Document:

Ex 10.1 GE-KCSM Loan Agreement

EXHIBIT 10.1

Loan Agreement
(________)

entered into by and between

General Electric Capital Corporation, 
as lender 

and 

Kansas City Southern de México, S.A. de C.V., 
as borrower 

September 1st, 2011

CGCAE 182428.v8 14/06/11

TABLE OF CONTENT

CLAUSES
		
	FIRST.-
	CERTAIN DEFINED TERMS    10

		
	SECOND.-
	TERMS AND CONDITIONS OF THE LOAN    20

		
	THIRD.- 
	USE OF PROCEEDS    20

		
	FORTH.-
	ADVANCED REQUEST; TERMS AND CONDITIONS    20

		
	FIFTH.-
	DOCUMENTATION AND PAYMENT OF THE LOAN; APPLICATION OF PAYMENTS    21

		
	SIXTH.- 
	MANDATORY PREPAYMENTS    22

		
	SEVENTH.-
	INTEREST    22

		
	EIGHT.-
	PAYMENTS    23

		
	NINTH.- 
	TAXES    23

		
	TENTH.-
	INSPECTION RIGHTS    24

(a) Regular Inspection Rights    24
(b) Inspection Rights under a Default    24
		
	ELEVENTH.-REQUIREMENTS OF LAW; ILLEGALITY
	24

		
	TWELFTH.- 
	CONDITIONS PRECEDENT FOR THE LOAN    26

(a) Loan Documents    26
(b) Financial Statements    27
(c) Secretary’s Certificate    27
(d) Purchase and Sale Agreement; Termination Agreement    27
(e). Legal Opinions    27
(f) No Adverse Change    27
(g) Insurance Certificate    28
(h) Representations and Warranties    28
(i) No Default or Event of Default    28
(j) Advance Request    28
(k) Commissions, Fees and Expenses    28
		
	THIRTEENTH.- AFFIRMATIVE COVENANTS OF THE BORROWER
	28

(a) Information    28
(b) Accounting    31
(c) Corporate Situation; Rights, Authorizations, etc    31
(d) Compliance with Laws and Concession Title    31
(e) Taxes    31

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(f) Maintenance of Assets; Insurance    31
(g) Spin-Off; Merger, etc    32
(h) Trust Agreement    32
(i) Use of Loan Proceeds    33
(j) Further Assurance    33
		
	FOURTEENTH.- NEGATIVE COVENANTS OF THE BORROWER
	33

(a) Changes of the Nature of its Business    33
(b) Liens    34
(c) Transactions with Affiliates    34
(d) Termination or Cancellation of Concession Title    34
(e) Change of Control    34
		
	FIFTEENTH.- EVENTS OF DEFAULT
	34

		
	SIXTEENTH.- MAINTENANCE OF EQUIPMENT; MARKING OF EQUIPMENT; POSSESSION OF EQUIPMENT; CASUALTY OCCURRENCE
	36

(a) Maintenance of Equipment    36
(b) Marking of Equipment    36
(c) Possession of Equipment    37
(d) Casualty Occurrences    37
		
	SEVENTEENTH.- INSURANCE
	38

(a) Coverage    38
(b) Certificate of Insurance    39
(c) Trustee’s Appointment    39
(d) Provisions in the Insurance    39
(e) Insurance Policies; Certificate of Insurance    39
(f) Renewals and Replacement of Insurance    39
(g) Transfers    40
(h) Proceeds of Insurance    40
		
	EIGHTEENTH.- EXPROPRIATION PROCEEDS
	40

		
	NINETEENTH.- INDEMNITY
	41

(a) Indemnity    41
(b) Claims Excluded    41
(c) Claims Procedure    42
(d) Subrogation    42
		
	TWENTIETH.- ASSIGNMENT
	43

		
	TWENTY FIRST.- MISCELLANEOUS
	43

(a) Term; Survival    43

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(b) Costs and Expenses    44
(c) Lender’s Right to Perform the Borrower’s Obligations    44
(d) Lender Reimbursement    44
(e) Set-Off    44
(f) Amendments; No Waiver; Cumulative Remedies    45
(g) Notices    45
(h) Exhibits and Headings    46
(i) Judgment Currency    46
(j) Acts of God    47
(k) Exchange Information    47
(l) Counterparts    47
(m) Entire Agreement; Severability    47
(n) Governing Law; Jurisdiction    47

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Loan Agreement (_____, the “Agreement”), dated September 1st, 2011, entered into by and between General Electric Capital Corporation, as lender (the “Lender”) and Kansas City Southern de México, S.A. de C.V., as borrower (the “Borrower”), in accordance with the following Representations and Warranties and Clauses. Capitalized terms used in this Agreement which are not otherwise defined herein, shall have the meaning ascribed to such terms in Clause First hereof.

Representations and Warranties

I.    The Borrower, through its attorney-in-fact, hereby represents and warrants, that:

		
	(a)
	it is a sociedad anónima de capital variable, duly organized and validly existing under the laws of Mexico, as evidenced in public deed number 50,413, dated November 22, 1996, granted before Mr. Miguel Alessio Robles, Notary Public number 19  of the Federal District, which first counterpart (testimonio) was registered in the Public Registry of Commerce in, under commercial folio number of the City of Monterrey, State of Nuevo León, under file 39, volume 429, of the second auxiliary of commercial deeds, in book three of the commerce section. The Borrower was incorporated under the name Ferrocarril del Noreste, S.A. de C.V.;

		
	(b)
	pursuant to public deed number 33,385, dated May 6, 1997, granted before Mr. Miguel Limón Díaz, Notary Public No. 97 of the Federal District, the first counterparty of which was duly recorded with the Public Registry of Commerce in the Federal District, under commercial file number 222,305, the Borrower changed its name from Ferrocarril del Noreste, S.A. de C.V., to TFM, S.A. de C.V.

		
	(c)
	pursuant to public deed number 38,013, dated December 2, 2005, granted before Mr. Gabriel Benjamín Díaz Soto, Notary Public No. 131 of the Federal District, the first counterparty of which was duly recorded with the Public Registry of Commerce in the Federal District, under commercial file number 222,305, the Borrower changed its name from TFM, S.A. de C.V., to Kansas City Southern de México, S.A. de C.V.;

		
	(d)
	 pursuant to public deed number 27,336, dated December 19, 2006, granted before Mr. Héctor Manuel Cárdenas Villareal, Notary Public No. 201 of the Federal District, the first counterparty of which was duly recorded with the Public Registry of Commerce in the Federal District, under commercial file number 222,305, the corporate regime of the Borrower was transformed from a stock corporation with variable capital (sociedad anónima de capital variable) to a limited liability company with variable capital (sociedad de responsabilidad limitada de capital variable); 

		
	(e)
	pursuant to public deed number 122,385, dated April 27, 2007, granted before Mr. Cecilio González Márquez, Notary Public No. 151 of the Federal District, the first counterparty of which was duly recorded with the Public Registry of Commerce in 

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the Federal District, under commercial file number 222,305, the corporate regime of the Borrower was transformed back to a stock corporation with variable capital;

		
	(f)
	it does not require any authorization or approval (except for the authorizations and approvals that have been duly and validly obtained, which are in full force and effect on the date hereof) in order to execute this Agreement or to comply with or perform the obligations assumed by it hereunder, which are legal, valid and enforceable against the Borrower in accordance with their terms, except as may be affected by bankruptcy, concurso mercantil, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally;

		
	(g)
	it does not require any authorization or approval in order to execute any other Loan Documents, or to comply with or perform the obligations assumed by it thereunder, which upon execution thereof will be legal, valid and enforceable against the Borrower in accordance with their terms except as may be affected by bankruptcy, concurso mercantil, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally; 

		
	(h)
	it does not require any registration, or other action from, or before, any Governmental Authority for the execution, delivery and performance by the Borrower of this Agreement or any other Loan Document except as otherwise expressly indicated herein or therein;

		
	(i)
	there is no pending, and to the best of its knowledge after due inquiry, threatened action, claim, requirement or proceeding of any nature before any Governmental Authority, that affects or could reasonably be expected to affect (i) the Initial Equipment (or any portion thereof); (ii) the Trustee’s legal and valid ownership and title to the Initial Equipment; or (iii) the legality, validity or enforceability of this Agreement or any of the obligations of the Borrower arising from or relating thereto;   

		
	(j)
	on the date hereof, there is no pending, and to the best of its knowledge after due inquiry, there are no strikes or other labor disputes pending that affects or may affect the legality, validity or enforceability of this Agreement or any other Loan Document or materially affects any of the obligations of the Borrower under this Agreement or any other Loan Document;

		
	(k)
	the execution, delivery and performance of the Loan Documents are within the scope of its corporate purpose and do not and will not violate, or constitute a breach under (i) any provision of the Borrower’s by-laws, (ii) any agreement, contract, arrangement, license, judgment, resolution or order to which the Borrower is a party or by which the Borrower or any of its assets is bound, or (iii) any law, regulation, circular, order or decree of any Governmental Authority, or (iv) the Concession Title; or result in the creation of any Lien upon the property of the Borrower, other than Liens created pursuant to the Loan Documents, except in each case under clauses

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(k)(ii) and (k)(iii), where such violation or breach would not reasonably be expected to result in a Material Adverse Effect;

		
	(l)
	no proceeding to revoke, suspend or lapse the effectiveness of the Concession is pending before or, to the Company’s knowledge, threatened by any Mexican federal governmental authority;

		
	(m)
	it has requested from the Lender the Loan to be used exclusively for the purposes set forth in Clause Third;  

		
	(n)
	neither the Borrower nor any of its assets is entitled to any sovereign immunity from jurisdiction of any court or from any legal proceeding (whether through service of process, attachment prior to judgment, attachment in aid of execution or any other proceeding); provided, however, that the Concession Title may not be transferred by any title or by virtue of any action to any person without the prior written approval of the Ministry of Communications and Transportation of Mexico (Secretaría de Comunicaciones y Transportes) and its exploitation is subject to legal and public order restraints;

		
	(o)
	all the information and the certificates furnished and the representations and warranties made by the Borrower pursuant to this Agreement on the date of execution of this Agreement is and shall be at such date, true, complete and correct in all respects and does not contain or omit (and shall not contain or omit), at the time on which it the given or made, any information or statement necessary to make any such information, representation or warranty true complete and correct in all respects;

		
	(p)
	no event or circumstance has occurred since December 31, 2010 that has or could reasonably be expected to have a Material Adverse Effect on the business, assets, liabilities, property or condition (financial or otherwise) or prospects of the Borrower or the ability of the Borrower to perform its obligations in accordance with this Agreement and the other Loan Documents;

		
	(q)
	the audited consolidated balance sheet and consolidated statements of income and retained earnings and cash flows of the Borrower as filed in Form 10K with the United States Security and Exchange Commission for the fiscal year ended December 31, 2010, fairly present, in conformity with US GAAP, the consolidated financial position of the Borrower as of such date and the results of its operations for the period then ended;

		
	(r)
	after giving effect to the Termination Agreement and the Purchase and Sale Agreement with respect to the Initial Equipment but before giving effect to the transfers of the Initial Equipment contemplated under the Trust Agreement, it is the sole, legal and beneficial owner of, and has legal title to the Initial Equipment, free and clear of any Liens, conditions, limitations or restrictions on ownership or any 

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other options or preemptive rights of any kind, including, without limitation, right of first refusal or right of first offer, other than Permitted Liens;

		
	(s)
	the Initial Equipment is covered by the insurance required by Clause Seventeenth hereof and all premiums due prior to the date hereof and the relevant Disbursement Date in respect of such insurance have been paid in full;

		
	(t)
	after giving effect to the Termination Agreement and the Purchase and Sale Agreement with respect to the Initial Equipment but before giving effect to the transfer of the Initial Equipment to the Trustee, the Initial Equipment is not subject to any agreement, contract or document or any other type of document or instrument of any nature pursuant to which the Borrower is restricted or otherwise prohibited from transferring title to such Initial Equipment, in the terms set forth in this Agreement; provided, however, that to the extent any such restriction or prohibition existed, the Borrower has duly and validly obtained the corresponding authorizations and/or approvals, which are in full force and effect, and has provided a copy of the same to the Lender;

		
	(u)
	the Initial Equipment is in material compliance with all applicable Equipment Requirements (and no notice of violation has been received with respect to any applicable Equipment Requirement);

		
	(v)
	all the authorizations, approvals, licenses, permits and certificates required by the Borrower for the operation of the Initial Equipment have been validly obtained and paid in full, and are in full force and effect;

		
	(w)
	 payment of all Taxes with respect to the Initial Equipment is current; 

		
	(x)
	when executed: (i) the Trust Agreement shall constitute legal and valid obligations of the Trustor, enforceable against the Trustor in accordance with its terms; and (ii) the Trust Assets under the Trust Agreement will not be subject to any Lien (other than the Trust Agreement itself and any other Permitted Liens); 

		
	(y)
	no Event of Default has occurred and is continuing and no Casualty Occurrence has occurred;

		
	(z)
	the Borrower has filed any and all tax returns required to be filed by it and has paid, promptly and entirely, all taxes, contributions and other governmental charges (including Taxes) imposed on the Borrower or over its assets in accordance with such tax returns, except for Taxes that have not yet matured, or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves have been established in accordance with applicable law or which failure of payment or filing would not reasonably be expected to result in a Material Adverse Effect.  There is no tax Lien imposed or recorded against the Borrower, and to the best of its knowledge, there is no threatened action, claim, requirement or 

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proceeding before any Governmental Authority or arbitrator that has or may have as a consequence, the imposition or recordation of any tax Lien  against the Borrower;

		
	(aa)
	the Borrower and the Initial Equipment is in compliance with all the laws, regulations, circulars, orders, decrees and other applicable legal provisions, as well as all applicable requirements imposed by any Governmental Authority to the Borrower and/or the Initial Equipment, except for those which non-compliance may not be reasonably expected to have, jointly or individually, a Material Adverse Effect;

		
	(bb)
	the individual executing this Agreement on the Borrower‘s behalf has all necessary powers and authorities, as evidenced in public deed number 151,780, dated June 28, 2011, granted before Mr. Cecilio González Márquez, Notary Public number 151 of the Federal District, which first counterpart (testimonio) thereof has been filed for registration with the Public Registry of Commerce in the Federal District, as well as all corporate authorizations to validly execute and deliver this Agreement on behalf of the Borrower and to validly bind the Borrower pursuant to the terms hereof, and that such powers, authorities and corporate authorizations have not been revoked, modified or limited in any way to this date; and 

		
	(cc)
	it acknowledges and agrees that (x) the accuracy and truthfulness of the abovementioned representations; and (y) the validity and enforceability of the Borrower’s obligations under each of the Loan Documents, constitute an essential inducement (motivo determinante de la voluntad) of the Lender to enter into this Agreement and to extend a credit to the Borrower in accordance with the terms and subject to the conditions set forth in this Agreement and the other Loan Documents.

II.    The Lender hereby represents, through its legal representative: 

		
	(a)
	it is a corporation, duly organized and validly existing under the laws of Delaware;

		
	(b)
	it does not require any authorization or approval (except for the authorizations and approvals that have been duly and validly obtained, which are in full force and effect on the date hereof) in order to execute this Agreement or to comply with or perform the obligations assumed by it hereunder, which are legal, valid and enforceable against the Lender in accordance with their terms, except as may be affected by bankruptcy, concurso mercantil, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally;

		
	(c)
	it is registered with the with the Ministry of Finance as a foreign financial institution for purposes of Article 195-I of the Mexican Income Tax Law (Ley del Impuesto Sobre la Renta) and the regulations thereunder (or any successor provision); 

		
	(d)
	based on the representations of the Borrower made pursuant to this Agreement and subject to the terms and conditions set forth herein, the Lender has agreed to make the Loan available to the Borrower in order for the Borrower to use such amounts 

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exclusively for the purposes set forth in Clause Third hereof; and

		
	(e)
	the individual executing this Agreement on the Lender‘s behalf has sufficient powers and authorities, as evidenced in public deed number 64,186, dated July 7, 2011, granted before Mr. Roberto Núñez y Bandera, Notary Public number 1 of the Federal District, as well as the necessary corporate authority to validly execute and deliver this Agreement on its behalf and to validly bind the Lender pursuant to the terms hereof, and that such powers, authorities and corporate authorizations have not been revoked, modified or limited in any way to this date. 

NOW, THEREFORE, based on the Representations and Warranties contained herein, which constitute an essential inducement to the Lender and the Borrower to enter into this Agreement and to the Lender to grant the Loan, the parties hereto agree as follows:

Clauses
First.- Certain Defined Terms.

		
	(a)
	As used in this Agreement and/or the Trust Agreement, the following terms shall have the following meanings:

“AAR Manuals” means any and all manuals, circular letters, books or rules applicable to the Equipment issued by the Association of American Railroads (AAR), each in effect on the date hereof or at any time hereafter during the term of this Agreement. 

“AAR Mechanical Standards” means the rules, standards and supplements thereto of the Mechanical Division of the Association of American Railroads, as the same may be in effect from time to time.

“Additional Disbursement Date” has the meaning set forth in paragraph (a) of Clause Fourth hereof.

“Additional Equipment” means the equipment described in each Contribution Agreement and Loan Agreement Supplement, together with any and all accessions, additions, improvements and replacements from time to time incorporated or installed in any item thereof.

“Advance” has the meaning set forth in paragraph (a) of Clause Second hereof.

“Advance Request” has the meaning set forth in paragraph (a) of Clause Fourth hereof.

“Affiliate” means, as to any Person, any other Person that, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person.  For purposes of this definition, control of one Person over another Person means the power of the former to, directly or indirectly, direct or cause the direction of the management and policies of such other Person, whether through the ownership of voting shares, by contract or otherwise.

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“Agreement” means this Agreement, as amended, supplemented or otherwise modified from time to time. Accordingly, the term “Agreement” shall include each Loan Agreement Supplement entered into pursuant to the terms of this Agreement.

“Authorized Loan Amount” means the loan made available by the Lender to the Borrower pursuant to the terms and subject to the conditions set forth in this Agreement, for a principal amount of up to US$18,221,529.53 (eighteen million two hundred twenty one thousand five hundred twenty nine Dollars 53/100); provided that such amount does not comprise any amount relating to interest, fees, expenses and any other amounts (other than outstanding principal amount) payable by the Borrower to the Lender in accordance with this Agreement, as evidenced by the Notes. 

“Availability Period” means the period commencing on and including the date hereof to but excluding the Commitment Termination Date. 

“Borrower” has the meaning assigned to such term in the preamble of this Agreement.

“Business Day” means any day except Saturday, Sunday and any other day in which the principal office of commercial banks located in New York City, New York, Chicago, Illinois, United States of America or Mexico City, Federal District, Mexico, are authorized or required by law to remain closed.

“Capital Lease Obligations” means, as to any Person, the obligations of such Person to pay rent or other amounts under any lease (or other arrangement conveying the right to use) of real or personal property, which obligations are required to be classified and accounted for as capital leases in accordance with US GAAP and, for purposes of this Agreement, the amount of such obligations at any time shall be the capitalized amount thereof at such time determined in accordance with US GAAP.

“Casualty Occurrence” means, with respect to any Unit, the occurrence of any of the following: (i) the destruction, damage, contamination, wear or unsuitability of such Unit which, in the Borrower’s good faith opinion, makes repair uneconomic or renders such Unit unfit for use in the business of the Borrower, (ii) theft or disappearance of such Unit, (iii) the permanent return of such Unit to the manufacturer pursuant to any warranty or patent indemnity provisions, (iv) the taking of title of such Unit or appropriation of such Unit by any Governmental Authority under the power of eminent domain or otherwise or (v) the taking or requisition for use of such Unit by any Governmental Authority under the power of eminent domain or otherwise for a continuous period in excess of 120 days.  

“Change of Control” means any event or circumstance by virtue of which Kansas City Southern ceases to be, at any time and for any reason, the sole and legal owner and legal title holder, either directly or indirectly, of at least 50.1% (fifty point one percent) of the total issued and outstanding capital of the Borrower, on a fully diluted basis.

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“Claim” shall have the meaning set forth in Clause Nineteenth hereof.

“Commitment Termination Date” means the first to occur of (i) the date on which the Authorized Loan Amount has been borrowed in its entirety by the Borrower (ii) September 1st, 2011 and (iii) the day in which the Lender terminates the Authorized Loan Amount and declares extinguished its commitment to make the Loans to the Borrower pursuant to and as provided for in Clause Fifteenth hereof.

“Concession Title” means the concession title granted by the Federal Government of Mexico, dated December 2, 1996, as amended on February 12, 2001 and November 22, 2006, pursuant to which the Borrower has the right, for a period of 30 years, to be the exclusive provider (subject to certain trackage rights) of freight transportation services over the northeast rail lines of the Mexican railroad system and for an additional 20 years to be a non‐exclusive provider of such services over such rail lines pursuant to and subject in all cases to the terms and conditions set forth in such concession title.

“Conditions Precedent” means the conditions precedent set forth in Clause Twelfth hereof.

“Confidential Information” shall have the meaning set forth in paragraph (k) of Clause Twenty First hereof.

“Contribution Agreement” has the meaning set forth in paragraph (a) of Section 5.01 of the Trust Agreement.

“Default” means any event, act or situation that by notice or with the elapse of time or both may constitute an Event of Default.

“Default Rate” means, at any time of determination, a rate per annum equal to the sum of 3% (three percent) plus the Interest Rate.

“Disbursement Date” means the Initial Disbursement Date or any Additional Disbursement Date.

“Equipment” shall mean the collective reference to the Initial Equipment, the Additional Equipment and the Replacement Units. 

“Equipment Cost” means, for each Unit, the cost thereof as set forth in Schedule 1 to the Loan Agreement Supplement for such Unit.

“Equipment Requirements” means any and all regulations, provisions, orders, conditions, restrictions, Legal Requirements and other requirements in connection with or applicable to the Equipment (or any portion thereof), the AAR Manuals and all AAR Mechanical Standards and Federal Railroad Administration regulations that are necessary for the operation and use thereof by the Borrower and/or with respect to the maintenance of the Equipment, including without limitation, environmental, fire, safety, or other governmental or regulatory rules, as 

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well as any applicable permits, licenses, and certificates, each in effect on the date hereof or at any time hereafter, as such Equipment Requirements may be amended, amended and restated, supplemented, substituted or otherwise modified from time to time. 

“Event of Default” shall have the meaning set forth in Clause Fifteenth hereof.

“Expropriation” has the meaning set forth in paragraph (a) of Clause Eighteenth hereof.

“Expropriation Proceeds” has the meaning set forth in paragraph (a) of Clause Eighteenth hereof.

“Governmental Authority” means any national or federal government, any state, regional, local or other political subdivision thereof with jurisdiction and any individual or entity with jurisdiction exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government or quasi-governmental issues (including any court).

“Indebtedness” means, as to any Person, without duplication, (i) all obligations of such Person for borrowed money (including principal, interests, commissions and other amounts payable in connection with the foregoing), (ii) all obligations of such Person evidenced by bonds, certificados bursátiles, debentures, notes and other negotiable instruments or similar instruments, (iii) all the obligations of such Person to pay the deferred purchase price of assets or services (other than current trade payables incurred in the ordinary course of such Person’s business and payable on customary trade terms, except when such payables are past due for more than sixty (60) days)); (iv) all Capital Lease Obligations of such Person and (without duplication) the obligations of such Person under Sale-Leaseback Transactions; (v) all non-contingent obligations of such Person to reimburse any Person in respect of amounts paid under a letter of credit or similar instrument; (vi) all Indebtedness of other Persons secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person; and (vii) all Indebtedness of other Persons secured by such Person.

“Indemnified Person” shall have the meaning set forth in Clause Nineteenth hereof.

“Initial Disbursement Date” means the date hereof.

“Initial Equipment” means the equipment described in Exhibit “A” hereto, together with any and all accessions, additions, improvements and replacements from time to time incorporated or installed in any item thereof.

“Insurance Policies” has the meaning set forth in Representation I (j) of the Trust Agreement.

“Insurance Proceeds” means any and all insurance proceeds relating to or in connection with the Insurance Policies or to which the Trustor and/or the Trustee, as the case may be, may have become entitled or may demand or claim in accordance with any such Insurance Policies.

“Interest Period” means, (a) initially, the period commencing on the Initial Disbursement Date 

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and ending on September 15, 2011; and (b) thereafter, each period commencing on the last day of the next preceding Interest Period and ending on the numerically corresponding day in the calendar month that is 3 (three) months thereafter; provided that no Interest Period shall extend past the Maturity Date.

“Interest Rate” means 9.31% (nine point thirty one percent) per annum.

“Law” means the General Law of Negotiable Instruments and Credit Transactions (Ley General de Títulos y Operaciones de Crédito) of Mexico.

“Lease Documents” means the following documents each by and between the Lender, as lessor and the Borrower (formerly known as TFM, S.A. de C.V.), as lessee: (i) the Lease Agreement dated April 30, 1998, together with all supplements and amendments thereto, and (ii) the Participation Agreement dated April 30, 1998 together with all amendments thereto.

“Legal Requirements” means any and all laws, rules, regulations, provisions, codes, decrees, orders, conditions, restrictions and other legal requirements  in force, issued or promulgated by any Mexican Governmental Authority, related to or applicable to the Equipment (or any part thereof), including, without limitation, the design, construction, use, operation and maintenance of the Equipment (or any part thereof), as the same may be amended, amended and restated, supplemented, substituted or otherwise modified from time to time.

“Lender” has the meaning set forth in the preamble of this Agreement. 

“Lender’s Account” shall have the meaning set forth in item (a) of Clause Eighth hereof.

“Lien” means, with respect to any asset, any mortgage, encumbrance, pledge, trust agreement, lien, charge or other encumbrance of any kind, or any other type of preferential arrangement over or with respect to such asset that has the practical effect of creating a security interest, priority, preferential arrangement or other lien over such asset, as well as any other conditions, limitations or restrictions on ownership or any other options or preemptive rights of any kind, including, without limitation, any rights of first refusal or rights of first offer, over or with respect to such asset.

“Loan” means any loan made by the Lender in favor of the Borrower in an aggregate principal amount up to but not exceeding the amount of the Authorized Loan Amount, pursuant to the terms and subject to the conditions set forth herein.

“Loan Agreement Supplement” means a supplement to this Agreement dated each Additional Disbursement Date, or the date that any Replacement Unit is subjected to this Agreement, as applicable, substantially in the form of Exhibit “B” hereto, between the Borrower and the Lender, covering the Units described therein. 

“Loan Documents” means this Agreement, the Notes, the Trust Agreement, each Loan Agreement Supplement, as well as any other document, instrument or certificate furnished 

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pursuant hereto and thereto, or that shall be executed by the Borrower pursuant hereto and thereto, in each case, as the same may be amended, amended and restated, supplemented or otherwise modified, renewed or extended from time to time.

“Logbooks and Maintenance Records” means all running and unscheduled locomotive maintenance records and overhaul records, including component, date of installation and serial numbers of components installed, maintained by the Borrower in the normal course of its business.

“Make Whole Premium” means, for any Note, (i) the net present value of the remaining scheduled principal and interest payments, with each such scheduled payment discounted to the prepayment date at a per annum interest rate equal to the then Reinvestment Rate minus (ii) the principal balance outstanding as of the prepayment date (immediately prior to any such prepayment); provided that the Make Whole Premium shall be deemed “zero” if the calculation results in a negative number.  

“Material Adverse Effect” means (a) a material adverse effect on: (i) the business, condition (financial or otherwise), operations, performance, or properties of the Borrower and its consolidated Subsidiaries taken as a whole; (ii) the legitimate exercise of the rights and remedies of the Lender under any Loan Document; or (iii) the ability of the Borrower to perform its obligations under any Loan Document; or (b) any legitimate action by any Governmental Authority seeking the revocation, termination, abrogation, appropriation (rescate) or repudiation of the Concession Title.

“Maturity Date” means December 15, 2020.

“Mexico” means the United Mexican States.

“Notes” means the non-negotiable promissory notes (pagarés) issued by the Borrower in favor of the Lender, evidencing the disbursement of an Advance of the Lender to the Borrower and the obligations of  the Borrower to pay such Advance and interest thereon, using the form attached hereto as Exhibit “C” and made a part hereof]. 

“Operating Lease Obligation” means, as to any Person, the obligations of such Person pursuant to any lease agreement (including, without limitation, those lease agreements that may be terminated by the lessee at any time) related to any kind of property (whether personal or real property or both) that does not give rise to Capital Lease Obligations other than any such lease under which that Person is the lessor.

“Opinion of Counsel” means an opinion in writing signed by a legal counsel in terms customary to this type of transaction and reasonably acceptable to the Lender.

“Payment Date” has the meaning set forth in paragraph (b) of Clause Fifth hereof.

