EX-10 5 ex416.txt Exhibit 10.80 CONFIDENTIAL Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Secretary of the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. Such portions are marked with the word "(CONFIDENTIAL)". AGREEMENT THIS AGREEMENT is made as of February 2, 2001 (the "Effective Date"), by FLEMING COMPANIES, INC., an Oklahoma corporation ("Fleming"), and KMART CORPORATION, a Michigan corporation ("Kmart"), with reference to the following circumstances: A. The parties desire to provide for the supply by Fleming of certain products to all the "Big K" and "Super K" stores currently open and that will be opened by Kmart or any subsidiary or affiliate of Kmart during the term of this Agreement in the United States and the Caribbean (collectively, the "Stores"). The Stores open on the Effective Date are listed by number on Schedule A to this Agreement. The Fleming Distribution Centers (the "Distribution Centers") initially designated to service primarily each of the Stores are opposite the Store served by such Distribution Center listed on Schedule A. B. The objective of this Agreement is to create a strategic alliance between Fleming and Kmart to merchandise, procure and distribute pantry and supermarket products in the most cost efficient manner. The parties desire to provide for the joint exploration, evaluation, and implementation of practices and procedures to reduce total supply chain costs and allow each party to equitably share the benefits of such practices and procedures. The parties agree as follows: 1. Product Procurement and Pricing. 1.1 Procurement Services. Subject to the terms and conditions of this Agreement, Fleming will be the sole provider to the Stores of certain categories of warehouse delivered products listed on Schedule 1.1 (collectively, the "Products"), except for the following: (i) typical direct to Store shipments, (ii) all existing contractual arrangements of Kmart with Supervalu Inc., TriCorp and Grocers Supply Company (the "Kmart Existing Arrangements"), and other arrangements with third parties relating to the procurement and supply of Products (the "Kmart Additional Arrangements"), (iii) Products that Fleming decides not to source or carry, (iv) local orders that Fleming decides not to source or carry, (v) annually, a basket of up to 5% of annual purchases of Products under this Agreement for each year after the Transition Period, and with respect to the Transition Period, a reasonable estimate by the parties of 5% of purchases under this Agreement during the Transition Period, (vi) Products used or offered by Kmart in the restaurants in the Stores, and (vii) as contemplated by Section 1.5. Kmart will be permitted to procure large block buys of Products for the Stores and the Joint Venture Stores for the "Wall of Values," in and out, or spot buys on perishable Products which purchases shall count against the 5% basket contemplated in the immediately preceding sentence. Because the intent of the parties is to work together to further reduce the cost of goods, for so long as this Agreement remains in effect, Fleming's central procurement organization will be in a position to negotiate the price of Products for the total volume of the Stores and the Joint Venture Stores. Subject to the terms and conditions of this Agreement, Kmart will carry Fleming private label brands as the exclusive private label brand in the Stores for Product categories covered by this Agreement, to the extent consistent with Store format. Fleming shall maintain and operate in accordance with prudent business practices its central procurement organization for procurement under this Agreement and shall procure and pay for all Products acquired to meet the anticipated needs of Kmart for the Stores. Such needs shall be estimated based upon (a) historic and forecasted Product turn information and (b) advance estimates of promotional volumes, as provided by Kmart to Fleming from time to time during the term of this Agreement. The procurement services to be provided hereunder shall include purchasing (and paying for) Products procured hereunder, and owning the inventory of Products. With respect to consignment Products, the procurement services hereunder shall include the right of Fleming to transfer title thereto to Kmart. 1.2 Future Procurement; Fuel. 1.2.1 Within ninety (90) days after the Effective Date, the parties shall conduct good faith negotiations to expand the categories of Products covered by this Agreement to include health and beauty aids and cosmetics ("HBC"), and general merchandise ("GMD") described on Schedule 1.2A (collectively, the "Additional Products"). The parties shall also conduct good faith negotiations with respect to the potential expansion of the categories of Products covered by this Agreement to cover Store supplies within 180 days following the Effective Date. Fleming shall cause its wholly owned subsidiary, Dunigan Fuels, Inc. ("Dunigan") to enter into a Supply Agreement for the sale of fuel and other services to Kmart owned or operated fuel centers in accordance with terms set forth on Schedule 1.2B and such other terms as are usual and customary for fuel supply agreements of this nature within ninety (90) days after the Effective Date. Fleming shall guarantee Dunigan's performance of its obligations under such Supply Agreement. If Fleming fails to cause Dunigan to enter into a Supply Agreement upon the terms set forth herein within the ninety (90) day period following the Effective Date, then, at Kmart's option, the provisions of Schedule 1.2B shall constitute a binding agreement between Kmart and Fleming, whereby Fleming shall have all the rights, duties and obligations of Dunigan pursuant to the terms of Schedule 1.2B; provided, however, that in addition to the foregoing, Kmart shall be entitled to be indemnified and held harmless by Fleming on terms usual and customary for fuel supply agreements. 1.2.2 (CONFIDENTIAL) The parties acknowledge that the realization of such benefits may require, among other things, implementing programs for the purchase of Additional Products for Kmart and the Joint Venture Stores, the Fleming Stores and independent contractors serviced by Fleming (any such programs, an "Additional Program"). The parties agree that if Fleming unreasonably refuses to implement any Additional Program proposed by Kmart, Fleming shall not be entitled to any adjustment of the Logistics Fee under this Section 1.2.2. (CONFIDENTIAL) 1.3 Product Pricing. Fleming, with input, participation and strategic direction from Kmart, will have primary responsibility for the negotiation with vendors of Products with respect to the costs therefor to meet the anticipated needs of Kmart based upon historic and forecasted turn movement and Kmart provided advance estimates of promotional volumes. Kmart will be given reasonable notice of all major program negotiations with any vendors and will be permitted to participate in such negotiations. If Kmart so elects, it may provide input and strategic direction whether or not it actually participates in such negotiations. No pricing arrangement with respect to any major program with vendors for Products procured exclusively for Kmart or the Joint Venture Stores shall apply to the procurement of Products hereunder unless Kmart expressly agrees thereto. No pricing arrangement with respect to any program (other than major programs) with vendors for Products procured exclusively for Kmart or the Joint Venture Stores shall apply to the procurement of Products hereunder unless such pricing arrangements fall within the general parameters and benchmarks set forth therefor by Kmart. Kmart shall not engage in any unilateral negotiations with vendors regarding the procurement of Products hereunder without Fleming's consent, except to the extent Kmart is permitted hereunder to procure Products directly. If a national program (the "National Cost"), a regional program (the "Regional Cost") or a local program (the "Local Cost") is negotiated in accordance with the terms hereof or if Fleming commits to a cost for one or more Products or program for all of the Stores with respect to such Products, and in the case of negotiated costs with vendors such negotiations include floor stock protection, Fleming will bill Kmart the respective National Cost, Regional Cost, Local Cost or the cost to which Fleming committed, as the case may be, or the actual cost paid by Fleming for such Products, whichever is less. If the parties are unable to secure floor stock protection with respect to a Product, Fleming will bill Kmart the actual cost paid by Fleming for such Product for a maximum of four weeks from the date the Product cost is reduced and thereafter Fleming will bill Kmart the respective National Cost, Regional Cost or Local Cost. Product pricing for Products purchased pursuant to this Agreement (other than the pricing arrangements specified in this Section 1.3) shall be as described on Schedule 1.3. 1.4 Third Party Supply. If Fleming fails to procure and supply any advertised Products, Products to be specially displayed in Stores and Joint Venture Stores and high velocity Products (which as of the Effective Date are those specified on Schedule 1.4) ordered by Kmart hereunder, Kmart shall be permitted to purchase any such Products that Fleming has failed to deliver from any third parties. In addition, except where Fleming's failure is a result of a condition beyond its control as described in Section 22.5, or where Fleming's failure is due to product unavailability or materially inaccurate forecasting of needed volume by Kmart, Fleming shall reimburse Kmart on demand any fees and direct costs reasonably incurred by Kmart in excess of the costs that would have been incurred by Kmart had Fleming procured and delivered such Products. If Kmart purchases Products from any third party in the circumstances specified in this Section 1.4, such purchases from third parties shall count toward fulfilling volume requirements necessary to achieve graduated reductions in fees based on purchase volume. 1.5 Excluded Stores. Nothing in this Agreement shall require Fleming to supply Products to any Store the supply of which by Fleming would cause Fleming to violate the Non-Compete Agreement dated June 20, 1994, between Fleming and Di Giorgio Corporation, as amended, or the noncompete covenants in the Asset Purchase Agreement between Fleming and Associated Grocers, Incorporated dated as of September 10, 1998 ("Excluded Stores"). When the supply of Products to any Excluded Stores would no longer violate either of such agreements such Excluded Stores shall be deemed Stores for all purposes hereunder and Fleming and Kmart shall cooperate in transitioning to Fleming's supply of such Excluded Store as soon as reasonably practicable. Prior to the time that the supply of an Excluded Store by Fleming would not violate either of the agreements, if Kmart purchases any Products for such Excluded Store from a third party, Fleming shall reimburse Kmart on demand for any fees and direct costs reasonably incurred by Kmart over the costs that would have been incurred had Fleming procured and delivered such Products, and such purchases shall count toward fulfilling volume requirements necessary to achieve graduated reductions in fees based on purchase volume. Fleming shall use commercially reasonable efforts to cause the non-compete covenants described in this section to be terminated or to obtain a consent or waiver, at Fleming's expense, necessary to permit Fleming to supply Products to any Excluded Stores. Fleming shall give Kmart notice of any such termination, consent, or waiver as soon as practicable following such termination, consent or waiver. 2. Logistics Services. Fleming shall provide to Kmart the logistics services described on Schedule 2 (the "Logistics Services"). Fleming reserves the right to utilize third-party logistics providers, reasonably acceptable to Kmart, as a part of its service package. To the extent that Fleming selects and retains third party providers, Fleming shall bear all costs associated therewith and shall remain liable for the acts and omissions of said third party providers irrespective of any approval therefor by Kmart. 3. Transportation and Title. Kmart shall be directly responsible for all direct costs associated with the delivery of Products from all Distribution Centers (including GMD, if any) to the Stores and for the cost of the return of pallets and totes to the Distribution Centers. In addition to the services which relate to the transportation of Products and which are part of the Logistics Services, Fleming shall arrange for transportation for Products from the Distribution Centers to the Stores and select third party carriers for the Products, unless Kmart elects to do so. All carriers shall be reasonably acceptable to Fleming and Kmart. In cases where Fleming selects the carrier, title and risk of loss to Products shall pass to Kmart upon receipt of Products at the Stores, and Fleming shall be responsible for all shortages and damage to Products until such time as such Products are actually received at the Stores. In cases where Kmart selects the carrier, title and risk of loss shall pass to Kmart upon loading of the Products at Fleming's dock at the Distribution Center assigned to the applicable Store, and Fleming shall not be responsible for any claims for shortages or damages to Products after the carrier leaves Fleming's dock, subject to the shrink allowance described in Schedule 4C. Fleming shall be responsible for all packaging and loading costs, provided that Kmart will be responsible for the cost of packaging and shipping all Products shipped from a Distribution Center to the Stores by a third-party parcel delivery service (e.g., UPS, FedEx) at Kmart's request. However, if the third-party parcel delivery service must be used because of Fleming's inability to deliver the Products, Fleming will be responsible for the cost of packaging and shipping. Kmart will store all pallets and totes in designated areas of the Stores. Kmart shall be entitled to all revenues, net of Fleming unloading costs, resulting from back-haul generated from Kmart contracted carriers on Kmart exclusive routes. Fleming shall arrange for the return of pallets and totes in a manner that seeks to minimize, to the extent reasonably practicable, Kmart's costs associated therewith. 