Document:

Exhibit 10.8

 

EXECUTION VERSION

 

ABL GUARANTEE AND COLLATERAL AGREEMENT,

 

dated as of November 15, 2012,

 

among

 

SF CC INTERMEDIATE HOLDINGS, INC.,
 as Parent,

 

SMART & FINAL STORES LLC and each other Subsidiary of Parent
 identified herein

 

and

 

BANK OF AMERICA, N.A.,
 as Administrative Agent and Collateral Agent

 

Reference is made to the ABL/Term Loan Intercreditor Agreement, dated as of November 15, 2012 (as amended, restated, supplemented or otherwise modified from time to time, the “ABL/Term Loan Intercreditor Agreement”), among Bank of America, N.A., as collateral agent under the ABL Revolving Credit Agreement (the “Collateral Agent”), Morgan Stanley Senior Funding, Inc., as collateral agent under the Term Loan Credit Agreement (the “Term Loan Collateral Agent”), Morgan Stanley Senior Funding, Inc., as collateral agent under the Second Lien Term Loan Credit Agreement (the “Second Lien Term Loan Collateral Agent”), Parent and the Subsidiaries of Parent party thereto.  Notwithstanding anything herein to the contrary, the lien and security interest granted to the Collateral Agent, for the benefit of the secured parties hereunder, pursuant to this ABL Guarantee and Collateral Agreement (this “Agreement”) and the exercise of any right or remedy by the Collateral Agent hereunder are subject to the provisions of the ABL/Term Intercreditor Agreement.  In the event of any conflict or inconsistency between the provisions of the ABL Term Intercreditor Agreement and this Agreement regarding the relative priorities of the liens granted to the Collateral Agent, the Term Loan Collateral Agent and the Second Lien Term Loan Collateral Agent in the collateral, the provisions of the ABL Term Loan Intercreditor Agreement shall govern and control.

 

 

TABLE OF CONTENTS

 

	
 
    	
 
    	
Page
    
	
ARTICLE I
    	
DEFINITIONS
    	
1
    
	
 
    	
 
    	
 
    
	
Section 1.01.
    	
Credit Agreement
    	
1
    
	
Section 1.02.
    	
Other Defined Terms
    	
2
    
	
 
    	
 
    	
 
    
	
ARTICLE II
    	
GUARANTEE
    	
5
    
	
 
    	
 
    	
 
    
	
Section 2.01.
    	
Guarantee
    	
5
    
	
Section 2.02.
    	
Guarantee of Payment
    	
5
    
	
Section 2.03.
    	
No Limitations, Etc.
    	
5
    
	
Section 2.04.
    	
Reinstatement
    	
7
    
	
Section 2.05.
    	
Agreement To Pay; Contribution;   Subrogation
    	
7
    
	
Section 2.06.
    	
Information
    	
8
    
	
Section 2.07.
    	
Maximum Liability
    	
8
    
	
Section 2.08.
    	
Taxes
    	
8
    
	
 
    	
 
    	
 
    
	
ARTICLE III
    	
PLEDGE OF SECURITIES
    	
8
    
	
 
    	
 
    	
 
    
	
Section 3.01.
    	
Pledge
    	
8
    
	
Section 3.02.
    	
Delivery of the Pledged   Collateral
    	
10
    
	
Section 3.03.
    	
Representations, Warranties and   Covenants
    	
11
    
	
Section 3.04.
    	
Registration in Nominee Name;   Denominations
    	
12
    
	
Section 3.05.
    	
Voting Rights; Dividends and   Interest, Etc.
    	
13
    
	
 
    	
 
    	
 
    
	
ARTICLE IV
    	
SECURITY INTERESTS IN OTHER PERSONAL PROPERTY
    	
15
    
	
 
    	
 
    	
 
    
	
Section 4.01.
    	
Security Interest
    	
15
    
	
Section 4.02.
    	
Representations and Warranties
    	
18
    
	
Section 4.03.
    	
Covenants
    	
20
    
	
Section 4.04.
    	
Other Actions
    	
22
    
	
Section 4.05.
    	
Covenants Regarding Patent,   Trademark and Copyright Collateral
    	
23
    
	
Section 4.06.
    	
ABL/Term Intercreditor Relations
    	
24
    
	
 
    	
 
    	
 
    
	
ARTICLE V
    	
REMEDIES
    	
24
    
	
 
    	
 
    	
 
    
	
Section 5.01.
    	
Remedies Upon Default
    	
24
    
	
Section 5.02.
    	
Application of Proceeds
    	
26
    
	
Section 5.03.
    	
Securities Act, Etc.
    	
26
    
	
 
    	
 
    	
 
    
	
ARTICLE VI
    	
INDEMNITY, SUBROGATION AND SUBORDINATION
    	
27
    
	
 
    	
 
    	
 
    
	
Section 6.01.
    	
Indemnity
    	
27
    
	
Section 6.02.
    	
Contribution and Subrogation
    	
28
    
	
Section 6.03.
    	
Subordination
    	
28
    

 

i

 

	
ARTICLE VII
    	
MISCELLANEOUS
    	
28
    
	
 
    	
 
    	
 
    
	
Section 7.01.
    	
Notices
    	
28
    
	
Section 7.02.
    	
Security Interest Absolute
    	
29
    
	
Section 7.03.
    	
Limitation By Law
    	
29
    
	
Section 7.04.
    	
Binding Effect; Several Agreement
    	
29
    
	
Section 7.05.
    	
Successors and Assigns
    	
29
    
	
Section 7.06.
    	
Collateral Agent’s Fees and   Expenses; Indemnification
    	
30
    
	
Section 7.07.
    	
Collateral Agent Appointed Attorney-in-Fact
    	
30
    
	
Section 7.08.
    	
APPLICABLE LAW
    	
31
    
	
Section 7.09.
    	
Waivers; Amendment
    	
31
    
	
Section 7.10.
    	
WAIVER OF JURY TRIAL
    	
31
    
	
Section 7.11.
    	
Severability
    	
31
    
	
Section 7.12.
    	
Counterparts
    	
31
    
	
Section 7.13.
    	
Headings
    	
32
    
	
Section 7.14.
    	
Jurisdiction; Consent to Service   of Process
    	
32
    
	
Section 7.15.
    	
Termination or Release
    	
32
    
	
Section 7.16.
    	
Additional Subsidiaries
    	
33
    

 

Schedules

 

Schedule I             Subsidiary Loan Parties
 Schedule II           Pledged Stock; Debt Securities
 Schedule III          Intellectual Property
 Schedule IV          Filing Jurisdictions
 Schedule V            Commercial Tort Claims
 Schedule VI          Matters Relating to Accounts and Inventory

 

Exhibits

 

Exhibit I                Form of Supplement to the Guarantee and Collateral Agreement

 

 

ABL GUARANTEE AND COLLATERAL AGREEMENT, dated as of November 15, 2012 (this “Agreement”), among SF CC INTERMEDIATE HOLDINGS, INC., a Delaware corporation (“Parent” and prior to the Contribution, the “Initial Borrower”), Smart & Final Stores LLC, a California limited liability company, (from and after the Contribution and together with the Initial Borrower, the “Borrower”), each other Subsidiary of Parent identified on Schedule I or otherwise identified herein as a party (each, a “Subsidiary Loan Party”) and BANK OF AMERICA, N.A., as administrative agent (in such capacity, the “Administrative Agent”) and as collateral agent (in such capacity, the “Collateral Agent”) for the Secured Parties (as defined below).

 

Reference is made to the Revolving Credit Agreement, dated as of November 15, 2012 (as amended, restated, supplemented, waived or otherwise modified from time to time, the “Credit Agreement”), among Parent, the Borrower, Smart & Final Inc., as Borrower Holdco, the Co-Borrowers party thereto from time to time (collectively, with the borrower, the “Borrower Parties”), the lenders party thereto from time to time (the “Lenders”) and BANK OF AMERICA, N.A.., as Administrative Agent and Collateral Agent.

 

The Lenders have agreed to extend credit to the Borrower subject to the terms and conditions set forth in the Credit Agreement.  The obligations of the Lenders to extend such credit are conditioned upon, among other things, the execution and delivery of this Agreement.  Parent directly or indirectly owns, 100% of the equity interests of the Borrower and the Subsidiary Loan Parties are Subsidiaries of the Borrower and the Loan Parties will derive substantial benefits from the extension of credit to the Borrower pursuant to the Credit Agreement and are willing to execute and deliver this Agreement in order to induce the Lenders to extend such credit.  Accordingly, the parties hereto agree as follows:

 

ARTICLE I

 

DEFINITIONS

 

Section 1.01.         Credit Agreement.  (a) Capitalized terms used in this Agreement and not otherwise defined herein have the respective meanings assigned thereto in the Credit Agreement.  All capitalized terms defined in the New York UCC (as defined herein) and not defined in this Agreement have the meanings specified therein.

 

(b)           The rules of construction specified in Section 1.02 of the Credit Agreement also apply to this Agreement.

 

 

Section 1.02.         Other Defined Terms.  As used in this Agreement, the following terms have the meanings specified below:

 

“ABL Priority Collateral” shall have the meaning assigned to such term in the ABL/Term Loan Intercreditor Agreement as in effect on the date hereof.

 

“ABL/Term Loan Intercreditor Agreement” shall mean the Intercreditor Agreement, dated as of November 15, 2012, among the Collateral Agent, the Term Loan Collateral Agent, the Second Lien Term Loan Collateral Agent and the Pledgors.

 

“Article 9 Collateral” shall have the meaning assigned to such term in Section 4.01.

 

“Borrower Parties” shall have the meaning assigned to such term in the preliminary statement to this Agreement.

 

“Collateral” shall mean the collective reference to Article 9 Collateral and Pledged Collateral.

 

“Common Collateral” shall have the meaning assigned to such term in the ABL/Term Loan Intercreditor Agreement.

 

“Control Agreement” shall mean a deposit account control agreement, a securities account control agreement or a commodity account control agreement, as applicable, which provides the Collateral Agent with “control” (within the meaning of the New York UCC) of any such accounts, in form and substance reasonably satisfactory to the Collateral Agent.

 

“Copyright License” shall mean any written agreement, now or hereafter in effect, granting any right to any Pledgor under any Copyright now or hereafter owned by any third party, and all rights of any Pledgor under any such agreement (including, without limitation, any such rights that such Pledgor has the right to license).

 

“Copyrights” shall mean all of the following which any Pledgor now or hereafter owns or in which any Pledgor now or hereafter has an interest (pursuant to a Copyright License or otherwise): (a) all copyright rights in any work subject to the copyright laws of the United States or any other country, whether as author, assignee, transferee or otherwise, (b) all registrations and applications for registration of any such Copyright in the United States or any other country, including registrations, supplemental registrations and pending applications for registration in the United States Copyright Office and the right to obtain all renewals thereof, including those listed on Schedule III, (c) all claims for, and rights to sue for, past or future infringements of any of the foregoing and (d) all income, royalties, damages and payments now or hereafter due and payable with respect to any of the foregoing, including damages and payments for past or future infringement thereof.

 

“Credit Agreement” shall have the meaning assigned to such term in the preliminary statement of this Agreement.

 

“Discharge of Term Loan Claims” shall have the meaning assigned to such term in the ABL/Term Loan Intercreditor Agreement.

 

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“Excluded Assets” shall have the meaning assigned to such term in Section 4.01.

 

“Excluded Equity Interests” shall have the meaning assigned to such term in Section 3.01.

 

“Federal Securities Laws” shall have the meaning assigned to such term in Section 5.03.

 

“Guarantors” shall mean Parent (after the Contribution ) and the Subsidiary Loan Parties.

 

“Intellectual Property” shall mean all intellectual property of every kind and nature which any Pledgor now or hereafter owns or in which any Pledgor now or hereafter has an interest, including inventions, designs, Patents, Copyrights, Trademarks, trade secrets, domain names, confidential or proprietary technical and business information or know-how.

 

“Intellectual Property Security Agreement” shall mean a security agreement in the form hereof or a short form hereof, in each case, which form shall be reasonably acceptable to the Collateral Agent.

 

“IP Agreements” shall mean all material Copyright Licenses, Patent Licenses, Trademark Licenses, and all other agreements, permits, consents, orders and franchises relating to the license, development, use or disclosure of any material Intellectual Property to which a Pledgor, now or hereafter, is a party or a beneficiary, including, without limitation, the agreements set forth on Schedule III hereto.

 

“New York UCC” shall mean the Uniform Commercial Code as from time to time in effect in the State of New York.

 

“Obligations” shall have the meaning assigned to such term in the Credit Agreement.

 

“Patent License” shall mean any written agreement, now or hereafter in effect, granting to any Pledgor any right to make, use or sell any invention covered by a Patent, now or hereafter owned by any third party (including, without limitation, any such rights that such Pledgor has the right to license) and all rights of any Pledgor under any such agreement.

 

“Patents” shall mean all of the following which any Pledgor now or hereafter owns or in which any Pledgor now or hereafter has an interest (pursuant to a Patent License or otherwise): (a) all letters patent of the United States or the equivalent thereof in any other country or jurisdiction, including those listed on Schedule III, and all applications for letters patent of the United States or the equivalent thereof in any other country or jurisdiction, including those listed on Schedule III, (b) all provisionals, reissues, extensions, continuations, divisions, continuations-in-part, reexaminations or revisions thereof, and the inventions disclosed or claimed therein, including the right to make, use, import and/or sell the inventions disclosed or claimed therein, (c) all claims for, and rights to sue for, past or future infringements of any of the foregoing and (d) all income, royalties, damages and payments now or hereafter due and payable with respect to any of the foregoing, including damages and payments for past or future infringement thereof.

 

“Permitted Liens” shall have the meaning assigned to such term in the Credit Agreement.

 

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“Pledged Collateral” shall have the meaning assigned to such term in Section 3.01.

 

“Pledged Debt Securities” shall have the meaning assigned to such term in Section 3.01.

 

“Pledged Securities” shall mean any promissory notes, stock certificates or other certificated securities now or hereafter included in the Pledged Collateral, including all certificates, instruments or other documents representing or evidencing any Pledged Collateral.

 

“Pledged Stock” shall have the meaning assigned to such term in Section 3.01.

 

“Pledgor” shall mean Parent, the Borrower and each Subsidiary Loan Party.

 

“Second Lien Term Loan Collateral Agent” shall mean Morgan Stanley Senior Funding, Inc., as collateral agent under the Second Lien Term Loan Credit Agreement, and any successor thereto.

 

“Secured Parties” shall mean (a) the Lenders, (b) the Agents, (c) each Issuing Bank, (d) the Cash Management Banks, (e) the Qualified Counterparties, (f) the beneficiaries of each indemnification obligation undertaken by any Loan Party under any Loan Document and (g) the successors and permitted assigns of each of the foregoing.

 

“Security Interest” shall have the meaning assigned to such term in Section 4.01.

 

“Subsidiary Loan Party” shall have the meaning assigned to such term in the preliminary statement of this Agreement and any other person that is required to become a Subsidiary Loan Party pursuant to Section 7.16.

 

“Term Loan Collateral Agent” shall mean Morgan Stanley Senior Funding, Inc., as collateral agent under the First Lien Term Loan Credit Agreement, and any successor thereto.

 

“Term Loan Priority Collateral” shall have the meaning assigned to such term in the ABL/Term Loan Intercreditor Agreement as in effect on the date hereof.

 

“Trademark License” shall mean any written agreement, now or hereafter in effect, granting to any Pledgor any right to use any Trademark now or hereafter owned by any third party (including, without limitation, any such rights that such Pledgor has the right to license).

 

“Trademarks” shall mean all of the following which any Pledgor now or hereafter owns or in which any Pledgor now or hereafter has an interest (pursuant to a Trademark License or otherwise): (a) all trademarks, service marks, corporate names, company names, business names, fictitious business names, trade styles, trade dress, logos, other source or business identifiers, designs and general intangibles of like nature, now existing or hereafter adopted or acquired, all registrations thereof (if any), and all registration and recording applications filed in connection therewith, including registrations and registration applications in the United States Patent and Trademark Office or any similar offices in any State of the United States (except for “intent-to-use” applications for trademark or service mark registrations filed pursuant to Section 1(b) of the Lanham Act, 15 U.S.C. § 1051, unless and until an Amendment to Allege Use or a Statement of Use under Sections 1(c) and 1(d) of the Lanham Act has been filed, to the extent that, and solely

 

4

 

during the period for which, any assignment of an “intent-to-use” application prior to such filing would violate the Lanham Act), and all renewals thereof, including those listed on Schedule III, (b) all goodwill associated therewith or symbolized thereby, (c) all claims for, and rights to sue for, past or future infringements of any of the foregoing and (d) all income, royalties, damages and payments now or hereafter due and payable with respect to any of the foregoing, including damages and payments for past or future infringement thereof.

 

ARTICLE II

 

GUARANTEE

 

Section 2.01.         Guarantee.  Each Guarantor unconditionally guarantees, jointly with the other Guarantors and severally, to the Collateral Agent for the benefit of the Secured Parties, as a primary obligor and not merely as a surety, the due and punctual payment and performance of the Obligations.  Each Guarantor further agrees that the Obligations may be extended or renewed, in whole or in part, without notice to or further assent from such Guarantor, and that such Guarantor will remain bound upon its guarantee hereunder notwithstanding any extension or renewal of any Obligation.  Each Guarantor waives presentment to, demand of payment from and protest to the Borrower or any other Loan Party of any of the Obligations, and also waives notice of acceptance of its guarantee and notice of protest for nonpayment. For the avoidance of doubt, the guarantee by each Co-Borrower pursuant to this Article II shall be in addition to, and not in lieu of, such Co-Borrower’s joint and several liability in respect of the Obligations pursuant to the Credit Agreement.

 

Section 2.02.         Guarantee of Payment.  Each Guarantor further agrees that its guarantee hereunder constitutes a guarantee of payment when due (whether at the stated maturity, by acceleration or otherwise) and not of collection, and waives any right to require that any resort be had by the Collateral Agent or any other Secured Party to any security held for the payment of the Obligations or to any balance of any Deposit Account or credit on the books of the Collateral Agent or any other Secured Party in favor of any Loan Party or any other person.

 

Section 2.03.         No Limitations, Etc.  (a) Except for termination of a Guarantor’s obligations hereunder as expressly provided for in Section 7.15 and except as provided in Section 2.07, the obligations of each Guarantor hereunder shall not be subject to any reduction, limitation, impairment or termination for any reason, including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to any defense or setoff, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality or unenforceability of the Obligations or otherwise (other than defense of payment or performance).  Without limiting the generality of the foregoing, except for termination or release of a Guarantor’s obligations hereunder in accordance with the terms of Section 7.15 hereof the obligations of each Guarantor hereunder, to the fullest extent permitted by applicable law, shall not be discharged or impaired or otherwise affected by, and each Guarantor hereby waives any defense to the enforcement hereof by reason of:

 

(i)            the failure of the Collateral Agent or any other Secured Party to assert any claim or demand or to exercise or enforce any right or remedy under the provisions of any Loan Document or otherwise;

 

5

 

(ii)           any rescission, waiver, amendment or modification of, or any release from any of the terms or provisions of, any Loan Document or any other agreement, including with respect to any other Guarantor under this Agreement;

 

(iii)          the failure to perfect any security interest in, or the release of, any of the Collateral held by or on behalf of the Collateral Agent or any other Secured Party for the Obligations;

 

(iv)          any default, failure or delay, willful or otherwise, in the performance of the Obligations;

 

(v)           any illegality, lack of validity or enforceability of any Obligation;

 

(vi)          any change in the corporate existence, structure or ownership of any Loan Party, or any insolvency, bankruptcy or reorganization of any Loan Party;

 

(vii)         the existence of any claim, set-off or other rights that the Guarantors may have at any time against the Borrower, the Collateral Agent, any other Secured Party or any other person, whether in connection herewith, the other Loan Documents or any unrelated transactions; provided that nothing herein will prevent the assertion of any such claim by separate suit or compulsory counterclaim;

 

(viii)        any action permitted or authorized hereunder; or

 

(ix)          any other circumstance (including any statute of limitations) or any act or omission that may in any manner or to any extent vary the risk of any Guarantor or otherwise operate as a defense to, or a legal or equitable discharge of, the Borrower or any Guarantor or any other guarantor or surety (other than the payment in full in cash or immediately available funds of the Obligations).

 

Each Guarantor expressly authorizes the Secured Parties to take and hold security for the payment and performance of the Obligations, to exchange, waive or release any or all such security (with or without consideration), to enforce or apply such security and direct the order and manner of any sale thereof in their sole discretion or to release or substitute any one or more other guarantors or obligors upon or in respect of the Obligations, all without affecting the obligations of any Guarantor hereunder.

 

(b)           To the fullest extent permitted by applicable law and except for termination or release of a Guarantor’s obligations hereunder in accordance with the terms of Section 7.15 hereof, each Guarantor waives any defense based on or arising out of any defense of any other Loan Party or the unenforceability of the Obligations or any part thereof from any cause, or the cessation from any cause of the liability of any other Loan Party, other than, after all Commitments have been terminated, the return of all Letters of Credit (or backstop or cash collateralization thereof on terms satisfactory to the Issuing Bank), the payment in full in cash or immediately available funds of all the Obligations (other than Obligations in respect of Specified Hedge Agreements, Cash Management Obligations and contingent indemnification and

 

6

 

reimbursement obligations that are not yet due and payable and for which no claim has been asserted).  The Collateral Agent and the other Secured Parties may exercise any right or remedy available to them against any other Loan Party pursuant to this Agreement or the other Loan Documents, without affecting or impairing in any way the liability of any Guarantor hereunder except to the extent that after giving effect thereto all Obligations have been terminated and paid in full (other than contingent indemnity or expense reimbursement obligations that are not yet due and payable and for which no claim has been made). To the fullest extent permitted by applicable law, each Guarantor waives any defense arising out of any such election even though such election operates, pursuant to applicable law, to impair or to extinguish any right of reimbursement or subrogation or other right or remedy of such Guarantor against any other Loan Party, as the case may be, or any security.

 

Section 2.04.         Reinstatement.  Each Guarantor agrees that its guarantee hereunder shall continue to be effective or be reinstated, if, at any time payment, or any part thereof, of any Obligation is rescinded or must otherwise be restored by the Collateral Agent or any other Secured Party upon the bankruptcy or reorganization of the Borrower or any other Loan Party or otherwise.

 

Section 2.05.         Agreement To Pay; Contribution; Subrogation.  In furtherance of the foregoing and not in limitation of any other right that the Administrative Agent or any other Secured Party has at law or in equity against any Guarantor by virtue hereof, upon the failure of any Loan Party to pay any Obligation when and as the same shall become due, whether at maturity, by acceleration, after notice of prepayment or otherwise, subject to Section 2.07, each Guarantor hereby promises to and will forthwith pay, or cause to be paid, to the Collateral Agent for distribution to the applicable Secured Parties in cash the amount of such unpaid Obligation.  Subject to the foregoing, to the extent that any Guarantor shall, under this Agreement or the Credit Agreement as a joint and several obligor, repay any of the Obligations constituting Loans or other advances made to or reimbursement obligations owed by another Loan Party under the Credit Agreement (an “Accommodation Payment”), then the Guarantor making such Accommodation Payment shall be entitled to contribution and indemnification from, and be reimbursed by, each of the other Guarantors in an amount equal to a fraction of such Accommodation Payment, the numerator of which fraction is such other Guarantor’s Allocable Amount and the denominator of which is the sum of the Allocable Amounts of all of the Guarantors; provided that such rights of contribution and indemnification shall be subordinated to the discharge of Obligations.  As of any date of determination, the “Allocable Amount” of each Guarantor shall be equal to the maximum amount of liability for Accommodation Payments which could be asserted against such Guarantor hereunder and under the Credit Agreement without (a) rendering such Guarantor “insolvent” within the meaning of Section 101 (31) of the Bankruptcy Code of the United States, Section 2 of the Uniform Fraudulent Transfer Act (“UFTA”) or Section 2 of the Uniform Fraudulent Conveyance Act (“UFCA”), (b) leaving such Guarantor with unreasonably small capital or assets, within the meaning of Section 548 of the Bankruptcy Code of the United States, Section 4 of the UFTA, or Section 5 of the UFCA, or (c) leaving such Guarantor unable to pay its debts as they become due within the meaning of Section 548 of the Bankruptcy Code of the United States or Section 4 of the UFTA, or Section 5 of the UFCA. Upon payment by any Guarantor of any sums to the Collateral Agent as provided above, all rights of such Guarantor against the Borrower, any other Loan Party or any other

 

7

 

Guarantor arising as a result thereof by way of right of subrogation, contribution, reimbursement, indemnity or otherwise shall in all respects be subject to Article VI

 

Section 2.06.                          Information.  Each Guarantor assumes all responsibility for being and keeping itself informed of the financial condition and assets of the Borrower and each other Loan Party, and of all other circumstances bearing upon the risk of nonpayment of the Obligations and the nature, scope and extent of the risks that such Guarantor assumes and incurs hereunder, and agrees that no Agent nor any other Secured Party will have any duty to advise such Guarantor of information known to it or any of them regarding such circumstances or risks.