“Permitted Liens” with respect to the Equipment shall mean: (i) the residuary interest of the 

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Borrower; (ii) Liens of mechanics, suppliers, materialmen, laborers, employees, repairmen and other like Liens arising in the ordinary course of the Borrower’s (or if a lease is then in effect, any lessee’s) business securing obligations which are not due and payable or the amount or validity of which is being contested so long as there exists no material risk of sale, forfeiture, loss, or loss of use of any unit of Equipment or any risk of criminal liability or risk of material civil liability on the Lender; (iv) the Lien and security interest granted to the Trustee under and pursuant to the Trust Agreement; (v) Liens arising out of any judgment or award against the Borrower with respect to which an appeal or proceeding for review is being presented in good faith and with respect to which  there shall have been secured a stay of execution which shall remain in effect throughout the pendency of such appeal or proceeding for review; or (vi) salvage rights of insurers under insurance policies maintained pursuant to this Agreement.

“Person” means any individual or entity, trust, joint venture, partnership, corporation, Governmental Authority or any other entity of any nature whatsoever.

“Pesos” and “$” means the legal currency of Mexico.

“Prepayment Fee” means, in the event the Borrower prepays the Loan (or any portion thereof) to the Lender pursuant to the provisions of this Agreement, an amount equal to 5% (five percent) of the prepaid amount.

“Proceeds” means the collective reference to the Expropriation Proceeds, the Insurance Proceeds and the Sale Proceeds. 

“Purchase Price” has the meaning assigned to such term in each Purchase and Sale Agreement.

“Purchase and Sale Agreement” means the purchase and sale agreement dated as of the date hereof between the Lender, as seller and the Borrower, as buyer, with respect to sale of the Initial Equipment and Additional Equipment, together with a bill of sale to evidence transfer of title from the Lender to the Borrower, of the Initial Equipment and Additional Equipment, as the case may be.

“Purpose of the Trust” has the meaning set forth in Section 2.04 of the Trust Agreement.

“Reinvestment Rate” means for any Note, the per annum interest rate that is equal to the sum of (a) three point twenty two percent (3.22%) plus (b) an interest rate based on the interest rate for swaps (the “Swap Rate”) that most closely approximates the remaining average life of the applicable Note as published by the Federal Reserve Board in the Federal Reserve Statistical Release H.15 entitled “Selected Interest Rates” available at http://www.federalreserve.gov/releases/h15/update/ on the day before the date of prepayment of the Note.  If the remaining average life of the applicable Note is not in full years, then the Swap Rate to be adopted shall be the interpolated rate derived from the full year swap rate immediately preceding the average life of the applicable Note and the full year swap rate immediately succeeding the average life of the applicable Note from the Federal Reserve 

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Statistical Release H.15.

“Release Instrument” has the meaning set forth in Section 5.02, paragraph (d) of the Trust Agreement.

“Replaced Unit” has the meaning set forth in Section 5.02, paragraph (b) of the Trust Agreement. 

“Replacement Unit” has the meaning set forth in Clause Sixteenth (d) hereof.

“Request” means a written request for the action therein specified, delivered to the Lender and signed on behalf of the Borrower by a Responsible Officer authorized to execute and deliver any such request.

“Requirement of Law” means, any law, treaty, rule or regulation or resolution, award or judgment of any Governmental Authority, in each case applicable to, or binding upon, such Person or any of its property or to which such Person or any of its property is bound. 

“Responsible Officer” means, with respect to the subject matter of any covenant, agreement or obligation of such party contained in this Agreement and/or the Trust Agreement: the Chairman of the Board, the Chief Executive Officer, the Chief Financial Officer, the Chief Accounting Officer, the General Counsel, the Assistant General Counsel, the Chief Mechanical Officer, the Controller, the President, any Vice President, any Assistant Vice President, the Treasurer, any Assistant Treasurer, the employee or officer performing the duties and having the authority of any such positions or any authorized attorney-in-fact.

“Sale-Leaseback Transaction” means, as to any Person, any transaction by which such Person, directly or indirectly, is or becomes responsible as lessee or guarantor  with respect to any lease, whether a Capital Lease Obligation or an Operating Lease Obligation, of any asset (personal or real property), whether then owned or thereafter acquired which such Person has sold or otherwise transferred or is to sell or transfer to any other Person.

“Sale Proceeds” means the collective reference to any and all cash and all other products and/or proceeds derived from or in connection with the sale of the Equipment.

“Secured Obligations” means, jointly or separately, as the context may require, and without duplication, (i) any and all indebtedness evidenced by the Notes, and any other amounts due or required to be paid by the Borrower under any of the Loan Documents, and all other obligations and liabilities of the Borrower to the Lender, whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with the Notes and/or any of the other Loan Documents, whether on account of principal, interest, fees, indemnities, costs, expenses (including, without limitation, the Prepayment Fee, all fees and disbursements of legal counsel) or otherwise; (ii) the full performance by the Borrower of all of the terms, representations, warranties, covenants and obligations set forth in the Loan Documents to which they are a party or by which they 

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are bound; and (iii) the full performance by the Borrower of all of the terms, covenants and obligations set forth in the Loan Documents.

“Subsidiary” means, as to any Person and on any date, any entity, which stock, securities or other partnership interests representing more than 50% (fifty percent) of its capital stock or more than 50% (fifty percent) of the ordinary voting power, on such date, are (directly or indirectly) owned by, or controlled by, such Person or one or more Subsidiaries of such Person or by such Person and one or more Subsidiaries of such Person. 

“Termination Agreement” means the Lease Termination Agreement of even date herewith together with each Unit Termination Notice delivered thereunder between the Borrower, as lessee and the Lender, as lessor, pursuant to which the Lease Documents are terminated with respect to the Initial Equipment and Additional Equipment described therein.

“Taxes” means any tax, levy, retention, withholding, deduction, charge or any other tax liability of any nature, including interests, penalties, actualizations, fines or charges derived therefrom.

“Transfer Event” has the meaning set forth in Clause Thirteen (g) hereof. 

“Trust Account” means the account opened and maintained by the Trustee, in the name of the Trustee, in accordance with the Trust Agreement and for the Purpose of the Trust, in order to receive any and all Proceeds and any other cash and all other products and/or proceeds derived from or in connection with the Trust Assets subject to the provisions set forth in the Trust Agreement: _______________.

“Trust Agreement” means the Irrevocable Transfer of Title and Security Trust Agreement with Reversion Rights ________ to be entered into among the Borrower, as trustor, the Trustee, acting in such capacity, and the Lender, as first place beneficiary, on the date hereof, substantially in the form attached hereto as Exhibit “D”, by means of which the Borrower shall transfer title to the Trust Assets to the Trustee, in order to secure each and all of the Secured Obligations.  

“Trust Assets” means the collective reference to (i) the Initial Equipment; (ii) the Additional Equipment; (iii) the Replacement Units, (iv) the Proceeds, (v) all rights, interests and benefits of the Trustor under the Insurance Policies; (vi) the Warranties, if any, (vii) the Logbooks and Maintenance Records, and (viii) the Trust Account and all funds deposited therein from time to time as provided herein or in the Trust Agreement.

“Trust Estate” means the collective reference to the Trust Assets, as well as all cash and all products and/or proceeds derived from or in connection with the Trust Assets, including, without limitation, any and all Proceeds and any other amounts deposited in the Trust Account.

“Trustee” means Banco Nacional de México, S.A. Institución de Banca Múltiple, integrante del Grupo Financiero Banamex, División Fiducairia, in its capacity as trustee under the Trust Agreement, or any substitute trustee appointed in accordance with the terms of Section 14.02 

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of the Trust Agreement.

“Trustee Fee Letter” has the meaning set forth in Section 12.02 of the Trust Agreement.

“Trustor” means the Borrower, in its capacity as trustor under the Trust Agreement.

“Unit” means individually, the various locomotives constituting the Equipment or any part thereof.

“US Dollars” and “US$” means the legal currency of the United States of America.

“US Dollar Trust Account” means the US Dollar denominated account to be opened and maintained by the Trustee, in the name of the Trustee, in the event the extrajudicial sale procedure set forth herein is initiated, in order to receive the price of the bid for the sale of the Trust Assets.

“US GAAP” means generally accepted accounting principles set forth from time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the accounting profession), which are applicable to the circumstances as of the date of determination.

“Warranties” means the manufacturer’s and suppliers’ warranties related to the Equipment, if any.

(b)    The definitions in this Clause First shall apply equally to both the singular and plural forms of the terms defined.  Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms.  Unless the context shall otherwise require, all references to numbers or letters of Clauses, sections, paragraphs or items, shall be deemed to be references to Clauses, sections, paragraphs or items of this Agreement, and all references to Exhibits and Schedules shall be deemed to be references to Exhibits and Schedules of this Agreement, which are hereby incorporated by reference to be a part of this Agreement. The words “hereof”, “herein” “hereunder”, “in this”, “this” “hereinafter” and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any particular Clause, section, paragraph or item of this Agreement unless otherwise specified. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”, unless such phrase otherwise appears

(c) It shall be deemed that any reference to (i) any agreement, contract or instrument includes the reference to such agreement, contract  or instrument as amended, amended and restated, or otherwise modified from time to time, and (ii) any law or regulation includes the amendments thereto from time to time or to any law or regulation successor thereto.

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SECOND.- Terms and Conditions of the Loan.

(a)    In accordance with the terms and subject to the conditions set forth herein, the Lender agrees to make advances of the Loan (each, an “Advance”) to the Borrower during the Availability Period; provided that (x) the amount of any Advance shall not include interest, commissions, expenses or any amounts other than principal payable by the Borrower to the Lender pursuant to the Notes; (y) the aggregate principal amount of all Advances shall not exceed at any time the amount of the Authorized Loan Amount; and (z) the Borrower may not re-borrow any amounts of the Loan paid (whether prepaid or paid in the scheduled payment date) to the Lender pursuant to the terms set forth herein.

(b)    Following the Commitment Termination Date, any unused portion of the Authorized Loan Amount shall be cancelled and the rights of the Borrower to borrow such portion of the Authorized Loan Amount shall terminate.  

THIRD.- Use of Proceeds.  The Borrower agrees to apply the proceeds of each Advance exclusively to the payment of the applicable Purchase Price.

FOURTH.- Advance Request; Terms and Conditions. 

(a)    During the Availability Period, the Borrower may request an Advance from the Lender by delivering a written request substantially in the form attached hereto as Exhibit “E” (each an “Advance Request”) with at least 4 (four) Business Days prior to the date on which the Borrower wishes to receive such Advance (each, an “Additional Disbursement Date”); provided that, for the Initial Disbursement Date, the Advance Request may be delivered on the date hereof. Each Advance Request shall, among other things, (i) specify the total principal amount of the Advance; (ii) specify the Disbursement Date (which must be a Business Day during the Availability Period); (iii) specify the wire transfer information of the bank account in which the Borrower wishes that such Advance be deposited; and (iv) include a statement of the Borrower representing that, immediately prior and after giving effect to such Loan, no Default or Event of Default has occurred.

(b)    To the extent all the Conditions Precedent shall have been satisfied, the Lender shall deposit the principal amount of the respective Advance in US Dollars and in immediately available funds in the account set forth in the applicable Advance Request, no later than 1:00 p.m. New York time on the applicable Disbursement Date.

(c)    The Advance Request shall be irrevocable and binding to the Borrower, and the Borrower shall indemnify the Lender for any loss or cost incurred by the Lender (including, without limitation, any losses derived from amounts paid or payable by the Lender to fund such Loan) in the event the Borrower fails to borrow the Advance so and as requested in the relevant Advance Loan Request (including due to the failure of the Borrower to satisfy one or more of the Conditions Precedent).

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FIFTH.- Documentation and Payment of the Loan; Application of Payments.

(a)    Each Advance made by the Lender to the Borrower pursuant to this Agreement shall be evidenced by a Note issued by the Borrower in favor of the Lender on each Disbursement Date. The Borrower acknowledges and agrees that the issuance and delivery of the Notes is not, and shall not be construed as a payment of the Loan.

(b)    To the extent that more than one Advance occurs during the Availability Period, on the Commitment Termination Date, the Borrower shall issue a new Note (or more than one Note at the request of the Lender) in substitution of the then existing Notes, reflecting the aggregate principal balance of the Loan as of such date and the then existing notes shall be simultaneously canceled by the Lender and delivered to the Borrower.  Upon issuance and delivery of such new Note(s) by the Borrower, the Lender shall deliver to the Borrower the existing Notes for cancellation. The Borrower acknowledges and agrees that the issuance of the new Note(s) is not and shall not be construed as payment of the Loan. 

(c)    The Borrower shall repay the Lender the principal amount of the Loan in 38 (thirty eight) quarterly and consecutive installments on each March 15, June 15, September 15, and December 15 of each year (commencing on September 15, 2011) (each, a “Payment Date”) for the amounts specified in the payment schedule set forth in each Note. 

(d)    Any payment made by the Borrower to the Lender pursuant to this Agreement as evidenced by the Notes, shall be applied in the following order (to the extent due and owing and unpaid):

(i)    So long as no Event of Default shall have occurred and be continuing:  (A) to ordinary interest and, (B) to principal.

(ii)    If a mandatory prepayment takes place in accordance with Clause Sixth hereof, and so long as no Event of Default shall have occurred and be continuing:  (A) to ordinary interest and, (B) to principal. 

(iii) If a prepayment takes place in accordance with section (g) of Clause Thirteenth hereof, and so long as no Event of Default shall have occurred and be continuing: (A) to the Make Whole Premium (B) to ordinary interest and (C) to principal.

(iv) if an Event of Default has occurred and is continuing:  (A) to expenses, costs, and fees incurred by the Lender, including without limitation, by reason of the exercise of any of the Lender’s rights and/or remedies, (B) to any Prepayment Fee (except if the Event of Default that occurs is the one described in paragraph (f)(ii) or (j) of Clause Fifteenth, in which case no Prepayment Fee shall be payable), (C) to default interest at the Default Rate, (D) to ordinary interest and, (E) lastly, to principal. In case an Event of Default occurs, the fact that the Lender receives any payment of such amounts shall not be deemed or construed as the granting of a grace period, and will be without prejudice for the ability of the Lender to exercise the actions 

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or other applicable remedies or legal actions with respect to such Event of Default. 

The Borrower acknowledges that the Lender has relied upon the anticipated investment return under the Loan in entering into transactions with, and in making commitments to, third parties, and the parties agree that: (i) no voluntary prepayment of the Loan whether in whole or in part shall be permitted, (ii) the tender of any prepayment as a result of an Event of Default  shall include the Prepayment Fee, unless specifically excluded in the previous paragraph; and (iii) no prepayment of the Loan in connection with a Casualty Occurrence shall require the Prepayment Fee. The Borrower agrees that the Prepayment Fee (when due) represents a fair compensation for the loss that may be sustained by the Lender as a result of a prepayment of the Loan and it shall be paid without prejudice to the right of the Lender to collect any other amounts provided to be paid under or pursuant to the Loan Documents. Notwithstanding the foregoing, the parties recognize and acknowledge that the Prepayment Fee constitutes for all purposes the payment of a fee and not a penalty.

SIXTH.- Mandatory Prepayments. 

(a)    If a Casualty Occurrence shall occur, and the relevant Unit or Units are not timely replaced pursuant to Clause Sixteenth (d) hereof, the Borrower shall pay the next installment as set forth in the relevant Note and prepay the Loan, in an amount equal to the sum of an amount equal to the product obtained by multiplying the aggregate unpaid principal outstanding at the date of such prepayment for all remaining Units (after deducting therefrom the principal installment, if any, due on the date of such prepayment) by a fraction, the numerator of which shall be the number of Units for which the subject Casualty Occurrence has occurred and the denominator of which shall be the total Units.

(b)    The Borrower shall give Lender written notice of each mandatory prepayment under this Clause no later than 10:00 a.m., New York time on the date 10 (ten) Business Days before such prepayment is due. All prepayments shall be applied, pro rata, to the scheduled installments of principal payments set forth in the respective payment schedule of each Note. 

(c)    Concurrently with any partial mandatory prepayment under this Clause, the Lender agrees to cancel and deliver each Note so prepaid or partially prepaid to the Borrower in exchange for new Notes issued by the Borrower reflecting the relevant aggregate principal amount of such Note then due, after giving effect to the applicable partial prepayment and the new payment schedule of each such Note.

SEVENTH.- Interest.

(a)    The outstanding principal amount of the Loan shall bear interest commencing on the Disbursement Date and until the date on which the outstanding principal amount of the Loan is paid in full, at the Interest Rate, which interest shall be payable by the Borrower to the Lender on each Payment Date.

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(b)    The due and unpaid principal amount of any Loan and any other amount owed by the Borrower to the Lender pursuant to this Agreement as evidenced by the Notes, shall bear interest at the Default Rate from the date immediately following the due date thereof until the date on which such unpaid amount is paid in full, at the Default Rate, at all times during each day that such amount remains outstanding, which interest shall be payable on demand, together with any applicable Mexican value added tax (impuesto al valor agregado).

(c)    Any and all interest payable pursuant hereto as documented in the Notes shall be calculated on the basis of a 360 (three hundred and sixty)-day year for 30-day months. 

EIGHTH.- Payments.

(a)    Subject to clause (b) below, all payments of principal and interest to be made by the Borrower to the Lender pursuant to the relevant Note and all payments due with respect to the Loan under this Agreement, shall be made without setoff, deduction or counterclaim, and shall be made prior to 12:00 P.M. (New York City time) on the due date thereof pursuant to the relevant Note in US Dollars and in immediately available funds, to account number ______, ABA number _____, in the name of the Lender with Deutsche Bank Trust Company Americas, SWIFT Code: BKTRUS 33, GE Transportation Finance, Inc. (the “Lender’s Account”), or in any other manner or place in the United States of America, as the Lender may indicate to the Borrower in writing at its corresponding domicile and upon reasonable notice delivered by the Lender to the Borrower.

(b)    If any payment hereunder or under the Notes shall be due on a day that is not a Business Day, then payment thereof shall be due on the immediately succeeding Business Day.

NINTH.- Taxes.

(a)    All payments of principal, interest payable by the Borrower under the Notes and other amounts payable by the Borrower hereunder shall be made free and clear of, and without deduction or withholding for or on account of, any present or future Taxes, payable in any jurisdiction, except for Mexican withholding Taxes on interest payment at a rate not to exceed 4.9%; provided, however, that Mexican withholding Taxes on interest payments which are at a rate in excess of 4.9% shall, to the extent of such excess, be for the account of the Borrower. If at any time, any competent authority of any jurisdiction imposes, charges or collects any Taxes relating to or in connection with Loan or this Agreement or with respect to any principal and interest payment that must be made pursuant to the Notes or other payment that must be made pursuant to this Agreement, the Borrower shall promptly pay to the corresponding tax authority the amount of any such Taxes and shall pay to the Lender such additional amounts, as are required to assure that the Lender receives the whole amount it would have received if such Taxes (other than Mexican withholding Taxes on interest payment at a rate not to exceed 4.9%) had not been paid. In case of any withholding Taxes paid, the Borrower shall promptly deliver to the Lender the original receipts or other documents 

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acceptable to the Lender evidencing the payment of any withholding Taxes (either at 4.9% or at other applicable rates).

(b)    The Lender will not have the obligation to reimburse the Borrower, and the Borrower hereby expressly and irrevocably waives its right to receive, any reimbursement of any Tax or any other benefit obtained or that may be obtained by the Lender as a result of the provisions contained in this Clause.

(c)    The Lender shall notify the Borrower of any requirement, notification, payment claim or any other notice received from any authority with respect to any Taxes, so that the Borrower may promptly respond to any such requirement, notification, claim or notice, pay such Taxes and hold the Lender harmless with respect to any such requirement, notification, payment claim or notice.

(d)    The obligations of the Borrower pursuant to this Clause shall survive for a period of 5 (five) years following the termination of this Agreement.

TENTH.-  Inspection Rights. 

(a)    Regular Inspection Rights. The Lender (or any person or persons designated in writing by the Lender) will have, during Business Days and business hours, once each calendar quarter, the right to examine, inspect and audit the Trust Assets, as well as to examine, inspect, audit, review and obtain copies and extracts of the books, registries, publications, orders, receipts, correspondence or any other information of the Borrower exclusively relating to or in connection with the Trust Assets (wherever located), at the Lender’s own cost and risk (including without limitation, the risk of personal injury or death), as requested in writing by the Lender, with at least 5 (five) Business Days advance notice, without obstructing or impairing the operations of the Borrower. The Borrower shall cooperate with the Lender in the performance of these visits and inspections. 

(b)    Inspection Rights under a Default. In the event an Event of Default exists, the Lender (or any person or persons designated by the Lender) will have, at its own discretion and as many times and with the frequency requested, the right to examine, inspect and audit the Trust Assets, as well as to examine, inspect, audit, review and obtain copies and extracts of the books, registries, publications, orders, receipts, correspondence or any other information of the Borrower relating to or in connection with the Trust Assets (wherever located), at the Borrower’s own cost and risk (including without limitation, the risk of personal injury or death. The Borrower shall cooperate with the Lender in the performance of these visits and inspections.

ELEVENTH.- Requirement of Law; Illegality. 

(a)    If the adoption of or any change in any Requirement of Law or in the interpretation or application thereof or compliance by the Lender with any request or directive 

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(whether or not having the force of law) from any central bank or other Governmental Authority made subsequent to the date hereof: 

(i) shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances, loans or other extensions of credit granted by or any other acquisition of funds by, any office of the Lender,

(ii) shall impose on the Lender any other condition that affects any of the Loan Documents or the Loan granted by the Lender;

 and the result of any of the foregoing is to increase the cost to the Lender, by an amount that the Lender reasonably deems to be material, of making, converting into, continuing or maintaining the Loan or to reduce any amount received or to be receivable hereunder in respect thereof, then, in any such case, the Borrower shall promptly pay the Lender, upon its demand, any additional amounts necessary to compensate the Lender for such additional cost or reductions incurred.  If the Lender becomes entitled to claim any additional amounts pursuant to this paragraph, it shall promptly notify the Borrower of the event by reason of which it has become so entitled.

(b)    If the Lender shall have determined that the adoption of or any change in any Requirement of Law regarding capital adequacy or in the interpretation or application thereof or compliance by the Lender or any entity controlling the Lender with any request or directive regarding capital adequacy (whether or not having the force of law) from any Governmental Authority made subsequent to the date hereof shall have the effect of reducing the rate of return on the Lender’s or such entity’s capital as a consequence of its obligations hereunder to a level below that which the Lender or the controlling entity of the Lender could have achieved but for such adoption, change or compliance (taking into consideration the Lender’s or such entity’s policies with respect to capital adequacy), then from time to time, after submission by the Lender to the Borrower of a written request therefor, the Borrower shall pay to the Lender such amount or additional amounts as will compensate the Lender or such entity for such reduction.

(c)    A certificate issued by the Lender and delivered to the Borrower indicating the additional payable amounts in accordance with items (a) and/or (b) of this Clause, shall be conclusive in the absence of manifest error. 

(d)    If any Requirement of Law or any change therein or in the interpretation or application thereof, or compliance by the Lender with any request or directive (whether or not having the force of law) of any central bank or any other Governmental Authority, shall make it unlawful or impossible for the Lender to make or maintain the Loan as contemplated by this Agreement, then (i) the obligation of the Lender hereunder to make the Loan shall forthwith be cancelled and (ii) the Lender will, if requested by the Borrower, use reasonable efforts 

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subject to overall policy considerations of the Lender to designate another lending office for the Advance affected by such event with the object of avoiding the consequences of such event; provided, however, that such designation is made on terms that, in the Lender’s sole discretion, cause the Lender and its lending office(s) to suffer no economic, legal or regulatory disadvantage, and provided, further, that nothing in this item (d) shall affect or postpone any of the obligations of the Borrower or the rights of the Lender pursuant to this Clause.  To the extent the Lender determines, in its sole discretion, that it may not designate another lending office as provided herein or is otherwise not able to do so in accordance with applicable law, then the outstanding principal balance of the Loan, shall be repaid on the earlier to occur of (i) the last day of the next succeeding Interest Period therefor, and (ii) the last day provided by the Requirement of Law or any change therein or in the interpretation or application thereof, that gave rise to such event.  If any such prepayment is made on a day that is not the last day of the next succeeding Interest Period therefor, the Borrower shall also pay the Lender such amounts, if any, as may be required pursuant to the items (a) and (b) of this Clause.

(e)    The obligations of the Borrower pursuant to this Clause shall survive for a period of 3 (three) years following the termination of this Agreement. 

TWELFTH.- Conditions Precedent for the Loan. The parties expressly agree that the obligation of the Lender to make any Advance pursuant to this Agreement is subject to the satisfaction (in form, substance and scope acceptable to the Lender) or waiver, on or prior to the applicable Disbursement Date, of the following Conditions Precedent (it being agreed that closing without satisfaction of any of the following conditions shall constitute a waiver thereof):

(a)    Loan Documents. The Lender shall have received:

		
	(i)
	for the Initial Disbursement Date, an original counterpart of this Agreement duly executed and delivered by one or more duly appointed and authorized attorneys-in-fact of the Borrower;

		
	(ii)
	for the Initial Disbursement Date, an original counterpart of the Trust Agreement duly executed and delivered by one or more duly appointed and authorized attorneys-in-fact of the Trustor and the Trustee which execution shall be either granted before, or ratified before a notary public in Mexico;

		
	(iii)
	for any Additional Disbursement Date, an original counterpart of the relevant Loan Agreement Supplement, duly executed and delivered by one or more duly appointed and authorized attorneys-in-fact of the Borrower;

		
	(iv)
	for any Additional Disbursement Date, an original counterpart of the relevant Contribution Agreement for the transfer of the Additional Equipment described therein, duly executed and delivered by one or 

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more duly appointed and authorized attorneys-in-fact of the Trustor and the Trustee which execution shall be either granted before, or ratified before a notary public in Mexico;

		
	(v)
	an original Note issued by the Borrower in favor of the Lender, evidencing the Lender’s disbursement of the relevant Advance and the Borrower’s obligation to pay such Advance; and,

		
	(vi)
	any other documents or instruments that are reasonably requested by the Lender of the Borrower in connection with or pursuant to this Agreement or any other Loan Documents.

(b)    Financial Statements: To the extent they are not publicly available, the Borrower shall deliver to the Lender a copy of the Annual Reports on Form 10‐K (or any successor form), Quarterly Report on Form 10‐Q (or any successor form) and Form 8‐K filed by the Borrower with the SEC for the years of 2008, 2009 and 2010.

(c)    Secretary’s Certificate.  On each Disbursement Date, the Lender shall have received a certificate duly completed and signed by the secretary or the alternate secretary of the board of directors of the Borrower substantially in the form attached hereto as Exhibit “F”, together with (i) a certified copy of the incorporation deed (acta constitutiva) and the then current estatutos sociales (including registration data) of the Borrower; (ii) a certified copy of the resolutions of the board of directors of the Borrower approving the Loan; and (iii) a certified copy of the public deeds (including registration data or evidence of their filing for registration with the Public Registry of Commerce) which contain the powers of attorney granted by the Borrower in favor of the person(s) that shall execute, in its name and behalf, the respective Loan Documents applicable to the respective Disbursement Date; provided that, the attachment of the documents referred to in sections (i), (ii) and/or (iii) above shall not be necessary, to the extent the same have been previously delivered to the Lender, they are current on the relevant Disbursement Date, and the secretary or the alternate secretary represent as to their effectiveness in the relevant certificate.

(d)    Purchase and Sale Agreement; Termination Agreement. The Termination Agreement and Purchase and Sale Agreement relating to the Equipment for which funding is required pursuant to the relevant Advance Request, together with the respective bills of sale and supplements thereto, shall have been executed and delivered.

(e)    Legal Opinions. The Lender shall have received an original executed copy of the Opinion of Counsel issued by White & Case, S.C., counsel to the Borrower dated on the Initial Disbursement Date.

(f)    No Adverse Change. Before the relevant Disbursement Date, no event or condition shall have occurred which has or could reasonably be expected to have a Material Adverse Effect.

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(g)    Insurance Certificate.  On or before the applicable Disbursement Date, the Lender shall have received a certificate acceptable to the Lender relating to insurance that is required pursuant to Clause Seventeenth of this Agreement.

(h)    Representations and Warranties.  Each of the representations and warranties made by the Borrower pursuant to this Agreement and the other Loan Documents shall be true, complete and correct, in all respects, on the relevant Disbursement Date, as if made on and as of such date (except in the case of any representation or warranty that expressly speaks as of a specific date or time, in which case the Borrower shall represent and warrant to the Lender as of such specific date or time).

(i)    No Default or Event of Default. No Default or Event of Default shall have occurred on the relevant Disbursement Date.

(j)    Advance Request. The Lender shall have received an Advance Request, duly signed by a duly appointed and authorized attorney-in-fact of the Borrower in accordance with the terms set forth in Clause Fourth hereof.

(k)    Commissions, Fees and Expenses. The Lender shall have received payment in full of any and all commissions, fees, expenses and other costs of the Lender and its legal counsel required to be paid by the Borrower on or prior to the relevant Disbursement Date, unless otherwise agreed to by the parties. 