4. Service Requirements. The service requirements and the consequences of achieving or not achieving the service levels are set forth on Schedule 4A. These service requirements will be the key performance indicators applicable to Fleming. The parties shall establish the quality program described on Schedule 4B, including provision for quality control inspectors and reporting procedures. The parties shall establish a shrink audit procedure as described on Schedule 4C. The parties shall establish a mechanism for the conduct of audits of the parties' performance under this Agreement as provided in Schedule 4D. Fleming shall provide to Kmart from time to time during the term of this Agreement the management reports of key performance indicators set forth on Schedule 4E. 5. Ordering, Fees and Payment. For services provided by Fleming under this Agreement, Fleming will accumulate by Distribution Center all weekly billings by Store (described in Schedule 5), in accordance with Kmart's fiscal week (Thursday to Wednesday). The weekly accumulated billings will be in the form of a single hard copy Kmart "chain statement" for each servicing Distribution Center, and will summarize all charges, whether for Product, fees, drop shipments or any other miscellaneous charges, by Store. Kmart shall pay in full the aggregated total of all chain statements each week as to all items that are not subject to a good faith dispute by Kmart. Kmart shall give Fleming prompt written notice of items that are disputed in good faith, in which case such items shall be addressed promptly by the parties in accordance with the dispute resolution procedures of this Agreement. Fleming will also endeavor to provide Kmart throughout each week, electronic transmissions, including both advance shipment notifications (ASN's) and EDI invoices, containing all amounts included in the weekly chain statements. Kmart shall provide Fleming weekly, a file of pending claims with the specific reason for each, in which case such items shall be addressed promptly (within fourteen (14) days) by the parties in accordance with the dispute resolution procedures of this Agreement. Payments under this Agreement shall be made by automated clearing house transfer on Friday for invoices billed during Kmart's immediately preceding fiscal week, as summarized on the Kmart chain statements. The parties shall, within a reasonable period of time after the Effective Date, address and use commercially reasonable efforts to resolve any disputes under the Existing Agreement, process bottlenecks and inefficiencies regarding account receivable in accordance with the terms of Schedule 5B. Initially and until the parties change the ordering procedure, Kmart shall order Products under this Agreement in the same manner as under the Existing Agreement. 6. Best Practices. Fleming and Kmart shall establish a "best practices team" consisting initially of two members, of which Kmart and Fleming shall each designate a senior executive as its designated member (the "BPT"). The BPT may consist of the same individuals appointed to the Account Management Team described in Section 11.1. Among other things, the BPT will focus on reducing costs and achieving greater efficiencies in the product supply chain in accordance with the strategies and goals of management of the parties. The members of the BPT shall be subject to approval of both parties and shall be vested with authority within their respective organizations to engage the appropriate officers and employees in achieving the strategies and goals agreed upon by the parties. The following terms shall govern the operation and responsibilities of the BPT. 6.1 Employment. The BPT shall be based in Troy, Michigan, but each member of the BPT shall continue to be employed by the party appointing such member who shall be responsible for all compensation and benefits for its team members serving on the BPT. 6.2 Replacement. Either party may replace its designated member of the BPT at any time, provided that any replacement shall require the prior approval of the other party. 6.3 Compensation Incentive. A portion of the compensation payable to members of the BPT by the employer of such members shall be linked to the achievement of lower costs and greater efficiencies in the product supply chain under this Agreement. 6.4 Priorities. Among the priority matters for the BPT shall be the following, in order of initial priority: (i) Uniform common item codes; (ii) Accurate advance shipment notices ("ASN"); (iii) Joint procurement contracts; (iv) Paperless payment process; (v) Transportation services; (vi) Plant direct shipment; and (vii) Distribution flow. 6.5 Costs and Expenses. Each party shall bear the costs and expenses associated with the implementation by such party of the recommendations of the BPT. 7. Delivery of Products. Each Super K Store will receive at least three grocery, frozen, and dairy deliveries per week. Each Pantry Store with average orders of at least 1,000 cases per week over a thirty (30) day period immediately preceding the delivery will receive two deliveries per week; otherwise the Pantry Stores will receive at least one delivery per week. The foregoing notwithstanding, for all Stores, perishable Products will be delivered a minimum of three times per week, fresh meat and produce will be delivered four times per week, and bakery/deli will be delivered two times per week. If there are increases in average order size resulting in the number of deliveries specified in this Section 7 being insufficient to deliver the increased orders, the parties will adjust the number of deliveries per week so that such orders are properly sourced in a cost efficient manner. 8. Labor Disputes. To the extent permitted under applicable law, with respect to labor disputes involving Distribution Centers whose volume is more than 40% but that are not Dedicated Distribution Centers, Fleming will consult with Kmart regarding actions taken to mitigate the effect of any labor dispute. With respect to any Dedicated Distribution Centers, Fleming and Kmart shall consult and agree on any actions to be taken to mitigate such disputes. If the parties fail to reach agreement within a reasonable period of time, Fleming can take such actions as it deems appropriate in the exercise of its reasonable business judgment so as to minimize detriment to both parties. 9. Term and Early Termination. 9.1 Term. The term of this Agreement will be ten (10) years commencing on the Effective Date. 9.2 Termination for Cause. Each party may provide the other party with a notice of intent to terminate this Agreement (a "Notice of Intent to Terminate") in the event of: 9.2.1 A default by the other party of an obligation to pay an amount exceeding, in the aggregate, $1 million due under this Agreement within seven (7) days following written notice to the other party of non-payment; 9.2.2 A material breach of any covenant or agreement, representation, or warranty of the other party set forth herein other than as a result of a breach of 9.2.1; 9.2.3 A material failure of the other party to be in compliance with all applicable federal, state, and local laws and regulations relating to the performance of this Agreement; 9.2.4 The insolvency of, or the institution of proceedings by or against, the other party under any federal or state bankruptcy or insolvency law; 9.2.5 An assignment by the other party for the benefit of all or substantially all of its creditors or the appointment of a receiver for all or a substantial part of the party's assets; or 9.2.6 A cessation of all or substantially all operations by the other party. Except with respect to Sections 9.2.1, 9.2.4, 9.2.5, and 9.2.6 as to which no cure period shall apply, if the breaching party fails to cure or provide evidence of cure to the non-breaching party within ninety (90) days of receipt of the related Notice of Intent to Terminate or, if the event giving rise to the right to terminate is not reasonably capable of being cured within such ninety (90) days, and the breaching party fails to promptly and diligently commence to cure such event within such ninety (90) days, the non-breaching party may provide the breaching party a written notice of termination (a "Notice of Termination") effective as of the expiration of the applicable Termination Period as provided in Section 9.5. However, the non-breaching party in the case of a breach that cannot reasonably be cured within ninety (90) days after receipt of the related Notice of Intent to Terminate may in any event provide the breaching party with a Notice of Termination effective as of the expiration of the applicable Termination Period as provided in Section 9.5 if the breaching party fails to cure its breach or to provide evidence of cure to the non-breaching party within one hundred eighty (180) days of receipt of the Notice of Intent to Terminate. 9.3 Other Termination. 9.3.1 By Kmart. Kmart may terminate this Agreement upon twelve (12) months written notice if any of the following events have occurred: (a) A Change in Control of Fleming; or (b) The fifth anniversary of the Effective Date. 9.3.2 By Fleming. Fleming may terminate this Agreement upon twelve (12) months written notice if any of the following events have occurred: (a) A Change in Control of Kmart; or (b) The fifth anniversary of the Effective Date. 9.3.3 By Either Party. Either party may terminate this Agreement upon twelve (12) months written notice if any of the following events have occurred: (a) If during the term of this Agreement, the volume of Products purchased by Kmart hereunder, on an aggregate basis, declines by more than thirty percent (30%) for any consecutive 180 day period as compared to the corresponding period from the prior year; or (b) If Kmart makes a public announcement of its intention to close thirty percent (30%) or more of its Stores open at the time of such announcement, or its intention to discontinue or significantly reduce the sale of all or a substantial portion of the Products in the Stores. 9.4 Change of Control. 9.4.1 Fleming. For purposes of Section 9.3.1(a), "Change of Control of Fleming" shall mean the acquisition of a majority or controlling interest in, or the acquisition of all or substantially all the assets of, Fleming by a Competitor; and the term "Competitor" shall mean a discount mass merchandiser or any affiliate thereof with average annual sales during the immediately preceding two years of at least $(CONFIDENTIAL), such as, as of the Effective Date (CONFIDENTIAL). 9.4.2 Kmart. For purposes of Section 9.3.2(a), "Change of Control of Kmart" shall mean the acquisition of a majority or controlling interest in, or the acquisition of all or substantially all the assets of, Kmart by a Competitor; and the term "Competitor" shall mean a company or any affiliate thereof engaged in the wholesale business of selling or distributing food, grocery or related products, with average annual sales during the immediately preceding two years of at least $(CONFIDENTIAL) such as, as of the Effective Date, (CONFIDENTIAL). 9.5 Termination Transition. Upon delivery of a Notice of Termination pursuant to Section 9.2 (except as a result of an event specified in Section 9.2.6) or a written notice pursuant to Section 9.3.1 or 9.3.2, at Kmart's option, a termination transition period (the "Termination Period") shall begin. Upon delivery of a written notice pursuant to Section 9.3.3, a 12-month Termination Period shall begin. The Termination Period shall extend for the period reasonably determined by Kmart, such period not to exceed twenty (24) months following delivery of a Notice of Termination or a written notice pursuant to Section 9.3.1 or 9.3.2. In the case of a termination pursuant to Section 9.3 (except a termination pursuant to 9.3.3), the Termination Period shall be the twelve (12) month notice period contemplated by Sections 9.3.1 and 9.3.2 and an additional wind down period reasonably determined by Kmart, such additional wind down period not to exceed twelve (12) months. In the case of a material breach of this Agreement giving rise to a cure period pursuant to Section 9.2, the Termination Period shall extend for up to a maximum of twenty-one (21) months following expiration of any ninety (90) day cure period, or eighteen (18) months following the expiration of any 180-day cure period rather than twenty-four (24) months. During the Termination Period, the parties shall cooperate with each other in terminating and winding down the business relationship contemplated by this Agreement, subject to the service level requirements set forth on Schedule 4A. In connection therewith, the parties shall take the following additional actions: 9.5.1 Kmart shall purchase and take delivery from Fleming of the Products identified in Section 19 in accordance with the terms thereof. 9.5.2 If Fleming gives Kmart a Notice of Termination pursuant to Section 9.2.1, the obligation of Fleming to cooperate with Kmart in terminating and winding down the business relationship contemplated by this Agreement during the Termination Period pursuant to Section 9.5 (including without limitation, the continued extension of credit to Kmart) shall be conditioned upon Fleming's receipt of adequate assurances of future performance by Kmart failing which Fleming shall be entitled to condition its continued support on C.O.D. payments, letters of credit, or other assurances of payment satisfactory to Fleming. The foregoing shall not apply: (i) with respect to unpaid amounts by Kmart that are the subject of a good faith dispute if reasonable steps are being taken in good faith to resolve such dispute and (ii) if Kmart is contesting in good faith the grounds for the termination hereof pursuant to Section 9.2.1. Nothing set forth in this Section 9.5.2 shall limit, restrict or otherwise affect in any manner the right of either party to demand adequate assurance of future performance in accordance with applicable law. 9.5.3 Fleming shall discontinue all diverting and forward buying for Kmart during the Termination Period. 9.6 Additional Obligations on Termination. 