the amount of the settlement, reserving the Indemnifying Party's right to
contest the Indemnitee's right to indemnity, or (iv) to approve and agree to pay
the settlement. In the event the Indemnifying Party makes no response to such
written notice from the Indemnitee, the Indemnifying Party shall be deemed to
have elected option (ii).
(c) If an Indemnifying Party chooses to defend or to seek to
compromise any Third-Party Claim, the Indemnitee shall make available to such
Indemnifying Party any personnel and any books, records or other documents
within its control or which it otherwise has the ability to make available that
are necessary or appropriate for such defense.
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(d) Notwithstanding anything else in this Section 5.04 to the
contrary, an Indemnifying Party shall not settle or compromise any Third-Party
Claim unless such settlement or compromise contemplates as an unconditional term
thereof the giving by such claimant or plaintiff to the Indemnitee of a written
release from all liability in respect of such Third-Party Claim (and provided
further that such settlement may not provide for any non-monetary relief by
Indemnitee without the written consent of Indemnitee). In the event the
Indemnitee shall notify the Indemnifying Party in writing that such Indemnitee
declines to accept any such settlement or compromise, such Indemnitee may
continue to contest such Third-Party Claim, free of any participation by such
Indemnifying Party, at such Indemnitee's sole expense. In such event, the
obligation of such Indemnifying Party to such Indemnitee with respect to such
Third-Party Claim shall be equal to (i) the costs and expenses of such
Indemnitee prior to the date such Indemnifying Party notifies such Indemnitee of
the offer to settle or compromise (to the extent such costs and expenses are
otherwise indemnifiable hereunder) PLUS (ii) the lesser of (A) the amount of any
offer of settlement or compromise which such Indemnitee declined to accept and
(B) the actual out-of-pocket amount such Indemnitee is obligated to pay
subsequent to such date as a result of such Indemnitee's continuing to pursue
such Third-Party Claim.
(e) Any claim on account of an Indemnifiable Loss which does not
result from a Third-Party Claim shall be asserted by written notice given by the
Indemnitee to the applicable Indemnifying Party. Such Indemnifying Party shall
have a period of 15 days after the receipt of such notice within which to
respond thereto. If such Indemnifying Party does not respond within such 15-day
period, such Indemnifying Party shall be deemed to have refused to accept
responsibility to make payment. If such Indemnifying Party does not respond
within such 15-day period or rejects such claim in whole or in part, such
Indemnitee shall be free to pursue such remedies as may be available to such
party under applicable law or under this Agreement.
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(f) In addition to any adjustments required pursuant to Section 5.03,
if the amount of any Indemnifiable Loss shall, at any time subsequent to the
payment required by this Agreement, be reduced by recovery, settlement or
otherwise, the amount of such reduction, less any expenses incurred in
connection therewith, shall promptly be repaid by the Indemnitee to the
Indemnifying Party.
(g) In the event of payment by an Indemnifying Party to any
Indemnitee in connection with any Third-Party Claim, such Indemnifying Party
shall be subrogated to and shall stand in the place of such Indemnitee as to any
events or circumstances in respect of which such Indemnitee may have any right
or claim relating to such Third-Party Claim against any claimant or plaintiff
asserting such Third-Party Claim. Such Indemnitee shall cooperate with such
Indemnifying Party in a reasonable manner, and at the cost and expense of such
Indemnifying Party, in prosecuting any subrogated right or claim.
(h) Notwithstanding anything else in this Section 5.04 to the
contrary, with respect to any Action pending at the time of the Distribution (a
"Pending Action") with respect to which an Indemnifying Party may be obligated
to provide indemnification pursuant to this Agreement, PEI or SpinCo shall, at
the request of the other party, cause the Retained Employee(s) or SpinCo
Employee(s), as the case may be, who were handling the defense, compromise or
settlement of such Pending Action prior to the Distribution to continue to
handle such defense, compromise or settlement following the Distribution
(subject to the last two sentences of subsection (b) above). If such employees
are employed by the Indemnitee, the Indemnitee shall keep the Indemnifying Party
reasonably informed of the progress of, and the Indemnifying Party shall
cooperate in, such defense, compromise or settlement.
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Section 5.05. REMEDIES CUMULATIVE. The remedies provided in this
Article V shall be cumulative and shall not preclude assertion by any Indemnitee
of any other rights or the seeking of any and all other remedies against any
Indemnifying Party.