THIRTEENTH.-  Affirmative Covenants of the Borrower. In addition to the other obligations of the Borrower pursuant to this Agreement and any other Loan Document, from the date hereof and until the date on which all the Secured Obligations shall have been paid, performed and discharged in full, the Borrower covenants and agrees to:

(a)    Information: Deliver to the Lender:

		
	(i)
	unless included in a Form 10‐Q delivered or deemed delivered under paragraph (iii) below, as soon as available and in any event within 60 (sixty) days after the end of each quarterly period, except the last quarter, of each fiscal year, consolidated balance sheets of the Borrower and its consolidated Subsidiaries as at the end of such period, together with the related consolidated statements of income and cash flows of the Borrower and its consolidated Subsidiaries for the period beginning on the first day of such fiscal year and ending on the last day of such quarterly period, setting forth in each case (except for the consolidated balance sheet) in comparative form the figures for the corresponding periods of the previous fiscal year, all in reasonable detail and prepared in accordance with US GAAP and certified by any Responsible Officer of the Borrower;

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	(ii)
	unless included in a Form 10‐K delivered or deemed delivered under paragraph (iii) below, as soon as available and in any event within 120 (one hundred and twenty) days after the last day of each fiscal year, a copy of the Borrower’s annual audited report covering the operations of the Borrower and its consolidated Subsidiaries including consolidated balance sheets, and related consolidated statements of income and retained earnings and consolidated statement of cash flows of the Borrower and its consolidated Subsidiaries for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and prepared in accordance with US GAAP applied on a consistent basis, which statements will have been certified by a firm of independent public accountants of recognized national standing selected by the Borrower;

		
	(iii)
	as soon as available, one copy of each Annual Report on Form 10‐K (or any successor form), Quarterly Report on Form 10‐Q (or any successor form) and Form 8‐K filed by the Borrower with the SEC or any successor agency, provided that, as long as the Borrower is subject to informational reporting requirements of the Securities Exchange Act of 1934, as amended, and in accordance therewith files reports and other information with the SEC, the Lender shall be deemed to have been furnished the foregoing reports and forms required under clauses (i), (ii) and (iii) at the time the Lender may electronically access such reports and forms by means of the  SEC’s web site (www.sec.gov) or at the Borrower’s web site (www.kcsouthern.com); provided, further, in the event that the Borrower shall cease to be subject to such informational requirements, the Borrower will provide the Lender with 90 (ninety) days’ advance written notice and thereafter the Borrower shall make available to the Lender financial statements described in clauses (i) and (ii) above by means of Kansas City Southern’s web site (www.kcsouthern.com), and as long as electronic access is provided in such manner, the Lender shall be deemed to have been furnished such financial statements; provided further that at the sole option of the Borrower, the Borrower may provide such financial statements directly to the Lender; 

		
	(iv)
	as soon as available and in any event within 120 (one hundred and twenty) days after the last day of each fiscal year, a certificate issued by a Responsible Officer of the Borrower certifying that, as of such date, no Default or Event of Default has occurred and is continuing or, in the event that a Default or an Event of Default has occurred and is continuing, a description  of the scope and nature thereof, as well as the actions or measures taken or proposed to be taken in order to cure 

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such Default or Event of Default, as the case may be;

		
	(v)
	as soon as possible, but in any event within (5) five Business Days immediately following the date on which a Responsible Officer acquires knowledge or should have acquired knowledge of the occurrence of any Default or Event of Default, a certificate signed by a Responsible Officer of the Borrower, setting forth the details thereof, as well as the actions or measures taken or proposed to be taken in order to cure such Default or Event of Default, as the case may be;

		
	(vi)
	as soon as possible, but in any event within (5) five Business Days immediately following the date on which a Responsible Officer acquires knowledge or should have acquired knowledge of a resolution by the competent authorities finally determining a violation to the Concession Title, a certificate signed by a Responsible Officer of the Borrower, setting forth the details thereof, as well as the actions or measures taken or proposed to be taken in order to cure such violation; 

		
	(vii)
	as soon as possible, but in any event within the 5 (five) Business Days following the date on which the Borrower or any Responsible Officer acquires knowledge or should have acquired knowledge of a notice of an investigation or a summons to trial or notice of any action, claim or proceeding in which the Borrower is a party and that may have a Material Adverse Effect on the Trust Assets (or any portion thereto); 

 
		
	(viii)
	as soon as possible, but in any event within the 5 (five) Business Days following the date on which the Borrower or any Responsible Officer acquires knowledge or should have acquired knowledge of a notice of a summons to trial or notice of any action, claim or proceeding in which the Borrower is a party and that may have a Material Adverse Effect on the business, operations or other assets of the Borrower, a certificate signed by any authorized officer of the Borrower setting forth the details of such action, claim or proceeding and the actions or measures taken or proposed to be taken in connection therewith; provided that, as long as the Borrower is subject to informational reporting requirements of the Securities Exchange Act of 1934, as amended, and in accordance therewith files reports and other information with the SEC, the Lender shall be deemed to have been furnished the foregoing certificate at the time the Lender may electronically access such information by means of the  SEC’s web site (www.sec.gov) or at the Borrower’s web site (www.kcsouthern.com), provided, further, in the event that the Borrower shall cease to be subject to such informational requirements, the Borrower will provide the Lender with 90 (ninety) days’ advance written notice and thereafter the Borrower shall deliver the certificate 

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referred to in this paragraph directly to the Lender.

		
	(ix)
	 as soon as possible, but in any event no later than 10 (ten) Business Days following the date on which requested, any other information or documentation (financial or otherwise) exclusively related to the Equipment, the Loan or the Loan Documents, as reasonably requested in writing by the Lender at any time.

(b)    Accounting. Keep and maintain proper books of records and account in which full, true and correct entries in conformity with US GAAP and all requirements of law shall be made of all dealings and transactions in relation to the business and activities of the Borrower.  

(c)    Corporate Situation; Rights, Authorizations, Etc. Maintain in full force and effect its legal existence, in accordance with the laws of Mexico, as well as all rights (whether statutory or legal), licenses, authorizations, permits, notices, registrations and franchises that are considered relevant to its business.

(d)    Compliance with Laws and Concession Title. Observe and comply with all laws, rules, regulations, orders, decrees and other provisions: (i) which are applicable to it, as well as with all applicable restrictions imposed by any Governmental Authority, except for those which, if breached, could not reasonably be expected to have, individually or jointly, a Material Adverse Effect, (ii) pertaining to the Borrower or its consolidated Subsidiaries and which or in any other manner affect or that may affect the legality, validity and enforceability of this Agreement or the other Loan Documents. Observe and comply, and cause any Affiliate that takes possession of any Unit as permitted in paragraph (c) of Clause Seventeenth to observe and comply, with the Concession Title. 

(e)    Taxes. Submit and shall cause the consolidated Subsidiaries of the Borrower to submit, each and every Tax return required to be so submitted by the Borrower and its consolidated Subsidiaries, and pay, in a timely manner and in their entirety, all Taxes, contributions and other governmental charges imposed on the Borrower or on the consolidated Subsidiaries of the Borrower, or on its assets (including, without limitation, any and all Taxes, contributions, levies and any other charges of any nature, including the Taxes, that are determined, collected or imposed on or in connection with the Trust Assets) in accordance with such Tax returns and applicable law, except for those that are being contested (such contest being permitted only if no Event of Default has occurred and is continuing) in good faith by appropriate proceedings and with respect to which adequate reserves have been established in accordance with applicable law (including US GAAP) and/or this Agreement.

(f)    Maintenance of Assets; Insurance. Maintain (i) the Trust Assets, in accordance with the provisions of Clause Sixteenth (a) hereof; and (ii) maintain in full force and effect insurance on the Equipment pursuant to the terms and in accordance with Clause Seventeenth hereof.

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(g)    Spin Off; Merger, etc. In the event the Borrower intends to spin-off, merge, restructure, reorganize or consolidate with any other Person (other than an Affiliate of the Borrower) or assign, transfer, lease, or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to any Person (other than an Affiliate of the Borrower) (each of them a “Transfer Event”), the Borrower shall notify the Lender no later than 5 (five) Business Days following the date on which the shareholders meeting approving such Transfer Event takes place and provide to the Lender the necessary documents in order for the Lender to analyze the impact of any such Transfer Event on the financial condition of the Borrower. 

Should the Lender determine that the intended Transfer Event (i) would not cause a Material Adverse Effect, it shall so notify the Borrower and the latter shall not require the Lender’s approval to carry out any such Transfer Event; or (ii) would cause or could reasonably be expected to cause a Material Adverse Effect, it shall notify the Borrower and if the Borrower decides to carry out any such Transfer Event, then the  Borrower shall prepay the Loan accompanied by the payment of all accrued and unpaid interest on the principal amount so prepaid plus the Make Whole Premium on the amount prepaid plus all other amounts then owing under the Loan Documents (but without the payment of any Prepayment Fee). 

If the Transfer Event takes place in accordance with section (i) of the previous paragraph, the Person into which the Borrower consolidates with or merges into or spins off by, or the Person owning the assets or shares after such Transfer Event, shall (1) enter into an assumption agreement, in form and substance satisfactory to the Lender, by means of which pursuant to which that Person shall assume and undertake to perform the Borrower’s obligations hereunder, and (ii) deliver to the Lender an Opinion of Counsel confirming that the assumption agreement pursuant to which such Person assumed the obligations of the Borrower shall have been duly authorized, executed and delivered by such Person and that such agreement is the legal, valid and binding obligation of such Person, enforceable against such Person in accordance with its terms.

(h)    Trust Agreement. (i) Subject to any rights and obligations of the Trustee and/or the Lender under the Trust Agreement, defend the rights, title and interest of the Trustee and/or the Lender, as the case may be, over the Trust Assets against the claims and demands of any Person other than the Lender; (ii) execute and deliver to the Lender such documents and carry out any action in connection with the Trust Agreement that the Lender may reasonably request in order to perfect, protect and maintain the ownership and title to the Trust Assets by the Trustee, and to protect and preserve the Trust Assets, and pay any and all costs and expenses derived from or in connection with the foregoing; and (iii) pay any and all Taxes, contributions, fines, levies and any other charges of any nature that are determined, collected or imposed on or in connection with the Trust Assets.

The Borrower hereby covenants and agrees, as soon as possible, but in any event within (i) a period of 10 (ten) Business Days following the execution date of the Trust Agreement, to file 

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(a) the registration of the Purchase and Sale Agreement and transfer of title of the Initial Equipment in favor of the Borrower, (b) cancellation of the registration of the Lease Documents and (c) registration of the Trust Agreement with (1) the Registro Ferroviario Mexicano and (2) the Sole Registry of Security over Movable Assets of the Public Registry of Commerce (the “RUG”), through a Mexican notary public, and to present written evidence thereof to the Lender and the Trustee, for which purpose the Borrower shall deliver to the Trustee (with a copy to the Lender) an original letter executed by such Mexican notary public whereby it certifies that the Trust Agreement has been duly filed for registration with the RUG and (ii) 20 (twenty) Business Days following the date of the Trust Agreement, deliver to the Trustee (a) the official certificate issued by the Registro Ferroviario Mexicano, certifying that the Trust Agreement has been duly registered therein and the Trustee has been recorded as the owner of the Initial Equipment, a evidence of such official certificate, and (b) the electronic certificate issued by the RUG certifying that the Trust Agreement has been duly registered therein. 

If, at the end of such 20 (twenty) Business Day period, the Borrower has been unable to deliver to the Trustee (i) the official certificate issued by the Registro Ferroviario Mexicano certifying that the Trust Agreement has been duly registered therein and the Trustee has been recorded as the owner of the Initial Equipment, and/or (ii) the electronic certificate issued by the RUG certifying that the Trust Agreement has been duly registered therein, in both cases, as herein provided for any reason not attributable to the Borrower, then the Borrower may request the Lender in writing to extend such period for an additional 20 (twenty) Business Day period in order to achieve recordation, and consent from the Lender  to such extension request, which shall not be unreasonably withheld or delayed, shall be notified in writing by the Lender to the Borrower (with a copy to the Trustee). 

(i)    Use of Loan Proceeds. Use the proceeds of each Advance in accordance with the provisions of this Agreement exclusively for the purposes contained in Clause Third hereof.

(j)    Further Assurances. Execute and deliver to the Lender such documents and assurances and carry out any actions in connection with this Agreement or the other Loan Documents, that the Lender may reasonably request in order to effectively carry out the intent and purpose of this Agreement and the Trust Agreement or to perfect, protect and maintain the rights and interests of the Lender and/or the Trustee under this Agreement or under any other Loan Document, as well as pay any and all documented out-of-pocket costs derived from or in connection with the foregoing.

FOURTEENTH.- Negative Covenants of the Borrower. In addition to the other obligations of the Borrower pursuant to this Agreement and any other Loan Document, from the date hereof and until the date on which all the Secured Obligations shall have been paid, performed and discharged in full, the Borrower covenants and agrees:

(a)    Changes in the Nature of its Business. Not to carry out nor allow any material changes in the nature or scope of its business.

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(b)    Liens. Not to create, incur, assume or permit the existence any Lien upon the Concession Title.

(c)    Transactions with Affiliates. Not to enter into (and shall not permit the consolidated Subsidiaries of the Borrower to enter into) any transaction, including any purchase, sale, lease or exchange of property, the rendering of any service or the payment of any management, advisory or similar fees or commission, with any Affiliate, unless such transaction is (a) carried out in the ordinary course of business consistent with past practices, and (b) in accordance with applicable law and upon fair and reasonable terms which are not less favorable to the Borrower (or to its respective consolidated Subsidiary) than it would obtain in a similar transaction, within market terms, with a Person that is not an Affiliate of the Borrower.

(d)    Termination or Cancellation of Concession Title. Not to cancel or terminate the Concession Title. 

(e)    Change of Control. To take any and all actions necessary or convenient to avoid a Change of Control from occurring.

FIFTEENTH.- Events of Default. If any of the events described below occurs (each one, an “Event of Default”), the Lender, by simple notice to the Borrower (i) may terminate the Authorized Loan Amount and its commitment to grant the Loan in favor of the Borrower pursuant to this Agreement, (ii) may declare the outstanding principal amount of any existing Loan, accrued and unpaid interests thereof, and all other amounts owed by the Borrower to the Lender pursuant to this Agreement and the Notes to be immediately due and payable, whereupon the same shall immediately become due and payable, without further requirements of notice, presentation, request, protesto or other notice of any nature whatsoever, which are hereby expressly waived by the Borrower, and (iii) shall be entitled to discuss the affairs, finances and accounts of the Borrower with the Borrower’s officers or directors and with its independent certified public accountants (to which legal representatives of the Borrower may attend and be present if so desired); provided, however, that if such event is an Event of Default described in items (b), (g), (h) and (i) below, then the Authorized Loan Amount and the Lender’s commitment to make the Loan in favor of the Borrower pursuant to this Agreement shall be automatically terminated, and the outstanding principal amount of the Loan made, the accrued unpaid interests thereof, and all other outstanding amounts payable pursuant to this Agreement and the Notes shall immediately become due and payable:

(a)    if the Borrower fails to pay any amount of principal and/or interest on the Loan as documented in the Notes, and such failure shall continue unremedied for a period of five (5) Business Days following its occurrence, or any other amount due pursuant to this Agreement and such failure shall continue unremedied for a period of ten (10) Business Days following its occurrence.

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(b)    if the Borrower uses or invests the proceeds of the Loan (in whole or in part) for a purpose other than the one set forth in Clause Third hereof; or 

(c)    if any representation or warranty made by the Borrower pursuant to this Agreement or any other Loan Document or in any certificate or document furnished by the Borrower under or in connection with this Agreement or any such other Loan Document, shall prove to have been false, incorrect or inaccurate in any material respect and such circumstance shall continue unremedied for a period of thirty (30) calendar days after written notice to the Borrower from the Lender; or 

(d)    if the Borrower fails to observe, comply or perform with any of the terms, agreements or obligations contained in Clause Thirteenth (Affirmative Covenants )and/or Clause Fourteenth (Negative Covenants) and/or Clause Seventeenth (Insurances) and/or Clause Eighteenth (Expropriation Proceeds) hereof and such circumstance shall continue unremedied for a period of ten (10) calendar days after written notice to the Borrower from the Lender (provided, however, that solely with respect to the Borrower’s failure to observe, comply with or perform any of the terms, agreements or obligations contained in Clause Thirteenth (Affirmative Covenants)  such  ten (10) calendar day period shall be extended for twenty (20) additional calendar days if: (i) such failure is not capable of being cured within such ten (10) calendar day period, (ii) the Borrower has undertaken reasonable actions to commence such cure within such ten (10) calendar day period and (iii) and only for so long as the Borrower is diligently pursuing such actions); or 

(e)    if the Borrower fails to observe, comply or perform in any material respect with any of the terms, agreements or obligations contained in this Agreement, in the Notes or in any other Loan Document, that is not expressly included in any other item of this Clause, and such failure shall continue unremedied for a period of thirty (30) calendar days after written notice to the Borrower from the Lender; or

(f)    if (i) the Borrower defaults in the payment of any obligation or of any Indebtedness with an outstanding principal amount greater than US$50,000,000.00 (fifty million US Dollars) when due, whether at stated maturity, by acceleration or otherwise, and such default continues unremedied once the applicable grace period, if any, provided in the instrument or agreement documenting such Indebtedness, has elapsed; or (ii) the Lender or any of its wholly owned Subsidiaries is exercising any rights or remedies with respect to any defaults in the payment of or in the observance or performance of any other agreement, contract or instrument, whether now in effect or hereinafter entered into, between the Borrower and the Lender; or

(g)    if the Borrower admits in writing its inability to pay its debts as they became due, or makes a general assignment of assets in favor of its creditors, or if any concurso mercantil, insolvency, bankruptcy or similar proceeding is initiated by or against the Borrower, or if a procedure seeking liquidation, reorganization or other relief with respect to the Borrower or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official 

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of the Borrower or any substantial part of its property; provided that with respect to involuntary proceedings initiated against the Borrower, an Event of Default shall exist to the extent that (i) such proceeding is not dismissed within a period of 90 (ninety) days following the commencement thereof; or (ii) Borrower has consented to such proceeding; or (iii) Borrower, its shareholders or any of their respective Affiliates have acted, in collusion or conspiracy with any third party, in connection with such concurso mercantil, bankruptcy, insolvency or similar proceeding; or

(h)    if a Governmental Authority or any Person (other than the Lender) (i) shall have condemned, nationalized, seized, expropriated or assumed the custody or control of (y) the Trust Assets (or any part thereof); and/or (z) all or a material portion of the assets of the Borrower; or (ii) replaces the management of the Borrower or limits in a substantial manner their ability to operate its businesses; or

(i)    if the Borrower or any creditor of the Borrower challenges the legality, validity or enforceability of this Agreement, the Notes, the Trust Agreement, or any other Loan Document; or

(j)    if a strike, labor claim or labor procedure is initiated against the Borrower that results in discontinuance of all railroad operations of the Borrower during a term equal to or greater than  90 (ninety) days; or

(k)    if the Concession Title shall cease to grant the Borrower the rights originally provided therein or the Concession Title shall be revoked or terminated,  or

(l)    at any time after the execution and delivery thereof, the Borrower takes action to terminate the Trust Agreement.

SIXTEENTH.- Maintenance of Equipment; Marking of Equipment; Possession of Equipment;  Casualty Occurrences.

(a)    Maintenance of Equipment.  The Borrower, at its own cost and expense, shall service, use, operate, maintain, repair and keep each Unit (i) in good repair and operating condition, ordinary wear and tear excepted, (ii) in accordance with (a) prudent U.S. Class I railroad industry maintenance practices in existence from time to time and (b) manufacturer’s recommendations to the extent required to maintain such manufacturer’s warranties in effect with respect to such Unit, (iii) in a manner consistent with service, maintenance, overhaul and repair practices used by the Borrower in respect of equipment owned or leased by the Borrower similar in type to such Unit and without discrimination between owned and leased equipment and (iv) in compliance, in all  respects, with Equipment Requirements

(b)    Marking of Equipment.    Borrower agrees that at or before the date hereof, the Borrower shall affix and maintain on each Unit the reporting mark, if any, and identification number listed in the Loan Agreement Supplement for such Unit and such other markings as from time to time may be required by law or to protect the interest of the Trustee and/or the 

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Lender in such Units. In case any of such marks shall at any time be removed, defaced or destroyed before the termination of the Trust Agreement, the Borrower shall promptly cause the same to be restored or replaced.  Borrower shall not change, or permit to be changed, the reporting mark of any of the Equipment at any time before the termination of the Trust Agreement (or any reporting mark which may have been substituted as herein provided) except in accordance with a statement of new reporting marks to be substituted therefor.

The Equipment may be lettered with the name, initials or insignia of the Borrower, or may be lettered in some other appropriate manner, for convenience of identification of the interest of the Borrower.  The Borrower shall not allow the name of any other Person (different than the Borrower) to be placed on any of the Equipment.  

(c)    Possession of Equipment.   Subject to and in accordance with Section 3.01 of the Trust Agreement, the Borrower shall have possession of the Equipment as depository of the Trustee and may only use of the Equipment in the general operation of the Borrower’s or any of its Affiliate’s freight rail business upon lines of a railroad owned or operated by it or any such Affiliate, upon lines of a railroad over which the Borrower or any such Affiliate has trackage or other operating rights or over which railroad equipment of the Borrower or any such Affiliate is regularly operated pursuant to contract and on railroad lines of other railroads (including in connection with barge‐related rail transportation) in Mexico, the United States of America and Canada, in the usual interchange of traffic or in through or run‐through service and may permit other railroads that are subscribers to the Association of American Railroads to use of the Equipment upon lines of railroad of connecting and other carriers in the usual interchange of traffic or pursuant to through or run‐through agreements; provided that (i) the Borrower shall use the Equipment only for the purpose and in the manner for which it was designed and intended and in compliance, in all material respects, with the Loan Documents, all applicable laws, regulations and guidelines of any governmental body, the Association of American Railroads, the Federal Railroad Administration and the Secretaría de Comunicaciones y Transportes and their respective successors; (ii) nothing in this paragraph (c) shall limit the obligations of the Borrower acting as depositary of the Trustee pursuant to the Trust Agreement or applicable law, or shall be deemed to constitute permission by the Lender to any Person to take any action inconsistent with the terms and provisions of this Agreement or the other Loan Documents; and (iii) any Person that takes possession of any Unit as permitted in this paragraph (c) shall be subject and subordinate to the rights of, the Trustee under the Trust Agreement.

(d)    Casualty Occurrences.  Whenever any Unit shall suffer a Casualty Occurrence, the Borrower shall within 30 (thirty) days after a Responsible Officer acquires knowledge or should have acquired knowledge of such Casualty Occurrence, give the Lender notice of such occurrence (such notice to include the amount, description, reporting marks and road numbers of all the Units of Equipment that have suffered a Casualty Occurrence) and of its election to exercise one of the following options (it being agreed that if the Borrower shall not have given notice of such election within such 30 (thirty) days after such actual or deemed knowledge, the Borrower shall be deemed to have elected to exercise the option set forth in the following 

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clause (i)):

		
	(i)
	on the next Payment Date that is at least 10 (ten) Business Days after the giving of notice of the occurrence of the Casualty Occurrence, the Borrower shall transfer to the Lender immediately available funds in an amount equal to the amount set forth in paragraph (a) of Clause Sixth on such Payment Date pursuant to Clause Sixth hereof; or

		
	(ii)
	so long as (x) no Event of Default shall have occurred and be continuing, and, as promptly as practicable, and in any event on or before the next Payment Date that is at least 30 (thirty) Business Days after the giving of notice  of the occurrence of the Casualty Occurrence, the Borrower shall convey to the Trustee a replacement Unit of similar type and capable of performing comparable function as the Replaced Unit with a current fair market value, utility, condition and remaining useful life at least equal to such Replaced Unit, assuming such Replaced Unit was in the condition and repair required by the terms hereof immediately prior to such Casualty Occurrence, together with any and all accessions, additions, improvements and replacements from time to time incorporated or installed in any item thereof (each a “Replacement Unit”); provided that, if the Borrower shall not perform its obligation to effect such replacement under this clause (ii) during the period of time provided herein, then the Borrower shall pay on the next succeeding Payment Date to the Lender the amounts specified in clause (i) above.  Prior to or at the time of any such conveyance and as a condition to such replacement, the Borrower shall comply with the procedure and the other terms and conditions set forth in Section 5.02 of the Trust Agreement. 

SEVENTEENTH.- Insurance. 

(a)    Coverage.  The Borrower will, at its own expense, cause to be carried and maintained (i) all risk property insurance in respect of the Units of Equipment and (ii) public liability insurance against loss or damage for personal injury, death or property damage suffered upon, in or about any premises occupied by the Borrower or occurring as a result of the use, maintenance or operation of the Units of Equipment, in such amounts, against such risks, with such insurance companies and with such terms (including co‐insurance, deductibles, limits of liability and loss payment provisions) as are customary under the Borrower’s risk management program and in keeping with risks assumed by U.S. Class I railroads generally. Notwithstanding the foregoing, all insurance coverage with respect to the Equipment required under this Agreement shall be comparable to, and no less favorable than, insurance coverage applicable to equipment owned or leased by the Borrower which is comparable to the Equipment.  The Borrower shall diligently, at its own expense, make all proofs of loss and take all other steps necessary to collect the proceeds of such insurance.

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CGCAE 182428.v7 09/06/11

(b)    Certificate of Insurance.  Borrower shall, on the date hereof furnish the Lender with a certificate issued by the insurer, by a United States based independent broker or by an independent insurance broker duly authorized by the Mexican National Insurance and Bonding Commission (Comisión Nacional de Seguros y Fianzas) appointing the Trustee as additional insured with respect to the public liability insurance and preferred loss payee (beneficiario preferente) in the insurance then maintained with respect to the Equipment described in Exhibit “G” hereto.

(c)    Trustee’s appointment. Such insurances shall name the Trustee as an additional insured with respect to the liability insurance and preferred and irrevocable loss payee (beneficiario preferente irrevocable) and the Lender’s interest shall be clearly stated by the corresponding certificate of insurance in form and substance satisfactory to the Lender.

(d)    Provisions in the insurances. Any insurance maintained pursuant to this Clause shall (i) provide insurer’s waiver of its right of subrogation with respect to public liability insurance and all risk property insurance, set‐off or counterclaim or any other deduction, whether by attachment or otherwise, in respect of any liability against any additional insured except for claims as shall arise from the willful misconduct or gross negligence of such additional insured, (ii) to the extent reasonably commercially available, provide that such all risk property insurance as to the interest of the Trustee shall not be invalidated by any action or inaction of the Borrower or any other Person (other than such claimant), regardless of any breach or violation of any warranty, declaration or condition contained in such policies by the Borrower or any other Person (other than such claimant), and (iii) provide that all such insurance is primary without right of contribution from any other insurance which might otherwise be maintained by the Lender and shall expressly provide a severability of interest clause.

(e)    Insurance Policies; Certificates of Insurance. All the insurance policies and endorsements, if any, referred to above shall be paid and shall contain the provisions, maturity dates, and comply with all other requirements set forth herein. The endorsements (if any) and certificates of insurance issued by the insurance company or by its authorized agent, shall be delivered to the Lender. In case that the Borrower fails to maintain any of the insurance referred to above and/or to pay the insurance premium that are due and payable with respect thereto, or if any policy is canceled before the Secured Obligations have been satisfied in full pursuant to the terms provided herein, the same shall constitute an Event of Default and, in addition to other remedies hereunder or  at law, the Lender reserves the right, but shall not have the obligation, to obtain or cause to be obtained, such insurance and/or renewal or replacement insurance policies, as the case may be, in which case Borrower, upon prior request from the Lender, shall forthwith reimburse Lender all expenses incurred in such regard, together with interest at the Interest Rate from the date incurred and until such amount is paid in full.

(f)    Renewals and Replacement of Policies. The Borrower shall deliver to the Lender a certificate of insurance issued by the insurance company of the renewals or replacements of 

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CGCAE 182428.v7 09/06/11

the insurance policies referred to, at each policy renewal or replacement, but not less than annually. 

(g)    Transfers. In the event of the foreclosure or other transfer of the title to the Trust Assets, all right, title and interest in and to any insurance policy, Insurance Proceeds, or other payments in satisfaction of claims or any other rights under such insurance policies and any other insurance policies covering the Trust Assets shall, to the extent permitted by applicable law, pass to the transferee thereof.

(h)    Proceeds of Insurance.  The Insurance Proceeds of any insurance or proceeds constituting third‐party payments for damages or a Casualty Occurrence with respect to any Unit (including any Association of American Railroads interline settlements) shall be delivered to and maintained by the Trustee in accordance with the provisions of the Trust Agreement, except if no Event of Default shall have occurred and be continuing and the Borrower has paid the Lender and/or the Trustee the amounts related to any such Units, in which case, the Insurance Proceeds or proceeds constituting third‐party payments for damages or a Casualty Occurrence with respect to such Units shall be delivered by the insurer to the Borrower.

EIGHTEENTH.- Expropriation Proceeds.