 

Section 2.07.                          Maximum Liability.  Each Guarantor, and by its acceptance of this guarantee, each Agent and each other Secured Party hereby confirms that it is the intention of all such persons that this guarantee and the Obligations of each Guarantor hereunder not constitute a fraudulent transfer or conveyance for purposes of the U.S.  Bankruptcy Code or any other federal, state or foreign bankruptcy, insolvency, receivership or similar law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar foreign, federal or state law to the extent applicable to this guarantee and the Obligations of each Guarantor hereunder.  To effectuate the foregoing intention, the Agents, the other Secured Parties and the Guarantors hereby irrevocably agree that the Obligations of Guarantor under this guarantee at any time shall be limited to the maximum amount as will result in the Obligations of such Guarantor under this guarantee not constituting a fraudulent transfer or conveyance.

 

Section 2.08.                          Taxes.  Any and all payments by or on account of any obligation of any Guarantor hereunder shall be made free and clear of and without deduction for, any Indemnified Taxes or Other Taxes provided that if a Guarantor shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.08) the Collateral Agent or any Secured Party, as applicable, receives an amount equal to the sum it would have received had no such deductions been made, (ii) such Guarantor shall make such deductions and (iii) such Guarantor shall timely pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law.  The provisions of Section 2.15 of the Credit Agreement shall apply to each Guarantor mutatis mutandis.

 

ARTICLE III

 

PLEDGE OF SECURITIES

 

Section 3.01.                          Pledge.  As security for the payment or performance, as the case may be, in full of its Obligations, each Pledgor hereby pledges to the Collateral Agent, its successors and permitted assigns, for the benefit of the Secured Parties, and hereby grants to the Collateral Agent, its successors and permitted assigns, for the benefit of the Secured Parties, a security interest in all of such Pledgor’s right, title and interest in, to and under (a)(i) the Equity Interests directly owned by it (including those Equity Interests listed on Schedule II) and (ii) any other Equity Interests obtained in the future by such Pledgor and, in each case, the certificates representing all such Equity Interests (the foregoing clauses (i) and (ii), collectively, the “Pledged Stock”); provided that the Pledged Stock shall not include:

 

8

 

(A) (1) more than 65% of the issued and outstanding voting Equity Interests of any “first tier” Foreign Subsidiary that is (x) a CFC or (y) any “first tier” Qualified CFC Holding Company directly owned by a Pledgor or (2) any of the issued and outstanding Equity Interests of (x) any Foreign Subsidiary that is a CFC and that is not a “first tier” Foreign Subsidiary of a Pledgor, (y) any Domestic Subsidiary that is a direct or indirect Subsidiary of a Foreign Subsidiary that is a CFC or (z) any Qualified CFC Holding Company that is not a “first tier” Subsidiary of a Loan Party,

 

(B) to the extent applicable law requires that a Subsidiary of such Pledgor issue directors’ qualifying shares, nominee shares or similar shares which are required by Law to be held by persons other than the Pledgors, such qualifying shares, nominee shares or similar shares held by Persons other than Pledgors,

 

(C) any Equity Interests of any person (other than a Wholly-Owned Domestic Subsidiary that is directly owned by a Pledgor), to the extent restricted or not permitted by the terms of such person’s organizational documents or other agreements with holders of such Equity Interests (so long as such prohibition did not arise as part of the acquisition or formation of such person or in anticipation of the Credit Agreement and other than to the extent that any such prohibition would be rendered ineffective pursuant to the UCC or any other applicable Law); provided that such Equity Interests shall cease to be Excluded Equity Interests at such time as such prohibition ceases to be in effect,

 

(D) any Equity Interests if, to the extent and for so long as the pledge of such Equity Interests hereunder is prohibited or restricted by any applicable Law, including any requirement to obtain consent of any Governmental Authority (other than to the extent such prohibition would be rendered ineffective under the UCC or any other applicable Law); provided that such Equity Interests shall cease to be Excluded Equity Interests at such time as such prohibition ceases to be in effect,

 

(E) any Equity Interests if, to the extent and for so long as the pledge of such Equity Interests hereunder would result in (1) material adverse tax consequences (including, without limitation, as a result of the operation of Section 956 of the Code or any similar Law or regulation in any applicable jurisdiction) or (2) material adverse regulatory consequences, in each case as reasonably determined by the Borrower and with the consent of the Administrative Agent (such consent not to be unreasonably withheld, delayed or conditioned),

 

(F) any margin stock,

 

(G) any Equity Interests that the Borrower and the Collateral Agent shall have agreed in writing to treat as Excluded Equity Interests for purposes hereof on account of the cost, difficulty, burden or consequences of pledging such Equity Interests hereunder being excessive in relation to the benefit to the Secured Parties of the security to be afforded thereby,

 

(H) any Equity Interests in captive insurance subsidiaries, special purpose entities identified in writing at any time by the Borrower to the Collateral Agent and not-for-profit subsidiaries, and

 

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(I) any Equity Interests in an Unrestricted Subsidiary (any Equity Interests excluded pursuant to clauses (A) through (I) above, the “Excluded Equity Interests”),

 

(b)(i) the promissory notes and any instruments evidencing Indebtedness owned by it as of the Closing Date (including those listed opposite the name of such Pledgor on Schedule II) and (ii) any promissory notes and instruments and any Indebtedness in the future issued to such Pledgor having, an aggregate principal amount in excess of $5.0 million (the foregoing clauses (i) and (ii) collectively, the “Pledged Debt Securities”), in each case including all interest, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all Pledged Debt Securities (except to the extent otherwise excluded from the Collateral pursuant to this Agreement) but excluding (1) intercompany current liabilities incurred in the ordinary course of business in connection with the cash management operations of Parent and its Subsidiaries or (2) to the extent the pledge of such promissory note or instrument would violate applicable law (after giving effect to the relevant anti-assignment provisions of the Uniform Commercial Code), (c) subject to Section 3.05 hereof, all payments of principal or interest, dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of, in exchange for or upon the conversion of, and all other proceeds received in respect of, the securities referred to in clauses (a) and (b) above, (d) subject to Section 3.05 hereof, all rights and privileges of such Pledgor with respect to the securities and other property referred to in clauses (a), (b) and (c) above, and (e) all proceeds of any of the foregoing (the items referred to in clauses (a) through (e) above being collectively referred to as the “Pledged Collateral”)

 

TO HAVE AND TO HOLD the Pledged Collateral, together with all right, title, interest, powers, privileges and preferences pertaining or incidental thereto, unto the Collateral Agent, its successors and permitted assigns, for the benefit of the Secured Parties, forever, subject, however, to the terms, covenants and conditions hereinafter set forth and in each case subject to the last paragraph of Article IV of the Credit Agreement and the Collateral and Guarantee Requirement.

 

Section 3.02.                          Delivery of the Pledged Collateral.  (a) Each Pledgor agrees promptly to deliver or cause to be delivered to the Collateral Agent, for the benefit of the Secured Parties, any and all Pledged Securities to the extent such Pledged Securities, in the case of promissory notes or other instruments evidencing Indebtedness, are required to be delivered pursuant to paragraph (b) of this Section 3.02.

 

(b)                                 Each Pledgor will cause any Indebtedness for borrowed money having an aggregate principal amount in excess of $5.0 million (other than (i) intercompany current liabilities incurred in the ordinary course of business in connection with the cash management operations of Parent, the Borrower and the other Subsidiaries or (ii) to the extent that a pledge of such promissory note or instrument would violate applicable law) owed to such Pledgor by any person to be evidenced by a duly executed promissory note that is pledged and delivered to the Collateral Agent, for the benefit of the Secured Parties, pursuant to the terms hereof.  To the extent any such promissory note is a demand note, each Pledgor party thereto agrees, if requested by the Collateral Agent, to immediately demand payment thereunder upon a Specified Event of Default unless such demand would not be commercially reasonable or would otherwise expose such Pledgor to liability to the maker.

 

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(c)                                  Upon delivery to the Collateral Agent, (i) any Pledged Securities required to be delivered pursuant to the foregoing paragraphs (a) and (b) of this Section 3.02 shall be accompanied by stock powers or note powers, as applicable, duly executed in blank or other instruments of transfer reasonably satisfactory to the Administrative Agent and by such other instruments and documents as the Collateral Agent may reasonably request and (ii) all other property composing part of the Pledged Collateral delivered pursuant to the terms of this Agreement shall be accompanied to the extent necessary to perfect the security interest in or allow realization on the Pledged Collateral by proper instruments of assignment duly executed by the applicable Pledgor and such other instruments or documents as the Administrative Agent may reasonably request.  Each delivery of Pledged Securities shall be accompanied by a schedule describing the securities, which schedule shall be attached hereto as Schedule II (or a supplement to Schedule II, as applicable) and made a part hereof; provided that failure to attach any such schedule hereto shall not affect the validity of such pledge of such Pledged Securities.  Each schedule so delivered shall supplement any prior schedules so delivered.

 

Section 3.03.                          Representations, Warranties and Covenants.  Each Pledgor represents, warrants and covenants to and with the Collateral Agent, for the benefit of the Secured Parties, that:

 

(a)                                 Schedule II correctly sets forth the percentage of the issued and outstanding shares of each class of the Equity Interests of the issuer thereof represented by such Pledged Stock, in each case as of the Closing Date and includes all Equity Interests, debt securities and promissory notes or instruments evidencing Indebtedness required to be pledged in order to satisfy the Collateral and Guarantee Requirement on the Closing Date;

 

(b)                                 the Pledged Stock and Pledged Debt Securities (solely with respect to Pledged Debt Securities issued by a person that is not a subsidiary of Parent or an Affiliate of any such subsidiary, to the best of each Pledgor’s knowledge) have been duly and validly authorized and issued by the issuers thereof and (i) in the case of Pledged Stock, are fully paid and nonassessable (other than with respect to Pledged Stock consisting of membership interests of limited liability companies to the extent provided in Sections 18-502 and 18-607 of the Delaware Limited Liability Company Act) and (ii) in the case of Pledged Debt Securities (solely with respect to Pledged Debt Securities issued by a person that is not a subsidiary of Parent or an Affiliate of any such subsidiary, to the best of each Pledgor’s knowledge) are legal, valid and binding obligations of the issuers thereof, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally, general equitable principles (whether considered in a proceeding at law or in equity) and an implied covenant of good faith and fair dealing;

 

(c)                                  except for the security interests granted hereunder, each Pledgor (i) is and, subject to any transfers made in compliance with the Credit Agreement, will continue to be the direct owner, beneficially and of record, of the Pledged Securities indicated on Schedule II as owned by such Pledgor, (ii) holds the same free and clear of all Liens, other than Permitted Liens, (iii) will make no assignment, pledge, hypothecation or transfer of, or create or permit to exist any security interest in or other Lien on, the Pledged Collateral, other than pursuant to a transaction permitted by the Credit Agreement and other than Permitted Liens and (iv) subject to the rights of such Pledgor under the Loan Documents to dispose of Pledged Collateral, will use

 

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commercially reasonable efforts to defend its title or interest hereto or therein against any and all Liens (other than Permitted Liens), however arising, of all persons;

 

(d)                                 other than as set forth in the Credit Agreement or the schedules thereto, and except for restrictions and limitations imposed by the Loan Documents or securities laws generally or otherwise permitted to exist pursuant to the terms of the Credit Agreement, the Pledged Stock (other than partnership interests) is and will continue to be freely transferable and assignable, and none of the Pledged Stock is or will be subject to any option, right of first refusal, shareholders agreement, charter or by-law provisions or contractual restriction of any nature that might prohibit, impair, delay or otherwise affect the pledge of such Pledged Stock hereunder, the sale or disposition thereof pursuant hereto or the exercise by the Collateral Agent of rights and remedies hereunder;

 

(e)                                  each Pledgor has the power and authority to pledge the Pledged Collateral pledged by it hereunder in the manner hereby done or contemplated;

 

(f)                                   other than as set forth in the Credit Agreement or the schedules thereto, no consent or approval of any Governmental Authority, any securities exchange or any other person was or is necessary to the validity of the pledge effected hereby (other than such as have been obtained and are in full force and effect);

 

(g)                                  as of the Closing Date, this Agreement is effective to create in favor of the Collateral Agent (for the benefit of the Secured Parties) a legal, valid and enforceable security interest in the Collateral described herein and proceeds thereof;

 

(h)                                 as of the Closing Date, none of the Equity Interests in limited liability companies or partnerships that are pledged by the Pledgors hereunder constitute a security under Section 8-103 of the New York UCC or the corresponding code or statute of any other applicable jurisdiction; and

 

(i)                                     the Pledgors shall not amend, or permit to be amended, the limited liability company agreement (or operating agreement or similar agreement) or partnership agreement of any subsidiary of any Loan Party whose Equity Interests are, or are required to be, Collateral in a manner to cause such Equity Interests to constitute a security under Section 8-103 of the New York UCC or the corresponding code or statute of any other applicable jurisdiction unless such Loan Party shall have first delivered reasonable prior written notice to the Collateral Agent and shall have taken all actions contemplated hereby and as otherwise reasonably required by the Collateral Agent to maintain the security interest of the Collateral Agent therein as a valid, perfected, first priority security interest, subject to the relative priorities set forth in the ABL/Term Loan Intercreditor Agreement.

 

Section 3.04.                          Registration in Nominee Name; Denominations.  The Collateral Agent (or a designated bailee, in accordance with the ABL/Term Loan Intercreditor Agreement), on behalf of the Secured Parties, shall have the right (in its sole and absolute discretion) to hold the Pledged Securities in the name of the applicable Pledgor, endorsed or assigned in blank or in favor of the Collateral Agent (or a designated bailee, in accordance with the ABL/Term Loan Intercreditor Agreement) or, if an Event of Default shall have occurred and be continuing, in its

 

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own name as pledgee or the name of its nominee (as pledgee or as sub-agent).  Each Pledgor will promptly give to the Collateral Agent copies of any notices or other communications received by it with respect to Pledged Securities registered in the name of such Pledgor.  If an Event of Default shall have occurred and be continuing, the Collateral Agent (or a designated bailee, in accordance with the ABL/Term Loan Intercreditor Agreement) shall have the right to exchange the certificates representing Pledged Securities for certificates of smaller or larger denominations for any purpose consistent with this Agreement.  Each Pledgor shall use its commercially reasonable efforts to cause any Loan Party that is not a party to this Agreement to comply with a request by the Collateral Agent (or a designated bailee, in accordance with the ABL/Term Loan Intercreditor Agreement), pursuant to this Section 3.04, to exchange certificates representing Pledged Securities of such Loan Party for certificates of smaller or larger denominations.

 

Section 3.05.                          Voting Rights; Dividends and Interest, Etc.  (a) Unless and until an Event of Default shall have occurred and be continuing and the Collateral Agent shall have given written notice to the relevant Pledgors of the Administrative Agent’s intention to exercise its rights hereunder:

 

(i)                                     Each Pledgor shall be entitled to exercise any and all voting and/or other consensual rights and powers inuring to an owner of Pledged Collateral or any part thereof for any purpose consistent with the terms of this Agreement, the Credit Agreement and the other Loan Documents; provided that, except as permitted under the Credit Agreement, such rights and powers shall not be exercised in any manner that could materially and adversely affect the rights inuring to a holder of any Pledged Collateral, the rights and remedies of any of the Collateral Agent or the other Secured Parties under this Agreement, the Credit Agreement or any other Loan Document or the ability of the Secured Parties to exercise the same.

 

(ii)                                  The Collateral Agent shall promptly execute and deliver to each Pledgor, or cause to be executed and delivered to such Pledgor, all such proxies, powers of attorney and other instruments as such Pledgor may reasonably request for the purpose of enabling such Pledgor to exercise the voting and/or consensual rights and powers it is entitled to exercise pursuant to subparagraph (i) above.

 

(iii)                               Each Pledgor shall be entitled to receive and retain any and all dividends, interest, principal and other distributions paid on or distributed in respect of the Pledged Collateral to the extent and only to the extent that such dividends, interest, principal and other distributions are permitted by, and otherwise paid or distributed in accordance with, the terms and conditions of the Credit Agreement, the other Loan Documents and applicable laws; provided that (A) any noncash dividends, interest, principal or other distributions, payments or other consideration in respect thereof, including any rights to receive the same to the extent not so distributed or paid, that would constitute Pledged Securities, whether resulting from a subdivision, combination or reclassification of the outstanding Equity Interests of the issuer of any Pledged Securities, received in exchange for Pledged Securities or any part thereof, or in redemption thereof, as a result of any merger, consolidation, acquisition or other exchange of assets to which such issuer may be a party or otherwise and (B) any noncash dividends and other distributions paid or payable in respect of any Pledged Securities that

 

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would constitute Pledged Securities in connection with a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus or paid in surplus, shall be and become part of the Pledged Collateral, and, if received by any Pledgor, shall not be commingled by such Pledgor with any of its other funds or property but shall be held separate and apart therefrom, shall be held in trust for the benefit of the Collateral Agent, for the benefit of the Secured Parties, and shall be forthwith delivered to the Collateral Agent (or a designated bailee, in accordance with the ABL/Term Loan Intercreditor Agreement), for the benefit of the Secured Parties, in the same form as so received (endorsed in a manner reasonably satisfactory to the Collateral Agent).

 

(b)                                 Upon the occurrence and during the continuance of an Event of Default and after written notice by the Administrative Agent to the relevant Pledgors of the Administrative Agent’s intention to exercise its rights hereunder, all rights of any Pledgor to dividends, interest, principal or other distributions that such Pledgor is authorized to receive pursuant to paragraph (a)(iii) of this Section 3.05 shall cease, and all such rights shall thereupon become vested, for the benefit of the Secured Parties, in the Collateral Agent (or a designated bailee, in accordance with the ABL/Term Loan Intercreditor Agreement) which shall have the sole and exclusive right and authority to receive and retain such dividends, interest, principal or other distributions; provided, however, that even after the occurrence of an Event of Default, any Pledgor may continue to exercise dividend and distribution rights solely to the extent permitted under subclause (i), subclause (iii) and subclause (v) of Section 6.06(b) of the Credit Agreement.  All dividends, interest, principal or other distributions received by any Pledgor contrary to the provisions of this Section 3.05 shall not be commingled by such Pledgor with any of its other funds or property but shall be held separate and apart therefrom, shall be held in trust for the benefit of the Collateral Agent, for the benefit of the Secured Parties, and shall be forthwith delivered to the Collateral Agent (or a designated bailee, in accordance with the ABL/Term Loan Intercreditor Agreement), for the benefit of the Secured Parties, in the same form as so received (endorsed in a manner reasonably satisfactory to the Collateral Agent).  Any and all money and other property paid over to or received by the Collateral Agent (or a designated bailee, in accordance with the ABL/Term Loan Intercreditor Agreement) pursuant to the provisions of this paragraph (b) subject to the Intercreditor Agreements shall be retained by the Collateral Agent (or a designated bailee, in accordance with the ABL/Term Loan Intercreditor Agreement) in an account to be established by the Collateral Agent (or a designated bailee, in accordance with the ABL/Term Loan Intercreditor Agreement) upon receipt of such money or other property and shall be applied, in accordance with the provisions of Section 5.02 hereof.  After all Events of Default have been cured or waived, the Collateral Agent shall, if not previously applied to the Obligations, promptly repay to each Pledgor (without interest) all dividends, interest, principal or other distributions that such Pledgor would otherwise be permitted to retain pursuant to the terms of paragraph (a)(iii) of this Section 3.05 and that remain in such account.

 

(c)                                  Upon the occurrence and during the continuance of an Event of Default and after the Collateral Agent shall have given written notice to the Borrower of the Collateral Agent’s intention to exercise its rights hereunder, all rights of any Pledgor to exercise the voting and/or consensual rights and powers it is entitled to exercise pursuant to paragraph (a)(i) of this Section 3.05, and the obligations of the Collateral Agent under paragraph (a)(ii) of this Section 3.05, shall cease, and all such rights shall thereupon become vested in the Collateral Agent, for the benefit of the Secured Parties, which shall have the sole and exclusive right and authority to

 

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exercise such voting and consensual rights and powers (subject to the ABL/Term Loan Intercreditor Agreement); provided that, unless otherwise directed by the Required Lenders, the Collateral Agent shall have the right from time to time following and during the continuance of an Event of Default to permit the Pledgors to exercise such rights.  After all Events of Default have been cured or waived, each Pledgor shall have the right to exercise the voting and/or consensual rights and powers that such Pledgor would otherwise be entitled to exercise pursuant to the terms of paragraph (a)(i) above.

 

ARTICLE IV

 

SECURITY INTERESTS IN OTHER PERSONAL PROPERTY

 

Section 4.01.                          Security Interest.  (a) As security for the payment or performance when due (whether at the stated maturity, by acceleration or otherwise), as the case may be, in full of the Obligations, each Pledgor hereby pledges to the Collateral Agent, its successors and permitted assigns, for the benefit of the Secured Parties, and hereby grants to the Collateral Agent, its successors and permitted assigns, for the benefit of the Secured Parties, a security interest (the “Security Interest”) in all right, title and interest in or to any and all of the following assets and properties now owned or at any time hereafter acquired by such Pledgor or in which such Pledgor now has or at any time in the future may acquire any right, title or interest (collectively, the “Article 9 Collateral”):

 

(i)                                     all Accounts;

 

(ii)                                  all Chattel Paper;

 

(iii)                               all cash and Deposit Accounts;

 

(iv)                              all Documents;

 

(v)                                 all Equipment;

 

(vi)                              all General Intangibles;

 

(vii)                           all Instruments;

 

(viii)                        all Inventory;

 

(ix)                              all Investment Property;

 

(x)                                 all Letter of Credit Rights;

 

(xi)                              all Intellectual Property;

 

(xii)                           all Commercial Tort Claims, including, without limitation, those described on Schedule V hereto;

 

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(xiii)                        (1) Securities Accounts, (2) Investment Property credited to Securities Accounts or Deposit Accounts from time to time and all Security Entitlements in respect thereof, (3) all cash held in any Securities Account or Deposit Account and (4) all other Money in the possession of the Collateral Agent;

 

(xiv)                       all books and Records pertaining to the Article 9 Collateral; and

 

(xv)                          all Proceeds, Supporting Obligations and products of any and all of the foregoing and all collateral security and guarantees given by any person with respect to any of the foregoing.

 

Notwithstanding anything to the contrary in this Agreement, this Agreement shall not constitute a grant of a security interest in (a) any vehicle or any other property covered by a certificate of title or ownership, whether now owned or hereafter acquired, (b) any Excluded Equity Interests, (c) any Letter of Credit Rights, except to the extent a security interest therein can be perfected by the filing of Uniform Commercial Code financing statements, and to the extent such Pledgor is not required by applicable law to apply the proceeds of a drawing of such Letter of Credit for a specified purpose, (d) any Pledgor’s right, title or interest in any lease, license, contract or agreement to which such Pledgor is a party or any of its right, title or interest thereunder to the extent, but only to the extent, that such a grant would, under the terms of such lease, license, contract or agreement, result in a breach of the terms of, or constitute a default under, or result in the abandonment, invalidation or unenforceability of or create a right of termination in favor of or require the consent of any other party thereto (other than such Pledgor), such lease, license, contract or agreement (other than to the extent that any such term would be rendered ineffective pursuant to Section 9-406, 9-407, 9-408 or 9-409 of the New York UCC or any other applicable law (including, without limitation, Title 11 of the United States Code) or principles of equity), (e) assets to the extent the granting of a security interest therein would be prohibited or restricted by applicable law, rule or regulation (including any requirement to obtain the consent of any Governmental Authority), (f)(i) payroll and other employee wage and benefit accounts, (ii) tax accounts, including, without limitation, sales tax accounts, (iii) escrow accounts and (iv) fiduciary or other trust accounts, and, in the case of clauses (i) through (iv), the funds or other property held in or maintained in such account, (g) any Commercial Tort Claim with a value not in excess of $5.0 million, as determined in good faith by the Borrower, (h) any governmental licenses or State or local franchises, charters or authorizations, to the extent security interests in such licenses, franchises, charters or authorizations are prohibited or restricted thereby, after giving effect to the applicable anti-assignment provisions of the Uniform Commercial Code of any applicable jurisdiction notwithstanding such prohibition or restriction, (i) assets if the granting of a security interest therein would result in (i) material adverse tax consequences (including, without limitation, as a result of the operation of Section 956 of the Code or any similar law or regulation in any applicable jurisdiction) or (ii) material adverse regulatory consequences, in each case as reasonably determined by the Borrower and with the consent of the Collateral Agent (which consent will not to be unreasonably withheld, delayed or conditioned) (j) those assets as to which the Collateral Agent and the Borrower reasonably agree, in writing, that any of the cost, difficulty, burden or consequences of obtaining or perfecting such a security interest are excessive in relation to the benefit to the Lenders of the security to be afforded thereby and (k) any United States “intent to use” trademark application or intent-to-use service mark application filed pursuant to Section 1(b) of the Lanham Act, to the extent that the

 

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grant of a security interest therein would impair the validity or enforceability of, or render void or voidable or result in the cancellation of the applicable Pledgor’s right, title or interest therein or any trademark or service mark issues as a result of such application under applicable federal law, after which period such application shall be automatically subject to the security interest granted herein and deemed to be included in the Collateral; (l) any assets and proceeds thereof subject to a Capital Lease Obligations or a purchase money lien permitted by Section 6.02(i) of the Credit Agreement to the extent the documents providing for such Capital Lease Obligation or purchase money lien do not permit such assets and proceeds thereof to the pledged to the Collateral Agent and (m) any assets acquired after the date hereof subject to a Lien permitted by Section 6.02(c) of the Credit Agreement that existed on such assets at the time of the acquisition thereof and was not incurred in contemplation of such acquisition so long as the documents providing for such Lien do not permit such assets to be pledged to the Collateral Agent (the assets described in clauses (a) through (m) above, collectively, the “Excluded Assets”); provided that such exclusions shall not apply to the proceeds of any of the foregoing property.