9.6.1 If the termination is a result of a material breach of this Agreement by Fleming, a Change of Control of Fleming, or pursuant to Section 9.3.2(b), Fleming shall reimburse Kmart for the Start-Up Costs incurred under this Agreement. The reimbursement shall be an amount equal to the product of (a) the total Start-Up Costs paid to Fleming by Kmart multiplied by (b) a fraction, the numerator of which is the sum of (x) the number of full years remaining in the term of this Agreement and (y) any partial year remaining in the term of this Agreement, and the denominator of which is ten. 9.6.2 Upon a termination or expiration of this Agreement, Kmart, directly or through any affiliate thereof, shall have the right to purchase from Fleming, and Fleming shall be obligated to sell to Kmart, any Distribution Center from which at least 80% of the annual sales are attributable to Kmart business (a "Dedicated Distribution Center"). Upon a termination of this Agreement by Fleming, Fleming may require Kmart to purchase any Dedicated Distribution Center. The purchase price for any Dedicated Distribution Center shall be the then current fair market value. The purchase of any Distribution Center will include (i) the acquisition of the real property and improvements of an owned Distribution Center, (ii) the acquisition of all furniture, fixtures, equipment (including racking) and other personal property used in the operation of the Distribution Center, (iii) the assignment and assumption of the lease of any leased Distribution Center, (iv) to the extent legally assignable, and subject to the last sentence of this Section 9.6.2, the assignment and assumption of any lease of any personal property or license of any software used exclusively in the operation of the Distribution Center, (v) a transfer free of all liens, claims, and encumbrances, and (vi) a warranty of title to the transferred assets. Any such purchase shall be without any warranty as to the physical condition of the transferred assets, except that Fleming shall remain liable for any release of any hazardous substance in, on, or under the Distribution Center caused by Fleming. Fleming shall use commercially reasonable efforts to obtain the consent of any third party (e.g., landlords, software licensors and equipment lessors) necessary for the transfer of any Distribution Center to Kmart. 10. Transition Period. The first year of this Agreement commencing on the Effective Date shall be a transition period (the "Transition Period"). During the Transition Period, Fleming and Kmart will take the actions specified on Schedule 10. 10.1 Transition Team. Each party will designate a team to coordinate all actions taken by the parties during the Transition Period (the "Transition Team"). The Transition Team shall establish or modify milestones to achieve a complete transition to this Agreement such milestones to be consistent with the actions specified on Schedule 10 (the "Transition Milestones"). The leaders of the Transition Team shall consist of designated officers of each party and shall include senior executive officers with expertise and responsibility for procurement, logistics and administration functions within their respective organizations. 10.2 Transition Milestones. If the parties fail to achieve the Transition Milestones (which shall be deemed to include Fleming's obligations under Section 10.3) within agreed upon time frames and such failure by Fleming is not attributable to Kmart or any of Kmart's existing suppliers, Fleming shall reimburse Kmart on demand for any fees and direct costs reasonably incurred by Kmart over the costs that would have been incurred had the Transition Milestones been met on time. If Kmart purchases products from any third party due to Fleming's failure to achieve the Transition Milestones, such purchases from third parties shall count toward fulfilling volume requirements necessary to achieve graduated reductions in fees based on purchase volumes under this Agreement. 10.3 Distribution Centers. Within 149 days following the Effective Date, Fleming will make investments in existing Distribution Centers and establish new Distribution Centers both as required to service the Stores commencing as promptly as practicable and in no event later than the expiration of the 149-day period referred to above and continuing during the term of this Agreement; provided, however, that with respect to the Distribution Center located in Massillon, Ohio, such investments shall be made in 2002. At Kmart's request, Fleming shall make its general plans for implementation of the Start-Up Costs (as defined in Schedule 5) available to Kmart for review. 10.4 Commencement of Fees. For each Distribution Center currently servicing Stores, the fees for services and costs of goods described in this Agreement will commence to apply with respect to all Products when Kmart begins to transfer the procurement of any such Products from current Kmart wholesale suppliers to Fleming for such Distribution Center. For each Distribution Center currently servicing Stores and which is not expected to receive additional volume of Products, the fees for services and costs of Products described in this Agreement will commence to apply with respect to all Products when such fees are applied for the first time pursuant to the immediately preceding sentence. Prior to the time for which the fee for services and prices for Products contemplated in this Agreement commence to apply in the manner contemplated in the two immediately proceeding sentences, product pricing and fees for Products being supplied to Kmart shall be the same as are charged to Kmart under the existing Supply Agreement between the parties dated October 11, 1999 (the "Existing Agreement"). For all new Distribution Centers, the fees for services and price of Products contemplated in this Agreement shall apply immediately. 10.5 Termination of Existing Agreement. Pricing and fees charged for Products in the circumstances contemplated in the first sentence of Section 10.4 shall be those set forth in the Existing Agreement, which to that effect are hereby incorporated by reference. On the Effective Date, the Existing Agreement shall be terminated without further action by either party and neither party shall have any obligations to the other thereunder, except for the first two sentences of Section 5(d). On June 1, 2001, Kmart shall repay to Fleming an amount equal to a proportionate part of the unamortized portion of the Conversion Allowance (as defined in the Existing Agreement) as of such date calculated pursuant to Exhibit E.2 thereof. As soon as practicable after the Effective Date, Kmart and Fleming shall attempt to resolve any disputes regarding unpaid charges for product purchases under the Existing Agreement, resolution of all outstanding accounts receivable, pallet reconciliation, and other claims and disputed charges in accordance with the terms of Schedule 5B hereof. Kmart shall not be required to purchase any inventory maintained by Fleming pursuant to Section 5(d) of the Existing Agreement. 11. The Account Team. 11.1 The Account Management Team. Within fifteen (15) days after the Effective Date, the parties shall create an account management team (the "Account Management Team"). The Account Management Team shall have responsibility for the overall operational implementation of the provisions hereof and the recommendations of the BPT. 11.2 Meetings. The Account Management Team shall conduct weekly video conferences, and participate in the weekly operations meetings of each party pertaining to the implementation of the provisions of this Agreement. The Account Management Team shall conduct monthly meetings in Troy, Michigan and in Dallas, Texas, on an alternating basis. On a quarterly basis, the Account Management Team shall meet at locations to be determined from time to time, to (a) evaluate the parties activities under this Agreement, (b) discuss real estate opportunities and issues pertinent to the Agreement, (c) develop, implement and monitor future supply chain efficiencies and improvements, and (d) develop six month promotional planning. 11.3 Resolution of Operational and Performance Issues. The Account Management Team shall be responsible for addressing and resolving operational issues that arise during the term of the Agreement, including without limitation the parties failure to meet the minimum or target service level requirements as described on Schedule 4A, as well as other issues regarding the parties performance or non-performance under this Agreement. If the Account Management Team is unable to resolve the issues within thirty (30) days, such issues shall be referred to the BPT for further consideration. If the BPT is unable to resolve the issues within thirty (30) days, such issues shall be referred to a designated group of senior executive officers of each party. If the parties are unable resolve the issues, either party shall be entitled to pursue its rights and remedies under this Agreement, including the right to pursue arbitration of the dispute in accordance with Section 16 hereof. 12. Joint Venture. 12.1 Formation. Following the Effective Date, Fleming and Kmart shall explore in good faith the possibility of establishing a limited liability company or other mutually agreeable form of business organization (the "Joint Venture") to develop and operate a chain of price impact retail stores (the "Joint Venture Stores") which may include, if the parties so agree, some or all of the price impact stores currently operated by Fleming under the Food 4 Less(R) banner or any successor banner, if such stores continue to be owned by Fleming (the "Fleming Stores"), subject to any existing contractual agreements with respect to such stores. This Agreement contains references to the Joint Venture Stores and the Fleming Stores in respect of cumulative volumes of purchases, merchandising and other matters. If the Joint Venture contemplated in this Section is not formed and the Joint Venture Stores are not created, then all provisions in this Agreement regarding the Joint Venture Stores, the Joint Venture and the Fleming Stores shall be deemed to be deleted, except with respect to the references to the Fleming Stores contained in the proviso in the last sentence of Section 12.2. 12.2 Merchandising. Kmart will be responsible for the merchandising functions relating to Products supplied to the Stores and the Joint Venture Stores, including pricing, promotional planning, assortment planning, and display planning. If the product assortment for other parties sourced by Fleming differs from that requested by Kmart, the parties will try to coordinate product selection and will review in good faith the Product assortment that is most cost effective at a given quality level. If Kmart and Fleming cannot agree upon the Product assortment, they shall refer the matter to the BPT for a recommendation. In any event, Kmart shall have the ultimate discretion regarding the merchandise assortment for the Stores, and the Joint Venture Stores. Fleming shall have the ultimate discretion as to the merchandise assortment for the Fleming Stores and its independent customers; provided, however, until such time as the Joint Venture is formed Fleming shall be responsible for the merchandising functions for the Fleming Stores but Fleming shall coordinate with Kmart and cooperate in merchandising for the Fleming Stores and shall align strategies to achieve the benefits contemplated by this Agreement. 13. Confidentiality. 13.1 As used in this Agreement, the term "Confidential Information" means any non-public and/or proprietary information that is disclosed by one party to this Agreement (the "Disclosing Party") to the other party ("Recipient") or otherwise learned by Recipient as a result of this Agreement. The Confidential Information will include all information derived from the foregoing Confidential Information. The provisions of this Agreement and all information relating to the prices charged to Kmart, Products, services, fees and allowances is deemed Confidential Information. 13.2 Recipient agrees to hold Confidential Information it receives from the Disclosing Party in confidence, treating such Confidential Information as if it were Recipient's own confidential information. However, Recipient must at a minimum take commercially reasonable steps to ensure that the Disclosing Party Confidential Information is not disclosed to, or used by any person, firm or entity except Recipient's own employees and agents and then only to the extent necessary for performance of this Agreement. The confidentiality obligations set forth above do not apply to information (a) available to the public through no fault of Recipient; (b) released by Disclosing Party on a non-confidential basis without restrictions on disclosure; and (c) to the extent disclosure of information is required by law, including under any valid court or governmental order, and Recipient provides Disclosing Party immediate notice thereof so that Disclosing Party will have an opportunity to contest disclosure or seek an appropriate protective order. Notwithstanding the foregoing, the parties shall be entitled to disclose this Agreement, including the Exhibits and Schedules hereto to the Securities and Exchange Commission and any securities exchange on which the securities of either party are listed; provided however, the parties shall use commercially reasonable efforts to secure permission not to disclose the commercial or economic terms of this Agreement and will cooperate with each other in good faith to prevent such disclosure if legally permitted to do so. The confidentiality and non-disclosure obligations in this Agreement survive and continue for three years following termination of this Agreement for any reason and bind Recipient's legal representatives, successors and assigns. 13.3 The parties will consult with each other prior to making any press release or similar public announcements regarding this Agreement. 13.4 This Section 13 supersedes the terms of any previous confidentiality agreements between the parties, including, without limitation, the letter agreement dated November 28, 2000. 14. Representations and Warranties. 