(a)    The Borrower shall give prompt written notice to the Lender with respect to (but in any event no later than on the third Business Day immediately following the date on which a Responsible Officer acquires knowledge or should acquire knowledge of) the commencement of any proceeding by any Governmental Authority with the purpose of expropriating, condemning or acquiring, all or any portion of the Equipment (an “Expropriation”), which notice shall describe the nature and cause of such proceeding, and the scope of the same. The Lender may participate at the Borrower’s expense, in such proceeding, for which purpose Borrower shall grant and deliver to the Lender all documents that may be necessary or that may be required by the Lender, in order to make effective such participation. The Borrower irrevocably agrees that, without the prior written consent of the Lender, (1) Borrower will not agree on an indemnity or compensation amount for the Expropriation, and (2) Borrower will not take or omit any action that results in the determination of the indemnity or compensation for the Expropriation. All indemnities and compensations arising from or relating to an Expropriation, as well as the income derived from the purchase of any portion of the Equipment in substitution of the Expropriation (jointly, the “Expropriation Proceeds”), shall belong to the Trustee for the benefit of the Lender and, therefore, shall be paid directly to the respective trust account. 

(b)    In the event that the conditions for the disbursement of Expropriation Proceeds have not been met by the Borrower pursuant to the provisions of this Agreement, then in addition to all of the rights, remedies and/or actions of the Lender pursuant to this Agreement and/or applicable law, the Lender shall be entitled to apply the Expropriation Proceeds to reduce the Secured Obligations in such order as the Lender may determine in its sole discretion, as well as to immediately declare due and payable the principal outstanding balance of the 

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CGCAE 182428.v7 09/06/11

Loan, accrued and unpaid interest, and all the other sums payable pursuant to this Agreement and the Notes, in which case, the principal outstanding balance of the Loan, accrued and unpaid interest and all other sums due by the Borrower to the Lender pursuant to this Agreement and the Notes, shall be due and immediately payable. Once all the Secured Obligations have been duly and legally satisfied, complied, paid and irreversibly liquidated in full pursuant to the terms of this Agreement, the Lender shall deliver to the Borrower the remaining amounts, if any, of the Expropriation Proceeds.

(c)    In the event the Expropriation only refers to part of the Equipment, then the Expropriation Proceeds shall be applied to prepay the Loan in accordance with the provisions set forth in Clause Sixth hereof.

NINETEENTH.- Indemnity.  

(a)    Indemnity. The Borrower hereby unconditionally agrees to indemnify, defend and hold the Lender and its directors, managers, officers, employees, counsel and agents (each an “Indemnified Person”), harmless from and against any and all claims, actions, liabilities, obligations, losses, damages, penalties, costs and expenses (including reasonable and documented attorneys’ fees and disbursements) of whatsoever kind or nature (each a “Claim”), resulting from or arising out of or related to (whether or not such Indemnified Person shall be indemnified as to such Claim by any other Person), (i) this Agreement or any of the transactions contemplated hereby and thereby or resulting herefrom or therefrom and the enforcement thereof and hereof; (ii) the ownership, lease, operation, possession, modification, use, non‐use, maintenance, sublease, financing, substitution, control, repair, storage, alteration, violation of law with respect to any Unit (including applicable securities laws and environmental law), transfer or other disposition of any Unit, overhaul, testing or registration of any Unit (including, without limitation, injury, death or property damage of passengers, shippers or others, and environmental control, noise and pollution regulations); (iii) the manufacture, design, purchase, acceptance, rejection, delivery, non-delivery or condition of any Unit (including, without limitation, latent and other defects, whether or not discoverable, and any claim for patent, trademark or copyright infringement); (iv) any breach of or failure by the Borrower to perform or observe, or any other non‐compliance with, any covenant, condition or agreement to be performed by, or other obligation of, the Borrower under this Agreement or the other Loan Documents, or the falsity when made of any representation or warranty of the Borrower in this Agreement, the other Loan Documents or in any document or certificate delivered in connection herewith or therewith; and (v) the levy, retention, withholding, deduction, payment or charge of any and all Taxes (subject to the provisions set forth in Clause Ninth hereof). 

(b)    Claims Excluded. The Borrower shall not have the obligation to indemnify Claims to the extent attributable to the gross negligence, willful misconduct, or fraud of any particular Indemnified Person (other than gross negligence or willful misconduct imputed as a matter of law to such Indemnified Person solely by reason of its interest in the Equipment), if and as determined in a final, non-appealable judgment of a court of competent jurisdiction.

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CGCAE 182428.v7 09/06/11

(c)    Claims Procedure.  An Indemnified Person shall, upon becoming aware of any Claim for which indemnification is sought, promptly notify the Borrower in writing of such Claim; provided, however, that, failure to give such notice shall not release the Borrower from any of its obligations under this Clause. Subject to the rights of insurers under policies of insurance maintained by the Borrower, the Borrower shall have the right in each case at the Borrower’s sole expense to investigate, and the right in its sole discretion to defend or compromise, any Claim for which indemnification is sought under this Clause and the Indemnified Person shall cooperate, at the Borrower’s expense, with all reasonable requests of the Borrower in connection therewith; provided that no right to defend or compromise such Claim shall exist on the part of the Borrower with respect to any Indemnified Person if (1) an Event of Default shall have occurred or (2) such Claim would entail a risk to the Lender of any criminal liability, regulatory sanction or civil liability or (3) the interests of the Lender and the Borrower are in conflict with one another; provided, further, that no right to compromise or settle such Claim shall exist unless the Borrower agrees in writing to pay the amount of such settlement or compromise, and, in connection with the settlement obtains a full release of the Lender and the Trustee without admission of liability.  In any case in which any action, suit or proceeding is brought against any Indemnified Person in connection with any Claim, the Borrower shall, upon such Indemnified Person’s request, at the Borrower’s expense resist and defend such action, suit or proceeding, or cause the same to be resisted or defended by counsel selected by the Borrower and acceptable to such Indemnified Person and, in the event of any failure by the Borrower to do so, the Borrower shall pay all reasonable and documented costs and expenses (including, without limitation, attorneys’ fees and expenses) incurred by such Indemnified Person in connection with such action, suit or proceeding.  Subject to the requirements of any policy of insurance, an Indemnified Person may participate at its own expense in any judicial proceeding controlled by the Borrower pursuant to the preceding provisions; provided that such party’s participation does not, in the opinion of the independent counsel appointed by the Borrower or its insurers to conduct such proceedings, interfere with such control; and such participation shall not constitute a waiver of the indemnification provided in this paragraph (c).  Nothing contained in this paragraph (c) shall be deemed to require an Indemnified Person to contest any Claim or to assume responsibility for or control of any judicial proceeding with respect thereto.

(d)    Subrogation.  If a Claim indemnified by the Borrower under this Clause is paid by the Borrower and/or an insurer under a policy of insurance maintained by the Borrower, the Borrower and/or such insurer, as the case may be, shall be subrogated to the extent of such payment to the rights and remedies of the Indemnified Person (other than under insurance policies maintained by such Indemnified Person) on whose behalf such Claim was paid with respect to the transaction or event giving rise to such Claim.  So long as no Event of Default shall have occurred and be continuing, should an Indemnified Person receive any refund, in whole or in part, with respect to any Claim paid by the Borrower hereunder, it shall promptly pay over the amount refunded (but not in excess of the amount the Borrower or any of its insurers has paid in respect of such Claim paid or payable by such Indemnified Person on account of such refund) to the Borrower.

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CGCAE 182428.v7 09/06/11

    
(e)    The obligations of the Borrower pursuant to this Clause shall remain in full force and effect for a period of 3 (three) years following the termination of this Agreement.

TWENTIETH.- Assignment. 

(a)    This Agreement (i) shall be binding upon and inure to the benefit of the Borrower and the Lender as well as their successors and permitted assigns. 

(b)    The Borrower may not assign any of its rights or obligations hereunder without the prior written consent of the Lender.

(c)    The Lender may assign or discount at any time its rights and obligations under this Agreement along with one or more Notes (including prior to maturity), to any Person that is not a direct competitor of the Borrower; provided, that the Borrower shall not be required to indemnify any assignee of the Lender for withholding taxes in excess of those applicable on the date hereof to foreign financial institutions that are registered with the Ministry of Finance and Public Credit (Secretaría de Hacienda y Crédito Público) which registration grants a preferred income tax withholding rate over interest not exceeding 4.9%.

In the event that the Lender carries out an assignment pursuant to this Clause, the assignee shall assume the rights and benefits of the Lender in connection with the rights and obligations that were assigned, as if it were the original the Lender under the terms of this Agreement, the Borrower shall reasonably cooperate with the Lender, at the Lender’s expense, in connection with any such assignment or discount.  To the extent the assignee or endorsee of the Note requests the issuance of a new note, the Borrower shall issue such new note against the delivery of the cancelled Note.

TWENTY FIRST.- Miscellaneous. 

(a)    Term; Survival. This Agreement shall remain in full force and effect until all of the Secured Obligations and any and all other amounts due under the Loan Documents have been duly and legally satisfied, paid and indefeasibly discharged in full, to the satisfaction of the Lender.

The obligations set forth in Clauses Nineteenth and Twenty First paragraph (b) of this Agreement, shall survive for a period of 3 (three) years following the termination of this Agreement and inure to the benefit of any Person that at any time held a right thereunder (as an Indemnified Person or otherwise) and, thereafter, its successors and assigns.

The obligations set forth in Clause Ninth of this Agreement, shall survive for a period of 5 (five) years following the termination of this Agreement and inure to the benefit of any Person that at any time held a right thereunder (as an Indemnified Person or otherwise) and, thereafter, its successors and assigns.

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CGCAE 182428.v7 09/06/11

(b)    Costs and Expenses. The Borrower unconditionally agrees to pay any and all documented costs and expenses incurred in connection with the preparation, execution, registration, perfection, modification and administration of this Agreement and the other Loan Documents (including without limitation the Trustee fees payable with respect to the Trust), as well as by any act or document carried out, prepared, executed or notified pursuant to this Agreement except as otherwise set forth herein, including without limitation, documented fees and expenses of the legal advisors of the Lender. In addition, the Borrower unconditionally agrees to pay, at the request of the Lender, the losses, costs expenses, litigation costs, damages and lost profits in connection with the foreclosure (whether by means of negotiation, recuperation, legal proceeding or in any other manner) of this Agreement and the Notes or any other Loan Document.

(c)    Lender’s Right to Perform the Borrower’s Obligations. The Borrower agrees that, if the Borrower fails to perform any act or to pay any money which the Borrower is required to perform or pay under any of the Loan Documents, the Lender may, at the cost and expense of the Borrower, make the payment or, perform the act in its own name or, to the extent permitted by applicable law, in the Borrower’s name.  Any money paid by the Lender pursuant to the provisions of this paragraph (c) shall be reimbursed to the Lender in accordance with paragraph (d) below.

(d)    Lender Reimbursement.  All payments made, or funds expended or advanced by the Lender pursuant to the provisions of any of the Loan Documents , shall (i) become a part of the Secured Obligations; (ii) bear interest at the Interest Rate from the date such payments are made or funds expended or advanced; (iii) become due and payable by the Borrower within 5 (five) days after receipt or written demand for such amounts; and (iv) bear interest at the Default Rate from the date that follows such 5-day period until payment in full. 

(e)    Set-Off. In the event that:

		
	(i)
	on any date on which the Borrower is required to pay the Lender any amounts pursuant to this Agreement as evidenced by the Notes, whether for principal, interest or any other concept, the Borrower fails to pay the Lender any such amount in full; or

		
	(ii)
	an Event of Default occurs and the applicable grace period has elapsed and the principal amount of the Loan has been declared due,

then, the Borrower, to the extent permitted by applicable law, hereby irrevocably authorizes and empowers the Lender to set-off against any indebtedness of any nature that the Borrower has with the Lender, up to an amount equal to the amount not paid to the Lender, in case of item (i) above, and to the total amount of the outstanding principal amount of the Loan, plus interest and accessories, in case of item (ii) above, without requiring any notice, request or claim thereof. The Lender shall, as soon as possible, notify the Borrower of any charge or set-off performs as permitted in this item (d), provided that the failure to give such notice shall 

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CGCAE 182428.v7 09/06/11

not affect the validity of such charge and set-off. The rights of the Lender contained in this item (d) are in addition to any other rights (including other set-off rights) that the Lender has or may have pursuant to this Agreement, the other Loan Documents and/or applicable law. 

The Borrower shall not set-off against any indebtedness of any nature that the Lender may have with the Borrower, including without limitation the Loan or this Agreement.

(f)    Amendments; No Waiver; Cumulative Remedies. No modification of any term or condition under this Agreement shall be effective unless approved by the parties in writing; no consent or waiver in connection with any of such terms or conditions, shall be effective unless approved by the Lender in writing. Any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given.

No failure to exercise and no delay in exercising, on the part of the Lender any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.  The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law, to the extent they do not contravene such law.

(g)    Notices. Unless otherwise expressly provided herein, all notices, communications and notifications among the parties shall be in writing and be delivered:  (i) personally, return receipt requested; (ii) by courier delivery, return receipt requested; or (iii) by facsimile followed by courier or personal delivery, return receipt requested. All notices, communications and notifications shall be served at the following addresses and facsimile numbers, and shall become effective upon receipt or refusal to accept delivery as indicated in the return receipt or in the receipt of such courier service:

If to the Borrower:

Kansas City Southern de México, S.A. de C.V.
Montes Urales #625 
Col. Lomas de Chapultepec 
C.P., 11000 Mexico, DF
Attention:  Director Jurídico Ejecutivo 
Facsimile No.:             
Telephone No.:              
E-mail:                 

with a copy to:
in the case of mail delivery
Kansas City Southern 
P.O. Box 219335

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CGCAE 182428.v7 09/06/11

Kansas City, MO 64121‐9335, 
Attention:  Treasurer
Facsimile No.:              
Telephone No.:             
E-mail:                 

in the case of courier and similar delivery
Kansas City Southern
 427 West 12th Street 
Kansas City, MO  64105 
Attention:  Treasurer 
Facsimile No.:              
Telephone No.:              

Attention:  Senior Vice President & General Counsel, 
Facsimile No.:              
Telephone No.:              

If to the Lender:

General Electric Capital Corporation
161 North Clark Street
Chicago, Illinois, 60601 
United States of America
Attn:  Chief Risk Officer, Rail Services
Facsimile:                     
Telephone:                  
E-mail:                     
 
As long as any party hereto has not notified the other parties (pursuant to this paragraph (f)) of a change in such party’s address, the notices, communications and notifications will be effective when delivered at such party’s address stated above or at the latest address notified in writing to the other parties pursuant to this paragraph (f).

(h)    Exhibits and Headings. All Exhibits and other documents attached hereto or to which reference is made herein are hereby incorporated by reference into, and shall be deemed a part of, this Agreement.  The captions and headings contained in this Agreement are for convenience only and shall in no way define, limit or describe the scope or intent (or otherwise affect the interpretation) of any provision of this Agreement.

(i)    Judgment Currency. The obligations in respect of any sum due to the Lender hereunder or under any other Loan Document shall, to the extent permitted by applicable law, notwithstanding any judgment expressed in a currency other than US Dollars, be discharged only to the extent that on the Business Day following receipt by the Lender of any sum adjudged 

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CGCAE 182428.v7 09/06/11

to be so due in such other currency, the Lender may in accordance with normal banking procedures purchase US Dollars with such other currency.  If the amount of US Dollars so purchased is less than the sum originally due to the Lender, the Borrower agrees, to the fullest extent they may legally do so, and as a separate obligation and notwithstanding any such judgment, to indemnify the Lender against such resulting loss.

(j)    Acts of God. The Borrower agrees to comply fully with the obligations assumed hereunder, even in the event of acts of God or force majeure and hereby expressly agree and assume this liability in accordance with article 2111 of the Federal Civil Code and the correlative articles of the Civil Codes of any state of Mexico. 

(k)    Exchange of Information. The Borrower hereby expressly authorizes the Lender to dispose, transfer, report or share all Confidential Information exclusively with any entities, corporations, main offices and other Affiliates and subsidiaries that form a part of the financial group of General Electric Company in Mexico and abroad, in connection with any processes, approvals, monitoring, statistical evaluations, financial projections, internal reports, due diligence and any other related procedures. For purpose of this Clause, the term “Confidential Information” includes reports, communications or financial and/or commercial information or data of the Borrower which has been revealed or provided to or which may be hereinafter provided or revealed to the Lender by the Borrower, this Agreement or any Loan Document or any other information related to the Borrower previously obtained or developed or to be obtained and/or developed by the Lender in connection with this Agreement or any other Loan Document, or with the granting, operation, management and fulfillment of the Loan, including any information or report from the Borrower that the Lender has obtained or may obtain from any third party or credit rating agency that the Lender considers necessary to obtain in connection with this Agreement or any other Loan Document.

(l)    Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

(m)    Entire Agreement; Severability. This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and is intended to supersede all prior negotiations, understandings and agreements with respect thereto.  

If any provision of this Agreement is held to be invalid, prohibited or unenforceable in any jurisdiction, such provision, as to such jurisdiction, shall be ineffective to the extent of such invalidity, prohibition or unenforceability without invalidating the remaining portion of such provision or the other provisions of this Agreement and without affecting the validity or enforceability of such provision or the other provisions of this Agreement in any other jurisdiction.

(n)    Governing Law; Jurisdiction. For all matters relating to the interpretation and fulfillment of this Agreement, the parties hereto expressly and irrevocably submit to the 

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CGCAE 182428.v7 09/06/11

applicable laws of Mexico, and to the jurisdiction of the competent courts sitting in Mexico, Federal District, Mexico, and the parties hereby expressly and irrevocably waive all rights to any other jurisdiction to which they may be entitled to by reason of their present or future domiciles, the location of their assets or for any other reason.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as September 1st, 2011.

The Borrower:

KANSAS CITY SOUTHERN DE MÉXICO, S.A. DE C.V.

By:                         
Name: Rodrigo Flores León
Title:  Attorney-in-Fact

The Lender

GENERAL ELECTRIC CAPITAL CORPORATION

By:                          
Name; Mercedes Haddad Arámburo
Title:  Attorney-in-Fact

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CGCAE 182428.v7 09/06/11

Exhibit “A”
Loan Agreement (_______)
List of Initial Equipment

	
					
	Count
	Old Mark
	Old Number
	New Mark
	New Number

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	15
	 
	 
	 
	 

CGCAE 185237.v2 15/06/11

Exhibit “B”
Loan Agreement (_______) 
Form of Loan Agreement Supplement

Loan Agreement Supplement No. [__]

Loan Agreement Supplement No. [__] (this “Supplement”), dated [_____], entered into by and between General Electric Capital Corporation, as lender (the “Lender”) and Kansas City Southern de México, S.A. de C.V., as borrower (the “Borrower”), in accordance with the following Recitals, Representations and Warranties and Clauses.  Capitalized terms used and not otherwise defined herein shall have the meaning assigned to such terms in the Loan Agreement (as defined below).

Recitals

I.    Loan Agreement. On September 1st, 2011 the Lender and the Borrower, entered into a Loan Agreement (as amended, amended and restated, supplemented or otherwise modified from time to time, the “Loan Agreement”) by means of which the Lender agreed to grant a loan to the Borrower for a total principal amount of up to US $91,107,647.64 (ninety one million one hundred seven thousand six hundred forty seven Dollars 64/100) (the “Loan”), in several Advances. 
 
II.    Loan Agreement Supplement. Pursuant to the Loan Agreement, on each Additional Disbursement Date or any other date in which any Replacement Unit is subjected to the Loan Agreement, among other things, the Borrower and the Lender shall enter into a Loan Agreement Supplement which shall describe the [Additional Equipment] [Replacement Units] being assigned to the Trustee by means of a Contribution Agreement.

Representations and Warranties

		
	I.
	The Borrower hereby represents and warrants, through attorney-in-fact, that:

		
	(a)
	it acknowledges and agrees that the Representations and Warranties of the Borrower set forth in the Loan Agreement are true, accurate and correct on the date hereof, and are incorporated herein by this reference; and

		
	(b)
	the individual executing this Supplement in the name and on behalf of the Borrower has all necessary powers and authorities, as well as all corporate authorizations to validly execute this Loan Agreement Supplement on its behalf and to validly bind the Borrower pursuant to the terms hereof, as evidenced in public deed number [_____], dated [_____] [___], [_____], granted before Mr. [________], Notary Public number [______] of the [__________], which first counterpart (testimonio) thereof has been filed for registration with the Public Registry of Commerce of the [_____________], and that such powers, authorities and corporate authorizations have not been revoked, modified or limited in any way to this date.

CGCAE 185237.v2 15/06/11

II.    The Lender hereby represents through its legal representative that:

		
	(a)
	it is a corporation duly organized and validly existing under the laws of Delaware; and

		
	(b)
	the individual executing this Loan Agreement Supplement on the Lender’s behalf has sufficient powers and authorities, as well as the necessary corporate authority to validly execute and deliver this Loan Agreement Supplement on its behalf and to validly bind the Lender pursuant to the terms hereof, as evidenced in public deed number 64,186, dated July 7, 2011, granted before Mr. Roberto Núñez y Bandera, Notary Public number 1 of the Federal District, and that such powers, authorities and corporate authorizations have not been revoked, modified or limited in any way to this date.

NOW, THEREFORE, based on the Recitals, Representations and Warranties contained herein, the parties hereto agree as follows:

Clauses

First.- Exhibit A to the Loan Agreement. The parties hereby acknowledge and agree that, effective as of the date hereof, Schedule I hereto shall supplement and constitute an integral part of Exhibit “A” to the Loan Agreement and that any and all references to Exhibit “A” of the Loan Agreement shall be deemed to include Schedule I hereto.

Second.- One Agreement.  The Loan Agreement, this Supplement and any other Loan Agreement Supplement constitute one sole agreement among the parties.  The parties hereby agree that all references to the Loan Agreement in the Loan Agreement or in any other Loan Document shall be deemed a collective reference to the Loan Agreement, this Supplement, and any other Loan Agreement Supplement, in each case, as amended, amended and restated, supplemented or otherwise modified from time to time. Except as expressly provided hereunder, the Loan Agreement shall remain in full force and effect and without any amendment whatsoever, and none of the terms of this Supplement shall be interpreted or construed as (i) a novation of any of the Loan Documents or of any other obligation assumed by the Borrower under any Loan Document, or (ii) a modification or release of any security granted by the Borrower pursuant to any Loan Document.

Third.- Governing Law; Jurisdiction. For all matters relating to the interpretation and fulfillment of this Supplement, the parties hereto expressly and irrevocably submit to the applicable laws of Mexico, and to the jurisdiction of the competent courts sitting in Mexico, Federal District, Mexico, and the parties hereby expressly and irrevocably waive all rights to any other jurisdiction to which they may be entitled to by reason of their present or future domiciles, the location of their assets or for any other reason.

IN WITNESS WHEREOF, the parties hereto have caused this Supplement to be duly executed and delivered by their proper and duly authorized officers as [______________] [__], 20[__].

CGCAE 185237.v2 15/06/11

The Borrower:

KANSAS CITY SOUTHERN DE MÉXICO, S.A. DE C.V.

By:_______________________________
Name:[_______________]
Title:  Attorney-in-Fact

The Lender:

GENERAL ELECTRIC CAPITAL CORPORATION

By:_______________________________
Name:[_______________]
Title:  Attorney-in-Fact

CGCAE 185237.v2 15/06/11

Schedule 1 
to the Loan Agreement Supplement No. [_____]
List of [Additional Equipment] [Replacement Units]

	
			
	[Additional Equipment] [Replacement Units
	Equipment Cost
	Reporting Marks

	 
	 
	 

Equipment that forms part of the Trust Estate, after giving effect to the Contribution Agreement, and, as the case may be, the Release Instrument (as such term is defined in the Trust Agreement).

	
				
	Equipment

	Quantity
	Equipment Cost per Unit
	Reporting Marks

	 
	 
	 
	 

CGCAE 185237.v2 15/06/11

Exhibit “C”
Loan Agreement (________)
Form of Note

PROMISSORY NOTE
U.S. $[____] Dollars

	
		
	 
	 

	Non-Negotiable Promissory Note
US$ [____________].00 DOLLARS
	Pagaré No Negociable
EU$ [____________].00 DÓLARES

	FOR VALUE RECEIVED, the undersigned Kansas City Southern de México, S.A. de C.V., (the “Undersigned”), a sociedad anónima de capital variable duly organized and validly existing under the laws of the United Mexican States (“Mexico”), by this Promissory Note (the “Promissory Note”) unconditionally, promises to pay to the order of General Electric Capital Corporation (the “Lender”), at the Lender’s bank account number _____, ABA number _______, in the name of the Lender with Deutsche Bank Trust Company Americas, SWIFT Code: BKTRUS 33, GE Transportation Finance, Inc. (the “Lender’s Account”), the principal amount of US$[____________].00 ([____________] dollars 00/100) legal currency of the United States of America (“Dollars”), which amount shall be payable in 38 (thirty eight) quarterly and consecutive installments, with successive maturities, for the amounts and on the dates (each, a “Payment Date”) specified in the following schedule (the “Payment Schedule”):
	POR VALOR RECIBIDO, la suscrita Kansas City Southern de México, S.A. de C.V., (la “Suscrita”), una sociedad anónima de capital variable debidamente constituida y válidamente existente de conformidad con las leyes de los Estados Unidos Mexicanos (“México”), por medio de este Pagaré (el “Pagaré”) promete incondicionalmente pagar a la orden de General Electric Capital Corporation (el “Acreedor”), en la cuenta del Acreedor número ______, ABA número _______, a nombre del Acreedor con Deutsche Bank Trust Company Americas, Código SWIFT: BKTRUS 33, GE Transportation Finance, Inc. (la “Cuenta del Acreedor”), el monto principal de EU$[____________].00 ([____________] dólares 00/100) moneda de curso legal de los Estados Unidos de América (“Dólares”), cuyo monto será pagado en 38 (treinta y ocho) amortizaciones trimestrales, consecutivas y con vencimientos sucesivos, por las cantidades y en las fechas (cada una, una “Fecha de Amortización”) que se establecen en el siguiente calendario (el “Calendario de Pagos”):

	 
	 

	
						
	(Day/Month/Year)/ (Día/Mes/Año)

	Amount of Principal Due/Monto de Principal Pagadero
	Interest Due/Monto de Intereses Pagadero
	Remaining Principal/Monto de Principal Remanente
	 

	[_]/[___]/200[__]
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	 

	[_]/[___]/200[__]
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	 

	[_]/[___]/200[__]
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	 

	[_]/[___]/200[__]
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	 

	[_]/[___]/200[__]
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	 

CGCAE 185237.v2 15/06/11

	
						
	[_]/[___]/200[__]
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	 

	[_]/[___]/200[__]
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	 

	[_]/[___]/200[__]
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	 

	[_]/[___]/200[__]
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	 

	[_]/[___]/200[__]
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	 

	[_]/[___]/200[__]
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	 

	[_]/[___]/200[__]
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	 

	[_]/[___]/200[__]
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	 

	[_]/[___]/200[__]
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	 

	[_]/[___]/200[__]
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	 

	[_]/[___]/200[__]
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	 

	[_]/[___]/200[__]
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	 

	[_]/[___]/200[__]
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	 

	[_]/[___]/200[__]
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	 

	[_]/[___]/200[__]
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	 

	[_]/[___]/200[__]
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	 

	[_]/[___]/200[__]
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	 

	[_]/[___]/200[__]
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	 

	[_]/[___]/200[__]
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	 

	[_]/[___]/200[__]
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	 

	[_]/[___]/200[__]
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	 

	[_]/[___]/200[__]
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	 

	[_]/[___]/200[__]
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	 

CGCAE 185237.v2 15/06/11

	
						
	[_]/[___]/200[__]
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	 

	[_]/[___]/200[__]
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	 

	[_]/[___]/200[__]
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	 

	[_]/[___]/200[__]
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	 

	[_]/[___]/200[__]
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	 

	[_]/[___]/200[__]
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	 

	[_]/[___]/200[__]
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	 

	[_]/[___]/200[__]
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	US$/EU$[________] Dollars/Dólares
	 

	 
	 

	

CGCAE 185237.v2 15/06/11

The Undersigned extends the period of presentment for payment of this Promissory Note until [to include date that is 2 years following the last scheduled payment date], in terms of Article 128 of the Mexican General Law of Negotiable Instruments and Credit Transactions.
	La Suscrita extiende el plazo para la presentación para pago de este Pagaré hasta el día [to include date that is 2 years following the last scheduled payment date], en términos del Artículo 128 de la Ley General de Títulos y Operaciones de Crédito.

	 
	 

	The obligation of the Undersigned to repay the principal of this Promissory Note, together with interest accrued thereon and all other amounts payable hereunder shall be dischargeable only by payment in Dollars, outside of the territory of Mexico, as set forth in this Promissory Note.
	La obligación de la Suscrita de pagar el principal de este Pagaré, junto con los intereses devengados y cualesquiera otros montos pagaderos bajo el mismo será cumplida exclusivamente mediante el pago en Dólares, fuera del territorio de México, en los términos previstos en este Pagaré.