 

(b)                                 Each Pledgor hereby irrevocably authorizes the Collateral Agent at any time and from time to time to file in any relevant jurisdiction any financing statements (including fixture filings) with respect to the Article 9 Collateral (including all Article 9 Collateral consisting of Pledged Collateral) or any part thereof and amendments thereto that contain the information required by Article 9 of the Uniform Commercial Code of each applicable jurisdiction for the filing of any financing statement or amendment, including (i) whether such Pledgor is an organization, the type of organization and any organizational identification number issued to such Pledgor, (ii) in the case of a financing statement filed as a fixture filing, a sufficient description of the property to which such Article 9 Collateral relates and (iii) a description of collateral that describes such property in any other manner as the Collateral Agent may reasonably determine is necessary to ensure the perfection of the security interest in the Article 9 Collateral granted under this Agreement, including describing such property as “all assets”, whether now owned or hereafter acquired or words of similar effect. Each Pledgor agrees to provide such information to the Collateral Agent promptly upon request.

 

The Collateral Agent is further authorized to file with the United States Patent and Trademark Office or United States Copyright Office (or any successor office) such documents as may be reasonably necessary for the purpose of perfecting, continuing, enforcing or protecting the Security Interest granted by each Pledgor, without the signature of any Pledgor, and naming any Pledgor or the Pledgors as debtors and the Collateral Agent as secured party.  Notwithstanding anything to the contrary herein, no Pledgor shall be required to take any action under the laws of any jurisdiction other than the United States (or any political subdivision thereof) and its territories and possessions for the purpose of perfecting the Security Interest in any Article 9 Collateral of such Pledgor constituting Patents, Trademarks or Copyrights.

 

(c)                                  The Security Interest is granted as security only and shall not subject the Collateral Agent or any other Secured Party to, or in any way alter or modify, any obligation or liability of any Pledgor with respect to or arising out of the Article 9 Collateral.

 

(d)                                 Notwithstanding anything to the contrary in this Agreement or the Credit Agreement, (i) no perfection steps shall be required by any means other than (A) filings pursuant to the Uniform Commercial Code in the office of the Secretary of State (or equivalent filing

 

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office) of the relevant State(s) of the respective jurisdictions of organization of each Pledgor, (B) filings in the United States Patent and Trademark Office and the United States Copyright Office of the Intellectual Property Security Agreement, (C) delivery of Collateral consisting of instruments, notes and debt securities in a principal amount in excess of $5.0 million; provided that such delivery shall not be required with respect to (1) instruments, notes and debt securities that are promptly deposited into an investment or securities account, (2) checks received in the ordinary course of business and (3) notes and debt securities issued in connection with the extension of trade creditor by a grantor of a security interest, (D) delivery of Collateral consisting of certificated Equity Interests included in the Collateral, (E) (i) other actions expressly required by this Agreement or the Credit Agreement and (ii) Control Agreements or similar arrangements shall not be required with respect to any Deposit Accounts (except with respect to the Blocked Accounts and the Asset Sale Proceeds Account), Securities Accounts, Commodities Accounts or other Collateral that requires perfection by “control”; and (ii) the Pledgors shall not be required to take any actions outside the United States to create or perfect any security interests in any Collateral (it being understood that there shall be no security agreements or pledge agreements governed under the laws of any foreign jurisdiction.

 

Section 4.02.                          Representations and Warranties.  Each Pledgor represents and warrants to the Collateral Agent and the Secured Parties that:

 

(a)                                 Each Pledgor has good and valid rights in and title to the Article 9 Collateral with respect to which it has purported to grant a Security Interest hereunder and has full power and authority to grant to the Collateral Agent the Security Interest in such Article 9 Collateral pursuant hereto and to execute, deliver and perform its obligations in accordance with the terms of this Agreement, without the consent or approval of any other person other than any consent or approval that has been obtained and is in full force and effect or has otherwise been disclosed herein or in the Credit Agreement.

 

(b)                                 The information set forth in the schedules attached hereto is correct and complete, in all material respects, as of the Closing Date.  The Uniform Commercial Code financing statements containing a description of the Article 9 Collateral that have been prepared by the Collateral Agent for filing in the office specified in Schedule IV constitute all the filings, recordings and registrations (except as set forth in the following clause (c)) that are, as of the Closing Date,  necessary to publish notice of and protect the validity of and to establish a legal, valid and perfected security interest in favor of the Collateral Agent (for the ratable benefit of the Secured Parties) in respect of all Article 9 Collateral in which the Security Interest may be perfected by filing.

 

(c)                                  Each Pledgor represents and warrants that a fully executed Intellectual Property Security Agreement containing a description of all Article 9 Collateral consisting of Intellectual Property with respect to United States Patents (and Patents for which United States applications are pending), United States registered Trademarks (and Trademarks for which United States registration applications are pending) and United States registered Copyrights (and Copyrights for which United States registration applications are pending) has been delivered to the Collateral Agent for recording with the United States Patent and Trademark Office and the United States Copyright Office pursuant to 35 U.S.C. § 261, 15 U.S.C. § 1060 or 17 U.S.C. § 205 and the regulations thereunder, as applicable, and reasonably requested by the Collateral

 

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Agent, to protect the validity of and to establish a legal, valid and perfected security interest in favor of the Collateral Agent, for the ratable benefit of the Secured Parties, in respect of all Article 9 Collateral consisting of such Intellectual Property in which a security interest may be perfected by recording with the United States Patent and Trademark Office and the United States Copyright Office.

 

(d)                                 The Security Interest constitutes (i) a legal and valid security interest in all the Article 9 Collateral securing the payment and performance of the Obligations, (ii) subject to the filings described in Section 4.02(b), a perfected security interest in all Article 9 Collateral in which a security interest may be perfected by filing, recording or registering a financing statement or analogous document in the United States (or any political subdivision thereof) and its territories and possessions pursuant to the Uniform Commercial Code or other applicable law in such jurisdictions and (iii) a security interest that shall be perfected in all Article 9 Collateral in which a security interest may be perfected upon the receipt and recording of the Intellectual Property Security Agreement with the United States Patent and Trademark Office and the United States Copyright Office, as applicable.  The Security Interest is and shall be prior to any other Lien on any of the Article 9 Collateral other than (i) Permitted Liens having priority either by operation of applicable law or pursuant to the terms of the ABL/Term Loan Intercreditor Agreement, or (ii) Permitted Liens which are permitted to have priority pursuant to the terms of the Credit Agreement.

 

(e)                                  The Article 9 Collateral is owned by the Pledgors free and clear of any Lien, other than Permitted Liens.  None of the Pledgors has filed or consented to the filing of (i) any financing statement or analogous document under the Uniform Commercial Code or any other applicable laws covering any Article 9 Collateral, (ii) any assignment in which any Pledgor assigns any Article 9 Collateral or any security agreement or similar instrument covering any Article 9 Collateral with the United States Patent and Trademark Office or the United States Copyright Office or (iii) any assignment in which any Pledgor assigns any Article 9 Collateral or any security agreement or similar instrument covering any Article 9 Collateral with any foreign governmental, municipal or other office, which financing statement or analogous document, assignment, security agreement or similar instrument is still in effect, except, in each case, for Permitted Liens.

 

(f)                                   None of the Pledgors holds any Commercial Tort Claim individually in excess of $5.0 million as of the Closing Date except as indicated on Schedule V.

 

(g)                                  Except as set forth in Schedule VI, as of the Closing Date, all Accounts have been originated by the Pledgors and all Inventory has been produced or acquired by the Pledgors in the ordinary course of business.

 

(h)                                 As to itself and its Article 9 Collateral consisting of Intellectual Property (the “Intellectual Property Collateral”), to the best of each Pledgor’s knowledge:

 

(i)                                     The Intellectual Property Collateral set forth on Schedule III includes all of the material Patents, Trademarks and Copyrights owned by such Pledgor as of the date hereof and all of the IP Agreements to which such Pledgor is a party.

 

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(ii)                                  The Intellectual Property Collateral is subsisting and has not been adjudged invalid or unenforceable in whole or part (except for office actions issued in the ordinary course by the United States Patent and Trademark Office), and is valid and enforceable, except as would not reasonably be expected to have a Material Adverse Effect.  Such Pledgor is not aware of any uses of any item of Intellectual Property Collateral that would be expected to lead to such item becoming invalid or unenforceable, except as would not reasonably be expected to have a Material Adverse Effect.

 

(iii)                               Such Pledgor has made or performed in the ordinary course of Pledgor’s business, acts, including without limitation filings, recordings and payment of all required fees and taxes, required to maintain and protect its desired interest in each and every item of Intellectual Property Collateral in full force and effect in the United States and such Pledgor has used proper statutory notice in connection with its use of each Patent, Trademark and Copyright in the Intellectual Property Collateral, in each case, except to the extent that the failure to do so would not reasonably be expected to have a Material Adverse Effect.

 

(iv)                              With respect to each IP Agreement, the absence, termination or violation of which would reasonably be expected to have a Material Adverse Effect: (A) such Pledgor has not received any notice of termination or cancellation under such IP Agreement; (B) such Pledgor has not received any notice of a breach or default under such IP Agreement, which breach or default has not been cured or waived; and (C) neither such Pledgor nor any other party to such IP Agreement is in breach or default thereof in any material respect, and no event has occurred that, with notice or lapse of time or both, would constitute such a breach or default or permit termination, modification or acceleration under such IP Agreement.

 

Section 4.03.                          Covenants.  (a)  Each Pledgor agrees to (A) provide at least 10 days’ prior written notice to the Administrative Agent of any change (i) in its corporate or organization name, (ii) in its identity or type of organization or corporate structure (other than in connection with the Contribution), (iii) in its Federal Taxpayer Identification Number or organizational identification number,  or (iv) in its “location” (determined as provided in UCC Section 9-307), in each case only to the extent required for purposes of satisfying the Collateral and Guarantee Requirement.  Each Pledgor agrees promptly to provide the Administrative Agent with certified organizational documents reflecting any of the changes described in the immediately preceding sentence.  Each Pledgor agrees not to effect or permit any change referred to in the first sentence of this paragraph unless all filings have been made, or will have been made within any applicable statutory period in order to satisfy the Collateral and Guarantee Requirement and (B) update the schedules attached hereto concurrently with any delivery of an updated Perfection Certificate in accordance with Section 5.04(f) of the Credit Agreement or as otherwise required in order to satisfy the Collateral and Guarantee Requirement.

 

(b)                                 Subject to the rights of such Pledgor under the Loan Documents to dispose of Collateral, each Pledgor shall, at its own expense, use commercially reasonable efforts to defend title to the Article 9 Collateral against all persons and to defend the Security Interest of the Collateral Agent, for the benefit of the Secured Parties, in the Article 9 Collateral and the priority thereof against any Lien that is not a Permitted Lien.

 

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(c)                                  Each Pledgor agrees, at its own expense, to execute, acknowledge, deliver and cause to be duly filed all such further instruments and documents and take all such actions as the Collateral Agent may from time to time reasonably request to preserve, protect and perfect the Security Interest and the rights and remedies created hereby, including the payment of any fees and taxes required in connection with the execution and delivery of this Agreement and the granting of the Security Interest and the filing of any financing statements (including fixture filings) or other documents in connection herewith or therewith.  If any amount payable under or in connection with any of the Article 9 Collateral that is in excess of $5.0 million shall be or become evidenced by any promissory note or other instrument, such note or instrument, subject to the ABL/Term Intercreditor Agreement, shall be promptly pledged and delivered to the Collateral Agent, for the benefit of the Secured Parties, duly endorsed in a manner reasonably satisfactory to the Collateral Agent.

 

(d)                                 After the occurrence of an Event of Default and during the continuance thereof, the Collateral Agent shall have the right to verify under reasonable procedures the validity, amount, quality, quantity, value, condition and status of, or any other matter relating to, the Article 9 Collateral, including, in the case of Accounts or Article 9 Collateral in the possession of any third person, by contacting Account Debtors or the third person possessing such Article 9 Collateral for the purpose of making such a verification.  The Collateral Agent shall have the right to share any information it gains from such inspection or verification with any Secured Party.

 

(e)                                  None of the Pledgors will, without the Collateral Agent’s prior written consent (which consent shall not be unreasonably withheld), grant any extension of the time of payment of any Accounts included in the Article 9 Collateral, compromise, compound or settle the same for less than the full amount thereof, release, wholly or partly, any person liable for the payment thereof or allow any credit or discount whatsoever thereon, other than extensions, credits, discounts, compromises or settlements granted or made in the ordinary course of business and consistent with prudent business practices or as otherwise permitted under the Credit Agreement.

 

(f)                                   At its option after the occurrence of an Event of Default and during the continuance thereof, the Collateral Agent may discharge past due taxes, assessments, charges, fees, Liens, security interests or other encumbrances at any time levied or placed on the Article 9 Collateral and not a Permitted Lien, and may pay for the maintenance and preservation of the Article 9 Collateral to the extent any Pledgor fails to do so as required by the Credit Agreement or this Agreement, and each Pledgor jointly and severally agrees to reimburse the Collateral Agent on demand for any reasonable payment made or any reasonable expense incurred by the Collateral Agent pursuant to the foregoing authorization; provided, however, that nothing in this Section 4.03(e) shall be interpreted as excusing any Pledgor from the performance of, or imposing any obligation on the Collateral Agent or any Secured Party to cure or perform, any covenants or other promises of any Pledgor with respect to taxes, assessments, charges, fees, Liens, security interests or other encumbrances and maintenance as set forth herein or in the other Loan Documents.

 

(g)                                  Each Pledgor (rather than the Collateral Agent or any Secured Party) shall remain liable for the observance and performance of all the conditions and obligations to be

 

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observed and performed by it under each contract, agreement or instrument relating to the Article 9 Collateral.

 

(h)                                 Each Pledgor irrevocably makes, constitutes and appoints the Collateral Agent (and all officers, employees or agents designated by the Collateral Agent) as such Pledgor’s true and lawful agent (and attorney-in-fact) for the purpose, during the continuance of an Event of Default, of making, settling and adjusting claims in respect of Article 9 Collateral under policies of insurance, endorsing the name of such Pledgor on any check, draft, instrument or other item of payment for the proceeds of such policies of insurance and for making all determinations and decisions with respect thereto.  In the event that any Pledgor at any time or times shall fail to obtain or maintain any of the policies of insurance required hereby or under the Credit Agreement or to pay any premium in whole or part relating thereto, the Collateral Agent may, after the occurrence and during the continuation of an Event of Default, without waiving or releasing any obligation or liability of the Pledgors hereunder or any Event of Default, in its sole discretion, obtain and maintain such policies of insurance and pay such premium and take any other actions with respect thereto as the Collateral Agent reasonably deems advisable.  All sums disbursed by the Collateral Agent in connection with this Section 4.03(g), including reasonable attorneys’ fees, court costs, expenses and other charges relating thereto, shall be payable, upon demand, by the Pledgors to the Collateral Agent and shall be additional Obligations secured hereby.

 

Section 4.04.                          Other Actions.  In order to further ensure the attachment, perfection, and priority of and the ability of the Collateral Agent to enforce, for the benefit of the Secured Parties, the Collateral Agent’s security interest in the Article 9 Collateral, each Pledgor agrees, in each case at such Pledgor’s own expense, to take the following actions with respect to the following Article 9 Collateral:

 

(a)                                 Instruments and Tangible Chattel Paper.  If any Pledgor shall at any time hold or acquire any Instruments (other than checks received and processed in the ordinary course of business) or Tangible Chattel Paper evidencing an amount in excess of $5.0 million, such Pledgor shall forthwith endorse, assign and deliver the same to the Collateral Agent (or a designated bailee, in accordance with the ABL/Term Loan Intercreditor Agreement), accompanied by such instruments of transfer or assignment duly executed in blank as the Collateral Agent may from time to time reasonably request.

 

(b)                                 Investment Property.  Except to the extent otherwise provided in Article III, if any Pledgor shall at any time hold or acquire any Certificated Security constituting Pledged Collateral or Article 9 Collateral, such Pledgor shall forthwith endorse, assign and deliver the same to the Collateral Agent (or a designated bailee, in accordance with the ABL/Term Loan Intercreditor Agreement), accompanied by such instruments of transfer or assignment duly executed in blank as the Collateral Agent may from time to time reasonably specify.  If any security of a domestic issuer now owned or hereafter acquired by any Pledgor is uncertificated and is issued to such Pledgor or its nominee directly by the issuer thereof, such Pledgor shall promptly notify the Collateral Agent of such uncertificated securities and upon the occurrence and during the continuance of an Event of Default, such Pledgor shall pursuant to an agreement in form and substance reasonably satisfactory to the Collateral Agent, either (i) cause the issuer to agree to comply with instructions from the Collateral Agent (or a designated bailee,

 

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in accordance with the ABL/Term Loan Intercreditor Agreement) as to such security, without further consent of any Pledgor or such nominee, or (ii) cause the issuer to register the Collateral Agent (or a designated bailee, in accordance with the ABL/Term Loan Intercreditor Agreement) as the registered owner of such security.

 

(c)                                  Commercial Tort Claims.  If any Pledgor shall at any time hold or acquire a Commercial Tort Claim in an amount reasonably estimated to exceed $5.0 million, such Pledgor shall promptly notify the Collateral Agent thereof in a writing signed by such Pledgor, including a summary description of such claim, and grant to the Collateral Agent in writing a security interest therein and in the proceeds thereof, all under the terms and provisions of this Agreement, with such writing to be in form and substance reasonably satisfactory to the Collateral Agent.

 

Section 4.05.                          Covenants Regarding Patent, Trademark and Copyright Collateral.  Except as permitted by the Credit Agreement:  (a) Each Pledgor agrees that it will not knowingly do any act or omit to do any act (and will exercise commercially reasonable efforts to contractually prohibit its licensees from doing any act or omitting to do any act) whereby any Patent that is material to the normal conduct of such Pledgor’s business may become prematurely invalidated, abandoned, lapsed or dedicated to the public, and agrees that it shall take commercially reasonable steps with respect to any material products covered by any such Patent as necessary to establish and preserve its rights under applicable patent laws.

 

(b)                                 Each Pledgor will, and will use its commercially reasonable efforts to  contractually require its licensees and it sublicensees to, for each material Trademark necessary to the normal conduct of such Pledgor’s business, (i) maintain such Trademark in full force free from any adjudication of abandonment or invalidity for non-use, (ii) maintain the quality of products and services offered under such Trademark, (iii) display such Trademark with notice of federal registration or claim of trademark or service mark as required under applicable law and (iv) not knowingly use or knowingly permit its licensees’ use of such Trademark in violation of any third-party rights.

 

(c)                                  Each Pledgor will, and will use its commercially reasonable efforts to cause its licensees and its sublicensees to, for each work covered by a material Copyright necessary to the normal conduct of such Pledgor’s business that it publishes, displays and distributes, use a copyright notice as necessary and sufficient to establish and preserve its rights under applicable copyright laws.

 

(d)                                 Each Pledgor shall notify the Collateral Agent promptly if it knows that any Patent, Trademark or Copyright material to the normal conduct of such Pledgor’s business may imminently become abandoned, lapsed or dedicated to the public, or of any materially adverse determination or development, excluding office actions and similar determinations or developments in the United States Patent and Trademark Office, United States Copyright Office, any court or any similar office of any country, regarding such Pledgor’s ownership of any such material Patent, Trademark or Copyright or its right to register or to maintain the same.

 

(e)                                  Each Pledgor shall exercise its reasonable business judgment consistent with the practice in any proceeding before the United States Patent and Trademark Office, the

 

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United States Copyright Office with respect to maintaining and pursuing each application relating to any Patent, Trademark and/or Copyright (and obtaining the relevant grant or registration) material to the normal conduct of such Pledgor’s business and to maintain (i) each issued Patent and (ii) the registrations of each Trademark and each Copyright that is material to the normal conduct of such Pledgor’s business, including, when applicable and necessary in such Pledgor’s reasonable business judgment, timely filings of applications for renewal, affidavits of use, affidavits of incontestability and payment of maintenance fees, and, if any Pledgor believes necessary in its reasonable business judgment, to initiate opposition, interference and cancellation proceedings against third parties.

 

(f)                                   In the event that any Pledgor knows or has reason to know that any Article 9 Collateral consisting of a Patent, Trademark or Copyright material to the normal conduct of its business has been materially infringed, misappropriated or diluted by a third party, such Pledgor shall promptly notify the Collateral Agent and shall, if such Pledgor deems it necessary in its reasonable business judgment, promptly take actions as are reasonably appropriate under the circumstances.

 

Section 4.06.                          ABL/Term Intercreditor Relations.  Notwithstanding anything herein to the contrary, (a) the Pledgors and the Collateral Agent acknowledge that the exercise of certain of the Collateral Agent’s rights and remedies hereunder are subject to the provisions of the ABL/Term Loan Intercreditor Agreement, and (b) prior to the Discharge of Term Loan Claims, any obligation hereunder to physically deliver any Term Loan Priority Collateral to the Collateral Agent shall be deemed satisfied by the delivery to the Term Loan Collateral Agent (or the Second Lien Term Loan Collateral Agent, as applicable), acting as gratuitous bailee for the Collateral Agent in accordance with the ABL/Term Loan Intercreditor Agreement.  The failure of the Collateral Agent or any other Secured Party to immediately enforce any of its rights and remedies hereunder (as a result of the terms of the ABL/Term Loan Intercreditor Agreement or otherwise) shall not constitute a waiver of any such rights and remedies.  In the event of any conflict or inconsistency between the terms of the ABL/Term Loan Intercreditor Agreement and this Agreement regarding the relative priorities of the Collateral Agent, the Term Loan Collateral Agent and the Second Lien Term Loan Collateral Agent in the Collateral, the terms of the ABL/Term Loan Intercreditor Agreement shall govern and control.

 

ARTICLE V

 

REMEDIES

 

Section 5.01.                          Remedies Upon Default.  Upon the occurrence and during the continuance of an Event of Default, each Pledgor agrees to deliver each item of Collateral to the Collateral Agent (or a designated bailee, in accordance with the ABL/Term Loan Intercreditor Agreement) on demand, and it is agreed that the Collateral Agent shall have the right, subject to applicable law, to take any of or all the following actions at the same or different times: (a) with respect to any Article 9 Collateral consisting of Intellectual Property, on demand, to cause the Security Interest to become an assignment, transfer and conveyance of any of or all such Article 9 Collateral by the applicable Pledgors to the Collateral Agent or to license or sublicense, whether general, special or otherwise, and whether on an exclusive or a non-exclusive basis, any such Article 9 Collateral throughout the world on such terms and conditions and in such manner as the

 

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Collateral Agent shall determine (other than in violation of any then-existing licensing arrangements to the extent that waivers thereunder cannot be obtained with the use of commercially reasonable efforts, which each Pledgor hereby agrees to use) and (b) to take possession of the Article 9 Collateral and without liability for trespass to the applicable Pledgor to enter any premises where the Article 9 Collateral may be located for the purpose of taking possession of, removing or selling the Article 9 Collateral and, generally, to exercise any and all rights afforded to a secured party under the applicable Uniform Commercial Code or other applicable law.  Without limiting the generality of the foregoing rights and remedies, each Pledgor agrees that the Collateral Agent shall have the right, subject to the mandatory requirements of applicable law (including the Uniform Commercial Code), to sell or otherwise dispose of all or any part of the Collateral at a public or private sale or at any broker’s board or on any securities exchange, for cash, upon credit or for future delivery as the Collateral Agent shall deem appropriate.  The Collateral Agent shall be authorized in connection with any sale of a security (if it deems it advisable to do so) pursuant to the foregoing to restrict the prospective bidders or purchasers to persons who represent and agree that they are purchasing such security for their own account, for investment, and not with a view to the distribution or sale thereof.  Upon consummation of any such sale of Collateral pursuant to this Section 5.01, the Collateral Agent shall have the right to assign, transfer and deliver to the purchaser or purchasers thereof the Collateral so sold.  Each such purchaser at any such sale shall hold the property sold absolutely, free from any claim or right on the part of any Pledgor, and each Pledgor hereby waives and releases (to the extent permitted by law) all rights of redemption, stay, valuation and appraisal that such Pledgor now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted.