14.1 Both Parties. Each party represents and warrants to the other party that: 14.1.1 it is a duly organized, validly existing and in good standing in each jurisdiction where necessary to perform this Agreement; 14.1.2 it has the full legal right, power and authority to execute, deliver, and perform this Agreement; 14.1.3 to its knowledge, no litigation or governmental, regulatory, or administrative agency investigation or proceeding is pending or threatened against it that might adversely affect its ability to perform this Agreement; 14.1.4 the signing and delivery of this Agreement by the person signing for the party and the performance of this and any agreement relating to this Agreement by the party have been duly authorized by all necessary action of its board of directors and do not conflict with (a) any law, order, writ, injunction, decree, rule, or regulation of any court, administrative agency, or any other governmental authority, (b) any agreement to which it is a party or by which it is otherwise bound, or (c) any provision of its certificate of incorporation or bylaws, and does not result in any breach of, constitute a default under or result in the creation of any lien, charge, security interest, or other encumbrance upon the Products; 14.1.5 no approval, consent, or withholding of objection is required from any governmental authority or any other party with respect to the entering into or performing this Agreement; and 14.1.6 this Agreement has been authorized, executed, and delivered by the party and constitutes a legal, valid, and binding obligation of the party, enforceable against the party in accordance with its terms. 14.2 Kmart. Kmart represents and warrants that not later than the expiration date of the Transition Period, all Kmart Additional Arrangements shall have been terminated and that not later than July 1, 2001, all Kmart Existing Arrangements shall have been terminated and that such arrangements shall not have been extended or renewed. To the best of its knowledge, Kmart has no material existing contractual relationship with suppliers of products comparable to the products to be supplied under this Agreement other than the Kmart Existing Arrangements. 15. No Implied Covenants/Reliance. Each party has relied solely and exclusively on its own judgment and the advice of its own attorneys in entering into this Agreement. No representative or agent of a party has made any statement or representation to the other beyond those in this Agreement that have induced signing of this Agreement. There are no implied or otherwise unstated covenants, rights, or obligations by, of, or against either party. The parties expressly disclaim the existence of any implied covenant of good faith and/or fair dealing. 16. Applicable Law/Arbitration. THIS AGREEMENT, AND ALL OTHER ASPECTS OF THE BUSINESS RELATIONSHIP BETWEEN THE PARTIES, SHALL BE CONSTRUED, INTERPRETED AND ENFORCED UNDER AND IN ACCORDANCE WITH THE LAWS OF THE STATE OF MICHIGAN WITHOUT REGARD TO CHOICE OF LAW PROVISIONS. Any controversy, claim or dispute of whatever nature arising out of or in connection with this Agreement or the breach, termination, performance or enforceability hereof or out of the relationship created by this Agreement (a "Dispute") in which the amount in controversy exceeds One Million Dollars ($1,000,000), shall be resolved by mediation and, if mediation fails to settle the Dispute, by binding arbitration. Any such binding arbitration will be held in Detroit, Michigan. The procedures to be followed by the parties are as follows: 16.1 Mediation. Neither party shall commence an arbitration proceeding unless such party shall first give a written notice (a "Dispute Notice") to the other party setting forth the nature of the Dispute. The parties shall attempt in good faith to resolve the Dispute by mediation under the CPR Institute for Dispute Resolution ("CPR") Model Mediation Procedure for Business Disputes in effect at the time of this Agreement. If the parties cannot agree on the selection of a mediator within twenty (20) days after receipt of the Dispute Notice, the mediator will be selected in accordance with the CPR Procedure. 16.2 Arbitration. If the Dispute has not been resolved by mediation as provided above within sixty (60) days after receipt of the Dispute Notice, or if a party fails to participate in a mediation, then the Dispute shall be determined by binding arbitration in Detroit, Michigan. The arbitration shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association ("AAA") in effect on the Effective Date, subject to any modifications in this Agreement. 16.2.1 Three arbitrators will be employed to hear disputes under this provision. Persons eligible to serve as arbitrators shall be members of the AAA Large, Complex Case Panel or any person mutually acceptable to all parties. The arbitrators shall base the award on the applicable law and judicial precedent that would apply if the Dispute were decided by a United States District Court, and the arbitrators shall have no authority to render an award that is inconsistent therewith. The award shall be in writing and include the findings of fact and conclusions of law upon which is it based if so requested by either party. Absent of showing a good cause, the hearing shall be conducted within ninety (90) days from the service of the statement of claim. Except as contemplated in Section 16.6, each party shall bear the expense of its own attorneys, experts, and out of pocket costs as well as 50% of the expense of administration and arbitrators' fees. 16.2.2 Depositions, other than those taken in lieu of live testimony, shall not be taken except under the arbitrators' finding of special need. The parties shall be entitled to conduct document discovery in accordance with a procedure where responses to information requests shall be made within twenty (20) days from their receipt. The parties knowingly and voluntarily waive their rights to have any Dispute tried and adjudicated by a judge or a jury. 16.2.3 The arbitration shall be governed by the laws of the State of Michigan, without regard to conflicts-of-law rules, and by the arbitration law of the Federal Arbitration Act (Title 9, U.S. Code). Judgment upon the award rendered may be entered in any court having jurisdiction. Notwithstanding the foregoing, upon the application by either party to a court for an order confirming, modifying, or vacating the award, the court shall have the power to review whether, as a matter of law based on the findings of fact determined by the arbitrator(s), the award should be confirmed, modified or vacated in order to correct any errors of law made by the arbitrator(s). In order to effectuate such judicial review limited to issues of law, the parties agree (and shall stipulate to the court) that the findings of fact made by the arbitrator(s) shall be final and binding on the parties and shall serve as the facts to be submitted to and relied upon by the court in determining the extent to which the award should be confirmed, modified or vacated. 16.2.4 Except as otherwise required by law, the parties and the arbitrator(s) shall keep confidential and not disclose to third parties any information or documents obtained in connection with arbitration process, including the resolution of the Dispute. If either party fails to proceed with arbitration as provided in this Agreement, or unsuccessfully seeks to stay the arbitration, or fails to comply with the arbitration award, or is unsuccessful in vacating or modifying the award pursuant to a petition or application for judicial review, the other party may be entitled to be awarded costs, including reasonable attorneys' fees, paid or incurred in successfully compelling such arbitration or defending against the attempt to stay, vacate, or modify such arbitration award and/or successfully defending or enforcing the award, the determination of awarding costs to be made by the arbitrator(s). 16.2.5 Notwithstanding anything to the contrary in this Agreement: (a) The parties recognize that their business relationships may give rise to the need for one or more of the parties to seek emergency, provisional, or summary judicial relief to, among other things, repossess and sell or otherwise dispose of goods, equipment and/or fixtures, to prevent the sale or transfer of goods, equipment, fixtures, and other real and personal property, to protect real or personal property from injury, to obtain possession of real property, to enforce indemnification rights, and for temporary injunctive relief. Immediately following the issuance of any such relief, the parties agree to the stay of any judicial proceedings pending mediation or arbitration of all underlying claims between the parties. (b) The parties recognize that, under applicable law, the arbitrators may not have the power to order equitable relief and the parties do not by this Agreement waive any rights they may have to seek and enforce equitable relief. Therefore, any claims for equitable relief that cannot be fully awarded by the arbitrators are outside the scope of this Agreement and the parties are free to pursue civil remedies for such claims. Any such claim(s) shall be brought in the United States District Court for the Eastern District of Michigan. (c) Nothing shall restrict the right of a party to file counterclaims, cross claims or third party claims in any litigation brought by a third party. (d) Except with respect to the confidentiality obligations contained in Section 13 that involve willful misconduct or gross negligence, EACH PARTY WAIVES THE RIGHT IN ANY ARBITRATION OR JUDICIAL PROCEEDING TO RECEIVE CONSEQUENTIAL, PUNITIVE, EXEMPLARY, OR STATUTORILY PRESCRIBED DAMAGES. THE ARBITRATORS SHALL NOT HAVE THE POWER TO AWARD CONSEQUENTIAL, PUNITIVE, EXEMPLARY OR STATUTORILY PRESCRIBED DAMAGES, unless the arbitrator(s) or a court of competent jurisdiction determines that this limitation, under the circumstances, violates public policy. 17. Independent Contractor. Fleming is an independent contractor of Kmart in the performance of this Agreement, and nothing in this Agreement may be construed to create or constitute a joint venture, partnership, agency, franchise, lease, or any other arrangement other than as expressly described in this Agreement. Each party is responsible for its own operations. Each party must exercise control over its employees, agents, representatives, subcontractors, and suppliers and is solely responsible for the verification of identity and employment eligibility, for the payment of any wages, salaries, or other remuneration of its employees, agents, representatives, subcontractors and suppliers, and for the payment of any payroll taxes, contributions for unemployment or workers compensation, social security, pensions or annuities that are imposed as a result of the employment of its employees, agents, representatives, subcontractors, and suppliers. Neither party may pledge credit, incur any obligation or liability, hire any employee, nor purchase any products or services in the name of the other party or any subsidiary or affiliate of the other party. 18. Notices. Any notice required by this Agreement shall be written and shall be given or sent personally, by national overnight courier, by facsimile copy or by first-class certified mail, postage prepaid, return receipt requested. All notices shall be addressed as follows: 18.1 Notices to Fleming: Fleming Companies, Inc. 1945 Lakepointe Dr. Lewisville, Texas 75057-6424 Attn: Executive Vice President, President of Wholesale Fax: (972) 906-1541 With a copy to: Fleming Companies, Inc. 1945 Lakepointe Dr. Lewisville, Texas 75057-6424 Attn: General Counsel Fax: (972) 906-1530 18.2 Notices to Kmart: Kmart Corporation 3100 West Big Beaver Road Troy, Michigan 48084 Attn: Vice President, General Merchandise Manager, Food and Consumables Fax: (248) 614-0638 With a copy to: Kmart Corporation 3100 West Big Beaver Road Troy, Michigan 48084 Attn: General Counsel Fax: (248) 463-1054 A party may designate another address on fifteen (15) days prior notice to the other party in accordance with the foregoing. 19. Purchase of Store Supplies and Control Label Products. Upon the expiration of this Agreement, or the Termination Period, if any, Kmart will purchase from Fleming (a) all store supplies that Fleming has purchased or obtained as supplies for Kmart, (b) Products procured exclusively for Kmart, (c) booked promotional merchandise, and (d) any inventory in Dedicated Distribution Centers attributable to Kmart purchases. Kmart shall pay for and remove such items from Fleming's Distribution Centers within thirty (30) days after the termination of this Agreement at the purchase price otherwise provided in this Agreement. 20. Office Space; Solicitation of Employees. 20.1 Office Space. From time to time, employees of Kmart may perform tasks relating to this Agreement at Fleming's premises, and employees of Fleming may perform tasks relating to this Agreement at Kmart's premises. Each party shall make available at its expense, appropriate office space and related support services for such purposes to employees of the other party performing tasks relating to this Agreement at its premises. 20.2 Solicitation of Employees. The parties agree that, during the term of this Agreement and for a period of one year following termination of this Agreement, neither of them will, without the prior written consent of the other party directly or indirectly, solicit for employment or hire any employee (director level or above) of the other party or any of its subsidiaries with whom they have had contact or who first became known to them in connection with the Agreement, provided, however, that the foregoing provision will not prevent them from employing any such persons (i) who initiate discussions regarding such employment without any direct or indirect solicitation by them, (ii) who respond to any public advertisements placed by them, or (iii) whose employment with either party or its subsidiaries terminated prior to employment discussions with the other party. 21. Insurance and Indemnity. 21.1 Insurance Coverages. During the term of this Agreement, Fleming shall maintain the following insurance coverages: 21.1.1 Commercial general liability written on an occurrence coverage form including bodily injury and property damage liability, products and completed operations liability, contractual liability, and personal and advertising liability, with coverage limits of at least $3,000,000 per occurrence; $3,000,000 aggregate (products and completed operations); and $3,000,000 general aggregate; 21.1.2 Automobile liability for all owned, leased, or rented vehicles with property damage and bodily injury coverage with combined single limit not less than of $3,000,000 per each occurrence; 21.1.3 Workers compensation (statutory) and employers' liability with minimum limits of not less than $1,000,000 per accident, $1,000,000 disease (each employee), and $1,000,000 disease (policy limit), but in no event less than the minimum amounts required by law; and 21.1.4 Umbrella/excess liability with minimum limits of $5,000,000 each occurrence and aggregate. 