Document:

Exhibit

Exhibit 10.1

SEPARATION AGREEMENT AND RELEASE

This Separation Agreement and Release (“Agreement”) is made by and between John E. Stephenson (“Employee”) and TrueCar, Inc. (“Company”) (collectively, “Parties” or individually, a “Party”).

RECITALS

WHEREAS, Employee is employed by the Company;

WHEREAS, Employee signed an At-Will Employment, Confidential Information, and Invention Assignment Agreement with the Company on July 9, 2014 (“Confidentiality Agreement”);
WHEREAS, Employee signed an employment agreement with the Company dated May 1, 2014, (the “Employment Agreement”);
WHEREAS, the Company and Employee have entered into Stock Option Agreements, dated May 2, 2014, September 8, 2014, April 23, 2015, and May 2, 2014, respectively, granting Employee the option to purchase shares of the Company’s common stock (each such grant, an “Option”) and have entered into Restricted Stock Unit Award Agreements dated March 12, 2015, April 23, 2015, October 1, 2015, and January 27, 2016, respectively, granting Employee the right to receive an Award of Restricted Stock Units (each such grant, an “RSU Award”), each subject to the terms and conditions of the Company’s equity plan under which it was granted (the 2005 Stock Plan or the 2014 Equity Incentive Plan, as applicable, each, a “Plan”), and the terms and conditions of the Stock Option Agreement or the Restricted Stock Unit Award Agreement, as applicable, related to the award (collectively, “Stock Agreements”);

WHEREAS, Employee’s employment with the Company shall terminate effective July 31, 2016 (“Separation Date”) in a manner that does not entitle Employee to severance payments or benefits under the Employment Agreement; and

WHEREAS, the Parties wish to resolve any and all disputes, claims, complaints, grievances, charges, actions, petitions, and demands that the Employee may have against the Company and any of the Releasees as defined below, including, but not limited to, any and all claims arising out of or in any way related to Employee’s employment with or separation from the Company.

NOW, THEREFORE, in consideration of the mutual promises made herein, the Company and Employee hereby agree as follows:

COVENANTS

1.Consideration.  In consideration of Employee’s execution of this Agreement and Employee’s fulfillment of all of its terms and conditions, and provided that Employee does not revoke the Agreement under Paragraph 6 below, the Company agrees as follows:
 
a.Payments.   The Company agrees to pay Employee a lump sum total of Fifteen Thousand One Hundred Forty Four Dollars and Twenty-Three Cents ($15,144.23), which is equivalent to two weeks of Employee’s base salary (the “Base Severance”).  In addition, the Company agrees to pay Employee a lump sum total of Fifty Thousand Dollars ($50,000.00), as a bonus for his performance during the second fiscal quarter of 2016 (the “Bonus Severance” and, together with the Base Severance, the “Severance”).  Subject to Section 17, the Base Severance, less applicable withholdings, shall be paid to Employee within ten (10) business days after the later of (i) the Effective Date of this Agreement or (ii) the Separation Date.

b.General.  Employee acknowledges that without this Agreement, he is otherwise not entitled to the consideration listed in this Section 1 or the acceleration of RSU Award vesting provided in Section 2.

2.Equity.  On the Separation Date, but subject to the effectiveness of this Agreement as provided herein and to the provisions of Section 17, Employee’s vesting in each RSU Award shall accelerate as to the number of shares subject to each RSU Award that otherwise would have vested through December 31, 2016, had Employee remained employed by the Company through such period (and assuming no change in control or other acceleration event otherwise 

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took place through such period).  The Parties agree that for purposes of determining the number of shares of the Company’s common stock that Employee is entitled to purchase from the Company pursuant to the exercise of outstanding options, as of the Separation Date, Employee will be considered to have vested only through the Separation Date and will not vest in any of Employee’s Options or RSU Awards thereafter.  Employee acknowledges that, as of the Separation Date, and assuming effectiveness of this Agreement, Employee will have vested in the number of shares subject to each Option and each RSU Award as listed on Exhibit A hereto (which includes the number of RSU Award shares subject to acceleration under this Section 2) , and no more.  Any shares subject to an applicable RSU Award vesting pursuant to this Section 2 will be paid, less any shares subject to such RSU Award that are withheld by the Company to satisfy any tax withholding obligations, no later than sixty (60) days following the Separation Date.  This Agreement acts as an amendment to the Stock Agreements related to the RSU Awards.  Except as provided herein, the exercise of the vested portion of Employee’s Options, the shares purchased thereunder and Employee’s RSU Awards shall continue to be governed by the terms and conditions of the applicable Stock Agreements, as modified by this Agreement.  

3.Benefits.  Employee’s health insurance benefits shall cease on the last day of the month of his Separation Date, subject to Employee’s right to continue his health insurance under COBRA.  Employee’s participation in all benefits and incidents of employment, including, but not limited to, vesting in stock options, and the accrual of bonuses, vacation, and paid time off, will cease as of the Separation Date.

4.Payment of Salary and Receipt of All Benefits.   Employee acknowledges and represents that, other than the consideration set forth in this Agreement and the payment of wages owed through the Separation Date, the Company has paid or provided all salary, wages, bonuses, accrued vacation/paid time off, premiums, leaves, housing allowances, relocation costs, interest, severance, outplacement costs, fees, reimbursable expenses, commissions, stock, stock options, vesting, and any and all other benefits and compensation due to Employee.  

5.Release of Claims.  Employee agrees that the foregoing consideration represents settlement in full of all outstanding obligations owed to Employee by the Company and its current and former officers, directors, employees, agents, investors, attorneys, shareholders, administrators, affiliates, benefit plans, plan administrators, insurers, trustees, divisions, and subsidiaries, and predecessor and successor corporations and assigns (collectively, “Releasees”).  Employee, on his own behalf and on behalf of his respective heirs, family members, executors, agents, and assigns, hereby and forever releases the Releasees from, and agrees not to sue concerning, or in any manner to institute, prosecute, or pursue, any claim, complaint, charge, duty, obligation, demand, or cause of action relating to any matters of any kind, whether presently known or unknown, suspected or unsuspected, that Employee may possess against any of the Releasees arising from any omissions, acts, facts, or damages that have occurred up until and including the Effective Date of this Agreement, including, without limitation:

a.    any and all claims relating to or arising from Employee’s employment relationship with the Company and the termination of that relationship, including claims under the Employment Agreement, any offer letter, other employment agreement, or other agreement with the Company; 

b.    any and all claims relating to, or arising from, Employee’s right to purchase, or actual purchase of shares of stock of the Company, including, without limitation, any claims for fraud, misrepresentation, breach of fiduciary duty, breach of duty under applicable state corporate law, and securities fraud under any state or federal law;

c.    any and all claims for wrongful discharge of employment; constructive discharge; termination in violation of public policy; discrimination; harassment; retaliation; breach of contract, both express and implied; breach of covenant of good faith and fair dealing, both express and implied; promissory estoppel; negligent or intentional infliction of emotional distress; fraud; negligent or intentional misrepresentation; negligent or intentional interference with contract or prospective economic advantage; unfair business practices; defamation; libel; slander; negligence; personal injury; assault; battery; invasion of privacy; false imprisonment; conversion; and disability benefits;

d.    any and all claims for violation of any federal, state, or municipal statute, including, but not limited to, Title VII of the Civil Rights Act of 1964; the Civil Rights Act of 1991; the Rehabilitation Act of 1973; the Americans with Disabilities Act of 1990; the Equal Pay Act; the Fair Labor Standards Act; the Fair Credit Reporting Act; the Age Discrimination in Employment Act of 1967; the Older Workers Benefit Protection Act; the Employee Retirement Income Security Act of 1974; the Worker Adjustment and Retraining Notification Act; the Family and Medical Leave Act; the Sarbanes-Oxley Act of 2002; the Immigration Control and Reform Act; the California Family Rights Act; the California Labor Code; the California Workers’ Compensation Act; the California Fair Employment and Housing Act; the Unruh Civil Rights Act; the California Equal Pay Law; the California Unfair Business Practices Act; and the California Worker Adjustment and Retraining Notification Act;

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e.    any and all claims for violation of the federal or any state constitution;

f.    any and all claims arising out of any other laws and regulations relating to employment or employment discrimination;

g.    any claim for any loss, cost, damage, or expense arising out of any dispute over the nonwithholding or other tax treatment of any of the proceeds received by Employee as a result of this Agreement; and

h.    any and all claims for attorneys’ fees and costs.

Employee agrees that the release set forth in this Section shall be and remain in effect in all respects as a complete general release as to the matters released.  This release does not extend to any obligations incurred under this Agreement.  This release does not release claims that cannot be released as a matter of law, including, but not limited to, Employee’s right to file a charge with or participate in a charge by the Equal Employment Opportunity Commission, or any other local, state, or federal administrative body or government agency that is authorized to enforce or administer laws related to employment, against the Company (with the understanding that any such filing or participation does not give Employee the right to recover any monetary damages against the Company; Employee’s release of claims herein bars Employee from recovering such monetary relief from the Company).  Employee represents that he has made no assignment or transfer of any right, claim, complaint, charge, duty, obligation, demand, cause of action, or other matter waived or released by this Section.