 

The Collateral Agent shall give the applicable Pledgors ten Business Days’ written notice (which each Pledgor agrees is reasonable notice within the meaning of Section 9-611 of the New York UCC or its equivalent in other jurisdictions) of the Collateral Agent’s intention to make any sale of Collateral.  Such notice, in the case of a public sale, shall state the time and place for such sale and, in the case of a sale at a broker’s board or on a securities exchange, shall state the board or exchange at which such sale is to be made and the day on which the Collateral, or portion thereof, will first be offered for sale at such board or exchange.  Any such public sale shall be held at such time or times within ordinary business hours and at such place or places as the Collateral Agent may fix and state in the notice (if any) of such sale.  The Collateral, or the portion thereof, to be sold at any such sale may be sold in one lot as an entirety or in separate parcels, in the Collateral Agent’s own right or by one or more agents and contractors, upon any premises owned, leased, or occupied by any Pledgor and the Collateral Agent and any such agent or contractor, in conjunction with any such sale, may augment the Inventory to be sold with other goods (all of which other goods shall remain the sole property of the Collateral Agent or such agent or contractor), all as the Collateral Agent may (in its sole and absolute discretion) determine.  The Collateral Agent shall not be obligated to make any sale of any Collateral if it shall determine not to do so, regardless of the fact that notice of sale of such Collateral shall have been given.  The Collateral Agent may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for sale, and such sale may, without further notice, be made at the time and place to which the same was so adjourned.  In the case of any sale of all or any part of the Collateral made on credit or for future delivery, the Collateral so sold may be retained by the Collateral Agent until the sale price is paid by the purchaser or purchasers thereof, but the Collateral Agent

 

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shall not incur any liability in the event that any such purchaser or purchasers shall fail to take up and pay for the Collateral so sold and, in the case of any such failure, such Collateral may be sold again upon notice given in accordance with provisions above.  At any public (or, to the extent permitted by law, private) sale made pursuant to this Section 5.01, any Secured Party may bid for or purchase, free (to the extent permitted by law) from any right of redemption, stay, valuation or appraisal on the part of any Pledgor (all such rights being also hereby waived and released to the extent permitted by law), the Collateral or any part thereof offered for sale and may make payment on account thereof by using any claim then due and payable to such Secured Party from any Pledgor as a credit against the purchase price, and such Secured Party may, upon compliance with the terms of sale, hold, retain and dispose of such property in accordance with Section 5.02 hereof without further accountability to any Pledgor therefor.  For purposes hereof, a written agreement to purchase the Collateral or any portion thereof shall be treated as a sale thereof; the Collateral Agent shall be free to carry out such sale pursuant to such agreement and no Pledgor shall be entitled to the return of the Collateral or any portion thereof subject thereto, notwithstanding the fact that after the Collateral Agent shall have entered into such an agreement all Events of Default shall have been remedied and the Obligations paid in full.  As an alternative to exercising the power of sale herein conferred upon it, the Collateral Agent may proceed by a suit or suits at law or in equity to foreclose this Agreement and to sell the Collateral or any portion thereof pursuant to a judgment or decree of a court or courts having competent jurisdiction or pursuant to a proceeding by a court-appointed receiver.  Any sale pursuant to the provisions of this Section 5.01 shall be deemed to conform to the commercially reasonable standards as provided in Section 9-610(b) of the New York UCC or its equivalent in other jurisdictions.

 

Without limiting any other rights of the Collateral Agent granted pursuant to this Agreement, each Pledgor hereby grants to the Collateral Agent, and the representatives and independent contractors of the Collateral Agent, a royalty free, non-exclusive, irrevocable license (such license to be effective upon the occurrence and during the continuance of any Event of Default), to use, apply, and affix any Trademark, trade name, logo, or the like in which any Pledgor now or hereafter has rights, solely in connection with the Collateral Agent’s enforcement of rights or remedies hereunder, including without limitation, in connection with any sale or other disposition of Inventory.  As to each Pledgor, the license granted hereby shall remain in full force and effect until such Pledgor hereunder is released hereunder in accordance with Section 7.15 of this Agreement.

 

Section 5.02.                          Application of Proceeds.  Subject to the terms of the ABL / Term Loan Intercreditor Agreement, the Collateral Agent shall promptly apply the proceeds, moneys or balances of any collection or sale of Collateral, as well as any Collateral consisting of cash, in the manner specified in the Credit Agreement.

 

The Collateral Agent shall have absolute discretion as to the time of application of any such proceeds, moneys or balances in accordance with this Agreement.  Upon any sale of Collateral by the Collateral Agent (including pursuant to a power of sale granted by statute or under a judicial proceeding), the receipt of the purchase money by the Collateral Agent or of the officer making the sale shall be a sufficient discharge to the purchaser or purchasers of the Collateral so sold and such purchaser or purchasers shall not be obligated to see to the

 

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application of any part of the purchase money paid over to the Collateral Agent or such officer or be answerable in any way for the misapplication thereof.

 

Section 5.03.                          Securities Act, Etc.  In view of the position of the Pledgors in relation to the Pledged Collateral, or because of other current or future circumstances, a question may arise under the Securities Act of 1933, as now or hereafter in effect, or any similar federal statute hereafter enacted analogous in purpose or effect (such Act and any such similar statute as from time to time in effect being called the “Federal Securities Laws”) with respect to any disposition of the Pledged Collateral permitted hereunder.  Each Pledgor understands that compliance with the Federal Securities Laws might very strictly limit the course of conduct of the Collateral Agent if the Collateral Agent were to attempt to dispose of all or any part of the Pledged Collateral, and might also limit the extent to which or the manner in which any subsequent transferee of any Pledged Collateral could dispose of the same.  Similarly, there may be other legal restrictions or limitations affecting the Collateral Agent in any attempt to dispose of all or part of the Pledged Collateral under applicable Blue Sky or other state securities laws or similar laws analogous in purpose or effect.  Each Pledgor acknowledges and agrees that in light of such restrictions and limitations, the Collateral Agent, in its sole and absolute discretion, (a) may proceed to make such a sale whether or not a registration statement for the purpose of registering such Pledged Collateral or part thereof shall have been filed under the Federal Securities Laws or, to the extent applicable, Blue Sky or other state securities laws and (b) may approach and negotiate with a single potential purchaser to effect such sale.  Each Pledgor acknowledges and agrees that any such sale might result in prices and other terms less favorable to the seller than if such sale were a public sale without such restrictions.  In the event of any such sale, the Collateral Agent shall incur no responsibility or liability for selling all or any part of the Pledged Collateral at a price that the Collateral Agent, in its sole and absolute discretion, may in good faith deem reasonable under the circumstances, notwithstanding the possibility that a substantially higher price might have been realized if the sale were deferred until after registration as aforesaid or if more than a single purchaser were approached.  The provisions of this Section 5.03 will apply notwithstanding the existence of a public or private market upon which the quotations or sales prices may exceed substantially the price at which the Collateral Agent sells.

 

ARTICLE VI

 

INDEMNITY, SUBROGATION AND SUBORDINATION

 

Section 6.01.                          Indemnity.  In addition to all such rights of indemnity and subrogation as the Guarantors may have under applicable law (but subject to Section 6.03 hereof), the Borrower agrees that (a) in the event a payment shall be made by any Guarantor (other than Parent) under this Agreement in respect of any Obligation of the Borrower, the Borrower shall indemnify such Guarantor for the full amount of such payment and such Guarantor shall be subrogated to the rights of the person to whom such payment shall have been made to the extent of such payment and (b) in the event any assets of any Guarantor (other than Parent) shall be sold pursuant to this Agreement or any other Security Document to satisfy in whole or in part an Obligation of the Borrower, the Borrower shall indemnify such Guarantor in an amount equal to the greater of the book value or the fair market value of the assets so sold.

 

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Section 6.02.         Contribution and Subrogation.  Subject to Section 2.07, each Guarantor (other than Parent) (a “Contributing Guarantor”) agrees (subject to Section 6.03 hereof) that, in the event a payment shall be made by any other Guarantor (other than Parent) hereunder in respect of any Obligation or assets of any other Guarantor (other than Parent and the Borrower) shall be sold pursuant to any Security Document to satisfy any Obligation owed to any Secured Party and such other Guarantor (the “Claiming Guarantor”) shall not have been fully indemnified by the Borrower as provided in Section 6.01 hereof, the Contributing Guarantor shall indemnify the Claiming Guarantor in an amount equal to the amount of such payment or the greater of the book value or the fair market value of such assets, as applicable, in each case multiplied by a fraction of which the numerator shall be the net worth of such Contributing Guarantor on the date hereof and the denominator shall be the aggregate net worth of all the Guarantors on the date hereof (or, in the case of any Guarantor becoming a party hereto pursuant to Section 7.16 hereof, the date of the supplement hereto executed and delivered by such Guarantor).  Any Contributing Guarantor making any payment to a Claiming Guarantor pursuant to this Section 6.02 shall be subrogated to the rights of such Claiming Guarantor under Section 6.01 hereof to the extent of such payment.

 

Section 6.03.         Subordination.  (a) Notwithstanding any provision of this Agreement to the contrary, all rights of the Guarantors under Sections 6.01 and 6.02 hereof and all other rights of indemnity, contribution or subrogation of the Guarantors under applicable law or otherwise shall be fully subordinated to the payment in full in cash or immediately available funds of the Obligations (other than Obligations in respect of Specified Hedge Agreements, Cash Management Obligations and contingent indemnification and reimbursement obligations that are not yet due and payable and for which no claim has been asserted) until such time as this Agreement has been terminated in accordance with Section 7.15(a).  No failure on the part of the Borrower or any Guarantor to make the payments required by Sections 6.01 and 6.02 hereof (or any other payments required under applicable law or otherwise) shall in any respect limit the obligations and liabilities of the Borrower with respect to the Obligations or any Guarantor with respect to its obligations hereunder, and the Borrower shall remain liable for the full amount of the Obligations and each Guarantor shall remain liable for the full amount of its obligations hereunder.

 

(b)           The Borrower and each Guarantor hereby agree that all Indebtedness and other monetary obligations owed by it to the Borrower, any other Guarantor or any Subsidiary shall be fully subordinated to the payment in full in cash or immediately available funds of the Obligations (other than Obligations in respect of Specified Hedge Agreements, Cash Management Obligations and contingent indemnification and reimbursement obligations that are not yet due and payable and for which no claim has been asserted) to the extent subordination is required pursuant to the provisions of Section 6.01(e) of the Credit Agreement, until such time as this Agreement has been terminated in accordance with Section 7.15(a).

 

ARTICLE VII

 

MISCELLANEOUS

 

Section 7.01.         Notices.  All communications and notices hereunder shall (except as otherwise permitted herein) be in writing and given as provided in Section 9.01 of the Credit

 

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Agreement.  All communications and notices hereunder to any Subsidiary Loan Party shall be given to it in care of the Borrower, with such notice to be given as provided in Section 9.01 of the Credit Agreement.

 

Section 7.02.         Security Interest Absolute.  All rights of the Collateral Agent hereunder, the Security Interest in the Article 9 Collateral, the security interest in the Pledged Collateral and all obligations of each Pledgor hereunder shall be absolute and unconditional irrespective of (a) any lack of validity or enforceability of the Credit Agreement, any other Loan Document, any agreement with respect to any of the Obligations or any other agreement or instrument relating to any of the foregoing, (b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from the Credit Agreement, any other Loan Document or any other agreement or instrument, (c) any exchange, release or non-perfection of any Lien on other collateral, or any release or amendment or waiver of or consent under or departure from any guarantee, securing or guaranteeing all or any of the Obligations or (d) subject only to termination or release of a Guarantor’s obligations hereunder in accordance with the terms of Section 7.15 hereof any other circumstance that might otherwise constitute a defense available to, or a discharge of, any Pledgor in respect of the Obligations or this Agreement (other than a defense of payment or performance).

 

Section 7.03.         Limitation By Law.  All rights, remedies and powers provided in this Agreement may be exercised only to the extent that the exercise thereof does not violate any applicable provision of law, and all the provisions of this Agreement are intended to be subject to all applicable mandatory provisions of law that may be controlling and to be limited to the extent necessary so that they shall not render this Agreement invalid, unenforceable, in whole or in part, or not entitled to be recorded, registered or filed under the provisions of any applicable law.

 

Section 7.04.         Binding Effect; Several Agreement.  This Agreement shall become effective as to any party to this Agreement when a counterpart hereof executed on behalf of such party shall have been delivered to the Collateral Agent and a counterpart hereof shall have been executed on behalf of the Collateral Agent, and thereafter shall be binding upon such party and the Collateral Agent and their respective permitted successors and assigns, and shall inure to the benefit of such party, the Collateral Agent and the other Secured Parties and their respective permitted successors and assigns, except that no party shall have the right to assign or transfer its rights or obligations hereunder or any interest herein or in the Collateral (and any such assignment or transfer shall be void) except as expressly contemplated by this Agreement ,the Credit Agreement or by the Contribution.  This Agreement shall be construed as a separate agreement with respect to each Loan Party and may be amended, modified, supplemented, waived or released with respect to any Loan Party without the approval of any other Loan Party and without affecting the obligations of any other Loan Party hereunder.

 

Section 7.05.         Successors and Assigns.  Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the permitted successors and assigns of such party; and all covenants, promises and agreements by or on behalf of any Pledgor or the Collateral Agent that are contained in this Agreement shall bind and inure to the benefit of their respective permitted successors and assigns; provided that, except with respect to the Contribution no Pledgor may assign, transfer or delegate any of its rights or obligations under

 

29

 

this Agreement without the prior written consent of the Collateral Agent.  The Collateral Agent hereunder shall at all times be the same person that is the Collateral Agent under the Credit Agreement.  Written notice of resignation by the Administrative Agent pursuant to the Credit Agreement shall also constitute notice of resignation as the Collateral Agent under this Agreement.  Upon the acceptance of any appointment as the Administrative Agent under the Credit Agreement by a successor Administrative Agent, that successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Collateral Agent pursuant hereto.

 

Section 7.06.         Collateral Agent’s Fees and Expenses; Indemnification.   The parties hereto agree that the Collateral Agent shall be entitled to reimbursement of its expenses incurred hereunder as provided in Section 9.05 of the Credit Agreement and the provisions of Section 9.05 shall be incorporated by reference herein and apply to each Pledgor mutatis mutandis.

 

Section 7.07.         Collateral Agent Appointed Attorney-in-Fact.  Each Pledgor hereby appoints the Collateral Agent the attorney-in-fact of such Pledgor for the purpose of carrying out the provisions of this Agreement and taking any action and executing any instrument that the Collateral Agent may deem necessary to accomplish the purposes hereof, which appointment is irrevocable and coupled with an interest.  The Collateral Agent shall have the right, upon the occurrence and during the continuance of an Event of Default, with full power of substitution either in the Collateral Agent’s name or in the name of such Pledgor, (a) to receive, endorse, assign or deliver any and all notes, acceptances, checks, drafts, money orders or other evidences of payment relating to the Collateral or any part thereof, (b) to demand, collect, receive payment of, give receipt for and give discharges and releases of all or any of the Collateral, (c) to ask for, demand, sue for, collect, receive and give acquittance for any and all moneys due or to become due under and by virtue of any Collateral, (d) to sign the name of any Pledgor on any invoice or bill of lading relating to any of the Collateral, (e) to send verifications of Accounts to any Account Debtor, (f) to commence and prosecute any and all suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect or otherwise realize on all or any of the Collateral or to enforce any rights in respect of any Collateral, (g) to settle, compromise, compound, adjust or defend any actions, suits or proceedings relating to all or any of the Collateral, (h) to notify, or to require any Pledgor to notify, Account Debtors to make payment directly to the Collateral Agent, and (i) to use, sell, assign, transfer, pledge, make any agreement with respect to or otherwise deal with all or any of the Collateral, and to do all other acts and things necessary to carry out the purposes of this Agreement, as fully and completely as though the Collateral Agent were the absolute owner of the Collateral for all purposes; provided that nothing herein contained shall be construed as requiring or obligating the Collateral Agent to make any commitment or to make any inquiry as to the nature or sufficiency of any payment received by the Collateral Agent, or to present or file any claim or notice, or to take any action with respect to the Collateral or any part thereof or the moneys due or to become due in respect thereof or any property covered thereby.  The Collateral Agent and the other Secured Parties shall be accountable only for amounts actually received as a result of the exercise of the powers granted to them herein, and neither they nor their officers, directors, employees or agents shall be responsible to any Pledgor for any act or failure to act hereunder, except for their own gross negligence or willful misconduct.

 

30

 

Section 7.08.         APPLICABLE LAW.  THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.

 

Section 7.09.         Waivers; Amendment.  (a) No failure or delay by the Collateral Agent or any Lender in exercising any right, power or remedy hereunder or under any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy, or any abandonment or discontinuance of steps to enforce such a right, power or remedy, preclude any other or further exercise thereof or the exercise of any other right, power or remedy.  The rights, powers and remedies of the Collateral Agent and the Lenders hereunder and under the other Loan Documents are cumulative and are not exclusive of any rights, powers or remedies that they would otherwise have.  No waiver of any provision of this Agreement or consent to any departure by any Loan Party therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section 7.09, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given.

 

(b)           Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Collateral Agent and the Loan Party or Loan Parties with respect to which such waiver, amendment or modification is to apply, subject to any consent required in accordance with Section 9.08 of the Credit Agreement.

 

Section 7.10.         WAIVER OF JURY TRIAL.  EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT.  EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 7.10.

 

Section 7.11.         Severability.  In the event any one or more of the provisions contained in this Agreement or the other Loan Documents should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby.

 

Section 7.12.         Counterparts.  This Agreement may be executed in two or more counterparts, each of which shall constitute an original but all of which when taken together shall constitute but one contract, and shall become effective as provided in Section 7.04 hereof.  Delivery of an executed counterpart to this Agreement by facsimile transmission shall be as effective as delivery of a manually signed original.

 

31

 

Section 7.13.         Headings.  Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement.

 

Section 7.14.         Jurisdiction; Consent to Service of Process.  (a) Each party to this Agreement hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of any New York State court or federal court of the United States of America sitting in New York County, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding shall be heard and determined in such New York State or, to the extent permitted by law, in such federal court.  Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.  Nothing in this Agreement shall affect any right that the Collateral Agent, any Issuing Bank or any Lender may otherwise have to bring any action or proceeding relating to this Agreement against any Pledgor, or its properties, in the courts of any jurisdiction.

 

(b)           Each party to this Agreement hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any New York State or federal court.  Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

 

Section 7.15.         Termination or Release.  (a) This Agreement, the guarantees made herein, the pledges made herein, the Security Interest and all other security interests granted hereby shall terminate when all the Obligations (other than Obligations in respect of Specified Hedge Agreements, Cash Management Obligations and contingent indemnification and reimbursement obligations, in each case, that are not yet due and payable and for which no claim has been asserted) have been paid in full in cash or immediately available funds and the Lenders have no further commitment to lend under the Credit Agreement, the L/C Exposure has been reduced to zero and each Issuing Bank has no further obligations to issue Letters of Credit under the Credit Agreement.

 

(b)           A Subsidiary Loan Party shall automatically be released from its obligations hereunder and the security interests in the Collateral of such Subsidiary Loan Party shall be automatically released upon the consummation of any transaction permitted by the Credit Agreement as a result of which such Subsidiary Loan Party ceases to be a Subsidiary Loan Party or otherwise ceases to be a Guarantor (subject to the limitations on release of Co-Borrowers set forth in Section 5.13(b) of the Credit Agreement); provided that such portion of the Lenders as shall be required by the terms of the Credit Agreement to have consented to such transaction (to the extent such consent is required by the Credit Agreement) shall have consented thereto and the terms of such consent did not provide otherwise.

 

(c)           Upon any sale or other transfer by any Pledgor of any Collateral that is permitted under the Credit Agreement to any person that is not a Pledgor, upon the effectiveness

 

32

 

of any written consent to the release of the security interest granted hereby in any Collateral pursuant to Section 9.08 of the Credit Agreement or pursuant to Section 5.1 of the ABL/Term Loan Intercreditor Agreement, the security interest in such Collateral shall be automatically released.

 

(d)           In connection with any termination or release pursuant to paragraph (a), (b) or (c) of this Section 7.15, the Collateral Agent shall execute and deliver to any Pledgor, at such Pledgor’s expense, all documents that such Pledgor shall reasonably request to evidence such termination or release (including, without limitation, UCC termination statements) and will duly assign and transfer to such Pledgor such of the Pledged Collateral that may be in the possession of the Collateral Agent (or a designated bailee, in accordance with the ABL/Term Loan Intercreditor Agreement) and has not theretofore been sold or otherwise applied or released pursuant to this Agreement; provided that the Collateral Agent shall not be required to take any action under this Section 7.15(d) unless such Pledgor shall have delivered to the Collateral Agent together with such request, which may be incorporated into such request, (i) a reasonably detailed description of the Collateral, which in any event shall be sufficient to effect the appropriate termination or release without affecting any other Collateral, and (ii) a certificate of a Responsible Officer of the Borrower or such Pledgor certifying that the transaction giving rise to such termination or release is permitted by the Credit Agreement and was consummated in compliance with the Loan Documents.  Any execution and delivery of documents pursuant to this Section 7.15 shall be without recourse to or warranty by the Collateral Agent.

 

Section 7.16.         Additional Subsidiaries.  Upon execution and delivery by the Collateral Agent and any Subsidiary that is required to become a party hereto by Section 5.10 of the Credit Agreement of an instrument in the form of Exhibit I hereto, such Subsidiary shall become a Subsidiary Loan Party hereunder with the same force and effect as if originally named as a Subsidiary Loan Party herein.  The execution and delivery of any such instrument shall not require the consent of any other party to this Agreement.  The rights and obligations of each party to this Agreement shall remain in full force and effect notwithstanding the addition of any new party to this Agreement.

 

 [Signature Page Follows]

 

33

 

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written.

 

	
 
    	
SF CC   INTERMEDIATE HOLDINGS, INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Richard N. Phegley
    
	
 
    	
 
    	
Name:   Richard N. Phegley
    
	
 
    	
 
    	
Title:   Chief Financial Officer
    
	
 
    	
 
    	
 
    
	
 
    	
SMART &   FINAL HOLDINGS CORP.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Richard N. Phegley
    
	
 
    	
 
    	
Name:   Richard N. Phegley
    
	
 
    	
 
    	
Title:   Chief Financial Officer
    
	
 
    	
 
    	
 
    
	
 
    	
CASINO   USA, INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Richard N. Phegley
    
	
 
    	
 
    	
Name:   Richard N. Phegley
    
	
 
    	
 
    	
Title:   Chief Financial Officer
    
	
 
    	
 
    	
 
    
	
 
    	
SMART &   FINAL INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Richard N. Phegley
    
	
 
    	
 
    	
Name:   Richard N. Phegley
    
	
 
    	
 
    	
Title:   Chief Financial Officer
    
	
 
    	
 
    	
 
    
	
 
    	
SMART &   FINAL STORES LLC
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Richard N. Phegley
    
	
 
    	
 
    	
Name:   Richard N. Phegley
    
	
 
    	
 
    	
Title:   Chief Financial Officer
    
	
 
    	
 
    	
 
    
	
 
    	
AMERIFOODS   TRADING COMPANY LLC
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Richard N. Phegley
    
	
 
    	
 
    	
Name:   Richard N. Phegley
    
	
 
    	
 
    	
Title:   Chief Financial Officer
    

 

ABL Guarantee and Collateral Agreement

 

 

	
 
    	
PORT   STOCKTON FOOD DISTRIBUTORS LLC
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Richard N. Phegley
    
	
 
    	
 
    	
Name:   Richard N. Phegley
    
	
 
    	
 
    	
Title:   Chief Financial Officer
    
	
 
    	
 
    	
 
    
	
 
    	
CASH &   CARRY STORES LLC
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Richard N. Phegley
    
	
 
    	
 
    	
Name:   Richard N. Phegley
    
	
 
    	
 
    	
Title:   Chief Financial Officer
    
	
 
    	
 
    	
 
    
	
 
    	
SMART &   FINAL LOGISTICS LLC
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Richard N. Phegley
    
	
 
    	
 
    	
Name:   Richard N. Phegley
    
	
 
    	
 
    	
Title:   Chief Financial Officer
    
	
 
    	
 
    	
 
    
	
 
    	
COMMERCE   DISTRIBUTION COMPANY LLC
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Richard N. Phegley
    
	
 
    	
 
    	
Name:   Richard N. Phegley
    
	
 
    	
 
    	
Title:   Chief Financial Officer
    
	
 
    	
 
    	
 
    
	
 
    	
SMART &   FINAL PROPERTIES I LLC
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Richard N. Phegley
    
	
 
    	
 
    	
Name:   Richard N. Phegley
    
	
 
    	
 
    	
Title:   Chief Financial Officer
    

 

ABL Guarantee and Collateral Agreement

 

 

	
 
    	
BANK   OF AMERICA, N.A., as Administrative Agent and Collateral Agent
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   David Vega
    
	
 
    	
 
    	
Name:   David Vega
    
	
 
    	
 
    	
Title:   Managing Director
    

 

ABL Guarantee and Collateral Agreement

 

 

Exhibit I
  to Guarantee and 
 Collateral Agreement

 

SUPPLEMENT NO.        dated as of                                (this “Supplement”), to the ABL Guarantee and Collateral Agreement dated as of November 15, 2012 (the “Guarantee and Collateral Agreement”), among SF CC INTERMEDIATE HOLDINGS, INC., a Delaware corporation (“Parent”), Smart & Final Stores LLC, a California limited liability company (the “Borrower”,  each Subsidiary of Parent identified on Schedule I or otherwise identified herein as a party (each, a “Subsidiary Loan Party”) and BANK OF AMERICA, N.A., as administrative agent (in such capacity, the “Administrative Agent”) and as collateral agent (in such capacity, the “Collateral Agent”) for the Secured Parties (as defined therein).

 

A.                                    Reference is made to the Revolving Credit Agreement dated as of November 15, 2012 (as amended, restated, supplemented, waived or otherwise modified from time to time, the “Credit Agreement”), among Parent, the Borrower, Smart & Final, Inc., as Borrower Holdco, the Co-Borrowers from time to time party thereto, the lenders party thereto from time to time (the “Lenders”), the Administrative Agent and the Collateral Agent for the Lenders, and the other parties thereto.

 

B.                                    Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement and the Guarantee and Collateral Agreement referred to therein.