21.2 Forms of Policies; Evidence. The insurance required by this section may have deductibles in such amounts as Fleming reasonably determines. Kmart shall be named as an additional insured under such insurance, except the workers compensation insurance. Fleming may fulfill these insurance obligations through blanket coverage and through any combination of primary and excess policies. Fleming will provide Kmart certificates of insurance evidencing the insurance coverage required by this section. The certificates shall provide that the issuing company will endeavor to mail 30 days prior written notice to Kmart of any cancellation of coverage before the stated expiration date. Fleming shall give Kmart thirty (30) days prior written notice of the cancellation or non-renewal of any insurance coverage before the stated expiration date. Fleming shall maintain such coverage with one or more insurance companies reasonably acceptable to Fleming and Kmart and licensed to do business in the states where such licensing is required to provide the required insurance. 21.3 Fleming Limited Warranty. Fleming warrants that (i) it will convey to Kmart good and marketable title to all Products supplied hereunder, and (ii) all Products sold to Kmart shall (a) be free and clear of all liens, claims and encumbrances, (b) properly stored, handled and transported, and (c) shall be free of defects created by the negligence or willful misconduct of Fleming. THE FOREGOING WARRANTIES ARE IN LIEU OF ALL OTHER WARRANTIES WITH RESPECT TO THE PRODUCTS, EXPRESS OR IMPLIED. FLEMING DISCLAIMS ALL IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. 21.4 Vendor Warranties. Fleming shall assist and cooperate with any effort by Kmart to avail itself of the benefits of any warranties made by any manufacturer, vendor, or supplier of Products and any services relating to Products and of any insurance relating thereto. Fleming shall use commercially reasonable efforts to obtain the written confirmation by all manufacturers, vendors, and suppliers of Products and services relating to Products that their warranties with respect to Products and such services and the related insurance coverage extend to Kmart and Kmart's customers. If Kmart is unable to avail itself directly of any such benefits, such efforts may include, upon Kmart's request, Fleming seeking indemnification or contribution from any such manufacturers, vendors, or suppliers directly and passing on any proceeds therefrom to Kmart, except and to the extent Fleming shall have paid the claim arising under the vendor's warranty. Fleming shall indemnify and hold harmless Kmart, and its affiliates, and their respective officers, directors, and employees, from all claims, liabilities, losses, damages, expenses, and costs (including reasonable attorneys' fees) arising out of matters covered by the warranties of such manufacturers, vendors, and suppliers of Products and services relating to Products. The foregoing indemnity obligation is only to the extent Fleming receives payment under or with respect to such warranties and has not paid the related claim arising under the warranty, if any. 21.5 Survival. The provisions of Sections 21.3 and 21.4 shall survive the termination of this Agreement. 22. Miscellaneous. 22.1 Assignment. The provisions of this Agreement are binding upon and inure to the benefit of the parties hereto and their respective permitted successors and assigns; provided, however, neither this Agreement nor the rights and obligations of either party hereunder shall be assignable without the prior written consent of the other party, which a party may grant or withhold in its sole discretion. However, either party may assign this Agreement to a subsidiary or affiliate that is owned or controlled by, or is under common ownership or control with that party. Any prohibited assignment is void. With respect to any permitted assignment, the assigning party remains fully responsible for performance and for all acts and omissions of its assignee. 22.2 Incorporation and Integration. This Agreement, including the schedules attached hereto, is the final and complete agreement between Kmart and Fleming with respect to the subject matter hereof. No representations, inducements, promises, or understandings in relation to the subject matter hereof, whether oral or written, exist unless they are expressly set forth in this Agreement. This Agreement supersedes all prior understandings, agreements, contracts, or arrangements between the parties, whether oral or written, unless otherwise expressly incorporated in this Agreement. No agreement or other understanding purporting to add to or to modify the terms and conditions hereof is binding unless agreed to by the parties in writing. Any terms or conditions in any invoices, statements, or other forms of the parties used in the performance of this Agreement that are in addition to or conflict with the terms and conditions hereof are void. 22.3 Headings. Headings or captions of the sections in this Agreement are for convenience of reference only and in no way define or limit or describe the intent of this Agreement or any provision hereof. 22.4 Limitation of Actions. An action for breach of this Agreement must be commenced within three years after the cause of action accrued. A party shall commence an action by sending the other party a statement of claim and demand for arbitration under the provisions of this Agreement. 22.5 Force Majeure. Neither party shall be deemed in default of this Agreement if such party's non-performance is the result of a condition beyond its control, including, but not limited to, labor strikes (subject to Section 8), government rationing and acts of God. A party's financial condition is not a condition beyond its control. If any event beyond Fleming's control affects Fleming's ability to source any Store from any Distribution Center but does not otherwise affect Fleming's operations as a whole, then Fleming shall use reasonable efforts to source the affected Stores from another Distribution Center; provided, however, that any reasonable incremental cost arising from such sourcing shall be paid by Kmart. 22.6 State and Local Taxes. Kmart represents and warrants that all Products and other tangible personal property purchased from Fleming shall be purchased for resale in the ordinary course of Kmart's business and that Kmart shall comply with pertinent state and local laws regarding the collection and payment of sales, use, and other taxes applicable to all such resale transactions and furnish evidence thereof to Fleming. If any such tangible personal property is put to a taxable use by Kmart or is purchased by Kmart other than for resale, Kmart shall make timely return and payment to the proper taxing authority of all sales, use, and like taxes applicable thereto, and shall indemnify Fleming against such taxes and all penalties and interest related thereto. Kmart shall reimburse Fleming for all transaction taxes paid by Fleming (including, without limitation, bottle and other recycling taxes and service taxes) imposed on the sale of property and services contemplated by this Agreement. 22.7 Severable. If any provision of this Agreement is determined by a court of competent jurisdiction or arbitrators appointed pursuant to this Agreement to be void or unenforceable, then the remaining provisions of this Agreement shall be given effect as if such void or unenforceable provision was not a part of this Agreement. 22.8 Counterparts. This Agreement may be executed in multiple counterparts, all of which taken together will constitute one instrument and each of which will be considered an original for all purposes. 22.9 Authority to Sign. Each person signing below warrants and represents that he has full power and authority to execute this Agreement on behalf of the party he represents. Upon request, each party must provide a certified resolution or certificate of authority authorizing the undersigned to enter into and sign this Agreement. 22.10 Waivers. No waiver of any breach or default is a waiver of any subsequent breach or default. 22.11 Approval. Wherever this Agreement provides for the consent or approval of a party as a condition to an action by the other party, except as otherwise provided in Section 22.1, the party whose consent or approval is required shall not unreasonably withhold, condition or delay its consent. EXECUTED as of the day and year first written above. FLEMING COMPANIES, INC. By MARK S. HANSEN Name: Mark S. Hansen Title: Chairman and Chief Executive Officer KMART CORPORATION By CHARLES C. CONAWAY Name: Charles C. Conaway Title: Chairman and Chief Executive Officer SCHEDULES Schedule A Stores Schedule 1.1 Products Schedule 1.2A HBC and GMD Schedule 1.2B Dunigan Fuel Terms Schedule 1.3 Product Pricing Schedule 1.4 High Velocity Products Schedule 2 Logistics Services Schedule 4A Service Requirements Schedule 4B Quality Assurance and Food Safety Guidelines Schedule 4C Shrink Audit Procedure Schedule 4D Audit Procedures Schedule 4E Management Reports Schedule 5 Product and Service Fees and Charges Schedule 5A Bid Values Schedule 5B Accounts Receivable Reconciliation Schedule 10 Transition Milestones SCHEDULE A STORES The following list of Stores will be deemed to be automatically amended from time to time without further action of the parties to provide for (a) the removal of Stores from the list as a result of closure, relocation, sale, or other disposition by Kmart, and (b) the addition of Stores to the list as a result of the opening or acquisition of new Stores through the term of this Agreement, whether designated "Super K," "Big K" or by any successor names to such stores. Kmart will provide to Fleming at least sixty (60) days prior written notice of Stores to be removed or added, as the case may be, during the term of this Agreement so that Fleming may commence or terminate service. Initially, each Store shall be primarily supplied by the Distribution Center named opposite to such Store. NOTE: Super K stores with a * in the "Fres./Sac. Note" column will utilize the following supply arrangement: From Fresno: Grocery, Dairy, Frozen, Candy, Cigarettes From Sacramento: Lunch/Frozen Meat, Smoked IQF, Bakery, Deli, Seafood, Commodity Meat From Tracy: Produce, Floral Products from Tracy will be straight runs to stores or crossdocked through Fresno
BK Store 2001 SK Store Fres./Sac. 2001 Number Proposed DC Number Note Proposed DC --------------------------------------------------------------------------------------- 3008 Allentown PA 4906 Allentown PA 3021 Allentown PA 4928 Allentown PA 3026 Allentown PA 4929 Allentown PA 3027 Allentown PA 4935 Allentown PA 3028 Allentown PA 4936 Allentown PA 3040 Allentown PA 4939 Allentown PA 3047 Allentown PA 4960 Allentown PA 3048 Allentown PA 4963 Allentown PA 3050 Allentown PA 4967 Allentown PA 3051 Allentown PA 3974 * Fresno CA 3056 Allentown PA 4957 * Fresno CA 3060 Allentown PA 4987 * Fresno CA 3071 Allentown PA 7697 * Fresno CA 3073 Allentown PA 3575 Ft Wayne IN 3077 Allentown PA 3784 Ft Wayne IN 3087 Allentown PA 3786 Ft Wayne IN 3093 Allentown PA 3910 Ft Wayne IN 3098 Allentown PA 4059 Ft Wayne IN 3102 Allentown PA 4108 Ft Wayne IN 3115 Allentown PA 4722 Ft Wayne IN 3117 Allentown PA 4745 Ft Wayne IN 3129 Allentown PA 4764 Ft Wayne IN 3131 Allentown PA 4821 Ft Wayne IN 3136 Allentown PA 4903 Ft Wayne IN 3138 Allentown PA 4910 Ft Wayne IN 3141 Allentown PA 4913 Ft Wayne IN 3146 Allentown PA 4915 Ft Wayne IN 3149 Allentown PA 4924 Ft Wayne IN 3152 Allentown PA 4937 Ft Wayne IN 3158 Allentown PA 4938 Ft Wayne IN 3160 Allentown PA 4949 Ft Wayne IN 3167 Allentown PA 4954 Ft Wayne IN 3172 Allentown PA 4964 Ft Wayne IN 3175 Allentown PA 4966 Ft Wayne IN 3183 Allentown PA 4971 Ft Wayne IN 3187 Allentown PA 4982 Ft Wayne IN 3193 Allentown PA 4984 Ft Wayne IN 3196 Allentown PA 4990 Ft Wayne IN 3201 Allentown PA 4991 Ft Wayne IN 3202 Allentown PA 4992 Ft Wayne IN 3216 Allentown PA 4994 Ft Wayne IN 3222 Allentown PA 4995 Ft Wayne IN 3225 Allentown PA 4998 Ft Wayne IN 3229 Allentown PA 7416 Ft Wayne IN 3232 Allentown PA 7525 Ft Wayne IN 3237 Allentown PA 7584 Ft Wayne IN 3244 Allentown PA 7634 Ft Wayne IN 3256 Allentown PA 7913 Ft Wayne IN 3259 Allentown PA 9817 Ft Wayne IN 3264 Allentown PA 3948 Garland TX 3266 Allentown PA 3992 Garland TX 3268 Allentown PA 4904 Garland TX 3277 Allentown PA 4908 Garland TX 3282 Allentown PA 4919 Garland TX 3285 Allentown PA 4920 Garland TX 3288 Allentown PA 4931 Garland TX 3295 Allentown PA 4941 Garland TX 3318 Allentown PA 4948 Garland TX 3325 Allentown PA 4972 Garland TX 3332 Allentown PA 3901 Lafayette LA 3333 Allentown PA 4922 Lafayette LA 3339 Allentown PA 4926 Lafayette LA 3340 Allentown PA 4930 Lafayette LA 3350 Allentown PA 4946 Lafayette LA 3352 Allentown PA 4947 Lafayette LA 3361 Allentown PA 4958 Lafayette LA 3372 Allentown PA 4959 Lafayette LA 3380 Allentown PA 4973 Lafayette LA 3390 Allentown PA 7550 Lincoln NE 3392 Allentown PA 4914 Memphis TN 3393 Allentown PA 4968 Memphis TN 3394 Allentown PA 4969 Memphis TN 3396 Allentown PA 4970 Memphis TN 3399 Allentown PA 3995 Phoenix AZ 3401 Allentown PA 4911 Phoenix AZ 3406 Allentown PA 4912 Phoenix AZ 3414 Allentown PA 4996 Phoenix AZ 3415 Allentown PA 4933 Sacramento CA 3416 Allentown PA 4943 Sacramento CA 3418 Allentown PA 4944 Sacramento CA 3419 Allentown PA 4983 Sacramento CA 3433 Allentown PA 3043 Salt Lake City UT 3434 Allentown PA 4917 Salt Lake City UT 3436 Allentown PA 4918 Salt Lake City UT 3438 Allentown PA 4934 Salt Lake City UT 3454 Allentown PA 7378 Salt Lake City UT 3459 Allentown PA 4719 Warsaw NC 3460 Allentown PA 4916 Warsaw NC 3465 Allentown PA 3785 Warsaw NC 3467 Allentown PA 3908 Warsaw NC 3480 Allentown PA 4758 Warsaw NC 3486 Allentown PA 4901 Warsaw NC 3495 Allentown PA 4927 Warsaw NC 3498 Allentown PA 4950 Warsaw NC 3499 Allentown PA 4953 Warsaw NC 3509 Allentown PA 4955 Warsaw NC 3512 Allentown PA 4956 Warsaw NC 3516 Allentown PA 