Section 5.06. SURVIVAL OF INDEMNITIES. The obligations of each of
SpinCo and PEI under this Article V shall survive the sale or other transfer by
it of any assets or businesses or the assignment by it of any Liabilities with
respect to any Indemnifiable Loss of the other related to such assets,
businesses or Liabilities.
ARTICLE VI.
CERTAIN ADDITIONAL MATTERS
Section 6.01. SPINCO BOARD. SpinCo and PEI shall take all actions
which may be required to constitute, effective as of the Distribution Date, the
board of directors of SpinCo with the persons listed on Schedule 1.01(h).
Section 6.02. EMPLOYEE MATTERS.
(a) On the Distribution Date, except to the extent retained or
assumed by PEI under this Agreement, the Employee Benefits Allocation Agreement
or any other agreement relating to the Distribution, SpinCo shall retain or
assume, as the case may be, responsibility as employer for the SpinCo Employees.
On the Distribution Date, except to the extent retained or assumed by SpinCo
under this Agreement, the Employee Benefits Allocation Agreement or any other
agreement relating to the Distribution, PEI shall retain or assume, as the case
may be, responsibility as employer for the Retained Employees.
(b) SpinCo shall cause all of the SpinCo Employees to resign,
effective as of the Distribution Date, from all positions as officers or
employees of PEI or any of the Retained Subsidiaries in which they serve. PEI
shall cause all of the Retained Employees to resign, effective
24
as of the Distribution Date, from all positions as officers or employees of
SpinCo or any of its Subsidiaries in which they serve.
Section 6.03. CERTIFICATE AND BYLAWS. On or prior to the
Distribution Date, SpinCo shall adopt the SpinCo Certificate and the SpinCo
Bylaws, and shall file the SpinCo Certificate with the Secretary of State of the
State of Delaware.
ARTICLE VII.
ACCESS TO INFORMATION AND SERVICES
Section 7.01. PROVISION OF CORPORATE RECORDS.
(a) Except as may otherwise be provided in a Related Agreement, PEI
shall arrange as soon as practicable following the Distribution Date, to the
extent not previously delivered in connection with the transactions contemplated
in Article II, for the transportation (at SpinCo's cost) to SpinCo of the SpinCo
Books and Records in its possession, except to the extent such items are already
in the possession of SpinCo or a SpinCo Subsidiary. The SpinCo Books and
Records shall be the property of SpinCo, but shall be available to PEI for
review and duplication until PEI shall notify SpinCo in writing that such
records are no longer of use to PEI.
(b) Except as otherwise provided in a Related Agreement, SpinCo shall
arrange as soon as practicable following the Distribution Date, to the extent
not previously delivered in connection with the transactions contemplated in
Article II, for the transportation (at PEI's cost) to PEI of the PEI Books and
Records in its possession, except to the extent such items are already in the
possession of PEI. The PEI Books and Records shall be the property of PEI, but
shall be available to SpinCo for review and duplication until SpinCo shall
notify PEI in writing that such records are no longer of use to SpinCo.
25
Section 7.02. ACCESS TO INFORMATION. Except as otherwise provided in
a Related Agreement, from and after the Distribution Date, PEI shall afford to
SpinCo and its authorized accountants, counsel and other designated
representatives reasonable access (including using reasonable efforts to give
access to persons or firms possessing information) and duplicating rights during
normal business hours to all records, books, contracts, instruments, computer
data and other data and information relating to pre-Distribution operations
(collectively, "Information") within PEI's possession insofar as such access is
reasonably required by SpinCo for the conduct of its business, subject to
appropriate restrictions for classified or Privileged Information. Similarly,
except as otherwise provided in a Related Agreement, SpinCo shall afford to PEI
and its authorized accountants, counsel and other designated representatives
reasonable access (including using reasonable efforts to give access to persons
or firms possessing information) and duplicating rights during normal business
hours to Information within SpinCo's possession, insofar as such access is
reasonably required by PEI for the conduct of its business, subject to
appropriate restrictions for classified or Privileged Information. Information
may be requested under this Article VII for the legitimate business purposes of
either party, including, without limitation, audit, accounting, claims
(including claims for indemnification hereunder), litigation and tax purposes,
as well as for purposes of fulfilling disclosure and reporting obligations and
for performing this Agreement and the transactions contemplated hereby.
Section 7.03. PRODUCTION OF WITNESSES. At all times from and after
the Distribution Date, each of SpinCo and PEI shall use reasonable efforts to
make available to the other, upon written request, its and its Subsidiaries'
officers, directors, employees and agents as witnesses to the extent that such
persons may reasonably be required in connection with any Action.
Section 7.04. REIMBURSEMENT. Except to the extent otherwise
contemplated in any
26
Related Agreement, a party providing Information or witness services to the
other party under this Article VII shall be entitled to receive from the
recipient, upon the presentation of invoices therefor, payments of such amounts,
relating to supplies, disbursements and other out-of-pocket expenses (at cost)
and direct and indirect expenses of employees who are witnesses or otherwise
furnish assistance (at cost), as may be reasonably incurred in providing such
Information or witness services.
Section 7.05. RETENTION OF RECORDS. Except as otherwise required by
law or agreed to in a Related Agreement or otherwise in writing, each of PEI and
SpinCo may destroy or otherwise dispose of any of the Information, which is
material Information and is not contained in other Information retained by PEI
or SpinCo, as the case may be, at any time after the tenth anniversary of this
Agreement, provided that, prior to such destruction or disposal, (a) it shall
provide no less than 90 or more than 120 days prior written notice to the other,
specifying in reasonable detail the Information proposed to be destroyed or
disposed of and (b) if a recipient of such notice shall request in writing prior
to the scheduled date for such destruction or disposal that any of the
Information proposed to be destroyed or disposed of be delivered to such
requesting party, the party proposing the destruction or disposal shall promptly
arrange for the delivery of such of the Information as was requested at the
expense of the party requesting such Information.
Section 7.06. CONFIDENTIALITY. Each of PEI and its Subsidiaries on
the one hand, and SpinCo and its Subsidiaries on the other hand, shall hold, and
shall cause its consultants and advisors to hold, in strict confidence, all
Information concerning the other in its possession or furnished by the other or
the other's representatives pursuant to this Agreement (except to the extent
that such Information has been (i) in the public domain through no fault of such
party or (ii) later lawfully acquired from other sources by such party), and
each party shall not release or disclose such Information to any other person,
except its auditors, attorneys, financial advisors, rating agencies, bankers and
other consultants and advisors, unless compelled to disclose by judicial or
administrative
27
process or, as reasonably advised by its counsel or by other requirements of
law, or unless such Information is reasonably required to be disclosed in
connection with (x) any litigation with any third-parties or litigation between
the PEI Group and the SpinCo Group, (y) any contractual agreement to which the
PEI Group or the SpinCo Group are currently parties, or (z) in exercise of
either party's rights hereunder.
Section 7.07. PRIVILEGED MATTERS. PEI and SpinCo recognize that
legal and other professional services that have been and will be provided prior
to the Distribution Date have been and will be rendered for the benefit of both
the PEI Group and the SpinCo Group and that both the PEI Group and the SpinCo
Group should be deemed to be the client for the purposes of asserting all
Privileges. To allocate the interests of each party in the Privileged
Information, the parties agree as follows:
(a) PEI shall be entitled, in perpetuity, to control the assertion or
waiver of all Privileges in connection with Privileged Information which relates
solely to the Retained Business, whether or not the Privileged Information is in
the possession of or under the control of PEI or SpinCo. PEI shall also be
entitled, in perpetuity, to control the assertion or waiver of all Privileges in
connection with Privileged Information that relates solely to the subject matter
of any claims constituting Retained Liabilities, now pending or which may be
asserted in the future, in any lawsuits or other proceedings initiated against
or by PEI, whether or not the Privileged Information is in the possession of or
under the control of PEI or SpinCo.
(b) SpinCo shall be entitled, in perpetuity, to control the assertion
or waiver of all Privileges in connection with Privileged Information which
relates solely to the SpinCo Business, whether or not the Privileged Information
is in the possession of or under the control of PEI or SpinCo. SpinCo shall
also be entitled, in perpetuity, to control the assertion or waiver of all
Privileges in connection with Privileged Information which relates solely to the
subject matter of any
28
claims constituting SpinCo Liabilities, now pending or which may be asserted in
the future, in any lawsuits or other proceedings initiated against or by SpinCo,
whether or not the Privileged Information is in the possession of SpinCo or
under the control of PEI or SpinCo.