 

C.                                    The Pledgors have entered into the Guarantee and Collateral Agreement in order to induce the Lenders to make Loans, each Issuing Bank to issue Letters of Credit and each Agent and Lender and their respective Affiliates to extend financial accommodations pursuant to any Specified Hedge Agreement or any agreement constituting a Cash Management Obligation under the Credit Agreement.  Section 7.16 of the Guarantee and Collateral Agreement provides that additional Subsidiaries may become Subsidiary Loan Parties under the Guarantee and Collateral Agreement by execution and delivery of an instrument in the form of this Supplement.  The undersigned Subsidiary (the “New Subsidiary”) is executing this Supplement in accordance with the requirements of the Credit Agreement to become a Subsidiary Loan Party under the Guarantee and Collateral Agreement in order to induce the Lenders to make additional Loans, each Issuing Bank to issue additional Letters of Credit and each Agent and Lender and their respective Affiliates to extend financial accommodations pursuant to any Specified Hedge Agreement or any agreement constituting a Cash Management Obligation (if available under the Credit Agreement), and as consideration for any [such financial accommodations][Loans] previously made or issued under the Credit Agreement.

 

Accordingly, the Administrative Agent and the New Subsidiary agree as follows:

 

SECTION 1.  In accordance with Section 7.16 of the Guarantee and Collateral Agreement, the New Subsidiary by its signature below becomes a Subsidiary Loan Party, a Guarantor and a Pledgor under the Guarantee and Collateral Agreement with the same force and effect as if originally named therein as a Subsidiary Loan Party, a Guarantor and a Pledgor, and the New Subsidiary hereby (a) agrees to all the terms and provisions of the Guarantee and 

 

I-1

 

Collateral Agreement applicable to it as a Subsidiary Loan Party, a Guarantor and a Pledgor thereunder and (b) represents and warrants that the representations and warranties made by it as a Guarantor and a Pledgor thereunder are true and correct, in all material respects, on and as of the date hereof.  In furtherance of the foregoing, the New Subsidiary, as security for the payment and performance in full of the Obligations (as defined in the Guarantee and Collateral Agreement), does hereby create and grant to the Collateral Agent, for the benefit of the Secured Parties, a security interest in and Lien on all the New Subsidiary’s right, title and interest in and to the Collateral (as defined in the Guarantee and Collateral Agreement) of the New Subsidiary.  Each reference to a “Subsidiary Loan Party,” a “Guarantor,” or a “Pledgor” in the Guarantee and Collateral Agreement shall be deemed to include the New Subsidiary.  The Guarantee and Collateral Agreement is hereby incorporated herein by reference.

 

SECTION 2.  The New Subsidiary represents and warrants to the Administrative Agent and the other Secured Parties that this Supplement has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, subject to (i) the effects of bankruptcy, insolvency, moratorium, reorganization, fraudulent conveyance or other similar laws affecting creditors’ rights generally, (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law) and (iii) implied covenants of good faith and fair dealing.

 

SECTION 3.  This Agreement may be executed in two or more counterparts, each of which shall constitute an original but all of which when taken together shall constitute but one contract.  This Supplement shall become effective when (a) the Administrative Agent shall have received a counterpart of this Supplement that bears the signature of the New Subsidiary and (b) the Agents have executed a counterpart hereof.

 

SECTION 4.  The New Subsidiary hereby represents and warrants that (a) set forth on Schedule I attached hereto is a true and correct schedule of all the Pledged Securities of the New Subsidiary as of the date hereof, (b) set forth on Schedule II attached hereto is a true and correct schedule of all of the material Patents, Trademarks and Copyrights of the New Subsidiary as of the date hereof, (c) set forth on Schedule III attached hereto is a true and correct schedule of all Commercial Tort Claims of the New Subsidiary individually in excess of $5.0 million as of the date hereof and (d) set forth under its signature hereto, is the true and correct legal name of the New Subsidiary, its jurisdiction of formation and the location of its chief executive office.

 

SECTION 5.  Except as expressly supplemented hereby, the Guarantee and Collateral Agreement shall remain in full force and effect.

 

SECTION 6.  THIS SUPPLEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS SUPPLEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.

 

SECTION 7.  In the event any one or more of the provisions contained in this Supplement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and in the Guarantee and Collateral Agreement shall not in any way be affected or impaired thereby.  The parties shall 

 

I-2

 

endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.

 

SECTION 8.  All communications and notices hereunder shall be in writing and given as provided in Section 7.01 of the Guarantee and Collateral Agreement.

 

SECTION 9.  The New Subsidiary agrees to reimburse the Collateral Agent for its reasonable out-of-pocket expenses in connection with this Supplement, including the reasonable fees, disbursements and other charges of counsel for the Collateral Agent.

 

IN WITNESS WHEREOF, the New Subsidiary and the Agents have duly executed this Supplement to the Guarantee and Collateral Agreement as of the day and year first above written.

 

	
 
    	
[Name   of New Subsidiary]
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
Title:
    
	
 
    	
 
    
	
 
    	
Legal   Name:
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
Jurisdiction   of Formation:
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
Location   of Chief Executive Office:
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
BANK   OF AMERICA, N.A., as
    
	
 
    	
Administrative   Agent and Collateral Agent
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
Title:
    

 

I-3

 

Schedule I
  to Supplement No.        to the 
 Guarantee and 
 Collateral Agreement

 

Pledged Securities of the New Subsidiary

 

EQUITY INTERESTS

 

	
Number of Issuer
   Certificate
    	
 
    	
Registered Owner
    	
 
    	
Number and Class of
   Equity Interest
    	
 
    	
Percentage of Equity
   Interests
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    

 

DEBT SECURITIES

 

	
Issuer
    	
 
    	
Principal Amount
    	
 
    	
Date of Note
    	
 
    	
Maturity Date
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    

 

 

Schedule II
  to Supplement No.        to the 
 Guarantee and 
 Collateral Agreement

 

PATENTS, TRADEMARKS AND COPYRIGHTS

 

 

Schedule III
  to Supplement No.        to the 
 Guarantee and 
 Collateral Agreement

 

COMMERCIAL TORT CLAIMSExhibit 10.9.1

 

FINAL VERSION

 

JOINT VENTURE AGREEMENT

(Store Project)

 

This Joint Venture Agreement (the “Agreement”) is entered into this 15th day of December of 1992 by and between Treviño Hernandez, S. de R.L. de C.V. (hereinafter referred to as “Tre-Her”), a Mexican corporation and Smart & Final, Inc. (hereinafter referred to as “Smart & Final”), a corporation of the State of Delaware, United States of America.

 

Recitals

 

A.                                    Tre-Her is a Mexican corporation with domicile in the City of Tijuana, Baja California, Mexico, with clause of exclusion of foreigners, having as general purpose the management of companies and the rendering of management services and organization systems, marketing and investigation techniques for commercial purposes.

 

B.                                    Smart & Final, through its principal subsidiary, Smart & Final Stores Corporation, operates highly focused, self-service, warehouse format grocery stores that specialize in providing a wide range of food items, including canned foods, paper products and janitorial supplies in large institutional

 

 

sizes and quantities that meet the foodservice needs of restaurants, caterers, clubs, organizations, small and mid-sized businesses and consumers in general.

 

C.                                    Tre-Her and Smart & Final, either directly or through a wholly owned subsidiary to be formed, Smart & Final de Mexico, S.A. de C.V. (“Smart & Final de Mexico”) wish to work jointly in order to incorporate a variable stock corporation in accordance with Mexican law (the “Company”) to engage in the establishment and operation of self-service, warehouse format stores that would specialize in providing food items, including canned foods, paper products and janitorial supplies in large institutional sizes and quantities to serve the foodservice needs for restaurants, caterers, clubs, organizations, small and mid-sized businesses and consumers throughout the States of North and South Baja California and Sonora, United Mexican States.

 

D.                                    It is the express intent and desire of the parties hereto to cause the Company to establish and operate warehouse format stores that will be, in form and substance, essentially similar to the stores that are, owned and operated by Smart & Final in the United States of America.  In the spirit of

 

2

 

cooperation contained throughout this Agreement, Tre-Her shall present, and Smart & Final shall review and consider, those suggestions and recommendations necessary in order to adapt the stores format and product assortment to the specific needs and profile of the Mexican market and consumers.

 

Covenants

 

NOW THEREFORE, in consideration of the premises and the mutual representations, warranties and covenants and subject to the conditions herein contained, the parties hereto agree as follows:

 

CAUSE I

 

Formation of the Company

 

Section 1.1                                    Permits and Licenses.  Within the sixty (60) days following the execution of this Agreement, the parties shall apply for and obtain the corresponding permit from the Ministry of Foreign Affairs for the incorporation of the Company.  The parties recognize and understand that the prior authorization from the National Commission of Foreign Investments (“NCFI”) will not be required for the incorporation of the Company in view of the fact that Smart & Final will secure an authorization from the NCFI for the incorporation of Smart & Final de Mexico which authorization will already contemplate the incorporation

 

3

 

of the Company.  The parties may, by mutual agreement, extend the sixty (60) days term herein provided.

 

Section 1.2                                    Incorporation.  Within the ninety (90) days following the execution of this Agreement, the parties shall incorporate the Company in accordance with Mexican law under the name SMART & FINAL DEL NOROESTE, S.A. DE C.V.  The Company shall have its Charter and By-laws in the form attached hereto as Exhibit “A”.  The parties may, by mutual agreement, extend the ninety (90) days term herein provided.

 

Section 1.3                                    Percentages of Participation.  The parties hereto shall participate as shareholders in the Company in the following proportions:

 

a)             Fifty percent (50%) of the capital stock shall be subscribed and paid by Tre-Her;

 

b)             Fifty percent (50%) of the capital stock shall be subscribed and paid by Smart & Final.

 

CAUSE II

 

Amount of Subscription

 

The parties agree that the initial capital stock of the Company shall be the amount of $50’000,000.00 (Fifty Million Pesos

 

4

 

00/100) which shall be subscribed and paid by the parties at the act of incorporation of the Company in the following manner:

 

	
 
    	
 
    	
SHARES
    	
 
    	
 
    	
 
    
	
SHAREHOLDERS
    	
 
    	
SERIES “A”
    	
 
    	
SERIES “B”
    	
 
    	
CAPITAL
    	
 
    
	
Tre-Her, S. De R.L. de   C.V.
    	
 
    	
25,000
    	
 
    	
—
    	
 
    	
$
    	
25’000,000.00
    	
 
    
	
Smart &   Final de Mexico, S.A. de C.V.
    	
 
    	
—
    	
 
    	
25,000
    	
 
    	
$
    	
25’000,000.00
    	
 
    
	
T O T A L:
    	
 
    	
25,000
    	
 
    	
25,000
    	
 
    	
$
    	
50’000,000.00
    	
 
    

 

CAUSE III

 

Administration of the Company

 

Section 3.1                                    Board of Directors.  As provided in the form of Charter and By-laws attached hereto as Exhibit “A”, the Company shall be managed by a Board of Directors consisting of six (6) directors.  Three (3) of such directors shall be appointed by Tre-Her and three (3) shall be appointed by Smart & Final.  The directors shall serve at the pleasure of the respective shareholders that have appointed them.  The Board of Directors shall elect from among its members a Chairman who shall remain in office for two (2) years.  The first Chairman shall be appointed by Tre-Her and, at the end of his two (2) year term, the next Chairman shall be appointed by Smart & Final.  Accordingly, the right to appoint the Chairman shall rotate and correspond, every two (2) years, to each of the parties hereto.

 

5

 

It is expressly agreed that the Chairman shall not have a tie-breaking vote.

 

Section 3.2                                    Officers.  As provided in the form of Charter and By-laws attached hereto as Exhibit “A”, the shareholders and Board of Directors of the Company may appoint one or more officers, general managers or managers, who not need be shareholders or board members and who shall enjoy the powers and authority conferred upon them in their respective appointments.

 

Section 3.3                                    Director of Operations.  The operations of the Company shall be conducted by a Director of Operations who shall be an employee of the Company and who shall be appointed by the Board of Directors in accordance with the provisions of the form of Charter and By-laws attached hereto as Exhibit “A”.  Tre-Her may propose candidates to fill this position.

 

Section 3.4                                    Project Director.  In order to ensure that the Company will establish and operate warehouse format stores essentially similar to those operated by Smart & Final in the United States of America, Smart & Final shall have the right to designate a Project Director at its sole discretion.  The Project Director shall not be an employee of the Company and shall and may act on behalf and as liaison of Smart & Final with the Company in all matters not reserved to the Board of

 

6

 

Directors.  The Project Director shall have authority over the activities of the Director of Operations.

 

CAUSE IV

 

Surveillance of the Company

 

As provided in the form of Charter and By-laws attached hereto as Exhibit “A”, the surveillance of the Company shall be entrusted initially to two (2) examiners, one of whom shall be elected by Tre-Her and the other to be appointed by Smart & Final.

 

CAUSE V

 

Closing

 

Section 5.1                                    Time and Place of the Closing.  The closing of the formation of the Company shall take place at the offices of Baker & McKenzie Abogados, S.C. located at Blvd. Agua Caliente 4558-1005, Tijuana, Baja California, at 11:00 AM local time on December         , 1992.

 

Section 5.2                                    Procedure at the Closing.  At the closing, the parties agree to take the following steps in the order listed below (provided, however, that upon their completion all such steps shall be deemed to have occurred simultaneously):

 

7

 

(a)         Smart & Final shall deliver to Tre-Her copy of the permit granted by the Ministry of Foreign Affairs for the incorporation of the Company as well as a copy of the corresponding notarial deed draft containing the deed of incorporation of the Company and the By-laws attached hereto as Exhibit “A”.

 

(b)         The authorized representatives of Smart & Final and Tre-Her shall sign before a Notary Public the deed of incorporation of the Company.

 

(c)          The authorized representatives of Smart & Final and Tre-Her shall pay their proportionate amount of subscription of shares through certified checks issued to the Company.

 

(d)         Shares of stock duly issued by the Company and representing the percentage of participation indicated in Clause II above shall be delivered to Smart & Final and Tre-Her.

 

CAUSE VI

 

Representations and Warranties of the Parties

 

Section 6.1                                    Representations and Warranties of Tre-Her.  In order to induce Smart & Final to enter into this Agreement and to consummate the transactions contemplated hereunder, Tre-Her makes the following representations and warranties:

 

8

 

(a)         Tre-Her is a corporation duly organized and validly existing under the laws of the United Mexican States, with full corporate power and authority to enter into this Agreement and perform its obligations hereunder.

 

(b)         The execution, delivery and performance of this Agreement and the consummation of the transactions herein contemplated are acts that have been duly authorized by all necessary corporate actions of Tre-Her.

 

(c)          This Agreement has been duly executed and delivered by Tre-Her and constitutes a valid and binding obligation of Tre-Her, enforceable in accordance with its terms.

 

Section 6.2                                    Representations and Warranties of Smart & Final.  In order to induce Tre-Her to enter into this Agreement and to consummate the transactions contemplated hereunder, Smart & Final makes the following representations and warranties:

 

(a)         Smart & Final is a corporation duly organized and validly existing under the laws of the State of Delaware, United States of America.  Smart & Final de Mexico is or will be a corporation duly organized and validly existing under the laws of the United Mexican States.  Both corporation have or will have full corporate power and authority to enter into this Agreement and perform their obligations hereunder.

 

9

 

(b)         The execution, delivery and performance of this Agreement and the consummation of the transactions herein contemplated are acts that have been duly authorized by all necessary corporate actions of Smart & Final.

 

(c)          This Agreement has been duly executed and delivered by Smart & Final and constitutes a valid and binding obligation of Smart & Final, enforceable in accordance with its terms.

 

CAUSE VII

 

Shareholders’ Support, Operation Plan and

 

Agreements with Shareholders

 

Section 7.1                                    General.  Although it is the intention of the parties to maintain the initial administrative staff of the Company at a minimum, it is contemplated that the Company following the closing, will perform through its own personnel substantially all of the activities required to properly administer and implement its affairs.  Thus, the parties anticipate that substantially all basic functions, such as financing, administration, operations, sourcing and purchasing, recruiting, labor negotiation, public relations and the like shall be conducted by the Company with its own staff.  Notwithstanding the foregoing, each party hereby agrees to provide certain support services upon the reasonable request

 

10

 

from time to time of the Company and to assume certain responsibilities, as set forth below.

 

Section 7.2                                    Support Services.  Neither party shall be compensated under this Agreement for providing any support services to the Company, except for reimbursement for reasonable and lawful third party charges incurred by them for the benefit of the Company, including but not limited to advertising charges, outside legal fees, letter of credit and bond fees and insurance premiums.

 

It is agreed by the parties that whenever support services represent ministerial or usual and customary services regularly provided for their own operations, the parties will absorb the cost of such services and further agree to fully cooperate with each other in the provision of such services in the understanding, however, that each of the parties own operations shall have priority over the use of their own respective services.  By way of example, some of the services which the parties will provide to the Company and which are usual and customary, include real estate support, marketing and graphic arts support, product procurement support, governmental relations and professional and community introductions.

 

11

 

As indicated above, neither party shall be compensated for the provision of support services to the Company.  Whenever the Company requests support services that are beyond those usually and customarily provided by the parties, such services shall be offered to the Company at cost.

 

Section 7.3                                    Operational Plan.  The parties hereto expressly agree that they will cause the Company to operate in accordance with the terms and conditions of the Operational Plan that is attached hereto as Exhibit “B”, including any modifications and amendments which may be made to such Operational Plan from time to time by the parties.  The Operational Plan shall be updated on an annual basis and submitted to the approval of the shareholders of the Company.

 

The Operational Plan attached hereto as Exhibit “B” contains detailed planning, business and operations information regarding development of the warehouse stores including, among other matters, annual budgets for investment and operations, real estate site selection, store design and layout, staffing, logistical support, product assortment as well as technical, systems and marketing support.  As intended by the parties, the Operational Plan provides for the development of stores which are substantially similar to the Smart & Final stores in the United States of America.

 

12

 

Section 7.4                                    Agreements with Shareholders.  Promptly after the execution of this Agreement and approval of the Board of Directors of the Company, the parties hereto shall cause the Company to enter into the following agreements:

 

(a)         A License Agreement in the form attached hereto as Exhibit “C” whereby Smart & Final licenses to the Company the use of the name “Smart & Final” and certain trademarks specifically listed in such Exhibit “C”.  It is expressly agreed by the parties that Smart & Final shall only be required to license to the Company those trademarks which use may be legally licensed in Mexico.

 

(b)         A Product Sales Agreement in the form attached hereto as Exhibit “D” whereby Smart & Final agrees to sell to the Company certain private label products under the terms and conditions of Exhibit “D”.  It is expressly agreed by the parties that the sourcing of products for the Company shall be made at the lowest possible price, the intent being that profits remain in the Company to be distributed to Tre-Her and Smart & Final in proportion to their respective percentages of ownership.  Both parties agree to cooperate fully in the preparation of the necessary documentation for the import of products into Mexico as well as in the compliance of any and all applicable legal requirements including, without limitation,

 

13

 

preparation of labels in Spanish, obtention of sanitary certificates for the products, etc.

 

CAUSE VIII

 

Financial Matters and Accounting

 

Section 8.1                                    Subsequent Capitalizations.  In addition to the amount of initial subscription referred to in Clause II above, the parties estimate that the capitalization for the warehouse stores project to be carried out by the Company shall be approximately US$10,000,000.00, which amount shall be contributed by the parties in proportion to their respective percentages of equity participation in the Company.

 

The parties undertake and obligate themselves to make additional capital contributions in accordance with the schedule contained in the Operational Plan attached hereto as Exhibit “B”.  To the extent the Company decides to obtain loans to finance such capital requirements, the parties recognize that additional capital contributions may be reduced accordingly.  Additional capital contributions must have their recommendation of the Board of Directors of the Company and the approval of the shareholders of the Company in accordance with the provisions of the form of Charter and By-laws attached hereto as Exhibit “A”.

 

14

 

Section 8.2                                    Financial Policies.  The parties agree that they shall recommend that the Company adopt and implement the following financial policies:

 

(a)         Shareholder financing, if required, shall be strictly in proportion to each party’s percentage interest in the total capital of the Company.  Unless otherwise mutually agreed by the parties, shareholder financing shall be in the form of additional capital contributions to the Company;

 

(b)         The Company shall make an annual cash distribution of dividends at the highest level consistent with the Company’s cash flow and local reinvestment opportunities.

 

(c)          In the event that the Company decides to obtain loans to finance investments in fixed assets and to fund working capital requirements, the parties agree to use their best efforts to assist the Company to obtain such loans.  None of the parties shall discuss with, or agree to, any commitments on behalf of the Company without the prior approval of the Company as set forth in the form of Charter and By-laws attached hereto as Exhibit “A”.

 

Section 8.3                                    Accounting.  The Company shall keep its books and records in accordance with generally accepted accounting

 

15

 

principles and practices followed by companies in Mexico.  The accounting records of the Company shall, to the extent practical, be kept in such form as shall permit and facilitate preparation of the financial statements required under the Operation Plan attached hereto as Exhibit “B”.  Each of the fiscal year-end statements shall be audited and certified by Cardenas, Dosai y Astiazaran, S.C.  The parties or their authorized representatives and examiners’ shall have access to inspect all accounting and operational records and other supporting documents and records of the company at reasonable intervals and during regular working hours.  Such records shall be retained for at least ten (10) years, as required under Mexican law, or such longer period as may be necessary to Smart & Final for United States tax purposes.

 

Section 8.4                                    Organizational Expenses.  Each of the parties hereto shall pay its own costs incurred in connection with the negotiation, preparation and execution of this Agreement.  Upon incorporation, the Company shall bear the costs, expenses, fees and taxes related to its formation which shall be accumulated and accounted for in accordance with Mexican accounting principles and practices as organizational costs of the Company.

 

Section 8.5                                    Insurance.  The parties agree that, in order to minimize any potential for shareholder liability, they shall

 

16

 

recommend that the Company adopt and implement appropriate insurance policies and procedures so that adequate levels of insurance against customary risks are maintained at all times.

 

CAUSE IX

 

Confidentiality and Territory

 

Section 9.1                                    Obligation to Maintain Confidentiality.  All information designated in writing as proprietary information by either of the parties hereto shall, during the term of this Agreement and for five (5) years thereafter, be treated as confidential by the recipient, shall not be disclosed to a third party and shall not be used other than for purposes contemplated by this Agreement, without in each case the prior written consent of the party providing the information, unless such information:

 

(a)         is, or later becomes, public knowledge other than by breach of the provisions of this Section;

 

(b)         is in the possession of the recipient with full rights to disclose prior to receiving it from the other party; or,

 

(c)          is independently received by the recipient from a third party having full rights to disclose such information.

 

17

 

Section 9.2                                    Limitation of Territory.  It is expressly agreed by the parties that the warehouse stores development project to be carried out by the Company shall be exclusively for stores in the States of North and South Baja California and Sonora, United Mexican States.

 

CAUSE X

 

Additional Development

 

As set forth in Section 9.2 above, it is the agreement of the parties that the warehouse stores development project to be carried out by the Company shall be exclusively limited to the territory comprised by the States of North and South Baja California and Sonora, United Mexican States.

 

The foregoing notwithstanding, it is agreed that in the event Smart & Final decides to pursue store development projects in areas of the United Mexican States other than the States of North and South Baja California and Sonora, Smart & Final hereby grants to Tre-Her an option to participate with at least a twenty-five percent (25%) in such additional development; provided, the following performance goals are met by the parties under this Joint Venture Agreement:

 

18

 

(a)         that at least six (6) stores be opened in North and South Baja California and Sonora by the end of 1995;

 

(b)         that such stores break-even within eighteen (18) months of their corresponding opening date;

 

(c)          that the Company achieves an after tax rate of return on investment of at least fifteen percent (15%);

 

(d)         that the administrative and operational control of the company and the stores be supervised by a Project Director to be appointed by Smart & Final as provided in Section 3.4 hereof; and,

 

(e)          that Smart & Final’s participation in such new development projects outside North and South Baja California and Sonora be no less that fifty percent (50%).

 

CAUSE XI

 

Participation in other Projects

 

Although not specifically within the scope of this Joint-Venture Agreement, the parties have agreed to explore and pursue the following additional activities or projects:

 

19

 

Section 11.1                             Private Label Project.

 

(a)         Smart & Final, through its wholly owned subsidiary, Smart s Final Stores Corporation (“Stores”), will agree to sell, and Tre-Her will agree to buy such items in Stores’ inventory of private label products (the “Products”) as Tre-Her may elect to buy for resale in the States of North and South Baja California and Sonora.  It is hereby agreed and accepted that said sales may be made to Tre-Her or to any of its subsidiaries or affiliates.

 

(b)         Stores shall sell the Products to Tre-Her under Stores proprietary labels, to wit, “Iris”, “Montecito”, “Smarty” “Smart-Buy”, and “Table Queen” F.O.B.  Stores’ dock in               , California, at a price of actual cost plus a reasonable percentage to be agreed upon by the parties on a product by product basis.  Confirming their spirit of cooperation and mutual interest, the parties agree to make their best efforts to establish consistent pricing for categories of products and to share cost information.  It is the intention of Stores to sell the Products at a competitive price so that Tre-Her can successfully distribute them in the States of North and South Baja California and Sonora.

 

20

 

(c)          The parties agree to make their best efforts to execute the corresponding distribution agreement as soon as possible after the execution of this Joint-Venture Agreement.

 

Section 11.2                             Technology Sharing Project.

 

(a)         The parties agree to explore such opportunities as may-exist for the mutual sharing of technology, systems and other tangible and intangible support for each of their own domestic operations, on a project by project basis, provided that nothing contained herein shall require one party to sell, give or otherwise transfer and license software which is the subject of any restriction on transfer.

 

(b)         The cost of providing any services for any particular project from one party to the other shall be estimated at actual cost and presented to the requesting party, which may accept or reject it.

 

(c)          The provision of service from one party to the other shall, at all times be subject to the demands and needs of the providing parties’ domestic operations, which shall retain priority over any other project.

 

(d)         It is the intent of the parties to this Agreement to follow the requesting party to learn from the experience of the

 

21

 

providing party in the implementation, modernization technology and equipment.

 

CAUSE XII

 

Indemnification

 

Section 12.1                             Agreement by Smart & Final to Indemnify.

 

(a)         Subject to the terms and conditions herein set forth, Smart & Final agrees that it will defend, indemnify and hold Tre-Her harmless in respect of the aggregate of all indemnifying damages (as hereinafter defined) of Tre-Her.  For this purpose, “indemnifying damages” of Tre-Her means the aggregate of all expenses, losses, costs, deficiencies, liabilities and damages (including related counsel fees and expenses) incurred or suffered by Tre-Her resulting from (i) any breach by Smart & Final of its representations and warranties set forth in this Agreement, or from (ii) Tre-Her’s having extended credit to the Company, having extended coverage under Tre-Her insurance policies to the Company or any of its subsidiaries or their respective businesses or properties (or having caused such coverage to be extended), having procured any surety bond or letter of credit for or on behalf of the company or any of its subsidiaries, or having guaranteed or otherwise assured the performance or payment of any obligation of the Company or any

 

22

 

of its subsidiaries; in the understanding, however, that with respect to the matters indicated in subparagraph (ii), the indemnifying damages of Tre-Her do exceed Tre-Her’s pro rata share of the same based on the number of shares of the company owned by Tre-Her or Smart & Final respectively.  Without limiting the generality of the foregoing, with respect to the measurement of indemnifying damages, Tre-Her shall have the right to be put in the same financial position as it would have been in, had they not extended credit to the Company and not been liable with respect to any of the matters referred to in the preceding subparagraph (ii) in excess of their pro rata share.

 

(b)         Tre-Her shall promptly give Smart & Final notice of each time that Tre-Her becomes aware of any fact or circumstance which may give rise to an obligation of Smart & Final to indemnify Tre-Her under this Section, which notice shall be accompanied by a copy of any claim made which may result in such obligation to indemnify.  The failure to so notify Smart & Final shall relieve Smart & Final from its obligation to indemnify Tre-Her only to the extent Smart & Final has been prejudiced by such failure.

 

Section 12.2                             Agreement by Tre-Her to Indemnify. (a) Subject to the terms and conditions herein set forth, Tre-Her agrees that

 

23

 

it will defend, indemnify and hold Smart & Final harmless with respect to the aggregate of all indemnifying damages (as hereinafter defined) of Smart & Final.  For this purpose, “indemnifying damages” of Smart & Final means the aggregate of all expenses, losses, costs, deficiencies, liabilities and damages (including related counsel fees and expenses) incurred or suffered by Smart & Final resulting form (i) any breach by Tre-Her of its representations and warranties set forth in this Agreement, or from (ii) Smart & Final’s having extended credit to the Company, having extended coverage under Smart & Final insurance policies to the Company or any of its subsidiaries or their respective businesses or properties (or having caused such coverage to be extended), having procured any surety bond or letter of credit for or on behalf of the company or any of its subsidiaries, or having guaranteed or otherwise assured the performance or payment of any obligation of the Company or any of its subsidiaries; in the understanding, however, that with respect to the matters indicated in subparagraph (ii) the indemnifying damages of Smart & Final do exceed Smart & Final’s pro rata share of the same based on the number of shares of the company owned by Tre-Her of Smart & Final respectively.  Without limiting the generality of the foregoing, with respect to the measurement of indemnifying damages, Smart & Final shall have the right to be put in the same financial position as it would have been in had they not extended credit to the Company and not

 

24

 

been liable in respect of any of the matters referred to in the preceding subparagraph (ii) in excess of their pro rata share.

 

(b)         Smart & Final shall promptly give Tre-Her notice of each time that Smart & Final becomes aware of any fact or circumstance which may give rise to an obligation of Tre-Her to indemnify Smart & final under this Section, which notice shall be accompanied by a copy of any claim made which may result in such obligation to indemnify.  The failure to so notify Tre-Her shall relieve Tre-Her form its obligation to indemnify Smart & Final only to the extent Tre-Her has been prejudiced by such failure.

 

Section 12.3                             Assumption of Defense.  The party from whom indemnification is sought under this Clause for any claim, suit, action or other demand shall have the right to assume the defense of any claim, suit action or other demand.  If such party does not assume such defense, it shall cooperate with the other party in the defense of such claim, suit, action or other demand.  The party from whom indemnification is sought with respect to any claim, suit, action or other demand shall have the right to require the other party to settle such claim, suit, action or other demand on such terms as the party from whom indemnification is sought deems appropriate, provided that such indemnifying party at the time of such settlement pays or makes

 

25

 

appropriate arrangement satisfactory to the other party to fulfill the terms of such settlement.

 

CAUSE XIII

 

Term of the Agreement

 

This Agreement shall become effective on the date of its execution and shall remain in force and effect during the life or duration of the Company.

 

CAUSE XIV

 

Miscellaneous

 

Section 14.1                             Language.  This agreement is executed in the Spanish and English languages, each of which shall be considered an original.  However, in the interest of certainty, the parties agree that the Spanish version shall govern and be controlling in the event of any inconsistency.

 

Section 14.2                             Amendment and Modifications.  The parties may amend, modify and supplement this Agreement in such manner as may be agreed upon by them in writing.

 

Section 14.3                             Binding Effect.  This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, provided that neither party

 

26

 

may assign any of its rights or delegate any of its duties under this Agreement without the prior written consent of the other party.

 

Section 14.4                             Entire Agreement.  This instrument and the Exhibits and Schedules attached hereto contain the entire agreement of the parties hereto with respect to the formation of the Company and the other transactions contemplated hereby, and supersede all prior understandings and agreements of the parties with respect to the subject matter hereof.  Any reference herein to this Agreement shall be deemed to include the Exhibits and Schedules attached hereto.

 

Section 14.5                             Headings.  The descriptive headings in this Agreements are inserted for convenience only and do not constitute a part of this Agreement.

 

Section 14.6                             Execution in Counterparts.  This Agreement may be executed in any number of counterparts, each of which shall be deemed an original.

 

Section 14.7                             Notices.  Any notice, request, information or other document to be given hereunder to either of the parties by the other party shall be in writing sent as follows:

 

27

 

	
If to Tre-Her addressed to:
    	
 
    	
TRE-HER, S. DE R.L. DE C.V.
   Edificio Gilt - 4o.Piso
   Av. Ignacio Comonfort No.20
   Zona del Rio
   Tijuana, B.C. Mexico 22000
   Tel:
   Fax:

Att’n:                Mr. Jose Fimbres   Moreno

General Director
    
	
 
    	
 
    	
 
    
	
If to Smart & Final addressed to:
    	
 
    	
SMART &   FINAL, INC.
   524 Chapala Street
   Santa Barbara, CA 93101
   Tel:(805) 564-6700
   Fax:(805) 564-6729
   Att’n:                Dr. Robert J. Emmons

Chairman
    
	
 
    	
 
    	
 
    
	
with copies to:
    	
 
    	
SMART &   FINAL STORES CORPORATION
   4700 South Boyle Avenue
   Los Angeles, CA 90058
   Tel:(213) 589-1054
   Fax:(213) 584-9868
    Att’n:                Donald G. Alvarado, Esq.

General   Counsel
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
BAKER & MCKENZIE ABOGADOS, S.C.
   P.O. BOX 1205
   Chula Vista, CA 91912-1205
   Tel:(66) 81-77-40
   Fax:(66) 81-77-45
    Att’n:                Gaspar Gutierrez-Centeno

Managing   Partner
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
GAMA-MONCADA Y ASOCIADOS
   Blvd. Agua Caliente 3401-201
   Condominio Gallego
   Tijuana, B.C., 22420
   Tel: (66) 86-2983
   Fax: (66) 86-2986
    Att’n:                Carlos E. Moncada
    

 

A party may change the address to which notices hereunder are to be sent to it by giving written notice of such change of address in the manner herein provided for giving notice.  Any notice

 

28

 

delivered personally shall be deemed to have been given on the date it is so delivered, and any notice delivered by registered or certified mail or by facsimile transmission shall be deemed to have been given on the date it is received.

 

Section 14.8                             Governing Law.  This Agreement shall be subject to and governed by the laws of Mexico.  The invalidity or unenforceability of any provision(s) of this Agreement under the laws of Mexico shall not affect the validity and enforceability of the other provisions hereof, and this Agreement shall be construed in all respect as if such invalid or unenforceable provision(s) were omitted.

 

Section 14.9                             Publicity.  No press release or other public announcement related to this Agreement or the transactions contemplated hereby may be issued by either party hereto without the prior approval of the other party, except that either party may make such public disclosure as it believes in good faith to be required by law or by the terms of any listing agreement with a securities exchange (in which case such party will consult with the other party prior to making such disclosure).

 

Section 14.10                      Arbitration.  Any dispute, controversy or claim arising from or relating to this Agreement or the breach thereof shall be finally settled by arbitration in accordance with the

 

29

 

Rules of Conciliation and Arbitration of the International Chamber of Commerce (ICC).  There shall be three (3) arbitrators, one arbitrator being selected by Smart & Final, one arbitrator being selected by Tre-Her and the third arbitrator being selected by both of the selected arbitrators.  If any party fails to nominate an arbitrator within thirty (30) days from the date of notification made to it of a party’s request for arbitration, then the Court of Arbitration of the ICC shall appoint the arbitrator, as the case may be, in accordance with said Rules.  The place of shall be the City of San Diego, California, and the language of the arbitration proceeding shall be English.

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written.

 

	
 
    	
 
    	
TREVIÑO HERNANDEZ, S. DE R.L. DE C.V.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
/s/
    	
 
    	
By:
    	
/s/ Jose Fimbres Moreno
    
	
WITNESS
    	
 
    	
[Name]  Mr. Jose Fimbres Moreno
    
	
 
    	
 
    	
[Title]  General Director
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
SMART & FINAL, INC.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
/s/
    	
 
    	
By:
    	
/s/ Robert J. Emmons
    
	
WITNESS
    	
 
    	
[Name]  Dr. Robert J. Emmons
    
	
 
    	
 
    	
[Title]  Chairman
    

 

S57-1931
 MTM

 

30

 

EXHIBIT “A”

 

FINAL VERSION

 

FORM OF CHARTER AND BY-LAWS

 

SMART & FINAL DEL NOROESTE, S.A. DE C.V.

 

CHAPTER I

 

ORGANIZATION

 

FIRST. — The corporation is a variable capital corporation, subject to this charter and by-laws and to the General Law of Mercantile Corporations with regard to matters not herein provided.

 

CHAPTER II

 

NAME, DOMICILE, DURATION AND PURPOSE

 

SECOND.— The name of the corporation is “Smart & Final del Noroeste”, which shall always be followed by the words “Sociedad Anonima de Capital Variable” or by its abbreviation “S.A. de C.V.”

 

THIRD.— The domicile of the corporation shall be at Tijuana, Baja California, Mexico.  The shareholders, or the Board of Directors of the corporation may establish agencies or branches of the corporation anywhere within the United Mexican States or abroad without such acts constituting a change of domicile.

 

FOURTH. — The corporation shall have a duration of 99 (ninety nine) years from the date of incorporation.

 

 

FIFTH. — The corporation shall have as corporate purpose:

 

a)        The establishment and operation of highly focused, self-service, warehouse format grocery stores that specialize in providing a wide range of food items, including canned foods, paper products and janitorial supplies in large institutional sizes and quantities that meet the foodservice needs of restaurants, clubs, organizations, small and mid-sized businesses and consumers in general, and related products and services.

 

b)        The purchase, sale, import, export, distribution, consignment and marketing in general of all kinds of food products, beverages, paper products, groceries, janitorial supplies and related products.

 

c)                        To promote, organize and manage all kinds of civil or commercial corporations.

 

d)        To register trademarks, commercial names and acquire or sell all kinds of industrial property rights and copyrights, as well as the use and exploitation of all kinds of industrial property rights and copyrights.

 

e)        To receive or grant loans, with or without guarantee; and to issue, accept, guarantee, acquire, endorse and in general transfer all kinds of negotiable instruments according to law, as well as guarantee, in any manner, obligations of third parties.

 

f)                         Acquire title or beneficiary rights, lease, possess or use under any title, all kinds of chattels and real-estate which may be necessary to carry out the above corporate purposes.

 

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g)                        In general, enter into or carry out within the Mexican Republic or abroad, on its own account on behalf or on the account or behalf of third parties, all kinds of acts, contracts, agreements, civil or commercial, principal or of guarantee, or of any other nature which may be permitted by law.

 

CHAPTER III

 

CAPITAL AND SHARES

 

SIXTH. — The capital of the corporation shall be variable, with a minimum of $50’000,000.00, (Fifty Million 00/100 Mexican Currency), represented by 50,000 common shares.  The variable portion of the capital of the corporation shall be unlimited.

 

SEVENTH.— All of the common shares of stock comprising the capital of the corporation shall be registered with a par value of $1,000.00 (ONE THOUSAND PESOS 00/100, Mexican Cy.) each.  Series “A” shares shall represent 50% of the corporate capital and shall only be subscribed by (i) individuals who are Mexican nationals, (ii) aliens who are permanent residents except when by reason of their activity they are tied to foreign economic decision making centers, (iii) Mexican legal entities with a foreigner exclusion clause, (iv) Mexican legal entities in which a majority of their equity capital is owned by Mexican investors as provided in the Law to Promote Mexican Investment and Regulate Foreign Investments.  The remaining 50% of the capital stock shall be represented by Series “B” shares and may be freely subscribed.

 

EIGHTH. — Except for such preferred shares or shares with special or limited rights as may be issued, all shares shall have equal rights and obligations.

 

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NINTH. — Increases and reductions of the capital of the corporation shall be governed by the following rules:

 

a)                      Increases and reductions of both the minimum and variable capital of the corporation shall be effected by resolution of an extraordinary meeting of shareholders.

 

b)                      No new shares shall be issued unless and until all previously issued shares have been fully paid.

 

c)                       Authorized but inscribed shares and those which have been amortized or retired shall be kept in the corporate treasury.

 

d)                      Only fully paid shares may be amortized or retired.

 

e)                       The amortization or retirement of shares, unless otherwise agreed upon among the shareholders at a Shareholders Meeting and respecting the rights of withdrawal of shareholders as provided in Clause Eighteenth, shall be carried out among the shareholders, in proportion to the shares held by each.

 

CHAPTER IV

 

STOCK TRANSFERS

 

TENTH. — Any of the following share transfers may be effected without the prior consent of the Board of Directors:

 

a)                      In the case of merger of the company with another company.

 

b)                      If authorized by all the company shareholders.

 

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c)                       If the offering shareholder is a corporation transferring shares to a subsidiary, affiliate or other entity under common control with the offering shareholder.

 

No other transfer of shares may be effected by any shareholder without the prior consent of the Board of Directors, which shall be granted in accordance with the rules set forth below.  Any such other transfer made without the prior consent of the Board of Directors shall be considered null and void and the Board of Directors may refuse to record such unauthorized transfer in the Stock Register and may also request the judicial recision of the same.

 

1)                      The shareholders of the corporation shall have, under the terms of this clause, a right of first refusal to acquire or to designate someone to acquire any pro rata portion of shares of the corporation, to be transferred by any one or more shareholders.  In determining such pro rata portion, the shares held by shareholders who do not wish to exercise their rights under this clause may be excluded from the computation.

 

2)                      The shareholders shall have the right to designate one or more parties to acquire their pro rata portion of the shares being offered.

 

3)                      When a shareholder wishes to dispose all or any part of the shares he owns in the corporation, he shall notify the Secretary of the corporation in writing of his desire to transfer such shares and such notification shall contain the name and address of the acquiring third party, the number of shares to be transferred, price and other terms and conditions of the proposed transaction and such notification shall be accompanied by a copy of the proposed offer.

 

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4)                      As soon as the Secretary receives such notice, he shall notify the shareholders of the corporation, by telex, telegram or cable, confirmed by registered airmail to those residing abroad or by registered mail to those residing in the United Mexican States, at their last registered address, of the offer; it is understood that each shareholder shall be entitled to register a second address with the Secretary of the Corporation to which a copy of said notice should be sent.  The shareholders shall have thirty (30) days, from the date of the foregoing notice from the Secretary to exercise the right of first refusal granted herein by written notice to the Secretary.  Such notice shall be deemed effective on delivery to the office of the Secretary against the corresponding receipt.

 

5)                      For purposes of the exercise of the right of first refusal provided in this clause, the following rules shall be observed:

 

a)                       If more than one shareholder declares his intention to acquire shares offered, such shares shall be acquired by the respective purchasers, in proportion to the number of shares of the corporation which each possesses at the time of the offer, excluding from the computation of said proportion the shares offered and the shares of shareholders who do not wish to acquire shares under this right of first refusal.

 

b)                       The purchase price for shares acquired under the right of first refusal provided in this Clause, shall be paid in cash, against delivery of the shares duly endorsed to the respective purchasers or in such other manner as stipulated by the offeror shareholder in the notice to the Secretary.

 

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6)                      At the end of the thirty (30) day period referred to in paragraph 4) of this Clause, if the shareholder(s) has (have) not exercised the right of first refusal provided herein, with respect to all of the shares offered, or in such case, its (their) right to designate one or more purchasers for same, the offeror shareholder shall be entitled during an additional period of thirty (30) days thereafter to transfer all of the shares offered under this clause, to any person or entity, at a price no less than the one contained in the offer received from the acquiring third party; in the understanding that at the end of said thirty (30) day period, said offeror shareholder shall once again be bound to request the consent of the Board of Directors in accordance with all the provisions of this Clause.

 

7)                      A notation substantially in the following form shall be placed on any and all provisional or definitive share certificates issued by the corporation:

 

“The transfer of this certificate and of the shares herein represented is restricted by the provisions of Clause Tenth of the charter and by-laws of the corporation”.

 

ELEVENTH. — As a final option to resolve any deadlock which may arise between the shareholders, or to resolve any incompatibility between the shareholders which threatens to interfere with the operation of the corporation, any shareholder (the “Offering Shareholder”) shall be permitted to make an offer for the shares of the other shareholder (the “Offeree Shareholder”), at a price and upon terms determined by the Offering Shareholder.  The Offering Shareholder can elect by written notice (the “Buy-Out Notice”) to the Offeree Shareholder to force the sale of the shares held by the Offeree Shareholder.  The Buy-out Notice shall be personally delivered or delivered by registered mail return receipt requested.  The Buy-Out Notice shall

 

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specifically state that the Offering Shareholder is exercising his privilege to force a sale pursuant to this Clause Eleventh.  The Buy-Out Notice shall also set forth the price which the Offering Shareholder believes to be the fair market value of the Shares, and the terms and conditions of the offer and payment of the purchase price.

 

Following the receipt of the Buy-Out Notice from the Offering Shareholder, the Offeree Shareholder shall have thirty (30) days to respond in writing to the Offering Shareholder.  The written response of the Offeree Shareholder shall state whether the Offeree Shareholder wishes to accept the Offering Shareholder’s offer to purchase the shares at the price and upon the terms specified in the Buy-Out Notice, or alternatively, whether the Offeree Shareholder desires to purchase the Offering Shareholder Shareholder’s shares at the same price and upon the same terms as proposed by the Offering Shareholder in the Buy-Out Notice.  If the Offeree Shareholder fails to respond within the thirty (30) day period, the Offeree Shareholder will be deemed to have responded in the affirmative that it wishes to have the Offering Shareholder purchase the Offeree Shareholder’s shares.  Unless otherwise agreed to in writing by the parties, the effective date of the forced sales (“Transfer Date”) shall be one hundred fifty (150) days following the receipt by the Offering Shareholder of the Offeree Shareholder’s response, but in no event shall the transfer date occur later than one hundred eighty (180) days following the date of the Offering Shareholder’s original Buy-Out Notice made pursuant to this Clause Eleventh, unless otherwise agreed to in writing by the parties.  Payment for the shares purchased hereunder shall be made on the Transfer Date in the form specified in the Buy-Out Notice.

 

CHAPTER V

 

PREEMPTIVE RIGHTS

 

TWELFTH. — Each shareholder of record shall have the preemptive right to subscribe and acquire shares of stock of the corporation issued

 

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with respect to any increase of its capital in the proportion which the number of shares of stock owned by such shareholders bears to the total number of shares held, prior to the increase, by the shareholders exercising preemptive rights, provided that, with respect to foreign investor shareholders, they obtain the corresponding prior permit from the appropriate authorities to increase their proportion of shares if such is the case, with the understanding that, alternatively, each of said foreign shareholders, as well as shareholders of Mexican nationality, shall be entitled to designate one or more third parties having the legal capacity to acquire said shares, and to acquire the shares under the same terms and conditions established for all other subscribing shareholders of the increase in question.  Said preemptive right shall be exercised within fifteen (15) days immediately following the date of the publication, in the Official Gazette of the corporate domicile, of the resolution declaring the capital increase.

 

CHAPTER VI

 

SHARE CERTIFICATES AND STOCK REGISTER

 

THIRTEENTH. — All provisional certificates and permanent share certificates shall bear consecutive numbering and shall set forth all the data required by Article 125 of the General Law of Mercantile Corporations, and the full text of Clause Seventeenth of this document, and shall be signed by any two principal directors, one designated by the Series “A” shareholders and the second designated by the Series “B” shareholders, in the understanding that said signature(s) may be printed facsimiles.  The permanent share certificates may have dividend coupons attached.

 

FOURTEENTH. — All share certificates may cover one or more shares and any shareholder may request the Board of Directors to exchange any certificates previously issued to him and to issue one or more new certificates provided always that the total number of shares covered

 

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by the certificates exchanged are the same.  The cost of any such exchange shall be borne by the shareholder.

 

FIFTEENTH. — In the case of loss, theft, misplacement or destruction of any provisional or permanent share certificate, the issuance of a duplicate certificate shall be subject to the provisions of chapter one, title one of the General Law of Negotiable Instruments and Credit Operations.  All such share certificates issued as duplicates shall state that such new certificates are duplicates and that the original certificates have become invalid.  All costs of legally effecting such replacement of certificates shall be borne by the holder of the certificate replaced.

 

SIXTEENTH. — The corporation shall have a stock register book which shall set forth the issuance of all shares as well as the name, domicile and nationality of the owners of such shares, and also whether such shares are fully or partially paid in, the payments made on shares which are not fully paid in, and all transfers of shares.  The Secretary of the corporation shall be charged with the custody of the said stock register.  Any stock transfer shall be effective, as regards the corporation, from the date on which it is recorded on the Stock Register.  The Secretary shall have the obligation of making the entries referred to in this Clause.

 

CHAPTER VII

 

FOREIGN SHAREHOLDERS

 

SEVENTEENTH. — Any foreigner who upon the incorporation of the corporation or at any time thereafter acquires an equity interest or participation in the corporation shall thereby be considered a Mexican (National of the United Mexican States) as regards such interest or participation and it shall be understood that such foreigner agrees not to invoke the protection of his government under penalty in case of failure to comply with this agreement, of the forfeit of such interest or participation to the Mexican Nation.

 

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CHAPTER VIII

 

MEETINGS OF SHAREHOLDERS

 

EIGHTEENTH. — The meeting of shareholders is the supreme authority of the corporation, and its resolutions shall be binding on all shareholders, including absent or dissenting shareholders.  In any event, dissenting shareholders shall in any case, enjoy the rights provided under articles 201 and 206 of the General Law of Mercantile Corporations, and absent shareholders shall enjoy the right referred to in Article 201 of the General Law of Mercantile Corporations.  In the case of a withdrawal of a shareholder, the provisions of Articles 220 of the General Law of Mercantile Corporations shall apply, and the amount to be reimbursed shall be the net worth per share, as determined by the financial statements of the corporation, approved by the General Ordinary Shareholders Meeting, for the fiscal year of the corporation immediately proceeding the year in which the corporation received the notice of withdrawal.

 

NINETEENTH. — Meetings of shareholders shall be ordinary, extraordinary and special.

 

a)             Ordinary meetings of shareholders shall be those called to deal with any of the following matters:

 

1.              those referred to in Article 180 of the General Law of Mercantile Corporations;

 

2.              those referred to in Article 181 of the General Law of Mercantile Corporations;

 

3.              Any other matters included on the agenda for the meeting which according to law or this charter and bylaws are not expressly reserved to an extraordinary or special meeting of shareholder; and

 

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4.              the report to the shareholders on the balance sheet and the corresponding statement of results of the fiscal year of each company in which the company is the holder of the majority of the shares or equity quotas.

 

b)             Extraordinary meetings of shareholders shall be those called to deal with any of the following matters:

 

1.              Extension of the duration of the corporation.

 

2.              Dissolution of the corporation prior to the duration stipulated in the charter and bylaws;

 

3.              Increases and reductions on the minimum and variable capital stock;

 

4.              Change in the corporate purposes;

 

5.              Change in the nationality of the corporation;

 

6.              Change in the nature of the entity;

 

7.              Merger of the corporation;

 

8.              Issuance of preferred shares;

 

9.              Redemption by the corporation of its shares representing minimum or variable capital and issue of participation certificates therefor;

 

10.       Issuance of bonds;

 

11.       Any amendment to the charter and bylaws;

 

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12.       Any other matter for which a special quorum or voting majority is established;

 

c)              Special meetings of shareholders shall be those called by any class or shareholders to deal with any matter adversely affecting the rights of such shareholders as a class.

 

TWENTIETH. — With regard to meetings of shareholders, the following rules shall be observed:

 

a)             Except as provided herein, meetings of shareholders may be held whenever the Board of Directors, or the Chairman of the Board considers advisable, or upon the request of an Examiner, or of shareholders owning shares of stock in the aggregate equal to at least 33% of the subscribed and paid-in capital of the corporation, or of the class requesting a special meeting, or of any shareholder in the cases set forth in Article 185 of the General Law of Mercantile Corporations.

 

b)             Ordinary meetings shall be held at least once each year within the first four months immediately following the close of the fiscal year of the corporation, and shall include among the items on the agenda that of a report to the shareholders regarding the balance sheet and the corresponding statement of results of the immediately preceding fiscal year of each company in which this corporation is the holder of the majority of the shares or equity quotas.

 

c)              All meetings of shareholders shall be held at the domicile of the corporation, except in the event of acts of God or force majeure.

 

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d)             Notice of all meetings shall be issued by the Board of Directors or by an Examiner, or in accordance with the provisions of Articles 168, 184 and 185 of the General Law of Mercantile Corporations.

 

e)              The notice of the meeting shall be published in a daily newspaper or large circulation or in the Official Gazette of the domicile of the corporation at least fifteen (15) days prior to the date of any meeting.

 

f)               The notice of the meeting shall set forth at least the date, hour, place and agenda for the meeting and shall be signed by the President or Secretary of the corporation or by the person designated by the Board of Directors or by an examiner, or in their absence, by a judge of competent jurisdiction in accordance with the provisions of articles 168, 184 and 185 of the General Law of Mercantile Corporations.

 

g)              In addition to publication of the notice for the meeting and except in the case provided for in the following paragraph of this clause, each person who is recognized by the corporation as a shareholder on the date of the notice, and all examiners, shall be given written notice of the meeting, at least fifteen days prior the date of any meeting, by telex, telegram or cablegram confirmed by registered airmail, if the recipient resides abroad, or confirmed by registered mail if the recipient resides within the Mexican United States, duly prepaid, to the latest address that such shareholders, examiners and their alternates shall have filed in writing with the office of the Secretary of the corporation.  It is understood, however, that the shareholders residing abroad may file with the

 

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Secretary a second address in the United Mexican States, to which address and additional copy of the personal notice shall be sent.

 

h)             Any meeting of shareholders may be held without prior notice and any meeting of shareholders recessed for any reason may be reconvened without prior notice if the shareholders owning all of the stock entitled to vote at such a meeting are present or represented at the moment of voting.

 

i)                 Any shareholder may be represented at any meeting of shareholders by any person designated in writing as his proxy.  The principal or alternate members of the Board of Directors and the principal or alternate examiners may not act as proxies.

 

j)                Except in case of a judicial order to the contrary, only those individual or legal entities whose names are recorded in the Stock Register shall be recognized as holders of shares of the corporation for purposes of attending any meeting of shareholders, and such recording on the stock Register shall be sufficient for the admission of such person to the meeting.

 

k)             The Chairman of the Board of Directors assisted by the Secretary of the corporation, shall preside at all meetings of shareholders.  In the absence of any of the foregoing, the persons elected to take their place, by a simple majority vote of the shareholders present at the meeting, shall act as Chairman and Secretary of the meeting.

 

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l)                 Prior to convening a meeting of shareholders, the person presiding shall appoint one or more recount clerks to report as to the persons present at the meeting, the number of shares held or represented by-such persons and as to the number of votes each such person is entitled to cast.

 

m)         For a quorum to exist at an ordinary meeting of shareholders held upon first or subsequent call, the holders of at least sixty percent (60%) of the shares entitled to vote at such a meeting must be present personally or by proxy.

 

n)             For a quorum to exist at any extraordinary meeting of shareholders held upon first or subsequent call, the holders of at least seventy-five percent (75%) of the shares entitled to vote at such a meeting must be present personally or by proxy.

 

o)             With respect to quorums at special meetings of shareholders held upon first or subsequent call, a quorum of seventy five percent (75%) of such class shall be required.

 

p)             Except for such limited voting shares as may be issued by the corporation, each share shall have the right to cast one vote at any ordinary or extraordinary meeting of shareholders, or at any special meetings of shareholders held by the holders of shares of the same class.

 

q)             Once it has been established that a quorum exists, the person presiding shall declare the meeting legally convened and shall submit the matters on the agenda to the meeting.

 

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r)                All votes shall be by hand count unless the shareholders representing a majority of shares present or represented by proxy, shall agree that the vote be by written ballot.

 

s)               To validly adopt resolutions at any ordinary meeting of shareholders, the affirmative vote of shareholders representing at least fifty percent (50%) plus one of the shares entitled to vote shall be required.

 

t)                To validly adopt resolutions at any extraordinary meeting of shareholders the affirmative vote of shareholders representing at least sixty percent (60%) of the shares entitled to vote shall be required.

 

u)             With respect to voting at special meetings of shareholders the provisions of Article 195 of the General law of Mercantile Corporations, shall be applied.

 

CHAPTER IX

 

MANAGEMENT OF THE CORPORATION

 

TWENTY-FIRST. — Management of the corporation shall be vested in a Board of Directors composed of at least six (6) directors, none of which need be shareholders.

 

TWENTY-SECOND. — Three (3) of the members of the Board of Directors, shall be elected by Series “A” shareholders and the remaining three (3) shall be elected by Series “B” shareholders.  The shareholders shall elect, from among the members elected, a Chairman of the Board who shall remain in office for two (2) years.  The first Chairman shall be elected by the series “A” shareholders and his successor by

 

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the series “B” shareholders.  Accordingly, the right to elect the Chairman shall rotate and correspond, every two (2) years, to series “A” and series “B” shareholders.

 

TWENTY-THIRD. — Each shareholder or group of shareholders of the corporation that have elected one or more Directors shall also be entitled to appoint one or more alternates to substitute for the same at a meeting when the principal Director or Directors are absent on in case of death, removal, resignation, legal incapacity or any other permanent impediment to the proper discharge of the functions of said principal Director or Directors.

 

TWENTY-FOURTH. — Except as for the Chairman, Members of the Board and their alternates shall remain in office for one year or until they are replaced by their successors.  They may be removed at any time by the shareholders.  The removal of any Board member appointed by a minority may only be effected upon the removal of all other Board members.  The Directors and their alternates may be reelected.  If a quorum of the Board cannot be formed due to the death, removal, resignation, incapacity or permanent impediment of one or more directors and their alternates, the Examiner or Examiners by majority, shall designate a successor or successors, as the case may be, to hold office until their replacements have been appointed by a meeting of shareholders.

 

TWENTY-FIFTH. — The Board of Directors may meet at any place designated in the notice for the meeting.  The Board may meet as frequently as is deemed necessary or convenient by its Chairman, or any two (2) of its members or acting alternates.  Written notice of any such meeting shall be sent to all directors at least fifteen (15) days prior to the meeting, by telex, telegram, or cablegram confirmed by registered airmail, if the recipient resides abroad, or by registered mail if the recipient resides within the United Mexican States, duly prepaid, to the latest address registered with the Secretary by each recipient.  Said notice shall contain the hour, date, place and Items in the Agenda of the meeting.

 

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Any meeting of the Board shall be valid, however called, if all directors or acting alternate directors, are present at the meeting.

 

TWENTY-SIXTH. —

 

a)                                               A quorum shall exist at any meeting of the Board of Directors only if at least a majority of the directors or of their respective alternates is present.

 

b)                                               Any resolutions of the Board of Directors shall only be passed with the approval of at least a majority of the directors or of their respective alternates.

 

c)                                                The Chairman of the Board or his alternate shall not be entitled to cast an additional tie-breaking vote.  Minutes of all meetings of the Board of Directors shall be prepared and transcribed in the appropriate minute book, signed by at least the Chairman and secretary of the meeting.

 

TWENTY-SEVENTH. — The Board of Directors shall have the broadest legal authority granted to attorneys-in-fact to enter into all agreements, to carry out all acts and operations which by law or by this charter and bylaws are not expressly reserved to a meeting of shareholders, to manage and direct the affairs of the corporation, to carry out the purpose of the corporation and to represent the corporation before any judicial (criminal or civil), labor or administrative authorities, whether federal, state or municipal, with as broad authority for lawsuits and collections, acts of administration and acts of domain as provided in the first three paragraphs of Article two thousand five hundred fifty four (2554) of the Civil Code for the Federal District and the corresponding articles of the Civil Code of the State of Baja California and with those powers which, according to law, must be expressly set forth and referred to in Articles two thousand five hundred eighty seven (2587)

 

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of the Civil Code of the Federal District and the corresponding articles of the Civil Code of the State of Baja California and those powers referred to in articles two thousand five hundred and seventy-four (2574), two thousand five hundred and eighty two (2582) and two thousand five hundred ninety three (2593) of the Civil Code for the Federal District and the corresponding articles of the Civil Code of the State of Baja California, and the express powers to administer labor relations, conciliate, appear at trial in terms of fractions I and VI of Articles 876 and Article 878 of the Federal Labor Law, and to enter into accords, powers and authorities in accordance with article 9 (nine) of the General Law of Negotiable Instruments and Credit Operations, including but without any limitation whatsoever, the following:

 

a)                                     To file and withdraw criminal complaints, submit accusations, assist the District Attorney and grant pardons;

 

b)                                     To file and desist from “amparo” proceedings;

 

c)                                      To grant, without limitations or with those the Board deems proper and revoke general and/or special powers of attorney of any kind whatsoever, including but not limited to general powers for acts of administration or acts of domain or lawsuits and collections;

 

d)                                     To delegate any of its powers to one or more persons, managers, executives, attorneys-in-fact or committees as the Board deems convenient;

 

e)                                      To withdraw from litigation;

 

f)                                       To make settlements;

 

g)                                      To submit to arbitration;

 

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h)                                     To answer and make interrogatories;

 

i)                                         To assign assets;

 

j)                                        To make challenges;

 

k)                                     To receive payments;

 

No member of the Board of Directors, may individually or separately, exercise any of the foregoing powers except as expressly authorized by the Board of Directors or a meeting of Shareholders.

 

CHAPTER X

 

OFFICERS

 

TWENTY-EIGHTH.- At their discretion, a meeting of shareholders or the board may appoint one or more officers, general managers or managers, who not need be shareholders or board members, and who shall enjoy the powers conferred upon them in their respective appointment.

 

A general manager or directors of operations shall be appointed with broad power and authority but who may not, without the prior approval from the Board of Directors, carry out any of the following activities:

 

1.                                      Acquisition, lease (as lessor or lessee) or disposition by sale, transfer, exchange, lease, mortgage, encumbrance or in any other manner of one or more items of real property owned by the corporation or any other fixed asset of corporation, the market or notebook value or which, whichever is higher, is in excess of five percent (5%) of such higher value of all the fixed assets of the corporation in the aggregate on the date of the transaction in question.

 

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2.                                      Grant or receive credits or loans other than those granted or received in the ordinary course of business of the company.

 

3.                                      Guarantee in any manner credits or loans,

 

4.                                      Grant bonds (fianzas) or act as guarantor (aval) or grant any other kind of guaranty (including by acting as joint or several obligor) in favor of any employee or worker of the corporation or third party.

 

5.                                      Determine the manner in which votes corresponding to shares of or capital participations in other companies owned by this company should be cast at any general or Special Meeting of shareholders or partners of those companies, when it is a matter of casting said votes in regard to any similar matter to those mentioned in this paragraph.

 

6.                                      Acquisition or disposal of shares or equity participation of or in other civil or commercial entities, trusts, joint ventures and other economic units not having juridical personality.

 

7.                                      Approval of any transfer of shares in accordance with the Corporation Charter.

 

8.                                      Approval of the annual Corporation Budget.

 

9.                                      Approval of non-budgetary expenditures or investments, exceeding $5’000,000.00 (five million 00/100) Pesos, Mexican Currency.

 

10.                               To enter agreements binding the Corporation for a period of more than one (1) year.

 

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11.                               To enter, modify, terminate or renew license agreements for the manufacture of products and the use of patents, trademarks, commercial denominations and other industrial property rights, as well as assets and liabilities.

 

12.                               To enter, modify, terminate or renew agreements in which one or more shareholders participate directly or indirectly.

 

13.                               To increase or decrease the variable capital stock of the Corporation.

 

A meeting of shareholders at its discretion, may remove any person appointed under this clause.  Likewise, the Board of Directors may remove any of said persons that it appointed.

 

CHAPTER XI

 

SURVEILLANCE OF THE CORPORATION

 

TWENTY-NINTH.- The surveillance of the corporation shall be entrusted to one or more examiners pursuant to article 164 of the General Law of Mercantile Corporations.  They shall remain in office for one year, or until their successors have been appointed and taken office.  At the meeting of shareholders appointing the examiner or examiners, any one or more shareholders holding at least twenty five percent (25%) of the total issued and outstanding shares of the corporation shall be entitled to elect one examiner and his alternate.  The shareholder or group of shareholders who designate an examiner may likewise appoint one or more alternate examiners, who need not be shareholders, to substitute for the examiners during their temporary or permanent absences.

 

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THIRTIETH.- Any examiner of the corporation shall:

 

a)                  Have the right to perform an annual audit and examination of the corporation’s books and records in order to render a certified opinion of the financial position of the corporation in conformity with generally accepted accounting principles applied on a consistent basis; and

 

b)                  Have full access at all times during working hours of the corporation to all facilities, records, documents and information of the corporation and its operations.

 

CHAPTER XII

 

FISCAL YEAR, FINANCIAL STATEMENTS, RESERVES

 

AND LIMITED LIABILITY

 

THIRTY-FIRST.- The fiscal year of the corporation shall be as determined by a General Ordinary Meeting of Shareholders.

 

THIRTY-SECOND.- A management report and financial statements as required by article 172 of the General Law of Mercantile Corporations shall be prepared as of the close of each fiscal year and shall contain all the information required by such article.  Such financial statements shall be prepared within the three months immediately following the close of each fiscal year and, together with the management report, shall be made available to the shareholders at least fifteen (15) days prior to the date fixed for the meeting of shareholders at which it is to be discussed.

 

THIRTY-THIRD.- After making the required provisions for payment of taxes, profit participation of employees, formation or increase of the legal reserve fund until such reserve equals at least one-fifth of the corporate capital, the earning of the corporation for each

 

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fiscal year based upon an approved balance sheet shall be allocated in the manner approved by a meeting of shareholders.

 

THIRTY-FOURTH.- The liability of each shareholder shall be limited to the par value of the shares of stock held by such shareholder and each shareholder shall be liable for any unpaid part of the par value of said shares.

 

CHAPTER XIII

 

DISSOLUTION AND LIQUIDATION

 

THIRTY-FIFTH.- The corporation shall be dissolved in the cases set forth in Articles 229 of the General Law of Mercantile Corporations, but only in accordance with the provisions of Article 232 of said Law.

 

THIRTY-SIXTH.- The liquidation of the corporation shall be carried out under the provisions of Chapter XI of the General law of Mercantile Corporations by one or more liquidators.

 

THIRTY-SEVENTH.- During the liquidation of the corporation, the liquidators shall have the same authority and obligation as the Board of Directors and officers during the normal existence of the corporation.

 

THIRTY-EIGHTH.- Prior to recording the appointment of the liquidator or liquidators at the Public Registry of Commerce and to the assumption, by the same of their obligations, the Board of Directors, officers, general managers and managers of the corporation shall continue in office.  However, the Board, officers, general managers and managers may not initiate new transactions after the resolution to dissolve the corporation has been approved by the shareholders or after the existence of a legal cause for dissolution is approved.

 

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TRANSITORY ARTICLES

 

FIRST.- The fixed minimum capital stock of the corporation shall be of $50’000,000.00 (Fifty Million 00/100) Pesos, Mexican Currency which has been fully subscribed and paid for in cash in the following manner:

 

	
 
    	
 
    	
SHARES
    	
 
    	
 
    	
 
    
	
Name
    	
 
    	
SERIES “A”
    	
 
    	
SERIES “B”
    	
 
    	
VALUE
    	
 
    
	
Tre-Her, S. De
    	
 
    	
25,000
    	
 
    	
—
    	
 
    	
$
    	
25’000,000.00
    	
 
    
	
R.L. de C.V.
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    
	
Smart & Final de
    	
 
    	
—
    	
 
    	
25,000
    	
 
    	
$
    	
25’000,000.00
    	
 
    
	
Mexico, S.A. de C.V.
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    
	
T O T A L:
    	
 
    	
—
    	
 
    	
—
    	
 
    	
$
    	
 
    	
 
    
	
S U B - T O T A L:
    	
 
    	
25,000
    	
 
    	
25,000
    	
 
    	
$
    	
50’000,000.00
    	
 
    
	
 
    	
 
    	
50,000
    	
 
    	
$
    	
50’000,000.00
    	
 
    

 

SECOND.- The founding shareholders, convened in their first Ordinary Shareholders Meeting adopted the following resolutions:

 

a)                  To elect the following persons as members of the Board of Directors of the corporation:

 

	
DIRECTORS
    	
ALTERNATE DIRECTORS
    
	
 
    	
 
    
	
SERIES “A”
    	
SERIES “A”
    
	
 
    	
 
    
	
Chairman
    	
 
    

 

26

 

attorneys in-fact are hereby authorized to delegate the power of attorney conferred upon them.

 

The attorneys in fact shall have the right to delegate their powers of attorney and to revoke any and all substitutions granted.

 

f)                    The fiscal year of the corporation shall run from January 1 to December 31 of each year except the first fiscal year which shall begin at the execution of this charter and end on December 31st, 1992.

 

THIRD.- The alien members of the Board, officers, examiners and attorneys in fact, have been advised that they may not exercise their powers under such appointments in Mexico prior to obtaining the necessary immigration permits.

 

FOURTH.- The Shareholders hereby authorize Messrs. Gaspar Gutierrez-Centeno, Jose M. Larroque, Rene X. Perez, and Maria Ofelia Guajardo, for them to jointly or severally carry out all judicial and administrative proceedings necessary for the registration of the first testimony hereof before the Ministry of Finance (SHCP) and before the Public Registry of Property, Commerce Section.

 

S57-2004
 mtm

 

 

Exhibit B
  Operational Plan

 

SMART & FINAL de BAJA
 New Store Development
 Schedule of Milestones: 1992/93

 

	
MILESTONES
    	
 
    	
 
    	
 
    	
COMPLETION   DATE
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Joint   Venture Agreement:
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Negotiations   Completed & Agreements Signed:
    	
 
    	
November 11,   1992
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Real   Estate:
    	
 
    	
Complete   Market Studies/ Locate Potential Sites

(Tijuana &   Mexicali)
    	
 
    	
January 1,   1993
    
	
 
    	
 
    	
Negotiate   and Sign Deals:
    	
 
    	
 
    
	
 
    	
 
    	
Tijuana:   2 Stores
    	
 
    	
March 1,1993
    
	
 
    	
 
    	
Mexicali:   1 Store
    	
 
    	
April 1,   1993
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Construction:
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Architectural/Permitting:
    	
 
    	
 
    
	
 
    	
 
    	
Tijuana:   2 Stores
    	
 
    	
April 1,1993
    
	
 
    	
 
    	
Mexicali:   1 Store
    	
 
    	
May 1,1993
    
	
 
    	
 
    	
Construction/Fixturization:
    	
 
    	
 
    
	
 
    	
 
    	
Tijuana:   2 Stores
    	
 
    	
August 1,   1993
    
	
 
    	
 
    	
Mexicali:   1 Store
    	
 
    	
September 1,   1993
    
	
 
    	
 
    	
Merchandising/Stocking:
    	
 
    	
 
    
	
 
    	
 
    	
Tijuana:   2 Stores
    	
 
    	
August 15,   1993
    
	
 
    	
 
    	
Mexicali:   1 Store
    	
 
    	
September 15,   1993
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Store   Design:
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Decision   on Size:
    	
 
    	
January 1,   1993
    
	
 
    	
 
    	
Fixture & Refrigeration Plan
    	
 
    	
January 1,   1993
    
	
 
    	
 
    	
Decision on Parking (#)
    	
 
    	
January 1,   1993
    
	
 
    	
 
    	
Floor Plan
    	
 
    	
March 1,1993
    
	
 
    	
 
    	
Development of Checkstand System
    	
 
    	
March 1,1993
    
	
 
    	
 
    	
Spaceman   Layouts
    	
 
    	
April 1,   1993
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Information   Systems:
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
POS   Converted to Spanish
    	
 
    	
March 1,1993
    
	
 
    	
 
    	
DSD   Converted to Spanish
    	
 
    	
March 1,1993
    
	
 
    	
 
    	
Private   Phone Lines Ordered
    	
 
    	
March 1,   1993
    
	
 
    	
 
    	
Register System Designed (With Backup Generator)
    	
 
    	
March 1,   1993
    

 

 

	
Buying:
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Decision on Retail Grocery Section
    	
 
    	
January 1,   1993
    
	
 
    	
 
    	
Category/Sub Category Deletions from S &   F Assortment
    	
 
    	
March 1,1993
    
	
 
    	
 
    	
Category/Sub Category Additions for Mexican Market
    	
 
    	
March 1,   1993
    
	
 
    	
 
    	
Sourcing: American Products
    	
 
    	
June 1,   1993
    
	
 
    	
 
    	
Sourcing:   Mexican Products
    	
 
    	
June 1,   1993
    
	
 
    	
 
    	
Selection and Sourcing Of DSD Assortment
    	
 
    	
June 1,1993
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Marketing:
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Choice   of Store Name
    	
 
    	
January 1,   1993
    
	
 
    	
 
    	
Marketing   Plan
    	
 
    	
April 1,1993
    
	
 
    	
 
    	
Labeling   Issues Resolved
    	
 
    	
April 1,1993
    
	
 
    	
 
    	
Conversion   of Signage to Spanish
    	
 
    	
April 1,1993
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Transportation:
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Transportation Plan: Vernon to Stores
    	
 
    	
April 1,1993
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Accounting:
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Accounting   Plan
    	
 
    	
April 1,   1993
    
	
 
    	
 
    	
Payroll   Plan
    	
 
    	
May 1,1993
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Legal:
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Permit &   License Plan
    	
 
    	
April 1,   1993
    
	
 
    	
 
    	
Alcohol/Cigarette   Licensing
    	
 
    	
June 1,   1993
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Human   Resources:
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Establish   Personnel Plan:

Job   Classifications

Full-Time   vs. Part-Time

Pay   Rates

Benefits (Mandatory & Voluntary)
    	
 
    	
March 1,   1993
    
	
 
    	
 
    	
Choose Managers/Assistants for All Three Stores
    	
 
    	
March 1,1993
    
	
 
    	
 
    	
Loss   Prevention Plan
    	
 
    	
April 1,   1993
    
	
 
    	
 
    	
Manager/Assistant Training in US
    	
 
    	
June 30,   1993
    
	
 
    	
 
    	
BST   Training Classes
    	
 
    	
June 30,   1993
    

 

 

	
Operations:
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Decision on Delivery (to Customers)
    	
 
    	
January 1,   1993
    
	
 
    	
 
    	
Operations   Issues Resolved:
    	
 
    	
 
    
	
 
    	
 
    	
Charge Sales
    	
 
    	
March 1,   1993
    
	
 
    	
 
    	
Check   Procedures
    	
 
    	
March 1,1993
    
	
 
    	
 
    	
Voucher   Procedures
    	
 
    	
March 1,   1993
    
	
 
    	
 
    	
Store   Hours
    	
 
    	
March 1,   1993
    
	
 
    	
 
    	
Conversion   of Operating Forms to Spanish
    	
 
    	
June 1,   1993
    
	
 
    	
 
    	
Resale   Requirement Plan
    	
 
    	
June 1,   1993
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Store   Opening:
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Two   Stores in Tijuana
    	
 
    	
August 15,   1993
    
	
 
    	
 
    	
One   Store In Mexicali
    	
 
    	
September 15,   1993
    

 

 

EXHIBIT “C”

 

	
 
    	
 
    	
VERSION FINAL
    
	
 
    	
 
    	
 
    
	
CONTRATO DE
   AUTORIZACION DE USO DE MARCA
    	
 
    	
TRADEMARK AUTHORIZED USE
   AGREEMENT
    
	
 
    	
 
    	
 
    
	
Contrato celebrado por y   entre SMART & FINAL, INC., una sociedad constituída y existente   conforme a las leyes de los Estados Unidos de América, representada por                                        (enadelante llamada la “PROPIETARIA” ), y SMART & FINAL DEL   NOROESTE, S.A. DE C.V., una sociedad constituída y existente conforme a las   leyes de los Estados Unidos Mexicanos, representada por                                  (en adelante llamada la “USUARIA”).
    	
 
    	
Agreement entered into   by and between SMART & FINAL, INC., a corporation organized and   existing under the laws of the United States of America, represented herein   by                      (hereinafter referred to as “OWNER”), and SMART & FINAL DEL   NOROESTE, S.A. DE C.V., a corporation organized and existing under the laws   of the United Mexican States, represented herein by                        (hereinafter referred to as “USER”).
    
	
 
    	
 
    	
 
    
	
Considerando que SMART &   FINAL, INC., es propietaria de la(s) marca(s), cuya denominación,   nùmero de expediente y/o de registro y demàs datos se sefialan al final como Anexo   “B” de este documento (la(s) “MARCA(S)”). Por medio del presente   contrato, la PROPIETARIA autoriza el uso no-exclusivo en la Repùblica   Mexicana de dicha(s) MARCA(S) a la USUARIA.
    	
 
    	
Whereas, SMART & FINAL, INC. is the owner of the   trademark(s) whose identity, application and/or registration number, and   other data is set forth at the end of this document identified as Exhibit “B”   (the “TRADEMARK (S)”). The OWNER hereby authorizes the non-exclusive use in   the Republic of the Mexico of said TRADEMARK(S), to the USER.
    
	
 
    	
 
    	
 
    
	
El uso que por este   contrato se autoriza quedarà sujeto a los siguientes términos y condiciones:
    	
 
    	
The use which by this agreement is hereby authorized shall be subject   to the following terms and conditions:
    
	
 
    	
 
    	
 
    
	
1.                                    El uso autorizado es ùnicamente en relación con   los productos que se especifican en el Anexo “A” de este Contrato, y   los cuales se encuentran amparados por la solicitud y/o registro de   la(s) MARCA(S) (los “Productos”).
    	
 
    	
1.                                    The use   hereby authorized is only in connection with the products specified in the Exhibit “A”   of this Agreement, which are covered by the application and/or registration   of the TRADEMARK(S) (the “Products”).
    
	
 
    	
 
    	
 
    
	
2.                                    Los arreglos contractuales entre la PROPIETARIA y   la USUARIA
    	
 
    	
2.                                    The   contractual arrangements between the OWNER and the USER,
    

 

 

	
establecen los derechos   de manufactura, venta y distribución por la USUARIA de los Productos; en la   inteligencia de que dichos Productos manufacturados por la USUARIA lo seràn   en estricta y completa conformidad con las normas, especificaciones, diseños   y procesos de fabricación aprobados por la PROPIETARIA con el propósito de   que la calidad de los Productos manufacturados por la USUARIA sea equivalente   al de los mismos productos hechos por la PROPIETARIA.
    	
 
    	
establish the rights of the USER to manufacture, sell and distribute   the Products, in the understanding that the Products produced by the USER   shall be made in strict and complete conformity with the manufacturing   standards, specifications, designs and processes approved by the OWNER to the   end that the quality of the Products produced by the USER shall be equivalent   to the Products produced by the OWNER.
    
	
 
    	
 
    	
 
    
	
3.                                    La USUARIA conviene en que el uso que hace de   la(s) MARCA(S), materia de este contrato, no significa que tenga algùn   título o derecho de propiedad sobre dicha(s) MARCA(S) o sobre   la(s) respectiva(s) solicitud(es) o registro(s) de   la(s) misma(s), y la USUARIA conviene en obtener la previa aprobación   por escrito de la PROPIETARIA en cuanto a la forma y manera en que   dicha(s) MARCA(S) serà(n) usada(s), y en todo aquello que se   relacione con los Productos, etiquetas, empaques, anuncios y cualesquiera   otros asuntos relativos a la(s) misma(s). La USUARIA igualmente conviene   en cumplir con todas las obligaciones que las leyes mexicanas establecen   sobre uso de marcas.
    	
 
    	
3.                                    The USER   agrees that, the use which is to be made of the TRADEMARK(S) covered by   this Agreement does not imply any property rights or title to said   TRADEMARK(S) or to their respective application(s) or   registration(s); and the USER agrees to obtain the prior written approval of   the OWNER as to the form and the manner in which said TRADEMARK(S) shall   be used, and as to everything relating to the Products, labels, packaging,   advertisements and any other mattered relating thereto. The USER also agrees   to comply with all obligations established in Mexican laws, regarding use of   trademarks.
    
	
 
    	
 
    	
 
    
	
4.                                    La PROPIETARIA garantiza que si hubiere una   reclamación o demanda en contra de la USUARIA, aduciendo que las MARCAS   infringen un derecho de propiedad industrial de un tercero, en tal caso, la PROPIETARIA defenderà o llegarà a un   arreglo respecto de dicho litigio o demanda, e
    	
 
    	
4.                                    The OWNER   warrants that if a lawsuit or claim is brought against the USER alleging that   the TRADEMARKS infringe upon a Mexican propietary right owned by a third   party, then the OWNER shall defend or settle such lawsuit or claim or   indemnify the USER against any
    

 

2

 

	
indeminizarà a la   USUARIA en contra de cualesquier responsabilidad correlativa, siempre que:
    	
 
    	
related liability,   provided that:
    
	
 
    	
 
    	
 
    
	
a)             La USUARIA haya notificado de manera expedita a la   PROPIETARIA de tal reclamación o demanda.
    	
 
    	
a)           The USER has   promptly notified OWNER of the lawsuit or claim.
    
	
 
    	
 
    	
 
    
	
b)             La USUARIA haya usado las MARCAS en Productos   fabricados por la USUARIA de conformidad con los términos y condiciones   contenidas en este Contrato.
    	
 
    	
b)           The USER has   used the TRADEMARKS on Products manufactured by the USER, under the terms and   conditions of this Agreement.
    
	
 
    	
 
    	
 
    
	
5.                                    Las partes convienen en que las marcas objeto del   presente, no estaràn sujetas a pago alguno en favor de la PROPIETARIA, por lo   que este Contrato es complemente gratuito.
    	
 
    	
5.                                    The parties   hereby agree, that the trademarks licensed in this Agreement will not be   subject to any kind of payment in favor of the OWNER, therefore, this   Agreement is completely free of royalties.
    
	
 
    	
 
    	
 
    
	
6.                                    La USUARIA se obliga a dar aviso a la PROPIETARIA,   de cualquier uso indebido de la(s) MARCA(S) y de cualesquiera actos   de competencia desleal que involucren a la(s) MARCA(S) y de los cuales   tenga conocimiento la USUARIA.
    	
 
    	
6.                                    The USER   agrees to notify the OWNER of any conflicting uses of the   TRADEMARK(S) and any acts of unfair competition involving the   TRADEMARK(S) of which the USER has knowledge.
    
	
 
    	
 
    	
 
    
	
7.                                    La PROPIETARIA concede esta licencia a la USUARIA   por un período de 10 (diez) años contados a partir de la fecha de firma del   presente Contrato, pudiéndose dar por terminado por cualquiera de las partes   mediante notificación por escrito a la otra con por lo menos 30 (treinta)   días naturales de anticipación. La PROPIETARIA tendrá entonces el derecho de   solicitar ante las autoridades Mexicanas correspondientes, la cancelación de   esta autorización de uso y la USUARIA deberà de inmediato suspender el uso de   la(s) MARCA(S) materia de este contrato.
    	
 
    	
7.                                    The OWNER   hereby grants to the USER the right to use the TRADEMARK(S) for a period   of 10 (ten) years from the date of execution, either party being entitled to   terminate this agreement by giving at least 30 (thirty) calendar days prior   written notice. The OWNER shall then have the right to request from the   corresponding Mexican authorities the cancellation of this authorized use,   and the USER shall immediately discontinue all use of the   TRADEMARK(S) covered by this Agreement.
    

 

3

 

	
8.                                    Para todo lo relativo a la interpretación y   cumplimiento de las disposiciones contenidas en el presente, las partes   convienen en que las leyes de la Repùblica Mexicana seràn las aplicables, y   ademàs, se someten expresamente al arbitraje de la Càmara Internacional de   Comercio que tendrà lugar en la Ciudad de México, ante un arbitro designado   por dicha Càmara, conforme a las reglas y reglamentos de la misma, y cada una   de las partes contratantes renuncian a cualquier otra jurisdicción a la que   pudieran tener derecho en el presente o en el future por cualquier razón.
    	
 
    	
8.                                    For   everything related to the interpretation and compliance of the provisions   contained herein, the parties agree that the laws of the Republic of Mexico   will apply and, furthermore, the parties hereto submit themselves to the   arbitration of the International Chamber of Commerce, which shall take place   in Mexico City before one arbitrator appointed by such Chamber, under the   rules and regulations thereof, and each of the contracting parties   waiving any other jurisdiction which might have in the present or in the   future because of any reason.
    
	
 
    	
 
    	
 
    
	
9.                                    Por medio del presente contrato, las partes   contratantes otorgan en favor de los Sres.                           ,                           ,                           ,   Y                           ,   conjunta y separadamente, un poder especial tan amplio y completo como en   derecho se se requiera, con todas las facultades generales y especiales que   requieran clàusula especial, para representar ambas partes, ante todas y   cualesquiera autoridades administrativas o judiciales de la Repùblica   Mexicana con el objeto de obtener la autorización, inscripción y registro de   este Contrato con, en o ante todas y cualesquiera entidades y registros   gubernamentales o, de terceros y para proteger los derechos de invenciones y   marcas y otros derechos involucrados en él.
    	
 
    	
9.                                    The parties   hereby grant to   Messrs.                 ,                                   ,                           ,   and                                   ,   jointly or severally, a special power of attorney as ample and complete as   required by law, with all general and special powers legally requiring an   express grant, to represent both of said parties before any and all administrative   or judicial authorities of the Mexican Republic for the purpose of obtaining   the approval, recording and registration of this Agreement with, at or before   any and all government and/or other bodies and registries and to protect the   invention and trademark rights covered by it.
    
	
 
    	
 
    	
 
    
	
Para ejercitar el   presente poder, cada una de las partes contratantes otorga a las citadas   personas conjunta o separadamente, todas las facultades que sean necesarias   para presentar las correspon-
    	
 
    	
To carry out the present power, each of the parties to this Agreement   grants to the aforementioned individuals, jointly and severally, all powers   thay may be necessary to
    

 

4

 

	
dientes solicitudes o   requerimientos, para pagar derechos, autorizar documentos, hacer y absolver   posiciones, presentar pruebas y alegatos, realizar todas las apelaciones   administrativas y judicial es permitidas por las leyes mexicanas / recibir   avisos, presenter oposiciones, solicitar la anulación de registros y derechos   industriales, y en general, hacer todos los tràmites necesarios ante las   autoridades mexicanas para la protección de los derechos de invenciones y   marcas y otros derecho involucrados en este Contrato y a ese efecto, para   usar este poder cuantas veces y en cuantas instancias sea necesario.
    	
 
    	
file the appropriate applications or demands, to pay fees, authorize   documents, submit and answer interrogatories, present evidence and arguments,   to pursue all administrative and judicial appeals permitted by the laws of   the Republic of Mexico, to receive notices, to present oppositions, to apply   for the annulment of industrial registrations and rights and, in general, to   take all steps that may be necessary before the authorities of the Republic   of Mexico for the appropriate protection of the trademark rights and other,   rights covered by this Agreement and, in this regard, to use this power as   may be necessary.
    
	
 
    	
 
    	
 
    
	
Cada una de las partes   contratantes ratifica y acepta como firmes y vàlidos todo lo que hagan las   citadas personas, conjunta y separadamente, en relación con los Articulos   2551, 2555 y 2556 del Código civil para el Distrito Federal.
    	
 
    	
Each of the parties to this Agreement hereby ratifies and agrees to   hold as firm and valid all that the aforementioned individuals, jointly and   severally, may granted under the terms of the Articles 2551,2555 and 2556 of   the Civil Code, for the Federal District.
    
	
 
    	
 
    	
 
    
	
10.                             Todas las notificaciones requeridas o permitidas   conforme a este Contrato, se daràn por escrito y se entregaràn personalmente   o se enviaràn por correo aéreo certificado con porte pagado, a las siguientes   direcciones:
    	
 
    	
10.                             All notices required or permitted under this   Agreement shall be given in writing and shall be personally delivered or sent   by registered mail, postage prepaid, addressed as follows:
    

 

	
 
    	
SMART & FINAL, INC.
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
SMART & FINAL DEL NOROESTE, S.A. DE C.V.
    	
 
    
	
 
    	
 
    	
 
    

 

5

 

	
En testimonio de lo   cual, las partes han hecho que este Contrato sea firmado por sus   representantes, debidamente autorizados, en las fechas y en los lugares abajo   especificados.
    	
 
    	
In witness whereof, the parties cause this Agreement to be signed by   their duly authorized representatives, on the dates and at the places specified   below.
    
	
 
    	
 
    	
 
    
	
PROPIETARIA/OWNER
    	
 
    	
USUARIA/USER
    
	
 
    	
 
    	
 
    
	
Por:
    	
 
    	
 
    	
By:
    	
 
    
	
Cargo:
    	
 
    	
 
    	
Position:
    	
 
    
	
Fecha:
    	
 
    	
 
    	
Date:
    	
 
    
	
Lugar:
    	
 
    	
 
    	
Place:
    	
 
    
	
 
    	
 
    	
 
    
	
TESTIGOS / WITNESSES
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    

 

S57-2087

GGC/lou

 

6

 

EXHIBIT “D”

 

FINAL VERSION

 

PRODUCT SALES AGREEMENT

 

This Product Sales Agreement (the “Agreement”) is entered into this                day of                  of 1992, by and between Smart & Final Stores Corporation, a corporation of the State of [Delaware/California?], United States of America (hereinafter referred to as “Supplier”), and Smart & Final Del Noroeste, S.A. de C.V., a Mexican corporation (hereinafter referred to as “Purchaser”).

 

WITNESSETH

 

WHEREAS, Supplier is a corporation duly organized in accordance with the laws of the State of [Delaware/California?], United States of America.

 

WHEREAS, Purchaser is a corporation duly organized in accordance with the laws of the United Mexican States.

 

WHEREAS, Purchaser is willing to buy from Supplier and Supplier is willing to sell to Purchaser, certain private label products and other products as hereinafter defined.

 

NOW, THEREFORE, in consideration of the mutual promises herein set forth, the parties agree to be legally bound by the following:

 

 

CLAUSES

 

FIRST.- DEFINITIONS

 

1.1                               “Products” means those private label products of the Supplier as well as those other products which are listed on Exhibit “A”.  Products may be changed, abandoned or added by mutual agreement of the parties.

 

1.2                               “Territory” shall mean the States of Baja California and Sonora, United Mexican States.

 

SECOND.- PURCHASE AND SALE

 

2.1                               During the term of this Agreement and subject, to the availability thereof, Supplier agrees to sell to Purchaser, and the Purchaser shall have the right and agrees to purchase exclusively from Supplier, the Products specified on Exhibit “A”, subject to all terms of this Agreement.

 

2.2                               All purchases of Products by Purchaser from Supplier during the term of this Agreement shall be subject to the terms and conditions of this Agreement.

 

2

 

THIRD.- PURCHASE ORDERS

 

3.1                               The purchase and sale of Products shall be made against specific purchase orders submitted by Purchaser during the term of this Agreement.  Supplier shall acknowledge receipt of all purchase orders by written notification to Purchaser and shall accept all orders placed pursuant to the provisions hereof during the term of this Agreement.

 

3.2                               All purchase orders for Products submitted by Purchaser shall state the quantities ordered and the requested delivery dates.  These purchase orders will be firm for sixty (60) days from the date of acceptance by Supplier.

 

3.3                               In addition to firm purchase orders, the Purchaser will provide Supplier with a hundred and twenty (120) days rolling forecast for Products that Purchaser will be releasing purchase orders for.

 

3.4                               In the event that Purchaser prepays to Supplier for purchase orders and shipment of Products under this agreement cannot be made by reason beyond the control of Supplier, either Supplier will refund to Purchaser the amount of prepayment or shall reschedule the shipment date to a date acceptable for both parties.  Supplier may request Purchaser to apply some of prepayment to outstanding invoices before refund is made.

 

3

 

FOURTH.- PRICES

 

4.1                               The purchase price to Purchaser for each item of the Products sold to Purchaser from time to time shall be at the Supplier’s special price for such items as set forth in the Supplier’s then current Price List prepared for sales of Products to Purchaser.  The now current Price List for Purchaser is attached hereto as Exhibit “B”.

 

4.2                               It is agreed by the parties that pricing for the Products shall be made at the lowest possible price.

 

FIFTH.- TAXES

 

Purchaser shall be responsible for the payment of all export, import and local sales, excise, use, property and other taxes, duties or charges levied with respect to the Products sold to Purchaser hereunder, other than taxes imposed upon Supplier’s income.  Prices do not include any taxes.  Taxes will be added by Supplier to the purchase price where Supplier has the legal obligation to collect the same and will be invoiced and paid by Purchaser, unless Purchaser provides Supplier with a proper tax exemption certificate.

 

SIXTH.- TERMS AND METHODS OF PAYMENT

 

6.1                               Terms of payment to Supplier for the purchase price of the

 

4

 

Products (including freight, insurance, taxes, duties or other costs to be paid by Purchaser), shall be by confirmed, irrevocable letter of credit payable by Supplier’s bank, bank draft, or wire transfer in U.S. dollars in advance of shipment of Products.  This method of payment will also be required should the Supplier grant Purchaser an open line of credit for shipment of Products ordered hereunder.

 

6.2                               Accounts past due will be subject to a monthly charge at the rate of two percent (2%) per month, to cover the costs of servicing these accounts.

 

SEVENTH.- TITLE AND SHIPMENT

 

7.1                               All shipments are F.O.B. carrier, at Supplier’s place of warehouse located at                                   ,                                   , California, United States of America.  Title to the Products and risk of loss shall pass to Purchaser upon Supplier’s delivery of Products to the carrier, regardless of any provisions for payment of freight or insurance or form of shipping documents.

 

7.2                               The method of shipping and packaging shall be in accordance with Supplier’s then current standards.  All transportation and forwarding charges, including insurance, shall be the responsibility of the Purchaser.

 

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7.3                               Both parties agree to cooperate fully in the preparation of the necessary documentation for the import of the Products into Mexico as well as in the preparation of documents, filings and registrations that may be required in order to fully comply with any and all applicable legal requirements in Mexico including, without limitation, labeling requirements, health and sanitary requirements and others that may be applicable.

 

7.4                               Shipping dates provided by Supplier are approximate only.  Supplier shall not be liable for any loss, damage or expense (consequential or otherwise) incurred by Purchaser if Supplier fails to meet specified delivery dates.  Supplier may allocate production and deliveries among its customers.  Supplier assumes no responsibility for delay, breakage or damage after having made delivery in a good order to the carrier.

 

EIGHTH.- INSPECTION AND ACCEPTANCE

 

8.1                               Purchaser shall have ten (10) days after receipt of goods to inspect the Products.  If any of the Product are deemed defective by Purchaser, Purchaser shall notify Supplier of such defects and request authorization to return defective Products to Supplier.  After receiving the return authorization from the Supplier, the defective Products are to be immediately returned to Supplier’s original point of shipment, transportation prepaid and insured, per the return authorization instruction.  Returned

 

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Products should be in the same condition as delivered and returned in the same or equivalent shipping container.  The return authorization should be clearly indicated on the exterior of the shipping container as well as the shipping documentation and a description of the defect contained with the shipment.

 

8.2                               If Supplier confirms the defect, Supplier shall at its option replace and redeliver replacement for such defective Products or issue credit to Purchaser’s account.

 

8.3                               Failure of Purchaser to notify Supplier within ten (10) days of delivery of Products with defective items shall constitute acceptance of the Products.

 

NINTH.- TERM

 

This Agreement shall become effective on the date of its execution, and shall terminate upon prior written notice by either party given at least thirty (30) days prior to the proposed termination date.  Upon termination by expiration, Supplier shall honor all orders accepted prior to such termination, and such termination shall not prejudice any amounts due hereunder.  All orders submitted during the term on this Agreement shall be governed by this Agreement.  In the event that neither party elects to terminate this Agreement, the Agreement will continue in effect for an indefinite period of time.

 

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TENTH.- TERMINATION BY DEFAULT

 

10.1                        In the event of the insolvency, bankruptcy or voluntary dissolution of any party hereto during the term hereof, the other party shall have the option to terminate this Agreement immediately on written notice to the insolvent, bankrupt or dissolved party.

 

10.2                        If any party shall fail to perform, or defaults in the performance, any provision hereunder, and if such failure or default shall continue for thirty (30) days after written notice thereof by the non-defaulting party, and such default is not cured within said thirty (30) day period, then the non-defaulting party may terminate this Agreement and all rights granted hereunder.

 

ELEVENTH.- QUALITY AND WARRANTY

 

11.1                        Products supplied to Purchaser by Supplier under this Agreement will be shipped to Purchaser in the same level of quality as those identical Products used by Supplier.

 

11.2                        Purchaser agrees to allow Supplier to conduct a quality assurance inspection by Supplier’s representative at Purchaser’s facilities to insure adherence to quality standards.

 

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11.3                        Except as hereinabove provided, SUPPLIER MAKES NO WARRANTIES, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.

 

TWELFTH.- LIMITATION OF LIABILITY

 

Supplier shall not be liable for any loss, damage or penalty resulting from delay in delivery when such delay is due to causes beyond the reasonable control of Supplier, including but not limited to supplier delay, force majeure, act of God, labor unrest, fire, explosion, earthquake, accident, acts of public enemy, war rebellion, insurrection, sabotage, epidemic, quarantine restrictions, labor or material shortages, embargoes, failure or delays in transportation, unavailability of components, materials or machinery for the manufacture of the Products, acts of governmental authorities, or judicial action.  In any such event, the delivery date shall be deemed extended for a period equal to the delay.

 

THIRTEENTH.- MISCELLANEOUS

 

13.1                        Language

 

This Agreement is executed in the Spanish and English languages, each of which shall be considered an original.  However, in the interest of certainty, the parties agree that the Spanish

 

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version shall govern and be controlling in the event of any inconsistency.

 

13.2                        Amendment and Modifications

 

The parties may amend, modify and supplement this Agreement in such manner as may be agreed upon by them in writing.

 

13.3                        Binding Effect

 

This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, provided that neither party may assign any of its rights or delegate any of its duties under this Agreement without the prior written consent of the other party.

 

13.4                        Entire Agreement

 

This instrument and the Exhibits and Schedules attached hereto contain the entire agreement of the parties hereto with respect to the formation of the Company and the other transactions contemplated hereby, and supersede all prior understandings and agreements of the parties with respect to the subject matter hereof.  Any reference herein to the Agreement shall be deemed to include the Exhibits and Schedules attached hereto.

 

13.5                        Headings

 

The descriptive headings in this Agreement are inserted for convenience only and do not constitute part of this Agreement.

 

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13.6                       Execution in Counterparts

 

This Agreement may be executed in any number of counterparts, each of which shall be deemed an original.

 

13.7                        Notices

 

Any notice, request, information, or other document to be given hereunder to either of the parties by the other party shall be in writing sent as follows:

 

If to Smart & Final

	
Stores Corporation:
    	
 
    	
SMART &   FINAL STORES CORPORATION
   4700 South Boyle Avenue
   Los Angeles, CA 90058
   Tel: (213) 589-1054
   Fax: (213) 584-9868
   Att’n:
    
	
If to Smart & Final
    	
 
    	
 
    
	
del Noroeste, S.A. de C.V.
    	
 
    	
SMART & FINAL DEL NOROESTE, S.A. DE C.V.
    
	
 
    	
 
    	
 
    

 

11

 

A party may change the address to which the notices hereunder are to be sent to it by giving written notice of such change of address in the manner herein provided for giving notice.  Any notice delivered personally shall be deemed to have been given on the date it is so delivered, and any notice delivered by registered or certified mail or by facsimile transmission shall be deemed to have been given on the date it is received.

 

13.8                        Governing Law

 

This Agreement shall be subject to and governed by the laws of Mexico.  The invalidity or unenforceability of any provision(s) of this Agreement under the laws of Mexico shall not affect the validity and enforceability of the other provisions hereof, and this Agreement shall be construed in all respect as if such invalid or unenforceable provision(s) were omitted.

 

13.9                        Publicity

 

No press release or other public announcement related to this Agreement or the transactions contemplated hereby may be issued by either party hereto without the prior approval of the other party, except that either party may make such public disclosure as it believes in good faith to be required by law or by the terms of any listing agreement with a securities exchange (in which case such party will consult with the other party prior to making such disclosure).

 

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13.10                 Arbitration

 

Any dispute, controversy or claim arising from or relating to this Agreement or the breach thereof shall be finally settled by arbitration in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce (ICC) there shall be three (3) arbitrators, one arbitrator being selected by Smart & Final Stores Corporation, one arbitrator being selected by Smart & Final del Noroeste, S.A. de C.V. and the third arbitrator being selected by both of the selected arbitrators.  If any party fails to nominate an arbitrator within thirty (30) days from the date of notification made to it of a party’s request for arbitration, then the Court of Arbitration of the ICC shall appoint the arbitrator, as the case may be, in accordance with said Rules.  The place of arbitration shall be                        and the language of the arbitration proceeding shall be English.

 

IN WITNESS WHEREOF, the Parties hereto have executed this Agreement, in the manner and on the date herein below set forth.

 

 

	
SUPPLIER
   SMART & FINAL STORES
   CORPORATION
    	
 
    	
PURCHASER
   SMART & FINAL DEL NOROESTE,
   S.A. DE C.V.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
By:
    	
 
    
	
Name:
    	
 
    	
 
    	
Name:
    	
 
    
	
Title:
    	
 
    	
 
    	
Title:
    	
 
    

 

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Date and Place of execution
    	
 
    	
Date and Place of execution
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
WITNESS
    	
 
    	
WITNESS
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    

 

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