4961 Warsaw NC 3517 Allentown PA 4986 Warsaw NC 3521 Allentown PA 4988 Warsaw NC 3522 Allentown PA 4997 Warsaw NC 3523 Allentown PA 7345 Warsaw NC 3524 Allentown PA 7353 Warsaw NC 3527 Allentown PA 7469 Warsaw NC 3529 Allentown PA 3535 Allentown PA 3558 Allentown PA 3561 Allentown PA 3564 Allentown PA 3569 Allentown PA 3586 Allentown PA 3593 Allentown PA 3596 Allentown PA 3597 Allentown PA 3600 Allentown PA 3616 Allentown PA 3630 Allentown PA 3638 Allentown PA 3641 Allentown PA 3643 Allentown PA 3654 Allentown PA 3681 Allentown PA 3691 Allentown PA 3694 Allentown PA 3709 Allentown PA 3710 Allentown PA 3711 Allentown PA 3737 Allentown PA 3787 Allentown PA 3792 Allentown PA 3794 Allentown PA 3795 Allentown PA 3796 Allentown PA 3798 Allentown PA 3799 Allentown PA 3800 Allentown PA 3807 Allentown PA 3810 Allentown PA 3824 Allentown PA 3825 Allentown PA 3827 Allentown PA 3837 Allentown PA 3861 Allentown PA 3862 Allentown PA 3873 Allentown PA 3877 Allentown PA 3879 Allentown PA 3884 Allentown PA 3885 Allentown PA 3895 Allentown PA 3911 Allentown PA 3912 Allentown PA 3927 Allentown PA 3928 Allentown PA 3937 Allentown PA 3942 Allentown PA 3943 Allentown PA 3949 Allentown PA 3951 Allentown PA 3953 Allentown PA 3954 Allentown PA 3963 Allentown PA 3964 Allentown PA 3979 Allentown PA 3981 Allentown PA 3987 Allentown PA 3988 Allentown PA 3990 Allentown PA 4010 Allentown PA 4034 Allentown PA 4054 Allentown PA 4064 Allentown PA 4113 Allentown PA 4123 Allentown PA 4150 Allentown PA 4176 Allentown PA 4199 Allentown PA 4207 Allentown PA 4212 Allentown PA 4229 Allentown PA 4233 Allentown PA 4248 Allentown PA 4275 Allentown PA 4313 Allentown PA 4334 Allentown PA 4344 Allentown PA 4361 Allentown PA 4362 Allentown PA 4373 Allentown PA 4383 Allentown PA 4394 Allentown PA 4397 Allentown PA 4399 Allentown PA 4407 Allentown PA 4409 Allentown PA 4418 Allentown PA 4429 Allentown PA 4444 Allentown PA 4445 Allentown PA 4446 Allentown PA 4448 Allentown PA 4460 Allentown PA 4468 Allentown PA 4470 Allentown PA 4478 Allentown PA 4479 Allentown PA 4483 Allentown PA 4496 Allentown PA 4703 Allentown PA 4709 Allentown PA 4713 Allentown PA 4726 Allentown PA 4741 Allentown PA 4742 Allentown PA 4770 Allentown PA 4771 Allentown PA 4772 Allentown PA 4785 Allentown PA 4788 Allentown PA 4793 Allentown PA 4807 Allentown PA 4812 Allentown PA 4825 Allentown PA 4831 Allentown PA 4832 Allentown 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Nashville TN 3850 Nashville TN 3876 Nashville TN 3941 Nashville TN 3944 Nashville TN 3958 Nashville TN 3966 Nashville TN 4006 Nashville TN 4033 Nashville TN 4077 Nashville TN 4093 Nashville TN 4103 Nashville TN 4180 Nashville TN 4232 Nashville TN 4241 Nashville TN 4244 Nashville TN 4312 Nashville TN 4475 Nashville TN 4717 Nashville TN 4739 Nashville TN 4740 Nashville TN 4753 Nashville TN 4759 Nashville TN 4774 Nashville TN 4827 Nashville TN 4835 Nashville TN 4847 Nashville TN 4864 Nashville TN 4883 Nashville TN 4898 Nashville TN 4899 Nashville TN 7021 Nashville TN 7026 Nashville TN 7045 Nashville TN 7063 Nashville TN 7064 Nashville TN 7066 Nashville TN 7069 Nashville TN 7076 Nashville TN 7132 Nashville TN 7138 Nashville TN 7146 Nashville TN 7154 Nashville TN 7174 Nashville TN 7237 Nashville TN 7244 Nashville TN 7245 Nashville TN 7255 Nashville TN 7280 Nashville TN 7288 Nashville TN 7304 Nashville TN 7317 Nashville TN 7354 Nashville TN 7356 Nashville TN 7358 Nashville TN 7362 Nashville TN 7430 Nashville TN 7434 Nashville TN 7437 Nashville TN 7442 Nashville TN 7459 Nashville TN 7460 Nashville TN 7461 Nashville TN 7502 Nashville TN 7607 Nashville TN 7610 Nashville TN 7627 Nashville TN 7718 Nashville TN 7719 Nashville TN 9014 Nashville TN 9112 Nashville TN 9121 Nashville TN 9445 Nashville TN 9503 Nashville TN 9513 Nashville TN 9560 Nashville TN 9566 Nashville TN 9620 Nashville TN 9621 Nashville TN 9622 Nashville TN 9625 Nashville TN 9629 Nashville TN 9633 Nashville TN 9634 Nashville TN 9639 Nashville TN 9648 Nashville TN 9651 Nashville TN 9674 Nashville TN 9680 Nashville TN 9694 Nashville TN 9728 Nashville TN 9735 Nashville TN 9749 Nashville TN 9757 Nashville TN 9758 Nashville TN 9783 Nashville TN 3014 Phoenix AZ 3058 Phoenix AZ 3076 Phoenix AZ 3095 Phoenix AZ 3108 Phoenix AZ 3151 Phoenix AZ 3188 Phoenix AZ 3228 Phoenix AZ 3301 Phoenix AZ 3304 Phoenix AZ 3375 Phoenix AZ 3403 Phoenix AZ 3444 Phoenix AZ 3452 Phoenix AZ 3491 Phoenix AZ 3551 Phoenix AZ 3592 Phoenix AZ 3611 Phoenix AZ 3628 Phoenix AZ 3670 Phoenix AZ 3678 Phoenix AZ 3680 Phoenix AZ 3682 Phoenix AZ 3695 Phoenix AZ 3707 Phoenix AZ 3708 Phoenix AZ 3719 Phoenix AZ 3811 Phoenix AZ 3828 Phoenix, AZ 3857 Phoenix AZ 3858 Phoenix AZ 3881 Phoenix AZ 3918 Phoenix AZ 3919 Phoenix AZ 3922 Phoenix AZ 3923 Phoenix AZ 3924 Phoenix AZ 4136 Phoenix AZ 4185 Phoenix AZ 4201 Phoenix AZ 4205 Phoenix AZ 4252 Phoenix AZ 4260 Phoenix AZ 4269 Phoenix AZ 4271 Phoenix AZ 4290 Phoenix AZ 4306 Phoenix AZ 4359 Phoenix AZ 4369 Phoenix AZ 4387 Phoenix AZ 4400 Phoenix AZ 4711 Phoenix AZ 4776 Phoenix AZ 4857 Phoenix AZ 4880 Phoenix AZ 7035 Phoenix AZ 7047 Phoenix, AZ 7092 Phoenix, AZ 7236 Phoenix AZ 7313 Phoenix AZ 7347 Phoenix AZ 7367 Phoenix AZ 7371 Phoenix AZ 7385 Phoenix AZ 7418 Phoenix AZ 7497 Phoenix AZ 7551 Phoenix AZ 7586 Phoenix AZ 7633 Phoenix AZ 7636 Phoenix AZ 7638 Phoenix AZ 7655 Phoenix AZ 7678 Phoenix AZ 7755 Phoenix AZ 9101 Phoenix AZ 9119 Phoenix AZ 9325 Phoenix AZ 9389 Phoenix AZ 9406 Phoenix AZ 9528 Phoenix AZ 9784 Phoenix AZ 3085 Salt Lake City UT 3094 Salt Lake City UT 3096 Salt Lake City UT 3189 Salt Lake City UT 3298 Salt Lake City UT 3310 Salt Lake City UT 3548 Salt Lake City UT 3622 Salt Lake City UT 3627 Salt Lake City UT 3749 Salt Lake City UT 3765 Salt Lake City UT 3890 Salt Lake City UT 3891 Salt Lake City UT 3892 Salt Lake City UT 3894 Salt Lake City UT 3917 Salt Lake City UT 3977 Salt Lake City UT 4115 Salt Lake City UT 4121 Salt Lake City UT 4129 Salt Lake City UT 4131 Salt Lake City UT 4159 Salt Lake City UT 4162 Salt Lake City UT 4181 Salt Lake City UT 4187 Salt Lake City UT 4224 Salt Lake City UT 4273 Salt Lake City UT 4303 Salt Lake City UT 4471 Salt Lake City UT 4736 Salt Lake City UT 4748 Salt Lake City UT 4750 Salt Lake City UT 4792 Salt Lake City UT 4814 Salt Lake City UT 4837 Salt Lake City UT 4838 Salt Lake City UT 4863 Salt Lake City UT 4879 Salt Lake City UT 7000 Salt Lake City UT 7006 Salt Lake City UT 7027 Salt Lake City UT 7029 Salt Lake City UT 7057 Salt Lake City UT 7099 Salt Lake City UT 7107 Salt Lake City UT 7139 Salt Lake City UT 7303 Salt Lake City UT 7329 Salt Lake City UT 7412 Salt Lake City UT 7423 Salt Lake City UT 7425 Salt Lake City UT 7426 Salt Lake City UT 7512 Salt Lake City UT 7533 Salt Lake City UT 7538 Salt Lake City UT 7542 Salt Lake City UT 7560 Salt Lake City UT 7618 Salt Lake City UT 7624 Salt Lake City UT 7668 Salt Lake City UT 9046 Salt Lake City UT 9074 Salt Lake City UT 9225 Salt Lake City UT 9241 Salt Lake City UT 9261 Salt Lake City UT 9306 Salt Lake City UT 9515 Salt Lake City UT 9630 Salt Lake City UT 9715 Salt Lake City UT 9751 Salt Lake City UT 9759 Salt Lake City UT 9792 Salt Lake City UT 9794 Salt Lake City UT 3025 Seattle WA 3072 Seattle WA 3133 Seattle WA 3209 Seattle WA 3214 Seattle WA 3270 Seattle WA 3275 Seattle WA 3354 Seattle WA 3389 Seattle WA 3413 Seattle WA 3430 Seattle WA 3443 Seattle WA 3580 Seattle WA 3584 Seattle WA 3623 Seattle WA 3722 Seattle WA 3839 Seattle WA 3840 Seattle WA 3888 Seattle WA 3889 Seattle WA 3969 Seattle WA 4081 Seattle WA 4146 Seattle WA 4147 Seattle WA 4155 Seattle WA 4178 Seattle WA 4208 Seattle WA 4225 Seattle WA 4253 Seattle WA 4288 Seattle WA 4339 Seattle WA 4404 Seattle WA 4406 Seattle WA 4435 Seattle WA 4439 Seattle WA 4455 Seattle WA 4467 Seattle WA 4480 Seattle WA 4755 Seattle WA 4779 Seattle WA 7030 Seattle WA 7033 Seattle WA 7034 Seattle WA 7143 Seattle WA 7153 Seattle WA 7166 Seattle WA 7207 Seattle WA 7253 Seattle WA 7315 Seattle WA 7331 Seattle WA 7338 Seattle WA 7569 Seattle WA 7580 Seattle WA 7598 Seattle WA 7621 Seattle WA 7904 Seattle WA 9530 Seattle WA 9698 Seattle WA 9808 Seattle WA 3002 Warsaw NC 3080 Warsaw NC 3116 Warsaw NC 3122 Warsaw NC 3154 Warsaw NC 3168 Warsaw NC 3206 Warsaw NC 3240 Warsaw NC 3253 Warsaw NC 3294 Warsaw NC 3324 Warsaw NC 3336 Warsaw NC 3365 Warsaw NC 3428 Warsaw NC 3442 Warsaw NC 3471 Warsaw NC 3544 Warsaw NC 3560 Warsaw NC 3598 Warsaw NC 3606 Warsaw NC 3621 Warsaw NC 3625 Warsaw NC 3632 Warsaw NC 3634 Warsaw NC 3645 Warsaw NC 3658 Warsaw NC 3667 Warsaw NC 3669 Warsaw NC 3706 Warsaw NC 3742 Warsaw NC 3744 Warsaw NC 3752 Warsaw NC 3753 Warsaw NC 3754 Warsaw NC 3763 Warsaw NC 3801 Warsaw NC 3806 Warsaw NC 3808 Warsaw NC 3815 Warsaw NC 3816 Warsaw NC 3817 Warsaw NC 3826 Warsaw NC 3838 Warsaw NC 3852 Warsaw NC 3868 Warsaw NC 3869 Warsaw NC 3875 Warsaw NC 3880 Warsaw NC 3886 Warsaw NC 3887 Warsaw NC 3925 Warsaw NC 3961 Warsaw NC 3965 Warsaw NC 3976 Warsaw NC 4016 Warsaw NC 4043 Warsaw NC 4044 Warsaw NC 4062 Warsaw NC 4084 Warsaw NC 4090 Warsaw NC 4112 Warsaw NC 4135 Warsaw NC 4137 Warsaw NC 4141 Warsaw NC 4189 Warsaw NC 4202 Warsaw NC 4237 Warsaw NC 4317 Warsaw NC 4319 Warsaw NC 4450 Warsaw NC 4701 Warsaw NC 4712 Warsaw NC 4716 Warsaw NC 4738 Warsaw NC 4752 Warsaw NC 4754 Warsaw NC 4757 Warsaw NC 4777 Warsaw NC 4826 Warsaw NC 4850 Warsaw NC 4865 Warsaw NC 4866 Warsaw NC 4872 Warsaw NC 4873 Warsaw NC 7043 Warsaw NC 7046 Warsaw NC 7058 Warsaw NC 7060 Warsaw NC 7062 Warsaw NC 7080 Warsaw NC 7090 Warsaw NC 7136 Warsaw NC 7149 Warsaw NC 7160 Warsaw NC 7208 Warsaw NC 7226 Warsaw NC 7239 Warsaw NC 7254 Warsaw NC 7256 Warsaw NC 7259 Warsaw NC 7274 Warsaw NC 7276 Warsaw NC 7278 Warsaw NC 7323 Warsaw NC 7340 Warsaw NC 7342 Warsaw NC 7351 Warsaw NC 7361 Warsaw NC 7382 Warsaw NC 7407 Warsaw NC 7410 Warsaw NC 7420 Warsaw NC 7462 Warsaw NC 7555 Warsaw NC 7582 Warsaw NC 7616 Warsaw NC 7622 Warsaw NC 7626 Warsaw NC 7670 Warsaw NC 7717 Warsaw NC 7754 Warsaw NC 7787 Warsaw NC 9084 Warsaw NC 9129 Warsaw NC 9150 Warsaw NC 9154 Warsaw NC 9207 Warsaw NC 9237 Warsaw NC 9320 Warsaw NC 9379 Warsaw NC 9547 Warsaw NC 9549 Warsaw NC 9563 Warsaw NC 9606 Warsaw NC 9619 Warsaw NC 9652 Warsaw NC 9656 Warsaw NC 9666 Warsaw NC 9667 Warsaw NC 9668 Warsaw NC 9688 Warsaw NC 9737 Warsaw NC 9747 Warsaw NC
SCHEDULE 1.1 PRODUCTS Product List: Meat Department Category and Item Assumptions Beef (All Private Brands, National, Regional, and Local Brands) o All Fresh and Beef Primals and Sub-Primals o Inclusive of all Retail Ready Pre-Packaged Beef o Inclusive of all Pre-Cooked Beef Products o Inclusive of all Hotel and Case Ready Cuts and Primals o All Fresh and Frozen Ground Meat Products o Inclusive of all Bulk, Pre-Packaged and Retail Ready Products o Inclusive of all Fresh and Frozen by Products Pork (All Private Brands, National, Regional, and Local Brands) o All Fresh and Frozen Pork Primals and Sub-Primals o Inclusive of all Retail Ready Pre-Packaged Products o Inclusive of all Bone-In and Boneless Product o Inclusive of all Fresh and Frozen by Products o Inclusive of all Smoked and Country Cured Products (boneless and bone-in) Poultry (All Private Brands, National, Regional, and Local Brands) o All Fresh, Frozen, and Chill Pack Products o Bulk, Pre-Package, IQF Poultry and Breaded Poultry Products o Trayed, Bagged or Bulk (C02) o Inclusive of all Fresh and Frozen Turkeys o Whole and Parts o Ducks, Geese, Capons, and Game Hens Packaged Meat Products (All Private Brands, National , Regional, and Local Brands) o Inclusive of all items Packaged, Bulk, Cooked, Raw, Fresh or Frozen Products sold from the meat department or dairy department in the following categories: o Bacon o Fresh Sausage o Smoked Sausage o Canned Hams and All other Refrigerated Canned Meat Items o All Refrigerated Pickles and Sauerkraut o Hot Dogs, Wieners, Conies o All Cup Salads and Bulk Salad Items traditionally sold in the Meat Department or Dairy Case Packaged Meat Products (All Private Brands, National, Regional, and Local Brands) o All Prepackaged Refrigerated Process Cold Cuts o All Bulk Cold cuts that are processed and sold in the Meat Department o All Market Style - Bulk and Pre-Cut Cheese (sold in the Meat Department) o All Meals To Go - Meal Kits - Quick to Fix Items - Home Meal Replacement Items to include but not limited to: o Pizzas (market style) o Lunchables o Tyson/Oncor/Advanced Products Seafood (All Private Brands, National, Regional, and Local Brands) o All Frozen, Packaged and Bulk Seafood Inclusive of: o Whole H&G o Fillets and Steakfish o All Frozen Shell Fish o Shrimp (Raw, Cooked, Fresh, Frozen) o Imitation Seafood Products o Pre-Cooked Heat and Serve Products o All glass and plastic container product related to the category Produce In support of Kmart, Fleming will source and negotiate all Branded, Non-Branded and Private Label Produce for the following products/categories, including but not limited to: - All Fresh Categories (Including Value Added Products) - All Non-Fresh Manufactured Categories - All Floral Accessories (Including Balloons, Planters, Pots, Supplies, etc.) - All Silk Flowers and Plants - Christmas Trees GFD Catsup & Mustard BBQ Sauce & Misc. Sauces Sauces-Ital, Cooking, Paste Salad Drsng, Mayo, Vinegar Pickles & Relishes Olives & Red Cherries Jellies, Jams, Preserves Peanut Butter & Honey Juices & Drinks Fruits - Canned & Glass Vegetables - Canned & Glass Low Cal & Health Foods Fish & Seafood Canned Meat Prepared & Nationality Fd Soup - Canned & Dry Baby Food & Formula Milk - Canned & Powdered Coffee & Creamers Tea Cocoa & Milk Modifiers Powdered Fruit Flav Drnks Cereal, Pop Trts, Ins Bkfst Cookies & Crackers Chips, Snacks & Nuts Dried Fruit Dry Beans, Veg & Grains Popcorn Spaghetti & Macaroni Prep Dinners & Box Pizza Baking Accessories Cake Mix, Frstg, Prep Mix Pancake Mix Breadings & Coatings Flour & Cake Flour Salt, Seasngs, Spices, Extr, Gravies Desserts, Toppng, Puddings Syrup & Molasses Shortening & Oil Sugar & Sugar Substitutes Candy & Gum Butter Margarine Refrig Dough Products Cheese - Retail Packaged Bulk Cheese Cultured Products Juice Products Fish/Hrsradish/Sce/Mustrd Pickles Refrigerated Salads Desserts & Topping Yeast Juice Fruit Vegetables - Frozen Potatoes Frozen Prepared Frozen Bakery & Desserts Non-Dairy Frozen Fish Frozen Meat Packaged Frozen Poultry Packaged Frozen Bake-off Other Frozen for Resale Hispanic Foods Oriental Foods Italian Foods Natural Foods Diet Foods Natural HABA Baby Diapers & Pants Dog Foods Other Pet Foods & Litter Dish