(c) PEI and SpinCo agree that they shall have a shared Privilege,
with equal right to assert or waive, subject to the restrictions in this Section
7.07, with respect to all Privileges not allocated pursuant to the terms of
Sections 7.07(a) and (b). All Privileges relating to any claims, proceedings,
litigation, disputes or other matters which involve both PEI and SpinCo in
respect of which PEI and SpinCo retain any responsibility or liability under
this Agreement shall be subject to a shared Privilege.
(d) No party may waive any Privilege which could be asserted under
any applicable law, and in which the other party has a shared Privilege, without
the consent of the other party, except to the extent reasonably required in
connection with any litigation with third-parties or as provided in subsection
(e) below. Consent shall be in writing, or shall be deemed to be granted unless
written objection is made within 20 days after notice upon the other party
requesting such consent.
(e) In the event of any litigation or dispute between a member of the
PEI Group and a member of the SpinCo Group, either party may waive a Privilege
in which the other party has a shared Privilege, without obtaining the consent
of the other party, provided that such waiver of a shared Privilege shall be
effective only as to the use of Information with respect to the litigation or
dispute between the PEI Group and the SpinCo Group, and shall not operate as a
waiver of the shared Privilege with respect to third-parties.
(f) If a dispute arises between the parties regarding whether a
Privilege should be waived to protect or advance the interest of either party,
each party agrees that it shall negotiate in good faith, shall endeavor to
minimize any prejudice to the rights of the other party, and shall not
29
unreasonably withhold consent to any request for waiver by the other party.
Each party specifically agrees that it will not withhold consent to waiver for
any purpose except to protect its own legitimate interests.
(g) Upon receipt by any party of any subpoena, discovery or other
request which arguably calls for the production or disclosure of Information
subject to a shared Privilege or as to which the other party has the sole right
hereunder to assert a Privilege, or if any party obtains knowledge that any of
its current or former directors, officers, agents or employees have received any
subpoena, discovery or other requests which arguably calls for the production or
disclosure of such Privileged Information, such party shall promptly notify the
other party of the existence of the request and shall provide the other party a
reasonable opportunity to review the Information and to assert any rights it may
have under this Section 7.07 or otherwise to prevent the production or
disclosure of such Privileged Information.
(h) The transfer of the SpinCo Books and Records and the PEI Books
and Records and other Information between PEI and its Subsidiaries and SpinCo
and its Subsidiaries is made in reliance on the agreement of PEI and SpinCo, as
set forth in Sections 7.06 and 7.07, to maintain the confidentiality of
Privileged Information and to assert and maintain all applicable Privileges.
The access to information being granted pursuant to Sections 7.01 and 7.02, the
agreement to provide witnesses and individuals pursuant to Section 7.03 and the
transfer of Privileged Information between PEI and its Subsidiaries and SpinCo
and its Subsidiaries pursuant to this Agreement shall not be deemed a waiver of
any Privilege that has been or may be asserted under this Agreement or
otherwise.
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ARTICLE VIII.
INSURANCE
Section 8.01. POLICIES AND RIGHTS INCLUDED WITHIN THE SPINCO ASSETS.
Without limiting the generality of the definition of the SpinCo Assets set forth
in Section 2.01 or the effect of Section 2.01, the SpinCo Assets shall include
(a) any and all rights of an insured party under each of the Shared Policies,
specifically including rights of indemnity and the right to be defended by or at
the expense of the insurer, with respect to all injuries, losses, liabilities,
damages and expenses incurred or claimed to have been incurred on or prior to
the Distribution Date by any party in or in connection with the conduct of the
SpinCo Business or, to the extent any claim is made against SpinCo or any of its
Subsidiaries, the Retained Business, and which injuries, losses, liabilities,
damages and expenses may arise out of insured or insurable occurrences or events
under one or more of the Shared Policies; PROVIDED, HOWEVER, that nothing in
this Section 8.01 shall be deemed to constitute (or to reflect) the assignment
of the Shared Policies, or any of them, to SpinCo, and (b) the SpinCo Policies.
Section 8.02. POST-DISTRIBUTION DATE CLAIMS. If, subsequent to
the Distribution Date, any person, corporation, firm or entity shall assert a
claim against SpinCo or any SpinCo Subsidiary with respect to any injury,
loss, liability, damage or expense incurred or claimed to have been incurred
on or prior to the Distribution Date in or in connection with the
Distribution or the conduct of the SpinCo Business or, to the extent any
claim is made against SpinCo or any of its Subsidiaries, the Retained
Business, and which injury, loss, liability, damage or expense may arise out
of insured or insurable occurrences or events under one or more of the Shared
Policies, PEI shall at the time such claim is asserted be deemed to assign,
without need of further documentation, to SpinCo any and all rights of an
insured party under the applicable Shared Policy with respect to such
asserted claim, specifically including rights of indemnity and the right to
be defended by or at the expense of the insurer; PROVIDED,
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HOWEVER, that nothing in this Section 8.02 shall be deemed to constitute (or to
reflect) the assignment of the Shared Policies, or any of them, to SpinCo.
Section 8.03. ADMINISTRATION AND RESERVES.
(a) Notwithstanding the provisions of Article III, but subject to any
contrary provisions of any Related Agreement, from and after the Distribution
Date:
(i) SpinCo shall be entitled to any reserves established by PEI
or any of its Subsidiaries, or the benefit of reserves held by any
insurance carrier, with respect to the SpinCo Liabilities; and
(ii) PEI shall be entitled to any reserves established by PEI or
any of its Subsidiaries, or the benefit of reserves held by any insurance
carrier, with respect to the Retained Liabilities.
(b) INSURANCE PREMIUMS. SpinCo shall have the right but not the
obligation to pay the premiums, to the extent that PEI does not pay premiums
with respect to Retained Liabilities (retrospectively-rated or otherwise), with
respect to Shared Policies and the SpinCo Policies, as required under the terms
and conditions of the respective Policies, whereupon PEI shall forthwith
reimburse SpinCo for that portion of such premiums paid by SpinCo as are
attributable to the Retained Liabilities. PEI shall provide continued coverage
under its director and officer liability insurance policy for a period of not
less than three years for acts which took place or were alleged to have taken
place prior to the Distribution Date covering persons who were directors and
officers of PEI prior to the Distribution Date. Fifty percent of the additional
premiums, if any, for such coverage shall be reimbursed by SpinCo within 15 days
of the Distribution Date.
(c) ALLOCATION OF INSURANCE PROCEEDS. Insurance Proceeds received
with respect to claims, costs and expenses under the Policies shall be paid to
SpinCo with respect to the SpinCo Liabilities and to PEI with respect to the
Retained Liabilities. Payment of the allocable portions of
32
indemnity costs of Insurance Proceeds resulting from the liability policies will
be made to the appropriate party upon receipt from the insurance carrier. In
the event that the aggregate limits on any Shared Policies are exceeded, the
parties agree to provide an equitable allocation of Insurance Proceeds received
after the Distribution Date based upon their respective bona fide claims. The
parties agree to use their best efforts to cooperate with respect to insurance
matters.
Section 8.04. AGREEMENT FOR WAIVER OF CONFLICT AND SHARED DEFENSE.
In the event that Insured Claims of both SpinCo and PEI exist relating to the
same occurrence, SpinCo and PEI agree to jointly defend and to waive any
conflict of interest necessary to the conduct of that joint defense. Nothing in
this Section 8.04 shall be construed to limit or otherwise alter in any way the
indemnity obligations of the parties to this Agreement, including those created
by this Agreement, by operation of law or otherwise.
ARTICLE IX.
MISCELLANEOUS
Section 9.01. COMPLETE AGREEMENT; CONSTRUCTION. This Agreement,
including the Schedules and Exhibits and the Related Agreements and other
agreements and documents referred to herein, shall constitute the entire
agreement between the parties with respect to the subject matter hereof and
thereof and shall supersede all previous negotiations, commitments and writings
with respect to such subject matter. Notwithstanding any other provisions in
this Agreement to the contrary, in the event and to the extent that there shall
be a conflict between the provisions of this Agreement and the provisions of the
Related Agreements, the Related Agreements shall control.
Section 9.02. EXPENSES. Except as otherwise set forth in this
Agreement or any Related Agreement, all costs and expenses in connection with
the preparation, execution, delivery and implementation of this Agreement, the
Distribution and with the consummation of the transactions contemplated by this
Agreement shall be charged to the party for whose benefit the expenses are
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incurred, with any expenses which cannot be allocated on such basis to be split
equally between the parties.
Section 9.03. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, without regard
to the principles of conflicts of laws thereof.
Section 9.04. NOTICES. All notices and other communications
hereunder shall be in writing and shall be delivered by hand or mailed by
registered or certified mail (return receipt requested) to the parties at the
following addresses (or at such other addresses for a party as shall be
specified by like notice) and shall be deemed given on the date on which such
notice is received:
To SpinCo:
PriceSmart, Inc.
4649 Morena Boulevard
San Diego, California 92117
Attention: __________
To PEI:
Price Enterprises, Inc.
4649 Morena Boulevard
San Diego, California 92117
Attention: __________
Section 9.05. AMENDMENTS. This Agreement may not be modified or
amended except by an agreement in writing signed by the parties.
Section 9.06. SUCCESSORS AND ASSIGNS. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
and their respective successors and permitted assigns. The parties acknowledge
and agree that any party into which PEI or SpinCo merges or which acquires all
or substantially all of PEI's or SpinCo's assets in a sale transaction would
constitute a permitted assign for purposes of this Section 9.06.
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Section 9.07. TERMINATION. This Agreement may be terminated and the
Distribution abandoned at any time prior to the Distribution Date by and in the
sole discretion of the PEI Board without the approval of SpinCo or of PEI's
stockholders. In the event of such termination, no party shall have any
liability to any other party pursuant to this Agreement.
Section 9.08. SUBSIDIARIES. Each of the parties hereto shall cause
to be performed, and hereby guarantees the performance of, all actions,
agreements and obligations set forth herein to be performed by any Subsidiary of
such party which is contemplated to be a Subsidiary of such party on and after
the Distribution Date.
Section 9.09. NO THIRD-PARTY BENEFICIARIES. Except for the
provisions of Article V relating to Indemnities, this Agreement is solely for
the benefit of the parties hereto and their respective Subsidiaries and
Affiliates and should not be deemed to confer upon third-parties any remedy,
claim, Liability, reimbursement, claim of action or other right in excess of
those existing without reference to this Agreement.
Section 9.10. TITLES AND HEADINGS. Titles and headings to sections
herein are inserted for the convenience of reference only and are not intended
to be a part of or to affect the meaning or interpretation of this Agreement.
Section 9.11. EXHIBITS AND SCHEDULES. The Exhibits and Schedules
shall be construed with and as an integral part of this Agreement to the same
extent as if the same had been set forth verbatim herein.
Section 9.12. LEGAL ENFORCEABILITY. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. Without
prejudice to any rights or remedies
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otherwise available to any party hereto, each party hereto acknowledges that
damages would be an inadequate remedy for any breach of the provisions of this
Agreement and agrees that the obligations of the parties hereunder shall be
specifically enforceable.
Section 9.13. ARBITRATION OF DISPUTES.
(a) Any controversy or claim arising out of this Agreement, or any
breach of this Agreement, including any controversy relating to a determination
of whether specific assets constitute SpinCo Assets or Retained Assets or
whether specific Liabilities constitute SpinCo Liabilities or Retained
Liabilities, shall be settled by arbitration in accordance with the Rules of the
American Arbitration Association then in effect, as modified by this Section
9.13 or by the further agreement of the parties.
(b) Such arbitration shall be conducted in San Diego, California.
(c) Any judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof. The arbitrators shall not,
under any circumstances, have any authority to award punitive, exemplary or
similar damages, and may not, in any event, make any ruling, finding or award
that does not conform to the terms and conditions of this Agreement.
(d) Nothing contained in this Section 9.13 shall limit or restrict in
any way the right or power of a party at any time to seek injunctive relief in
any court and to litigate the issues relevant to such request for injunctive
relief before such court (i) to restrain the other party from breaching this
Agreement or (ii) for specific enforcement of this Section 9.13. The parties
agree that any legal remedy available to a party with respect to a breach of
this Section 9.13 will not be adequate and that, in addition to all other legal
remedies, each party is entitled to an order specifically enforcing this Section
9.13.
(e) The parties hereby consent to the jurisdiction of the federal
courts located in San Diego, California for all purposes under this Agreement.
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(f) Neither party nor the arbitrators may disclose the existence or
results of any arbitration under this Agreement or any evidence presented during
the course of the arbitration without the prior written consent of both parties,
except as required to fulfill applicable disclosure and reporting obligations,
or as otherwise required by law.
(g) Each party shall bear its own costs incurred in the arbitration.
If either party refuses to submit to arbitration any dispute required to be
submitted to arbitration pursuant to this Section 9.13, and instead commences
any other proceeding, including, without limitation, litigation, then the party
who seeks enforcement of the obligation to arbitrate shall be entitled to its
attorneys' fees and costs incurred in any such proceeding.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
PRICE ENTERPRISES, INC.
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
PRICESMART, INC.
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
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