	 
	 

	The Undersigned also unconditionally promises to pay, from the date hereof until the date on which the outstanding principal amount due hereunder is paid in full, on each Payment Date, interest on the outstanding principal amount of this Promissory Note, during each Interest Period (as defined below) with respect thereto at a rate per annum equal to 9.31% (nine point thirty one percentage points, the “Interest Rate”). Interest shall be payable in arrears on each Interest Payment Date).
	La Suscrita además promete incondicionalmente pagar, a partir de la fecha de este Pagaré y hasta la fecha en que el monto principal insoluto de este Pagaré sea pagado en su totalidad, en cada Fecha de Pago, intereses sobre el monto principal insoluto de este Pagaré durante cada Periodo de Intereses (según dicho término se define más adelante), a una tasa anual equivalente a 9.31% (nueve punto treinta y un puntos porcentuales, la “Tasa de Interés”). Los intereses serán pagados conforme venzan en cada Fecha de Pago de Intereses.

CGCAE 185237.v2 15/06/11

	
						
	 
	 

	The Undersigned also unconditionally promises to pay overdue interest in respect of the aggregate outstanding principal amount of this Promissory Note, from the date of any Payment Default (as hereinafter defined) of the principal amount or interest due hereunder, until the date on which the outstanding principal amount hereof is paid in full, at a rate per annum equal to the sum of (i) the Interest Rate; plus (ii) 3% (three percentage points), which interest shall be payable on demand.
	La Suscrita además promete incondicionalmente pagar intereses moratorios sobre la totalidad del monto principal insoluto de este Pagaré, a partir de la fecha de Incumplimiento de Pago (según dicho término se define más adelante) del monto principal o de los intereses de este Pagaré conforme a lo previsto en el mismo, y hasta la fecha en que el monto principal insoluto de este Pagaré sea pagado en su totalidad, a una tasa anual equivalente a la suma de (i) la Tasa de Interés; más (ii) 3% (tres puntos porcentuales), cuyos intereses serán pagaderos a la vista.

	 
	 

	All interest hereunder shall be calculated on the basis of a 360 (three hundred and sixty)-day year for 30-day months.
	Todos los intereses conforme a este Pagaré se calcularán sobre la base de año de 360 (trescientos sesenta) días con meses de 30 días.

	 
	 

	As used in this Promissory Note, the following terms have the meanings specified below:
	Según se utilizan en este Pagaré, los siguientes términos tienen los siguientes significados:

	 
	 

	“Business Day” means any day except Saturday, Sunday and any other day in which the principal office of commercial banks located in New York City, New York, Chicago, Illinois, United States of America or Mexico City, Federal District, Mexico, are authorized or required by law to remain closed.
	“Día Hábil” significa cualquier día que no sea un sábado, domingo o cualquier otro día en el que las oficinas principales de bancos comerciales en la Ciudad de Nueva York, Nueva York, Chicago, Illinois, Estados Unidos de América o Ciudad de México, México, estén autorizadas o requeridas por ley, regulación o decreto a permanecer cerradas.

	 
	 

	“Governmental Authority” means any national or federal government, any state, regional, local or other political subdivision thereof with jurisdiction and any individual or entity with jurisdiction exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government or quasi-governmental issues (including any court).
	“Autoridad Gubernamental” significa cualquier gobierno nacional o federal, cualquier estado u otra subdivisión política regional o local, con jurisdicción y cualquier individuo o entidad que ejercite facultades o funciones ejecutivas, legislativas, judiciales o administrativas de o pertenecientes a asuntos de gobierno o cuasi-gubernamentales (incluyendo cualquier corte).

	 
	 

CGCAE 185237.v2 15/06/11

	
						
	“Interest Period” means, (a) initially, the period commencing on the date hereof and ending on September 15, 2011; and (b) thereafter, each period commencing on the last day of the next preceding Interest Period and ending on the numerically corresponding day in the calendar month that is 3 (three) months thereafter; provided that no Interest Period shall extend past the Maturity Date.
	“Periodo de Intereses” significa (a) inicialmente, el periodo que inicie en la fecha de suscripción de este Pagaré y que termine el día 15 de septiembre de 2011; y (b) posteriormente, cada periodo que inicie el último día del Periodo de Intereses inmediato anterior y y que termine el día que caiga 3 (tres) meses calendario siguientes; en el entendido, que ningún Periodo de Intereses terminará después de la Fecha de Vencimiento.

	 
	 

	“Maturity Date” means December 15, 2020, which is the last Payment Date set forth in the Payment Schedule of this Promissory Note.
	“Fecha de Vencimiento” significa el 15 de diciembre de 2020, que es la última Fecha de Amortización prevista en el Calendario de Pagos de este Pagaré.

	 
	 

	“Payment Default” means the failure of the Undersigned to pay any installment of principal, interest or principal and interest pursuant to this Promissory Note, on the corresponding due date of such payment as provided herein.
	“Incumplimiento de Pago” significa el incumplimiento de la Suscrita de pagar cualquier amortización de principal o intereses, o de principal e intereses conforme al presente Pagaré, en la respectiva fecha de pago conforme a lo previsto en el presente Pagaré.

	 
	 

	All payments to be made by the Undersigned hereunder whether on account of principal, interest, fees or otherwise, shall be made without setoff or counterclaim, and shall be made prior to 12:00 p.m., New York City time on the due dates specified herein, in Dollars and in immediately available funds, at the Lender’s Account or such other account or place outside Mexico indicated in writing by the holder of this Promissory Note. The Undersigned agrees to reimburse upon demand, in like manner and funds, all losses, costs and expenses of the holder hereof, if any, incurred in connection with the enforcement of this Promissory Note (including, without limitation, all legal costs and expenses).

	Todos los pagos que deba hacer la Suscrita conforme a este Pagaré, ya sea por concepto de principal, interés, cuota o por cualquier otro concepto, serán efectuados, sin compensación deducción o defensa alguna, antes de las 12:00 p.m., hora de la ciudad de Nueva York, en las fechas de pago previstas en el mismo, en Dólares y en fondos inmediatamente disponibles, en la Cuenta del Acreedor o en cualquier otra cuenta o lugar fuera de México que indique por escrito el tenedor de este Pagaré.  La Suscrita conviene en rembolsar a la vista, en la misma forma y fondos, cualesquier pérdidas, costos y gastos del tenedor de este Pagaré, en su caso, incurridos en relación con cualquier procedimiento de cobro del presente Pagaré (incluyendo, sin limitación, todos los costos y gastos legales).

	 
	 

CGCAE 185237.v2 15/06/11

	
						
	All payments made by the Undersigned pursuant to this Promissory Note shall be made free and clear of, and without any deduction or withholding for or on account of, any present or future taxes, levies, imposts, duties, charges, fees, deductions or withholdings, levied, collected, withheld or assessed by any governmental authority of any jurisdiction (the “Taxes”).  If any such Taxes, are required to be withheld from any amounts payable to the holder hereof, the amounts so payable shall be increased to the extent necessary to yield to the holder of this Promissory Note (after payment of the Taxes) the interest or any such other amounts payable hereunder at the interest rates or in the amounts specified in this Promissory Note.
	Todos los pagos hechos por la Suscrita bajo este Pagaré se harán libres de y sin deducción o retención por, o a cuenta de, cualquier ingreso presente o futuro, impuesto de timbre u otros impuestos, derechos, cargas, cuotas, deducciones o retenciones, determinados, impuestos, cobrados, o retenidos por cualquier Autoridad Gubernamental de cualquier jurisdicción (“Impuestos”). Si cualesquiera de dichos Impuestos son retenidos de cualesquiera cantidades pagaderas al tenedor de este Pagaré, las cantidades pagaderas al tenedor de este Pagaré serán incrementadas en lo necesario para que dicho tenedor reciba (después del pago de la totalidad de dichos Impuestos) los intereses o todas aquellas otras cantidades pagaderas a las tasas de interés y en las cantidades especificadas en este Pagaré.

	 
	 

	If any Payment Date under this Promissory Note shall be a day that is not a Business Day, such Payment Date will be extended to the next succeeding Business Day; provided that no extension of any payment of principal and/or interest pursuant to the preceding sentence shall affect or otherwise modify the Interest Period applicable to any such payment.
	En caso que cualquier Fecha de Amortización bajo este Pagaré no sea un Día Hábil, dicha Fecha de Amortización se extenderá al Día Hábil inmediato siguiente; en el entendido que ninguna extensión de pago de principal y/o intereses conforme a la oración anterior afectará o de cualquier otra forma modificará el Periodo de Intereses aplicable a cualesquiera de dichos pagos.

	 
	 

	For everything related to this Promissory Note, the Undersigned designates the following as its domicile: [__________]

	Para todo lo relacionado con este Pagaré, la Suscrita designa como su domicilio: [__________].

	 
	 

	For everything related to the interpretation and fulfillment of this Promissory Note, the Undersigned and the holder of this Promissory Note hereby expressly and irrevocably submit to the applicable laws of Mexico, and to the jurisdiction of the competent courts of Mexico City, Mexico, and  hereby expressly and irrevocably waive any other jurisdiction to which they may now or hereafter be entitled to by reason of their present or any future domiciles, by the location of their assets or any other reason.
	Para todo lo relativo con la interpretación y cumplimiento de este Pagaré, en este acto la Suscrita y el tenedor de este Pagaré se someten, de manera expresa e irrevocable, a las leyes aplicables de México, y a la jurisdicción de los tribunales competentes de México, Distrito Federal, México, por lo que en este acto renuncian, de manera expresa e irrevocable, a cualquier otra jurisdicción que pudiere corresponderles en virtud de sus domicilios presentes o futuros o por cualquier otra razón.

CGCAE 185237.v2 15/06/11

	
						
	 
	 

	This Promissory Note is executed in both the English and Spanish languages, both versions of which shall bind the Undersigned; provided, however, that in the event of any suit or action, the Spanish version shall prevail.
	El presente Pagaré se suscribe en los idiomas inglés y español, obligando ambas versiones a la Suscrita; en el entendido, sin embargo, de que en caso de cualquier demanda o acción, la versión en español será la que prevalezca.

	 
	 

	The Undersigned hereby waives diligence, demand, protest and notices of any kind whatsoever.
	La Suscrita por el presente, renuncia expresa e irrevocablemente a cualquier diligencia, demanda, protesto o notificación de cualquier clase.

Mexico, Federal District, on [_______], 20[__]
México, Distrito Federal, a [__] de [_______] de 20[__]

KANSAS CITY SOUTHERN DE MÉXICO, S.A. DE C.V. 

_________________________________________
Name:
Title:

CGCAE 185237.v2 15/06/11

Exhibit “D”
Loan Agreement (______)
Form of Trust Agreement

[Form included on a separate document]

CGCAE 185237.v2 15/06/11

Exhibit “E”
Loan Agreement (______)
Form of Advance Request

[To be delivered by Borrower to Lender during the Availability Period, with at least 4 Business Days prior to the date on which the Borrower wishes to receive the Advance]

[Date]

General Electric Capital Corporation
161 North Clark Street
Chicago, Illinois, 60601 
United States of America
Attention: Mark Stefani

The undersigned, Kansas City Southern de México, S.A. de C.V. (the “Borrower”), makes reference to the Loan Agreement dated September 1st, 2011 (the “Loan Agreement”), entered into by the Borrower, in such capacity, and General Electric Capital Corporation, as lender (the “Lender”). Capitalized terms used and not otherwise defined herein are used as defined in the Loan Agreement.

The Borrower hereby notifies the Lender, pursuant to item (a) of Clause Fourth of the Loan Agreement, that it wishes to request an Advance pursuant to the Loan Agreement and therefore sets forth below the information relating to such Advance (the “Requested Advance”):

(i)    principal amount of the Requested Advance: [US$[________].00 ([______] US Dollars 00/100);];

(ii)    Disbursement Date: [_______] [_], 20[_] [this date shall be a Business Day within the applicable Availability Period];

(iii)    Information of the account in which the Borrower wishes that the Requested Advance be deposited: [include specific information of the Borrower’s account].

The Borrower hereby certifies that:

(a)    each and every one of the Conditions Precedent set forth in Clause  Twelfth of the Loan Agreement have been satisfied and fulfilled on the date hereof or shall have been satisfied or fulfilled no later than the corresponding Disbursement Date;

(b)    each and every one of the representations and warranties made by the Borrower set forth in the Loan Agreement and in the other Loan Documents, are true, complete and accurate on the date hereof and will continue to be true, complete and accurate on the corresponding Disbursement Date;

CGCAE 185237.v1 14/06/11

(c)    as of the date hereof, no Default or Event of Default has occurred or is continuing, nor will a Default or Event of Default result from the making of the Requested Advance, or from the use of the proceeds thereof; and

(d)    the Borrower will use the proceeds of the Requested Advance exclusively  to the payment of the applicable Unit Purchase Price.

Sincerely,

Kansas City Southern de México, S.A. de C.V.

________________________________________
Name:
Title: Attorney-in-Fact

CGCAE 185237.v1 14/06/11

Exhibit “F”
Loan Agreement (_______)
Form of Secretary’s Certificate 

SECRETARY’S CERTIFICATE 

Pursuant to item (c) of the Twelfth Clause of the Loan Agreement (the “Agreement”; capitalized terms used and not otherwise defined herein being used as defined in the Loan Agreement) dated September 1st, 2011, entered into by General Electric Capital Corporation, as lender (the “Lender”) and Kansas City Southern de México, S.A. de C.V., as borrower (the “Borrower”), the undersigned, in my capacity as Secretary of the Board of Directors of the Borrower hereby certify that:

		
	1.
	The Borrower is a sociedad anónima de capital variable duly organized and validly existing under the laws of México.

		
	2.
	[Attached hereto as Exhibit “1” is a certified copy of the incorporation deed and by-laws (in both cases with registration data) of the Borrower in effect on the date hereof] 

[The documents provided to the Lender as Exhibit “1” to the Secretary’s Certificate dated [___________] [___], 20[__] constitute the Borrower’s incorporation deed and current by-laws, as of the date hereof, and remain in full force and effect in all their terms].

		
	3.
	On the date hereof, and to the best of my knowledge after due inquiry, there are no liquidation, dissolution, concurso mercantil, insolvency, bankruptcy or similar proceedings pending or threatened against the Borrower. 

		
	4.
	On the date hereof, and to the best of my knowledge after due inquiry, no event or circumstance has occurred that has or could reasonably be expected to have a Material Adverse Effect on the business, assets, liabilities, property or condition (financial or otherwise) or prospects of the Borrower or the ability of the Borrower to perform its obligations in accordance with the Loan Agreement and the other Loan Documents; 

		
	5.
	On the date hereof, there is no pending, and to the best of my knowledge after due inquiry, threatened action, claim, requirement or proceeding of any nature before any court, Governmental Authority, arbitrator or jurisdictional entity that affects or could reasonably be expected to affect (i) the Equipment (or any portion thereof); (ii) the Trustee’s legal and valid ownership and title to the Equipment; or (iii) the legality, validity or enforceability of the Loan Agreement or any of the obligations of the Borrower arising from or relating thereto; 

		
	6.
	[Attached hereto as Exhibit “2” is a certified copy of the resolutions adopted by the Board of Directors of the Borrower which authorize the Borrower to execute, 

CGCAE 185237.v1 14/06/11

deliver and perform its obligations under the Loan Agreement and the other Loan Documents, which resolutions were legally adopted by the Board of Directors of the Borrower on [_______] [__], 2011. Such resolutions are in full force and effect on the date hereof in the form in which adopted and such resolutions have not been revoked, annulled, amended or modified in any manner.] 

[The documents provided to the Lender as Exhibit “2” to the Secretary’s Certificate dated [___________] [___], 20[__] constitute the Borrower’s current resolutions adopted by the Board of Directors of the Borrower which authorize the Borrower to execute, deliver and perform its obligations under the Loan Agreement and the other Loan Documents, which resolutions, as of the date hereof, remain in full force and effect in all their terms]. 

		
	7.
	[The following persons are duly authorized attorneys-in-fact of the Borrower and the signatures appearing opposite their respective names are the true and genuine signatures of such persons, and each of such persons has the necessary powers of attorney, authorities as well as corporate authorities to execute the Loan Agreement and each of the Loan Documents in name and on behalf of the Borrower and to bind the Borrower in the terms set forth in such documents, as evidenced in the certified copy of the public deed attached hereto as Exhibit “3”.] 

[The power of attorney included in the documents provided to the Lender as Exhibit “3” to the Secretary’s Certificate dated [___________] [___], 20[__] continue to be valid and current powers of attorney to the individuals referred to therein, and such powers have not been revoked, limited or modified in any manner whatsoever as of the date hereof]. 

Name                Title                    Signature

____________________

____________________

____________________

		
	8.
	To the date hereof, no Default or Event of Default has occurred or is continuing.

        

CGCAE 185237.v1 14/06/11

IN WITNESS HEREOF, the undersigned Secretary of the Board of Directors of the Borrower executed this certificate on [insert date].

_______________________________ 
Name:
Title: Secretary of the Board of Director

CGCAE 185237.v1 14/06/11

Exhibit “1”
Secretary’s Certificate
Certified copy of the incorporation deed 
and by-laws of the Borrower

CGCAE 185237.v1 14/06/11

Exhibit “2”
Secretary’s Certificate
Certified copy of Board Resolutions of the Borrower

CGCAE 185237.v1 14/06/11

Exhibit “3”
Secretary’s Certificate
Certified copy of powers of attorney

CGCAE 185237.v1 14/06/11

Exhibit “G”
Loan Agreement (_______)
List of Equipment 

	
					
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CGCAE 185237.v1 14/06/11ex10x1.htm

Exhibit 10.1

 

STOCK PURCHASE AGREEMENT

 

This Stock Purchase Agreement (this “Agreement”) is made as of October 13, 2011 (the “Signing Date”), by and among Capsalus Corp., a Nevada corporation (the “Purchaser”) and GeneLink, Inc., a Pennsylvania corporation (the “Seller”).

 

W I T N E S S E T H:

 

WHEREAS, the Seller owns all of the outstanding shares of capital stock (the “Shares”) of GeneWize Life Sciences, Inc., a Delaware corporation (the “Company”); and

 

WHEREAS, upon the terms and conditions and for the purchase price set forth herein, the Seller desires to sell, transfer and assign to the Purchaser, and the Purchaser desires to purchase from the Seller, the Shares.

 

NOW, THEREFORE, intending to be legally bound and in consideration of the mutual provisions set forth in this Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

 

ARTICLE 1

DEFINITIONS AND CONSTRUCTION

 

Section 1.1  Definitions.  For the purposes of this Agreement and the Ancillary Agreements:

 

“Affiliate” of a Person means a Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, the first mentioned Person.  For purposes of this definition, “control” shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of an entity, whether through the ownership of voting securities, by contract or otherwise.  For the avoidance of doubt, “Affiliates” of the Purchaser shall include Gene Elite, LLC, Gene Pro Elite, LLC, The Longaberger Company and any
other marketing channels or entities that Purchaser may develop in the future.

“Affiliated Group” means a group of corporations with which the Company has filed consolidated, combined, unitary or similar Tax Returns.

 “Alternative Transaction Proposal” means any offer, inquiry, proposal or indication of interest (other than an offer, inquiry, proposal or indication of interest by the Purchaser or an Affiliate of the Purchaser, relating to an Alternative Transaction).

“Business Day” means any day other than Saturday, Sunday or any day on which banking institutions in New York, New York are closed either under applicable law or action of any Governmental Authority.

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

 

 

  

  

  

“Company Intellectual Property” means any Intellectual Property that is owned by the Company in the conduct of the Company’s business as now conducted and as presently proposed to be conducted.

“Company Plan” means any “employee benefit plan” (as defined in Section 3(3) of ERISA) (excluding any “multiemployer plan” (as defined in Section 3(37) of ERISA)) and any other plan, Contract or arrangement involving direct or indirect compensation, including insurance coverage, sick leave, disability, health benefits, vacation policies, severance benefits, change in control benefits, deferred compensation, bonuses, stock options, stock purchase, stock awards, phantom stock, stock appreciation or other forms of incentive compensation or post-retirement compensation  that (i) is sponsored or maintained by
the Company or the Seller for the benefit of any Employees or their beneficiaries, (ii) has been approved by the Company or the Seller for the benefit of any Employees or their beneficiaries but is not yet effective or (iii) was previously maintained by the Company or the Seller for the benefit of any Employees or their beneficiaries and with respect to which the Company has any liability.

“Contract” means any contract, agreement, lease, license, commitment, understanding, franchise, warranty, guaranty, mortgage, note, bond or other instrument or consensual obligation that is legally binding.

“Employee” means any current director, officer or employee of the Company.

“Encumbrance” means any lien, pledge, mortgage, deed of trust, security interest, claim, lease, charge, option, right of first refusal, easement, servitude, proxy, voting trust or agreement, transfer restriction under any shareholder or similar agreement, encumbrance or any other restriction or limitation whatsoever other than restrictions on the transferability of securities arising under applicable securities laws.

 

“Gene Elite” means Gene Elite, LLC, an affiliate of the Purchaser.

 

“Governing Documents” means any charter, articles, bylaws, certificate, statement, statutes or similar document adopted, filed or registered in connection with the creation, formation or organization of an entity.

 

“Governmental Authority” means any national, federal, state, provincial, county, municipal or local government, foreign or domestic, or the government of any political subdivision of any of the foregoing, or any entity, authority, agency, ministry or other similar body exercising executive, legislative, judicial, regulatory or administrative authority or functions of or pertaining to government, including any authority or other quasi-governmental entity established to perform any of such functions.

“Indebtedness” means any of the following: (a) any indebtedness for borrowed money, (b) any obligations evidenced by bonds, notes or other similar instruments, (c) any obligations to pay the deferred purchase price of property or services, except trade accounts payable and other current Liabilities arising in the ordinary course of business, (d) any obligations as lessee under capitalized leases, (e) any indebtedness created or arising under any conditional sale or other title retention agreement with respect to acquired property, (f) any obligations, contingent or otherwise, under
acceptance credit, letters of credit or similar facilities, and (g) any guaranty of any of the foregoing.

 

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“Intellectual Property” means all patents, patent applications, trademarks, trademark applications, service marks, service mark applications, tradenames, copyrights, trade secrets, domain names, mask works, information and proprietary rights and processes, similar or other intellectual property rights, subject matter of any of the foregoing, tangible embodiments of any of the foregoing, licenses in to and under any of the foregoing.

“LDA” means that certain Licensing and Distribution Agreement entered into on the Signing Date by and between the Seller and Gene Elite.

 

“Liabilities” of any Person shall mean all obligations and liabilities or such Person (i) for Indebtedness (ii) for the deferred purchase price of goods or services (other than trade payables or accruals incurred in the ordinary course of business), (iv) under letters of credit or acceptance facilities, (v) secured by any lien, claim, charge, mortgage, pledge, security interest, equity, restriction or other encumbrance on the Company’s assets or property or (vi) in the nature of guarantees, endorsements (other than for collection or deposit in the ordinary course of business) and other contingent obligations to purchase, to provide
funds for payment, to supply funds to invest in any Person or otherwise to assure a creditor against loss, including guarantees of the obligations described in clauses (i) through (vi) above to any other Person.

 

“Management Agreement” means that certain Interim Management Agreement entered into on the Signing Date by and between the Company and the Purchaser.

 

“Person” means an individual, partnership, corporation, limited liability company or any other entity, joint stock company, unincorporated organization or association, trust or joint venture, or a Governmental Authority.

 

“Superior Proposal” means a bona fide, unsolicited written Alternative Transaction Proposal made by a third party and received by the Board of Directors of the Seller or the Company that such Board of Directors determines in good faith, taking into account all legal, financial, regulatory, timing, and other aspects of the proposal and the Person making the proposal:  (a) is reasonably likely to be consummated on the terms proposed, (b) the consideration offered is greater than the Total Consideration, and (c) is otherwise on terms that in the reasonable opinion of such Board of Directors will result in a more
favorable transaction to the shareholders of the Seller than the transactions contemplated by this Agreement.

 

“Tax” means, (a) any federal, state, local, foreign, or other tax, charge, fee, duty (including customs duty), levy or assessment, including any income, gross receipts, net proceeds, alternative or add-on minimum, corporation, ad valorem, turnover, real property, personal property (tangible or intangible), sales, use, franchise, excise, value added, stamp, leasing, lease, user, transfer, fuel, excess profits, profits, occupational, premium, interest equalization, windfall profits, severance, license, registration, payroll, environmental (including taxes under Section 59A of the Code), capital stock, capital duty, disability, estimated,
gains, wealth, welfare, employee’s income withholding, other withholding, unemployment or social security or other tax of whatever kind (including any fee, assessment or other charges in the nature of or in lieu of any tax) that is imposed by any Governmental Authority, whether disputed or not and including any obligations to indemnity or otherwise assume or succeed to the Tax liability of any other Person; and (b) any interest, fines, penalties or additions resulting from, attributable to, or incurred in connection with any items described in this paragraph.  For the avoidance of doubt, the term “Tax” also includes any penalties relating to foreign bank account reports.

 

“Tax Return” means any report, return, declaration, claim for refund, notice, account or information return or statement related to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

 

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ARTICLE 2

THE TRANSACTION

 

Section 2.1  Sale and Purchase of Shares.  In accordance with the provisions of this Agreement, at the Closing, the Seller will sell, transfer and assign to the Purchaser, and the Purchaser will purchase and acquire from the Seller, all of the Shares, free and clear of any Encumbrances.

 

Section 2.2  Purchase Price. Subject to the other terms and provisions of this Agreement, the purchase price to be paid by the Purchaser to the Seller for the Shares shall be an amount equal to Five Hundred Thousand and 00/100 Dollars ($500,000) (the “Purchase Price”).

 

Section 2.3  Earnout Consideration.

 

(a)  Calculation of Earnout Consideration:  The Purchaser shall pay to the Seller earn-out consideration (“Earnout Consideration,” together with the Purchase Price, the “Total Consideration”) of the greater of (1) Twenty Five Thousand and 00/100 Dollars ($25,000) per calendar month (the “Monthly Base
Amount”) or (2) 15% of the Company’s Gross Revenues generated during the proceeding calendar month (the “Monthly Earnout Amount” each of which shall be the “Monthly Earnout” in the applicable calendar month).  The Purchaser shall pay the Monthly Earnout as provided in Section 2.3(b), beginning as of the second full calendar month following the Closing Date and ending sixty (60) calendar months thereafter.  “Gross Revenues” shall mean all revenues realized by the Company less returns, discounts and allowances.

 

(b)  Payment of Earnout Consideration. On the last day of each month that a Monthly Earnout is payable, the Purchaser shall pay to the Seller the Monthly Base Amount on or before the last day of each such month.  Not later than ten (10) days after the end of each calendar month in which the Purchaser must pay the Seller the Monthly Earnout (the “Earnout Period”), the Purchaser shall provide to the Seller a written notice containing its
calculation of the amount, if positive, that is the difference of (i) the Monthly Earnout Amount less (ii) the Monthly Base Amount (the “Earnout Gross Up Amount”), together with reasonably detailed data supporting such calculation (the “Earnout Notice”).  Not later than fifteen (15) days after receipt of the Earnout Notice (the “Earnout Review Period”), the Seller may deliver a dispute notice to the Purchaser (the “Dispute Notice”), notifying the Purchaser of the Seller’s proposed adjustments to, or disputes with, the Purchaser’s calculations.  If the Seller does not deliver a Dispute Notice during the Earnout Review
Period, the Purchaser shall, within thirty (30) days after the end of each Earnout Period, pay the Seller the Earnout Gross Up Amount indicated in the Earnout Notice.  If there is a dispute, the Purchaser shall, within thirty (30) days after the end of each Earnout Period pay the Seller the portion of the Earnout Gross Up Amount that is not in dispute and the parties shall in good faith attempt to resolve any disputes.  If the parties can resolve such dispute within thirty (30) days after the receipt by the Purchase of the Dispute Notice, then such agreed upon amount shall be the Earnout Gross Up Amount and the Purchaser shall pay Seller any remaining Earnout Gross Up Amount then due and payable.  If the parties cannot reach agreement in resolving any dispute within such thirty (30) day time period after the Dispute Notice is given by the Seller to the
Purchaser, the parties shall jointly select and engage an independent accounting firm (other than the Purchaser’s or the Seller’s accounting firm) (the “Arbiter”) to resolve any remaining disputes regarding the Earnout Gross Up Amount.  If the parties cannot agree on the selection of an independent accounting firm to act as Arbiter, the parties shall request the American Arbitration Association to appoint such a firm, and such appointment shall be conclusive and binding on the parties.  Promptly, but no later than twenty (20) calendar days after acceptance of its appointment as Arbiter, the Arbiter shall determine (it being understood that in making such determination, the Arbiter shall be functioning as an expert and not as an arbitrator), based solely on written submissions by
the Purchaser and the Seller, each containing a computation of Earnout Gross Up Amount and not by independent review, only those issues in dispute and shall render a written report as to the resolution of the disputes and the resulting computation of the Earnout Gross Up Amount.  Such written report shall be conclusive and binding on the parties.  All proceedings conducted by the Arbiter shall take place in the Company’s corporate offices.  In resolving any disputed item, the Arbiter (x) shall be bound by the provisions of this Section 2.3 and (y) may not assign a value to any item greater than the greatest value for such item claimed by either party or less than the smallest value for such item claimed by either party.  The fees, costs and expenses of the Arbiter shall be
jointly paid by the Purchaser and the Seller.