Detergents Laundry Detergents Hand & Bath Soaps Laundry Supplies & Bleach All Prpose Clnr/Disinfect Household Clnrs, Compounds Household Supplies Waxes & Polish - Furniture Pesticides Paper Products Picnic Supplies & Drink Cup Wraps, Foil, Freezer Supply Sandwich, Storg, Trash Bags Cigarettes Cigars, Tobacco, Snuff, Misc. Frozen bagels and breakfast foods Charcoal and lighter fluids Rock salt, water softener salt and pellets Deli Department o All Turkey and Poultry products including smoked, browned, flavored, dark meat, pre-cooked holiday birds (fresh and frozen) o All Beef products including all roast beef, corned beef, pastrami, further processed beef products etc. o All ham products including Honey, Virginia, Cooked, Water added, Chopped, Capacola, Prosciutto, Flavored, canned etc. o All Cheese categories including domestic, imports, imitations, shreds, balls and logs, specialty o All Smoked Meats including Canadian bacon, bacon, brats, smoked sausage, metts, wieners, links etc o All Luncheon meats including bologna, braunschweiger, head cheese, liver loaf, flavor loaves o All Dry Sausage including hard, genoa, pepperoni, summer sausage o All "Lite" and "Lo-Salt" deli meats and cheeses o All Salads - fresh garden salads, coleslaw, macaroni salad, potato salads, desserts, dips, puddings, specialty, etc. (bilk and pre-packaged) o All pizza products both fresh, frozen and pre-made o All deli beverages including coffee, juice, tea, soft drinks etc. o All Deli snacks, tortilla chips, crackers and mustards o All Chicken products including fresh 8 pc and wogs, 8 pc. MRB and frozen WOGS as well as all further processed and wing products o All vegetables and fruits used in a deli operation both dry and frozen o All condiments used in a Deli operation including dry, refrigerated and frozen o All spices used in the Deli kitchen o All Hot Foods including entrees, vegetables, fish, BBQ, ribs, lamb, lasagna, pork, sausage, shrimp, egg rolls, corn dogs, steaks etc. o All Deli breads and bread board items including pita breads, lavosh etc. o All salad bar ingredients o All breakfast items including sausage patties, biscuits, pre-cooked bacon etc. o All frozen and fresh soups pre packaged or bulk o All thaw and sell prepackaged deli products including ready to serve entrees and vegetables, o All other deli products including but not limited to herring, lox, olives, pickles, cooking oils, ethnic foods, o All seasonal and promotional items for all holidays not listed including gift packs, seasonal candies. Bakery Department o All Breads and Rolls including bake off and thaw and sell o All Bread and roll mixes and bases o All Commodity flours, sugars, yeast o All Donuts including frozen dough, ready to finish, mixes and thaw and sell /ready to sell o All cream products including refrigerated or frozen ice cream cakes, eclairs, cream horns, pie shells, puffs, tart shells, ice cream tortes and all other cream products o All Sweet Goods including all frozen bake off, ready to sell or thaw and finish Danish, cinnamon rolls, coffee cakes, turnovers, puff dough, etc, o All Cakes either the mix, frozen uniced or pre-iced o All cakes ready to sell or ready to finish including angel foods, brownies, cupcakes, pound cakes, creme cakes, bundt cakes or any other product made from cake style batters o All pies either made in store from scratch, ready to bake or ready to thaw and sell including all fruit, cremes, meringues etc. o All Hispanic and other ethnic breads, pastries and desserts o All cookies either from mix, frozen pucks or ready to thaw and sell either in bulk or pre-packaged o All muffin products either from mix, or thaw and sell prepackaged or bulk o All bagel products o All Bakery ingredients including shortenings and oils, sugars, icings, toppings, fruit fillings, eggs, spices. Decorretes, flavors, emulsions, cheese for baking, sanding sugars, nuts and toppings, etc. o All cake decorating supplies o All retail cake accessories including candles, lay-ons, napkins, party plates, hats etc. o All "fat free" and "sugar free" items listed above o All seasonal and holiday items including seasonal flavors of above listed items and commodities o All other products sold today in the traditional Bakery department including shop around pallets of bakery thaw and sell products SCHEDULE 1.2A HBC AND GMD The Fleming / Kmart GM and HBC synergies teams, headed by Jeff Manning and Cecil Kearse, will identify the procurement and distribution strategies and potential benefits by category for presentation on or before May 2, 2001. The categories will be broken out as follows:
Health & Beauty Care Deodorants Hair Care Analgesics Skin Care First Aid Cough and Cold Oral Care Foot Care Eye and Ear Care Sun Care Feminine Hygiene Diet Shaving Needs Family Planning Nutrition Bath Baby Needs Vitamins and Supplements Men's Grooming Cosmetics Digestive Health Private Label Ethnic HBC
General Merchandise Household Softgoods Light Bulbs / Electrical Baby Sun / Reading Glasses Closet / Cleaning Supplies Batteries / Flashlights School Supplies Seasonal Product Bakeware / Kitchen Gadgets Photo / Audio / Video Home & Office Promotional Product Housewares / Drinkware Hardware Sewing / Shoe Care Tableware Toys Party Needs Plastic Storage Automotive Panty Hose Appliances & Clocks Gloves Direct Imports
SCHEDULE 1.2B DUNIGAN FUEL TERMS Fuel Management Services Agreement Term Sheet Purpose: To establish business guidelines for how Dunigan Fuels will provide fuel inventory and other related services for Kmart. 1. Services Provided: Dunigan Fuels will provide the following services to Kmart. A. Fuel Inventory Management - Dunigan Fuels will monitor Kmart's Fuel Center location remotely and schedule the delivery of fuel 7 days a week. Fuel will be automatically dispatched on an as needed basis. B. Help Desk - Dunigan Fuels will provide a 7 day 24 hours a day help desk. The help desk will support fuel operations only. Dunigan Fuels will dispatch fuel maintenance companies on an as needed basis per Kmart guidelines. C. Environmental Monitoring - Dunigan Fuels will provide Environmental compliance monitoring during the term of the fuel management services agreement. Environmental Monitoring will commence once Kmart and Dunigan Fuels execute an Environmental Monitoring Plan. This plan should be executed within 180 days from the commencement of this agreement. D. Accounting - Dunigan Fuels will invoice using Electronic Data Interchange. Kmart will pay all invoices using automated clearinghouse transfers ("ACH"). 2. Term: The term will be the same as this Agreement. 3. Termination: Termination of this agreement will be the same as this Agreement. (CONFIDENTIAL) 5. Payments/ Payment Terms/ Invoicing: Dunigan Fuels shall invoice Kmart for all Products sold by Dunigan Fuels to Kmart via Electronic Data Interchange (EDI), or other mutually acceptable methods. Payment of the Product will be due to Seller based on net ten (10) days from delivery of each load of Product. Payment will be made via ACH. 6. Invoice Reconciliation: Dunigan Fuels will provide all goods on a cost plus its pre-negotiated fees. Services are considered to be included in fees generated by gallons processed. From time to time there will be a need to correct a billing due to an over or under charge for a good or services provided. These billing errors will be accrued and settled on a quarterly basis. A complete accounting by store and by invoice will be kept to justify all invoice reconciliation. 7. Access to Tank Monitors: Kmart will always allow Dunigan Fuels, during the term of the fuel management services agreement, phone line access to its automatic tank monitors. This access is necessary for Dunigan Fuels to perform its duties. 8. Environmental Monitoring: Dunigan Fuels will help with the Environmental Monitoring of Kmart's locations. This monitoring will be secondary to on-site monitoring of fuel leaks and alarms. Environmental Monitoring will commence upon the signing of a mutually agreed upon Environmental Monitoring Plan. This plan will be established within 180 days of the signing of this agreement. If, in fact, on-site monitoring is unavailable by Dunigan Fuels due to lack of systems or other reasons, fees (margin) will be reduced by (CONFIDENTIAL) per gallon. 9. Federal and Local Fuel Taxes: Dunigan Fuels shall collect for Kmart all required federal, state, and local taxes, including, without limitation, any additional fees or taxes which may be levied or imposed in connection with the sale, transportation, delivery or use of the Products at the Locations. Dunigan Fuels shall pay all such taxes promptly to the appropriate authority within the time frame required and indemnify, defend and hold Kmart harmless therefrom. 10. Fuel Procurement It is the intent of Dunigan Fuels and Kmart to use whichever method necessary to procure fuel at the lowest available cost. The current methods used to procure fuel for this agreement will be having Dunigan Fuels buy the fuel on its account, Kmart buying the fuel on their account, and using Internet based auctions. In the future other methods may be identified and used. Under all methods Dunigan Fuels will still monitor and perform its services and still be entitled to the margin addressed in this agreement. Any rebates earned and received by Dunigan Fuels from a specific refiner will be prorated to Kmart based on Kmart's item percentage of Dunigan Fuels' volume with that specific refiner. If Dunigan's pricing is below OPIS Low after taking into account any such rebates, Dunigan will share the savings below OPIS Low with Kmart on the basis of (CONFIDENTIAL) of such savings to Dunigan and (CONFIDENTIAL) of such savings to Kmart. 11. Performance Reporting: Dunigan Fuels will provide to Kmart on a quarterly basis performance reporting. Performance reporting will be how well fuel was procured compared to the Oil Price Information System. The price fuel was procured at will be compared to the OPIS Average and OPIS Low price for every location. Racks to be mutually agreed upon by Kmart and Dunigan Fuels. Failure to perform at or below the OPIS Low published price over any quarter for any location will be grounds for termination of that location from the fuel management services agreement at Kmart's discretion. In times of Natural Disaster, Government Intervention, or other events out of the control of both parties that create abnormal price conditions, may affect the performance reporting, these days will be excluded from any performance reporting. Days excluded to be agreed upon by both parties. In addition, if Dunigan is buying fuel on its own account, failure to perform at OPIS Low, after taking into account all applicable rebates will result in a (CONFIDENTIAL) reduction in fees to Dunigan based on gallons purchased in that period for the specific location. Performance below OPIS Low will result in a sharing of savings with Kmart on the basis of (CONFIDENTIAL) of such savings to Dunigan and (CONFIDENTIAL) of such savings to Kmart for the location. 12. Freight: Dunigan Fuels will coordinate the delivery of fuel to Kmart's fuel centers using common carriers. Freight rates will be provided to Kmart on a cost basis. 13. Handling Credits and Float Rebates: The Handling Credits collected by Dunigan Fuels from paying taxes for the fuel sold to Kmart will be rebated to Kmart on a quarterly basis. The rebate will be payable 30 days following Kmart's quarter end. A complete accounting by fuel center of the handling credits will be kept and provided to Kmart with each payment. Float Credit - An interest float credit of $.0008 per gallon purchased will be credited on a quarterly basis. The gallons used to determine the amount rebated will be the gallons sold to Kmart that Dunigan Fuels collected and paid the federal and state taxes. Any gallons that Kmart has not paid for within the agreed upon payment term will be excluded from the rebate. 14. Margin (CONFIDENTIAL) Cumulative Number of Gallons Purchased Per Gallon Fee --------- -------------- 0 - 5,000,000 gallons (CONFIDENTIAL) per gallon 5,000,001 - 7,500,000 gallons (CONFIDENTIAL) per gallon 7,500,001 - 10,000,000 gallons (CONFIDENTIAL) per gallon 10,000,001 - 12,500,000 gallons (CONFIDENTIAL) per gallon 12,500,001 - 15,000,000 gallons (CONFIDENTIAL) per gallon 15,000,001 - 17,500,000 gallons (CONFIDENTIAL) per gallon 17,500,001 - 20,000,000 gallons (CONFIDENTIAL) per gallon 20,000,001 - 22,500,000 gallons (CONFIDENTIAL) per gallon 22,500,001 - 25,000,000 gallons (CONFIDENTIAL) per gallon 25,000,001 - 27,500,000 gallons (CONFIDENTIAL) per gallon 27,500,001 - 30,000,000 gallons (CONFIDENTIAL) per gallon 30,000,001 - 32,500,000 gallons (CONFIDENTIAL) per gallon 32,500,001 - 35,000,000 gallons (CONFIDENTIAL) per gallon 35,000,001 - 37,500,000 gallons (CONFIDENTIAL) per gallon 37,500,001 - 40,000,000 gallons (CONFIDENTIAL) per gallon 40,000,001 + gallons (CONFIDENTIAL) per gallon SCHEDULE 1.3 (CONFIDENTIAL) SCHEDULE 1.4 HIGH VELOCITY PRODUCTS (CONFIDENTIAL) SCHEDULE 2 LOGISTICS SERVICES Inbound receiving and storage of product Order selection and loading, routing and scheduling Maintaining an inventory to enable Fleming to supply products timely Inventory control and quality assurance, and stock rotation Fruit ripening Inventory management Transportation management (backhaul, consolidation, carrier selection, freight bill audit and forward to Kmart for payment, pallet and tote return pursuant to agreed procedures) - At Kmart's option, Fleming shall provide transportation services and select third party transportation providers reasonably acceptable to Kmart SCHEDULE 4A SERVICE REQUIREMENTS Fleming shall exercise commercially reasonable efforts to achieve service levels for Product categories described below:
Minimum Year 2 and Service Levels Year 1 Thereafter (Beginning on the Termination Category Target (1) Target Effective Date) Period -------- ---------- ------ --------------- ------ Perishables 97 97 14 day rolling average greater than 96% 90 5 day rolling average greater than 95% Grocery, Frozen, Dairy 96.25 97 28 day rolling average greater than 95% 90 5 day rolling average greater than 94% HBC and GMD TBD TBD TBD TBD -------------------- (1) The "Target" service level in Year 1 shall be effective beginning on the 90th day following the commencement of supply by Fleming to Kmart for each Distribution Center.