6.Acknowledgment of Waiver of Claims under ADEA. Employee acknowledges that he is waiving and releasing any rights he may have under the Age Discrimination in Employment Act of 1967 ("ADEA"), and that this waiver and release is knowing and voluntary.  Employee agrees that this waiver and release does not apply to any rights or claims that may arise under the ADEA after the Effective Date of this Agreement.  Employee acknowledges that the consideration given for this waiver and release is in addition to anything of value to which Employee was already entitled.  Employee further acknowledges that he has been advised by this writing that: (a) he should consult with an attorney prior to executing this Agreement; (b) he has twenty-one (21) days within which to consider this Agreement; (c) he has seven (7) days following his execution of this Agreement to revoke this Agreement; (d) this Agreement shall not be effective until after the revocation period has expired; and (e) nothing in this Agreement prevents or precludes Employee from challenging or seeking a determination in good faith of the validity of this waiver under the ADEA, nor does it impose any condition precedent, penalties, or costs for doing so, unless specifically authorized by federal law.  In the event Employee signs this Agreement and returns it to the Company in less than the twenty-one (21)-day period identified above, Employee hereby acknowledges that he has freely and voluntarily chosen to waive the time period allotted for considering this Agreement.  Employee acknowledges and understands that revocation must be accomplished by a written notification to the person executing this Agreement on the Company’s behalf that is received prior to the Effective Date.  The Parties agree that changes, whether material or immaterial, do not restart the running of the twenty-one (21)-day period.

7.California Civil Code Section 1542.  Employee acknowledges that he has been advised to consult with legal counsel and is familiar with the provisions of California Civil Code Section 1542, a statute that otherwise prohibits the release of unknown claims, which provides as follows:

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.

Employee, being aware of said code section, agrees to expressly waive any rights he may have thereunder, as well as under any other statute or common law principles of similar effect.

8.No Pending or Future Lawsuits.  Employee represents that he has no lawsuits, claims, or actions pending in his name, or on behalf of any other person or entity, against the Company or any of the other Releasees.  Employee also represents that he does not intend to bring any claims on his own behalf or on behalf of any other person or entity against the Company or any of the other Releasees. 

9.Confidentiality.  Employee agrees to maintain in complete confidence the existence of this Agreement, the contents and terms of this Agreement, and the consideration for this Agreement (hereinafter collectively referred to as “Separation Information”).  Except as required by law, Employee may disclose Separation Information only to his immediate 

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family members, the Court in any proceedings to enforce the terms of this Agreement, Employee’s attorney(s), and Employee’s accountant and any professional tax advisor to the extent that they need to know the Separation Information in order to provide advice on tax treatment or to prepare tax returns, and must prevent disclosure of any Separation Information to all other third parties.  Employee agrees that he will not publicize, directly or indirectly, any Separation Information.

10.Trade Secrets and Confidential Information/Company Property.  Employee reaffirms and agrees to observe and abide by the terms of the Confidentiality Agreement, specifically including the provisions therein regarding nondisclosure of the Company’s trade secrets and confidential and proprietary information, and nonsolicitation of Company employees. Employee’s signature below constitutes his certification under penalty of perjury that he has returned all documents and other items provided to Employee by the Company, developed or obtained by Employee in connection with his employment with the Company, or otherwise belonging to the Company.  

11.No Cooperation.  Employee agrees that he will not knowingly encourage, counsel, or assist any attorneys or their clients in the presentation or prosecution of any disputes, differences, grievances, claims, charges, or complaints by any third party against any of the Releasees, unless under a subpoena or other court order to do so or as related directly to the ADEA waiver in this Agreement.  Employee agrees both to immediately notify the Company upon receipt of any such subpoena or court order, and to furnish, within three (3) business days of its receipt, a copy of such subpoena or other court order.  If approached by anyone for counsel or assistance in the presentation or prosecution of any disputes, differences, grievances, claims, charges, or complaints against any of the Releasees, Employee shall state no more than that he cannot provide counsel or assistance.

12.Nondisparagement.  Employee agrees to refrain from any disparagement, defamation, libel, or slander of any of the Releasees, and agrees to refrain from any tortious interference with the contracts and relationships of any of the Releasees.  Employee shall direct any inquiries by potential future employers to the Company’s human resources department.

13.Breach.  In addition to the rights provided in the “Attorneys’ Fees” section below, Employee acknowledges and agrees that any material breach of this Agreement, unless such breach constitutes a legal action by Employee challenging or seeking a determination in good faith of the validity of the waiver herein under the ADEA, or of any provision of the Confidentiality Agreement, shall entitle the Company immediately to recover and/or cease providing the consideration provided to Employee under this Agreement and to obtain damages, except as provided by law.

14.No Admission of Liability.  Employee understands and acknowledges that this Agreement constitutes a compromise and settlement of any and all actual or potential disputed claims by Employee.  No action taken by the Company hereto, either previously or in connection with this Agreement, shall be deemed or construed to be (a) an admission of the truth or falsity of any actual or potential claims or (b) an acknowledgment or admission by the Company of any fault or liability whatsoever to Employee or to any third party.
15.Nonsolicitation.  Employee agrees that for a period of twelve (12) months immediately following the Separation Date, Employee shall not directly or indirectly solicit any of the Company’s employees to leave their employment at the Company.  

16.Costs.  The Parties shall each bear their own costs, attorneys’ fees, and other fees incurred in connection with the preparation of this Agreement.

17.Taxes; Section 409A; Limitations on Payments.  Employee agrees and understands that he is responsible for payment, if any, of personal local, personal state, and/or personal federal taxes on the payments and any other consideration provided hereunder by the Company and any penalties or assessments thereon.  It is intended that none of the payments or benefits under this Agreement will constitute deferred compensation under Section 409A of the Internal Revenue Code of 1986, as amended, any final regulations and guidance under that statute, and any applicable state law equivalent, as each may be amended or promulgated from time to time (“Section 409A”), but rather such payments and benefits will be exempt from or comply with Section 409A, and any ambiguities or ambiguous terms will be interpreted in such manner.  Notwithstanding the foregoing, if and to the extent that it is necessary to avoid subjecting Employee to an additional tax under Section 409A, payment of all or a portion of the separation-related payments or benefits payable under this Agreement and any other separation-related deferred compensation (within the meaning of Section 409A) payable to Employee will be delayed until the date that is 6 months and 1 day following Employee’s separation from service (within the meaning of Section 409A), except that in the event of Employee’s death, any such delayed payments will be paid as soon as practicable after the date of Employee’s death.  Each payment and benefit payable under this Agreement or otherwise 

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is intended to constitute a separate payment under Treasury Regulation Section 1.409A-2(b)(2). In no event will the Company reimburse Employee for any taxes that may be imposed on Employee as a result of Section 409A.  In no event will Employee have discretion to determine the taxable year of payment of any severance payments.  Employee agrees and acknowledges that Section 10 of the Employment Agreement (“Limitations on Payments”) shall apply to severance payments and benefits under this Agreement and is incorporated by reference into this Agreement. 

18.Authority.  The Company represents and warrants that the undersigned has the authority to act on behalf of the Company and to bind the Company and all who may claim through it to the terms and conditions of this Agreement.  Employee represents and warrants that he has the capacity to act on his own behalf and on behalf of all who might claim through him to bind them to the terms and conditions of this Agreement.  Each Party warrants and represents that there are no liens or claims of lien or assignments in law or equity or otherwise of or against any of the claims or causes of action released herein.

19.No Representations.  Employee represents that he has had an opportunity to consult with an attorney, and has carefully read and understands the scope and effect of the provisions of this Agreement.  Employee has not relied upon any representations or statements made by the Company that are not specifically set forth in this Agreement.

20.Severability.  In the event that any provision or any portion of any provision hereof or any surviving agreement made a part hereof becomes or is declared by a court of competent jurisdiction or arbitrator to be illegal, unenforceable, or void, this Agreement shall continue in full force and effect without said provision or portion of provision.

21.Attorneys’ Fees.  Except with regard to a legal action challenging or seeking a determination in good faith of the validity of the waiver herein under the ADEA, in the event that either Party brings an action to enforce or effect its rights under this Agreement, the prevailing Party shall be entitled to recover its costs and expenses, including the costs of mediation, arbitration, litigation, court fees, and reasonable attorneys’ fees incurred in connection with such an action.

22.Entire Agreement.  This Agreement represents the entire agreement and understanding between the Company and Employee concerning the subject matter of this Agreement and Employee’s employment with and separation from the Company and the events leading thereto and associated therewith, and supersedes and replaces any and all prior agreements and understandings concerning the subject matter of this Agreement and Employee’s relationship with the Company, with the exception of the Confidentiality Agreement, the Stock Agreements, except as modified herein, and Section 10 of the Employment Agreement (“Limitations on Payments”). 

23.No Oral Modification.  This Agreement may only be amended in a writing signed by Employee and an authorized officer of the Company.

24.Governing Law.  This Agreement shall be governed by the laws of the State of California, without regard for choice/conflict of law provisions.  Employee consents to personal and exclusive jurisdiction and venue in the applicable state or federal courts in Los Angeles County, California.  

25.Effective Date.  Employee understands that this Agreement shall be null and void if not executed by him within twenty-one (21) days from the date this Agreement is presented.   Each Party has seven (7) days after that Party signs this Agreement to revoke it.  This Agreement will become effective on the eighth (8th) day after Employee signed this Agreement, so long as it has been signed by both Parties and has not been revoked by either Party before that date (“Effective Date”).

26.Counterparts.  This Agreement may be executed in counterparts and by facsimile, and each counterpart and facsimile shall have the same force and effect as an original and shall constitute an effective, binding agreement on the part of each of the undersigned.

1.
    Protected Activity Not Prohibited.   Employee understands that nothing in this Agreement shall in any way limit or prohibit Employee from engaging for a lawful purpose in any Protected Activity.  For purposes of this Agreement, “Protected Activity” shall mean filing a charge or complaint, or otherwise communicating, cooperating, or participating with, any state, federal, or other governmental agency, including the Securities and Exchange Commission, the Equal Employment Opportunity Commission, and the National Labor Relations Board.  Notwithstanding any restrictions set forth in this Agreement, Employee understands that he is not required to obtain authorization from the Company prior to disclosing information to, or communicating with, such agencies, nor is Employee obligated to advise the Company as to any such disclosures or communications.  Notwithstanding, in making any such disclosures or communications, Employee 

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agrees to take all reasonable precautions to prevent any unauthorized use or disclosure of any information that may constitute Company confidential information under the Confidentiality Agreement to any parties other than the relevant government agencies.  Employee further understands that “Protected Activity” does not include the disclosure of any Company attorney-client privileged communications, and that any such disclosure without the Company’s written consent shall constitute a material breach of this Agreement.  In addition, pursuant to the Defend Trade Secrets Act of 2016, Employee is notified that an individual will not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that (i) is made in confidence to a federal, state, or local government official (directly or indirectly) or to an attorney solely for the purpose of reporting or investigating a suspected violation of law, or (ii) is made in a complaint or other document filed in a lawsuit or other proceeding, if (and only if) such filing is made under seal. In addition, an individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to the individual’s attorney and use the trade secret information in the court proceeding, if the individual files any document containing the trade secret under seal and does not disclose the trade secret, except pursuant to court order.

2.
    Voluntary Execution of Agreement.  Employee understands and agrees that he executed this Agreement voluntarily, without any duress or undue influence on the part or behalf of the Company or any third party, with the full intent of releasing all of his claims against the Company and any of the other Releasees.  Employee acknowledges that:

(a)    he has read this Agreement;

		
	(b)
	he has been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of his own choice or has elected not to retain legal counsel;

		
	(c)
	he understands the terms and consequences of this Agreement and of the releases it contains; and

(d)    he is fully aware of the legal and binding effect of this Agreement.

IN WITNESS WHEREOF, the Parties have executed this Agreement on the respective dates set forth below.

AGREED AND ACCEPTED:
    	
				
	 
	 
	 
	John E. Stephenson, an individual

	 
	 
	 
	 

	Dated:
	July 29, 2016
	 
	/s/ John E. Stephenson

	 
	 
	 
	John E. Stephenson

	 
	 
	 
	 

	 
	 
	 
	 

	 
	 
	 
	TRUECAR, INC.

	 
	 
	 
	 

	Dated:
	July 29, 2016
	By
	/s/ Jeff Swart

	 
	 
	 
	Jeff Swart

	 
	 
	 
	General Counsel

        

Page 6

EXHIBIT A

EMPLOYEE’S OPTIONS AS OF SEPARATION DATE

	
				
	Date of Grant
	Plan Under Which Option Was Granted
	Number of Shares Granted under Option
	Number of Shares Vested as of July 31, 2016

	05/02/2014
	2005 Stock Plan
	39,030
	23,418

	05/02/2014
	2005 Stock Plan
	827,636
	446,026

	05/02/2014
	2005 Stock Plan
	4,166
	0

	05/02/2014
	2005 Stock Plan
	95,833
	31,342

	09/08/2014
	2014 Equity Incentive Plan
	5,796
	5,796

	04/23/2015
	2014 Equity Incentive Plan
	75,000
	28,124

	 
	 
	 
	 

	 
	 
	Total:
	534,706

EMPLOYEE’S RSU AWARDS AS OF SEPARATION DATE

     
	
				
	Date of Grant
	Plan Under Which RSU Award Was Granted
	Number of Shares Granted under RSU Award
	

Number of Shares Vested as of July 31, 2016

	03/12/2015
	2014 Equity Incentive Plan
	3,103
	3,103

	04/23/2015
	2014 Equity Incentive Plan
	25,000
	12,500

	10/01/2015
	2014 Equity Incentive Plan
	153,034
	47,823

	01/27/2016
	2014 Equity Incentive Plan
	71,416
	17,854

	 
	 
	 
	 

	 
	 
	Total:
	81,280

Page 7sfm-ex101_450.htm

 

Exhibit 10.1

A request for confidential treatment has been made with respect to portions of the following document that are marked with [*CONFIDENTIAL*]. The redacted portions have been filed separately with the SEC.

 

		
	

	

DELI, CHEESE, AND BAKERY DISTRIBUTION AGREEMENT

This Deli, Cheese, and Bakery Distribution Agreement (“Agreement”), is made effective as of February 12th, 2016 (the “Effective Date”), by and between SFM, LLC dba Sprouts Farmers Market (“SFM”), a Delaware limited liability company, and KeHE Distributors, LLC (“KeHE”), a Delaware limited liability company.

RECITALS

WHEREAS, SFM and KeHE, through KeHE’s wholly-owned subsidiary Nature’s Best, are parties to that certain Amended and Restated Distribution Agreement dated August 13, 2014 (“NB Agreement”);

WHEREAS, Monterrey Provision Co. Inc. (“MPC”) currently supplies various deli and other food products to SFM on terms negotiated between MPC and SFM;

WHEREAS, contemporaneous with the execution of this Agreement, KeHE has entered into an agreement to purchase substantially all of the assets of MPC; and

WHEREAS, KeHE’s agreement to purchase MPC is contingent upon SFM’s agreement to name KeHE as the Primary Supplier, as defined below, of Deli, Cheese, and Bakery products (the “Products”) under the terms set forth in this Agreement.

THEREFORE, in consideration of the mutual covenants set forth herein and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto mutually agree as follows:

ASSUMPTIONS

A. SFM is engaged in the sale of the Products in a farmers’ market grocery store format (the “SFM Stores”). Its operations include retail stores and distribution centers. SFM currently operates in several regions, including Alabama, Arizona, California, Missouri, Nevada, New Mexico, Utah, Georgia, Kansas, Tennessee, Texas, Oklahoma and Colorado.

B. KeHE has agreed to purchase substantially all of the assets of MPC, which provides the distribution of the Products to all SFM stores, and KeHE has agreed to continue to sell such Products to all SFM stores under the terms stated herein.

C. The parties desire to enter into this Agreement to set forth the terms upon which KeHE will sell and distribute the Products to SFM Stores and SFM will purchase these goods and services.

NOW, THEREFORE, the parties agree as follows:

	
1)
	
TERM: This Agreement shall have a term of three (3) years commencing on the Effective Date (the “Term”).

	
2)
	
DISTRIBUTION AGREEMENT:

 

 

A request for confidential treatment has been made with respect to portions of the following document that are marked with [*CONFIDENTIAL*]. The redacted portions have been filed separately with the SEC.

 

	
 
	
a.
	
KeHE Distribution: KeHE will be SFM’s Primary Supplier, as defined below, of the Products. SFM may maintain current distribution of all products currently supplied by [*CONFIDENTIAL*], at SFM’s discretion (the “[*CONFIDENTIAL*] Products”). A list of the [*CONFIDENTIAL*] Products is attached hereto as Schedule 1. SFM however agrees to work in good faith to transition its current supply of Products from [*CONFIDENTIAL*] (or its successors or affiliates) to KeHE within [*CONFIDENTIAL*] of the Effective Date. Pricing for additional items will be consistent with the Pricing set forth in Section 5. 

	
 
	
c.
	
Primary Supplier shall be defined as follows:

	
 
	
i.
	
All SFM stores will order a [*CONFIDENTIAL*] of their Products from KeHE (the “Supply Percentage”), which shall be subject to KeHE meeting the Minimum Fill Rate set forth in Section 3(c) below. SFM agrees to work in good faith with KeHE to increase the Supply Percentage during the Term to [*CONFIDENTIAL*], provided KeHE is meeting the Minimum Fill Rate. Other than products distributed through its distribution facilities, SFM will source direct store delivery (DSD) deli, cheese, and bakery products carried in SFM stores, if available from KeHE, through KeHE, [*CONFIDENTIAL*]. SFM acknowledges that the pricing as of the Effective Date is considered competitive and that the preceding sentence shall not remove SFM’s obligation to maintain KeHE as its Primary Supplier of the Products so long as [*CONFIDENTIAL*]. This does not include any products currently being distributed to SFM through [*CONFIDENTIAL*] as of the Effective Date, although the parties agree to work in good faith to determine if there is a mutually beneficial solution for supply of such products through KeHE.

	
 
	
ii.
	
SFM will carry out commercially reasonable efforts to maintain a [*CONFIDENTIAL*], adjusted annually according to changes in the Consumer Price Index.

	
 
	
iii.
	
New Stores: If SFM opens new locations, KeHE shall become the Primary Supplier of the Products, as defined above, for such stores and SFM and KeHE shall work in good faith to ensure that [*CONFIDENTIAL*] and as reasonably acceptable to SFM.

	
 
	
d.
	
Cost Reduction Initiatives. KeHE and SFM will agree to work in good faith to modify business practices to reduce costs across the system. Both parties agree that any cost benefit achieved directly or indirectly by joint cost reduction practices will be [*CONFIDENTIAL*].

Page 2 of 14

A request for confidential treatment has been made with respect to portions of the following document that are marked with [*CONFIDENTIAL*]. The redacted portions have been filed separately with the SEC.

 

	
3)
	
KeHE SUPPLIER PERFORMANCE: 

	
 
	
a.
	
New Products:

	
 
	
i.
	
KeHE will stock all new products that are specifically requested by SFM and are placed chain wide (all SFM stores).

	
 
	
ii.
	
Regional product requests will be stocked if carried by all stores in the region, and there are reasonable aggregate product turns.

	
 
	
b.
	
Phase 1 In Stock Level: During Phase 1, as defined in Section 5 below, KeHE shall maintain fill rates and practices consistent with MPC prior to the Effective Date. The annualized unadjusted MPC fill rate as of the Effective Date is [*CONFIDENTIAL*], as reported by MPC.

	
 
	
c.
	
Phase 2 In-Stock Level: During Phase 2 and 3, as defined in Section 5 below, KeHE and SFM will continue their mutual efforts to eliminate the causes of out-of- stock product in order to maintain the highest fill rate possible.

	
 
	
i.
	
KeHE will utilize its commercially reasonable efforts to maintain a KeHE controlled in-stock level (the “Fill Rate”) of [*CONFIDENTIAL*] (the “Minimum Fill Rate”) [*CONFIDENTIAL*].

	
 
	
ii.
	
If at any point in time during the Term the average Minimum Fill Rate is not met for [*CONFIDENTIAL*] (a “Fill Rate Deficiency”), SFM shall notify KeHE of such, and KeHE shall have a cure period of [*CONFIDENTIAL*] to remedy such deficiency (the “Fill Rate Cure Period”) [*CONFIDENTIAL*] (See Example 1 below).

	
 
	
iii.
	
If KeHE does not cure a Fill Rate Deficiency within the Fill Rate Cure Period (an “Uncured Deficiency”), KeHE shall reimburse SFM [*CONFIDENTIAL*] (a “Fill Rate Reimbursement”) (See Example 2 below). If [*CONFIDENTIAL*] Uncured Deficiencies occur within a 

Page 3 of 14

A request for confidential treatment has been made with respect to portions of the following document that are marked with [*CONFIDENTIAL*]. The redacted portions have been filed separately with the SEC.

 

[*CONFIDENTIAL*] period, the Fill Rate Reimbursement shall increase to [*CONFIDENTIAL*].

[*CONFIDENTIAL*]

	
 
	
iv.
	
If the Uncured Deficiency is due to a Fill Rate Deficiency below [*CONFIDENTIAL*], the Fill Rate Reimbursement shall [*CONFIDENTIAL*] for the deficiency under said [*CONFIDENTIAL*] and [*CONFIDENTIAL*] for the deficiency between [*CONFIDENTIAL*] and the Minimum Fill Rate.

	
 
	
v.
	
Notwithstanding the foregoing, in the event the Fill Rate is below [*CONFIDENTIAL*] for [*CONFIDENTIAL*], SFM shall have the right, in addition to the Fill Rate Reimbursement, to terminate this Agreement and/or use another distributor to meet its demands (a “Right of Termination for Cause”). Upon exercise of a Right of Termination for Cause, if SFM opts to use another distributor, KeHE agrees to work diligently and in good faith with SFM to transfer the distribution of Products to the new supplier for up to [*CONFIDENTIAL*] (the “Transition Period”). During the Transition Period all terms under this Agreement shall continue in full force and effect, including but not limited to the service levels regarding distribution of Product and credits.

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vi.
	
In the event that SFM opts to exercise its Right of Termination for Cause and switch to another supplier, as described above, for the Transition Period, KeHE shall be required to [*CONFIDENTIAL*]. Both SFM and KeHE agree to work in good faith to execute an orderly transition of business to SFM’s designated new primary supplier that fairly treats both SFM and KeHE. 

	
 
	
vii.
	
Notwithstanding the foregoing, if SFM opts not to terminate this Agreement per its Right of Termination for Cause, but still use another distributor to meet its demands, it shall work in good faith with KeHE to resume its distribution as Primary Supplier.

	
 
	
viii.
	
If the average monthly unadjusted in-stock level for any KeHE distribution facility (i.e., DC) falls below [*CONFIDENTIAL*] for [*CONFIDENTIAL*] (measured as the average Fill Rate for those [*CONFIDENTIAL*]), SFM shall notify KeHE of such, and KeHE shall have a cure period of [*CONFIDENTIAL*] to remedy such deficiency (measured as the average Fill Rate for the last [*CONFIDENTIAL*] of such cure period). If KeHE does not cure the deficiency within the cure period, KeHE shall reimburse SFM for [*CONFIDENTIAL*] of the difference between the actual fill rate (i.e., the deficient fill rate) (measured as the average of the [*CONFIDENTIAL*] of the cure period and [*CONFIDENTIAL*]) and a [*CONFIDENTIAL*] fill rate for that DC. This reimbursement shall be a remedy separate and apart from the Fill Rate Reimbursement set forth in Section 3.c.iii above.

	
4)
	
KeHE SPECIAL SERVICES:

As of the Effective Date KeHE will continue to provide SFM with resources and support services consistent with those currently provided by the merchandising incentive program with MPC, to include new and existing store opening support (the “KeHE Special Services”). A basic description of the KeHE Special Services are attached hereto as Exhibit “B”, which is subject to change in personnel and duties for each individual, provided KeHE agrees to provide the services set forth therein. These services shall be incremental to any program or distribution costs referenced in this Agreement and will remain in full force and payable under its current terms.

	
5)
	
COST PLUS RATE:

	
 
	
a.
	
Phase 1 – During the initial [*CONFIDENTIAL*] period following the Effective Date, KeHE will continue to sell the Products to SFM described in Schedule 2 at the margins sold by MPC as of the Effective Date of this Agreement (the “Phase 1 Products”). New items will be sold at a rate of [*CONFIDENTIAL*], including those Products transitioned from [*CONFIDENTIAL*].

During Phase 1 KeHE will issue a [*CONFIDENTIAL*] rebate to SFM on all sales of all Products to SFM, which will be calculated as a percentage of the delivered cost of Products (i.e., net invoice cost of Products) in each respective market. All rebates will be paid within [*CONFIDENTIAL*]. Notwithstanding the foregoing, to the extent MPC has agreed to rebate SFM prior to the Effective Date of this Agreement, no additional rebate will be given to SFM over the aforementioned [*CONFIDENTIAL*] rebate.

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b.
	
Phase 2 – Following the earlier of (i) Phase 1 (i.e., initial [*CONFIDENTIAL*]), or (ii) the conversion of shipments of the Products from each MPC facility to KeHE’s facility, and continuing through the date that is the end of the [*CONFIDENTIAL*] following the Effective Date, the pricing for the Products shall be on a “cost plus” basis using the KeHE Cost (as defined below) for the Products, plus a mark-up of [*CONFIDENTIAL*] (the “Mark-Up”). “KeHE Cost” shall be defined as [*CONFIDENTIAL*]. Following Phase 1, KeHE Cost may be different for each individual KeHE distribution center based on [*CONFIDENTIAL*]. Delivery schedules for the Products will transition to the delivery frequency consistent with the terms under the NB Agreement. For avoidance of doubt if one MPC facility has converted to a KeHE facility prior to the end of the initial [*CONFIDENTIAL*] from the Effective Date, then the price shall be adjusted for that facility, but shall remain for any other MPC facilities that have not been converted until such time as the facility is converted, or the end of the initial [*CONFIDENTIAL*] of the Term. KeHE will make available full disclosure of freight costs associated with the calculation of the final delivered cost of all products if requested by SFM in order to validate true business costs. SFM and KeHE agree to work in good faith toward a complete integration of the MPC business into KeHE during the initial [*CONFIDENTIAL*] following the Effective Date. 

	
 
	
c.
	
Phase 3 – During the period of time following the [*CONFIDENTIAL*] from the Effective Date and through the remainder of the Term, the Mark-Up shall be adjusted to [*CONFIDENTIAL*] and the Price for the Products shall be calculated as the KeHE Cost multiplied by [*CONFIDENTIAL*].

	
 
	
d.
	
During Phase 1, payment terms shall be [*CONFIDENTIAL*]. During Phase 2 and 3 payment terms shall change to [*CONFIDENTIAL*].

	
 
	
e.
	
Cost for the Products may be changed from time to time with a minimum of thirty (30) days prior written notice. Notwithstanding the foregoing, for any Commodity driven price changes KeHE and SFM will mutually discuss the price change implementation date, which may be prior to the foregoing dates.

	
 
	
f.
	
The Mark-Up and rebates set forth in this section are calculated and based on the Assumptions enumerated in Exhibit A. In the event one or more Assumptions are not being met or have changed in a material way such that they are no longer valid (e.g., material variations in projected purchase volume, the addition of stores, or material delivery frequency or drop size variations), KeHE shall provide SFM notice and the parties agree to meet within thirty (30) days of such notice to determine a course of action, which may include [*CONFIDENTIAL*]. The parties will work in good faith to determine a mutually agreeable course of action. If the parties are not able to agree on a course of action within sixty (60) days after such notice, then either party may terminate this Agreement, which termination shall be effective one hundred and eighty (180) days following delivery of notice of termination.

	
6)
	
PRIVATE LABEL: This section will apply to all SFM branded Products, or any other Products which KeHE sells exclusively to SFM.

	
 
	
a.
	
Pricing. SFM will be billed at [*CONFIDENTIAL*]. Pricing shown in Section 5.

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b.
	
Stocking of Private Label. KeHE agrees to stock all SFM private label Products carried by SFM and provide them to all SFM Stores. Continuing current practice, when SFM’s movement on private label products in new regions is insufficient for direct delivery by the vendor to the KeHE distribution center, the cost plus pricing for those products will be adjusted to reflect the inter-facility transfer cost. 

	
 
	
c.
	
Special Situations. The respective SFM department Category Managers will work in good faith with the KeHE private label team to proactively address “slow” turning skus of private label items in order to minimize the operational and financial impact on KeHE. “Slow” turns shall be defined as turns that do not meet reasonable category rate turn pursuant to industry standards. If the turns on a private label item (or line) are materially below the average for the overall product category, SFM and KeHE will work in good faith to resolve in a timely manner the slow turns on such items. KeHE shall not sell any SFM private label or control brand items to any other outlet without SFM’s prior written approval.

	
 
	
d.
	
Code Date Management. The following shall be the private label management practices KeHE and SFM will continue to employ in order to manage private label inventory:

	
 
	
i.
	
KeHE shall provide the respective SFM Category Managers a dedicated periodic inventory report showing expiration dates and time remaining for all private label Product inventories in each facility. This provides the opportunity for SFM and KeHE to manage close-coded private label items through special promotions and proactive distribution to SFM stores while the product is still saleable.

	
 
	
ii.
	
The above procedures are aimed to minimize losses due to short-coded or past code private label inventory. In the event private label inventory is required to be discarded, SFM shall notify KeHE to remove the product from inventory and KeHE shall bill SFM or the corresponding private label manufacturer for the value of that inventory. To the extent the private label manufacturer will not accept such charges, [*CONFIDENTIAL*].

	
 
	
iii.
	
In the event KeHE fails to notify SFM of a private label’s item short-code status at least 30 days prior to its expiration date, or at an earlier agreed- upon timeframe for items with shorter shelf-life, resulting in the private label item being discarded due to it reaching the end of its code date life, [*CONFIDENTIAL*].

	
 
	
e.
	
Responsibilities: SFM will negotiate directly with the manufacturer for all new private label items. KeHE will provide the purchasing and distribution functions. The parties further agree to periodically review inflationary impact on private label Products.

	
 
	
f.
	
Discontinued Private Label: KeHE will purchase and stock all private label items in good faith to SFM’s needs. [*CONFIDENTIAL*] The parties agree to work to define mutually agreeable terms for Products considered slow moving items. Existing, successful coordination will continue between SFM and KeHE buyers to minimize product loss.

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7)
	
FUEL SURCHARGE (FSC): 

	
 
	
a.
	
During Phase 2 and Phase 3 of the Agreement, KeHE will provide a monthly report of the number of deliveries by store to SFM. SFM will be invoiced at [*CONFIDENTIAL*] of the fuel surcharge specified in Schedule 3 (the “Fuel Surcharge Percentage”) during the Term. Only one fuel surcharge may be applied per delivery of Product. If there is comingled inventory Products with the NB Agreement then the delivery expense will be allocated by department. SFM may audit the fuel surcharge billed at any time by referencing the average price per gallon of diesel fuel at: http://tonto.eia.doe.gov/oog/info/wohdp/diesel.asp.

	
 
	
b.
	
Both parties agree to review the Fuel Surcharge Percentage in good faith from time to time, but no earlier than after Phase 1, on an “open book” basis.

	
8)
	
PALLETS, TOTES, TRANSAFES:

	
 
	
a.
	
KeHE Deliveries: At the time of delivery SFM stores will return all totes from their prior delivery. They will also exchange a number of pallets equal to the amount received on their current delivery.

	
 
	
b.
	
KeHE Facility Pickup: SFM will exchange, by periodic return shipments to the corresponding KeHE distribution center(s), a quantity of pallets equal to the amount loaded on outbound pickups. Pallet counts will be reconciled monthly to ensure an even exchange.

	
 
	
c.
	
Transafes: In order to minimize the outstanding transafe inventory, SFM will continue to coordinate with KeHE to expedite the return of all transafes, per current practice.

	
9)
	
SERVICE LEVEL ARRANGEMENT:

	
 
	
a.
	
KeHE and SFM agree to the terms set forth in Exhibit “C” hereof regarding processing of credits, quality control and service levels.

	
10)
	
CONFIDENTIALITY:

	
 
	
a.
	
Both SFM and KeHE agree to keep all terms of this Agreement strictly confidential.

	
 
	
b.
	
In the process of making this Agreement, both parties may also have acquired or developed confidential information relating to each party’s businesses that includes quality standards, business methods, sales data and trends, intellectual property, purchasing history, pricing, marketing and pricing strategies, technical data, and general or specific customer information. Each party agrees to maintain this information as confidential.

	
11)
	
COMPLIANCE WITH LAWS:

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a.
	
General: Each party covenants and agrees during the Term it will fully comply with all applicable laws, ordinances, regulations, licenses and permits of or issued by any federal, state or local government entity, agency or instrumentality applicable to its responsibilities hereunder. Each party agrees that it shall comply with all certification procedures and regulations. Each party shall promptly notify the other party after it becomes aware of any material adverse proposed law, regulation or order that, to its knowledge, may or does conflict with the parties’ obligations under this Agreement. The parties will then use reasonable efforts to promptly decide whether a change may be made to the terms of this Agreement to eliminate any such conflict or impracticability. 

	
12)
	
TERMINATION PROVISION:

	
 
	
a.
	
Either party may terminate this Agreement immediately by providing written notice to the other party for a material breach of any obligations under the Agreement, and failure to cure such breach after [*CONFIDENTIAL*] days’ prior written notice of the breach.

	
 
	
b.
	
Either party may terminate this agreement if the other party becomes insolvent, admits in writing its insolvency, commences or has filed against it an bankruptcy, reorganization, liquidation or insolvency proceeding, or if any received, trustee, or liquidator is appointed to take possession of such party’s assets.

	
 
	
c.
	
In addition to the Right of Termination for Cause set forth in Section 3 above, SFM may terminate this Agreement for cause if the quality of service provided by KeHE does not meet industry standards, and KeHE fails to substantially remedy the service within [*CONFIDENTIAL*] days of written notice by SFM.

	
 
	
d.
	
Notwithstanding anything contained in this Agreement, the Right of Termination for Cause set forth in Section 3 hereof shall be a separate remedy from the termination provisions in this section.

	
 
	
e.
	
Following expiration or termination of this Agreement for any reason, SFM will purchase, or cause to be purchased by its incoming supplier, (a) all Products in KeHE’s inventory that are in transit to SFM or for which KEHE has placed unconditional orders; (b) any SFM private label Products; (c) any Products sold exclusively to SFM; (d) any Products purchased in bulk at SFM’s request; and/or (e) any Products otherwise purchased for SFM’s account (provided such items are on SFM’s authorized list of Products for purchase from KeHE and SFM shall only be responsible for inventory consistent with prior forecasting of the Products aligned with KeHE’s turn rates at the time of the Termination.

	
13)
	
INDEMNIFICATION:

KeHE agrees to indemnify, defend and hold harmless SFM, and its subsidiaries and affiliates, and their employees, officers, directors, members, shareholders, and agents (collectively the “SFM Indemnitees”) from any and all third party claims, demands, threats, suits, proceedings, damages, liabilities or expenses (including reasonable attorney’s fees) (“Claims”) arising from or in connection with any allegation that any Product has directly or indirectly, in whole or in part: (i) given rise to any illness or injury to any person or animal, or any damage to property; (ii) has violated any applicable federal, state, local or

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other law, rule or regulation, including without limitation any regulations of the Food and Drug Administration or the Consumer Product Safety Commission or other regulations enacted for the purposes of consumer protection; or (iii) is not merchantable or fit for its intended purpose; or (iv) is in any way defective or deficient in quality, labeling, packaging or manufacture. KeHE also agrees to indemnify, defend and hold harmless the SFM Indemnitees from any Claims arising out of the performance (or failure to perform) by KeHE of its obligations under this Agreement. The foregoing notwithstanding, KeHE shall not be liable for any Claims arising out of the negligence or willful misconduct of SFM or the SFM Indemnitees.

SFM agrees to indemnify, defend and hold harmless KeHE, its subsidiaries and affiliates, and their employees, officers, directors, members, shareholders, and agents (collectively the “KeHE Indemnitees”) from any and all Claims arising out of: (a) the performance (or failure to perform) by SFM of its obligations under this Agreement; (b) the negligence or willful misconduct of SFM, its agents or employees. The foregoing notwithstanding, SFM shall not be liable for any Claims arising out of the negligence or willful misconduct of KeHE or the KeHE Indemnitees.

	
14)
	
MISCELLANEOUS:

	
 
	
(a)
	
Binding Effect: This Agreement, including its exhibits, supersedes all prior agreements between SFM and KeHE and constitutes the only agreement between SFM and KeHE, either oral or in writing, relating to the subject matter hereof, i.e., the supply/distribution of the Products. For the avoidance of doubt, this Agreement shall be separate and distinct from the NB Agreement, which will continue in full force and effect and the terms unaffected by this Agreement.

	
 
	
(b)
	
Force Majeure: “Force Majeure” events shall be events beyond the reasonable control of a party (and not through the fault or negligence of such party) that make timely performance of an obligation not possible, in which event the time for performance of the obligation affected by the event of Force Majeure shall be extended by the period of Force Majeure. Force Majeure events are those that are not reasonably foreseeable with the exercise of reasonable care, nor avoidable through the payment of nonmaterial additional sums. In the event of a Force Majeure, the party so affected shall give prompt written notice to the other party of the cause and shall take whatever reasonable steps are necessary to relieve the effect of such cause as rapidly as possible. The provisions of this section shall not apply to the financial obligations of either party to this Agreement that are unaffected by Force Majeure. For sake of clarity, an event caused by the gross negligence or willful misconduct of either party shall not be considered Force Majeure.

	
 
	
(c)
	
Governing Law; Forum and Jurisdiction; Waiver of Punitive and Similar Types of Damages: The relationship of the parties hereto and all claims arising out of or related to that relationship, including, but not limited to, the construction and interpretation of any written agreements, including this Agreement, shall be governed by the substantive laws of the State of Arizona (without regard to conflicts of law principles). The parties agree and consent to the jurisdiction of the state and federal courts located in Maricopa County, Arizona and acknowledge that such courts are proper and convenient forums for the resolution of any actions between the parties with respect to the subject matter of this Agreement, and agree 

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that, in such case, these courts shall be the sole and exclusive forums for the resolution of any actions between the parties with respect to the subject matter hereof. The parties hereby waive any right to a jury trial under any applicable law. The parties also waive any and all right to punitive, incidental or consequential damages, including but not limited to lost profits, except in the case an action is brought for breach of provisions relating to confidential information or as a result of gross negligence or willful misconduct on behalf of either party, as determined by final adjudication. The prevailing party in any action to enforce this Agreement shall be entitled to recover all related costs of the suit, including reasonable attorneys’ fees and court costs.

	
 
	
(d)
	
Insurance. At all times during the Term, KeHE shall maintain, at its expense, occurrence based insurance coverage (the “Insurance Coverage”) in the types and amounts as follows:

	
 
	
●
	
Workers’ Compensation and Employer’s Liability insurance affording compensation benefits for all of its employees in an amount sufficient to meet all statutory requirements and employer’s liability insurance with limits of [*CONFIDENTIAL*] for each accident or disease;

	
 
	
●
	
Commercial General Liability Insurance with a combined single limit of [*CONFIDENTIAL*] per occurrence and [*CONFIDENTIAL*] in the aggregate for personal injury, bodily injury (including wrongful death), and property damage liability inclusive of coverage for all premises and operations, broad form property damage,;

	
 
	
●
	
Automobile Liability Insurance with a combined single limit of [*CONFIDENTIAL*] per occurrence for injuries, including accidental death and property damage;

	
 
	
●
	
Products Liability Insurance with limits not less than [*CONFIDENTIAL*] per occurrence;

	
 
	
●
	
Umbrella or Excess Liability Insurance with limits not less than [*CONFIDENTIAL*] per occurrence that provides additional limits for employer’s liability, commercial general liability, automobile liability and products liability insurance.

	
 
	
●
	
The Insurance Coverage will be from an insurance company classified by A M Best as a Class IV or larger with a Financial Strength Rating of at least A, A-. None of the Insurance Coverage amounts will be construed as a limitation on KeHE’s potential liability. In connection with KeHE’s execution of this Agreement, KeHE will provide SFM with certificates of insurance evidencing all of the referenced insurance policies, which will be renewed annually or as policy renewals occur. Except for Workers’ Compensation and Employers Liability, the required insurance policies will, at KeHE’s expense, name “SFM, LLC together with its subsidiaries and affiliates as additional insureds.”

	
 
	
(e)
	
Amendment; Assignment: This Agreement may not be amended or modified except by a writing signed by an authorized officer of each party specifically referencing this Agreement and the intent to amend or modify.

	
 
	
(f)
	
Change of Control: The parties hereto agree that all of the provisions of this Agreement shall bind and inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors and assigns, including but not

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limited to, a Change of Control. A “Change of Control” means (A) any transaction or series of related transactions in which a party or group, acting in concert, acquires beneficial ownership of more than 50% of the equity interests in a party or its direct or indirect parent, or (B) a merger or consolidation of another entity with or into a party or its direct or indirect parent, with the effect that any third party becomes beneficial owner of more than 50% of the equity interests of a party or its direct or indirect parent.

	
 
	
(g)
	
Entire Agreement; Survival: All exhibits and schedules to this Agreement are incorporated by reference and are an integral part thereof. This Agreement (and any documents referred to herein) represents the entire agreement and understanding of the parties with respect to the matters set forth herein, and there are no representations, warranties or conditions or agreements (other than implementing invoices, purchase orders and the like necessary to implement this Agreement) not contained herein that constitute any part hereof or that are being relied upon by any party hereunder.

	
 
	
(h)
	
Severability: If any provision of this Agreement is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remaining provisions shall be enforced.

	
 
	
(i)
	
Notices: Unless otherwise stated, all notices given in connection with this Agreement will be in writing and will be deemed delivered at the time of personal delivery or 3 business days after being sent by facsimile (with a confirmation) or mailed by express, certified or registered mail, or sent by a recognized national or international courier, as appropriate (in all cases postage prepaid and return receipt requested). Notices shall be addressed to the parties at the addresses set forth below or to such other address as shall have been so notified to the other party in accordance with this section. Notices to KeHE shall be addressed to: Chief Commercial Officer, KeHE Distributors, LLC, 1245 E. Diehl Road, Suite 200, Naperville, IL 60563, with a copy to KeHE’s Legal Department at the same address. Notices to SFM shall be addressed to: Chief Operational Officer, Sprouts Farmers Market, 5455 E High St., Suite 111, Phoenix, AZ 85054, with a copy not constituting notice to Sprouts’ Legal Department at same address.

	
 
	
(j)
	
MPC and SFM: SFM certifies, represents and warrants to KeHE (1) that MPC and SFM, respectively, are not in default of any agreement between them, (2) that SFM has no claim against MPC for any penalties, fines, or breach of performance, related to the sale of products or any agreement between MPC and SFM, and (3) that MPC has not failed to perform any obligation owed to SFM. SFM acknowledges that KeHE’s entering into this Agreement and acquiring substantially all of the assets of MPC is contingent upon receiving SFM’s representations and warranties stated in this section and SFM agrees that KeHE may rely upon the same, and that it is made for the benefit of KeHE, its successors and assigns. SFM agrees that KeHE shall not be responsible for any charges or liabilities from MPC related to SFM’s audit of MPC charges prior to the Effective Date.

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Signatures:  next page

 

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WHEREAS, the parties have entered into this Agreement as of the Effective Date.

 

	
SFM, LLC dba Sprouts Farmers Market
	
 
	
KeHE Distributors, LLC

	
 
	
 
	
 
	
 
	
 

	
By:
	
 
	
/s/ Amin Maredia
	
 
	
/s/ Brandon Barnholt

	
 
	
 
	
Signature
	
 
	
Signature

	
 
	
 
	
 
	
 
	
 

	
 
	
 
	
Amin Maredia
	
 
	
Brandon Barnholt

	
 
	
 
	
Print Name
	
 
	
Print Name

	
 
	
 
	
 
	
 
	
 

	
 
	
 
	
2/5/16
	
 
	
2/11/16

	
 
	
 
	
Date
	
 
	
Date

 

 

 

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List of Exhibits and Schedules

Exhibit “A” – Assumptions

Exhibit “B” – KeHE Special Services

Exhibit “C” – Credits, Quality Control and Service Levels

Exhibit “C-1” – MPC Credit Policy

Schedule 1 – [*CONFIDENTIAL*] Products

Schedule 2 – Phase 1 Products

Schedule 3 – Fuel Surcharge Schedule

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Exhibit “A”

Assumptions**

	
1.
	
Volume – Annual volume is expected to be approximately [*CONFIDENTIAL*] in net purchases inclusive of the DPI business.

	
2.
	
Transportation - Product is delivered direct to each retail location. Select locations may be arranged for customer pick-up and/or crossdock, upon mutual agreement.  Fuel Surcharge will apply to delivered orders per Schedule 3.

	
3.
	
Order Frequency – Initially, all locations may place up to two (2) orders per week and up to three (3) orders per week during first (4) four weeks of a store opening. Additionally, certain locations receive up to three (3) orders per week on an ongoing basis [*CONFIDENTIAL*]. At a minimum, every six (6) months, individual store performance will be reviewed and order frequency may be optimized in accordance with average weekly volume.

	
4.
	
General Assumptions

	
 
	
a.
	
Orders must meet a minimum value of [*CONFIDENTIAL*] to be processed and shipped.

	
 
	
b.
	
Sprouts Private Label and Exclusive Products cannot be sold or distributed by KeHE (Sprouts “Exclusive Products” are products formulated/designed specifically for SFM)

	
 
	
c.
	
Initial Expected Average Order Size (in KeHE Cost) = [*CONFIDENTIAL*]

	
 
	
i.
	
With Dpi volume this number would be approx [*CONFIDENTIAL*] (this is the average of all volume divided by number of total deliveries)

	
 
	
d.
	
Initial Expected Average Pick Value (in KeHE Cost) = [*CONFIDENTIAL*]

	
 
	
i.
	
Expected Average Pick Value is based on an approx. split of [*CONFIDENTIAL*] (Percentage of product selected in Full Case/Split Case).

	
 
	
e.
	
Temperature Profile = [*CONFIDENTIAL*] (Percentage Ref/Frz)

	
 
	
f.
	
Pricing is based on an approx. store count of 220 as well as other assumptions such as but not limited to those related to transportation, services, and volume.

	
 
	
g.
	
KeHE expects a healthy and productive SKU mix/APL. KeHE expects that Private Label/Control Brand products will not exceed [*CONFIDENTIAL*] of total purchases as measured in KeHE Cost. In the event that the SKU mix becomes further influenced by these items or those with sub-optimal SKU productivity, further discussion and [*CONFIDENTIAL*] upon mutual agreement of the parties, may be required. At the time of the agreement the average annual volume per-SKU, per-DC (SKU Productivity) is approx. [*CONFIDENTIAL*].

	
 
	
h.
	
Bill-To-Ship-To (BTST) purchases are excluded from calculations used to determine annual purchases, order frequency, or any other metrics. Any product sold on a BTST basis will be priced at a margin of  [*CONFIDENTIAL*] with payment terms consistent with non-BTST purchases.

** Within sixty (60) days following the end of Phase 1 (as defined in the Agreement), the

parties agree to confer on the accurary of the Assumptions and adjust to accurately reflect

the business relationship.

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Exhibit “B”

KeHE Special Services

President of Monterrey Provisions

The President plays an integral role in the Sprouts-Monterrey relationship.  He/she is the primary contact for senior management at Sprouts and leads the team at Monterrey team that supports Sprouts. The President will remain the primary contact and continue to support to the Sprouts team at the same level.

Director of Sales and Key Account Rep to Sprouts Farmers Market, [*CONFIDENTIAL*]

Scottsdale, AZ

Key Account Rep to Sprouts Farmers Market, based in Phoenix.

Main responsibilities:

	
 
	
●
	
Hosts weekly and monthly meeting with each category manager

	
 
	
●
	
Presents new items

	
 
	
●
	
Works with vendors, brokers and Monterrey purchasing team to set up new items and place POs

	
 
	
●
	
Works with Sprouts category managers on weekly and monthly ads and collects promotions from vendors

	
 
	
●
	
Manages the Sprouts Support fund

	
 
	
●
	
Arranges merchandiser’s schedules at Grand Opening and remodeled stores.

	
 
	
●
	
Communicates with Sprouts stores and Sprouts Support Team daily

	
 
	
●
	
Launches new items and programs with stores

	
 
	
●
	
Manages Sprouts inventory to reduce spoils and shortages

	
 
	
●
	
Works with Support Team to arrange Ad and holiday roll outs.

	
 
	
●
	
Manages the Sprouts online ordering system

	
 
	
●
	
Creates and maintains Sprouts order guides

	
 
	
●
	
Attends Food Shows such as IDDBA and Fancy Food Show with Sprouts Team

	
 
	
●
	
Managing Sprouts Pricing and price changes

Key Account Support Supervisor, [*CONFIDENTIAL*]

Manages the Key Account Support and Sprouts Customer Service Center. In charge of the day to day activities relating to Sprouts. This includes store orders, deliveries, customer service maintenance and overall customer service. Works with team to ensure customer satisfaction and problem resolution in a timely manner. He also works on special Sprouts projects including price files, new item paperwork, new project roll outs and price changes. Also works very closely with Transportation, Purchasing, IT and Operations Departments as it relates to Sprouts and providing the best service.

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National Merchandiser/KAR, [*CONFIDENTIAL*], Phoenix, AZ

Merchandiser for the Eastern United States. He is based in Phoenix, AZ and travels two to three weeks per month to attend grand openings, remodels, merchandising and conduct trainings with Sprouts employees. Provides support at the Sprouts Support Office. Is the primary Monterrey representative for the Sprouts Meat Department.

National Merchandiser, [*CONFIDENTIAL*]

Western Merchandiser for Sprouts. He travels to grand openings and new store sets. Helps merchandise the local Sprouts in California, including training, remodels, holiday sets, sampling and general merchandising, and also works on the Sprouts Ad sheet.

Customer Service, [*CONFIDENTIAL*]

Works on the daily call sheet, enters weekly plus outs for Bakery and Deli ads for all stores, enters fresh meat orders for Niman Ranch, handles Sprouts credits and enters manual bill backs into the online system.

Key Account Rep, [*CONFIDENTIAL*]

Handles the Sprouts Dairy and Grocery department. Meets with each department category manager once per month presenting new items, reviewing current projects, local sets, vendor lines and new store openings. Works with the Monterrey purchasing team to set up new items, maintain current lines and set up monthly promotions. Also works with vendors and brokers on free fills for new set schematics for each Sprouts region.

Sprouts / Monterrey Support Fund

Monterrey Provision Co., Inc. (Monterrey) manages the “Sprouts / Monterrey Support Fund.” The fund is for the exclusive benefit of Sprouts and is exclusive of any other pricing and rebate programs that exist between our companies.

Monterrey deducts between [*CONFIDENTIAL*] and [*CONFIDENTIAL*] of the net value of sales to Sprouts on participating vendors’ products. As of December 4, 2015, [*CONFIDENTIAL*].  The fund generates, on average, [*CONFIDENTIAL*].  KeHE agrees to pass through the funds as a conduit only and shall not be responsible for any amounts related to the fund except to the extent collected from vendors. Sprouts agrees to be responsible for any disputes with vendors related to the fund. KeHE will monitor and provide a status of support funds by item on a monthly basis for Sprouts management purposes.

The fund is used to support Sprouts’ merchandising initiatives, promotions and program development.

 

 

 

Page 4 of 42

A request for confidential treatment has been made with respect to portions of the following document that are marked with [*CONFIDENTIAL*]. The redacted portions have been filed separately with the SEC.

 

Exhibit “C”

CREDITS; QUALITY CONTROL; SERVICE LEVELS

	
I.
	
CREDITS:

	
 
	
A.
	
Phase 1: During Phase 1, as defined in Section 5, KeHE’s credit practices will be consistent with the practices of MPC as described in Exhibit C-1 below, including writing credits for items that are damaged at the time of delivery, mispicks, shorts, and out-of-code at the time of delivery. Additionally, SFM will receive a credit for any frozen raw dough or raw batters (i.e., bread, pastries, muffins, pies) determined in good faith by SFM within 48hrs of delivery to have been temperature abused prior to receiving the Product and within 24hrs of delivery for all other Products (“Credits for Temperature Abuse”) (Credits for Temperature Abuse shall subsist for the Term of the Agreement). No credits will be given for in-store issues, such as spoilage or in-store damages with the exception of Products “guaranteed” by the manufacturer, i.e., Products that are returned to manufacturers for credits regardless of reason for return, and provided KeHE actually receives credit for such Products from the manufacturer.

	
 
	
B.
	
Credit Allowance: After Phase 1, as defined in Section 5 of the Agreement, in order to eliminate the resources and administrative cost associated with SFM stores calling in and managing individual item credits, and KeHE researching and processing them, KeHE and SFM shall implement a credit allowance for the Products in the form of [*CONFIDENTIAL*] (the “Credit Allowance”), which will be consistent with any Credit Allowance agreed upon under the NB Agreement, including any agreed upon audits. This allowance is established to compensate stores for routine occurrences of mis-picked items, item shortages and damaged products (collectively “Shortages”). SFM and KeHE agree to periodically review the Credit Allowance and mutually agree upon any necessary changes to the Credit Allowance based on actual credits from audits at mutually agreeable intervals by department.

	
 
	
C.
	
Exceptions: Notwithstanding the Credit Allowance above, a credit request may be called into KeHE's Service Center when the following occurs (“Exception” or “Exceptions”):

	
 
	
a.
	
A shipment involving excessive shortages or damaged product involving the following:

	
 
	
i.
	
[*CONFIDENTIAL*] of Products on a single delivery is shorted or damaged on the delivery.

	
 
	
ii.
	
Entire pallet(s) or tote(s) are missing from the delivery.

	
 
	
b.
	
Product is shipped out-of-code (private label and control brand items allocated to the stores by SFM's support office do not apply). Must be called in within 24 hours of delivery.

	
 
	
c.
	
Manufacturer product recalls.

	
 
	
d.
	
Infested product. Must be called in within 24 hours of delivery.

	
 
	
e.
	
Highly perishable products (yogurts, eggs, kefirs, sour cream, cottage cheese, fluid milk) expiring within 7 days of invoice date upon delivery. Must be called in within 24 hours of delivery. Private label items are not eligible for call in.

 

A request for confidential treatment has been made with respect to portions of the following document that are marked with [*CONFIDENTIAL*]. The redacted portions have been filed separately with the SEC.

 

Should any of these exceptions occur, a store team member is directed to call into the KeHE Service Center and provide details of the credit request and invoice number. KeHE researches and handles these credit exception requests directly with the individual store as appropriate based on the results of this research.

No credits outside of the Exceptions will be accepted. SFM stores will NOT be permitted to submit credits for Products that are damaged or go out of code post-delivery, except for (i) Credits for Temperature Abuse as provided above, and (ii) Product that is determined as substandard from the manufacturer (at any time after delivery) and where credit will need to be processed by KeHE and billed back to the manufacturer.

Credits outside of the Exceptions will be mutually reviewed on a “by occurance basis” and resolved in timely and in good faith by both parties.

	
II.
	
SERVICE LEVELS:

	
 
	
A.
	
Service and Support.

	
 
	
a.
	
KeHE shall provide Products consistent with industry standards in the volumes requested by SFM subject to all terms and conditions of this Agreement.

	
 
	
b.
	
MPC currently provides the support services outlined in Exhibit A to this Agreement, and KeHE will continue to adjust/improve its services to support SFM in the future.

	
 
	
c.
	
During Phase 1, KeHE will continue to provide deliveries to SFM stores consistent with the prior practices of MPC. During Phase 2, the parties will work in good faith to optimize delivery levels in order  to  provide  efficiencies  with  KeHE’s  current  delivery practices. Delivery frequency is currently, and will be in the future, adjusted up for high volume stores based on purchase volume.

	
 
	
d.
	
KeHE currently provides a wide range of reports to SFM to support the SFM category management team and business needs, and will continue to work with SFM with reports on as needed basis.

 

A request for confidential treatment has been made with respect to portions of the following document that are marked with [*CONFIDENTIAL*]. The redacted portions have been filed separately with the SEC.

 

Exhibit C-1

MPC Credit Policy

Monterrey | The Natural Choice Return

& Credit Policy

CREDITS & ADJUSTMENTS ON THE DAY OF DELIVERY

Your driver is authorized to issue credits for missing (N.O.T.), mis-picked, short coded or damaged goods at the time of delivery. Customers are responsible for carefully checking and noting any discrepancy prior to signing the delivery paperwork. If a credit is due, your driver will issue an invoice adjustment receipt for your records.

RETURNS FOR FROZEN

In compliance with HAACP, to protect the integrity of our products, and for the safety of our customers, returns for frozen product can only be processed by the driver at the time of delivery.

RETURN GUIDELINES

All claims must have prior approval before returning to the driver. Our Team may determine because of the condition of the product that the contents may be discarded; however you may be requested to return the UPC code or lids. All products must be returned with all the pieces in the original box. Product that is deemed a good return but not returned in saleable condition will be charged back to your account. Frozen thaw and sell products are eligible for return under special circumstances to include new store openings or special market promotions if needed.

 

	
	
 

	
 

REQUESTING CREDITS AFTER YOUR DELIVERY

If a mis-pick, short coded, or hidden damage is discovered after your delivery driver has left, you may still request credit for these items. All credit and return requests must be made within 48 Hours of the delivery date. Anything submitted after this time frame will be reviewed on a case by case bases.

A Credit Request is submitted on line at www.monprov.com/sprouts.php. Using the customer online portal the information required is Invoice Number, Item Number, and

 

A request for confidential treatment has been made with respect to portions of the following document that are marked with [*CONFIDENTIAL*]. The redacted portions have been filed separately with the SEC.

 

rationale for credit request. After your credit has been reviewed by our team, we will post the credit against the original invoice amount.

 

 

 

 

A request for confidential treatment has been made with respect to portions of the following document that are marked with [*CONFIDENTIAL*]. The redacted portions have been filed separately with the SEC.

 

HOW TO REQUEST A CREDIT AFTER YOUR DELIVERY:

Please use one of the following methods to request a credit:

	
 
	
●
	
ONLINE: Log on to www.monprov.com/sprouts.php and follow the form data for credit request.

If you would like to speak with one of our team members, we are available Monday thru Friday from 8am to 4pm PST at 619-294-2222.

When calling, please leave the following 

information: Your Name

Customer Number

Phone Number

Best time to reach you.

Someone from our team will call you back to begin the credit process.

ACCEPTABLE CREDIT REASONS

All credit and return requests will be reviewed by our team and must meet one of the following criteria:

	
 
	
●
	
Mis-picked Items: Received a different product in place of product ordered (PICKING label is correct, wrong product). Please report the UPC number of the item received, as well as a picture of the picking label when submitting your claim.

	
 
	
●
	
Quality: Item is unusable due to manufacturer’s defect, such as no safety seal, poor product integrity; Please report the expiration date or lot number of the item received.

	
 
	
●
	
Damaged Product: Product arrived damaged. Please submit pictures of the damaged product, along with the picking label. Product that arrives out of temp is considered a damaged product.

	
 
	
●
	
Short Coded Products:

Retail Packaged - 10 days with guaranteed credit

Bulk > 30 days - customer will be asked to sell product through code and apply for credit on unsold items to avoid waste. Credit guaranteed on on these items.

Freezer Items cannot be returned, to ensure product quality and integrity and safety for all our customers , we do not accept returns of frozen product.

Page 9 of 42

A request for confidential treatment has been made with respect to portions of the following document that are marked with [*CONFIDENTIAL*]. The redacted portions have been filed separately with the SEC.

 

CREDITS & ADJUSTMENTS ON DAY OF DELIVERY

In some instances orders may be delivered by a common carrier hired by Monterrey. Common Carriers are responsible for transporting your order from our warehouse to your receiving dock.

For the locations serviced via common carrier, we do not have the option of performing an electronic check in at the time of delivery. Please revert to “Requesting Credits After Your Delivery” for credit requests.

RETURN GUIDELINES

Locations that are not listed as remote will schedule a pickup with Monterrey’s credit team. A pick up slip will be issued and handed to the driver. For destinations listed as “remote destinations” above, no pick up slips will be issued. Monterrey credit team may sell at a discount or product must be donated to local shelter or discarded.

Page 10 of 42

A request for confidential treatment has been made with respect to portions of the following document that are marked with [*CONFIDENTIAL*]. The redacted portions have been filed separately with the SEC.

 

Schedule 1

[*CONFIDENTIAL*] Products

[*CONFIDENTIAL*]

[30 PAGES HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SEC.]

 

 

 

 

Page 11 of 42

A request for confidential treatment has been made with respect to portions of the following document that are marked with [*CONFIDENTIAL*]. The redacted portions have been filed separately with the SEC.

 

Schedule 2

Phase 1 Products

[*CONFIDENTIAL*]

[42 PAGES HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SEC.]

 

Page 41 of 42

A request for confidential treatment has been made with respect to portions of the following document that are marked with [*CONFIDENTIAL*]. The redacted portions have been filed separately with the SEC.

 

Schedule 3

Fuel Surcharge Schedule

 

		
	
Price Per Gallon*
	
FUEL SURCHARGE (FSC)

	
$1.88 and below
	
[*CONFIDENTIAL*]

	
$2.13
	
[*CONFIDENTIAL*]

	
$2.25
	
[*CONFIDENTIAL*]

	
$2.38
	
[*CONFIDENTIAL*]

	
$2.50
	
[*CONFIDENTIAL*]

	
$2.63
	
[*CONFIDENTIAL*]

	
$2.75
	
[*CONFIDENTIAL*]

	
$2.88
	
[*CONFIDENTIAL*]

	
$3.00
	
[*CONFIDENTIAL*]

	
$3.13
	
[*CONFIDENTIAL*]

	
$3.25
	
[*CONFIDENTIAL*]

	
$3.38
	
[*CONFIDENTIAL*]

	
$3.50
	
[*CONFIDENTIAL*]

	
$3.63
	
[*CONFIDENTIAL*]

	
$3.75
	
[*CONFIDENTIAL*]

	
$3.88
	
[*CONFIDENTIAL*]

	
$4.00
	
[*CONFIDENTIAL*]

	
$4.13
	
[*CONFIDENTIAL*]

	
$4.25
	
[*CONFIDENTIAL*]

	
$4.38
	
[*CONFIDENTIAL*]

	
$4.50
	
[*CONFIDENTIAL*]

	
$4.63 and above
	
[*CONFIDENTIAL*]

 

*FSC adjusted monthly based on the average price per gallon during the prior calendar month Department of Energy Weekly U.S. National Average Retail On-Highway Diesel Price; published at

http://tonto:eia.doe.gov/oog/info/wobdp/diesel.asp.  FSC applied per delivery.

Page 42 of 42

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