 

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(c)  Total Consideration:  The Total Consideration payable to the Seller under this Agreement shall not exceed an aggregate of Five Million and 00/100 Dollars ($5,000,000), including the Purchase Price.

 

Section 2.4  Cash Adjustment. The parties acknowledge that on the Signing Date, the Company and the Purchaser are entering into the Management Agreement.  Pursuant to the Management Agreement, a cash adjustment is to be made effective October 1, 2011, whereby the sum of cash and cash equivalents, accounts receivable, inventory, prepaid expenses and deposits, including credit card reserves less the Company’s Liabilities is to equal Zero and 00/100
Dollars ($0) (the “Quick Assets”).  It is contemplated that an appropriate adjustment will have been made between the parties as of the effective date of the Management Agreement.  To the extent that the Quick Assets are greater or less than zero (0) at the time of the Closing, the deficit or surplus of such variance shall be the responsibility or benefit of the Purchaser or Seller, as applicable.

 

Section 2.5  LDA Amount.  Pursuant to the LDA and as more particularly described in Schedule 3.2 attached thereto, Gene Elite is obligated to advance One Million Five Hundred Thousand and 00/100 Dollars ($1,500,000) (the “LDA Amount”).  As set forth in Section [_] of the LDA, (i) One Million and 00/100 Dollars ($1,000,000) of the LDA Amount is to be paid on the Signing Date (the
“LDA Signing Amount”) and (ii) Five Hundred Thousand and 00/100 Dollars ($500,000) of the LDA Amount (the “Remaining LDA Payment”) is to be paid as of the Closing.

 

Section 2.6  Closing. The closing of the transactions contemplated by this Agreement (the “Closing”) will take place as soon as practicable at the offices of Lowenstein Sandler PC, 65 Livingston Avenue, Roseland, New Jersey 07068 at 10:00 a.m. New York City time or at such other time and place as the Seller and the Purchaser may agree in writing.  The date on which the Closing actually occurs is referred to in this Agreement as the “Closing Date.”

 

Section 2.7  Closing Deliveries; Form of Payment.

 

(a)  Seller Closing Deliveries.  At the Closing, the Seller shall deliver to the Purchaser:

 

(i)  a certificate of the secretaries of the Seller and the Company in his or her representative capacity, dated as of the Closing Date, certifying as to the Seller and the Company which he or she represents (A) that true and complete copies of the Governing Documents of such entity, as in effect on the Closing Date (including any amendments thereof), are attached thereto, (B) as to the incumbency and genuineness of the signatures of each officer executing this Agreement, and (C) as to the genuineness of the resolutions (attached thereto) of the Seller’s board of directors authorizing
the execution, delivery and performance of this Agreement;

 

(ii)  certificates representing the Shares, duly endorsed in blank or accompanied by stock powers or a stock transfer form duly executed in blank in form reasonably satisfactory to the Purchaser sufficient to transfer the Shares to the Purchaser free and clear of all Encumbrances;

 

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(iii)  the Closing Certificates; and

 

(iv)  certificates of good standing, dated not more than five (5) Business Days prior to the Closing Date with respect to the Seller and the Company issued by the presiding Government Authority of the jurisdiction in which each entity was formed.

 

(b)  At the Closing, the Purchaser will deliver or cause to be delivered to the Seller:

 

(i)  the Closing Payment by wire transfer of immediately available funds in U.S. dollars to the account specified by the Seller; and

 

(ii)  a certificate, dated as of the Closing Date, executed by the Purchaser confirming the satisfaction of the conditions specified in Section 6.2.

 

ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF THE SELLER

 

The Seller represents and warrants to the Purchaser as follows, except as set forth on the disclosure schedule delivered by the Seller to the Purchaser concurrently with the execution and delivery of this Agreement and dated as of the date of this Agreement (the “Seller Disclosure Schedule”):

 

Section 3.1  Organization and Good Standing.  The Seller is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania.  The Company is duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to conduct its business as presently conducted.  The Company is duly qualified to do business and is in good standing as a foreign corporation in each
jurisdiction in which the nature of its activities requires.

 

Section 3.2  Authority and Enforceability.  The Seller has all requisite corporate power and authority to execute and deliver this Agreement and to perform its obligations under this Agreement.  The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated under this Agreement and thereby by the Seller has been duly authorized by all necessary action on the part of the Seller.  The Seller has duly and validly executed and delivered this
Agreement.  Assuming the due authorization, execution and delivery of this Agreement by the Purchaser, this Agreement constitutes the valid and binding obligation of the Seller enforceable against Seller in accordance with its terms, subject to (a) laws of general application relating to bankruptcy, insolvency and the relief of debtors and (b) laws governing specific performance, injunctive relief and other equitable remedies.

 

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Section 3.3  No Conflict.

 

(a)  Neither the execution, delivery and performance of this Agreement by the Seller, nor the consummation by the Seller of the transactions contemplated by this Agreement, will (i) conflict with or violate the Seller’s or the Company’s Governing Documents, (ii) except as disclosed in Section 3.3 of the Seller Disclosure Schedule, result in a breach or default under, or create in any Person the right to terminate, cancel, accelerate or modify, or require any notice, consent or waiver under, any
Contract to which the Seller or the Company is a party or to which any of the assets or properties of the Seller or the Company are subject, or (iii) violate any law or judgment applicable to the Seller or the Company.

 

(b)  Except as set forth in Section 3.3 of the Seller Disclosure Schedule, no consent, waiver, approval, order, permit, Governmental Authorization or other authorization of, or declaration or filing with, or notification to, any Person or Governmental Authority is required on the part of the Seller or the Company in connection with (i) the execution and delivery of this Agreement, the compliance by the Seller and the Company with any of the provisions hereof, or the consummation of the transactions contemplated hereby, or (ii)
the continuing validity and effectiveness immediately following the Closing of any Governmental Authorization or Contract of the Company.

 

Section 3.4  Capitalization and Ownership. The authorized capital stock of the Company and the number of shares of such capital stock that are issued and outstanding, and the beneficial and record ownership thereof, are set forth on Section 3.4 of the Seller Disclosure Schedule.  The Seller is the sole record holder and beneficial owner of all of the Shares, free and clear of all Encumbrances.  Upon payment in full of the Closing Payment, good
and valid title to the Shares will pass to the Purchaser, free and clear of any Encumbrances, and with no restrictions on the voting rights or other incidents of record and beneficial ownership of such Shares.  All of the Shares are duly authorized, validly issued, fully paid and nonassessable.  There are no Contracts to which either the Seller or any other Person is a party or bound with respect to the voting (including voting trusts or proxies) of the Shares.  There are no outstanding or authorized options, warrants, rights, agreements or commitments to which the Seller or the Company is a party or which are binding upon the Seller or the Company providing for the issuance or redemption of any of the Shares.

 

Section 3.5  Financial Statements.  Attached as Section 3.5 of the Seller Disclosure Schedule is (a)  the unaudited, consolidated balance sheet of the Company as of December 31, 2010 and the related unaudited consolidated statement of income for the year ended December 31, 2010 and (ii) the unaudited, consolidated balance sheet of the Company as at August 31, 2011 (the
“Balance Sheet Date”) and the related consolidated statement of income of the Company for the eight (8) month period then ended (the “Financial Statements”).  The Financial Statements (x) present fairly in all material respects the financial positions of the Company as of the dates of such Financial Statements and the results of operations for the Company as of such date, in conformity with U.S. GAAP and (y) are prepared in accordance with the books and records of the Company.

 

Section 3.6  No Undisclosed Liabilities.  The Company does not have any Liabilities as of the date of this Agreement that would be required to be reflected on the Financial Statements in accordance with U.S. GAAP except for Liabilities (i) reflected, reserved against or otherwise disclosed in the Financial Statements, (ii) incurred in the ordinary course of business since the Balance Sheet Date, or (iii) disclosed herein or in the Seller Disclosure Schedule, including
Section 3.6 thereof.

 

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Section 3.7  Absence of Certain Changes and Events.  From January 1, 2011 to the date of this Agreement, the Company has operated its business in the ordinary course of business, and except as set forth on Section 3.7 of the Seller Disclosure Schedule, there has not been any:

 

(a)  change in the Company’s authorized or issued shares or other equity interests; grant of any option or right to purchase shares of the Company; issuance of any security convertible into such shares; grant of any registration rights; purchase, redemption, retirement or other acquisition by the Company of any shares; or declaration or payment of any dividend or other distribution or payment with respect to any Shares;

 

(b)  amendment to the Governing Documents of the Company;

 

(c)  damage to or destruction of any asset or property of the Company, whether or not covered by insurance, having a replacement cost of more than $10,000 for any single loss or $50,000 for all such losses;

 

(d)  sale (other than in the ordinary course of business), lease or other disposition of any asset or property of the Company;

 

(e)  material change in the accounting methods used by the Company;

 

(f)  declaration, setting aside or payment of any dividend or other distribution in respect of any shares of capital stock of the Company or any repurchase, redemption or other acquisition by the Company of any outstanding shares of capital stock or other securities of, or other ownership interest in, the Company;

 

(g)  award or payment of any bonuses to Employees of the Company, or entered into any employment, deferred compensation, severance or similar agreement (nor amended any such agreement) or agreed to increase the compensation payable or to become payable by it to any of the Company’s Employees or agreed to increase the coverage or benefits available under any severance pay, termination pay, vacation pay, company awards, salary continuation for disability, sick leave, deferred compensation, bonus or other incentive compensation, insurance, pension or other employee benefit plan, payment
or arrangement made to, for or with such Employees;

 

(h)  making or rescinding of any election relating to taxes or settled or compromised any claim relating to taxes;

 

(i)  entry into any Contract, or modification or extension of any Contract;

 

(j)  making of any loans, advances or capital contributions to, or investments in, any Person or paid any fees or expenses to the Seller or any director, officer, partner, stockholder or Affiliate of the Seller;

 

(k)  mortgage, pledge or Encumbrance incurred upon any properties or assets of the Company;

 

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(l)  making of, or commitment to make, any capital expenditures or capital additions or betterments;

 

(m)  issuance, creation, assumption, guarantee, endorsement or incurrence of any other liability or responsibility with respect to (whether directly, contingently, or otherwise) any Indebtedness;

 

(n)  grant of any license or sublicense of any rights under or with respect to any material Intellectual Property;

 

(o)  institution or settlement of any proceeding involving amounts in excess of $10,000; or

 

(p)  Contract, commitment, arrangement or understanding agreed upon or entered into by the Company to do any of the foregoing.

 

Section 3.8  Properties and Assets; Encumbrances.

 

(a)  The property and assets that the Company owns are free and clear of all Encumbrances.  With respect to the property and assets it leases, the Company is in compliance in all material respects with such leases and, to its knowledge, holds a valid leasehold interest free of any Encumbrances.  The Company does not own any real property.  Section 3.8(a) sets forth all real property and interests in real property leased by the Company (the
“Company Properties”).  All of the Company Properties and buildings, fixtures and improvements thereon are in good operating condition (ordinary wear and tear excepted), and all mechanical and other systems located thereon are in good operating condition (ordinary wear and tear excepted).  The Seller has delivered to the Purchaser true, correct and complete copies of leases, together with all amendments, modifications or supplements, if any, thereto (the “Real Property Leases”).  The Company Properties are not subject to any leases or rights of occupancy, other than the leases.  Except as set forth in Section 3.8(a) of the Seller
Disclosure Schedule, there does not exist any actual or threatened or contemplated, condemnation or eminent domain proceedings that affect any Company Property or any part thereof, and neither the Seller nor the Company has received any written notice of the intention of any Governmental Authority or other Person to take or use all or any part thereof.  No event has occurred that with the lapse of time or the giving of notice or both would constitute a material breach or default on the part of the Company or any other party under any Real Property Lease.

 

(b)  Except as set forth in Section 3.8(b) of the Seller Disclosure Schedule, the Company has good and marketable title to, or a valid leasehold interest in, all of the items of material tangible personal property used in the business of the Company (except as sold or disposed of subsequent to the date thereof in the ordinary course of business and not in violation of this Agreement), free and clear of any and all Encumbrances.  All such items of tangible personal property which, individually or in the aggregate, are
material to the operation of the business of the Company are in good condition and in a state of good maintenance and repair (ordinary wear and tear excepted).  Section 3.8(b) of the Seller Disclosure Schedule sets forth a list of leases of personal property held by the Company as of the date of this Agreement that are material to the operation of the business.

 

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Section 3.9  Intellectual Property.  Section 3.9 of the Seller Disclosure Schedule lists all Company Intellectual Property. The Company owns or possesses or can acquire on commercially reasonable terms sufficient legal rights to all Company Intellectual Property without any known conflict with, or infringement of, the rights of others. No product or service marked or sold (or proposed to be marked or sold) by the Company violates or will violate any
license or infringes or will infringe any intellectual property rights of any other party.  Other than with respect to commercially available software products under standard end-user object code license agreements or as set forth in Section 3.9 of the Seller Disclosure Schedule, there are no outstanding options, licenses, agreements, claims, Encumbrances or shared ownership interest of any kind relating to the Company Intellectual Property or any Intellectual Property used by the Company, nor is the Company bound by or a party to any options, licenses or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, proprietary rights and processes of any other Person.  The Company has not received any communications
alleging that the Company has violated or, by conducting its business, would violate any of the patents, trademarks, service marks, tradenames, copyrights, trade secrets, mask works or other proprietary rights or processes of any other Person.  The Company has obtained and possesses valid licenses to use all of the software programs present on the computers and other software-enabled electronic devices that it owns or leases or that it has otherwise provided to its Employees for its use in connection with the Company’s business.  To the Company’s knowledge, it will not be necessary to use any inventions of any of its employees or consultants (or Persons it currently intends to hire) made prior to their employment or engagement by the Company.  Each employee and consultant has assigned to the Company all intellectual property rights he or
she owns that are related to the Company’s business as now conducted and as presently proposed to be conducted.

 

Section 3.10  Contracts.

 

(a)  Section 3.10(a) of the Seller Disclosure Schedule sets forth an accurate and complete list as of the date hereof of each Contract to which the Company is a party, which:

 

(i)  includes a term extending more than one (1) year beyond the date of this Agreement;

 

(ii)  involves future annual expenditures or receipts by the Company in excess of $5,000 in the aggregate during the term thereof;

 

(iii)  pursuant to which the Company sells products to customers or vendors;

 

(iv)  relates to the borrowing of money or guarantying any obligation for borrowed money or otherwise, including any Contract that is a (A) mortgage, indenture, note, installment obligation or other instrument relating to the borrowing of money, (B) letter of credit, bond or other indemnity (including letters of credit, bonds or other indemnities as to which the Company is the beneficiary, but excluding endorsements of instruments for collection) or (C) currency or interest rate swap, collar or hedge agreements;

 

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(v)  affects the ownership of, leasing of, title to, use of, or any other possessory interest in any Company Properties;

 

(vi)  pursuant to which the Company uses Intellectual Property owned by a third party, except for any license implied by the sale of a product and perpetual, paid-up licenses for commonly available software programs with a value of less than $1,000 under which the Company is the licensee;

 

(vii)  involves any labor union or other employee representative of a group of employees;

 

(viii)  creates a partnership or joint venture with any other Person;

 

(ix)  contains covenants that in any way purport to restrict the business activity of the Company or limit the freedom of the Company to engage in any line of business, to compete with any Person or solicit or hire any person with respect to employment;

 

(x)  pursuant to which the Company extends a written warranty, guaranty or other similar undertaking with respect to contractual performance;

 

(xi)  provides for payments to Employees as a result of the transactions contemplated by this Agreement;

 

(xii)  involves the sale of any of the assets of the Company other than in the ordinary course of business or for the grant to any Person of any preferential rights to purchase any of the Company’s assets;

 

(xiii)  relates to the acquisition (by merger, purchase of stock or assets or otherwise) by the Company of any operating business or material assets or the capital stock of any other Person;

 

(xiv)  obligates the Company to provide or obtain products or services for a period of one (1) year or more or requiring the Company to purchase or sell a stated portion of its requirements or outputs;

 

(xv)  under the terms thereof, the Company has made advances or loans to any other Person;

 

(xvi)  provides for severance, retention, change in control or other similar payments;

 

(xvii) provides for the employment of any individual on a full-time, part-time or consulting or other basis; and

 

(xviii)  is otherwise material to the Company.

 

The Contracts listed in Section 3.10(a) of the Seller Disclosure Schedule are referred to in this Agreement as the “Material Contracts”.

 

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(b)  With respect to each such Material Contract, neither the Company party to the Material Contract nor any other party to the Material Contract is in breach or default under any material provisions of such Material Contract except for such breaches or defaults as to which requisite waivers or consents have been issued or obtained.  No event has occurred that with the lapse of time or the giving of notice or both would constitute a material breach or default on the part of the Company or any other party under any Material Contract.  Upon consummation of the transactions
contemplated by this Agreement, each Material Contract will, except as otherwise stated in Section 3.10(b) of the Seller Disclosure Schedule, continue in full force and effect without penalty or other adverse consequence triggered by the consummation of the transactions contemplated by this Agreement.  Each Material Contract is enforceable as to the Company in accordance with its terms subject to (i) laws of general application relating to bankruptcy, insolvency and the relief of debtors, and (ii) rules of law governing specific performance, injunctive relief and other equitable remedies.  From January 1, 2011 to the date hereof, (i) no party to any of the Material Contracts has exercised any termination rights with respect thereto, (ii) no party has given written notice of any
significant dispute with respect to any Material Contract, and (iii) no party has provided written notification to the Seller or the Company that it will stop or, other than generally applicable price increases, materially alter the pricing or terms of any Material Contract.  The Seller has delivered to the Purchaser true, correct and complete copies of all of the Material Contracts, together with all amendments, modifications or supplements thereto.

 

Section 3.11  Tax Matters.

 

(a)  (i) All Tax Returns required to be filed by or on behalf of the Company and any Affiliated Group of which the Company is or was a member have been duly and timely filed with the appropriate Governmental Authority in all jurisdictions in which such Tax Returns are required to be filed (after giving effect to any valid extensions of time in which to make such filings), and all such Tax Returns have at all times been and remain true, complete and correct in all material respects and were prepared in substantial compliance with all applicable laws and regulations; and (ii) all Taxes
payable by or on behalf of the Company and any Affiliated Group of which the Company is or was a member have been fully and timely paid.  With respect to any period for which Tax Returns have not yet been filed or for which Taxes are not yet due or owing, the Company has made due and sufficient accruals for such Taxes in the Financial Statements and its books and records.  All required estimated Tax payments sufficient to avoid any underpayment penalties or interest have been made by or on behalf of the Company.  There are no Encumbrances for unpaid Taxes upon any of the assets of the Company.

 

(b)  The Company has withheld and paid all Taxes required to have been withheld and paid by any Governmental Authority in connection with any amounts paid or owing to any employee, independent contractor, creditor, stockholder, or other third party.

 

(c)  The Purchaser has received complete copies of (i) all federal, state, and local income or franchise Tax Returns of or relating to the Company since January 1, 2007 and (ii) any audit report or statement of deficiency issued within the last three (3) years relating to any Taxes due from or with respect to the Company.

 

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(d)  No federal, state, or local tax audits or administrative or judicial Tax proceedings are pending, being conducted, or have been conducted with respect to the Company.  Neither the Company nor any Affiliated Group of which the Company is or was a member has received from any Governmental Authority any (i) notice indicating an intent to open an audit or other review, (ii) request for information related to Tax matters, or (iii) notice of deficiency or proposed adjustment for any amount of Tax proposed, asserted, or assessed by any taxing authority against the Company or any
Affiliated Group of which the Company is or was a member.

 

(e)  The Company is not a party to any contract, agreement, plan or arrangement that has resulted or could result, separately or in the aggregate, in the payment of (i) any “excess parachute payment” within the meaning of Code §280G and (ii) any amount that will not be fully deductible as a result of Code §162(m).

 

(f)  The Company has not been a U.S. real property holding corporation within the meaning of Code §897(c)(2) during the applicable period specified in Code §897(c)(1)(A)(ii).  The Company disclosed on its federal income Tax Returns all positions taken therein that could give rise to a substantial understatement of federal income Tax within the meaning of Code §6662.

 

(g)  The Company is not a party to or bound by any tax sharing, allocation, indemnity or similar agreement or arrangement (whether or not written) other than with the Seller.  The Company (A) has never been a member of any consolidated, combined, affiliated or unitary group of corporations filing a consolidated return for any Tax purposes (other than a group the parent of which was the Seller); and (B) does not have any liability for the Taxes of any Person under Treasury Regulations §1.1502-6, as a transferee or successor, by contract, or otherwise.

 

(h)  The Company has not received any written claim by a Governmental Authority in a jurisdiction where the Company does not file Tax Returns such that it is or may be subject to taxation by that jurisdiction.

 

(i)  Neither the Company nor the Seller nor any other Person on their behalf has (i) agreed to or is required to make any adjustments pursuant to Section 481(a) of the Code or any similar provision of law or has any knowledge that any Governmental Authority has proposed any such adjustment, or has any application pending with any Governmental Authority requesting permission for any changes in accounting methods that relate to the Company, (ii) executed or entered into a closing agreement pursuant to Section 7121 of the Code or any similar provision of law with respect to the Company, (iii)
requested any extension of time within which to file any Tax Return, which Tax Return has since not been filed, (iv) waived any statute of limitations in respect of Taxes or granted any extension for the assessment or collection of Taxes, or (v) granted to any Person any power of attorney that is currently in force with respect to any Tax matter.

 

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(j)  The Company is not (A) currently the subject of any agreement or ruling in respect of Taxes with any Governmental Authority, and no such agreement or ruling is pending; or (B) entitled to any Tax holiday, Tax credit, or other similar Tax incentive or benefit from any jurisdiction (other than such benefits as are generally available to all Persons engaged in business and subject to tax as a resident in such jurisdiction), which would be subject to forfeiture, recapture, or other recovery by the Governmental Authority granting such benefit in connection with the transactions contemplated
hereby or in connection with any dissolution, or cessation of business in, or withdrawal of assets from or a reduction of the number of employees in the relevant jurisdiction.

 

(k)  The Company has, within applicable time limits, preserved all material records required by law to be preserved and all other material records required for the delivery of correct and complete Tax Returns or the computation of any Tax.

 

(l)  Neither the Company nor any Affiliated Group of which the Company is or was a member will be required to include any material item of income in, or exclude any material item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of any (i) change in method of accounting for a taxable period ending on or prior to the Closing Date; (ii) "closing agreement" as described in Section 7121 of the Code (or any corresponding or similar provision of Tax Law) executed on or prior to the Closing Date; (iii) intercompany transaction or
any excess loss account described in Treasury Regulations under Section 1502 of the Code (or any corresponding or similar provision of Tax Law); (iv) installment sale or open transaction disposition made on or prior to the Closing Date; (v) prepaid amount received on or prior to the Closing Date; (vi) election under Section 108(i) of the Code; or (vii) income that accrued in, or is attributable to, a prior taxable period but that was not included in taxable income for that or another prior taxable period;

 

(m) Neither the Company nor any Affiliated Group of which the Company is or was a member is or has been a party to any “reportable transaction,” as defined in Code Section 6707A(c)(1) and Treasury Regulations §1.6011-4(b).

 

Section 3.12  Employee Benefit Matters.

 

(a)  Section 3.12(a) of the Seller Disclosure Schedule sets forth a correct and complete list of all Company Plans.

 

(i)  There is no Liability under (A) Title IV of ERISA, (B) Section 302 of ERISA, or (C) Sections 412 and 4971 of the Code, in each case, that would be Liability of Purchaser or the Company following the Closing.  The Company has not contributed to or has had an obligation to contribute to any plan subject to Title IV of ERISA, Section 302 of ERISA or Section 412 of the Code within the last six (6) years of the date of this Agreement.

 

(ii)  Correct and complete copies of the following documents, with respect to each of the Company Plans, have been made available or delivered to the Purchaser by the Sellers, to the extent applicable: (i) any plans, all amendments thereto and related trust documents, insurance contracts or other funding arrangements, and amendments thereto; (ii) the three (3) most recent Forms 5500 and all schedules thereto and the most recent actuarial report, if any; (iii) the most recent IRS determination letter; (iv) summary plan descriptions; (v) written communications to
Employees relating to the Company Plans; and (vi) written descriptions of all non-written agreements relating to the Company Plans.

 

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(iii)  The Company Plans have been maintained in all material respects in accordance with their terms and with all provisions of ERISA, the Code (including rules and regulations thereunder) and other applicable Laws and regulations, and neither the Seller nor the Company nor any “party in interest” or “disqualified person” with respect to the Company Plans has engaged in a non-exempt “prohibited transaction” within the meaning of Section 4975 of the Code or Section 406 of ERISA.

 

(iv)  Each Company Plan that is intended to meet the requirements of a “qualified plan” under Section 401(a) of the Code has, as of the date of this Agreement, received a favorable determination letter or opinion letter from the Internal Revenue Service, and nothing has occurred that would reasonably be expected to adversely affect such Company Plan’s qualified or tax-exempt status.

 

(v)  All contributions (including all employer contributions and employee salary reduction contributions) required to have been made by the Company under any of the Company Plans by law (without regard to any waivers granted under Section 412 of the Code), to any funds or trusts established thereunder or in connection therewith have been made by the due date thereof (including any valid extension), and all contributions for any period ending on or before the Closing Date that are not yet due will have been paid or sufficient accruals for such contributions and other payments in accordance
with U.S. GAAP are duly and fully provided for on the Financial Statements.

 

(vi)  There are no pending actions, claims or lawsuits that have been asserted or instituted against the Company Plans, the assets of any of the trusts under the Company Plans or the sponsor or administrator of any of the Company Plans, or against any fiduciary of the Company Plans with respect to the operation of any of the Company Plans (other than routine benefit claims) that would result in a Liability for the Company.

 

(vii)  None of the Company Plans providing benefits to Employees of the Company provides for post-employment life or health insurance, benefits or coverage for any participant or any beneficiary of a participant, except as may be required under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), and at the expense of the participant or the participant’s beneficiary.  Each of the Company and any ERISA Affiliate which maintains a
“group health plan” within the meaning Section 5000(b)(1) of the Code has materially complied with the notice and continuation requirements of Section 4980B of the Code, COBRA, Part 6 of Subtitle B of Title I of ERISA and the regulations thereunder.

 

(viii)  Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (i) result in any payment becoming due to any Employee, (ii) increase any benefits otherwise payable under any Company Plan or (iii) result in the acceleration of the time of payment or vesting of any such benefits under any Company Plan or Title IV Plan in each case that would be a Liability of Purchaser or the Company.

 

(ix)  There are no Company Plans to which the Company is a party or otherwise has liability that is a “nonqualified deferred compensation plan” (within the meaning of Section 409A of the Code) subject to Section 409A of the Code.  The Company does not have any commitment to compensate or reimburse any individual for penalty taxes imposed under Section 409A of the Code.

 

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(b)  Section 3.12(b) of the Seller Disclosure Schedule lists, by individual name, each Employee who has a change of control agreement, and the Seller has delivered to the Purchaser true, correct and complete copies of all change of control agreements together with all amendments, modifications or supplements thereto.

 

Section 3.13  Employment and Labor Matters.  Except as set forth in Section 3.13 of the Seller Disclosure Schedule, as of the date hereof, the Company is not a party to or bound by any collective bargaining agreement and no petition has been filed or proceedings instituted by any Employee or group of Employees of the Company with any labor relations board seeking recognition of a bargaining
representative.  Except as set forth in Section 3.13 of the Seller Disclosure Schedule, there is no labor strike, picketing, slowdown, lockout, employee grievance process or other work stoppage or labor dispute pending or threatened between the Company on the one hand, and any of its Employees, on the other hand.  As of the date of this Agreement, there is no organizing activity involving the Company pending or threatened by any labor organization or group of Employees.  There are no complaints, charges or claims against the Company pending or threatened that could be brought or filed, with any Governmental Authority based on, arising out of, in connection with or otherwise relating to the employment or termination of employment of or failure to employ, any individual.  The Company
(i) has no direct or indirect liability with respect to any misclassification of any Person as an independent contractor rather than as an employee, (ii) is in compliance in all material respects with all applicable laws respecting employment, employment practices, labor relations, employment discrimination, health and safety, terms and conditions of employment and wages and hours, and (iii) has not received any written remedial order or notice of offense under applicable occupational health and safety law.  The Company has not incurred, and does not reasonably expect to incur, any liability or obligation under the WARN Act, and the regulations promulgated thereunder, or any similar state or local law which remains unsatisfied.

 

Section 3.14  Environmental, Health and Safety Matters.

 

(a)  The Company is and has been in compliance in all material respects with all Environmental Laws.  There has been no release or threatened release by the Company of any pollutant, contaminant or toxic or hazardous material, substance or waste, or petroleum or any fraction thereof, (each a “Hazardous Substance”) on, upon, into or from any site currently or heretofore owned, leased or otherwise used by the Company.  There have been no Hazardous Substances generated by the Company that have been
disposed of or come to rest at any site that has been included in any published U.S. federal, state or local “superfund” site list or any other similar list of hazardous or toxic waste sites published by any governmental authority in the United States.  To the Seller’s knowledge, there are no underground storage tanks located on, no polychlorinated biphenyls (“PCBs”) or PCB-containing equipment used or stored on, and no hazardous waste as defined by the Resource Conservation and Recovery Act, as amended, stored on, any site owned or operated by the Company, except for the storage of hazardous waste in compliance with Environmental Laws.  The Company has made available to the Purchasers true and complete copies of all material environmental records, reports, notifications,
certificates of need, permits, pending permit applications, correspondence, engineering studies, and environmental studies or assessments.

 

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(b)  For purposes of this Section 3.14, “Environmental Laws” means any law, regulation, or other applicable requirement relating to (a) releases or threatened release of Hazardous Substance; (b) pollution or protection of Employee health or safety, public health or the environment; or (c) the manufacture, handling, transport, use, treatment, storage, or disposal of Hazardous Substances.

 

Section 3.15  Governmental Authorizations.  The Company has all Governmental Authorizations that are necessary for it to conduct its business in the manner in which it is presently conducted.  The Company is in compliance in all material respects with all Governmental Authorizations that are necessary for it to conduct its business in the manner in which it was being conducted at the applicable time.  There are no proceedings pending or threatened, relating to the suspension, revocation or
modification of any Governmental Authorization.  The representations and warranties contained in this Section 3.15 are intended to apply generally to all matters falling within their scope and, thus, notwithstanding any other representations and warranties contained in this Agreement that cover any such matters with more particularity, such other representations and warranties will be deemed to apply in addition to, and not in limitation of, the more broad representations and warranties of general applicability contained in this Section 3.15.

 

Section 3.16  Compliance with Laws.

 

(a)  The Company is in compliance in all material respects with all laws applicable to it or the conduct of its business or the ownership or use of its properties and assets.  The Company has not received any written notice of or been charged with the violation of any laws.  To the Seller’s knowledge except as set forth in Section 3.16 of the Seller Disclosure Schedule the Company is not under investigation with respect to the violation
of any laws, and there are no facts or circumstances which could form the basis for any such violation, in each case.  The representations and warranties contained in this Section 3.16 are intended to apply generally to all matters falling within their scope and, thus, notwithstanding any other representations and warranties contained in this Agreement that cover any such matters with more particularity, such other representations and warranties will be deemed to apply in addition to, and not in limitation of, the more broad representations and warranties of general applicability contained in this Section 3.16.

 

(b)  To the Seller’s knowledge, except as forth in Section 3.16(b) of the Seller Disclosure Schedule, there is no legal or governmental proceeding to which the Seller or the Company is a party or of which any property or assets of the Company or any of its subsidiaries is the subject, including any proceeding before the United States Food and Drug Administration of the U.S. Department of Health and Human Services, the United States Federal Trade Commission, the United States Government Accounting Office or any comparable
federal, state, local or foreign governmental bodies.  For the avoidance of doubt, for the purposes of this Section 3.16(b), “proceeding” includes any formal investigations, correspondence, or written inquiries regarding the Seller, the Company or any property or assets owned by the Seller or the Company or used in connection the Seller’s or the Company’s operation or business.

 

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Section 3.17  Legal Proceedings.  As of the date of this Agreement, there is no proceeding pending or threatened: (i) against either the Seller that questions or challenges the validity of this Agreement or the ability of the Seller to consummate any of the transactions contemplated by this Agreement; or (ii) against the Company or any of its properties or assets.  Other than as disclosed on Section
3.17(a) of the Seller Disclosure Schedule, the Company is not subject to any outstanding judgment.  Section 3.17(b) of the Seller Disclosure Schedule sets forth a list of those Proceedings that have been pending during the last three (3) years prior to the date of this Agreement that, if adversely determined, are, or would have been, reasonably likely to result in a liability in excess of $50,000 by the Company.

 

Section 3.18  Insurance.  The Company holds, or there are applicable to the Company, insurance policies in full force and effect (i) for such amounts as are sufficient for all requirements of law and all agreements to which the Company is a party or by which it is bound, and (ii) which are in such amounts, with such deductibles and against such risks and losses, as are, in the Seller’s judgment, reasonable for the business, assets and properties of the Company.  Set forth in
Section 3.18 of the Seller Disclosure Schedule is a list of all insurance policies and all fidelity bonds as of the date hereof held by or applicable to the Company setting forth, in respect of each such policy, the policy number, carrier, term, type and amount of coverage, whether the policies may be terminated upon consummation of the transactions contemplated hereby and if and to what extent events being notified to the insurer after the Closing Date are generally excluded from the scope of the respective policy.  Excluding insurance policies that have expired and been replaced in the ordinary course of business, no insurance policy has been cancelled within the last two (2) years and no threat has been made to cancel any insurance policy of the Company during such period.  Except
as noted on Section 3.18 of the Seller Disclosure Schedule, all such insurance will remain in full force and effect immediately following the consummation of the transactions contemplated hereby.  No event has occurred as of the date hereof, including the failure by the Company to give any notice or information or the Company giving any inaccurate or erroneous notice or information, which limits or impairs the rights of the Company under any such insurance policies.

 

Section 3.19  Accounts and Notes-Receivable and Payable.

 

(a)  The Company has no notes receivable.  All accounts receivable of the Company have arisen from bona fide transactions in the ordinary course of business consistent with past practice.  None of the accounts receivable of the Company (i) are subject to any setoffs or counterclaims or (ii) represent obligations for goods sold on consignment, on approval or on a sale-or-return basis or subject to any other repurchase or return arrangement.

 

(b)  All accounts payable of the Company reflected in the Financial Statements or arising after the Balance Sheet Date are the result of bona fide transactions in the ordinary course of business and have been paid or are not yet due and payable.

 

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Section 3.20  Related Party Transactions.

 

(a)  As of the date hereof, other than, in the case of Employees of the Company, salaries, benefits and other transactions pursuant to Company Plans, no employee, officer, consultant or director of the Company (“Related Persons”) (i) owes any amount to the Company nor does the Company owe any amount to, or has the Company committed to make any loan or extend or guarantee credit to or for the benefit of, any Related Person, (ii) is involved in any business arrangement
or other relationship with the Company (whether written or oral), (iii) owns any property or right, tangible or intangible, that is used by the Company, or (iv) owns any direct or indirect interest of any kind in, or controls or is a director, officer, employee or partner of, or consultant to, or lender to or borrower from or has the right to participate in the profits of, any Person which is a competitor, supplier, customer, landlord, tenant, creditor or debtor of the Company other than the Seller.

 

(b)  Section 3.20(b) of the Seller Disclosure Schedule sets forth a list of all Contracts and commercial dealings between or among the Seller and/or any of its Affiliates, on the one hand, and the Company, on the other hand (each an “Affiliate Contract”) and identifies and details the aggregate dollar amounts of all purchase and sale transactions between or among the Seller and/or
any of its Affiliates, on the one hand, and the Company, on the other hand.  Section 3.20(b) of the Seller Disclosure Schedule also details all properties and/or services shared (directly or indirectly) between or among, or utilized (directly or indirectly) by both, the Seller and/or any of its Affiliates, on the one hand, and the Company, on the other hand.

 

Section 3.21      Customers and Suppliers.

 

(a)  Section 3.21(a) of the Seller Disclosure Schedule sets forth a list of the ten (10) largest suppliers of the Company, as measured by the dollar amount of purchases therefrom during the fiscal year ending December 31, 2010 and the completed portions of the fiscal year from
January 1, 2011 to August 31, 2011 showing the approximate total purchases by the Company from each such supplier, during such period.

 

(b)  From the Balance Sheet Date to the date hereof, none of the suppliers set forth in Section 3.21(a) of the Seller Disclosure Schedule has provided written notification to the Seller or the Company that it will stop or, other than generally applicable price increases, materially increase the cost of, its supply of materials, products or services used by the Company.

 

(c)  As of the Signing Date, the Seller has provided the Purchaser with access to all (i) customer contact and other information necessary for operation of or used in connection with the Company and (ii) computer software or programs or other Company Intellectual Property used in connection with the business of the Company, including any such software or programs used in connection with customer sales or commission tracking.

 

Section 3.22  Certain Payments.  Neither the Company, nor any director, officer, employee, consultant, or other Person acting on it’s behalf, has directly or indirectly (i) made any contribution, gift, bribe, rebate, payoff, influence payment, kickback, or other payment to any Person, private or public, regardless of form, whether in money, property, or services (A) to obtain favorable treatment in securing business for the Company, (B) to pay for favorable treatment for business secured by the Company, (C) to
obtain special concessions or for special concessions already obtained, for or in respect of the Company, or (D) in violation of any Law, or (ii) established or maintained any fund or asset with respect to the Company that has not be recorded in the books and records of the Company

 

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Section 3.23  Brokers Fees.  Except as set forth in Section 3.23 of the Seller Disclosure Schedule, neither the Company nor the Seller has incurred any Liability to pay any fees or commissions to any broker, finder or agent in connection with any of the transactions contemplated by this Agreement for which the Purchaser would become liable or obligated or for which the Company, after the Closing Date, will have any continuing obligation.

 

ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF THE PURCHASER

 

The Purchaser represents and warrants to the Seller as follows, except as set forth on the disclosure schedule delivered by the Purchaser to the Seller concurrently with the execution and delivery of this Agreement and dated as of the date of this Agreement (the “Purchaser Disclosure Schedule”):

 

Section 4.1  Organization and Good Standing.  The Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada, and has all requisite corporate power and authority to conduct its business as it is presently conducted.

 

Section 4.2  Authority and Enforceability.  The Purchaser has all requisite corporate power and authority to execute and deliver this Agreement and to perform its obligations under this Agreement.  The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary action on the part of the Purchaser.  The Purchaser has duly and validly executed and delivered this Agreement.  Assuming the due
authorization, execution and delivery of this Agreement and the Ancillary Agreements by the Seller and the other parties thereto, this Agreement constitutes the valid and binding obligation of the Purchaser, enforceable against the Purchaser in accordance with its terms, subject to (a) laws of general application relating to bankruptcy, insolvency and the relief of debtors and (b) laws governing specific performance, injunctive relief and other equitable remedies.

 

Section 4.3  No Conflict.

 

(a)  Neither the execution, delivery and performance of this Agreement by the Purchaser, nor the consummation by the Purchaser of the transactions contemplated by this Agreement, will conflict with or violate Purchaser’s Governing Documents.

 

(b)  No consent, waiver, approval, order, permit, Governmental Authorization or other authorization of, or declaration or filing with, or notification to, any Person or Governmental Authority is required on the part of the Purchaser in connection with the execution and delivery of this Agreement, respectively, the compliance by the Purchaser with any of the provisions hereof and thereof, or the consummation of the transactions contemplated hereby or thereby.

 

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Section 4.4  Legal Proceedings.  There is no Proceeding pending against the Purchaser that questions or challenges the validity of this Agreement or that may prevent, delay, make illegal or otherwise interfere with the ability of the Purchaser to consummate any of the transactions contemplated by this Agreement.

 

ARTICLE 5

COVENANTS

 

Section 5.1  Access and Investigation.  Until the Closing and upon reasonable advance notice from the Purchaser (except as may be necessary to comply with law), the Seller will, and will cause the Company to, allow the Purchaser and its accountants, counsel, financial advisors and other representatives reasonable access during normal business hours and without unreasonable interference with the operation of the business of the Company to (a) the Company properties and facilities (including all the buildings,
structures, fixtures, appurtenances and improvements erected, attached or located thereon), (b) the Company’s books, financial information (including working papers and data in the possession of the Company or the Seller or their respective independent public accountants, internal audit reports, and “management letters” from such accountants with respect to the Company systems of internal control), (c) Contracts and records of the Company, (d) such other materials and information about the Company as the Purchaser may reasonably request and (e) members of management of the Company as the Purchaser may reasonably request.  The Purchaser will, and will cause its representatives to, hold confidential all information so obtained in accordance with the terms of the Confidentiality Agreement.

 

Section 5.2  Operation of the Businesses of the Company.

 

(a)  Until the Closing, except as otherwise set forth in this Agreement, the Seller Disclosure Schedule or as otherwise consented to by the Purchaser (which consent will not be unreasonably withheld, conditioned or delayed), the Seller will cause the Company to:

 

(i)  conduct its business in the ordinary course of business in all material respects; and

 

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(ii)  use its commercially reasonable efforts to (A) preserve the present business operations, organization (including officers and Employees) and goodwill of the Company and (B) preserve the present relationships with Persons having business dealings with the Company (including customers and suppliers).

 

(b)  Until the Closing, except as otherwise set forth in this Agreement, the Seller Disclosure Schedule or as otherwise consented to in writing by the Purchaser (which consent will not be unreasonably withheld, conditioned or delayed), the Seller will not cause or permit the Company to:

 

(i)  amend its Governing Documents;

 

(ii)  transfer, issue, sell, dispose or, pledge or encumber any shares of its capital stock or securities convertible into any such shares, or any options, warrants or rights to acquire any such shares or other convertible securities;

 

(iii)  declare, set aside or pay any dividend or other distribution in respect of its capital stock, other than dividends and other distributions payable solely in cash;

 

(iv)  effect any recapitalization, reclassification, stock split, combination or like change in the capitalization of the Company, or amend the terms of any outstanding securities of the Company;

 

(v)  terminate, amend, restate, supplement or waive any rights under any Material Contract or Real Property Lease, other than in the ordinary course of business;

 

(vi)  waive, compromise, cancel or release any debt, right or claim of a material value to the Company other than in the ordinary course of business;

 

(vii)  acquire, by merger or consolidation with another entity, by purchase or otherwise, any material properties or assets or sell, assign, license, transfer, convey, lease or otherwise dispose of any of the material properties or assets of, or used by, the Company, other than in the ordinary course of business;

 

(viii)  issue, create, incur, assume, guarantee, endorse or otherwise become liable or responsible with respect to (whether directly, contingently or otherwise) any Indebtedness from third parties;

 

(ix)  enter into any commitment for capital expenditures of the Company in excess of $5,000 for any individual commitment and $10,000 for all commitments in the aggregate;

 

(x)  make a change in its accounting or tax reporting principles, methods or policies;

 

(xi)  enter into any Contract, understanding or commitment that restrains, restricts, limits or impedes the ability of the Company to compete with or conduct any business or line of business in any geographic area or solicit the employment of any persons;

 

(xii)  settle or compromise any pending or threatened proceeding or any claim or claims, in each case involving an amount individually in excess of $5,000;

 

(xiii)  change or modify its credit, collection or payment policies, procedures or practices, including acceleration of collections or receivables (whether or not past due) or fail to pay or delay payment of payables or other liabilities;

 

(xiv)  take any action which would adversely affect the ability of the parties to consummate the transactions contemplated by this Agreement;

 

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(xv)  make or change any material Tax election, settle or compromise any material Tax liability, file any material Tax Return, amend any Tax Return, or enter into any closing or other Tax agreement with a Government Authority; or

 

(xvi)  agree to do anything (A) prohibited by this Section 5.2, or (B) intended to make any of the representations and warranties of the Seller in this Agreement or instruments or documents delivered in connection herewith or therewith untrue or incorrect in any material respect or could result in any of the conditions to the Closing not being satisfied.

 

Section 5.3  Consents and Filings; Commercially Reasonable Efforts.

 

(a)  Subject to the terms and conditions provided in this Section 5.3, the Seller will use its commercially reasonable efforts to obtain at the earliest practicable date all consents, waivers and approvals from, and provide all notices to, all Persons, which consents, waivers, approvals and notices are required to consummate, or in connection with, the transactions contemplated by this Agreement.  All such consents, waivers, approvals and notices will be in writing and in form and substance
satisfactory to the Purchaser, and executed counterparts of such consents, waivers and approvals will be delivered to the Purchaser promptly after receipt thereof, and copies of such notices will be delivered to the Purchaser promptly after the making thereof.  Notwithstanding anything to the contrary in this Agreement, neither the Seller nor any of its Affiliates, nor the Purchaser nor any of its Affiliates (which for purposes of this sentence will include the Company), will be required to pay any amounts in connection with obtaining any consent, waiver or approval.

 

(b)  Subject to, and not in limitation of, Section 5.3(a), the Seller will, and will cause the Company to, and the Purchaser will use its commercially reasonable efforts to (i) take, or cause to be taken, all actions necessary or appropriate to consummate the transactions contemplated by this Agreement and (ii) cause the fulfillment at the earliest practicable date of all of the conditions to their respective obligations to consummate the transactions contemplated by this Agreement.

 

(c)  Notwithstanding the any provision within this Agreement to the contrary, subject to the provisions of Section 5.8, the Seller shall use best efforts to secure the stockholder votes necessary to approve the transactions contemplated by this Agreement.

 

Section 5.4  Non-Solicitation; Confidentiality.

 

(a)  The parties agree to continue to abide by that certain Non-Disclosure & Confidentiality Agreement between the Seller and the Purchaser, dated July 11, 2011 (the “Confidentiality Agreement”), which will survive until the Closing, at which time the Confidentiality Agreement will terminate; provided, however, that if this Agreement is, for any reason, terminated prior to the
Closing, the Confidentiality Agreement will continue in full force and effect in accordance with its terms.

 

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(b)  After the Closing, the Seller will not and will cause its Employees and Affiliates not to, directly or indirectly, disclose, reveal, divulge or communicate to any Person other than authorized officers, directors and employees of the Purchaser or use or otherwise exploit for its own benefit or for the benefit of anyone other than the Purchaser, the Company Information, except to the extent compelled by law or to the extent that such Company Information (i) must be disclosed in connection with the obligations of the Seller pursuant to this Agreement or (ii) can be shown to have been in
the public domain through no fault of the Seller.  Notwithstanding the foregoing, in no event will this Section 5.4(a) limit or otherwise restrict the right of the Seller to disclose such Company information (i) to its and its Affiliates’ respective directors, officers, employees, consultants, agents and advisors to the extent reasonably required to facilitate the negotiation, execution, delivery or performance of this Agreement, (ii) to any Governmental Authority or arbitrator to the extent reasonably required in connection with any proceeding relating to the enforcement of this Agreement, and (iii) in connection with its indemnification obligations under this Agreement.  “Company Information” means any information with respect to the Company, including methods of
operation, customer lists, products, prices, fees, costs, technology, inventions, trade secrets, know-how, software, marketing methods, plans, personnel, suppliers, competitors, markets or other specialized information or proprietary matters.

 

(c)  For a period of eighteen (18) months from and after the Closing Date, the Seller will not, and will cause its directors, officers, consultants, employees and Affiliates not to, directly or indirectly hire, solicit or assist others in soliciting the employment of any of the Employees of the Company unless such Employee is also an employee, advisor or consultant of the Seller; provided, however, nothing in this Agreement will prohibit or limit (i) the Seller
from making general employment solicitations through public advertisements, or (ii) solicitations by employee search firms engaged by the Seller but not directed by the Seller towards any such Employee of the Company or prohibit or limit the Seller from hiring any individuals who respond to such solicitations.

 

(d)  The covenants and undertakings contained in this Section 5.4 relate to matters which are of a special, unique and extraordinary character and a violation of any of the terms of this Section 5.4 will cause irreparable injury to the Purchaser, the amount of which will be impossible to estimate or determine and which cannot be adequately compensated.  Accordingly, the remedy at law for any breach of this
Section 5.4 will be inadequate.  Therefore, the Purchaser will be entitled to seek temporary and permanent injunction, restraining order or other equitable relief from any court of competent jurisdiction in the event of any breach of this Section 5.4 without the necessity of proving actual damage or posting any bond whatsoever.  The rights and remedies provided by this Section 5.4 are cumulative and in addition to any other rights and remedies which Purchaser may have hereunder or at law or in equity.

 

(e)  The parties hereto agree that, if any court of competent jurisdiction determines that a specified time period, a specified geographical area, a specified business limitation or any other relevant feature of this Section 5.4 is unreasonable, arbitrary or against public policy, then a lesser period of time, geographical area, business limitation or other relevant feature which is determined by such court to be reasonable, not arbitrary and not against public policy may be enforced against the applicable
party.

 

Section 5.5  Public Announcements.  Each party agrees not to issue any press release or make any other public announcement relating to this Agreement without the prior written approval of the other party unless required by applicable securities law or securities listing standards (in the reasonable opinion of counsel to the disclosing party) in which case the Seller and the Purchaser will have the right to review such press release or other announcement prior to issuance, distribution or publication.

 

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Section 5.6  Post-Closing Cooperation.

 

(a)  The Purchaser and the Seller shall cooperate with each other, and shall cause their officers, employees, agents, auditors and representatives to cooperate with each other, after the Closing to ensure the orderly transition of the Business from the Seller to the Purchaser and to minimize any disruption to the Business and the other respective businesses of the Seller and the Purchaser that might result from the transactions contemplated hereby.  After the Closing, upon reasonable written notice, the Purchaser and the Seller shall furnish or cause to be furnished to each other
and their employees, counsel, auditors and representatives access, during normal business hours, to such information and assistance relating to the Business (to the extent within the control of such party) as is reasonably necessary for financial reporting and accounting matters.

 

(b)  After the Closing, upon reasonable written notice, the Purchaser and the Seller shall furnish or cause to be furnished to each other, as promptly as practicable, such information and assistance (to the extent within the control of such party) relating to the transaction contemplated hereby (including, access to books and records) as is reasonably necessary for the filing of all Tax returns, and making of any election related to Taxes, the preparation for any audit by any taxing authority, and the prosecution or defense of any claim, suit or proceeding related to any Tax
return.  The Seller and the Purchaser shall cooperate with each other in the conduct of any audit or other proceeding relating to Taxes involving the Business.  In the event that the Seller shall after the Closing take any position in any state or Tax return, or reach any settlement or agreement on audit, which is in any manner inconsistent with any position taken by the Seller in any filing, settlement or agreement made by the Seller prior to the Closing and such inconsistent position (i) requires the payment by the Purchaser of more Tax than would have been required to be paid had such position not been taken or such settlement or agreement not been reached or (ii) accelerates the time at which any Tax must be paid by the Purchaser, or the Seller, as the case may be, shall provide timely and reasonable notice to the Purchaser of such position.

 

(c)  Each party shall reimburse the other for reasonable out-of-pocket costs and expenses incurred in assisting the other pursuant to this Section 5.6.  Neither party shall be required by this Section 5.6 to take any action that would unreasonably interfere with the conduct of its business or unreasonably disrupt its normal operations (or, in the case of the Purchaser, the Business).

 

Section 5.7  No Shop.

 

(a)  The Seller will not, and will not permit its respective Affiliates, directors, officers, Employees, representatives or agents (collectively, the “Representatives”) to, directly or indirectly, (i) discuss, encourage, negotiate, undertake, initiate, authorize, recommend, propose or enter into, whether as the proposed surviving, merged, acquiring or acquired corporation or otherwise, any transaction involving a merger, consolidation, business combination, purchase
or disposition of any material amount of the assets of the Company or any capital stock or other ownership interests of the Company other than the transactions contemplated by this Agreement (an “Alternate Transaction”), (ii) facilitate, encourage, solicit or initiate discussions, negotiations or submissions of proposals or offers in respect of an Alternate Transaction, (iii) furnish or cause to be furnished, to any Person, any information concerning the business, operations, properties or assets of the Company in connection with an Alternate Transaction, or (iv) otherwise cooperate in any way with, or assist or participate in, facilitate or encourage, any effort or attempt by any other
Person to do or seek any of the foregoing.

 

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(b)  The Seller will (and will cause its Representatives to) immediately cease and cause to be terminated any existing discussions or negotiations with any Persons (other than the Purchaser) conducted heretofore with respect to any Alternate Transaction.  The Seller agrees not to release any third party from the confidentiality and standstill provisions of any agreement to which the Company is a party.

 

(c)  Notwithstanding anything to the contrary contained in Section 5.8(a), Section 5.8(b) or elsewhere in this Agreement, in the event that the Seller or the Company receives after the date of this Agreement and prior to obtaining the approval of the shareholders of the Seller contemplated by Section 5.3(c) an unsolicited, bona fide written Alternative Transaction Proposal which the Board of
Directors of the Seller or the Company reasonably determines to be a Superior Proposal, the Seller and the Company may then take the following actions:

 

(i)  Furnish any information with respect to the Seller and the Company to the Person or group (and their respective Representatives) making such Alternative Transaction Proposal; provided, that (A) prior to furnishing any such information, it receives from such Person or group an executed confidentiality agreement containing confidentiality terms at least as restrictive as the terms contained in the Confidentiality Agreement, and (B) contemporaneously with furnishing any such information to such Person or group, it furnishes such information to Purchaser; and

 

(ii)  Engage in discussions or negotiations with such Person or group (and their Representatives) with respect to such Alternative Transaction Proposal.

 

Nothing contained herein shall prevent the Seller from disclosing to the shareholders of the Seller a position contemplated by Rule 14d-9 and Rule 14e-2(a) promulgated under the Exchange Act with regard to an Alternative Transaction Proposal if the Seller determines that failure to disclose such position would be reasonably likely to be inconsistent with applicable Law.

 

(d)  Notification. In addition to the obligations of the Parties set forth in this Section 5.8, as promptly as practicable (and in any event within one (1) Business Day) after receipt of any Alternative Transaction Proposal, any request for nonpublic information, or any inquiry relating in any way to, or that would reasonably be expected to lead to, any Alternative Transaction Proposal, the Seller shall provide the Purchaser with written notice of the
material terms and conditions of such Alternative Transaction Proposal, request, or inquiry, and the identity of the Person or group making any such Alternative Transaction Proposal, request, or inquiry, and a copy of all written materials provided to it in connection with such Alternative Transaction Proposal, request, or inquiry. In addition, the Seller shall provide the Purchaser as promptly as practicable (and in any event within one (1) Business Day) with all information as is reasonably necessary to keep the Purchaser fully informed of all material oral or written communications regarding, and the status and changes to the economic or other material terms of, any such Alternative Transaction Proposal, request, or inquiry, and shall provide, as promptly as reasonably practicable, to the Purchaser a copy of all material written materials provided by or to the Seller its, or any of
its Representatives in connection with such Alternative Transaction Proposal, request, or inquiry.

 

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(e)  Changes of Recommendation; Termination.  The Board of Directors of the Seller thereof shall not, directly, or indirectly, (i) (A) withdraw or qualify (or amend or modify in a manner adverse to the Purchaser) or publicly propose to withdraw or qualify (or amend or modify in a manner adverse to the Purchaser), the approval, recommendation, or declaration of advisability by such Board of Directors of this Agreement, or the transactions contemplated hereby, or (B) recommend, adopt, or approve, or
propose publicly to recommend, adopt, or approve, any Alternative Transaction Proposal, or (ii) approve or recommend, or publicly propose to approve or recommend, or allow the Company or the Seller or any of their Affiliates to execute or enter into, any letter of intent, memorandum of understanding, agreement in principle, merger agreement, acquisition agreement, option agreement, joint venture agreement, partnership agreement, or other similar agreement, arrangement or understanding (A) constituting, or relating to, any Alternative Transaction Proposal, or (B) requiring it (or that would require it) to abandon, terminate, or fail to consummate any other Transaction (any of the foregoing actions being referred to herein as an “Adverse Recommendation Change”).  Notwithstanding anything to the
contrary set forth in this Section 5.8(e) or in any other provision of this Agreement, the Board of Directors of the Seller may, solely in response to a Superior Proposal, terminate this Agreement pursuant to Section 7.1(f) and concurrently enter into a definitive agreement with respect to such Superior Proposal and make an Adverse Recommendation Change to its shareholders, if, and only if, all of the following conditions in clauses (i) through (vi) are met:

 

(i)  such Superior Proposal has been made and has not been withdrawn and continues to be a Superior Proposal;

 

(ii)  the approval of this Agreement and the transactions contemplated hereby by the shareholders of the Seller has not been obtained;

 

(iii)  the Seller has (A) provided to the Purchaser five (5) Business Days’ prior written notice that states (1) the Seller has received a Superior Proposal, (2) the material terms and conditions of the Superior Proposal (including the per share value of the consideration offered therein and the identity of the Person or group of Persons making the Superior Proposal) and copies of the relevant proposed transaction agreements with the Person or group of Persons making such Superior Proposal and other material documents, including the definitive agreement with respect to such Superior
Proposal, and (3) it intends to terminate this Agreement, and the manner in which it intends to do so, and (B) prior to terminating this Agreement, to the extent requested by the Purchaser, engaged in good faith negotiations with the Purchaser to amend this Agreement in such a manner that the Alternative Transaction Proposal ceases to constitute a Superior Proposal;

 

(iv)  the Board of Directors of the Seller has determined in good faith that, in light of such Superior Proposal and taking into account any revised terms offered by the Purchaser, the failure to terminate this Agreement and accept the Superior Proposal would reasonably be likely to constitute a breach of its fiduciary duties under applicable law; and

 

(v)  the Seller pays all fees and expenses as required pursuant to Section 7.2(c).

 

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Section 5.8  Notification of Certain Matters.  The Seller will give notice to the Purchaser and the Purchaser will give notice to the Seller, as promptly as reasonably practicable upon becoming aware of (a) any fact, change, condition, circumstance, event, occurrence or non-occurrence that has caused or is reasonably likely to cause any representation or warranty in this Agreement made by it to be untrue or inaccurate in any respect at any time after the date hereof and prior to the Closing, (b) any material failure
on its part to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder or (c) the institution of or the threat of institution of any proceeding against the Seller or the Company related to this Agreement or the transactions contemplated hereby; provided that the delivery of any notice pursuant to this Section 5.9 will not limit or otherwise affect the remedies available hereunder to the party receiving such notice, or the representations or warranties of, or the conditions to the obligations of, the parties hereto.

 

Section 5.9  Additional Capital Contribution.  Prior to the Closing, the Seller shall make a capital contribution to the Company in an amount equal to all outstanding debt owed by the Company to the Seller as of October 1, 2011 and shall provide the Purchaser written evidence of such capital contribution (the “Additional Capital Contribution”).

 

Section 5.10  Removal of GeneLink from Credit Card Merchant Account Guarantee.  Within thirty (30) days after the Closing, the Purchaser shall remove the Seller as a guarantor of any credit card merchant services accounts of the Company, and the Seller shall have no further responsibility or obligation with respect to such accounts as of the date of such removal.

 

Section 5.11  Further Actions.  Subject to the other express provisions of this Agreement, upon the request of any party to this Agreement, the other parties will execute and deliver such other documents, instruments and agreements as the requesting party may reasonably require for the purpose of carrying out the intent of this Agreement and the transactions contemplated by this Agreement.

 

ARTICLE 6

CONDITIONS PRECEDENT TO OBLIGATION TO CLOSE

 

Section 6.1  Conditions to the Obligation of the Purchaser.  The obligation of the Purchaser to consummate the transactions contemplated by this Agreement is subject to the satisfaction, on or before the Closing Date, of each of the following conditions (any of which may be waived by the Purchaser, in whole or in part):

 

(a)  No Action.  There must not be in effect any law or judgment that would prohibit or make illegal the consummation of the transactions contemplated by this Agreement or cause the transactions contemplated by this Agreement to be rescinded following consummation;

 

(b)  Approval by Shareholders.

 

(i)  The Seller shall use its reasonable best efforts to submit a preliminary proxy statement to the Securities and Exchange Commission (the “SEC”) providing for the solicitation of the vote of all of the Seller’s shareholders vote in favor of the transactions contemplated by this Agreement (the “Preliminary Proxy Statement”) within thirty (30) days of the execution of this Agreement (the
“Signing”).

 

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(ii)  The Seller shall print and mail to shareholders the final proxy statement requesting each shareholder’s approval of the transactions contemplated by this Agreement along with all other necessary soliciting materials (together, the “Final Proxy Statement”) within five (5) Business Days after (i) receipt of notice of the SEC waiving review or (ii) the finalization of any SEC comments issued in connection with the Preliminary Proxy Statement (the
“Mailing Period”).

 

(iii)  The Seller shall hold any shareholder meeting necessary to vote upon the matters within the Final Proxy Statement within thirty (30) days of the last day of the Mailing Period (the “Shareholder Meeting”).

 

(iv)  The Seller and the Purchaser shall close on the transactions contemplated by this Agreement within three (3) Business Days of the Shareholder Meeting.

 

(c)  Distribution Agreement.  The Seller and Gene Elite shall have entered into the LDA on mutually acceptable terms relating to the licensing of Seller-owned Intellectual Property.

 

(d)  Additional Capital Contribution.  The Seller shall make the Additional Capital Contribution to the Company.

 

Section 6.2  Conditions to the Obligation of the Seller.  The obligation of the Seller to consummate the transactions contemplated by this Agreement is subject to the satisfaction, on or before the Closing Date, of each of the following conditions (any of which may be waived by the Seller, in whole or in part):

 

(a)  No Action.  There must not be in effect any law or judgment that would prohibit or make illegal the consummation of the transactions contemplated by this Agreement or cause the transactions contemplated by this Agreement to be rescinded following consummation.

 

(b)  Licensing and Distribution Agreement.  The Seller and Gene Elite shall have entered into the LDA.

 

(c)  Payments.  Purchaser shall have paid the Purchase Price and Gene Elite shall have paid the Remaining LDA Payment.

 

ARTICLE 7

TERMINATION

 

Section 7.1  Termination Events.  This Agreement may, by written notice given before or at the Closing, be terminated:

 

(a)  by mutual consent of the Purchaser and the Seller;

 

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(b)  by either the Purchaser or the Seller if any Governmental Authority has issued a nonappealable final judgment or taken any other nonappealable final action, in each case having the effect of permanently restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement; provided, however, that the right to terminate this Agreement under this Section 7.1(b) will not be available to any party whose failure to fulfill any material covenant under this Agreement has been the cause of or resulted in
the action or event described in this Section 7.1(b) occurring;

 

(c)  by the Seller or the Purchaser if the number of votes in favor of this Agreement cast by the shareholders of the Seller required for the consummation of the transaction contemplated by this Agreement shall not have been obtained at the meeting of the shareholders of the Seller or at any adjournment thereof duly held for such purpose;

 

(d)  by the Board of Directors of the Seller if all of the conditions set forth in Section 5.8 have been met;

 

(e)  by the Purchaser if the Seller has not satisfied the closing condition under Section 6.1(b) on or before January 15, 2012 (the “Termination Date”); or

 

(f)  by the Seller if the Purchaser and Gene Elite have not made the payments required in Section 6.2(d) within five (5) Business Days after GeneLink’s shareholders have approved the transactions contemplated by this Agreement pursuant to the Shareholders Meeting.

 

Section 7.2  Effect of Termination.

 

(a)  If this Agreement is terminated pursuant to Section 7.1(a), the parties shall determine the terms and conditions of such termination.

 

(b)  If this Agreement is terminated pursuant to Section 7.1(c) or Section 7.1(d), (i) the Seller shall pay the Purchaser a break-up fee in the amount of Three Hundred Thousand and 00/100 Dollars ($300,000.00), which shall compensate the Purchaser for the time and expense dedicated to the transactions contemplated by this Agreement, payable upon the closing of the transaction contemplated by the Superior Proposal, (ii) Gene Elite shall retain the initial six
million (6,000,000) warrants issued to Gene Elite (the “Gene Elite Initial Warrants”) pursuant to the Warrant Purchase Agreement dated as of the date of this Agreement (the “Warrant Agreement”) and the eight million (8,000,000) Performance Warrants issuable under the Warrant Agreement shall be issued and vest immediately as of such termination, provided that all “cashless” exercise rights associated with the Gene Elite Initial Warrants and the Performance Warrants shall be deemed immediately forfeited by the warrant holder at the time of the vesting of the Performance Warrants as provided by this Section 7.2(b); and (iii) upon written notice to the Seller (the “Purchaser Termination Notice”), which Purchaser
Termination Notice must be given within five (5) days after the termination of this Agreement pursuant to Section 7.1(c) or Section 7.1(d), Gene Elite may immediately terminate the LDA and all rights and obligations of the parties thereunder, in which case the Seller shall return to Gene Elite the LDA Signing Amount within ninety (90) days of receipt of the Purchaser Termination Notice.

 

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(c)  If this Agreement is terminated pursuant to Section 7.1(f), then (i) GeneLink may immediately terminate the LDA and all rights and obligations of the parties thereunder, in which event Gene Elite shall forfeit the LDA Signing Amount, and (ii) the Warrant Agreement, and all rights and obligations of the parties thereunder, shall be terminated and all warrants received by Gene Elite pursuant to the Warrant Purchase Agreement shall be cancelled.

 

(d)  In the event that this Agreement is terminated, any profits and/or losses in connection with the operation of the Company as provided for under the Management Agreement will be allocated between the parties as of the date of such termination, as more particularly described in Section 11 of the Management Agreement.

 

(e)  Notwithstanding the other provisions of this Section 7.2, if this Agreement is terminated pursuant to Section 7.1, this Agreement and all rights and obligations of the parties under this Agreement automatically end without liability against any party or its Affiliates, except that Section 5.4(a)
(Non-Solicitation; Confidentiality), Section 5.5 (Public Announcements), Section 7.4 (Certain Effects of Termination), Article 10 (General Provisions) and this Section 7.2 will remain in full force and survive any termination of this Agreement.

 

Section 7.3  Procedure Upon Termination.  In the event of termination and abandonment by the Purchaser or the Seller, or both, pursuant to Section 7.1, after the expiration of any applicable cure periods, written notice thereof will forthwith be given to the other party or parties, and this Agreement will terminate, and the purchase of the Shares hereunder will be abandoned, without further action by the Purchaser, the Company or the
Seller.

 

Section 7.4  Certain Effects of Termination.  If the Purchaser or the Seller terminates this Agreement pursuant to Section 7.1, the Purchaser will comply with the Confidentiality Agreement regarding the return and/or destruction of any information furnished to the Purchaser in connection with this Agreement.

 

ARTICLE 8

INDEMNIFICATION

 

Section 8.1  Indemnification by the Seller.  Except for the terms of this Agreement governing the indemnification of certain Tax matters as provided in Article 9, the Seller hereby agrees to indemnify the Purchaser and its directors, officers, Employees, Affiliates (including the Company), stockholders, agents, attorneys, representatives, successors and assigns (collectively, the
“Purchaser Indemnified Parties”) and hold each of them harmless from and against, and pay to the applicable Purchaser Indemnified Parties the amount of, any and all claims, losses, liabilities, costs and expenses (including expenses in connection with any action, suit or proceeding, whether involving a third party claim or a claim solely between the parties hereto) (individually, a “Loss” and, collectively, “Losses”), as suffered or incurred (payable promptly upon written request) by such Purchaser Indemnified Party arising from or related to (i) any breach by the Seller or any of it Affiliates of (A) all but any representation or warranty of the Seller that
is contained in this Agreement, but only in the event that any such breach existed as of the Signing Date and did not occur thereafter or (B) any covenant of the Seller contained in this Agreement; or (ii) any fees, expenses or other payments incurred or owed by the Seller or the Company to any brokers, financial advisors or comparable other persons retained or employed by it in connection with the transactions contemplated by this Agreement.

 

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Section 8.2  Indemnification by Purchaser.  Except for the terms of this Agreement governing the indemnification of certain Tax matters as provided in Article 9, from and after the Closing, the Purchaser shall indemnify the Seller and its Affiliates and each of their respective officers, directors, employees, stockholders, agents and representatives against, and agrees to hold them harmless from, any Loss, as incurred (payable
promptly upon written request), for or on account of or arising from or in connection with or otherwise with respect to (i) any breach of any representation or warranty of the Purchaser contained in this Agreement or in any document delivered in connection herewith, (ii) any breach of any covenant of Purchaser contained in this Agreement, or (iv) any fees, expenses or other payments incurred or owed by Purchaser to any brokers, financial advisors or other comparable persons retained or employed by it in connection with the transactions contemplated by this Agreement.

 

Section 8.3  Calculation of Losses.  The amount of any Loss for which indemnification is provided under this Article 8 shall be increased to take account of any net Tax cost incurred by the indemnified party arising from the receipt of indemnity payments hereunder (grossed up for such increase).

 

Section 8.4  Procedures.

 

(a)  In order for a party (the “indemnified party”), to be entitled to any indemnification provided for under this Agreement in respect of, arising out of or involving a claim made by any person against the indemnified party (a “Third Party Claim”), such indemnified party must notify the indemnifying party in writing of the Third Party Claim receipt by such indemnified party of notice of the Third Party Claim;
provided, however, that failure to give such notification shall not affect the indemnification provided hereunder except to the extent the indemnifying party shall have been actually and materially prejudiced as a result of such failure.  Thereafter, the indemnified party shall deliver to the indemnifying party, promptly following the indemnified party’s receipt thereof, copies of all notices and documents (including court papers) received by the indemnified party relating to the Third Party Claim.

 

(b)  If a Third Party Claim is made against an indemnified party, the indemnifying party shall be entitled to participate in the defense thereof and, if it so chooses, to assume the defense thereof with counsel selected by the indemnifying party; provided, however, that such counsel is not reasonably objected to by the indemnified party. Should the indemnifying party so elect to assume the defense of a Third Party Claim, the indemnifying party shall not be liable
to the indemnified party for any legal expenses subsequently incurred by the indemnified party in connection with the defense thereof.  If the indemnifying party assumes such defense, the indemnified party shall have the right to participate in the defense thereof and to employ counsel, at its own expense, separate from the counsel employed by the indemnifying party, it being understood that the indemnifying party shall control such defense.  The indemnifying party shall be liable for the fees and expenses of counsel employed by the indemnified party for any period during which the indemnifying party has not assumed the defense thereof (other than during any period in which the indemnified party shall have failed to give notice of the Third Party Claim as provided above).  If the indemnifying party chooses to defend or prosecute a Third Party Claim, all the
indemnified parties shall cooperate in the defense or prosecution thereof.  Such cooperation shall include the retention and (upon the indemnifying party’s request) the provision to the indemnifying party of records and information that are reasonably relevant to such Third Party Claim, and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder.  Whether or not the indemnifying party assumes the defense of a Third Party Claim, the indemnified party shall not admit any liability with respect to, or settle, compromise or discharge, such Third Party Claim without the indemnifying party’s prior written consent which consent shall not be unreasonably withheld.  If the indemnifying party assumes the defense of a Third Party Claim, the indemnified party shall agree
to any settlement, compromise or discharge of a Third Party Claim that the indemnifying party may recommend and that by its terms obligates the indemnifying party to pay the full amount of the liability in connection with such Third Party Claim, which releases the indemnified party completely in connection with such Third Party Claim and that would not otherwise adversely affect the indemnified party.  Notwithstanding the foregoing, the indemnifying party shall not be entitled to assume the defense of any Third Party Claim (and shall be liable for the fees and expenses of counsel incurred by the indemnified party in defending such Third Party Claim) if the Third Party Claim seeks an order, injunction or other equitable relief or relief for other than money damages against the indemnified party that the indemnified party reasonably determines, after conferring with its outside
counsel, cannot be separated from any related claim for money damages.  If such equitable relief or other relief portion of the Third Party Claim can be so separated from that for money damages, the indemnifying party shall be entitled to assume the defense of the portion relating to money damages.

 

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(c)  Other Claims.  In the event any indemnified party should have a claim against any indemnifying party under Section 8.1 or Section 8.2 that does not involve a Third Party Claim being asserted against or sought to be collected from such indemnified party, the indemnified party shall deliver notice of such claim with reasonable promptness to the
indemnifying party.  The failure by any indemnified party so to notify the indemnifying party shall not relieve the indemnifying party from any liability that it may have to such indemnified party under Section 8.1 or Section 8.2, except to the extent that the indemnifying party demonstrates that it has been materially prejudiced by such failure.  If the indemnifying party does not notify the indemnified party within ten (10) Business Days following its receipt of such notice that the indemnifying party disputes its liability to the indemnified party under Section 8.1 or
Section 8.2, such claim specified by the indemnified party in such notice shall be conclusively deemed a liability of the indemnifying party under Section 8.1 or Section 8.2 and the indemnifying party shall pay the amount of such liability to the indemnified party on demand or, in the case of any notice in which the amount of the claim (or any portion thereof) is estimated, on such later date when the amount of such claim (or such portion thereof) becomes finally determined.  If the indemnifying party has timely disputed its liability with respect to such claim, as provided above, the indemnifying party and the indemnified
party shall proceed in good faith to negotiate a resolution of such dispute and, if not resolved through negotiations, such dispute shall be resolved by litigation in an appropriate court of competent jurisdiction.

 

Section 8.5  Setoff.  Any amount owed to any Purchaser Indemnified Parties by the Seller pursuant to Section 8.1 shall first be set-off against any amounts owed by any Purchaser Indemnified Parties to the Seller or its Affiliates under this Agreement, including any amounts owed in connection with the Earnout Consideration.

 

Section 8.6  Limitation of Liability.  Notwithstanding anything in this Agreement to the contrary, in no event shall (i) the Seller be liable to the Purchaser Indemnified Parties for any Losses under this Article 8 over and above Seven Million Five Hundred Thousand and 00/100 Dollars ($7,500,000) aggregated across all such Losses, or (ii) either party be liable to the other party under this
Article 8 or otherwise for any punitive, consequential or special damages, claims of lost or prospective profits or any similar claim or damage.

 

Section 8.7  Price Adjustment.  Any payment pursuant to this Article 8 shall be treated for all tax purposes as an adjustment to the Purchase Price.

 

 

ARTICLE 9

TAX MATTERS

 

Section 9.1  Tax Matters.  The following provisions shall govern the allocation of responsibility between the Seller and the Purchaser for certain Tax matters following the Closing Date.

 

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(a)  Tax Indemnification.  Notwithstanding anything else contained in this Agreement, the Seller shall indemnify the Company and the Purchaser and hold them harmless from and against, any loss, claim, liability, expense or other damage attributable to (i) all Taxes (or the nonpayment thereof) of Company for all Tax periods ending on or before the Closing Date and the portion through the end of the Closing Date of any Tax period that includes (but does not end on) the Closing Date (each such Tax period or portion
thereof hereinafter is referred to as a “Pre-Closing Tax Period”), (ii) all Taxes of any member of an affiliated, consolidated, combined, or unitary group of which the Company (or any predecessor of the Company) is or was a member on or prior to the Closing Date, including pursuant to Treasury Regulation §1.1502-6 or any analogous or similar state, local, or foreign law or regulation; and (iii) any and all Taxes of any person (other than Company) imposed on the Company as a transferee or successor, by Contract or pursuant to any law, which Taxes relate to an event or transaction occurring before the Closing.  Seller shall reimburse Purchaser for any Taxes that are the responsibility of Seller within thirty (30) Business Days after payment of such Taxes by the Purchaser or the Company.

 

(b)  Straddle Period.  In the case of any Tax period that includes (but does not end on) the Closing Date (such Tax period hereinafter is referred to as a “Straddle Period”), the amount of any Taxes based on or measured by income or receipts of the Company for the Pre-Closing Tax Period shall be determined based on an interim closing of the books as of the Closing Date (and for such purpose, the Tax period of any partnership or other
pass-through entity in which Company holds any beneficial interest shall be deemed to terminate at such time) and the amount of other Taxes of the Company for a Straddle Period that relates to the Pre-Closing Tax Period shall be deemed to be the amount of such Tax for the entire taxable period multiplied by a fraction the numerator of which is the number of days from the beginning of the Straddle Period through and including the Closing Date and the denominator of which is the number of days in such Straddle Period.

 

(c)  Responsibility for Filing Tax Returns for Periods through Closing Date.  The Seller shall include the income of the Company (including any deferred items triggered into income by Treasury Regulations §1.1502-13 and any excess loss account taken into income under Treasury Regulations §1.1502-19) on the Seller’s consolidated federal income Tax Returns for all periods through the Closing Date and pay any federal income Taxes attributable to such income.  For all taxable periods ending on or
before the Closing Date, the Seller shall cause the Company to join the Seller’s consolidated federal income Tax Return and, in jurisdictions requiring separate reporting from the Seller, to file separate company state and local income Tax Returns.  All such Tax Returns shall be prepared and filed in a manner consistent with prior practice, except as required by a change in applicable law.  The Purchaser shall have the right to review and comment on any such Tax Returns prepared by the Seller.  The Purchaser shall cause the Company to furnish information to the Seller as reasonably requested by the Seller to allow the Seller to satisfy its obligations under this section in accordance with past custom and practice.  The Purchaser shall cause the Company to file income Tax Returns or shall include the Company in its combined or consolidated
income Tax Returns for all periods other than periods ending on or before the Closing Date.

 

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(d)  Cooperation on Tax Matters. After the Closing Date, the parties hereto shall:

 

(i)  cooperate fully, as and to the extent reasonably requested by the other party, in connection with the filing of Tax Returns pursuant to Section 9.1(c) and any audits of, or disputes with Governmental Authorities regarding, any Taxes or Tax Returns of the Company and take any actions reasonably requested by the other party in connection therewith;

 

(ii)  make available to one another and to any Governmental Authority, as reasonably requested in connection with any Tax Return described in this section or any audit, litigation, or other proceeding with respect to Taxes, all reasonably relevant information relating to any Taxes or Tax Returns of the Company, and make employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder;

 

(iii)  furnish one another with copies of all correspondence received from any Governmental Authority in connection with any Tax audit or information request with respect to any Pre-Closing Tax Period;

 

(iv)  use their respective best efforts to obtain any certificate or other document from any Governmental Authority or any other Person as may be necessary to mitigate, reduce, or eliminate any Tax that could be imposed (including, without limitation, with respect to the transactions contemplated hereby);

 

(v)  upon request, provide to the other party all information that the other party may be required to report pursuant to Code Section 6043, or Code Section 6043A, or Treasury Regulations promulgated thereunder; and

 

(vi)  retain all books and records with respect to Tax matters pertinent to the Company relating to any taxable period beginning before the Closing Date until the expiration of the statute of limitations (and, to the extent notified by Purchaser or Seller, any extensions thereof) of the respective taxable periods, and to abide by all record retention agreements entered into with any Governmental Authority, and to give the other Person reasonable written notice prior to transferring, destroying or discarding any such books and records and, if the other Person so requests, the Purchaser or
the Seller, as the case may be, shall allow the other Person to take possession of such books and records.

 

(e)  Tax Sharing Agreements.  All Tax sharing agreements or similar agreements with respect to or involving Company shall be terminated as of the Closing Date and, after the Closing Date, the Company shall not be bound thereby nor have any liability thereunder.

 

(f)  Certain Taxes and Fees. All transfer, documentary, sales, use, stamp, registration, and other such Taxes, and all conveyance fees, recording charges, and other fees and charges (including any penalties and interest) incurred in connection with consummation of the transactions contemplated by this Agreement shall be paid by Seller when due, and Seller will, at its own expense, file all necessary Tax Returns and other documentation with respect to all such Taxes, fees,
and charges, and, if required by applicable law, the Purchaser will, and will cause the Company to, join in the execution of any such Tax Returns and other documentation.

 

 

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(g)  Audits.  The Seller shall allow the Purchaser and its counsel to participate in any audit of the Seller’s consolidated federal income Tax Returns to the extent that such returns relate to the Company.  The Seller shall not settle any such audit in a manner that would adversely affect the Company after the Closing Date without the prior written consent of the Purchaser, which consent shall not be unreasonably withheld.

 

(h)  Carrybacks.  The Seller shall immediately pay to the Purchaser any Tax refund (or reduction in Tax liability) resulting from a carryback of a post-acquisition Tax attribute of the Company into the Seller consolidated Tax Return, when such refund (or reduction) is realized by the Seller’s group.  At the Purchaser’s request, the Seller will cooperate with the Company in obtaining such refund (or reduction), including through the filing of amended Tax Returns or refund claims.  The
Purchaser agrees to indemnify Seller for any Taxes resulting from the disallowance of such post-acquisition Tax attribute on audit.

 

(i)  Retention of Carryovers.  The Seller shall not elect to retain any net operating loss carryover or capital loss carryovers of the Company.

 

(j) Section 338(h)(10) Election.  At the Purchaser’s option, the Seller and the Purchaser shall join in making an election under Code Section 338(h)(10) (and any corresponding election under state, local or non-U.S. Tax law) (collectively a “Section 338(h)(10) Election”) with respect to the purchase and sale of the stock of the Company hereunder.  The Seller will pay any Tax attributable to the making of the Section 338(h)(10)
Election and will indemnify the Purchaser and the Company against any adverse consequences arising out of any failure to pay such Tax.   The parties agree that the Total Consideration and the liabilities of the Company will be allocated to the assets of the Company for all purposes (including Tax and financial accounting purposes) in a manner consistent with Code Section 338 and Code Section 1060 and the regulations thereunder.  The Purchaser, the Company and the Seller shall file all Tax Returns (including amended Tax Returns and claims for refund) and information reports in a manner consistent with such allocation.

 

ARTICLE 10

GENERAL MATTERS

 

Section 10.1  Further Assurances.  From time to time, as and when requested by any party, each party shall execute and deliver, or cause to be executed and delivered, all such documents and instruments and shall take, or cause to be taken, all such further or other actions, as such other party may reasonably deem necessary to consummate the transactions contemplated by this Agreement.

 

Section 10.2    Entire Agreement.  This Agreement contains the entire agreement among the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous arrangement or understanding with respect thereto.

 

Section 10.3  Counterparts.  This Agreement may be executed in any number of counterparts, and each such counterpart hereof shall be deemed to be an original instrument, but all such counterparts together shall constitute but one agreement.

 

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Section 10.4  Governing Law; Jurisdiction.  All of the terms of this Agreement and the duties, rights and remedies of the parties to it and any and all matters arising directly or indirectly herefrom and therefrom shall be governed by and construed according to the laws of the State of New York without respect to the conflicts of law provisions thereof.  Each of the parties hereto hereby (i) irrevocably consents and submits to the sole exclusive personal jurisdiction and venue of the state and federal
courts in New York County, New York (and of the appropriate appellate courts from any of the foregoing) in connection with any proceeding directly or indirectly arising out of or relating to this Agreement; provided that a party to this Agreement shall be entitled to enforce an order or judgment of such court in any United States or foreign court having jurisdiction over the other party hereto, (ii) waives, to the fullest extent permitted by law, any immunity from jurisdiction of any such court or from any legal process therein, (iii) agrees not to commence any proceeding other than in such courts and (iv) agrees that service of any summons, complaint, notice or other process relating to any proceeding in connection herewith may be effected in the manner provided for the giving of notice hereunder as set forth in
Section 10.5 below. Each party hereto hereby waives to the fullest extent permitted by applicable law, any right it or he may have to a trial by jury in respect to any suit, action or other proceeding directly or indirectly arising out of, under or in connection with this Agreement.

 

Section 10.5  Notice.  All notices and other communications under this Agreement must be in writing and are deemed duly delivered when (a) delivered if delivered personally or by nationally recognized overnight courier service (costs prepaid), (b) sent by facsimile with confirmation of transmission by the transmitting equipment (or, the first Business Day following such transmission if the date of transmission is not a Business Day) or (c) received or rejected by the addressee, if sent by U.S. certified or registered
mail, return receipt requested; in each case to the following addresses or facsimile numbers and marked to the attention of the individual (by name or title) designated below (or to such other address, facsimile number or individual as a party may designate by notice to the other parties):

 

If to the Seller:

GeneLink, Inc.

317 Wekiva Springs Road

Suite 200

Longwood, FL  32779

Attention:  Bernard L. Kasten, Jr., M.D.

Chief Executive Officer

E-Mail:  bkasten@genelinkbio.com

 

With a copy (which will not constitute notice) to:

 

Fox Rothschild LLP

2000 Market Street, 20th Floor

Philadelphia, PA 19103

Attention:  Bradley S. Rodos, Esquire

E-Mail:  brodos@foxrothschild.com

 

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If addressed to Purchaser:

 

Capsalus Corp.

2675 Paces Ferry Road

Atlanta, GA 30339

Attention:  Steven M. Grubner

Interim Chief Executive Officer

E-Mail:  sgrubner@capsalus.com

With a copy  (which will not constitute notice) to:

Lowenstein Sandler, PC

65 Livingston Avenue

Roseland, NJ  07068

Attention:  Steven B. Fuerst, Esquire

E-Mail:  sfuerst@lowenstein.com

If addressed to Gene Elite:

 

Gene Elite LLC

1481 N. Ocean Boulevard

Pompano Beach, Florida 33062

Attention:  Gilbert Peter

E-Mail:  gpeter@fidelityholdings.com

Section 10.6  Partial Invalidity.  If any term or provision of this Agreement is at any time held to be invalid by any court of competent jurisdiction, such invalidity shall not affect the remaining terms and provisions of this Agreement, which shall continue to be in full force and effect.

 

Section 10.7  Interpretation.  All Exhibits and Schedules annexed hereto or referred to herein are hereby incorporated in and made a part of this Agreement as if set forth in full herein.  Any capitalized terms used in any Schedule or Exhibit but not otherwise defined therein shall have the meaning as defined in this Agreement.  When a reference is made in this Agreement to a Section, Exhibit or Schedule, such reference shall be to a Section of, or an Exhibit or Schedule to, this Agreement unless
otherwise indicated.

 

 

 

[Signature page follows]

 

 

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IN WITNESS WHEREOF, this Agreement has been executed as of the date first above written.

 

	 	
PURCHASER

 

CAPSALUS CORP.

	 
	 	 	 	 
	
 

	
By: 

	/s/ Steven M. Grubner	 
	 	 	Name:  Steven M. Grubner	 
	 	 	Title:  Interim Chief Executive Officer	 
	 	 	 	 

 

 

 

	 	
SELLER:

 

GENELINK, INC.

	 
	 	 	 	 
	
 

	
By: 

	/s/ Bernard L. Kasten, Jr., M.D.	 
	 	 	Name:  Bernard L. Kasten, Jr., M.D.	 
	 	 	Title: Chief Executive Officer	 
	 	 	 	 

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