The failure to achieve the service level requirements set forth herein as targets does not constitute a material breach of this Agreement, except as provided below. Upon failure to achieve any minimum service level for any sixty (60) days during any 365 consecutive day period at any Distribution Center, a member of the Account Team appointed by Kmart shall present the matter to a designated committee of executive officers of each party to resolve the issue. If such officers are unable to agree on a plan to resolve the matter, or if the service level deficiencies persist after implementing the actions recommended by the executive officers, Kmart shall have the right, but not the obligation, to refer the matter to an independent third party consultant approved by Fleming (the "Consultant") to review the situation and recommend an action plan to increase service levels to an acceptable level. The recommendations of the Consultant shall not be binding on the parties, but the parties shall seek in good faith to implement any such recommendations. The fees and expenses of the Consultant shall be borne by the parties equally. A material breach of this Agreement with respect to service level requirements shall occur only if Fleming fails to achieve any minimum service level for any 120 days during any 365 consecutive day period. "Service level" shall be measured weekly by the number of full cases delivered as compared to the number of full cases ordered (net of discontinued items ordered inadvertently). The failure to deliver Products ordered by Kmart due to vendor outs or unavailable Products, if either of such conditions exist for a continuous period of thirty (30) days, except with respect to seasonal Perishables, if such conditions exist for a continuous period of seven days, or due to discontinued items, materially inaccurate forecasting of Product needs by Kmart or materially inadequate order lead time by Kmart shall not be included in the calculation of the service level. Nothing contained herein shall establish service levels for Stores in Hawaii, which shall be evaluated separately, and the parties shall, within a reasonable time, agree upon standards for service levels for Products sold to Stores in Hawaii. SCHEDULE 4B QUALITY ASSURANCE AND FOOD SAFETY GUIDELINES 1. Each Distribution Center will receive two unannounced ASI Inspections annually. Scores of 900 or above are required. Any Distribution Center receiving a score of less than 900 will require a re-inspection after corrections of the deficiencies. ASI inspection documents will be available for review by Kmart. 2. Each Distribution Center supplying perishable Products to Super K Stores will have a minimum of two Quality Control Inspectors (one for Deli/Bakery & Meat, one for Produce). 3. Kmart will provide perishable product specifications by department to Fleming for receiving and shipping of product to be shipped to Kmart stores. No product will be shipped outside of specifications without prior approval from Kmart. Dating standards as shown below will apply to these specifications. 4. All existing quality assurance guidelines will continue as shown below, including unannounced quality audits to insure processes are in place to meet specifications. 5. All inbound shipments must adhere to an incoming goods inspections process as identified by ASI. 6. Minimum dating standards for retail delivery are as follows: Cheese - 21 days from Expiration Date Margarine - 21 days from Expiration Date Cultured Product - 7 days from Expiration Date Dough Product - 7 days from Expiration Date Refrigerated Juice - 7 days from Expiration Date Packaged Meat - 14 days from Expiration Date Box Beef - 30 days from Pack Poultry - 5 days from Expiration Date Pork - 18 days from Pack Deli Meats - 14 days from Expiration Date Deli Salads - 7 days from Expiration Date Gourmet Deli Cheeses - 14 days from Expiration Date Domestic Deli Cheese - 21 days from Expiration Date Frozen Deli - 14 days from Expiration Date Fresh Poultry (cvp) - 5 days from Expiration Date All Bakery - 14 days from Expiration Date o All dry grocery Products delivered to the Stores shall have at least 45 days remaining until their expiration date (except for private label Products which will have the time remaining until their respective expiration dates. All perishable Products shall have at least the number of days remaining until the expiration date as is usual and customary in the supermarket industry for products of that kind. Other Products will be handled by the parties on a case by case basis by rejection or with appropriate consideration for price reductions. o Upon delivery, refrigerated and frozen foods will be the proper temperature and show no evidence of temperature abuse, i.e., thaw and refreeze. The Stores will reject any Product shipment that has evidence of temperature abuse. o Fleming's distribution centers, both refrigerated and dry, must comply with all federal, state and local health codes. Inspection reports, including internal Fleming reports will be made available to Kmart upon request. This includes pest control inspection reports. o All deliveries must be free of infestation or any evidence of infestation by rodents and insects, including stored product pests. The Stores will reject any Product shipment that has evidence of infestation. o Products will be shipped in a manner so as to prevent contamination and adulteration between food and chemicals. o Delivery vehicles must be clean, free of infestation, and odors, which could indicate improper cleaning and sanitizing of delivery trucks. Trailers used to ship food products may not be used to back haul garbage, chemicals, trash or any items that may impart noxious odors that could penetrate food. o Fleming must immediately notify Kmart of any product recalls from manufacturers. o Fleming will accept the return of damaged or otherwise contaminated cases and issue a full credit to Kmart for the return. o Kmart food safety personnel will be permitted to visit all Fleming's Distribution Centers supplying Products to Kmart with appropriate coordination with Fleming. SCHEDULE 4C SHRINK AUDIT PROCEDURE Fleming / Kmart Shortage Standard Fleming will develop a Shortage Standard from actual YTD 2000 shortage credits issued to Big K and Super K. The Shortage Standard will be calculated by Distribution Center. Payment will be made by check within fours week after each quarter end. Distribution Centers with no Kmart credit history will be calculated as a composite average of all Distribution Centers excluding from the calculation those Divisions with the highest and lowest shortage history. Rates will be adjusted quarterly. As soon as practicable after the Effective Date, and in any event prior to March 31, 2001, the parties shall establish an initial shortage standard rate to be applicable upon the commencement of Fleming's supply of incremental volume of Products pursuant to this Agreement. Kmart will randomly supply associates to participate in the case count audit process on Fleming's dock. Quarterly, the Shortage Standard will be based on collaborative audit team findings by Kmart and Fleming associates from these dock audits. Absent Kmart input, the rollup of Fleming internal 4% case count audit results from the preceding quarter will apply. All case count audits will be conducted on Fleming's dock during normal shipping hours. Both parties agree to minimize disruption to shipping and on time dockout. Large identifiable shortages (e.g. missing pallets) will be addressed on an individual basis. Kmart and Fleming loss control will work together at retail to address consistent claims outside the program. Fresh Meat, Frozen Shrimp, Cigarettes and Produce Nut Meats will be piece counted at time of delivery. Fleming and Kmart will enforce the current Seal Procedure and identify lapses. Seal Procedure is set forth below. Label errors (mis-picks) will be addressed as part of Fleming's retail credit policy. Kmart Seal Procedure 1. Once the trailer loading is completed, a Fleming associate will close the doors and secure the load consistent with the specific division security procedures. 2. Billing clerk will then process the necessary paperwork, and assign the security seals for the load. The seal number for each of the stops will be written directly on the delivery receipt or driver run document. An additional seal will be issued for use if the trailer has a side door. 3. Before the trailer leaves the yard, Fleming Security or the driver will attach the seal for the first stop of the load. Security will verify that the seal number(s) matches the paperwork. At this point, the trailer is sealed and ready to leave Fleming. 4. Upon arrival to the first stop, the driver will ask the store receiving personnel to break the rear door seal, verify the number and sign the Delivery Receipt or the driver run document confirming that the seal was intact at time of delivery. The driver will also ask the store personnel to confirm, but not remove the seal number for any side doors. 5. If there is more than one stop on the trailer, the driver will ask the store receiving personnel at the first stop to place a second seal on the trailer, verify the number, and note their name directly on the Delivery Receipt. This process will continue for additional stops. 6. In the event a seal is broken or does not correspond with the number recorded on the Delivery Receipt, the driver and store receiving personnel must call Fleming Customer Service immediately. Fleming will verify the seal number and confirm that Fleming Security did not make any changes. At this point, the load must be counted by the driver and verified by the store. SCHEDULE 4D AUDIT PROCEDURES Kmart has the right to audit Fleming's books and records regarding Product cost files and selling prices and charges, allowances, and freight calculations relating to Fleming's performance of and compliance with this Agreement upon reasonable advance notice to Fleming. Fleming must maintain its books and records in a manner that facilitates a full and complete review of Fleming's performance of and compliance with this Agreement. All such books and records will be available for audit by Kmart for the current prior 12 accounting periods (i.e. for a "rolling" thirteen periods). The books and records will be maintained on-site at each Distribution Center for the Stores serviced by that Distribution Center for the current and six prior accounting periods (a "rolling" seven periods), and thereafter, the books and records will be maintained off-site by Fleming and will be made available and retrieved by Fleming upon a specific request by Kmart to audit an identified issue. The audits may be conducted by Kmart or its third party designee and will be conducted at each individual Distribution Center. Kmart and Fleming will each bear their own costs associated with the audits. SCHEDULE 4E MANAGEMENT REPORTS Key Performance Indicators Service Level
Reporting Frequency Adj NonFleming Raw Fleming -------------------------- ------- --------------------------------- ------- ----------------- Reporting Levels Rolling Rolling Service Service Day Week Period Level Discon New Mfg UnAval Rstrc Level Whse Mdsr Alloc --- ---- ------ ----- ------ --- --- ------ ----- ----- ---- ---- ----- Total Company X X X Division X X X Ad Product X X X Department X X X "A" Items X X "B" Items X X "C" Items X X "D" Items X X
Delivery
Reporting Frequency ------------------- Reporting Levels Day Week Period Cube/Load % On Time % Units Damaged Pallet Balance Tote Balance ---------------- --- ---- ------ --------- --------- --------------- -------------- ------------ Total Company X X Division X X X
Outstanding A/R Balance
Reporting Frequency ------------------- % Invoices with Past Due Reporting Levels Day Week Period Deductions Balance ---------------- --- ---- ------ ---------- ------- Total Company X X Division X X
Ordering and Case Value
Reporting Frequency ------------------- Avg Case Avg Order Orders < Late Late "Manual" Reporting Levels Day Week Period Value Cases 800 % CSL Turn Promo Orders ---------------- --- ---- ------ ----- ----- --- ----- ---- ----- ------ Total Company X Division X Ad Product X Department X
Reporting Frequency ------------------- Forecast % Big Lot Reporting Levels Day Week Period Accuracy Pallets ---------------- --- ---- ------ -------- ------- Total Company X Division X Ad Product X Department X
Item Assortment & Movement
Reporting Frequency ------------------- Reporting Levels Day Week Period Item Count Mvmt/Item Item < 1/Cs/wk/Str ---------------- --- ---- ------ ---------- --------- ------------------ Total Company X Division X Ad Product X Department X
Items with low movement Super K Going In Gross Reports as current SCHEDULE 5 (CONFIDENTIAL) Logistics Fees (CONFIDENTIAL) SCHEDULE 5A (CONFIDENTIAL) SCHEDULE 5B ACCOUNTS RECEIVABLE RECONCILIATION The parties shall commit to apply required joint Kmart / Fleming team resources to work with diligence and good faith to eliminate in next sixty (60) days current inter-company process bottlenecks and inefficiencies that lead to increased A/R balances and delivery errors. These inefficiencies include, but are not limited to: o Centralized control, setup and propagation of new items to all Kmart supplying divisions; o Develop a process to handle invoice charges not specific to one line item and miscellaneous ("hand invoice") charges; o Address processing summary drops in lieu of "line-item" drops; o ASN failures o Lack of a fully implemented ASN system; and o Lack of uniform common items codes. SCHEDULE 10 TRANSITION MILESTONES START UP TIME LINE
30 Days 60 Days 90 Days 120 Days 150 Days 180 Days ------- ------- ------- -------- -------- -------- 22-Apr Fresno XXXXXXXXXXXXXXXXXXXX 22-Apr Sacramento XXXXXXXXXXXXXXXXXXXX 6-May Memphis XXXXXXXXXXXXXXXXXXXX 6-May Nashville XXXXXXXXXXXXXXXXXXXX 6-May Miami XXXXXXXXXXXXXXXXXXXX 1-Apr Warsaw XXXXXXXXXXXXXXXXXXXX 13-May Kansas City XXXXXXXXXXXXXXXXXXXX 13-May Garland XXXXXXXXXXXXXXXXXXXX 13-May Lafayette XXXXXXXXXXXXXXXXXXXX 22-Apr Phoenix XXXXXXXXXXXXXXXXXXXX 3-Jun Salt Lake City XXXXXXXXXXXXXXXXXXXX 3-Jun Geneva XXXXXXXXXXXXXXXXXXXX 30-Jun LaCrosse XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 30-Jun Northeast XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 30-Jun Indiana XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 30-Jun Northwest XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX