-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VYjPIlMug4gh5c0gc+BIV6FLAkSrfSPDZbsidV5MQRpi7LlXMg7lY319yiU4hU+g 8NNNRE6Ua4E39nqrZVY6uQ== 0000927016-96-001018.txt : 19960906 0000927016-96-001018.hdr.sgml : 19960906 ACCESSION NUMBER: 0000927016-96-001018 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 27 FILED AS OF DATE: 19960904 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED NATURAL FOODS INC CENTRAL INDEX KEY: 0001020859 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 050376157 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-11349 FILM NUMBER: 96625431 BUSINESS ADDRESS: STREET 1: PO BOX 999 STREET 2: 260 LAKE RD CITY: DAYVILLE STATE: CT ZIP: 06241 BUSINESS PHONE: 860-779-2800 MAIL ADDRESS: STREET 1: PO BOX 999 STREET 2: 260 LAKE RD CITY: DAYVILLE STATE: CT ZIP: 06241 S-1 1 FORM S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 4, 1996 REGISTRATION NO. 333- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------- UNITED NATURAL FOODS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ---------------- DELAWARE 5141 05-0376157 (STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. JURISDICTION OF CLASSIFICATION CODE NUMBER) EMPLOYER INCORPORATION OR IDENTIFICATION ORGANIZATION) ---------------- NUMBER) 260 LAKE ROAD, DAYVILLE, CONNECTICUT 06241 (860) 779-2800 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ---------------- NORMAN A. CLOUTIER CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER UNITED NATURAL FOODS, INC. 260 LAKE ROAD DAYVILLE, CONNECTICUT 06241 (860) 779-2800 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ---------------- COPIES TO: PAUL V. ROGERS, ESQ. LAURA C. HODGES TAYLOR, P.C. HALE AND DORR GOODWIN, PROCTER & HOAR LLP 60 STATE STREET EXCHANGE PLACE BOSTON, MASSACHUSETTS 02109 BOSTON, MASSACHUSETTS 02109 (617) 526-6000 (617) 570-1000 ---------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date hereof. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] ---------------- CALCULATION OF REGISTRATION FEE - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
PROPOSED MAXIMUM AGGREGATE AMOUNT OF TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE ------------------------------------------------------------------------------------------------- Common Stock, $0.01 par value per share... $46,000,000 $15,863
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (1) Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(o) under the Securities Act. ---------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SUBJECT TO COMPLETION, DATED SEPTEMBER 4, 1996 PROSPECTUS SHARES [UNITED NATURAL FOODS, INC. LOGO] COMMON STOCK -------- All of the shares of Common Stock offered hereby (the "Offering") are being sold by United Natural Foods, Inc. ("United Natural" or the "Company"). Prior to the Offering, there has not been a public market for the Common Stock of the Company. It is currently estimated that the initial public offering price will be between $ and $ per share. See "Underwriting" for information relating to the factors to be considered in determining the initial public offering price. Application has been made to have the Common Stock approved for quotation on The Nasdaq Stock Market's National Market under the symbol "UNFI." SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY. -------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS TO PUBLIC COMMISSIONS(1) COMPANY(2) - ---------------------------------------------- Per Share $ $ $ - ---------------------------------------------- Total(3) $ $ $
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (1) For information regarding indemnification of the Underwriters, see "Underwriting." (2) Before deducting expenses estimated at $ , all of which are payable by the Company. (3) The Selling Stockholders (as defined herein) have granted the Underwriters a 30-day option to purchase up to additional shares of Common Stock solely to cover over-allotments, if any. See "Underwriting." If such option is exercised in full, the total Price to Public, Underwriting Discounts and Commissions and Proceeds to Selling Stockholders will be $ , $ and $ , respectively. -------- The shares of Common Stock are being offered by the several Underwriters named herein, subject to prior sale, when, as and if accepted by them and subject to certain conditions. It is expected that certificates for the shares of Common Stock offered hereby will be available for delivery on or about , 1996, at the office of Smith Barney Inc., 333 West 34th Street, New York, New York 10001. -------- SMITH BARNEY INC. OPPENHEIMER & CO., INC. ROBERTSON, STEPHENS & COMPANY , 1996 ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ [Graphic consists of one photograph of a woman at a computer terminal and three photographs of various marketing materials, including catalogs, flyers and retail store shopping bags.] Cascade Baking Company, Guardian, Metaplex, Natural Sea, NATUREWORKS!, Patty's Canola Butter, SunSplash Market and Village Natural Grocers are trademarks of the Company. This Prospectus also contains trademarks and registered trademarks of other companies. ---------------- IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE OVER-THE-COUNTER MARKET, OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. ---------------- [Graphic consists of a map of the United States and one photograph of the Company's headquarters and distribution facility in Dayville, Connecticut, three photographs of trucks bearing the logos of the Company's three operating regions and three photographs of warehouse operations.] [ARTWORK APPEARS HERE] PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and the Company's Consolidated Financial Statements and Notes thereto appearing elsewhere in this Prospectus. Unless otherwise indicated, such information assumes no exercise of the Underwriters' over-allotment option. Unless the context otherwise requires, references herein to the Company refer to United Natural Foods, Inc. and its wholly-owned subsidiaries. Prior to July 31, 1996, the Company's fiscal year ended on October 31 of each year. The Company has changed its fiscal year end to July 31. References herein to "fiscal 1992," "fiscal 1993," "fiscal 1994" and "fiscal 1995" refer to the Company's fiscal years ended October 31, 1992, 1993, 1994 and 1995, respectively. THE COMPANY United Natural Foods, Inc. ("United Natural" or "the Company") is one of only two national distributors of natural foods and related products in the United States. The Company currently serves more than 5,500 customers located in 43 states, including independent natural products stores, natural products supermarket chains and conventional supermarkets. The Company distributes more than 25,000 high-quality, national, regional and private label natural products in six categories consisting of groceries and general merchandise, nutritional supplements, bulk and foodservice products, personal care items, perishables and frozen foods. United Natural's distribution operations are divided into three principal regions: Cornucopia Natural Foods ("Cornucopia") in the eastern United States, Mountain People's Warehouse Incorporated ("Mountain People's") in the western United States and Rainbow Natural Foods, Inc. ("Rainbow") in the Rocky Mountains and Plains regions. The Company operates five strategically located distribution centers and two satellite staging facilities within these regions to better serve its customers and realize operating efficiencies. The Company also owns and operates eight retail natural products stores located in the eastern United States that management believes complement its distribution business. BUSINESS STRATEGY The Company's objective is to better meet the changing needs of both suppliers and retailers and to be the leading national distributor of natural products. Key elements of the Company's business strategy include: . National Presence. With five distribution centers strategically located in California, Colorado, Connecticut, Georgia and Washington and two satellite staging facilities in Florida and Pennsylvania, the Company is well positioned to provide distribution services to natural products retailers and suppliers located across the United States. . Integration of Recent Acquisitions. United Natural recently made three strategic acquisitions and is currently in the process of integrating these operations to increase the Company's overall efficiency by: (i) eliminating geographic overlaps in distribution, (ii) integrating administrative, finance and accounting functions, (iii) expanding marketing and customer service programs and (iv) upgrading information systems. . Purchasing Power and Supplier Relationships. As a result of its size of operations, national presence and access to retailers within the highly fragmented natural products sector, the Company is able to supply a superior selection of natural products at more competitive prices and on better terms, including supplier-sponsored marketing dollars, than many of its competitors. . Diverse, High-Quality Product Line. The Company distributes a mix of more than 25,000 national, regional and private label natural products, which products are continually evaluated, updated and expanded to satisfy the needs of its diverse customer base. . Regional Responsiveness. By decentralizing the majority of its purchasing, pricing, sales and marketing decisions at the regional level, the Company is able to respond to regional and local customer preferences, while taking advantage of the economies of scale associated with its national operations. 3 . Customer Service and Marketing Programs. In addition to providing its customers with delivery services which include next-day and more frequent deliveries and an order fill rate in excess of 95% (excluding products unavailable from the supplier), the Company offers its customers a selection of inventory management, merchandising, marketing, promotional and event management services to increase customer sales and enhance customer satisfaction. . Infrastructure. The Company recently made a significant investment in designing its proprietary information systems and expanding its distribution capacity to facilitate future growth and enhance operating efficiency. The Company will continue to upgrade and expand its infrastructure, as required. GROWTH STRATEGY . Expand customer base by continually cultivating relationships with new customers for natural products, including traditional natural products stores and natural products supermarkets, as well as conventional supermarkets, mass market outlets, institutional foodservice providers, hotels and gourmet stores. . Increase sales to existing customers by (i) expanding the Company's role as the primary supplier to the majority of its customers, (ii) expanding the number of products and product categories offered and (iii) providing pricing incentives and marketing support to generate higher sales levels by its customers. . Expand market penetration of existing and new markets by increasing the distribution capacity of its existing facilities and by building new distribution facilities. In addition, while the Company has no agreements or understanding with regard to acquisitions at this time, it will continue to selectively evaluate opportunities to acquire local distributors to fill in existing markets and regional distributors to expand into new markets. Over the last four years, the Company's net sales grew at a compound annual growth rate of 31.6% to $283.3 million in fiscal 1995. For the nine months ended July 31, 1996, the Company's net sales increased by 51.9% over the comparable prior year period to $286.4 million. This growth in net sales and corresponding increase in market share resulted primarily from the Company's acquisitions of large, regional natural products distributors, the development of new and the expansion of existing distribution capacity and an increase in product sales to existing and new customers, as well as continuing growth in the natural products industry sector generally. According to The Natural Foods Merchandiser, the natural products industry growth rate of 20.2% compounded annually over the last four years, including 22.6% in 1995, is attributable to consumer trends toward healthier eating habits, concern for food purity and safety and greater environmental awareness. In addition to growth in net sales, during the same period, the Company's operating income increased at a compound annual growth rate of 46.6% to $10.4 million in fiscal 1995 (excluding a non- recurring expense of $1.6 million relating to intangible assets in fiscal 1995). For the nine months ended July 31, 1996, the Company's operating income grew by 62.5% over the comparable prior year period to $12.1 million (excluding non-recurring expenses of $1.5 million incurred in connection with the merger of the Company with Mountain People's and the grant of options under the Company's 1996 Stock Option Plan). See "Management's Discussion and Analysis of Financial Condition and Results of Operation" and Notes 1 and 3 of Notes to the Company's Consolidated Financial Statements. The Company's growth in operating income is attributable to increased efficiencies created by its higher net sales levels, greater purchasing power, improved information and warehouse management systems and expanded distribution capacity. 4 THE OFFERING Common Stock being offered by the Company........................... shares Common Stock to be outstanding after the Offering................ shares(1)(2) Use of Proceeds................... To repay certain indebtedness, for working capital and for general corporate purposes, including the expansion of the Company's distribution facilities. Proposed Nasdaq National Market symbol............................ UNFI
- -------- (1) Includes 2,179,595 shares of Common Stock held in trust by the Company's Employee Stock Ownership Trust as of July 31, 1996. See "Management-- Executive Compensation--Employee Stock Ownership Plan." (2) Excludes (i) 341,000 shares of Common Stock issuable upon exercise of options outstanding under the Company's 1996 Stock Option Plan as of July 31, 1996 at a weighted average exercise price of $6.55 per share and (ii) 1,166,660 shares of Common Stock issuable upon exercise of a warrant held by Triumph-Connecticut Limited Partnership at an exercise price of $0.00018 per share. See "Management--Executive Compensation--Stock Option Plan" and "Certain Transactions." SUMMARY CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
NINE MONTHS ENDED YEAR ENDED OCTOBER 31, JULY 31, -------------------------------------- ------------------ 1992 1993 1994 1995 1995 1996 -------- -------- -------- -------- -------- -------- CONSOLIDATED STATEMENT OF OPERATIONS DATA: Net sales............... $124,366 $153,636 $200,616 $283,323 $188,502 $286,448 Gross profit............ 24,942 32,488 44,118 59,841 40,796 59,966 Operating income........ 3,299 5,113 7,385 8,762(1) 7,453 10,609(2) Net income.............. $ 1,488 $ 2,319 $ 3,017 $ 2,603 $ 3,232 $ 4,025 ======== ======== ======== ======== ======== ======== Net income per share.... $ 0.17 $ 0.26 $ 0.30 $ 0.26 $ 0.32 $ 0.40 ======== ======== ======== ======== ======== ======== Weighted average shares of common stock........ 8,823 8,823 9,935 9,989 9,989 9,985 ======== ======== ======== ======== ======== ======== OPERATING DATA: Operating income as a percentage of net sales.................. 2.7% 3.3% 3.7% 3.1%(1) 3.9% 3.7%(2) ======== ======== ======== ======== ======== ========
JULY 31, 1996 -------------------------------------- ACTUAL AS ADJUSTED(3) ------- -------------- CONSOLIDATED BALANCE SHEET DATA: Working capital........................ $10,087 Total assets........................... 98,744 Long-term debt, excluding current installments.......................... 22,171 Total stockholders' equity............. 18,182
- -------- (1) Operating income for fiscal 1995 includes a non-recurring expense of $1.6 million related to the write-off of intangible assets. Excluding the $1.6 million non-recurring expense, operating income would have been $10.4 million, or 3.7% of net sales, in fiscal 1995. (2) Operating income for the nine months ended July 31, 1996 includes a non- recurring expense of $1,056,100 related to the grant of options under the Company's 1996 Stock Option Plan and a non-recurring expense of $458,000 representing costs associated with the Mountain People's merger. Excluding the $1,514,100 of non-recurring expenses, operating income would have been $12.1 million, or 4.2% of net sales, in the nine months ended July 31, 1996. (3) As adjusted to give effect to the sale by the Company of shares of Common Stock offered hereby (at an assumed public offering price of per share and after deducting the underwriting discounts and commissions and estimated offering expenses) and the application of the net proceeds therefrom. See "Use of Proceeds" and "Capitalization." 5 RISK FACTORS An investment in the Common Stock offered hereby involves a high degree of risk. In addition to the other information in this Prospectus, the following risk factors should be considered carefully in evaluating an investment in the Common Stock offered hereby. This Prospectus contains forward-looking statements which involve risks and uncertainties. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth in the following risk factors and elsewhere in this Prospectus. Integration of Recent Acquisitions. A significant portion of the Company's historical growth has been achieved through acquisitions of or mergers with other distributors of natural products. The Company recently acquired or merged with three large regional distributors of natural products: Nutrasource, Inc. ("Nutrasource") in May 1995, Rainbow in July 1995 and Mountain People's in February 1996. The successful and timely integration of these acquisitions and merger is critical to the future operating and financial performance of the Company. While the integration of these acquisitions and merger with the Company's existing operations has begun, the Company believes that the integration will not be substantially completed until the end of calendar 1997. The integration will require, among other things, coordination of administrative, sales and marketing, distribution, and accounting and finance functions and expansion of information and warehouse management systems among the Company's regional operations. The integration process could divert the attention of management, and any difficulties or problems encountered in the transition process could have a material adverse effect on the Company's business, financial condition or results of operations. In addition, the process of combining the companies could cause the interruption of, or a loss of momentum in, the activities of the respective businesses, which could have an adverse effect on their combined operations. The difficulty of combining the businesses may be increased by the need to integrate personnel and the geographic distance separating the organizations. There can be no assurance that the Company will retain key employees or that the Company will realize any of the other anticipated benefits of the acquisitions or merger. See "The Company--Recent Acquisitions" and "Business--Systems." Management of Growth. The Company is currently experiencing a period of growth that could place a significant strain on its management and other resources. The Company's business has grown significantly in size and complexity over the past several years. Net sales increased from $124.4 million in fiscal 1992 to $283.3 million in fiscal 1995 and $286.4 million in the nine months ended July 31, 1996. During this same period, the number of the Company's employees increased from approximately 370 to approximately 1,190. The growth in the size of the Company's business and operations has placed and is expected to continue to place a significant strain on the Company's management. The Company's future growth is limited in part by the size and location of its distribution centers. There can be no assurance that the Company will be able to successfully expand its existing distribution facilities or open new distribution facilities in new or existing markets to facilitate growth. In addition, the Company's growth strategy to expand its market presence includes possible additional acquisitions. To the extent the Company's future growth includes acquisitions, there can be no assurance that the Company will successfully identify suitable acquisition candidates, consummate and integrate such potential acquisitions or expand into new markets. The Company's ability to compete effectively and to manage future growth, if any, will depend on its ability to continue to implement and improve operational, financial and management information systems on a timely basis and to expand, train, motivate and manage its work force. There can be no assurance that the Company's personnel, systems, procedures and controls will be adequate to support the Company's operations. The Company's inability to manage its growth effectively could have a material adverse effect on its business, financial condition or results of operations. Competition. The Company operates in highly competitive markets, and its future success will be largely dependent on its ability to provide quality products and services at competitive prices. The Company's competition comes from a variety of sources, including other distributors of natural products as well as specialty grocery and mass market grocery distributors. There can be no assurance that mass market grocery distributors will not increase their emphasis on natural products and more directly compete with the Company or that new competitors will not enter the market. These distributors may have been in business longer than the Company, may have substantially greater financial and other resources than the Company and may be better established in their markets. There can be no assurance that the Company's current or potential competitors will not provide 6 services comparable or superior to those provided by the Company or adapt more quickly than the Company to evolving industry trends or changing market requirements. It is also possible that alliances among competitors may develop and rapidly acquire significant market share. Increased competition may result in price reductions, reduced gross margins and loss of market share, any of which could materially adversely affect the Company's business, financial condition or results of operations. There can be no assurance that the Company will be able to compete effectively against current and future competitors. See "Business--Competition." Low Margin Business; Economic Sensitivity. The grocery distribution industry generally is characterized by relatively high volume with relatively low profit margins. The continuing consolidation of retailers in the natural products industry and the emergence of natural products supermarket chains may have an adverse effect on the Company's profit margins in the future as more customers qualify for greater volume discounts offered by the Company. The grocery industry is also sensitive to national and regional economic conditions, and the demand for products supplied by the Company may be adversely affected from time to time by economic downturns. In addition, the Company's operating results are particularly sensitive to, and may be materially adversely affected by, difficulties with the collectibility of accounts receivable, inventory control, competitive pricing pressures and unexpected increases in fuel or other transportation-related costs. There can be no assurance that one or more of such factors will not materially adversely affect the Company's business, financial condition or results of operations. Dependence on Key Personnel. Management of the Company's business is substantially dependent on the services of Norman A. Cloutier, the Company's Chairman of the Board, President and Chief Executive Officer, Michael S. Funk, the Company's Vice Chairman of the Board and Executive Vice President, Steven H. Townsend, the Company's Chief Financial Officer, and other key management employees. Loss of the services of such officers or any other key management employee could have a material adverse effect on the Company's business, financial condition or results of operations. The Company has entered into an employment agreement with Mr. Funk, which includes a noncompetition covenant, and a noncompetition agreement with Mr. Cloutier. The Company does not maintain a key man life insurance policy on any of its executive officers other than Mr. Funk. See "Management--Employment Agreements." Fluctuations in Operating Results. The Company's net sales and operating results may vary significantly from period to period due to factors such as changes in the Company's operating expenses, management's ability to execute the Company's business and growth strategies, personnel changes, demand for natural products, supply shortages and general economic conditions. Both the Company's distribution and retail businesses are dependent upon consumer preferences and demands for natural products, including levels of enthusiasm for health and fitness and environmental issues. Furthermore, the future operating performance of the Company is directly influenced by natural product prices, which can be volatile and fluctuate according to competitive pressures. A lack of an adequate supply of high-quality agricultural products or volatility in prices resulting from poor growing conditions, natural disasters or otherwise, could have a material adverse effect on the Company's business, financial condition or results of operations. In addition, there can be no assurance that any future acquisitions by the Company will not have an adverse effect upon the Company's business, financial condition or results of operations, particularly in periods immediately following the consummation of such transactions, while the operations of the acquired businesses are being integrated into the Company's operations. Due to the foregoing factors, the Company believes that period to period comparisons of its operating results are not necessarily meaningful and that such comparisons cannot be relied upon as indicators of future performance. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Governmental Regulation. The Company's business is highly regulated at the federal, state and local levels and its products and distribution operations require various licenses, permits and approvals. In particular, the Company's products are subject to inspection by the U.S. Food and Drug Administration, its warehouse and distribution facilities are subject to inspection by the U.S. Department of Agriculture and state health authorities, and its trucking operations are regulated by the U.S. Department of Transportation and the U.S. Federal 7 Highway Administration. The loss or revocation of any existing licenses, permits or approvals or the failure to obtain any additional licenses, permits or approvals in new jurisdictions where the Company intends to do business could have a material adverse effect on the Company's business, financial condition or results of operations. See "Business--Regulation." Control by Officers, Directors and ESOT. Upon completion of the Offering, the Company's officers and directors, and their affiliates, and the Company's Employee Stock Ownership Trust will beneficially own in the aggregate approximately % of the Company's outstanding Common Stock. Accordingly, these stockholders, if acting together, would have the ability to elect the Company's directors and may have the ability to determine the outcome of corporate actions requiring stockholder approval, irrespective of how other stockholders of the Company may vote. This concentration of ownership may have the effect of delaying, deferring or preventing a change in control of the Company. See "Management" and "Principal and Selling Stockholders." Labor Relations. At July 31, 1996, approximately 75 employees, representing approximately 6.3% of the Company's full-time employees and approximately 11.4% of the employees employed in the Company's warehouse and distribution operations, were union members. The Company has in the past been the focus of union-organizing efforts. As the Company increases its employee base and broadens its distribution operations to new geographic markets, its increased visibility could result in increased or expanded union-organizing efforts. Although the Company has not experienced a work stoppage to date, if additional employees of the Company were to unionize, the Company could be subject to work stoppages and increases in labor costs, either of which could materially adversely affect the Company's business, financial condition or results of operations. See "Business--Employees." No Prior Public Market; Possible Volatility of Stock Price; No Dividends. Prior to the Offering, there has been no public market for the Common Stock, and there can be no assurance that an active trading market will develop or be sustained after the Offering or that the market price of the Common Stock will not decline below the initial public offering price. The initial public offering price will be determined by negotiations between the Company and the Representatives of the Underwriters. See "Underwriting" for a discussion of the factors to be considered in determining the initial public offering price. The market performance of the Common Stock could also be subject to significant fluctuation in response to variations in results of operations and various other factors. In addition, the stock market in recent years has experienced extreme price and volume fluctuations that often have been unrelated or disproportionate to the operating performance of companies. These fluctuations, as well as general economic and market conditions, may adversely affect the market price of the Common Stock. The Company has never paid any cash dividends and does not anticipate paying cash dividends in the foreseeable future. See "Dividend Policy." Dilution. Purchasers of shares of Common Stock in the Offering will suffer an immediate and substantial dilution in the net tangible book value per share of the Common Stock from the initial public offering price. See "Dilution." Shares Eligible for Future Sale; Registration Rights. Sales of substantial amounts of shares of Common Stock in the public market following the Offering could adversely affect the market price of the Common Stock. Upon completion of the Offering, the shares sold in the Offering will be freely tradeable without restriction or further registration under the Securities Act of 1933, as amended (the "Securities Act"), except that any shares purchased by "affiliates" of the Company, as that term is defined in Rule 144 ("Rule 144") under the Securities Act ("Affiliates"), may generally only be sold in compliance with the limitations of Rule 144 and the Lock-Up Agreements described below. Holders of all of the remaining 8,692,695 shares of Common Stock (as well as 324,500 shares of Common Stock that may be acquired pursuant to the exercise of vested options held by them as of 180 days after the date of this Prospectus and the 1,166,660 shares of Common Stock issuable upon the exercise of a warrant) have agreed, pursuant to 180-day lock-up agreements (the "Lock-Up Agreements"), not to offer, sell, contract to sell or otherwise dispose of such shares for 180 days after the date of this Prospectus. Upon expiration of the Lock-Up Agreements 180 days after the date of this Prospectus, approximately 3,300,000 additional shares of Common Stock will be available for sale in the public market, 8 subject to the provisions of Rule 144 under the Securities Act. Promptly after the date of this Prospectus, the Company intends to file one or more registration statements registering approximately 3,554,595 shares of Common Stock issuable under its stock option plan and Employee Stock Ownership Plan, which shares are, or when issued will be, freely tradeable without restriction, subject to Rule 144 limitations applicable to Affiliates and the Lock-Up Agreements. The Company is unable to predict the effect that sales made under such registration statements, Rule 144 or otherwise may have on the then prevailing market price of the Common Stock. The holder of a warrant to purchase shares of Common Stock is entitled to certain piggyback and demand registration rights with respect to such shares. By exercising its registration rights, such holder could cause these shares to be registered and sold in the public market. All of such shares are subject to a Lock-Up Agreement. Sales pursuant to Rule 144 or other exemptions from registration, or pursuant to registration rights, may have an adverse effect on the market price for the Common Stock and could impair the Company's ability to raise capital through an offering of its equity securities. See "Certain Transactions," "Description of Capital Stock," "Shares Eligible for Future Sale" and "Underwriting." Antitakeover Provisions. The Company's Amended and Restated Certificate of Incorporation (the "Restated Certificate of Incorporation") requires that any action required or permitted to be taken by stockholders of the Company must be effected at a duly called annual or special meeting of stockholders and may not be effected by any consent in writing, and requires reasonable advance notice by a stockholder of a proposal or director nomination which such stockholder desires to present at any annual or special meeting of stockholders. Special meetings of stockholders may be called only by the Chairman of the Board, the Chief Executive Officer or, if none, the President of the Company or by the Board of Directors. The Restated Certificate of Incorporation provides for a classified Board of Directors, and members of the Board of Directors may be removed only for cause upon the affirmative vote of holders of at least two-thirds of the shares of capital stock of the Company entitled to vote. In addition, shares of the Company's Preferred Stock may be issued in the future without further stockholder approval and upon such terms and conditions, and having such rights, privileges and preferences, as the Board of Directors may determine. The rights of the holders of Common Stock will be subject to, and may be adversely affected by, the rights of any holders of Preferred Stock that may be issued in the future. The Company has no present plans to issue any shares of Preferred Stock. These provisions, and other provisions of the Restated Certificate of Incorporation, may have the effect of deterring hostile takeovers or delaying or preventing changes in control or management of the Company, including transactions in which stockholders might otherwise receive a premium for their shares over then current market prices. In addition, these provisions may limit the ability of stockholders to approve transactions that they may deem to be in their best interests. See "Description of Capital Stock--Delaware Law and Certain Charter and By-Law Provisions." 9 THE COMPANY HISTORY The Company's predecessor entity, Cornucopia Natural Foods, Inc., was incorporated as a Rhode Island corporation in 1978 as a natural products retailer. In 1979, the Company changed its focus from retailing to the distribution of natural products. In 1985, the Company purchased two distributors, Harvest Provisions, Inc. (Boston, Massachusetts) and Earthly Organics, Inc. (Philadelphia, Pennsylvania), to strengthen its position in the New England market and to begin distribution to the Mid-Atlantic states. The Company opened its distribution center in Georgia in 1991 to begin distribution to the southeastern United States. The Company has also acquired two specialty suppliers of natural products. In 1987, the Company acquired Natural Food Systems, Inc., a distributor of seafood and owner of the "Natural Sea" brand. In 1990, the Company acquired certain assets of BGS Distributing, Inc., a regional distributor and manufacturer of vitamins which also held distribution rights to several additional product lines. In 1993, the Company formed its Natural Retail Group, Inc. ("NRG") to acquire, own and operate retail natural products stores. NRG currently owns and operates eight natural products stores located in Connecticut, Florida, Maryland, Massachusetts and New York ranging in size from approximately 4,000 square feet to approximately 12,000 square feet. RECENT ACQUISITIONS In February 1996, the Company merged with Mountain People's, the largest distributor of natural products in the Western portion of the United States. The merger was accounted for as a pooling of interests and, accordingly, all financial information included in this Prospectus is reported as though the companies had been combined for all periods reported. In May 1995, prior to its merger with United Natural, Mountain People's acquired Nutrasource, a distributor of natural products in the Pacific Northwest region. In July 1995, the Company acquired Rainbow, the largest distributor of natural products in the Rocky Mountains and Plains regions. The acquisitions of Nutrasource and Rainbow were accounted for under the purchase method of accounting and, accordingly, all of the financial information for Nutrasource and Rainbow has been included in this Prospectus since their respective dates of acquisition. The excess of the purchase price over the net assets acquired in each of these acquisitions has been recorded as goodwill and will be amortized by the Company over 30 years. The Company currently serves more than 5,500 customers located in 43 states, through its three principal regions: Cornucopia, which covers the eastern United States; Mountain People's, which covers the western United States; and Rainbow, which covers the Rocky Mountains and Plains regions. ESOP In November 1988, the Company adopted an Employee Stock Ownership Plan (the "ESOP") for the benefit of eligible employees. In connection with the formation of the ESOP, the Employee Stock Ownership Trust (the "ESOT") acquired an aggregate of 2,200,000 shares of Common Stock from Norman A. Cloutier, Steven H. Townsend, Daniel V. Atwood and Theodore Cloutier (collectively, the "Initial Stockholders") in exchange for a promissory note (the "ESOT Note") in the aggregate principal amount of $4,080,000, of which $3,073,600 was outstanding as of July 31, 1996, exclusive of interest. As the ESOT Note is repaid, shares held in the ESOT are released from a pledge to the Initial Stockholders in proportion to the principal paid down on the ESOT Note during the year. The released shares are allocated among the ESOP accounts of eligible employees. As of July 31, 1996, approximately 550,000 shares have been allocated or released for allocation to employees and allocations are projected to continue at the rate of 88,000 shares per year. The shares in an employee's ESOP account generally vest after five years of qualified employment or upon death or disability. Vested ESOP benefits are distributable following the death or termination of employment of a participating employee. 10 Participating employees can elect to receive their ESOP benefits in the form of Common Stock. The Company has normally purchased from the ESOT the shares allocated to former employees' ESOP accounts at their fair market value, and then distributed cash to the employees. Common Stock distributed to former employees from the ESOT is subject to a limited put option which allows the holder to require the Company to repurchase the shares for a period of sixty days at their appraised fair market value at the date of distribution, and for another sixty days beginning after the appraised fair market value of the Common Stock has been established for the Company's taxable year following the year in which the distribution occurred. The put option ceases when Common Stock distributed under the ESOP is (i) listed on a national securities exchange or traded in the over-the-counter market and (ii) is freely tradeable. Common Stock held in the ESOT is voted by the Trustee, except that ESOP participants are entitled to direct the Trustee as to how to vote shares allocated to their ESOP accounts on any matter which involves a corporate merger, consolidation, recapitalization, reclassification, liquidation, sale of substantially all of the Company's assets or other similar major corporate transactions. After completion of the Offering, the Company intends to amend the ESOP to (i) provide that ESOP benefits may only be received in the form of Common Stock and (ii) eliminate the limited put option. See "Management--Executive Compensation--Employee Stock Ownership Plan." CORPORATE INFORMATION The Company was reincorporated in Delaware in 1994. The Company's executive offices are located at 260 Lake Road, Dayville, Connecticut 06241, and its telephone number is (860) 779-2800. 11 USE OF PROCEEDS The net proceeds to be received by the Company from the Offering, assuming an initial public offering price of $ per share, are estimated to be $ million after deducting underwriting discounts and commissions and estimated offering expenses. The Company intends to use such proceeds to repay certain indebtedness, for working capital and for general corporate purposes, including the expansion of the Company's distribution facilities. The indebtedness to be repaid consists of (i) $21,012,210 due to Fleet Capital Corporation under a revolving line of credit that matures on July 31, 1998 and bears interest at a rate of 0.25% over New York Prime or 2.25% over LIBOR, or 8.0% at July 31, 1996; (ii) $6,500,000 due to Triumph-Connecticut Limited Partnership under a Senior Note that matures on October 31, 1998 and currently bears interest at a rate of 10.0%; (iii) $4,702,381 due to Fleet Capital Corporation under a revolving line of credit that matures on July 31, 1998 and bears interest at a rate of 0.25% over New York Prime, or 8.5% at July 31, 1996; (iv) $2,785,409 due to Prem Mark, Inc. under a term note issued in connection with the Rainbow acquisition that matures July 1998 and bears interest at a rate of 10.0%; and (v) approximately $1,000,000 due under certain notes maturing between 1998 and 2002 and bearing interest at rates ranging from 0.5% to 1.0% over New York Prime issued by NRG in connection with the acquisition of certain retail natural products stores. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Certain Transactions." The Company will not receive any proceeds from the sale of Common Stock by the Selling Stockholders in the event that the over-allotment option granted to the Underwriters is exercised. See "Principal and Selling Stockholders." The Company intends to seek acquisitions of businesses and products that are complementary to those of the Company, and a portion of the net proceeds may also be used for such acquisitions. While the Company engages from time to time in discussions with respect to potential acquisitions, the Company has no plans, commitments or agreements with respect to any such acquisitions as of the date of this Prospectus, and there can be no assurance that any such acquisitions will be made. DIVIDEND POLICY The Company has never declared or paid any cash dividends on its capital stock. The Company anticipates that all of its earnings in the foreseeable future will be retained to finance the continued growth and development of its business and has no current intention to pay cash dividends. The Company's future dividend policy will depend on the Company's earnings, capital requirements and financial condition, requirements of the financing agreements to which the Company is then a party and other factors considered relevant by the Board of Directors. The Company's existing revolving line of credit agreement prohibits the declaration or payment of cash dividends to the Company's stockholders. 12 CAPITALIZATION The following table sets forth the Company's actual capitalization at July 31, 1996 and as adjusted to reflect the issuance and sale by the Company of shares of Common Stock offered hereby at an assumed initial public offering price of $ per share and application of the net proceeds therefrom, after deducting the underwriting discounts and commissions and estimated offering expenses. See "Use of Proceeds." The information set forth below should be read in conjunction with the Company's Consolidated Financial Statements and the Notes thereto included elsewhere in this Prospectus.
JULY 31, 1996 --------------------- ACTUAL AS ADJUSTED ------- ------------ (IN THOUSANDS) Short-term debt......................................... $34,200 $ ------- ------------ Long-term debt, excluding current installments(1)....... 22,171 ------- ------------ Preferred stock, $.01 par value; 5,000,000 shares authorized; no shares issued or outstanding (as adjusted).............................................. -- Common stock, $.01 par value; 25,000,000 shares authorized; 8,713,100 shares issued and 8,692,695 shares outstanding (actual); shares issued and shares outstanding (as adjusted)....................... 87 Additional paid-in-capital.............................. 1,384 Stock warrants.......................................... 3,200 Unallocated shares of employee stock ownership plan..... (3,074) Retained earnings....................................... 16,629 Treasury stock, 20,405 shares at cost................... (44) ------- ------------ Total stockholders' equity............................ 18,182 ------- ------------ Total capitalization (including short-term debt)...... $74,553 $ ======= ============
- -------- (1) Long-term debt includes a note payable to Triumph-Connecticut Limited Partnership with a balance of $4.7 million at July 31, 1996 and a face value of $6.5 million due in October 1998. The Company intends to prepay the note with a portion of the proceeds of the Offering. In connection with the prepayment, the Company will record an extraordinary expense of approximately $1.8 million ($1.0 million, net of taxes) reflecting the difference between the face amount and the carrying value thereof on the Company's balance sheet on the date of prepayment, as well as the write- off of related debt issuance costs. 13 DILUTION The net tangible book value of the Company as of July 31, 1996 was $8,543,925, or approximately $0.98 per outstanding share of Common Stock. Net tangible book value per outstanding share is equal to the Company's total tangible assets less total liabilities, divided by the number of shares of Common Stock outstanding. After giving effect to the sale by the Company of shares of Common Stock offered hereby (assuming an initial public offering price of $ per share) and receipt of the net proceeds therefrom, the net tangible book value of the Company at July 31, 1996 would have been approximately $ , or $ per share. This represents an immediate increase in net tangible book value of $ per share to existing stockholders and an immediate dilution of $ per share to new investors purchasing shares in the Offering. Dilution is determined by subtracting pro forma net tangible book value per share after the Offering from the amount paid by a new investor for a share of Common Stock. The following table illustrates the per share dilution: Assumed initial public offering price per share................... $ Net tangible book value as of July 31, 1996..................... $0.98 Increase attributable to new investors.......................... ----- Pro forma net tangible book value after the Offering.............. --- Dilution to new investors......................................... $ ===
The following table summarizes, on a pro forma basis as of July 31, 1996, the differences between existing stockholders and new investors with respect to the number of shares of Common Stock purchased from the Company, the total consideration paid to the Company and the average consideration paid per share by the existing stockholders and by the new investors:
SHARES PURCHASED TOTAL CONSIDERATION ----------------- ----------------------- AVERAGE NUMBER PERCENT AMOUNT PERCENT PRICE PER SHARE --------- ------- ------------ ---------- --------------- Existing stockhold- ers(1)................. 8,692,695 $ 414,542 $0.05 New investors........... $ --------- --- ------------ ------- Total................. 100% $ 100% ========= === ============ =======
The foregoing table and calculations assume no exercise of outstanding options or warrants. As of July 31, 1996, (i) options to purchase 341,000 shares of Common Stock were outstanding with a weighted average exercise price of $6.55 per share and (ii) a warrant to purchase 1,166,660 shares of Common Stock was outstanding with an exercise price of $0.00018 per share. To the extent these options or the warrant are exercised, there will be further dilution to the new investors. - -------- (1) If the Underwriters' over-allotment option is exercised in full, sales by the Selling Stockholders in the Offering will reduce the number of shares held by existing stockholders to , or approximately % of the total number of shares of Common Stock outstanding after the Offering, and will increase the number of shares held by new investors to , or approximately % of the total number of shares of Common Stock outstanding after the Offering. 14 SELECTED CONSOLIDATED FINANCIAL DATA The selected consolidated financial data presented below under the caption Consolidated Statement of Income Data with respect to the fiscal years ended October 31, 1994 and 1995 and the nine months ended July 31, 1996, and under the caption Consolidated Balance Sheet Data at October 31, 1994 and 1995 and July 31, 1996, are derived from the consolidated financial statements of the Company, which financial statements have been audited by KPMG Peat Marwick LLP, independent certified public accountants. The selected consolidated financial data presented below under the caption Consolidated Statement of Income Data with respect to the fiscal years ended October 31, 1992 and 1993 and the nine months ended July 31, 1995, and under the caption Consolidated Balance Sheet Data at October 31, 1992 and 1993, are derived from the unaudited consolidated financial statements of the Company that have been prepared on the same basis as the audited financial statements and, in the opinion of management, contain all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for such periods. The historical results are not necessarily indicative of results to be expected for any future period. The following selected consolidated financial data should be read in conjunction with and are qualified by reference to "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's Consolidated Financial Statements and Notes thereto included elsewhere in this Prospectus. The merger with Mountain People's has been accounted for as a pooling of interests and therefore the financial data below are presented as if Mountain People's and the Company had been combined for all periods presented.
NINE MONTHS ENDED YEAR ENDED OCTOBER 31, JULY 31, ------------------------------------- ------------------ 1992 1993 1994 1995 1995 1996 ------------------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) CONSOLIDATED STATEMENT OF INCOME DATA: Net sales............... $ 124,366 $153,636 $200,616 $283,323 $188,502 $286,448 Cost of sales........... 99,424 121,148 156,498 223,482 147,706 226,482 --------- -------- -------- -------- -------- -------- Gross profit............ 24,942 32,488 44,118 59,841 40,796 59,966 Operating expenses...... 21,642 27,176 36,195 48,653 32,740 48,565(2) Amortization of intangibles............ 1 199 538 2,426(1) 603 792 --------- -------- -------- -------- -------- -------- Total operating expenses............... 21,643 27,375 36,733 51,079 33,343 49,357 --------- -------- -------- -------- -------- -------- Operating income........ 3,299 5,113 7,385 8,762 7,453 10,609 --------- -------- -------- -------- -------- -------- Interest expense........ 983 1,078 2,275 3,403 2,184 3,943 Other, net.............. (154) 137 122 (173) (124) (137) --------- -------- -------- -------- -------- -------- Total other expense..... 829 1,215 2,397 3,230 2,060 3,806 --------- -------- -------- -------- -------- -------- Income before income taxes.................. 2,470 3,898 4,988 5,532 5,393 6,803 Income taxes............ 982 1,579 1,971 2,929 2,161 2,778 --------- -------- -------- -------- -------- -------- Net income.............. $ 1,488 $ 2,319 $ 3,017 $ 2,603 $ 3,232 $ 4,025 ========= ======== ======== ======== ======== ======== Net income per share.... $ 0.17 $ 0.26 $ 0.30 $ 0.26 $ 0.32 $ 0.40 ========= ======== ======== ======== ======== ======== Weighted average shares of common stock........ 8,823 8,823 9,935 9,989 9,989 9,985 ========= ======== ======== ======== ======== ======== OCTOBER 31, -------------------------------------- JULY 31, 1992 1993 1994 1995 1996 -------- -------- -------- -------- -------- (IN THOUSANDS) CONSOLIDATED BALANCE SHEET DATA: Working capital................... $ 3,498 $ 3,895 $ 10,180 $ 8,583 $ 10,087 Total assets...................... 26,124 37,006 48,476 88,822 98,744 Long-term debt, excluding current installments..................... 4,731 7,495 10,209 21,312 22,171 Stockholders' equity.............. 1,790 4,258 10,257 13,022 18,182
- ------- (1) Operating income for fiscal 1995 includes a non-recurring expense of $1.6 million related to the write-off of intangible assets. Excluding the $1.6 million non-recurring expense, operating income would have been $10.4 million in fiscal 1995. (2) Operating income for the nine months ended July 31, 1996 includes a non- recurring expense of $1,056,100 related to the grant of options under the Company's 1996 Stock Option Plan and a non-recurring expense of $458,000 representing costs associated with the Mountain People's merger. Excluding the $1,514,100 of non-recurring expenses, operating income would have been $12.1 million in the nine months ended July 31, 1996. 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW United Natural is one of only two national distributors of natural foods and related products in the United States. The Company currently distributes more than 25,000 natural products to more than 5,500 customers located in 43 states. United Natural's distribution operations are divided into three principal regions: Cornucopia in the eastern United States; Mountain People's in the western United States; and Rainbow in the Rocky Mountains and Plains regions. Through its Natural Retail Group, the Company also owns and operates eight retail natural products stores located in the eastern United States. In recent years, the Company has increased sales to existing and new customers through the acquisition of or merger with existing natural products distributors, the opening of distribution centers in new geographic areas and the expansion of existing distribution centers, as well as continuing growth in the natural products industry generally. Management believes that through these actions the Company has been able to broaden its geographical penetration, increase its market share, expand its customer base and enhance and diversify its product offerings. The Company is currently in the process of integrating many of the operating functions of its recent acquisitions to achieve operating efficiencies by (i) eliminating geographic overlaps in distribution, (ii) integrating administrative, finance and accounting functions of its three regions, (iii) expanding marketing and customer service programs and (iv) expanding its information and warehouse management systems to all of its facilities. In addition, the Company's continuing growth has created the need for expansion of existing facilities to achieve maximum operating efficiencies and to assure adequate space for future needs. While operating margins may be affected in periods in which expenses are incurred to support the Company's continued growth, over the long term, the Company expects to benefit from increased absorption of its expenses over a larger sales base. In recent years, the Company has incurred significant expenditures in connection with the expansion of its facilities, including the expansion of its distribution center and headquarters in Connecticut and the expansion of refrigerated space in its Georgia facility. The Company intends to build a new facility in Colorado, which is expected to be operational during the second half of calendar 1997, and to replace its auxiliary storage facility in Sacramento, California with a larger facility adjacent to its Auburn, California distribution center, which is expected to be substantially complete by late calendar 1997. The Company depreciates its facilities over 40 years and its equipment over three to ten years. The Company has also made a significant investment in designing and installing proprietary information and warehouse management systems in its Connecticut and Georgia facilities. The Company intends to install its information and warehouse management systems in other regions in stages, with installation commencing in Colorado in early calendar 1997 and in California and Washington in late calendar 1997. The Company's retail strategy for NRG is to selectively acquire existing natural products stores that meet the Company's strict criteria in categories such as sales and profitability, growth potential, merchandising and management. Management believes the Company's retail business serves as a natural complement to its distribution business. The Company's net sales consist primarily of sales of natural products to retailers, after customer volume discounts, returns and allowances, and, to a lesser extent, sales from its natural products retail stores. The principal components of the Company's cost of sales include the amount paid to manufacturers and growers for products sold plus the cost of transportation of the product to the Company's distribution facilities. Generally, the Company is able to pass along price increases and decreases to its customers. As a result, the Company's net sales and profit levels may be negatively affected during periods of food price deflation, even though the Company's gross profit as a percentage of net sales may remain relatively constant. Operating expenses include primarily labor-related expenses, employee benefits (including payments under the Company's ESOP), selling, warehousing, delivery and occupancy expenses, depreciation and other distribution and administrative costs. Other expenses include interest payments on outstanding indebtedness, miscellaneous expenses and other non-recurring expenses. 16 RECENT ACQUISITIONS On February 20, 1996, a subsidiary of the Company merged with and into Mountain People's, whereupon Mountain People's became a wholly owned subsidiary of the Company. The merger with Mountain People's was accounted for as a pooling of interests and, accordingly, all financial information included in this Prospectus is reported as though the companies had been combined in all periods reported. The Company acquired all of the outstanding capital stock of Mountain People's in exchange for approximately 37% of the stock of the Company after the merger. See Note 2 of Notes to the Company's Consolidated Financial Statements. On May 22, 1995, prior to its merger with United Natural, Mountain People's acquired Nutrasource, a distributor of natural products in the Pacific Northwest region. The total cash and debt issued to acquire Nutrasource was approximately $2.8 million, which exceeded the fair value of the net assets acquired by approximately $1.3 million. In addition, the Company paid $1.0 million to a stockholder of Nutrasource in consideration for a covenant not to compete. On July 29, 1995, the Company acquired Rainbow, a distributor of natural products in the Rocky Mountains and Plains regions. The total cash and debt issued to acquire Rainbow was approximately $8.5 million, which exceeded the fair value of the net assets acquired by approximately $4.5 million. The acquisitions of Nutrasource and Rainbow were accounted for under the purchase method of accounting, and, accordingly, all of the financial information for Rainbow and Nutrasource have been included in this Prospectus since their respective dates of acquisition. The excess of the purchase price over the net assets acquired in each of these acquisitions has been recorded as goodwill and will be amortized by the Company over 30 years. The Company's fiscal years ended October 31, 1994 and 1995 are referred to herein as "fiscal 1994" and "fiscal 1995," respectively. The Company has changed its fiscal year end to July 31. RESULTS OF OPERATIONS The following table presents, for the periods indicated, certain income and expense items expressed as a percentage of net sales:
FISCAL YEAR ENDED NINE MONTHS OCTOBER 31, ENDED JULY 31, ------------------ ---------------- 1994 1995 1995 1996 -------- -------- ------- ------- Net sales................................ 100.0% 100.0 % 100.0% 100.0% Cost of sales............................ 78.0 78.9 78.4 79.1 -------- -------- ------- ------- Gross profit........................... 22.0 21.1 21.6 20.9 -------- -------- ------- ------- Operating expenses....................... 18.0 17.1 17.4 17.0 Amortization of intangibles.............. 0.3 0.9 0.3 0.2 -------- -------- ------- ------- Total operating expenses................. 18.3 18.0 17.7 17.2 -------- -------- ------- ------- Operating income ...................... 3.7 3.1 3.9 3.7 -------- -------- ------- ------- Interest expense ...................... 1.1 1.2 1.2 1.3 Other, net ............................ 0.1 (0.1) (0.1) 0.0 -------- -------- ------- ------- Other expense, net .................... 1.2 1.1 1.1 1.3 -------- -------- ------- ------- Income before income taxes .............. 2.5 2.0 2.8 2.4 Income taxes .......................... 1.0 1.0 1.1 1.0 -------- -------- ------- ------- Net income............................... 1.5% 0.9% 1.7% 1.4% ======== ======== ======= =======
NINE MONTHS ENDED JULY 31, 1996 COMPARED TO NINE MONTHS ENDED JULY 31, 1995 Net Sales. The Company's net sales increased 51.9%, or $97.9 million, to $286.4 million in the nine months ended July 31, 1996 from $188.5 million in the nine months ended July 31, 1995. The increase in net sales was primarily due to additional sales of $74.5 million attributable to Nutrasource and Rainbow, whose operations were included for the entire nine-month period in 1996. Sales of $6.5 million were attributable to two months of operations of Nutrasource during the comparable 1995 period. The increase was also attributable to increased 17 sales by the Company to existing customers, including net sales attributable to new products offered by the Company and net sales to new customers in existing geographic distribution areas as well as new geographic areas not formerly served by the Company. Gross Profit. The Company's gross profit increased 47.0%, or $19.2 million, to $60.0 million in the nine months ended July 31, 1996 from $40.8 million in the nine months ended July 31, 1995. The Company's gross profit as a percentage of net sales decreased to 20.9% for the nine months ended July 31, 1996 from 21.6% in the nine months ended July 31, 1995. The decrease in the gross profit as a percentage of net sales was primarily due to the lower- margin business of the Company's recently acquired distributors and to the increase in net sales during fiscal 1996 attributable to natural products supermarket chains, which tend to buy in larger quantities and to qualify for greater volume discounts. Operating Expenses. The Company's total operating expenses increased 48.3%, or $16.1 million, to $49.4 million in the nine months ended July 31, 1996 from $33.3 million in the nine months ended July 31, 1995. As a percentage of net sales, operating expenses decreased to 17.2% in the nine months ended July 31, 1996 from 17.7% in the nine months ended July 31, 1995. Total operating expenses in the nine months ended July 31, 1996 included a non-cash expense of $1,056,100 related to the grant of options under the Company's 1996 Stock Option Plan and a non-recurring expense of $458,000 representing costs associated with the Mountain People's merger. Excluding the $1.5 million of non-recurring expenses, the Company's total operating expenses would have been $47.8 million, or 16.7% of net sales, for the nine months ended July 31, 1996. The decrease in total operating expenses as a percentage of net sales was primarily attributable to the Company's increased absorption of overhead and fixed expenses over a larger sales base. In addition, the Company achieved increased operating efficiencies through the implementation of new information and warehouse management systems in its Connecticut and Georgia facilities. Depreciation expense increased 91.7%, or $1.1 million, to $2.3 million in the nine months ended July 31, 1996 from $1.2 million in the nine months ended July 31, 1995, primarily due to the Company's purchase of its distribution center and headquarters in Connecticut in August 1995 and the inclusion of a full period of depreciation for Nutrasource and Rainbow in the nine months ended July 31, 1996. The Company's amortization of intangible assets increased 31.5%, or $189,943, to $792,615 in the nine months ended July 31, 1996 from $602,672 in the nine months ended July 31, 1995. This increase was primarily attributable to the inclusion of amortization expense for Nutrasource and Rainbow for the entire nine months ended July 31, 1996, compared with two months of amortization expense for Nutrasource for the nine months ended July 31, 1995. Operating Income. Operating income increased $3.1 million, or 42.3%, to $10.6 million in the nine months ended July 31, 1996 from $7.5 million in the nine months ended July 31, 1995. As a percentage of net sales, operating income declined to 3.7% at the nine months ended July 31, 1996 from 3.9% in the nine months ended July 31, 1995. Excluding the $1.5 million of non- recurring expenses discussed above, operating income would have been $12.1 million, or 4.2% of net sales, in the nine months ended July 31, 1996. Other Income (Expense). The $1.8 million increase in interest expense in the nine months ended July 31, 1996 compared to the nine months ended July 31, 1995 was primarily attributable to the indebtedness incurred in connection with the purchase of the Company's Connecticut facility in August 1995 and the acquisitions of Nutrasource and Rainbow, along with an increase in borrowings under the Company's revolving line of credit to fund increasing inventory and accounts receivable balances related to the Company's increased sales. Income Taxes. The Company's effective income tax rates were 40.8% and 40.1% for the nine months ended July 31, 1996 and 1995, respectively. The effective rates were higher than the federal statutory rate due to nondeductible costs associated with the merger with Mountain People's and state and local income taxes. Net Income. As a result of the foregoing, the Company's net income increased by 24.5%, or $0.8 million, to $4.0 million in the nine months ended July 31, 1996 from $3.2 million in the nine months ended July 31, 1995. Excluding the $1.5 million ($0.9 million net of taxes) non-recurring expenses related to the granting of options under the 1996 Stock Option Plan and the costs associated with the Mountain People's merger, net income would have been $4.9 million, or 1.7% of net sales, in the nine months ended July 31, 1996. 18 FISCAL 1995 TO FISCAL 1994 Net Sales. The Company's net sales increased 41.2%, or $82.7 million, to $283.3 million in fiscal 1995 from $200.6 million in fiscal 1994. The increase in net sales was primarily due to additional sales of $33.5 million attributable to Nutrasource and Rainbow, whose operations were included in the fiscal 1995 results for five months and three months, respectively. No financial results of Nutrasource or Rainbow were included in the comparable 1994 period. The increase in net sales was also attributable to increased sales by the Company to existing customers, the introduction of new products not formerly carried by the Company and the inclusion of sales to new accounts within existing geographic distribution areas. Gross Profit. The Company's gross profit increased 35.6%, or $15.7 million, to $59.8 million in fiscal 1995 from $44.1 million in fiscal 1994. The Company's gross profit as a percentage of net sales decreased to 21.1% in fiscal 1995 from 22.0% in fiscal 1994. The decrease in gross profit as a percentage of net sales was primarily attributable to the lower-margin business of the Company's recently acquired distributors and to the increase in net sales during fiscal 1995 attributable to natural products supermarket chains, which tend to buy in larger quantities and to qualify for greater volume discounts. In addition, the Company's gross profit as a percentage of net sales declined due to a smaller percentage of net sales represented by sales from the Company's higher-margin NRG stores. Operating Expenses. The Company's total operating expenses increased 39.1%, or $14.4 million, to $51.1 million in fiscal 1995 from $36.7 million in fiscal 1994. As a percentage of net sales, total operating expenses decreased to 18.0% in fiscal 1995 from 18.3% in fiscal 1994. Total operating expenses in fiscal 1995 included a non-recurring expense of $1.6 million related to the write-off of intangible assets. Excluding the non-recurring expense of $1.6 million, total operating expenses would have been $49.5 million, or 17.5% of net sales, in fiscal 1995. The decrease in total operating expenses as a percentage of net sales was primarily attributable to the Company's increased absorption of overhead and fixed expenses over a larger sales base. Depreciation expense increased 61.5%, or $0.8 million, to $2.1 million in fiscal 1995 from $1.3 million in fiscal 1994, primarily due to the Company's purchase of its distribution center and headquarters in Connecticut in August 1995 and the inclusion of a partial year of depreciation for each of Nutrasource and Rainbow in fiscal 1995 and no depreciation resulting from such acquisitions in fiscal 1994. The Company's amortization of intangible assets increased 450.9%, or $1.9 million, to $2.4 million, in fiscal 1995 from $0.5 million in fiscal 1994. This increase was attributable to higher goodwill costs associated with the acquisitions of Nutrasource and Rainbow. In connection with its on-going evaluation of intangible assets and in accordance with Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," the Company wrote off $1.6 million in intangible assets upon evaluating the value of the underlying businesses of certain of its retail operations. The impairment was indicated by projected cash flow losses caused by increased competition at one location and a change in demographics for the other affected location. Operating Income. Operating income increased $1.4 million, or 18.7%, to $8.8 million in fiscal 1995 from $7.4 million in fiscal 1994. As a percentage of net sales, operating income decreased to 3.1% in fiscal 1995 from 3.7% in fiscal 1994. Excluding the $1.6 million non-recurring expense related to the write-off of intangible assets, operating income would have been $10.4 million, or 3.7% of net sales, in fiscal 1995. Other Income (Expense). The $1.1 million increase in interest expense in fiscal 1995 compared to fiscal 1994 was primarily attributable to the indebtedness incurred in connection with the purchase of the Company's Connecticut facility in August 1995 and the recent acquisitions of Nutrasource and Rainbow. In addition, the Company experienced increased costs under its revolving line of credit due to the higher borrowings required to fund the increasing inventory and accounts receivable balances related to the Company's increased sales. Income Taxes. The Company's effective income tax rates were 52.9% and 39.5% for fiscal 1995 and 1994, respectively. The effective rates were higher than the federal statutory rate due to nondeductible goodwill amortization, especially the write-off of the intangible assets in fiscal 1995, as well as state and local income taxes. 19 Net Income. As a result of the foregoing, the Company's net income decreased by 13.7%, or $0.4 million, to $2.6 million in fiscal 1995 from $3.0 million in fiscal 1994. Excluding the $1.6 million non-recurring expense related to write-off of intangible assets ($1.0 million net of taxes), net income would have been $4.3 million, or 1.5% of net sales, in fiscal 1995. LIQUIDITY AND CAPITAL RESOURCES The Company historically has financed its operations and growth primarily with cash flows generated from operations, borrowings under its credit facility, seller financing of acquisitions, operating and capital leases and normal trade credit terms. The Company finances its investment in inventory and accounts receivable principally with its credit facility and trade accounts payable. The Company's cash provided (used) by operations was $1.5 million, $(0.9) million and $(1.3) million in the nine months ended July 31, 1996, fiscal 1995 and fiscal 1994, respectively. The increase in cash generated from operations in the nine months ended July 31, 1996 was primarily attributable to the increase in net income. The decreases in cash generated from operations in both fiscal 1995 and 1994 were primarily attributable to increases in accounts receivable and inventory which resulted from the expansion of product lines and growth of the business. The Company's working capital at July 31, 1996 was $10.1 million. Investing activities, consisting primarily of capital expenditures and the purchase of subsidiaries, used cash of $7.0 million, $18.5 million and $3.7 million in the nine months ended July 31, 1996, fiscal 1995 and fiscal 1994, respectively. The Company spent $7.1 million and $9.9 million in capital expenditures in the nine months ended July 31, 1996 and fiscal 1995, respectively, primarily to fund the acquisition and expansion of its Connecticut distribution facility, the related purchase of material handling equipment, tractors and trailers and the development and installation of new management information systems. The capital expenditures were primarily funded from senior bank indebtedness which is described below, capital and operating leases, term loans and cash provided from operating activities. The Company's cash flows generated from financing activities were $5.3 million, $19.4 million and $5.0 million in the nine months ended July 31, 1996, fiscal 1995 and fiscal 1994, respectively. During the nine months ended July 31, 1996, net cash provided by financing activities included proceeds from the re-financing of the Company's senior bank facility. During fiscal 1996, approximately $5.3 million in long-term debt was repaid with cash proceeds from the re-financing and from cash provided from operating activities. On February 20, 1996, the Company entered into a credit agreement with its bank to provide a $50 million facility for working capital, term loans and a mortgage for its Connecticut facility. Interest under the credit agreement accrues at the Company's option, at 0.25% above the New York Prime Rate or 2.25% above the bank's London Interbank Offered Rate, and the Company has the option to fix the rate for all or a portion of the debt for a period of up to 180 days. The credit agreement imposes limitations on the incurrence of additional indebtedness and requires the Company to satisfy certain financial tests, including capital expenditures, a minimum working capital ratio, a minimum adjusted tangible net worth, current ratio and cash flow tests. The Company has pledged all of its assets as collateral for its obligations under the credit agreement. As of July 31, 1996, the Company's outstanding borrowings under the credit agreement totalled $34.8 million. The credit agreement expires on July 31, 1998 and there can be no assurance that, upon such expiration, the Company will be able to refinance the credit agreement on terms satisfactory to the Company. The Company currently expects to make aggregate capital expenditures of approximately $13.0 million in fiscal 1997 and fiscal 1998 to fund the expansion of its existing facilities, to continue to upgrade its information systems and to update its material handling equipment. Management believes that, following the consummation of the Offering, the Company will have adequate capital resources and liquidity to meet its borrowing obligations, fund all required capital expenditures and pursue its business strategy, with the exception of any significant acquisitions which may be made by the Company, through fiscal 1998. The Company's capital resources and liquidity are expected to be provided by the net proceeds of the Offering, as well as cash flow from operations and borrowings under the credit facility and capital and operating leases. Substantially all of the net proceeds of the Offering will be used to repay certain of the Company's outstanding indebtedness. See "Use of Proceeds." 20 QUARTERLY RESULTS AND SEASONALITY Generally, the Company's operating results have not reflected any material seasonal variations, although the Company's sales and operating results may vary significantly from quarter to quarter due to factors such as changes in the Company's operating expenses, management's ability to execute the Company's operating and growth strategies, personnel changes, demand for natural products, supply shortages and general economic conditions. The table below presents selected unaudited quarterly financial data for the quarters indicated. The quarterly financial data reflect, in the opinion of management, all adjustments (which include only normal or recurring adjustments) necessary to present the selected financial results for such periods. Results of any one or more quarters are not necessarily indicative of annual results or continuing trends.
QUARTER ENDED --------------------------------------------------------------- OCTOBER 31, 1995 JANUARY 31, 1996 APRIL 30, 1996 JULY 31, 1996 ---------------- ---------------- -------------- ------------- (IN THOUSANDS) Net sales............... $94,821 $92,283 $96,432 $97,733 Gross profit............ 19,195 19,044 20,369 20,404 Gross margin.......... 20.2% 20.6% 21.1% 20.9% Operating income........ $ 1,458(1) $ 2,800 $ 4,165(2) $ 3,494(3) Operating margin...... 1.5%(1) 3.0% 4.3%(2) 3.6%(3) Net income (loss)....... $ (541) $ 929 $ 1,642 $ 1,364
- -------- (1) Operating income for the quarter ended October 31, 1995 includes a non- recurring expense of $1.6 million related to the write-off of intangible assets. Excluding the $1.6 million non-recurring expense, operating income would have been $3.1 million, or 3.3% of net sales, for the quarter ended October 31, 1995. (2) Operating income for the quarter ended April 30, 1996 includes a non- recurring expense of $458,000 representing costs associated with the Mountain People's merger. Excluding the $458,000 non-recurring expense, operating income would have been $4.6 million, or 4.8% of net sales, for the quarter ended April 30, 1996. (3) Operating income for the quarter ended July 31, 1996 includes a non- recurring expense of $1,056,100 related to the grant of options under the Company's 1996 Stock Option Plan. Excluding the $1,056,100 non-recurring expense, operating income would have been $4.6 million, or 4.7% of net sales, for the quarter ended July 31, 1996. IMPACT OF INFLATION Generally, the Company has been able to pass on inflation-related cost increases; consequently, inflation has not had a material impact on the Company's operations or profitability. RECENTLY ISSUED ACCOUNTING STANDARDS The Financial Accounting Standards Board recently issued SFAS No. 123, "Accounting for Stock-Based Compensation." This statement introduces a fair value-based method of accounting for stock-based compensation. Under SFAS 123, the Company may either adopt the new fair value based method or provide pro forma disclosure of net income (loss) as if the accounting provisions of SFAS 123 had been adopted. The Company intends to retain the intrinsic method of accounting for stock-based employee compensation plans under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and provide the required pro forma disclosure in fiscal 1997. SFAS No. 123 is not expected to have any effect on the Company's financial position or results of operations. The Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position 93-6, "Employers' Accounting for Employee Stock Ownership Plans" in November 1993. This statement provides guidance on employers' accounting for employee stock ownership plans and is required to be applied to shares purchased by such plans after December 31, 1992 that have not been committed to be released as of the beginning of the year of adoption. SOP 93-6 requires, among other things, that employers recognize compensation cost equal to the fair value of the shares committed to be released 21 rather than its original cost and that ESOP shares that have not been committed to be released should not be considered outstanding for purposes of computing earnings per share. As the Company's ESOP was adopted in 1988, the Company will continue to adhere to the guidance of SOP 76-3, "Accounting Practices for Certain Employee Stock Ownership Plans," until such time as additional shares are purchased. Management does not expect any such purchases to occur in the foreseeable future. EXTRAORDINARY LOSS The Company intends to use a portion of the net proceeds of the Offering to prepay the $6.5 million due to Triumph-Connecticut Limited Partnership under a senior note due October 31, 1998. In connection with the prepayment, the Company will record an extraordinary expense of approximately $1.8 million ($1.0 million, net of taxes) reflecting the difference between the face amount of $6.5 million and the carrying value thereof on the Company's balance sheet on the date of prepayment, as well as the write-off of related debt issuance costs. 22 BUSINESS United Natural Foods, Inc. is one of only two national distributors of natural foods and related products in the United States. The Company currently serves more than 5,500 customers located in 43 states, including independent natural products stores, natural products supermarket chains and conventional supermarkets. The Company distributes more than 25,000 high-quality, national, regional and private label natural products in six categories consisting of groceries and general merchandise, nutritional supplements, bulk and foodservice products, personal care items, perishables and frozen foods. United Natural's distribution operations are divided into three principal regions: Cornucopia in the eastern United States, Mountain People's in the western United States and Rainbow in the Rocky Mountains and Plains regions. The Company operates five strategically located distribution centers and two satellite staging facilities within these regions to better serve its customers and realize operating efficiencies. The Company also owns and operates eight retail natural products stores located in the eastern United States that management believes complement its distribution business. Over the last four years, the Company's net sales increased at a compound annual growth rate of 31.6% to $283.3 million in fiscal 1995. For the nine months ended July 31, 1996, the Company's net sales increased by 51.9% over the comparable prior year period to $286.4 million. This growth in net sales and corresponding increase in market share resulted primarily from the Company's acquisitions of large, regional natural products distributors, the development of new and the expansion of existing distribution capacity and an increase in product sales to existing and new customers, as well as continuing growth in the natural products industry sector generally. In addition to growth in net sales, during the same period, the Company's operating income increased at a compound annual growth rate of 46.6% to $10.4 million in fiscal 1995 (excluding a non-recurring expense of $1.6 million relating to intangible assets in fiscal 1995). For the nine months ended July 31, 1996, the Company's operating income increased by 62.5% over the comparable prior year period to $12.1 million (excluding non-recurring expenses of $1.5 million incurred in connection with the merger of the Company with Mountain People's and the grant of options under the Company's 1996 Stock Option Plan). See "Management's Discussion and Analysis of Financial Condition and Results of Operation" and Notes 1 and 3 of Notes to the Company's Consolidated Financial Statements. The Company's growth in operating income is attributable to increased efficiencies created by its higher net sales levels, greater purchasing power, improved information and warehouse management systems and expanded distribution capacity. NATURAL PRODUCTS INDUSTRY Natural foods and related products are minimally processed, environmentally friendly, largely or completely free from artificial ingredients, preservatives and other non-naturally occurring chemicals and in general as close to their natural state as possible. Although most natural products are food products, including organic foods, the natural products industry encompasses a number of other categories, including nutritional and herbal supplements, toiletries and personal care items, naturally based cosmetics, natural/homeopathic medicines and naturally based cleaning agents. Although sales growth in the grocery products industry has been relatively flat in recent years, according to The Natural Foods Merchandiser, a leading industry publication, sales in the natural products industry have grown at a 20.2% compound annual growth rate in the last four years accelerating from a 13.8% increase in 1992 to a 22.6% increase in 1995, when total domestic sales of natural products reached approximately $9.2 billion. This growth is being propelled by several factors, including an increasing awareness of the link between diet and health, consumer trends toward healthier eating habits, concern regarding food purity and safety and greater environmental awareness. Total sales of natural products represented less than 3.0% of the total grocery industry sales in 1995, which management believes allows for significant potential future sales growth. According to The Natural Foods Merchandiser, the natural products retailing sector is highly fragmented, with over 6,600 independent natural products retailers in operation in 1995 and continuing to grow annually. Although the natural products industry sector remains fragmented, natural products supermarkets continue to increase their market share of total natural products sales as they expand into additional geographic markets and acquire smaller independent competitors. In addition, conventional supermarkets and mass market outlets 23 have also begun to increase their emphasis on the sale of natural products as the sector gains appeal. Moreover, as consumer demand for natural products has grown, an increasing number of national, regional and local natural products have become available as more suppliers and producers have entered the market. The natural products distribution business involves the sourcing, purchasing, warehousing, marketing and transportation of natural products from suppliers to retailers. As the number of suppliers of and retail outlets for natural products has continued to increase, the role of the distributor has become increasingly important. Suppliers of natural products rely on distributors to reach a fragmented customer base and to provide information on consumer preferences at the retail level. At the same time, retailers are placing increasing pressure on distributors for more frequent deliveries, greater product selection, higher fill rates, more information on product movement and additional specialized programs such as financing, merchandising assistance, marketing support and assistance in consumer education. The Company believes that in order to be successful in this market a distributor must have access to capital to invest in systems, technology and warehouse enhancements, broad product knowledge and the ability to provide value added services designed to enable customers to become more efficient and profitable. Management believes that the Company is well-positioned to meet the increasing needs of both its suppliers and customers. BUSINESS STRATEGY The Company's objective is to better meet the changing needs of both suppliers and retailers and to be the leading national distributor of natural products. The key elements of the Company's business strategy include: NATIONAL PRESENCE. With five distribution centers strategically located in California, Colorado, Connecticut, Georgia and Washington and two satellite staging facilities in Florida and Pennsylvania, the Company is well positioned to provide distribution services to natural products retailers and suppliers located across the United States. As a result, the Company is able to (i) provide next-day delivery service to a majority of its active customers, (ii) make multiple deliveries each week to its largest customers, (iii) coordinate its inventory management with regional purchasing patterns and (iv) achieve significant operating efficiencies. INTEGRATION OF RECENT ACQUISITIONS. United Natural recently made three strategic acquisitions and is currently in the process of integrating these operations to increase the Company's overall efficiency by: (i) eliminating geographic overlaps in distribution, (ii) integrating administrative, finance and accounting functions, (iii) expanding marketing and customer service programs and (iv) upgrading information systems. To preserve its regional focus, the Company intends to keep the majority of the purchasing, pricing, sales and marketing decisions at the regional level. PURCHASING POWER AND SUPPLIER RELATIONSHIPS. As a result of its size of operations, national presence and access to retailers within the highly fragmented natural products sector, the Company is able to supply a superior selection of natural products at more competitive prices and on better terms, including supplier- sponsored marketing dollars, than many of its smaller, regional competitors. These prices and marketing support are then passed on to the Company's retail customers, thereby enhancing the Company's reputation as a low-cost supplier that offers extensive marketing programs. In addition, in order to increase its appeal to a number of suppliers and to receive better pricing, the Company has recently centralized the purchasing of specific products. For example, the Company has positioned itself as the largest purchaser of bulk products in the natural products industry by centralizing its purchase of nuts, seeds, grains, flours and dried foods. DIVERSE, HIGH-QUALITY PRODUCT LINE. The Company distributes a mix of more than 25,000 national, regional and private label natural products, which products are continually evaluated, updated and expanded to satisfy the needs of its diverse customer base. The Company believes that its product selections meet or exceed its regional competitors' selection in every market that it serves. The Company continually updates its product mix by evaluating more than 10,000 potential new products each year and offering approximately 300 new products each month, while discontinuing approximately 150 less 24 successful products each month. In addition, the Company offers a selection of private label products chosen to address customer preferences that are not otherwise being met by other suppliers. REGIONAL RESPONSIVENESS. By decentralizing the majority of its purchasing, pricing, sales and marketing decisions at the regional level, the Company is able to respond to regional and local customer preferences, while taking advantage of the economies of scale associated with the Company's national operations. Each of the Company's three regional operations (Cornucopia, Rainbow and Mountain People's) has extensive knowledge of the local and regional taste preferences in a particular marketplace and has the ability to provide products to accommodate local trends. In addition, the Company is able to customize services, respond quickly with pricing decisions to meet local competition and rapidly accommodate customer requirements, as necessary. CUSTOMER SERVICE AND MARKETING PROGRAMS. In addition to providing its customers with delivery services which include next-day and more frequent deliveries and an order fill rate in excess of 95% (excluding products unavailable from the supplier), the Company offers its customers a selection of inventory management, merchandising, marketing, promotional and event management services to increase customer sales and enhance customer satisfaction. The Company attributes its high fill rates and timely deliveries to its experienced purchasing department and sophisticated warehousing, inventory control and distribution systems. The Company offers its customers a broad range of marketing services, many of which are supplier-sponsored, including monthly and seasonal flier programs, in-store signage and assistance in product display, all in order to assist its customers in increasing sales. INFRASTRUCTURE AND MANAGEMENT. The Company recently made a significant investment in designing its proprietary, sophisticated information and warehouse management systems and recently expanded its Connecticut distribution facility from 165,000 to 245,000 square feet to achieve additional operating efficiencies and cost reductions. The Company's warehouse management systems incorporate an efficient method of storing, locating and rotating incoming and outgoing merchandise. The Company is planning on installing its information systems and expanding its distribution capacity in its Colorado and California facilities. The Company continually evaluates and upgrades its management information systems based on the best practices at its regional operations in order to make the systems more efficient, cost effective and responsive to customer needs. Overseeing the Company's operations are eight senior managers with an average of over 15 years of experience in the natural products industry. More than 85 of the Company's employees have over ten years of experience in the industry. GROWTH STRATEGY Key elements of the Company's growth strategy include: EXPAND CUSTOMER BASE. While continuing to focus on maintaining relationships with its existing natural products retail customers, the Company's goal is to expand its customer base to keep up with increasing demand for natural products. The Company is continually cultivating relationships with new customers for natural products, such as natural products supermarket chains, as well as conventional supermarkets, other mass market outlets, institutional foodservice providers, hotels and gourmet stores which are increasing their natural product offerings. INCREASE SALES TO EXISTING CUSTOMERS. The Company believes that a significant opportunity exists to increase its sales penetration of its existing retail customer base by (i) expanding the Company's role as the primary supplier to the majority of its customers, (ii) expanding the number of products and product categories offered and (iii) providing pricing incentives and marketing support to generate higher sales levels by its customers. EXPAND MARKET PRESENCE. The Company intends to expand its market penetration of existing and new markets by increasing the distribution capacity of its existing facilities and by building new distribution facilities. In addition, while the Company has no agreements or understandings with regard to acquisitions 25 at this time, it will continue to selectively evaluate opportunities to acquire local distributors to fill in existing markets and regional distributors to expand into new markets. PRODUCTS CURRENT PRODUCTS The Company's extensive selection of high-quality natural products enables it to provide a primary source of supply to a diverse base of customers whose product needs vary significantly. The Company distributes over 25,000 products, consisting of national brand, regional brand, private label and master distribution products in six product categories consisting of grocery and general merchandise, nutritional supplements, bulk and foodservice products, personal care items, perishables and frozen foods. The approximate percentage of the Company's sales represented by each of the six major product categories during fiscal 1995 are as follows:
PERCENTAGE CATEGORY OF SALES -------- ---------- Grocery and General Merchandise........ 46.1% Nutritional Supplements................ 13.4 Bulk and Foodservice Products.......... 12.9 Personal Care Items.................... 11.1 Perishables............................ 9.4 Frozen Foods........................... 7.1 ----- 100.0%
NATIONAL BRANDS. National brand products are recognized and distributed throughout the United States and typically possess features, including taste and packaging, that are recognizable and appeal to a large and diverse customer base. With five distribution centers and two satellite staging facilities, the Company is well positioned to distribute national brand products across the United States. The Company has secured the distribution rights to more than 1,000 brands of nationally known products, including: -- Arrowhead Mills cereals and mixes -- Celestial Seasoning teas -- Hain rice cakes -- Imagine Foods Rice Dream non-dairy beverages -- Knudsen and After the Fall juices -- Stonyfield Farm yogurts -- Tom's of Maine toothpaste -- Twin Lab vitamins -- Wholesome and Hearty Gardenburger frozen patties REGIONAL BRANDS. Regional brand products are recognized by and distributed in selected areas of the country to satisfy the demands of consumers in specific geographic regions. In addition, the short shelf life of many regional brands makes national distribution impracticable. The Company's decentralized purchasing practices enable regional buyers familiar with consumer demand to offer products that have a particular appeal to consumers in that region. The Company distributes over 800 regional brands to its customers, including: --Guisto's products (West Coast) --Montana Moon (Rocky Mountains) --Mountain High yogurt (Rocky Mountains) --Nancy's Creamery products (West Coast) --New England Natural Bakers (East Coast) --Seven Stars Dairy (East Coast) 26 PRIVATE LABEL PRODUCTS. The Company also offers private label products to address certain preferences of customers that are not otherwise being met by other suppliers. The Company's private label program is designed to take advantage of market opportunities created by a lack of supply of a type of product. The Company currently offers the following private label products: --Clear Spring waters --Farmer's Pride eggs --Guardian vitamins and supplements --Natural Sea fish products The Company believes that, through private label brands, it is able further to differentiate itself from its competitors and earn higher margins compared to its branded product offerings. The Company has achieved significant geographic distribution of its private label products due to its immediate access to its national customer base and the effectiveness of its marketing programs. As a result, the Company intends to broaden its private label offerings and has recently hired a senior executive to direct its private label product operations. In the future, the Company expects to continue to outsource the manufacturing, packing and labeling of its private label products and believes that the success of its private label program will depend on widespread distribution of its products along with effective marketing programs that ensure continued shelf placement. Sales of private label products represented less than 1% of the Company's total net sales in fiscal 1995. Over time, the Company intends to increase the proportion these higher margin products represent of its overall sales. MASTER DISTRIBUTION PRODUCTS. Master distribution products are products that are available exclusively through the Company as master distributor which enables smaller manufacturers to more efficiently access the market. All competing distributors must purchase such products from the Company. The Company has the master distribution rights for the following brands: --Cornucopia pet foods --Dal Raccolto imported Italian oils and vinegars --Living Foods nutritional supplements --Purdey's nutritionally enhanced beverages --Rudi's Bakery specialty breads --Wolfgang Puck frozen pizzas and entrees NEW PRODUCTS The Company evaluates more than 10,000 potential new products each year based on existing and anticipated trends in consumer preferences and buying patterns. Since 1992, the Company has introduced an average of 300 new products each month, while discontinuing approximately 150 less successful products. The Company's buyers regularly attend regional natural, organic, specialty, ethnic and gourmet products shows to review the latest product introductions that are likely to be of interest to retailers and consumers. The Company also actively solicits suggestions for new products from its customers. For example, each month the Company distributes postage-paid postcards to its customers to encourage them to provide suggestions. The Company makes the majority of its new product decisions at the regional level. The Company believes that its decentralized purchasing practices allow its regional purchasers to react quickly to changing consumer preferences and to evaluate new products and new product categories regionally. In addition, many of the new products offered by the Company are marketed on a regional basis or in the Company's own retail stores prior to being offered nationally, which enables the Company to evaluate local consumer reaction to the products without incurring significant inventory risk. 27 CUSTOMERS The Company markets its products to more than 5,500 customers located in 43 states. The Company maintains long-standing customer relationships with independent natural products stores and has continued to emphasize its relationships with new customers, including natural products supermarket chains, as well as conventional supermarkets and other mass market outlets, institutional foodservice providers, hotels and gourmet stores, all of which are continually increasing their natural product offerings. Management believes that the Company is the primary supplier to the majority of its customers. No customer accounted for more than 9% of the Company's net sales in fiscal 1995. Among the Company's wholesale customers are leading natural products supermarket operators doing business as Alfalfa's, Fresh Fields Markets, Nature's Fresh, Northwest!, Whole Foods Market and Wild Oats Markets, and conventional supermarket chains such as Carr's, City Market, Genuardis, Harris Teeter, King Soopers, Kroger, Quality Food Centers (QFC) and Tops Markets. The following table sets forth the types of customers served by the Company and the approximate percentage of its net sales generated by each category in fiscal 1995 and for the nine months ended July 31, 1996:
PERCENTAGE OF NET SALES -------------- TYPE OF CUSTOMER 1995 1996 ---------------- ------ ------ Independent Natural Products Stores...................... 61.3% 60.5% Natural Products Supermarket Chains...................... 22.7 24.3 Conventional Supermarkets................................ 8.5 8.6 Miscellaneous/Other...................................... 7.5 6.6 ------ ------ 100.0% 100.0%
CUSTOMER SERVICE The Company believes that customer loyalty is dependent upon outstanding customer service to ensure accurate fulfillment of orders, timely product delivery, low prices and a high level of product marketing support. SALES The Company maintains an order fill rate that exceeds 95% (excluding products unavailable from the supplier), which the Company believes is one of the highest order fill rates in the natural products distribution industry. The Company believes that its high fill rates can be attributed to its experienced purchasing department and sophisticated warehousing, inventory control and distribution systems. The Company offers next-day delivery service to a majority of its active customers and offers multiple deliveries each week to its largest customers. The Company's staff of approximately 35 account representatives cultivates partnership relationships with the Company's customers by emphasizing communication and responsiveness. The primary function of the account representatives is to help customers grow their businesses, thereby increasing the Company's own sales. Each account representative is assigned stores in a designated geographic area and is responsible for assisting the retailer in inventory management, merchandising, marketing, promotional and event management and store openings. The Company's staff of approximately 81 customer service representatives regularly contacts customers by telephone to ensure that customer needs are met quickly and efficiently. In addition to processing orders, the customer service representatives respond to customer inquiries concerning the Company's services and product availability. While the customer service representatives contact all customers, approximately 80% of the Company's sales volume is ordered electronically. The Company distributes shelf identification tags which can be scanned to facilitate this electronic ordering by the customer. The Company's account representatives and customer service representatives regularly exchange information to facilitate better knowledge of, and more effective response to, customer needs. To assist customers in making purchasing decisions, each of the Company's regions produces a quarterly catalog containing a description of all products that are currently in stock. Each product description includes the 28 vendor's name, product number, price per unit, price per case, suggested retail price and UPC bar code. The quarterly catalog also contains a variety of information on product ordering, delivery options and vendor advertising. In addition, each region produces a monthly specials catalog with its latest pricing promotions and new products. Approximately 20% of the Company's products are offered to its retail customers on special at any given time. In addition, the Company's senior executives attend major specialty food trade shows and personally meet with numerous retailers each year to solicit their comments. The Company's commitment to service is further reflected in the focus groups conducted annually by the Company's senior executives with a representative sampling of the Company's customers which allows customers to evaluate the Company's services, products and programs. MARKETING The Company has developed a variety of marketing services, many of which are supplier-sponsored, that cater to a broad range of retail formats in which retailers may participate for a nominal fee. These programs are designed to increase sales and are attractive to retailers who often do not have the resources necessary to conduct such marketing programs independently. Most of these programs are now being offered in the Company's eastern United States and Rocky Mountains and Plains regions and are expected to begin being offered in the western United States region in late calendar 1996. The Company offers a monthly flier program featuring the logo and address of the participating retailer imprinted on a flier advertising approximately 200 sale items which is distributed by the retailer to its customers. The color fliers are designed by the Company's in-house marketing department utilizing modern digital photography and contain detailed product descriptions and pricing information. In addition, each flier generally includes detailed information on selected vendors, recipes, product features and a comparison of the characteristics of a natural product with a similar mass market product. The monthly flier program is structured to pass through to the retailer the benefit of lower costs on certain products, allowing stores to earn an improved profit margin on sale items as a result of the Company's ability to negotiate favorable terms with the suppliers of these items. The program also provides retailers with posters and window banners to coincide with each month's promotions. In addition to its monthly flier program, the Company offers six thematic and seasonal consumer fliers that are used to promote items associated with a particular cause or season, such as environmentally sensitive products for Earth Day or foods and gifts particularly popular during the holiday season. The Company also (i) offers in-store signage and promotional materials, including shopping bags and end-cap displays, (ii) provides assistance with planning and setting up product displays and (iii) advises on pricing decisions to enable its customers to respond to local competition. In 1995, the Company received two prestigious ADMark advertising awards given annually by the North American Wholesale Grocers Association in recognition of excellence in retail advertising. The Company was chosen "best" out of over 200 entries for its paper bags in the category of non-price print advertising, and the Company's Natural Retail Group was awarded a first place for its store-wide introductory brochure. SUPPLIERS The Company purchases its products from approximately 1,500 active suppliers, many of which have had relationships with the Company for more than ten years. Management believes that natural products suppliers seek distribution of their products through the Company because it distributes the majority of the supplier's products, provides access to a large and growing customer base and supports the supplier's marketing programs. Substantially all product categories distributed by the Company are available from a number of suppliers and the Company is not dependent on any single source of supply for any product category. The Company's largest supplier accounted for approximately 4.5% of total purchases in fiscal 1995. 29 The Company has positioned itself to respond to regional and local customer preferences for natural products by decentralizing the majority of its purchasing decisions for all products except bulk commodities. The Company believes that regional buyers are best suited to identify and to respond to local demands and preferences. Although each of the Company's regions is responsible for placing its own orders and can select the products that it believes will most appeal to its customers, each region is required to participate in Company-wide purchasing programs that enable it to take advantage of the Company's consolidated purchasing power. For example, the Company recently created the position of National Manager of Commodity Trading to take advantage of the Company's position as the largest purchaser of bulk nuts, seeds, grains, flours and dried foods in the natural products industry. The Company's purchasing staff of approximately 44 employees cooperates closely with suppliers to provide new and existing products. The suppliers assist in training the Company's account and customer service representatives in marketing new products, identifying industry trends and coordinating advertising and other promotions. The Company maintains a comprehensive quality control assurance program. All products sold by the Company and represented as "organic" are required to be certified as such by an independent third-party agency. The Company maintains current certification affidavits on all organic commodities and produce in order to verify the authenticity of the product. All potential vendors of organic products are required to provide such third-party certification before they are approved as a supplier to the Company. In addition, the Company has secured the services of FDA counsel to audit all labels, packaging, ingredient lists and product claims relating to products offered by the Company to ensure that all products meet current FDA requirements. The Company believes that it is the only natural products distributor which has performed such an audit to date. DISTRIBUTION The Company maintains five distribution centers located in Auburn, California; Denver, Colorado; Dayville, Connecticut; Atlanta, Georgia; and Seattle, Washington. The Company has recently expanded its Connecticut headquarters from 165,000 to 245,000 square feet and significantly expanded its capacity to store frozen foods. The Company is planning to build a new facility in Colorado which, at 200,000 square feet, will be twice the size of its current facility and which is expected to be operational during the second half of calendar 1997. The Company intends to replace its 40,000 square foot auxiliary storage facility in Sacramento, California with an 80,000 square foot storage facility located adjacent to its Auburn, California distribution center, which is expected to be substantially complete by late calendar 1997. In addition, the Company operates satellite staging facilities in the Philadelphia, Pennsylvania and greater Jacksonville, Florida areas. These satellite facilities serve as transfer points for products, trucks and drivers and ensure faster service to markets located more than five hours driving distance from the Georgia and Connecticut distribution centers. 30 [Graphic consists of a map of the United States which indicates the geographic areas served by Cornucopia, Dayville; Cornucopia, Atlanta; Rainbow, Denver; Mountain People's, Seattle; and Mountain People's, Auburn.] The five distribution centers, two satellite staging facilities and one auxiliary storage facility have a total of approximately 805,000 square feet of space. Each distribution center contains dry, refrigerated and frozen storage areas as well as office space. In total, the Company's facilities encompass approximately 652,200 square feet of dry storage space, 40,700 square feet of refrigerated space and 44,700 square feet of frozen storage space, with the remainder used as office space for the Company's regional purchasing, sales and administrative operations. The Company believes that it will be able to expand or replace its facilities as and when needed to accommodate the Company's growth. The Company has a staff of approximately 662 persons engaged in operations. The Company has carefully chosen the sites for its distribution centers to provide direct access to its regional markets. This proximity allows the Company to reduce its transportation costs compared to competitors that seek to service their customers from locations that are often hundreds of miles away. The Company believes that it incurs lower inbound freight expense than its regional competitors because its national presence allows it to buy full and partial truckloads of products which, if necessary, it can backhaul using the Company's own trucks between its distribution centers and satellite staging facilities. Many of the Company's competitors must employ outside consolidation services and pay higher carrier transportation fees to move products from other regions. In addition, overstocks and inventory inbalances at one distribution center may be redistributed by the Company to another distribution center where products may be sold prior to their expiration date. Products are delivered to the Company's distribution centers primarily by its leased fleet of trucks, contract carriers and the suppliers themselves. The Company leases most of its trucks from Ryder Truck Leasing, which maintains facilities on some of the Company's premises for the maintenance and service of these vehicles, and a lesser number of its trucks from regional firms that offer competitive services. The Company ships orders for supplements or for items that are destined for areas outside regular delivery routes through the United Parcel Service and other independent carriers. Deliveries to areas outside the continental United States are shipped by ocean-going containers on a weekly basis. 31 SYSTEMS The Company has made a significant investment in designing its proprietary information and warehouse management systems. The Company continually evaluates and upgrades its management information systems based on the best practices at its regional operations in order to make the systems more efficient, cost effective and responsive to customer needs. The Company has installed its warehouse management systems at its Connecticut and Georgia facilities. These systems include radio frequency-based inventory control, paperless receiving, engineered labor standards, computer-assisted order processing and slot locator/retrieval assignment systems. At the receiving docks, warehouse workers attach computer-generated, preprinted locator tags to all inbound products. These tags contain the expiration date, location, quantity, lot number and other information in bar code format. To process customer orders, warehouse workers use hand-held radio frequency devices to scan the UPC bar code as a product is removed from its assigned slot. Similarly, customer returns are processed by scanning the UPC bar codes. The Company also employs a management information system that enables it to lower its inbound transportation costs by making optimum use of its own fleet of trucks or by consolidating deliveries into full truckloads. Orders from multiple suppliers and multiple distribution centers are consolidated into single truckloads for efficient use of available vehicle capacity and return- haul trips. The Company is presently reviewing the warehouse management systems in operation in its Colorado, California and Washington facilities in a continuing effort to improve its operations. The Company intends to install its information and warehouse management system in stages, with installation commencing at its Colorado facility in early calendar 1997 and at its California and Washington facilities in late calendar 1997. RETAIL OPERATIONS The Company's Natural Retail Group ("NRG") currently owns and operates eight retail natural food stores located in Connecticut, Florida, Maryland, Massachusetts and New York. The Company's retail strategy is to selectively acquire existing stores that meet the Company's strict criteria in categories such as sales and profitability, growth potential, merchandising and management. Generally, the Company will not purchase stores that directly compete with primary retail customers of its distribution business. The Company believes its retail stores have a number of advantages over their competitors, including the financial strength and marketing expertise provided by the Company, the purchasing power resulting from group purchasing by stores within NRG and the breadth of their product selection. The Company's strategy for future retail growth is to identify and acquire additional retail stores as opportunities arise and to focus on increased sales of higher margin nutritional supplements while maintaining emphasis on the sale of organic produce and delicatessen and bakery products and consumer education. The Company's retail stores offer products in each of the six categories offered by the Company's distribution business as well as produce, meat, poultry, fresh seafoods, baked goods and other prepared foods. These additional product offerings range between 20% to 40% of the total sales of a typical NRG store. NRG focuses its marketing efforts on consumer education and store promotion. NRG provides consumer education through informational brochures, promotional flyers, seminars, workshops, cooking classes and product samplings. In its image advertising, NRG emphasizes its knowledgeable and courteous staff, broad selection of natural products, environmental stewardship and frequent price promotions. 32 The name and location of each of NRG's stores and their approximate square feet and lease expiration dates are as follows:
STORE/LOCATION DATE OF ACQUISITION SQUARE FEET LEASE EXPIRATION -------------- ------------------- ----------- ---------------- Health Hut..................... April 1993 4,100 May 2000 Valley Stream, NY Cheese and Stuff............... May 1993 10,000 March 2005 Hartford, CT Food for Thought............... July 1993 12,000 November 2005 Norwalk, CT Village Market................. November 1993 5,875 May 2001 Pikesville, MD Natureworks.................... January 1994 8,500 December 2001 Melbourne, FL Railway Market................. April 1994 5,000 March 1999 Easton, MD Cape Cod Natural Foods......... July 1994 4,500 December 2002 Centerville, MA SunSplash Market............... April 1995 5,750 July 1999 Naples, FL
As both a distributor to its retail stores and a retailer, a number of advantages are made available to the Company, including the ability to: (i) control the purchases made by these stores; (ii) expand the distribution of and marketing for its private label products within these stores; (iii) expand the number of high-growth, high-margin product categories such as produce and prepared foods within these stores; and (iv) keep current with the retail marketplace which allows it to better serve its distribution customers. In addition, as the primary natural products distributor to its retail locations, the Company expects to realize significant economies of scale and operating and buying efficiencies. As an operator of retail stores, the Company also has the ability to test market select products prior to offering them nationally, which allows the Company to evaluate consumer reaction to the product without incurring significant inventory risk. The Company is able to test new marketing and promotional programs within its stores prior to offering them to a broader customer base. COMPETITION The natural products distribution industry is highly competitive. The industry has been characterized in recent years by significant consolidation and the emergence of large competitors. The Company's major national competitor is Tree of Life Distribution, Inc. (a subsidiary of Koninklijke Bolswessanen N.V.) and its major regional competitors are Stow Mills, Inc. in the eastern United States and Nature's Best, Inc. in the western United States. The Company also competes with numerous smaller regional, local and specialty distributors of natural products. In addition, the Company competes with national, regional and local distributors of conventional groceries and, to a lesser extent, companies which distribute to their own retail facilities. There can be no assurance that distributors of conventional groceries will not increase their emphasis on natural products and more directly compete with the Company or that new competitors will not enter the market. Many of these distributors may have been in business longer, may have substantially greater financial and other resources than the Company and may be better established in their markets. There can be no assurance that the Company's current or potential competitors will not provide services comparable or superior to those provided by the Company or adapt more quickly than the Company to evolving industry trends or changing market requirements. It is also possible that alliances among competitors may emerge and rapidly acquire significant market share. Increased competition may result in price reductions, reduced gross margins and loss of market share, any of which could materially adversely affect the Company's business, financial condition or results of operations. 33 The Company believes that distributors in the natural products industry compete principally on product quality and depth of inventory selection, price and quality of customer service. Although the Company believes it currently competes effectively with respect to each of these factors, there can be no assurance that the Company will be able to maintain its competitive position against current and potential competitors. The Company's retail stores compete against other natural products outlets, conventional supermarkets and specialty stores. The Company believes that retailers of natural products compete principally on product quality and selection, price, knowledge of personnel and convenience of location. REGULATION The Company's operations and products are subject to regulation by state and local health departments, the U.S. Department of Agriculture and the Food and Drug Administration, which generally impose standards for product quality and sanitation. The Company's facilities generally are inspected at least once a year by state or federal authorities. The Company's trucking operations are also subject to regulation by the U.S. Department of Transportation and the U.S. Federal Highway Administration. Federal, state and local provisions which have been enacted or adopted regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, generally are not directly applicable to the Company. Certain of the Company's distribution facilities have above-ground storage tanks for diesel fuel and other petroleum products, which are subject to laws regulating such storage tanks. The Company believes that it is in compliance in all material respects with all applicable government regulations. PROPERTIES AND EQUIPMENT The Company owns its corporate offices and distribution center in Dayville, Connecticut which was recently expanded from 165,000 to 245,000 square feet. The Company leases its remaining distribution centers, two satellite staging areas and one auxiliary storage facility. Each distribution center contains dry, refrigerated and frozen storage areas and office space for the purchasing, sales and administrative operations of the facility. The following chart provides information on the approximate square footage of each of the Company's distribution centers and staging facilities and the expiration date of the lease for the facility (other than Dayville, Connecticut, which is owned by the Company):
SIZE (IN LEASE LOCATION SQUARE FEET) EXPIRATION -------- ------------ -------------- Atlanta, Georgia.................................. 175,000 March 1999 Auburn, California................................ 150,000 October 2010 Dayville, Connecticut............................. 245,000 Not Applicable Denver, Colorado.................................. 91,000 July 2000 Seattle, Washington............................... 100,000 February 2001 Jacksonville, Florida............................. 3,000 December 1996 Philadelphia, Pennsylvania........................ 2,800 December 1996 Sacramento, California............................ 40,000 October 1996
The Company plans to build a new facility in Denver which, at 200,000 square feet, will be twice the size of its current facility. The new Denver facility is expected to be operational in the second half of calendar 1997. The Company intends to replace its 40,000 square foot auxiliary storage facility in Sacramento, California with an 80,000 square foot storage facility located adjacent to its Auburn, California distribution center. Construction of the new leased space is expected to be substantially complete by late calendar 1997. The Company believes that it will be able to continue to expand or replace its facilities as and when needed to accommodate the Company's future growth. 34 Equipment and machinery owned by the Company and used in its operations consist primarily of electronic data processing and material handling equipment, racking, coolers and freezers. The Company leases a majority of its trucks and trailers under master lease agreements with Ryder Truck Leasing. Ryder is responsible for all truck maintenance costs. EMPLOYEES As of July 31, 1996, the Company had approximately 1,188 full-time employees, including approximately 80 in finance and administration, 102 in sales and marketing, 81 in customer service, 263 in the retail stores and 662 in operations. Approximately 75 of these employees are covered by a collective bargaining agreement with Teamsters Local 117, Seattle, Washington which will expire in July 1997. The Company has never experienced a work stoppage by its unionized employees. The Company believes that its relationships with its employees are good. LEGAL PROCEEDINGS From time to time, the Company is involved in routine litigation which arises in the ordinary course of its business. There are no pending material legal proceedings to which the Company is a party or to which the property of the Company is subject. 35 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The executive officers and directors of the Company and their ages as of July 31, 1996 are as follows:
NAME AGE POSITION ---- --- -------- 42 Chairman of the Board, President and Chief Norman A. Cloutier(1)....... Executive Officer Vice Chairman of the Board and Executive Michael S. Funk............. 42 Vice President Chief Financial Officer, Director, Treasurer Steven H. Townsend.......... 43 and Secretary Daniel V. Atwood............ 38 President of NRG, Vice President, Assistant Treasurer, Assistant Secretary and Director of the Company Andrea R. Hendricks......... 36 Director of Purchasing of Mountain People's and Director of the Company Kevin T. Michel............. 38 Chief Financial Officer of Mountain People's and Director of the Company Richard J. Williams(1)(2)... 35 Director Thomas B. Simone(3)......... 54 Director
- -------- (1) Member of the Audit Committee. (2) Member of the Compensation Committee. (3) To become a Director and a member of the Audit and Compensation Committees after completion of the Offering. NORMAN A. CLOUTIER founded the Company in 1978. Mr. Cloutier has been Chairman of the Board, President and Chief Executive Officer of the Company since its inception. Mr. Cloutier previously operated a natural products retail store in Coventry, Rhode Island from 1977 to 1978. MICHAEL S. FUNK has been Vice Chairman of the Board of the Company since February 1996 and Executive Vice President of the Company since August 1996. Since July 1976, Mr. Funk has been President of Mountain People's. Mr. Funk has served on the Board of Directors since February 1996. STEVEN H. TOWNSEND has been Vice President-Finance and Administration of the Company since 1983 and Chief Financial Officer of the Company since August 1988. From 1980 to 1983, Mr. Townsend was Director of Finance for the Town of Mansfield, Connecticut. From 1976 to 1980, Mr. Townsend was an Accounting Supervisor at Harris Corporation, a manufacturer of printing presses and related products. Mr. Townsend has served on the Board of Directors since August 1988. DANIEL V. ATWOOD has been President of NRG and Vice President of the Company since August 1995. Mr. Atwood was Vice President-Marketing of the Company from January 1984 to August 1995. From 1979 to 1982, Mr. Atwood was a Store Manager at Bread & Circus Supermarkets, a chain of independent natural products stores. Mr. Atwood has served on the Board of Directors since August 1988. ANDREA R. HENDRICKS has been Director of Purchasing for Mountain People's since January 1990. Ms. Hendricks oversees the purchasing, pricing and promotional departments for the Company's western region. Ms. Hendricks has served on the Board of Directors since February 1996. KEVIN T. MICHEL has been the Chief Financial Officer of Mountain People's since January 1995. From January 1992 until January 1995, Mr. Michel held several different accounting and finance positions at Mountain People's. From March 1991 until December 1991, Mr. Michel was the sole proprietor of a restaurant. Mr. Michel has served on the Board of Directors since February 1996. 36 RICHARD J. WILLIAMS has been a Managing Director of Triumph Capital Group, Inc. since March 1990. Mr. Williams has served on the Board of Directors since November 1993. THOMAS B. SIMONE has agreed to join the Company's Board of Directors after the completion of the Offering. Since April 1994, Mr. Simone has served as President and Chief Executive Officer of Simone & Associates, a healthcare and natural products investment and consulting company. From February 1991 to April 1994, Mr. Simone was President of McKesson Drug Company. Mr. Simone also serves on the Board of Directors of ECO-DENT International, Inc. and IBV Technologies, Inc. The Board of Directors is divided into three classes, each of whose members serves for a staggered three-year term. The Board consists of two Class I Directors (Daniel V. Atwood and Andrea R. Hendricks), two Class II Directors (Steven H. Townsend and Kevin T. Michel) and three Class III Directors (Norman A. Cloutier, Michael S. Funk and Richard J. Williams). Thomas B. Simone will become a Class I Director when he joins the Board after completion of the Offering. At each annual meeting of stockholders, a class of directors is elected for a three-year term to succeed the directors or director of the same class whose terms are then expiring. The terms of the Class I Directors, Class II Directors and Class III Directors will expire upon the election and qualification of successor directors at the annual meeting of stockholders to be held during the calendar years 1997, 1998 and 1999, respectively. Under a Note and Warrant Purchase Agreement, dated November 17, 1993, between the Company and Triumph-Connecticut Limited Partnership ("Triumph"), Triumph loaned $6,500,000 to the Company and received a warrant to purchase 1,166,660 shares of the Company's Common Stock at an exercise price of $0.00018 per share, subject to certain repurchase rights held by the Company. The Company has agreed to use its best efforts to have a nominee designated by Triumph elected to the Company's Board of Directors and any executive or similar committee so long as (i) any amount is due Triumph by the Company under this agreement, (ii) Triumph holds a warrant for shares of the Company's stock or (iii) Triumph holds at least 137,500 shares of the Company's Common Stock. Mr. Williams is a Managing Director of Triumph. See "Certain Transactions." Each officer serves at the discretion of the Board of Directors. There are no family relationships among any of the directors and executive officers of the Company. BOARD COMMITTEES After the completion of the Offering, the Board of Directors plans to appoint a Compensation Committee composed of Thomas B. Simone and Richard J. Williams which will make recommendations concerning salaries and incentive compensation for employees of and consultants to the Company and administer and grant stock options pursuant to the Company's 1996 Stock Option Plan. The Board of Directors also has an Audit Committee, which, after completion of the Offering, will consist of Norman A. Cloutier, Thomas B. Simone and Richard J. Williams, which reviews the results and scope of the audit and other services provided by the Company's independent public accountant. DIRECTOR COMPENSATION The directors are reimbursed for expenses incurred in connection with their attendance at Board and committee meetings but do not receive any other cash compensation in connection with their services on the Board. In July 1996, the Board of Directors awarded a non-statutory stock option under the Company's 1996 Stock Option Plan to Richard J. Williams to purchase 16,500 shares of Common Stock in consideration for his services on the Company's Board of Directors. This option has an exercise price of $9.64 per share and vests fully three years from the date of grant. 37 EXECUTIVE COMPENSATION The following table sets forth the compensation for the twelve months ended July 31, 1996 of the Company's Chief Executive Officer and its next three most highly compensated executive officers during the twelve months ended July 31, 1996 (the Chief Executive Officer and such other executive officers are hereinafter referred to as the "Named Executive Officers"): SUMMARY COMPENSATION TABLE
LONG-TERM ANNUAL COMPENSATION COMPENSATION -------------------- ------------ AWARDS ------------ SECURITIES UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS COMPENSATION(1) - --------------------------- ---------- --------- ------------ --------------- Norman A. Cloutier........... $ 135,460 $ 28,750 137,500 $26,616 President and Chief Executive Officer Michael S. Funk.............. 98,750 0 74,250 1,013 Executive Vice President Steven H. Townsend........... 91,175 19,170 68,750 17,574 Chief Financial Officer, Treasurer and Secretary Daniel V. Atwood............. 93,040 17,300 44,000 15,106 President of NRG, Vice President, Assistant Treasurer and Assistant Secretary
- -------- (1) Includes the value of Company contributions to the 401(k) accounts of the Named Executive Officers ($1,995 for Mr. Cloutier, $1,013 for Mr. Funk and $1,340 for Mr. Townsend) as well as the value of the shares allocated to the accounts of the Named Executive Officers under the Company's Employee Stock Ownership Plan at a fair market value per share of $9.64 on July 31, 1996 (approximately 2,554 shares for Mr. Cloutier, 1,684 shares for Mr. Townsend and 1,567 shares for Mr. Atwood). EMPLOYMENT AGREEMENTS The Company is a party to an employment agreement with Mr. Funk covering the period commencing February 20, 1996 and ending December 31, 2000, subject to extension for another five-year term at the election of Mr. Funk. Under the agreement, Mr. Funk serves as President of Mountain People's, Executive Vice President of the Company and Vice Chairman of the Company's Board of Directors. Mr. Funk is entitled to base compensation at least equal to that paid to the President of the Company and other compensation in an amount such that Mr. Funk's total annual compensation is at least equal to 90% of the President's total annual compensation. In no event may Mr. Funk's annual compensation be less than $130,000. Mr. Funk may terminate the agreement upon 90 days' written notice to the Company. The Company may terminate the agreement only for cause or in the event of Mr. Funk's death or disability. The agreement includes a non- competition clause under which Mr. Funk agreed that during the term of the agreement and for three years thereafter he will not, directly or indirectly, participate in (i) a wholesale distribution business in competition with the Company or Mountain People's or (ii) a retail business in competition with the Company or any of its subsidiaries which is located within 15 miles of a retail store owned by the Company or one of its subsidiaries; provided, however, that Mr. Funk's management and ownership of an equity interest in Mountain People's Wine Distribution, Inc. ("MPWD") will not be deemed a breach of this covenant unless MPWD distributes products east of the Mississippi River or engages in a business other than the distribution and sale of wine and alcoholic beverages. The Company is also a party to a non-competition agreement with Mr. Cloutier. The non-competition agreement is effective until the earliest to occur of: (i) November 16, 1998, (ii) the termination of Mr. Cloutier's employment by the Company without cause or (iii) the first anniversary of (A) Mr. Cloutier's voluntary termination 38 of employment with the Company or (B) the termination of Mr. Cloutier's employment by the Company for cause. During the effective period of this agreement, Mr. Cloutier may not: (i) within 25 miles of any location in which the Company, or one of its affiliates, is doing business, operate or participate in any business involving the retail or wholesale distribution of natural food items or (ii) induce any employee of the Company to terminate employment with the Company or to engage in a business which competes with the Company. EMPLOYEE STOCK OWNERSHIP PLAN In November 1988, the Company adopted an ESOP for the benefit of eligible employees. Employees who have attained the age of 21 and have completed 1,000 hours of service within one year are eligible to participate in the ESOP. In connection with the formation of the ESOP, the ESOT acquired an aggregate of 2,200,000 shares of Common Stock from the Initial Stockholders in exchange for the ESOT Note in the aggregate principal amount of $4,080,000, of which $3,073,600 was outstanding as of July 31, 1996, exclusive of interest. Under the ESOT Note, the ESOT is required to pay interest and repay principal to the Initial Stockholders on a monthly basis through May 2015, the maturity date of the ESOT Note. The Company makes monthly contributions to the ESOT in amounts determined by the Board, and such contributions are used to repay the principal and interest due under the ESOT Note. The ESOT Note is secured by a pledge of the shares held by the ESOT and guaranteed by the Company. Each year shares held in the ESOT are released from the pledge in proportion to the principal paid down on the ESOT Note during the year. The released shares are allocated among the ESOP accounts of eligible employees, including employees of the Company's subsidiaries which have adopted the ESOP, in proportion to their covered compensation. To date, approximately 550,000 shares have been allocated or released for allocation to employees, and allocations are projected to continue at the rate of 88,000 shares per year. The shares in an employee's account generally vest after five years of qualified employment or upon death or disability. Vested ESOP benefits are distributable following the death or termination of employment of a participating employee. Participating employees can elect to receive their ESOP benefits in the form of Common Stock. The Company has normally purchased from the ESOT the shares allocated to former employees' ESOP accounts at their fair market value, and then distributed cash to the employees. Common Stock distributed to former employees from the ESOT is subject to a limited put option which allows the holder to require the Company to repurchase the shares for a period of sixty days at their appraised fair market value at the date of distribution, and for another sixty days beginning after the appraised fair market value of the Common Stock has been established for the Company's taxable year following the year in which the distribution occurred. The put option ceases when Common Stock distributed under the ESOP is (i) listed on a national securities exchange or traded in the over-the-counter market and (ii) is freely tradeable. Common Stock held in the ESOT is voted by the Trustee, except that ESOP participants are entitled to direct the Trustee as to how to vote shares allocated to their ESOP accounts on any matter which involves a corporate merger, consolidation, recapitalization, reclassification, liquidation, sale of substantially all of the Company's assets or other similar major corporate transactions. Since November 1993, the Trustee of the ESOT has been Robert G. Huckins, an independent trustee and financial consultant with Smith Barney Inc., one of the underwriters participating in the Offering. After completion of the Offering, the Company intends to amend the ESOP to (i) provide that ESOP benefits may only be paid in the form of Common Stock and (ii) eliminate the limited put option. 1996 STOCK OPTION PLAN The Company's 1996 Stock Option Plan (the "1996 Option Plan") was adopted by the Board of Directors on July 29, 1996 and approved by the stockholders of the Company on July 31, 1996. The 1996 Option Plan provides for the grant of stock options to employees, officers and directors of, and consultants or advisers to, the Company and its subsidiaries. Under the 1996 Option Plan, the Company may grant options that are intended to qualify as incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") ("incentive stock options"), or options not intended to qualify as incentive stock options ("non-statutory options"). Incentive stock options may only be granted to employees of the Company. A total of 1,375,000 shares of Common Stock may be issued upon the exercise of options granted under the 1996 Option Plan. 39 The 1996 Option Plan is administered by the Compensation Committee of the Board of Directors. Subject to the provisions of the 1996 Option Plan, the Compensation Committee has the authority to select the employees to whom options are granted and determine the terms of each option, including (i) the number of shares of Common Stock subject to the option, (ii) when the option becomes exercisable, (iii) the option exercise price, which, in the case of incentive stock options, must be at least 100% (110% in the case of incentive stock options granted to a stockholder owning in excess of 10% of the Company's Common Stock) of the fair market value of the Common Stock as of the date of grant, and (iv) the duration of the option (which, in the case of incentive stock options, may not exceed ten years). Payment of the option exercise price may be made in cash, shares of Common Stock, a combination of cash or stock or by any other method (including delivery of a promissory note payable on terms specified by the Compensation Committee) approved by the Compensation Committee consistent, as applicable, with Section 422 of the Code and Rule 16b-3 ("Rule 16b-3") under the Securities Exchange Act of 1934, as amended. Incentive stock options are not assignable or transferable except by will or the laws of descent and distribution. The Compensation Committee may, in its sole discretion, include additional provisions in any option or award granted or made under the 1996 Option Plan, including without limitation restrictions on transfer, repurchase rights, commitments to pay cash bonuses, to make, arrange for or guaranty loans or to transfer other property to optionees upon exercise of options, or such other provisions as shall be determined by the Compensation Committee, so long as not inconsistent with the 1996 Option Plan or applicable law. The Compensation Committee may also, in its sole discretion, accelerate or extend the date or dates on which all or any particular option or options granted under the 1996 Option Plan may be exercised. OPTION GRANTS IN THE TWELVE MONTHS ENDED JULY 31, 1996 AND PERIOD OPTION VALUES The following table sets forth for the Named Executive Officers certain information concerning stock options granted during the twelve months ended July 31, 1996. The Company has never granted any stock appreciation rights ("SARs").
OPTION GRANTS IN LAST FISCAL YEAR INDIVIDUAL GRANTS --------------------------------------------- POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF NUMBER OF PERCENT OF STOCK PRICE SECURITIES TOTAL OPTIONS APPRECIATION FOR UNDERLYING GRANTED TO EXERCISE OPTION TERM(3) OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ------------------------------ NAME GRANTED(1) FISCAL YEAR SHARE(2) DATE 0% 5% 10% ---- ---------- ------------- --------- ---------- -------- ---------- ---------- Norman A. Cloutier...... 137,500 42.4% $6.38 7/31/2006 $447,500 $1,280,750 $2,559,000 Michael S. Funk......... 74,250 22.9 6.38 7/31/2006 241,650 691,605 1,381,860 Steven H. Townsend...... 68,750 21.2 6.38 7/31/2006 223,750 640,375 1,279,500 Daniel V. Atwood........ 44,000 13.5 6.38 7/31/2006 143,200 409,840 818,880
- -------- (1) All options vested in full upon the date of grant. (2) The Board of Directors of the Company determined that the fair market value of the Common Stock was $9.64 per share on the date of grant. The Board of Directors determined the fair market value based on various factors, including the illiquid nature of an investment in the Company's Common Stock, the Company's historical financial performance, the Company's future prospects and the price paid for securities of the Company in arms-length transactions with third parties. The Company currently has no plans to grant options at less than 85% of the fair value of the Common Stock. (3) Amounts represent hypothetical gains that could be achieved for the respective options if exercised at the end of the option term. These gains are based on assumed rates of stock price appreciation of 0%, 5% and 10% compounded annually from the date the respective options were granted to their expiration date. These assumptions are not intended to forecast future appreciation of the Company's stock price. The potential realizable value computation does not take into account federal or state income tax consequences of option exercises or sales of appreciated stock. 40 The following table sets forth certain information concerning the number and value of unexercised options held by each of the Named Executive Officers on July 31, 1996. No options or SARs were exercised during the twelve months ended July 31, 1996 by any of the Named Executive Officers. FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END(1) NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE ---- ------------------------- ------------------------- Norman A. Cloutier......... 137,500/0 $448,250/$0 Michael S. Funk............ 74,250/0 242,055/ 0 Steven H. Townsend......... 68,750/0 224,125/ 0 Daniel V. Atwood........... 44,000/0 143,440/ 0
- -------- (1) Based on the fair market value of the Common Stock as of July 31, 1996 ($9.64 per share), as determined by the Board of Directors, less the option exercise price. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Following the consummation of the Offering, the members of the Company's Compensation Committee will be Richard J. Williams and Thomas B. Simone. No executive officer of the Company has served as a director or member of the Compensation Committee (or other committee serving an equivalent function) of any other entity, whose executive officers served as a director of, or a member of, the Compensation Committee of the Company. 41 CERTAIN TRANSACTIONS In connection with the establishment of the ESOP in November 1988, Norman A. Cloutier, Steven H. Townsend, Daniel V. Atwood and Theodore Cloutier contributed an aggregate of 2,200,000 shares of the Company's Common Stock to the ESOT in exchange for a note (the "ESOT Note") from the ESOT in the original amount of $4,080,000, the largest amount of indebtedness outstanding under the ESOT Note. The ESOT Note is secured by a pledge of the shares. The Company guarantees payment by the ESOT of the ESOT Note. The ESOT Note is payable in equal monthly installments of principal and interest from December 1988 to May 2015. Interest is charged on the ESOT Note at a rate of 10% per annum. The amount outstanding on the ESOT Note as of July 31, 1996 was $3,073,600. Under a Note and Warrant Purchase Agreement, dated November 17, 1993, Triumph loaned $6,500,000, evidenced by a note (the "Triumph Note"), to the Company. The aggregate indebtedness under the Triumph Note was $6,500,000 on July 31, 1996, which is the largest outstanding indebtedness ever on the Triumph Note. The Triumph Note matures on October 31, 1998. The current interest rate on the Triumph Note is 10% and will increase 1% on each November 1 through the maturity date of the note. Under the Note and Warrant Purchase Agreement, Triumph has the option, which it has exercised, to have a portion of the proceeds of the Offering designated to repay the Triumph Note. The Company's obligations under the Triumph Note are guaranteed by NRG. In connection with this financing, Triumph received a warrant to purchase 1,166,660 shares, as adjusted for stock splits, distributions and other dilutive actions taken by the Company, of the Company's Common Stock at an exercise price of $.00018 per share. The warrant may be exercised until the later of (i) repayment of the Triumph Note or (ii) October 31, 2000. Triumph currently intends to exercise the warrant in part to purchase shares of the Company's Common Stock. If the Company completes the Offering and repays the Triumph Note before November 17, 1996, the Company has the right to repurchase from Triumph the right to purchase an aggregate of 380,930 shares of Common Stock at a purchase price of $0.00018 per share. If the Offering is completed after November 17, 1996 but before November 17, 1997, this right of repurchase will cover the right to purchase 196,075 shares of Common Stock. The Company currently intends to exercise this repurchase right. The Company has agreed to use its best efforts to have a nominee designated by Triumph elected to the Company's Board of Directors and any executive or similar committee so long as (i) any amount is due to Triumph by the Company under the Note and Warrant Purchase Agreement, (ii) Triumph holds a warrant for the purchase of shares of the Company's stock or (iii) Triumph holds at least 137,500 shares of the Company's Common Stock. Mr. Richard J. Williams, a director of the Company, is a Managing Director of Triumph. The Company intends to use a portion of the net proceeds of the Offering to repay in full the outstanding indebtedness underlying the Triumph Note. See "Use of Proceeds" and "Shares Eligible for Future Sale--Registration Rights." Under a Distribution Agreement, dated August 23, 1994, between Mountain People's and Mountain People's Wine Distribution, Inc. ("MPWD"), of which Michael S. Funk is a 55% stockholder, Mountain People's distributes wine and beer for MPWD. Since the effective date of this agreement, MPWD has paid Mountain People's approximately $45,000 per year under the agreement. The terms of the Distribution Agreement will be reviewed annually. In connection with the organization of MPWD, Mountain People's loaned $46,000 to MPWD in October 1994. The loan bears interest at a rate of 8% per annum and the outstanding indebtedness under this loan as of July 31, 1996 was $46,000, the largest amount of indebtedness outstanding under this loan. Payment of this loan is due July 31, 1998. In July 1995, the Company paid Triumph $100,000 for financial advisory services rendered by Triumph in connection with the Company's acquisition of Rainbow. In November 1995, Mountain People's loaned $150,000 to Michael S. Funk. The loan was not made in connection with a particular transaction. The loan is payable in 130 equal monthly installments of principal and interest beginning in February 1996. The largest amount of indebtedness outstanding under the loan was $150,000 and as of July 31, 1996 the indebtedness outstanding under the loan was $140,330. This loan is evidenced by a promissory note and bears interest at the rate of 7% per annum. 42 On February 20, 1996, the Company acquired Mountain People's through the merger of a wholly owned subsidiary of the Company with and into Mountain People's, whereupon Mountain People's became a wholly owned subsidiary of the Company. In connection with the merger with Mountain People's, the Company issued 3,213,100 shares of its Common Stock to the Funk Family 1992 Revocable Living Trust, dated August 17, 1992, in exchange for all of the outstanding stock of Mountain People's. Michael S. Funk, Executive Vice President and a director of the Company, and his wife, Judith A. Funk, are the trustees of the Funk Family 1992 Revocable Living Trust. The consideration paid by the Company for Mountain People's was established by the parties through arms-length negotiations and was based on an estimate of the value of Mountain People's as a going concern. Steven H. Townsend is a stockholder in three natural products retail stores (Food Farmacy, Ltd. (45% stockholder), Food Farmacy, Inc. (75% stockholder), and The Farmacy, Inc. (50% stockholder)) which, in the aggregate, purchased approximately $350,000 of natural products from the Company in each of the past three years at published catalog prices. The Company has adopted a policy providing that all material transactions between the Company and its officers, directors and other affiliates must (i) be approved by a majority of the members of the Company's Board of Directors and by a majority of the disinterested members of the Company's Board of Directors and (ii) be on terms no less favorable to the Company than could be obtained from unaffiliated third parties. In addition, this policy will require that any loans by the Company to its officers, directors or other affiliates be for bona fide business purposes only. 43 PRINCIPAL AND SELLING STOCKHOLDERS The following table sets forth certain information regarding the beneficial ownership of the Common Stock of the Company as of July 31, 1996, and as adjusted to reflect the sale of the shares of Common Stock offered hereby, by (i) each person or entity known to the Company to own beneficially more than 5% of the Company's Common Stock, (ii) each of the Company's directors, (iii) each of the Named Executive Officers and (iv) all directors and executive officers as a group.
PERCENTAGE OF SHARES SHARES BENEFICIALLY OWNED (1)(2) BENEFICIALLY ------------------------------ NAME AND ADDRESS OF BENEFICIAL OWNER OWNED BEFORE OFFERING AFTER OFFERING - ------------------------------------ ------------ --------------- -------------- 5% STOCKHOLDERS Norman A. Cloutier(3).............. 3,350,600 37.9% c/o United Natural Foods, Inc. 260 Lake Road Dayville, CT 06214 Michael S. Funk(4)................. 3,287,350 37.5% c/o Mountain People's Warehouse Incorporated 12745 Earhart Avenue Auburn, CA 95602 Funk Family 1992 Revocable Living 3,213,100 37.0% Trust(5)........................... c/o Michael S. Funk Mountain People's Warehouse Incorporated 12745 Earhart Avenue Auburn, CA 95602 Employee Stock Ownership Trust(6).. 2,179,595 25.1% Robert G. Huckins, Trustee c/o Smith Barney Inc. 700 Fleet Center 50 Kennedy Plaza Providence, RI 02903-2396 Triumph-Connecticut Limited 1,166,660 11.8% Partnership(7)..................... 60 State Street 21st Floor Boston, MA 02109 Richard J. Williams(8)............. 1,166,660 11.8% c/o Triumph-Connecticut Limited Partnership 60 State Street 21st Floor Boston, MA 02109 OTHER NAMED EXECUTIVE OFFICERS, OTHER DIRECTORS AND DIRECTOR NOMINEE Steven H. Townsend(9).............. 123,750 1.4% Daniel V. Atwood(10)............... 75,900 * Andrea R. Hendricks................ 0 0 Kevin T. Michel.................... 0 0 Thomas B. Simone................... 0 0 All executive officers, directors and director nominee, as a group (8 persons)....................... 8,004,260 78.6%
44 - -------- * Less than 1% (1) The number of shares beneficially owned by each stockholder is determined under rules promulgated by the Securities and Exchange Commission, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which the individual has sole or shared voting power or investment power and also any shares which the individual has the right to acquire within 60 days after July 31, 1996 through the exercise of any stock option or other right. The inclusion herein of such shares, however, does not constitute an admission that the named stockholder is a direct or indirect beneficial owner of such shares. Unless otherwise indicated, each person or entity named in the table has sole voting power and investment power (or shares such power with his or her spouse) with respect to all shares of capital stock listed as owned by such person or entity. (2) Assumes no exercise of the Underwriters' over-allotment option to purchase up to an aggregate of shares of Common Stock from the Funk Family 1992 Revocable Living Trust ( shares) and Triumph ( shares) ("Selling Stockholders"). If the Underwriters over-allotment is exercised in full, the Funk Family 1992 Revocable Living Trust and Triumph will beneficially hold and shares, or % and % of the shares outstanding after the Offering, respectively. (3) Includes 137,500 shares issuable within the 60-day period following July 31, 1996 pursuant to the exercise of stock options. Does not include 30,085 shares held by the ESOT and allocated to Mr. Cloutier under the ESOP. (4) Includes 3,213,100 shares held by the Funk Family 1992 Revocable Living Trust, of which Michael and Judith Funk are the Co-Trustees. Includes 74,250 shares issuable within the 60-day period following July 31, 1996 pursuant to the exercise of stock options. (5) Michael S. Funk and his wife Judith A. Funk are Co-Trustees of the Funk Family 1992 Revocable Living Trust and share investment and voting control of the shares held by the trust. (6) Common Stock held by the ESOT is voted by the Trustee of the ESOT (the "Trustee"), except that participants in the ESOP are entitled to direct the Trustee as to how to vote shares allocated to their ESOP accounts on any matter which involves a corporate merger, consolidation, liquidation, sale of substantially all of the Company's assets or other similar major corporate transactions. (7) Consists of 1,166,660 shares issuable within the 60-day period following July 31, 1996 pursuant to the exercise of an outstanding warrant. The warrant may be exercised until the later of (i) repayment of the Triumph Note or (ii) October 31, 2000. If the Company completes the Offering and repays the Triumph Note before November 17, 1996, the Company has the right to repurchase from Triumph the right to purchase an aggregate of 380,930 shares of Common Stock for an exercise price of $0.00018 per share. If the Offering is completed after November 17, 1996 but before November 17, 1997, this right of repurchase will cover the right to purchase 196,075 shares of Common Stock. The sole general partner of Triumph-Connecticut Limited Partnership is Triumph-Connecticut Capital Advisors, L.P. ("Capital Advisors"). The six general partners of Capital Advisors, who share voting and investment control with respect to the stockholdings of Triumph-Connecticut Limited Partnership, are Frederick W. McCarthy, Frederick S. Moseley, E. Mark Noonan, Thomas W. James, John M. Chapman and Richard J. Williams. The general partners of Capital Advisors disclaim beneficial ownership of all the shares issuable upon exercise of the warrant, except to the extent of their proportionate pecuniary interests therein. (8) Consists of the 1,166,660 shares issuable to Triumph-Connecticut Limited Partnership, of which Mr. Williams is a general partner of its general partner. Mr. Williams disclaims beneficial ownership of these shares except to the extent of his proportionate pecuniary interest therein. (9) Includes 68,750 shares issuable within the 60-day period following July 31, 1996 pursuant to the exercise of stock options. Does not include 20,955 shares held by the ESOT and allocated to Mr. Townsend under the ESOP. (10) Includes 44,000 shares issuable within the 60-day period following July 31, 1996 pursuant to the exercise of stock options. Does not include 20,350 shares held by the ESOT and allocated to Mr. Atwood under the ESOP. 45 DESCRIPTION OF CAPITAL STOCK After giving effect to the amendment and restatement of the Company's Certificate of Incorporation (the "Restated Certificate of Incorporation") to be effected upon the closing of the Offering, the authorized capital stock of the Company will consist of 25,000,000 shares of Common Stock, $.01 par value per share, and 5,000,000 shares of Preferred Stock, $.01 par value per share. As of July 31, 1996, there were outstanding (i) 8,692,695 shares of Common Stock held by five stockholders of record, (ii) stock options for the purchase of a total of 341,000 shares of Common Stock and (iii) a warrant for the purchase of 1,166,660 shares of Common Stock. The following summary of certain provisions of the Company's Common Stock, Preferred Stock, Restated Certificate of Incorporation and Amended and Restated By-laws (the "Restated By-laws") is not intended to be complete and is qualified by reference to the provisions of applicable law and to the Company's Restated Certificate of Incorporation and Restated By-laws included as exhibits to the Registration Statement of which this Prospectus is a part. See "Additional Information." COMMON STOCK Holders of Common Stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders and do not have cumulative voting rights. Accordingly, holders of a majority of the shares of Common Stock entitled to vote in any election of directors may elect all of the directors standing for election. Holders of Common Stock are entitled to receive ratably such dividends, if any, as may be declared by the Board of Directors out of funds legally available therefor, subject to any preferential dividend rights of outstanding Preferred Stock. Upon the liquidation, dissolution or winding up of the Company, the holders of Common Stock are entitled to receive ratably the net assets of the Company available after the payment of all debts and other liabilities and subject to the prior rights of any outstanding Preferred Stock. Holders of Common Stock have no preemptive, subscription, redemption or conversion rights. The outstanding shares of Common Stock are, and the shares offered by the Company in the Offering will be, when issued and paid for, fully paid and nonassessable. The rights, preferences and privileges of holders of Common Stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of Preferred Stock which the Company may designate and issue in the future. Certain holders of Common Stock have the right to require the Company to effect the registration of their shares of Common Stock in certain circumstances. See "Shares Eligible for Future Sale." WARRANTS FOR THE PURCHASE OF COMMON STOCK In connection with a financing on November 17, 1993, Triumph received a warrant to purchase 1,166,660 shares of the Company's Common Stock at an exercise price of $0.00018 per share. The warrant may be exercised until the later of (i) repayment of the Triumph Note or (ii) October 31, 2000. Triumph currently intends to exercise the warrant in part to purchase shares of the Company's Common Stock. If the Company completes the Offering and repays the Triumph Note before November 17, 1996, the Company has the right to repurchase from Triumph the right to purchase an aggregate of 380,930 shares of Common Stock at a purchase price of $0.00018 per share. If the Offering is completed after November 17, 1996 but before November 17, 1997, this right of repurchase will cover the right to purchase 196,075 shares of Common Stock. The Company currently intends to exercise this right of repurchase. PREFERRED STOCK Under the terms of the Restated Certificate of Incorporation, the Board of Directors is authorized, subject to any limitations prescribed by law, without stockholder approval, to issue such shares of Preferred Stock in one or more series. Each such series of Preferred Stock shall have such rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, as shall be determined by the Board of Directors. The purpose of authorizing the Board of Directors to issue Preferred Stock and determine its rights and preferences is to eliminate delays associated with a stockholder vote on specific issuances. The issuance of Preferred Stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or of discouraging a third 46 party from acquiring, a majority of the outstanding voting stock of the Company. The Company has no present plans to issue any shares of Preferred Stock. DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS The Company is subject to the provisions of Section 203 of the General Corporation Law of Delaware. Section 203 prohibits a publicly held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. A "business combination" includes mergers, asset sales and other transactions resulting in a financial benefit to the interested stockholder. Subject to certain exceptions, an "interested stockholder" is a person who, together with affiliates and associates, owns, or within three years did own, 15% or more of the corporation's voting stock. The Restated Certificate of Incorporation provides for the division of the Board of Directors into three classes as nearly equal in size as possible with staggered three-year terms. See "Management." In addition, the Restated Certificate of Incorporation provides that directors may be removed only for cause by the affirmative vote of the holders of two-thirds of the shares of capital stock of the corporation entitled to vote. Under the Restated Certificate of Incorporation, any vacancy on the Board of Directors, however occurring, including a vacancy resulting from an enlargement of the Board, may only be filled by vote of a majority of the directors then in office. The classification of the Board of Directors and the limitations on the removal of directors and filling of vacancies could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from acquiring, control of the Company. The Restated Certification of Incorporation also provides that after the closing of the Offering, any action required or permitted to be taken by the stockholders of the Company at an annual meeting or special meeting of stockholders may only be taken if it is properly brought before such meeting and may not be taken by written action in lieu of a meeting. The Restated Certificate of Incorporation further provides that special meetings of the stockholders may only be called by the Chairman of the Board of Directors, the Chief Executive Officer or, if none, the President of the Company, or by the Board of Directors. Under the Restated By-Laws, in order for any matter to be considered "properly brought" before a meeting, a stockholder must comply with certain requirements regarding advance notice to the Company. The foregoing provisions could have the effect of delaying until the next stockholders meeting stockholder actions which are favored by the holders of a majority of the outstanding voting securities of the Company. These provisions may also discourage another person or entity from making a tender offer for the Company's Common Stock, because such person or entity, even if it acquired a majority of the outstanding voting securities of the Company, would be able to take action as a stockholder (such as electing new directors or approving a merger) only at a duly called stockholders meeting, and not by written consent. The General Corporation Law of Delaware provides generally that the affirmative vote of a majority of the shares entitled to vote on any matter is required to amend a corporation's certificate of incorporation or by-laws, unless a corporation's certificate of incorporation or by-laws, as the case may be, requires a greater percentage. The Restated Certificate of Incorporation and the By-Laws require the affirmative vote of the holders of at least two-thirds of the shares of capital stock of the Company issued and outstanding and entitled to vote to amend or repeal any of the provisions described in the prior two paragraphs. The Restated Certificate of Incorporation contains certain provisions permitted under the General Corporation Law of Delaware relating to the liability of directors. The provisions eliminate a director's liability for monetary damages for a breach of fiduciary duty, except in certain circumstances involving wrongful acts, such as the breach of a director's duty of loyalty or acts or omissions which involve intentional misconduct or a knowing violation of law. Further, the Restated Certificate of Incorporation contains provisions to indemnify the Company's directors and officers to the fullest extent permitted by the General Corporation Law of Delaware. The Company believes that these provisions will assist the Company in attracting and retaining qualified individuals to serve as directors. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the Common Stock is . 47 SHARES ELIGIBLE FOR FUTURE SALE Upon completion of the Offering, based upon the number of shares outstanding at July 31, 1996, there will be shares of Common Stock of the Company outstanding (exclusive of 341,000 shares covered by options and 1,166,660 shares covered by a warrant outstanding at July 31, 1996). Of these shares, the shares sold in the Offering will be freely tradeable without restriction or further registration under the Securities Act of 1933, as amended (the "Securities Act"), except that any shares purchased by "affiliates" of the Company, as that term is defined in Rule 144 ("Rule 144") under the Securities Act ("Affiliates"), may generally only be sold in compliance with the limitations of Rule 144 described below. SALES OF RESTRICTED SHARES The remaining 8,692,695 shares of outstanding Common Stock are deemed "restricted securities" under Rule 144. All of these restricted securities are subject to the 180-day lock-up agreements (the "Lock-Up Agreements") with the Representatives of the Underwriters. Upon expiration of the Lock-Up Agreements, excluding the 2,179,595 shares held by the ESOT, approximately 3,300,000 of these shares of Common Stock will be available for sale in the public market, subject to the provisions of Rule 144 under the Securities Act. The remaining 3,213,100 shares of Common Stock will be eligible for resale under Rule 144 in February 1998. Upon expiration of the Lock-Up Agreements, the 1,629,595 unreleased and unallocated shares held by the ESOT may be sold by the Trustee of the ESOT, subject to the provisions of Rule 144 under the Securities Act, and the 550,000 shares held by the ESOT and allocated to the accounts of employees to be distributed upon the employee's death or termination of employment with the Company will be eligible for resale in the public market without restriction, subject only to Rule 144 limitations applicable to employees who are Affiliates of the Company. The executive officers and directors of the Company, and certain securityholders, which executive officers, directors and securityholders in the aggregate hold all of the aforementioned 8,692,695 shares of Common Stock on the date of this Prospectus (as well as 324,500 shares of Common Stock that may be acquired pursuant to the exercise of vested options held by them as of 180 days after the date of this Prospectus and the 1,166,660 shares of Common Stock issuable upon the exercise of the warrant issued to Triumph), have agreed that, for a period of 180 days after the date of this Prospectus, they will not offer, sell, contract to sell or otherwise dispose of any shares of Common Stock, any options to purchase shares of Common Stock or any shares convertible into or exchangeable for shares of Common Stock, owned directly by such persons or with respect to which they have the power of disposition, without the prior written consent of Smith Barney Inc. In general, under Rule 144 as currently in effect, beginning 90 days after the effective date of the Registration Statement of which this Prospectus is a part, a stockholder, including an Affiliate, who has beneficially owned his or her restricted securities (as that term is defined in Rule 144) for at least two years from the later of the date such securities were acquired from the Company or, if applicable, the date they were acquired from an Affiliate, is entitled to sell, within any three-month period, a number of such shares that does not exceed the greater of 1% of the then outstanding shares of Common Stock (approximately shares immediately after the Offering) or the average weekly trading volume in the Common Stock during the four calendar weeks preceding the date on which notice of such sale was filed under Rule 144, provided certain requirements concerning availability of public information, manner of sale and notice of sale are satisfied. In addition, under Rule 144(k), if a period of at least three years has elapsed between the later of the date restricted securities were acquired from the Company or, if applicable, the date they were acquired from an Affiliate of the Company, a stockholder who is not an Affiliate of the Company at the time of sale and has not been an Affiliate of the Company for at least three months prior to the sale is entitled to sell the shares immediately without compliance with the foregoing requirements under Rule 144. The Securities and Exchange Commission has proposed an amendment to Rule 144 which would reduce the holding period for shares subject to Rule 144 to become eligible for resale in the public market. If this proposal is adopted, an additional 3,213,100 shares will become eligible for resale under Rule 144 180 days after the date of this Prospectus. 48 REGISTRATION STATEMENTS ON FORM S-8 The Company intends to file one or more registration statements on Form S-8 under the Securities Act to register approximately 3,554,595 shares of Common Stock issuable under the Company's ESOP and 1996 Option Plan. The registration statements are expected to be filed shortly after the effective date of the Registration Statement of which this Prospectus is a part and will be effective upon filing. Shares issued under the ESOP or upon the exercise of stock options granted under the 1996 Option Plan after the effective date of the Form S-8 registration statement will be eligible for resale in the public market without restriction, subject to Rule 144 limitations applicable to Affiliates and the Lock-Up Agreements noted above. See "Management--Board Compensation" and "--Executive Compensation." REGISTRATION RIGHTS Triumph is entitled to certain rights, under an agreement between Triumph and the Company (the "Registration Rights Agreement"), with respect to the registration under the Securities Act of 1,166,660 shares of the Company's Common Stock acquirable upon the exercise of an outstanding warrant (the "Registrable Shares"). All of these shares are subject to a Lock-Up Agreement. Triumph has the right under the Registration Rights Agreement, at any time after 180 days from the date of this Prospectus, to require the Company to prepare and file from time to time registration statements under the Securities Act with respect to its Registrable Shares (a "Demand Registration"); provided, however, that (i) such demand requests the registration of Registrable Shares representing at least a majority of the outstanding Registrable Shares and (ii) the Company need only effect two Demand Registrations. The Registration Rights Agreement also provides that in the event the Company proposes to file a registration statement under the Securities Act with respect to an offering by the Company for its own account or the account of another person, or both, Triumph shall be entitled to include Registrable Shares in such registration, subject to the right of the managing underwriter of any such offering to exclude some or all of such Registrable Shares from such registration if and to the extent that inclusion of such Shares would adversely affect the marketing of the shares to be sold by the Company. In such event, the amount of Registrable Shares to be offered for the account of Triumph shall be reduced pro rata among Triumph and any other requesting rightsholders based upon the number of shares requested to be included in such registration by all requesting rightsholders. The Company is generally required to bear the expenses of all registrations, except underwriting discounts and commissions. All of the obligations of the Company to register the Registrable Shares terminate on the earlier of November 17, 2000 or the date on which the Registrable Shares are no longer restricted under the Securities Act. EFFECT OF SALES OF SHARES Prior to the Offering, there has been no public market for the Common Stock of the Company, and no prediction can be made as to the effect, if any, that market sales of shares of Common Stock or the availability of shares for sale will have on the market price of the Common Stock prevailing from time to time. Nevertheless, sales of significant numbers of shares of the Common Stock in the public market could adversely affect the market price of the Common Stock and could impair the Company's future ability to raise capital through an offering of its equity securities. 49 UNDERWRITING Upon the terms and subject to the conditions stated in the Underwriting Agreement dated the date hereof, each Underwriter named below has severally agreed to purchase, and the Company has agreed to sell to such Underwriter, the number of shares of Common Stock set forth opposite the name of such Underwriter below.
NAME NUMBER OF SHARES ---- ---------------- Smith Barney Inc. ...................................... Oppenheimer & Co., Inc. ................................ Robertson, Stephens & Company LLC....................... ------ Total................................................. ======
The Underwriting Agreement provides that the obligations of the several Underwriters to pay for and accept delivery of the shares are subject to approval of certain legal matters by counsel and to certain other conditions. The Underwriters are obligated to take and pay for all shares of Common Stock offered hereby (other than those covered by the over-allotment option described below) if any such shares are taken. The Underwriters, for whom Smith Barney Inc., Oppenheimer & Co., Inc. and Robertson, Stephens & Company LLC are acting as Representatives, propose to offer part of the shares directly to the public at the initial public offering price set forth on the cover page of this Prospectus and part of the shares to certain dealers at a price that represents a concession not in excess of $ per share under the public offering price. The Underwriters may allow, and such dealers may reallow, a concession not in excess of $ per share to certain other dealers. After the initial offering of the shares to the public, the public offering price and such concessions may be changed by the Representatives. The Representatives of the Underwriters have advised the Company that the Underwriters do not intend to confirm any Shares to any accounts over which they exercise discretionary authority. The Selling Stockholders have granted the Underwriters an option, exercisable for thirty days from the date of this Prospectus, to purchase up to additional shares of Common Stock at the price to the public set forth on the cover page of this Prospectus minus the underwriting discounts and commissions. The Underwriters may exercise such option solely for the purpose of covering over-allotments, if any, in connection with the offering of the shares offered hereby. To the extent such option is exercised, each Underwriter will be obligated, subject to certain conditions, to purchase approximately the same percentage of such additional shares as the number of shares set forth opposite each Underwriter's name in the preceding table bears to the total number of shares listed in such table. The Company, its executive officers and directors and certain stockholders of the Company designated by the Representatives have agreed that, for a period of 180 days from the date of this Prospectus, they will not, without the prior consent of Smith Barney Inc., offer, sell, contract to sell or otherwise dispose of, any shares of Common Stock of the Company or any securities convertible into, or exercisable or exchangeable for, Common Stock of the Company. Prior to the Offering, there has not been any public market for the Common Stock of the Company. Consequently, the initial public offering price for the shares of Common Stock included in the Offering will be determined by negotiations between the Company and the Representatives. Among the factors to be considered in determining such price are the history of, and prospects for, the Company's business and the industry in which it competes, an assessment of the Company's management and the present state of the Company's development, the past and present revenues and earnings of the Company, the prospects for growth of the Company's revenues and earnings, the current state of the economy in the United States and the current level of economic activity in the industry in which the Company competes and in related or comparable industries, and currently prevailing conditions in the securities markets, including current market valuations of publicly traded companies which are comparable to the Company. 50 Since November 1993, the Trustee of the ESOT has been Robert G. Huckins, a financial consultant with Smith Barney Inc. The Company, the Selling Stockholders and the Underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act. LEGAL MATTERS The validity of the shares of Common Stock being offered hereby will be passed upon for the Company by Hale and Dorr, Boston, Massachusetts. Certain legal matters in connection with the Offering will be passed upon for the Underwriters by Goodwin, Procter & Hoar LLP, Boston, Massachusetts. EXPERTS The consolidated financial statements of the Company as of October 31, 1995 and July 31, 1996 and for each of the two years in the period ended October 31, 1995 and the nine months ended July 31, 1996 and the related financial statement schedule have been included herein and in the Registration Statement in reliance upon the reports of KPMG Peat Marwick LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. The financial statements of Prem Mark, Inc. (the predecessor of Rainbow) as of December 31, 1994 and for the fifty-three weeks then ended included herein and in the Registration Statement have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said report. ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") a Registration Statement (which term shall include all amendments, exhibits, schedules and supplements thereto) on Form S-1 under the Securities Act with respect to the shares of Common Stock offered hereby. This Prospectus, which constitutes a part of the Registration Statement, does not contain all of the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission, to which Registration Statement reference is hereby made. Statements made in this Prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference. The Registration Statement and the exhibits thereto may be inspected and copied at prescribed rates at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of the Commission located at Seven World Trade Center, 13th Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. In addition, the Company is required to file electronic versions of these documents with the Commission through the Commission's Electronic Data Gathering, Analysis and Retrieval (EDGAR) system. The Commission maintains a World Wide Web site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The Company intends to distribute to its stockholders annual reports containing audited consolidated financial statements and will make available copies of quarterly reports for the first three quarters of each fiscal year containing unaudited consolidated financial information. 51 INDEX TO FINANCIAL STATEMENTS
PAGE ---- UNITED NATURAL FOODS, INC. AND SUBSIDIARIES: Independent Auditors' Report............................................... F-2 Consolidated Balance Sheets................................................ F-3 Consolidated Statements of Income.......................................... F-4 Consolidated Statements of Stockholders' Equity............................ F-5 Consolidated Statements of Cash Flows...................................... F-6 Notes to Consolidated Financial Statements................................. F-8 PREM MARK, INC.*: Report of Independent Public Accountants................................... F-18 Balance Sheet.............................................................. F-19 Statement of Income........................................................ F-20 Statement of Stockholder's Investment...................................... F-21 Statement of Cash Flows.................................................... F-22 Notes to Financial Statements.............................................. F-23
- -------- * These financial statements reflect the predecessor of Rainbow Natural Foods, Inc. and are included in this Prospectus to comply with Rule 3-05 of Regulation S-X. F-1 INDEPENDENT AUDITORS' REPORT The Board of Directors United Natural Foods, Inc. and Subsidiaries: We have audited the accompanying consolidated balance sheets of United Natural Foods, Inc. and subsidiaries as of October 31, 1995 and July 31, 1996 and the related consolidated statements of income, stockholders' equity and cash flows for the years ended October 31, 1994 and 1995, and for the nine months ended July 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of United Natural Foods, Inc. and subsidiaries as of October 31, 1995 and July 31, 1996 and the results of their operations and their cash flows for the years ended October 31, 1994 and 1995, and for the nine months ended July 31, 1996, in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP Providence, Rhode Island August 30, 1996 F-2 UNITED NATURAL FOODS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
OCTOBER 31, JULY 31, 1995 1996 ----------- ----------- ASSETS Current assets: Cash................................................ $ 228,791 $ 51,255 Accounts receivable, net of allowance for doubtful accounts of $1,274,602 in 1995 and $1,277,755 in 1996................................. 24,306,540 25,657,156 Notes receivable, trade............................. 679,362 360,137 Inventories......................................... 35,464,371 38,667,548 Prepaid expenses.................................... 983,009 1,691,548 Deferred income taxes (note 10)..................... 480,754 796,216 ----------- ----------- Total current assets................................ 62,142,827 67,223,860 ----------- ----------- Property and equipment, net (note 6)................. 15,348,686 20,603,663 ----------- ----------- Other assets: Notes receivable, trade............................. 544,842 1,067,697 Goodwill, net of accumulated amortization of $395,214 in 1995 and $556,345 in 1996 (note 2)..... 8,284,365 8,096,395 Covenants not to compete, net of accumulated amortization of $263,672 in 1995 and $711,737 in 1996 (note 2).......................... 1,565,299 1,117,234 Other, net.......................................... 935,543 635,290 ----------- ----------- 11,330,049 10,916,616 ----------- ----------- Total assets........................................ $88,821,562 $98,744,139 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable (note 4).............................. $25,190,408 $30,112,868 Current installments of long-term debt (note 5)..... 3,774,198 4,086,795 Current installments of obligations under capital leases (note 7).................................... 420,677 357,404 Accounts payable.................................... 20,010,640 17,139,406 Accrued expenses.................................... 3,482,447 4,978,331 Income taxes payable................................ 108,181 303,513 Other............................................... 573,142 158,149 ----------- ----------- Total current liabilities........................... 53,559,693 57,136,466 Long-term debt, excluding current installments (note 5).................................................. 21,312,113 22,170,855 Deferred income taxes (note 10)...................... 362,138 407,346 Obligations under capital leases, excluding current installments (note 7)............................... 565,407 847,918 ----------- ----------- Total liabilities................................... 75,799,351 80,562,585 ----------- ----------- Stockholders' equity (note 13): Common stock, $.01 par value, authorized 25,000,000 shares; issued 8,713,100 shares and outstanding 8,713,100 shares in 1995 and 8,692,695 shares in 1996........ 87,131 87,131 Additional paid-in capital.......................... 327,411 1,383,511 Stock warrants (note 5)............................. 3,200,000 3,200,000 Unallocated shares of employee stock ownership plan (note 11).......................................... (3,196,000) (3,073,600) Retained earnings................................... 12,603,669 16,628,966 Treasury stock, 20,405 shares at cost............... -- (44,454) ----------- ----------- Total stockholders' equity.......................... 13,022,211 18,181,554 ----------- ----------- Commitments (notes 8, 9 and 12) Total liabilities and stockholders' equity.......... $88,821,562 $98,744,139 =========== ===========
See accompanying notes to consolidated financial statements. F-3 UNITED NATURAL FOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
NINE YEARS ENDED OCTOBER 31, MONTHS ENDED ------------------------- JULY 31, 1994 1995 1996 ------------ ------------ ------------ Net sales............................ $200,616,451 $283,323,435 $286,448,399 Cost of sales........................ 156,498,812 223,482,549 226,481,766 ------------ ------------ ------------ Gross profit..................... 44,117,639 59,840,886 59,966,633 ------------ ------------ ------------ Operating expenses................... 36,195,056 48,653,214 48,564,649 Amortization of intangibles (note 1(f))............................... 538,040 2,425,618 792,615 ------------ ------------ ------------ Total operating expenses......... 36,733,096 51,078,832 49,357,264 ------------ ------------ ------------ Operating income................. 7,384,543 8,762,054 10,609,369 ------------ ------------ ------------ Other expense (income): Interest expense................... 2,275,100 3,403,009 3,942,820 Other, net......................... 121,655 (173,312) (136,869) ------------ ------------ ------------ Total other expense.............. 2,396,755 3,229,697 3,805,951 ------------ ------------ ------------ Income before income taxes....... 4,987,788 5,532,357 6,803,418 Income taxes (note 10)............... 1,970,584 2,929,856 2,778,121 ------------ ------------ ------------ Net income....................... $ 3,017,204 $ 2,602,501 $ 4,025,297 ============ ============ ============ Net income per share of common stock............................... $ 0.30 $ 0.26 $ 0.40 ============ ============ ============ Weighted average shares of common stock............................... 9,935,018 9,989,355 9,984,790 ============ ============ ============
See accompanying notes to consolidated financial statements. F-4 UNITED NATURAL FOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
UNALLOCATED OUTSTANDING ADDITIONAL SHARES OF TOTAL NUMBER COMMON PAID-IN STOCK EMPLOYEE STOCK RETAINED TREASURY STOCKHOLDERS' OF SHARES STOCK CAPITAL WARRANTS OWNERSHIP PLAN EARNINGS STOCK EQUITY ----------- ------- ---------- ---------- -------------- ----------- -------- ------------- Balances November 1, 1993................... 8,713,100 $87,131 $ 327,411 -- $(3,522,400) $ 6,983,964 -- $ 3,876,106 Issuance of stock warrants (note 5)..... -- -- -- $3,200,000 -- -- -- 3,200,000 Allocation of shares to ESOP.................. -- -- -- -- 163,200 -- -- 163,200 Net income............. -- -- -- -- -- 3,017,204 -- 3,017,204 --------- ------- ---------- ---------- ----------- ----------- -------- ----------- Balances October 31, 1994................... 8,713,100 87,131 327,411 3,200,000 (3,359,200) 10,001,168 -- 10,256,510 Allocation of shares of ESOP.................. -- -- -- -- 163,200 -- -- 163,200 Net income............. -- -- -- -- -- 2,602,501 -- 2,602,501 --------- ------- ---------- ---------- ----------- ----------- -------- ----------- Balances October 31, 1995................... 8,713,100 87,131 327,411 3,200,000 (3,196,000) 12,603,669 -- 13,022,211 Allocation of shares to ESOP.................. -- -- -- -- 122,400 -- -- 122,400 Purchase of treasury stock................. (20,405) -- -- -- -- -- $(44,454) (44,454) Stock options (note 3).................... -- -- 1,056,100 -- -- -- -- 1,056,100 Net income............. -- -- -- -- -- 4,025,297 -- 4,025,297 --------- ------- ---------- ---------- ----------- ----------- -------- ----------- Balances July 31, 1996.. 8,692,695 $87,131 $1,383,511 $3,200,000 $(3,073,600) $16,628,966 $(44,454) $18,181,554 ========= ======= ========== ========== =========== =========== ======== ===========
See accompanying notes to consolidated financial statements. F-5 UNITED NATURAL FOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, NINE MONTHS ------------------------- ENDED JULY 31, 1994 1995 1996 ----------- ------------ -------------- Cash flows from operating activities: Net income.......................... $ 3,017,204 $ 2,602,501 $ 4,025,297 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation, amortization and write-off of intangibles.......... 1,920,474 4,273,244 3,012,061 Loss (gain) on disposals of property and equipment............ 239,842 (123,583) 24,441 Accretion of original issue discount.......................... 456,000 530,004 458,541 Compensation expense related to stock options..................... -- -- 1,056,100 Deferred income taxes.............. 162,125 330,158 (270,254) Provision for doubtful accounts.... 148,724 762,764 646,828 Increase in accounts receivable.... (4,371,301) (5,544,515) (1,997,444) Increase in inventory.............. (4,356,554) (9,989,327) (3,203,177) Decrease (increase) in prepaid expenses.......................... 544,396 (228,391) (708,539) Decrease (increase) in refundable income taxes...................... 451,191 -- -- Decrease (increase) in other assets............................ (46,468) 2,025,426 300,253 Decrease (increase) in notes receivable, trade................. (562,513) (265,113) (203,630) Increase (decrease) in accounts payable........................... 1,602,631 4,488,652 (2,871,234) Increase in accrued expenses....... 195,600 503,467 1,080,891 Increase (decrease) in income taxes payable........................... (742,287) (220,989) 195,332 ----------- ------------ ----------- Net cash provided by (used in) operating activities............ (1,340,936) (855,702) 1,545,466 ----------- ------------ ----------- Cash flows from investing activities: Proceeds from disposals of property and equipment...................... 210,574 147,666 43,021 Capital expenditures................ (2,678,696) (9,934,590) (7,091,280) Payments for purchases of subsidiaries, net of cash acquired........................... (1,267,841) (8,672,834) -- ----------- ------------ ----------- Net cash used in investing activities...................... (3,735,963) (18,459,758) (7,048,259) ----------- ------------ ----------- Cash flows from financing activities: Net borrowings under note payable... 783,478 12,388,997 4,922,460 Repayments of long-term debt........ (3,319,793) (2,046,824) (5,349,788) Proceeds from long-term debt........ 4,651,884 9,604,443 6,184,986 Principal payments of capital lease obligations........................ (269,294) (251,632) (387,947) Payment of financing costs.......... -- (321,044) -- Issuance of stock warrants.......... 3,200,000 -- -- Purchase of treasury stock.......... -- -- (44,454) ----------- ------------ ----------- Net cash provided by financing activities...................... 5,046,275 19,373,940 5,325,257 ----------- ------------ ----------- Net increase (decrease) in cash...... (30,624) 58,480 (177,536) Cash at beginning of year............ 200,935 170,311 228,791 ----------- ------------ ----------- Cash at end of year.................. $ 170,311 $ 228,791 $ 51,255 =========== ============ =========== Supplemental disclosures of cash flow information: Cash paid during the year for: Interest........................... $ 1,588,000 $ 2,638,000 $ 2,120,000 =========== ============ =========== Income taxes....................... $ 1,962,000 $ 2,838,000 $ 2,467,000 =========== ============ ===========
F-6 UNITED NATURAL FOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED) Supplemental schedule of non-cash investing and financing activities: In 1994, the Company purchased all of the capital stock of one retail store and substantially all of the assets of three additional stores for $1,374,000. In conjunction with the acquisitions, liabilities were assumed as follows: Fair value of assets acquired.................................. $2,974,000 Cash paid...................................................... 1,374,000 ---------- Liabilities assumed and debt issued.......................... $1,600,000 ==========
In 1995, the Company purchased substantially all of the assets of one retail store, substantially all of the assets of one wholesale distributor and the capital stock of another wholesale distributor for $6,725,000. In conjunction with the acquisitions, liabilities were assumed as follows: Fair value of assets acquired................................. $21,315,000 Cash paid..................................................... 6,725,000 ----------- Liabilities assumed and debt issued......................... $14,590,000 ===========
In 1995 and 1996, the Company incurred capital lease obligations of approximately $580,000 and $582,000, respectively for equipment. See accompanying notes to consolidated financial statements. F-7 UNITED NATURAL FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 1994, 1995 AND JULY 31, 1996 (1) SIGNIFICANT ACCOUNTING POLICIES (a) Nature of Business United Natural Foods, Inc. and Subsidiaries (the Company) is a distributor and retailer of natural products. The Company sells its products throughout the United States. For purposes of segment reporting, the Company considers its operations to be within a single industry. (b) Basis of Consolidation The accompanying financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. Certain prior period balances have been reclassified to conform to the 1996 presentation. (c) Inventories Inventories are stated at the lower of cost or market, with cost being determined using the first-in, first-out (FIFO) method. (d) Property and Equipment Property and equipment are stated at cost. Equipment under capital leases is stated at the present value of minimum lease payments at the inception of the lease. Depreciation and amortization are principally provided under the straight-line method over the following estimated useful lives: Building.......................................................... 40 years Leasehold improvements............................................ 10 years Warehouse equipment............................................... 5-10 years Office equipment.................................................. 3-5 years Motor vehicles.................................................... 3 years Equipment under capital lease..................................... 5 years
(e) Income Taxes The Company accounts for income taxes under the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. (f) Intangible Assets Intangible assets consist principally of goodwill and covenants not to compete. Goodwill represents the excess purchase price over fair value of net assets acquired in connection with purchase business combinations and is being amortized on the straight line method over thirty years. Covenants not to compete are stated at cost and are amortized using the straight-line method over the lives of the respective agreements, generally five years. The Company adopted Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, during fiscal 1995. F-8 UNITED NATURAL FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Company evaluates impairment of intangible assets on an annual basis, or more frequently if events or changes in circumstances indicate that carrying amounts may no longer be recoverable. Impairment losses are determined based upon the excess of carrying amounts over expected future cash flows (undiscounted) of the underlying business. The assessment of the recoverability of intangible assets will be impacted if estimated future cash flows are not achieved. In fiscal 1995, the Company wrote off approximately $1,564,000 in intangible assets, primarily goodwill, upon evaluating impairment of the underlying business of certain of its retail operations. The impairment was indicated by projected cash flow losses caused by increased competition at one location and a change in demographics for the other affected location. This amount is included in "Amortization of Intangibles" in the 1995 Consolidated Statement of Income. (g) Revenue Recognition The Company records revenue upon shipment of products. Revenues are recorded net of applicable sales discounts. (h) Fair Value of Financial Instruments The carrying amounts of the Company's financial instruments including cash, accounts receivable, accounts payable, and accrued expenses approximate fair value due to the short term nature of these instruments. The carrying value of notes receivable, long term debt and capital lease obligations approximate fair value based on the instruments' interest rate, terms, maturity date, and collateral, if any, in comparison to the Company's incremental borrowing rate for similar financial instruments. (i) Change in Fiscal Year The Company elected to change its fiscal year end from October 31 to July 31. The consolidated results of operations and cash flows for the nine months ended July 31, 1996 are not necessarily indicative of results that would be expected for a full year. (j) Accounting Changes Effective November 1, 1995, the Company changed its method of accounting for certain inventories from the last-in, first-out (LIFO) method to the first-in, first-out (FIFO) method. The change to the FIFO method was made to conform all the Company's inventories to the same valuation method. In accordance with provisions of Accounting Principles Board Opinion No. 20, concerning an initial public offering of securities, this change has been applied retroactively and financial statements of prior periods have been restated. (k) Use of Estimates Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. (l) Notes Receivable, trade The Company issues notes receivable, trade to certain customers under two basic circumstances, inventory purchases for initial store openings and overdue accounts receivable. Initial store opening notes are generally receivable over a period not to exceed twelve months. The overdue accounts receivable notes may extend for periods greater than one year. All notes are issued at a market interest rate and contain certain guarantees and collateral assignments in favor of the Company. F-9 UNITED NATURAL FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (m) Net Income Per Share Net income per share is computed by dividing net income by the weighted average number of shares of Common Stock and dilutive common stock equivalents. For purposes of this calculation, outstanding stock options and stock warrants are considered common stock equivalents and totaled 1,276,275 shares for all periods presented under the treasury stock method. Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 83, common and common equivalent shares issued during the twelve month period prior to the date of the initial filing of the Company's Registration Statement have been included in the calculation, using the treasury stock method, as if they were outstanding for all periods presented. Fair market value for the purpose of this calculation was assumed to be approximately $9.64 per share. The number of shares used in all calculations has been adjusted to reflect a fifty-five-for-one stock split (see note 13). (2) ACQUISITIONS In February 1996, Cornucopia Natural Foods, Inc. (CNF) and Mountain People's Warehouse, Inc. (MPW) merged in a business combination accounted for as a pooling of interests. CNF issued 3,213,100 shares, which represented approximately 37% of the common stock of CNF after the merger, in exchange for all of the outstanding common stock of MPW. The combined entity changed its name to United Natural Foods, Inc. The financial statements for all periods presented reflect the merger. Net sales for fiscal 1994, fiscal 1995 and the quarter ended January 31, 1996 for CNF were $113.2 million, $145.6 million and $48.7 million (unaudited), respectively. Net income for fiscal 1994, fiscal 1995 and the quarter ended January 31, 1996 for CNF was $1.8 million, $0.9 million and $1.0 million (unaudited), respectively. Net sales for fiscal 1994, fiscal 1995 and the quarter ended January 31, 1996 for MPW were $87.4 million, $137.7 million and $43.6 million (unaudited), respectively. Net income for fiscal 1994, fiscal 1995 and the quarter ended January 31, 1996 for MPW was $1.3 million, $1.7 million and $0.1 million (unaudited), respectively. During fiscal 1995, the Company acquired substantially all of the assets of one natural products retailer, SunSplash Market, Inc. (in April 1995), one wholesale distributor, Prem Mark, Inc. (the predecessor business to Rainbow Natural Foods, Inc.) (in July 1995) and the capital stock of another wholesale distributor, Nutrasource, Inc. (in May 1995) in business combinations accounted for as purchases. The results of operations of these acquisitions have been included in the accompanying financial statements since the dates of the acquisitions. The total cash paid and debt issued for these acquisitions was approximately $12,470,000, which exceeded the fair value of the net assets acquired by approximately $6,329,000. This excess for purchase price over the net assets acquired has been recorded as goodwill, and is being amortized over thirty years. During fiscal 1994, the Company acquired 100% of the common stock of one natural products retailer, Natureworks, Inc., and substantially all of the assets of three additional retailers, Village Natural Grocers, Inc., Down Home Natural Foods, Inc., and Railway Market, Inc., in business combinations accounted for as purchases. The results of operations of these retailers were included in the accompanying financial statements since the dates of the acquisitions. The total cash paid and debt issued for these acquisitions was approximately $2,974,000 which exceeded the fair value of the net assets acquired by approximately $1,437,000. The excess has been recorded as goodwill and is being amortized on the straight-line method over thirty years. In connection with these acquisitions, the Company executed covenants not to compete and consulting agreements totaling $505,000 to be amortized using the straight-line method over the lives of the respective agreements, generally five years. F-10 UNITED NATURAL FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Pro Forma Results (Unaudited) The following represents the unaudited pro forma results of operations for fiscal 1995 as if the acquisitions of Nutrasource, Inc. and Prem Mark, Inc. had occurred as of November 1, 1994: Net sales.................................................... $345,381,000 Income before income taxes................................... 5,217,000 Net income................................................... 2,410,000 Net income per share of common stock......................... $ 0.24
The pro forma operating results include results of operations for the periods prior to the acquisitions and include additional amortization of intangible assets and interest expense on acquisition borrowings as if the acquisitions occurred on November 1, 1994. The pro forma information given above does not purport to be indicative of the results that actually would have been obtained if the operations were combined during the period presented and is not intended to be a projection of future results or trends. (3) STOCK OPTION PLAN On July 29, 1996, the Board of Directors adopted, and on July 31, 1996 the stockholders approved, the 1996 Stock Option Plan which provides for grants of stock options to employees, officers, directors and others. These options are intended to qualify as incentive stock options within the meaning of Section 422 of the Internal Revenue Code or options not intended to qualify as incentive stock options ("non-statutory options"). A total of 1,375,000 shares of common stock may be issued upon the exercise of options granted under the 1996 Stock Option Plan. In consideration for their services on the Company's Board of Directors, four employee-directors were awarded a total of 324,500 non-statutory stock options under the Company's 1996 Stock Option Plan at an exercise price of $6.38 per share which vested immediately. In addition, one non-employee director was awarded a total of 16,500 non-statutory stock options under the 1996 Stock Option Plan at an exercise price of $9.64 per share which vest after three years. Compensation expense of $1,056,100 was charged to operations in fiscal 1996 related to the employee-director stock options. In accordance with SEC regulations, all options have been included in earnings per share calculations for all periods presented. (4) NOTES PAYABLE The Company entered into a line of credit and term loan agreement (see note 5) with a bank effective February 1996. The line of credit agreement permits the Company to borrow up to a maximum of $50,000,000. The amount of borrowing is based upon the sum of 90% of eligible accounts receivable and 55% of eligible inventory. Interest on the loans is at 0.25% above the New York prime interest rate or 2.25% above the LIBOR rate. The bank's prime rate was 8.75% and 8.25% at October 31, 1995 and July 31, 1996, respectively. The line of credit agreement, which terminates July 1998, is secured by all assets of the Company and contains certain restrictive covenants. The Company was in compliance with its restrictive covenants at July 31, 1996. F-11 UNITED NATURAL FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (5) LONG-TERM DEBT Long-term debt consisted of the following:
OCTOBER 31, JULY 31, 1995 1996 ----------- ----------- Note payable to limited partnership, secured, with interest ranging from 8% to 12% per annum payable quarterly, maturing October 1998.................. $ 4,286,004 $ 4,744,545 Term loan for employee stock ownership plan, secured by stock of the corporation, due $13,600 monthly plus interest at 10%, balance due May 1, 2015.............................................. 3,196,000 3,073,600 Real estate term loan payable to bank, secured by land and building, with principal repayments of $25,000 monthly through July 1998 plus interest at 7.5%, all remaining principal due August 1998..... 6,000,000 5,775,000 Term loan payable to former owners of acquired business, secured by substantially all assets of subsidiary with principal repayments of $695,353 semi-annually through July 1998, with interest ranging from 8-10% through maturity............... 4,178,114 2,785,409 Term loan payable to bank, secured by substantially all assets of a subsidiary, refinanced in February 1996.............................................. 976,190 -- Term loan payable to bank, secured by substantially all assets of the Company, refinanced in February 1996.............................................. 425,080 -- Term loan payable to bank, secured by substantially all assets of the Company, with monthly principal payments of $59,524 through July 1998 and the re- maining principal due on July 31, 1998, interest at prime plus 0.25% above the bank's prime rate or at 2.25% above the LIBOR rate..................... -- 4,702,381 Installment notes secured by equipment, payable in monthly installments through 2002 at interest rates ranging from 7.43% to 11.82%................ 2,061,640 1,958,257 Other notes payable to former owners of acquired businesses and former stockholders of subsidiaries, maturing at various dates through February 2002..................................... 3,878,355 3,164,835 Notes payable to bank, secured by automobiles, including interest ranging from 6.25% to 7.25%, primarily due over three years.................... 84,928 53,623 ----------- ----------- Total long-term debt............................. 25,086,311 26,257,650 Less: current installments......................... 3,774,198 4,086,795 ----------- ----------- Long-term debt, excluding current installments..... $21,312,113 $22,170,855 =========== ===========
The Company entered into a Note and Warrant Purchase Agreement (the Agreement) with a limited partnership (the Purchaser) on November 17, 1993. Under the Agreement, the Company issued to the Purchaser a Senior Note in the principal amount of $6,500,000 and a Common Stock Purchase Warrant for 1,166,660 shares of the common stock of the Company. Interest on the Senior Note ranges from 8% to 12% per annum and is payable quarterly. The Senior Note matures October 31, 1998. The Common Stock Purchase Warrant is exercisable from November 17, 1993 through October 31, 2000, at a price of $0.00018 per share. F-12 UNITED NATURAL FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The $6,500,000 proceeds were recorded as $3,300,000 in long-term debt with the remaining $3,200,000 recorded as issuance of stock warrants representing the estimated fair value of the warrants issued. The original issue discount on the debt will accrete over the life of the loan so that the principal balance will be $6,500,000 at maturity. The total effective interest rate including the accretion of the original issue discount is approximately 28%. The Agreement, as amended, also contains certain restrictive covenants. The Company was in compliance with these covenants at July 31, 1996. Aggregate maturities of long-term debt for the next five years and thereafter are as follows at July 31, 1996: 1997............................. $ 4,086,795 1998............................. 14,385,413 1999............................. 4,370,979 2000............................. 728,390 2001............................. 398,510 Thereafter....................... 2,287,563 ----------- $26,257,650 ===========
(6) PROPERTY AND EQUIPMENT Property and equipment consisted of the following at:
OCTOBER 31, JULY 31, 1995 1996 ----------- ----------- Land................................................ $ 266,870 $ 266,870 Building............................................ 5,990,939 11,043,261 Leasehold improvements.............................. 2,180,127 1,814,142 Warehouse equipment................................. 3,627,330 5,454,745 Office equipment.................................... 3,217,656 4,075,772 Motor vehicles...................................... 3,985,097 4,669,065 Equipment under capital leases...................... 1,091,979 1,769,139 Construction in progress............................ 874,603 337,507 ----------- ----------- 21,234,601 29,430,501 Less accumulated depreciation and amortization...... 5,885,915 8,826,838 ----------- ----------- Net property and equipment........................ $15,348,686 $20,603,663 =========== ===========
(7) CAPITAL LEASES The Company leases computer, office and warehouse equipment under capital leases expiring in various years through 2001. The assets and liabilities under capital leases are recorded at the lower of the present value of the minimum lease payments or the fair value of the assets. The assets are depreciated over the lower of their related lease terms or their estimated productive lives. F-13 UNITED NATURAL FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Minimum future lease payments under capital leases as of July 31, 1996 for each of the next five fiscal years and in the aggregate are:
YEAR ENDED JULY 31 AMOUNT ------------------ ---------- 1997............................................................. $ 454,217 1998............................................................. 380,220 1999............................................................. 251,894 2000............................................................. 215,915 2001............................................................. 141,116 ---------- Total minimum lease payments................................... 1,443,362 Less: Amount representing interest............................... 238,040 ---------- Present value of net minimum lease payments.................... 1,205,322 Less: current installments....................................... 357,404 ---------- Capital lease obligations, excluding current installments...... $ 847,918 ==========
(8) OPERATING LEASES The Company leases various facilities under operating lease agreements with varying terms. Most of the leases contain renewal options and purchase options at several specific dates throughout the terms of the leases. The Company also leases equipment under master lease agreements. Payment under these agreements will continue for a period of four years. The equipment lease agreements contain covenants concerning the maintenance of certain financial ratios. The Company was in compliance with its covenants at July 31, 1996. Future minimum annual fixed payments required under non-cancelable operating leases having an original term of more than one year as of July 31, 1996 are as follows: 1997............................. $ 4,352,000 1998............................. 3,980,000 1999............................. 3,648,000 2000............................. 3,020,000 2001............................. 1,764,000 Thereafter....................... 7,313,000 ----------- $24,077,000 ===========
Rent and other lease expense for the years ended October 31, 1994 and 1995 totaled approximately $5,207,000 and $5,441,000, respectively. Rent and other lease expense for the nine months ended July 31, 1996 totaled approximately $4,667,000. (9) SALARY REDUCTION/PROFIT SHARING PLANS The Company has several salary reduction/profit sharing plans, generally called "401(k) Plans" (the Plan), covering various employee groups. Under this type of Plan the employees may choose to reduce their compensation and have these amounts contributed to the Plan on their behalf. In order to become a participant in the Plan, the employee must meet certain eligibility requirements as described in the plan document. In addition to amounts contributed to the Plan by employees, the Company makes contributions to the Plan on behalf of the employees. The Company contributions to the Plan were not material for the years ended October 31, 1994 and 1995, and for the nine months ended July 31, 1996. F-14 UNITED NATURAL FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (10) INCOME TAXES Total Federal and state income tax expense consists of the following:
CURRENT DEFERRED TOTAL ---------- --------- ---------- Fiscal year ended October 31, 1994: U.S. Federal............................. $1,452,429 $ 138,000 $1,590,429 State and local.......................... 356,030 24,125 380,155 ---------- --------- ---------- $1,808,459 $ 162,125 $1,970,584 ========== ========= ========== Fiscal year ended October 31, 1995: U.S. Federal............................. $2,079,758 $ 302,052 $2,381,810 State and local.......................... 519,940 28,106 548,046 ---------- --------- ---------- $2,599,698 $ 330,158 $2,929,856 ========== ========= ========== Nine months ended July 31, 1996: U.S. Federal............................. $2,427,429 $(254,587) $2,172,842 State and local.......................... 620,946 (15,667) 605,279 ---------- --------- ---------- $3,048,375 $(270,254) $2,778,121 ========== ========= ==========
Total income tax expense was different than the amounts computed using the United States statutory income tax rate applied to income before income taxes as a result of the following:
OCTOBER 31, ---------------------- JULY 31, 1994 1995 1996 ---------- ---------- ---------- Computed "expected" tax expense......... $1,695,848 $1,881,001 $2,313,162 State and local income tax net of Federal income tax benefit............. 250,902 361,710 399,484 Merger related expenses................. -- -- 155,743 Non-deductible expenses................. 14,275 20,240 69,871 Non-deductible amortization............. 20,912 478,623 4,714 Other, net.............................. (11,353) 188,282 (164,853) ---------- ---------- ---------- $1,970,584 $2,929,856 $2,778,121 ========== ========== ==========
F-15 UNITED NATURAL FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The tax effects of temporary differences that give rise to significant portions of the net deferred tax assets and deferred tax liabilities at October 31, 1995 and July 31, 1996 are presented below:
OCTOBER 31, JULY 31, 1995 1996 ----------- --------- Deferred tax assets: Inventories, principally due to additional costs inventoried for tax purposes..................... $ 402,168 $ 421,099 Rents deducted for book purposes in excess of tax.............................................. 28,586 27,732 Financing costs................................... 33,244 24,662 Intangible assets................................. 258,905 221,242 Deferred compensation............................. -- 400,896 Accrued vacation.................................. 50,000 59,048 Accounts receivable, principally due to allowances for uncollectible accounts....................... 280,000 280,693 Other............................................. 125,545 165,141 --------- --------- Total gross deferred tax assets................. 1,178,448 1,600,513 Less valuation allowance............................ -- -- --------- --------- Net deferred tax assets......................... 1,178,448 1,600,513 --------- --------- Deferred tax liability: Plant and equipment, principally due to differences in depreciation...................... 491,889 536,295 Reserve for LIFO inventory method................. 507,018 675,348 Other............................................. 60,925 -- --------- --------- Total deferred tax liabilities.................. 1,059,832 1,211,643 --------- --------- Net deferred tax assets............................. $118,616 $388,870 ========= ========= Current deferred income tax assets.................. $ 480,754 $ 796,216 Non-current deferred income tax liability........... (362,138) (407,346) --------- --------- $ 118,616 $ 388,870 ========= =========
In assessing the recoverability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Due to the fact that the Company has sufficient taxable income in the federal carryback period and anticipates sufficient future taxable income over the periods which the deferred tax assets are deductible, the ultimate realization of deferred tax assets for federal and state tax purposes appears more likely than not. (11) EMPLOYEE STOCK OWNERSHIP PLAN The Company adopted the Cornucopia Natural Foods, Inc. (predecessor company) Employee Stock Ownership Plan (the Plan) for the purpose of acquiring outstanding shares of the Company for the benefit of eligible employees. The Plan was effective as of November 1, 1988 and has received notice of qualification by the Internal Revenue Service. In connection with the adoption of the Plan, a Trust was established to hold the shares acquired. On November 1, 1988, the Trust purchased 40% of the outstanding Common Stock of the Company at a price of $4,080,000. The trustees funded this purchase by issuing promissory notes to the initial stockholders, with the ESOT shares pledged as collateral. These notes bear interest at 10% and are payable through May 2015. As the debt is repaid, shares are released from collateral and allocated to active employees, based on the proportion of debt service paid in the year. F-16 UNITED NATURAL FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position 93-6, "Employers' Accounting for Employee Stock Ownership Plans," in November 1993. The statement provides guidance on employers' accounting for ESOPs and is required to be applied to shares purchased by ESOPs after December 31, 1992, that have not been committed to be released as of the beginning of the year of adoption. In accordance with SOP 93-6, the Company elected not to adopt the guidance in SOP 93-6 for the shares held by the ESOP, all of which were purchased prior to December 31, 1992. The debt of the ESOP is recorded as debt and the shares pledged as collateral are reported as unearned ESOP shares in the Consolidated Balance Sheets. During 1994, 1995 and 1996, contributions totaling approximately $509,000, $492,000 and $358,000, respectively, were made to the Trust. Of these contributions, approximately $346,000, $328,000 and $235,000, respectively, represented interest. The ESOP shares were classified as follows:
OCTOBER 31, JULY 31, 1995 1996 ----------- --------- Allocated shares...................................... 396,000 484,000 Shares released for allocation........................ 88,000 66,000 Shares distributed to employees....................... -- (20,405) Unreleased shares..................................... 1,716,000 1,650,000 --------- --------- Total ESOP shares................................... 2,200,000 2,179,595 ========= =========
The fair value of unreleased shares was approximately $15,900,000 at July 31, 1996. Employees have the option of putting their shares back to the Company upon leaving employment. (12) LITIGATION The Company may from time to time be involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's consolidated financial position or results of operations. (13) INITIAL PUBLIC OFFERING In connection with a proposed initial public offering of shares of Common Stock, on August 30, 1996, the Board of Directors adopted, and the stockholders approved, an amendment to the Company's certificate of incorporation increasing the number of authorized shares of Common Stock from 200,000 to 25,000,000 and stating the par value of such shares as $0.01, and the Company effected a fifty-five-for-one split of its issued and outstanding Common Stock. All share, option and warrant and per share data presented in the accompanying consolidated financial statements have been restated to reflect the increased number of authorized and outstanding shares of Common Stock. F-17 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Prem Mark, Inc.: We have audited the accompanying balance sheet of Prem Mark, Inc. as of December 31, 1994 and the related statements of income, stockholder's investment and cash flows for the fifty-three weeks then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Prem Mark, Inc. as of December 31, 1994 and the results of its operations and its cash flows for the fifty-three weeks then ended in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Denver, Colorado March 9, 1995 F-18 PREM MARK, INC. BALANCE SHEET DECEMBER 31, 1994 ASSETS Current assets: Cash............................................................ $ 850 Accounts receivable, net of allowance for uncollectible accounts of approximately $58,000....................................... 2,415,608 Inventories..................................................... 4,002,266 Prepaid expenses and other current assets....................... 109,542 Current portion of notes receivable (note 3).................... 54,620 ----------- Total current assets.......................................... 6,582,886 ----------- Property and equipment: Land............................................................ 361,425 Buildings....................................................... 1,600,939 Equipment, furniture and fixtures............................... 1,501,022 Equipment and vehicles under capital leases (note 4)............ 100,069 Motor vehicles.................................................. 109,376 ----------- 3,672,831 Less--accumulated depreciation and amortization................. (1,067,265) ----------- 2,605,566 ----------- Notes receivable (note 3)......................................... 52,870 Other assets...................................................... 8,844 ----------- $ 9,250,166 =========== LIABILITIES AND STOCKHOLDER'S INVESTMENT Current liabilities: Accounts payable and accrued expenses........................... $ 3,110,193 Current portion of obligations under capital leases (note 4).... 23,934 Current portion of related party notes payable (note 5)......... 247,906 Current portion of line of credit and other (note 5)............ 867,053 ----------- Total current liabilities..................................... 4,249,086 Obligations under capital leases (note 4)......................... 18,029 Related party notes payable (note 5).............................. 2,342,317 Line of credit and other (note)................................... 62,017 ----------- Total liabilities............................................. 6,671,449 ----------- Stockholder's investment (note 6): Common stock, $1 par value; 5,000 shares authorized; 1,000 shares issued; 264 shares outstanding.......................... 1,000 Additional paid-in capital...................................... 270,693 Retained earnings............................................... 3,689,278 ----------- 3,960,971 Less--Treasury stock, 736 shares, at cost......................... (1,382,254) ----------- Total stockholder's investment................................ 2,578,717 ----------- $ 9,250,166 ===========
The accompanying notes are an integral part of this financial statement. F-19 PREM MARK, INC. STATEMENT OF INCOME FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994 Net sales (note 8)................................................. $47,068,475 Cost of sales...................................................... 38,564,949 ----------- Gross profit................................................... 8,503,526 ----------- Operating expenses: Salaries and benefits............................................ 4,709,735 Occupancy........................................................ 262,141 Vehicle.......................................................... 840,976 Legal and professional........................................... 61,875 Advertising and promotion........................................ 119,414 Depreciation and amortization.................................... 319,907 Maintenance and repairs.......................................... 122,930 Postage and supplies............................................. 147,465 Travel........................................................... 80,685 Equipment rental................................................. 7,974 Other............................................................ 219,599 ----------- Total operating expenses....................................... 6,892,701 ----------- Operating income............................................... 1,610,825 ----------- Nonoperating income (expense): Interest expense, net............................................ (280,723) Other............................................................ 162,764 ----------- Total nonoperating expense..................................... (117,959) ----------- Net income..................................................... $ 1,492,866 ===========
The accompanying notes are an integral part of this financial statement. F-20 PREM MARK, INC. STATEMENT OF STOCKHOLDER'S INVESTMENT FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
COMMON STOCK ADDITIONAL TREASURY STOCK ------------- PAID-IN RETAINED ------------------ SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT TOTAL ------ ------ ---------- ----------- ------ ----------- ----------- Balances, December 25, 1993................... 1,000 $1,000 $270,693 $ 3,196,412 (736) $(1,382,254) $ 2,085,851 Net income............. -- -- -- 1,492,866 -- -- 1,492,866 Distributions to stockholder........... -- -- -- (1,000,000) -- -- (1,000,000) ----- ------ -------- ----------- ---- ----------- ----------- Balances, December 31, 1994................... 1,000 $1,000 $270,693 $ 3,689,278 (736) $(1,382,254) $ 2,578,717 ===== ====== ======== =========== ==== =========== ===========
The accompanying notes are an integral part of this financial statement. F-21 PREM MARK, INC. STATEMENT OF CASH FLOWS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994 Cash flows from operating activities: Cash received from customers.................................... $ 46,902,709 Cash paid to suppliers and employees............................ (45,957,900) Interest received............................................... 14,566 Interest paid................................................... (295,289) ------------ Net cash provided by operating activities.................... 664,086 ------------ Cash flows from investing activities: Capital expenditures............................................ (300,980) Proceeds from sales of assets................................... 2,274 Collection of notes receivable.................................. 88,674 ------------ Net cash used in investing activities........................ (210,032) ------------ Cash flows from financing activities: Borrowing from line of credit................................... 939,171 Principal payments on line of credit............................ (200,000) Principal payments on notes payable, primarily related party.... (224,941) Principal payments on capital lease obligations................. (21,941) Distributions to stockholder.................................... (1,000,000) ------------ Net cash used in financing activities........................ (507,711) ------------ Net decrease in cash and cash equivalents........................ (53,657) Cash and cash equivalents, at beginning of year.................. 54,507 ------------ Cash and cash equivalents, at end of year........................ $ 850 ============ Reconciliation of net income to net cash provided by operating activities: Net income...................................................... $ 1,492,866 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.................................. 319,907 Loss on sales of assets........................................ 1,464 Change in operating assets and liabilities: Increase in accounts receivable, net.......................... (480,703) Increase in inventories....................................... (561,358) Increase in prepaid expenses and other current assets......... (36,092) Decrease in other assets...................................... 11,000 Decrease in accounts payable and accrued expenses............. (82,998) ------------ Net cash provided by operating activities.................... $ 664,086 ============
The accompanying notes are an integral part of this financial statement. F-22 PREM MARK, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1994 (1) CORPORATION ORGANIZATION Prem Mark, Inc. (the "Company"), is wholly owned by The Onae Trust (a Qualified Subchapter S Trust). The Company operates as a distributor of health foods and related products. The Company's fiscal year end is the last Saturday of each calendar year. Fiscal 1994 is fifty-three weeks in duration. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Cash and Cash Equivalents The Company considers all highly liquid instruments with original maturities of three months or less to be cash equivalents. (b) Inventories Inventories consist primarily of food inventory held by the Company for resale in the normal course of business and are valued at the lower of cost (first-in, first-out basis) or market. (c) Property and Equipment Land, buildings and equipment are stated at cost or, in the case of assets under capital leases, at the lower of the present value of future minimum lease payments or fair market value. Depreciation is provided using the straight-line method. All equipment, furniture, fixtures and vehicles are depreciated over a useful life of two to ten years except for buildings which are depreciated over thirty years. (d) Income Taxes The Company has elected to be taxed under Subchapter S of the Internal Revenue Code. Taxable income is the responsibility of the Company's stockholder. Accordingly, no provision has been made for federal or state income taxes in the accompanying financial statements. Additionally, the book and tax bases of the assets are not substantially different at December 31, 1994. (e) Risk Concentration The accounts receivable potentially subject the Company to concentrations of credit risk. The Company's customers include major natural food grocery stores and other large food chain stores as well as smaller, local natural food stores. The Company continuously evaluates the credit worthiness of its customers' financial condition. (f) Use of Estimates Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. F-23 PREM MARK, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) (3) NOTES RECEIVABLE Notes receivable consist of the following at December 31, 1994: Note receivable from sale of retail store, at 9%, receivable in monthly installments, maturing February 1, 1997, secured by substantially all operating assets related to the store........................................................ $ 93,988 Note receivable from sale of retail store, at 9%, receivable in monthly installments, maturing March 1, 1995, secured by substantially all operating assets related to the store.......... 13,502 -------- 107,490 Less current maturities........................................... (54,620) -------- $ 52,870 ========
The following is a schedule of maturities for fiscal years ending after December 31, 1994: 1995................................ $ 54,620 1996................................ 44,975 1997................................ 7,895 -------- $107,490 ========
(4) LEASES (a) Capital Leases The Company has leased certain equipment and vehicles under capital leases. The leases provide for payment of fixed monthly rentals over various lease terms. The Company's obligations under these leases are secured by the related assets. The December 31, 1994, future minimum payments under capital lease obligations were as follows:
FUTURE MINIMUM LEASE PRINCIPAL INTEREST PAYMENTS --------- -------- -------- 1995............................................. $23,934 $3,285 $27,219 1996............................................. 18,029 621 18,650 ------- ------ ------- $41,963 $3,906 $45,869 ======= ====== =======
(b) Operating Leases The Company leases significantly all its distribution fleet vehicles under operating leases. The leases expire at various times between 1995 and 2003. Total lease expense was $555,590 in fiscal year 1994. At December 31, 1994, future minimum lease payments under operating leases were as follows: 1995.............................. $ 281,736 1996.............................. 213,126 1997.............................. 183,888 1998.............................. 176,352 1999.............................. 138,672 Thereafter........................ 376,504 ---------- $1,370,278 ==========
F-24 PREM MARK, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) (5) RELATED PARTY NOTES PAYABLE, LINE OF CREDIT AND OTHER On March 14, 1994 and May 9, 1994, the Company borrowed $13,342 and $10,880, respectively, from a commercial lender for the purpose of purchasing two Company vehicles. The notes payable, which are secured by the vehicles purchased, each require monthly payments of principal and interest at a rate of 7.5% and 8.25% per annum, respectively. The amount borrowed must be paid in full five and four years, respectively, from the date of borrowing. On September 30, 1994, the Company entered into a $1,000,000 revolving line of credit and a $500,000 term facility loan with a bank to fund working capital and purchase equipment, respectively. Draws under the line of credit are limited to the lesser of $1,000,000 or the amount of eligible accounts receivable, as defined. The line of credit accrues interest on the principal amount outstanding at the bank's prime rate (8.5% at December 31, 1994) plus 1% and is payable monthly. The line of credit facility expires on September 30, 1995, and amounts drawn must be repaid on that date. The line of credit is secured by accounts receivable. The term facility loan accrues interest at the same rate as the line of credit. The Company may borrow under this loan until September 30, 1995. As of December 31, 1994, $908,305 was outstanding on the line of credit and term facility loan. At December 31, 1994, notes payable and line of credit consisted of the following: Stock redemption notes payable (note 6): Notes payable to a related trust dated April 30, 1986, interest at 10%, monthly payments applied first to interest and then to principal, maturity May 1, 2006.................. $ 276,079 Notes payable to the trustee of a trust related to The Onae Trust dated April 30, 1986, interest at 10%, monthly payments applied first to interest and then to principal, maturity May 1, 2006...................................................... 333,612 ----------- 609,691 ----------- Building and equipment notes payable: Note payable to the chairman of the board dated September 30, 1991, interest at 9% (after April 1, 1997, note holder may increase the interest rate up to 10%), payable in monthly installments, maturity at December 1, 2008, collateralized by deed of trust on the warehouse facility...................... 1,436,736 Note payable to the chairman of the board dated March 31, 1992, interest at 9% (after April 1, 1997, note holder may increase the interest rate up to 10%), payable in monthly installments, maturity at March 30, 1999, collateralized by related warehouse equipment financed......................... 543,796 ----------- 1,980,532 ----------- Vehicle loans.................................................. 20,765 Line of credit................................................. 908,305 ----------- Total notes payable and line of credit....................... 3,519,293 Less current maturities...................................... (1,114,959) ----------- $ 2,404,334 ===========
F-25 PREM MARK, INC. NOTES TO FINANCIAL STATEMENTS--(CONCLUDED) The following is a schedule of maturities of long-term debt for fiscal years ending after December 31, 1994: 1995.............................. $1,114,959 1996.............................. 306,094 1997.............................. 328,231 1998.............................. 353,030 1999.............................. 250,713 Thereafter........................ 1,166,266 ---------- $3,519,293 ==========
(6) RELATED PARTY TRANSACTIONS In connection with a stock redemption agreement entered into effective April 30, 1986, the Company acquired 736 shares of its outstanding common stock in exchange for the notes payable discussed above. The reacquired common stock is reflected in the accompanying balance sheets as treasury stock and is stated at its cost of $1,382,254. Interest paid to these former shareholders totaled $62,995 in fiscal 1994. In fiscal years 1992 and 1991, the Company borrowed certain amounts from the chairman of the Company's board of directors to finance the acquisition of a warehouse and related equipment and for working capital purposes. Interest paid by the Company to this individual totaled $187,088 in fiscal year 1994. (7) 401(K) PLAN Beginning January 1, 1992, the Company adopted a 401(k) retirement and savings plan (the "Plan"). The Plan is a defined contribution plan covering all employees with over 1,000 hours of annual service with the Company. The Company is not required to contribute to the Plan. In fiscal 1994, the Company expensed an estimated contribution of $57,826. In order to share in the Company's contribution, an employee need not make any cash or deferred contributions. (8) MAJOR CUSTOMERS The Company has two major retail customers which comprised more than 10% of sales each. Sales to these two customers were $11,705,806 and $9,119,177 in fiscal 1994. Related accounts receivable to these two customers were $637,321 and $672,993 at December 31, 1994. F-26 [Graphic consists of six photographs depicting a sampling of the more than 25,000 products offered by United Natural Foods, including grocery and general merchandise, personal care, frozen foods, beverages, perishables and nutritional supplements.] - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THOSE TO WHICH IT RELATES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. --------------- TABLE OF CONTENTS
PAGE ---- Prospectus Summary....................................................... 3 Risk Factors............................................................. 6 The Company.............................................................. 10 Use of Proceeds.......................................................... 12 Dividend Policy.......................................................... 12 Capitalization........................................................... 13 Dilution................................................................. 14 Selected Consolidated Financial Data..................................... 15 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 16 Business................................................................. 23 Management............................................................... 36 Certain Transactions..................................................... 42 Principal and Selling Stockholders....................................... 44 Description of Capital Stock............................................. 46 Shares Eligible for Future Sale.......................................... 48 Underwriting............................................................. 50 Legal Matters............................................................ 51 Experts.................................................................. 51 Additional Information................................................... 51 Index to Financial Statements............................................ F-1
UNTIL , 1996 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL DEAL- ERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN AD- DITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UN- DERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SHARES [LOGO] COMMON STOCK ------- P R O S P E C T U S , 1996 ------- SMITH BARNEY INC. OPPENHEIMER & CO., INC. ROBERTSON, STEPHENS & COMPANY - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the various expenses, all of which will be borne by the Registrant, in connection with the sale and distribution of the securities being registered, other than the underwriting discounts and commissions. All amounts shown are estimates except for the Securities and Exchange Commission registration fee and the NASD filing fee. SEC Registration Fee................................................ $15,863 NASD Filing Fee..................................................... 5,100 Nasdaq National Market Listing Fee.................................. 50,000 Blue Sky Fees and Expenses.......................................... * Transfer Agent and Registrar Fees................................... * Accounting Fees and Expenses........................................ * Legal Fees and Expenses............................................. * Printing and Mailing Expenses....................................... * Miscellaneous....................................................... * ------- Total............................................................. $ * =======
- -------- * To be completed by amendment. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS Article EIGHTH of the Registrant's Amended and Restated Certificate of Incorporation (the "Restated Certificate of Incorporation") provides that no director of the Registrant shall be personally liable for any monetary damages for any breach of fiduciary duty as a director, except to the extent that the Delaware General Corporation Law prohibits the elimination or limitation of liability of directors for breach of fiduciary duty. Article NINTH of the Registrant's Restated Certificate of Incorporation provides that a director or officer of the Registrant (a) shall be indemnified by the Registrant against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement incurred in connection with any litigation or other legal proceeding (other than an action by or in the right of the Registrant) brought against him by virtue of his position as a director or officer of the Registrant if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Registrant, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful and (b) shall be indemnified by the Registrant against all expenses (including attorneys' fees) and amounts paid in settlement incurred in connection with any action by or in the right of the Registrant brought against him by virtue of his position as a director or officer of the Registrant if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Registrant, except that no indemnification shall be made with respect to any matter as to which such person shall have been adjudged to be liable to the Registrant, unless a court determines that, despite such adjudication but in view of all of the circumstances, he is entitled to indemnification of such expenses. Notwithstanding the foregoing, to the extent that a director or officer has been successful, on the merits or otherwise, including, without limitation, the dismissal of an action without prejudice, he is required to be indemnified by the Registrant against all expenses (including attorneys' fees) incurred in connection therewith. Expenses shall be advanced to a director or officer at his request, provided that he undertakes to repay the amount advanced if it is ultimately determined that he is not entitled to indemnification for such expenses. Indemnification is required to be made unless the Registrant determines that the applicable standard of conduct required for indemnification has not been met. In the event of a determination by the Registrant that the director or officer did not meet the applicable standard of conduct required for indemnification, or if the Registrant fails to make an indemnification payment within 60 days after such payment is claimed by such person, such person is permitted to petition the court to make an independent determination as to whether such II-1 person is entitled to indemnification. As a condition precedent to the right of indemnification, the director or officer must give the Registrant notice of the action for which indemnity is sought and the Registrant has the right to participate in such action or assume the defense thereof. Article NINTH of the Registrant's Restated Certificate of Incorporation further provides that the indemnification provided therein is not exclusive, and provides that in the event that the Delaware General Corporation Law is amended to expand the indemnification permitted to directors or officers the Registrant must indemnify those persons to the fullest extent permitted by such law as so amended. Section 145 of the Delaware General Corporation Law provides that a corporation has the power to indemnify a director, officer, employee or agent of the corporation and certain other persons serving at the request of the corporation in related capacities against amounts paid and expenses incurred in connection with an action or proceeding to which he is or is threatened to be made a party by reason of such position, if such person shall have acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, in any criminal proceeding, if such person had no reasonable cause to believe his conduct was unlawful; provided that, in the case of actions brought by or in the right of the corporation, no indemnification shall be made with respect to any matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the adjudicating court determines that such indemnification is proper under the circumstances. Under Section 9 of the Underwriting Agreement, the Underwriters are obligated, under certain circumstances, to indemnify directors and officers of the Registrant against certain liabilities, including liabilities under the Securities Act. Reference is made to the form of Underwriting Agreement filed as Exhibit 1 hereto. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES In connection with a financing in November 1993, the Registrant issued a warrant to Triumph-Connecticut Limited Partnership ("Triumph") giving Triumph the right to purchase 1,166,660 shares of the Registrant's Common Stock, subject to certain repurchase rights held by the Registrant, at an exercise price of $0.00018 per share. In connection with the merger with Mountain People's in February 1996, the Registrant issued 3,213,100 shares of its Common Stock to the Funk Family 1992 Revocable Living Trust in exchange for all of the outstanding stock of Mountain People's. In July 1996, the Registrant issued stock options for an aggregate of 341,000 shares of its Common Stock under the 1996 Option Plan. Options for an aggregate of 324,500 shares are exercisable at a price of $6.38 per share and the remaining options are exercisable at a price of $9.64 per share. No underwriters were engaged in connection with any of the foregoing issuances of securities. The securities issued in the above transactions were offered and sold in reliance upon the exemptions from registration under Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"), or Rule 701 promulgated under the Securities Act, relative to sales by an issuer not involving any public offering. The Registrant has not issued any other securities within the past three years. II-2 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (A) EXHIBITS
EXHIBIT NO. DESCRIPTION ------- ----------- 1 Form of Underwriting Agreement. 3.1 Certificate of Incorporation of the Registrant, as amended. 3.2* Amended and Restated Certificate of Incorporation of the Registrant, to be filed upon closing of this offering. 3.3 By-Laws of the Registrant. 3.4* Amended and Restated By-Laws of the Registrant, to be effective upon the closing of this offering. 4* Specimen Certificate for shares of Common Stock, $.01 par value, of the Registrant. 5* Opinion of Hale and Dorr with respect to the validity of the securities being offered. 10.1 Employee Stock Ownership Plan, as amended. 10.2 Employee Stock Ownership Trust, as amended. 10.3 ESOT Loan Agreement among Norman A. Cloutier, Steven H. Townsend, Daniel V. Atwood, Theodore Cloutier and the Employee Stock Ownership Plan and Trust, dated November 1, 1988, as amended. 10.4 Stock Pledge Agreement between the Employee Stock Ownership Trust and Steven H. Townsend, Trustee for Norman A. Cloutier, Steven H. Townsend, Daniel V. Atwood and Theodore Cloutier, dated November 1, 1988, as amended. 10.5 Trust Agreement between Norman A. Cloutier, Steven H. Townsend, Daniel V. Atwood, Theodore Cloutier and Steven H. Townsend as Trustee, dated November 1, 1988. 10.6 Guaranty Agreement between the Registrant and Steven H. Townsend as Trustee for Norman A. Cloutier, Steven H. Townsend, Daniel V. Atwood and Theodore Cloutier, dated November 1, 1988. 10.7* 1996 Stock Option Plan. 10.8 Stock Acquisition Agreement and Plan of Merger among the Registrant, MPW Acquisition Corporation, Michael S. Funk and Judith A. Funk, individually and as trustees of the Funk Family 1992 Revocable Living Trust, and Mountain People's Warehouse Incorporated ("Mountain People's"), dated December 8, 1995. 10.9 Asset Purchase Agreement between the Registrant and PREM MARK, Inc., d/b/a Rainbow Natural Foods Distributing ("Rainbow"), dated July 27, 1995. 10.10* Stock Purchase Agreement, dated May 22, 1995, between Mountain People's and Nutrasource, Inc. ("Nutrasource") 10.11 Note and Warrant Purchase Agreement between the Registrant and Triumph--Connecticut Limited Partnership ("Triumph"), dated November 17, 1993. 10.12 Senior Note, dated November 17, 1993, between the Registrant and Triumph. 10.13 Registration Rights Agreement between the Registrant and Triumph, dated November 17, 1993. 10.14 Employment Agreement between the Registrant, Mountain People's and Michael S. Funk, dated February 20, 1996. 10.15 Non-competition Agreement between the Registrant and Norman A. Cloutier, dated November 16, 1993. 10.16 Amended and Restated Loan and Security Agreement among the Registrant, Mountain People's, Natural Retail Group, Inc., Rainbow, Nutrasource, Inc. and Fleet Capital Corporation, dated February 20, 1996. 10.17 Purchase and Sale Agreement between the Registrant and O.M. Killingly Investment Company, dated March 31, 1995.
II-3
EXHIBIT NO. DESCRIPTION ------- ----------- 10.18 Real Estate Term Note between the Registrant and Shawmut Capital Corporation (now Fleet Capital Corporation), dated September 8, 1995. 10.19 Distribution Agreement between Mountain People's Wine Distribution, Inc., and Mountain People's, dated August 23, 1994. 10.20 Secured Promissory Note between Michael S. Funk and Mountain People's, dated November 28, 1995. 10.21* Lease, dated January 21, 1992, between Panattoni Catlin Joint Venture and Souza Revocable Trust and Mountain People's. 10.22* Lease, dated July 29, 1995, between Prem Mark, Inc. and the Registrant. 10.23* Lease, dated July 12, 1990, between the Registrant and Sylvan and Stanford Makeover Joint Venture, as amended. 10.24* Lease, dated August 23, 1989, between the Registrant and Bradley Spear and Seattle First National Bank, co-executors of the estate of A.H. Spear. 21 Subsidiaries of the Registrant. 23.1 Consent of Hale and Dorr (included in Exhibit 5). 23.2 Consent of KPMG Peat Marwick LLP. 23.3 Consent of Arthur Andersen LLP. 24 Power of Attorney (included on page II-6). 27 Financial Data Schedule. 99 Consent of Thomas B. Simone.
- -------- * To be filed by amendment. (B) FINANCIAL STATEMENT SCHEDULES Schedule II--Valuation and Qualifying Accounts All other schedules have been omitted because they are not required or because the required information is given in the Consolidated Financial Statements or Notes thereto. ITEM 17. UNDERTAKINGS Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions contained in the Amended and Restated Certificate of Incorporation and Amended and Restated By-laws of the Registrant and the laws of the State of Delaware, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes to provide to the Underwriters at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. II-4 The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Dayville, State of Connecticut, on this 4th day of September, 1996. UNITED NATURAL FOODS, INC. /s/ Norman A. Cloutier By __________________________________ NORMAN A. CLOUTIER PRESIDENT AND CHIEF EXECUTIVE OFFICER II-6 POWER OF ATTORNEY AND SIGNATURES We, the undersigned officers and directors of United Natural Foods, Inc., hereby severally constitute and appoint Norman A. Cloutier, Steven Townsend and Paul V. Rogers, and each of them singly, our true and lawful attorneys with full power to them, and each of them singly, to sign for us and in our names in the capacities indicated below, the Registration Statement on Form S- 1 filed herewith and any and all pre-effective and post-effective amendments to said Registration Statement, and any subsequent Registration Statement for the same offering which may be filed under Rule 462(b), and generally to do all such things in our names and on our behalf in our capacities as officers and directors to enable United Natural Foods, Inc. to comply with the provisions of the Securities Act of 1933, as amended, and all requirements of the Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by our said attorneys, or any of them, to said Registration Statement and any and all amendments thereto or to any subsequent Registration Statement for the same offering which may be filed under Rule 462(b). Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated. SIGNATURE TITLE DATE /s/ Norman A. Cloutier Chairman of the September 4, - ------------------------------------- Board, President 1996 NORMAN A. CLOUTIER and Chief Executive Officer (Principal Executive Officer) /s/ Michael S. Funk - ------------------------------------- Vice Chairman of the September 4, MICHAEL S. FUNK Board and Executive 1996 Vice President /s/ Steven Townsend Chief Financial September 4, - ------------------------------------- Officer, Treasurer 1996 STEVEN TOWNSEND and Director (Principal Financial and Accounting Officer) /s/ Daniel V. Atwood Director September 4, - ------------------------------------- 1996 DANIEL V. ATWOOD /s/ Andrea R. Hendricks Director September 4, - ------------------------------------- 1996 ANDREA R. HENDRICKS /s/ Kevin T. Michel Director September 4, - ------------------------------------- 1996 KEVIN T. MICHEL /s/ Richard J. Williams Director September 4, - ------------------------------------- 1996 RICHARD J. WILLIAMS II-7 SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS ---------------------------------- BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING COST AND OTHER END Bad Debt Allowance OF PERIOD EXPENSES ACCOUNTS (1) DEDUCTIONS OF PERIOD DESCRIPTION ---------- ---------- ------------ ---------- ---------- ----------- Nine months ended July 31, 1996.... $1,274,602 $646,828 -- $643,675 $1,277,755 Year ended October 31, 1995........ 574,664 762,764 $83,010 145,836 1,274,602 Year ended October 31, 1994........ 830,049 148,724 -- 404,109 574,664
(1) Represents the beginning bad debt allowance for Nutrasource, Inc. and Prem Mark, Inc. S-1 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE ------- ----------- ---- 1 Form of Underwriting Agreement. 3.1 Certificate of Incorporation of the Registrant, as amended. 3.2* Amended and Restated Certificate of Incorporation of the Registrant, to be filed upon closing of this offering. 3.3 By-Laws of the Registrant. 3.4* Amended and Restated By-Laws of the Registrant, to be effective upon the closing of this offering. 4* Specimen Certificate for shares of Common Stock, $.01 par value, of the Registrant. 5* Opinion of Hale and Dorr with respect to the validity of the securities being offered. 10.1 Employee Stock Ownership Plan, as amended. 10.2 Employee Stock Ownership Trust, as amended. 10.3 ESOT Loan Agreement among Norman A. Cloutier, Steven H. Townsend, Daniel V. Atwood, Theodore Cloutier and the Employee Stock Ownership Plan and Trust, dated November 1, 1988, as amended. 10.4 Stock Pledge Agreement between the Employee Stock Ownership Trust and Steven H. Townsend, Trustee for Norman A. Cloutier, Steven H. Townsend, Daniel V. Atwood and Theodore Cloutier, dated November 1, 1988, as amended. 10.5 Trust Agreement between Norman A. Cloutier, Steven H. Townsend, Daniel V. Atwood, Theodore Cloutier and Steven H. Townsend as Trustee, dated November 1, 1988. 10.6 Guaranty Agreement between the Registrant and Steven H. Townsend as Trustee for Norman A. Cloutier, Steven H. Townsend, Daniel V. Atwood and Theodore Cloutier, dated November 1, 1988. 10.7* 1996 Stock Option Plan. 10.8 Stock Acquisition Agreement and Plan of Merger among the Registrant, MPW Acquisition Corporation, Michael S. Funk and Judith A. Funk, individually and as trustees of the Funk Family 1992 Revocable Living Trust, and Mountain People's Warehouse Incorporated ("Mountain People's"), dated December 8, 1995. 10.9 Asset Purchase Agreement between the Registrant and PREM MARK, Inc., d/b/a Rainbow Natural Foods Distributing ("Rainbow"), dated July 27, 1995. 10.10* Stock Purchase Agreement, dated May 22, 1995, between Mountain People's and Nutrasource, Inc. ("Nutrasource") 10.11 Note and Warrant Purchase Agreement between the Registrant and Triumph--Connecticut Limited Partnership ("Triumph"), dated November 17, 1993. 10.12 Senior Note, dated November 17, 1993, between the Registrant and Triumph. 10.13 Registration Rights Agreement between the Registrant and Triumph, dated November 17, 1993. 10.14 Employment Agreement between the Registrant, Mountain People's and Michael S. Funk, dated February 20, 1996. 10.15 Non-competition Agreement between the Registrant and Norman A. Cloutier, dated November 16, 1993. 10.16 Amended and Restated Loan and Security Agreement among the Registrant, Mountain People's, Natural Retail Group, Inc., Rainbow, Nutrasource, Inc. and Fleet Capital Corporation, dated February 20, 1996. 10.17 Purchase and Sale Agreement between the Registrant and O.M. Killingly Investment Company, dated March 31, 1995.
EXHIBIT NO. DESCRIPTION PAGE ------- ----------- ---- 10.18 Real Estate Term Note between the Registrant and Shawmut Capital Corporation (now Fleet Capital Corporation), dated September 8, 1995. 10.19 Distribution Agreement between Mountain People's Wine Distribution, Inc., and Mountain People's, dated August 23, 1994. 10.20 Secured Promissory Note between Michael S. Funk and Mountain People's, dated November 28, 1995. 10.21* Lease, dated January 21, 1992, between Panattoni Catlin Joint Venture and Souza Revocable Trust and Mountain People's. 10.22* Lease, dated July 29, 1995, between Prem Mark, Inc. and the Registrant. 10.23* Lease, dated July 12, 1990, between the Registrant and Sylvan and Stanford Makeover Joint Venture, as amended. 10.24* Lease, dated August 23, 1989, between the Registrant and Bradley Spear and Seattle First National Bank, co-executors of the estate of A.H. Spear. 21 Subsidiaries of the Registrant. 23.1 Consent of Hale and Dorr (included in Exhibit 5). 23.2 Consent of KPMG Peat Marwick LLP. 23.3 Consent of Arthur Andersen LLP. 24 Power of Attorney (included on page II-6). 27 Financial Data Schedule. 99 Consent of Thomas B. Simone.
- -------- * To be filed by amendment. EX-1 2 UNDERWRITING AGREEMENT DRAFT: 8/22/96 EXHIBIT 1 _________ Shares UNITED NATURAL FOODS, INC. Common Stock UNDERWRITING AGREEMENT ---------------------- _________, 1996 SMITH BARNEY INC. OPPENHEIMER & CO., INC. ROBERTSON, STEPHENS & COMPANY As Representatives of the Several Underwriters c/o SMITH BARNEY INC. 388 Greenwich Street New York, New York 10013 Dear Sirs: United Natural Foods, Inc., a Delaware corporation (the "Company"), proposes to issue and sell an aggregate of ___________ shares of its common stock, $____ par value per share, to the several Underwriters named in Schedule II hereto (the "Underwriters"). The Company's common stock, $____ par value, is hereinafter referred to as the "Common Stock" and the _______ shares of Common Stock to be issued and sold to the Underwriters by the Company are hereinafter referred to as the "Firm Shares." The persons named in Schedule I hereto (the "Selling Stockholders") propose to sell to the Underwriters, upon the terms and conditions set forth in Section 2 hereof, up to an additional _______ shares (the "Additional Shares") of Common Stock. The Company and the Selling Stockholders are hereinafter sometimes referred to as the "Sellers." The Firm Shares and the Additional Shares are hereinafter collectively referred to as the "Shares." The Company and the Selling Stockholders wish to confirm as follows their respective agreements with you (the "Representatives") and the other several Underwriters on whose behalf you are acting, in connection with the several purchases of the Shares by the Underwriters. 1. Registration Statement and Prospectus. The Company has prepared and filed ------------------------------------- with the Securities and Exchange Commission (the "Commission") in accordance with the provisions of the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder (collectively, the "Act"), a registration statement on Form S-1 under the Act (the "registration statement"), including a prospectus subject to completion relating to the Shares. The term "Registration Statement" as used in this Agreement means the registration statement (including all financial schedules and exhibits), as amended at the time it becomes effective, or, if the registration statement became effective prior to the execution of this Agreement, as supplemented or amended prior to the execution of this Agreement. If it is contemplated, at the time this Agreement is executed, that a post- effective amendment to the registration statement will be filed and must be declared effective before the offering of the Shares may commence, the term "Registration Statement" as used in this Agreement means the registration statement as amended by said post-effective amendment. The term "Prospectus" as used in this Agreement means the prospectus in the form included in the Registration Statement, or, if the prospectus included in the Registration Statement omits information in reliance on Rule 430A under the Act and such information is included in a prospectus filed with the Commission pursuant to Rule 424(b) under the Act, the term "Prospectus" as used in this Agreement means the prospectus in the form included in the Registration Statement as supplemented by the addition of the Rule 430A information contained in the prospectus filed with the Commission pursuant to Rule 424(b). The term "Prepricing Prospectus" as used in this Agreement means the prospectus subject to completion in the form included in the registration statement at the time of the initial filing of the registration statement with the Commission, and as such prospectus shall have been amended from time to time prior to the date of the Prospectus. 2. Agreements to Sell and Purchase. Subject to such adjustments as you may ------------------------------- determine in order to avoid fractional shares, the Company hereby agrees, subject to all the terms and conditions set forth herein, to issue and sell to each Underwriter and, upon the basis of the representations, warranties and agreements of the Company and the Selling Stockholders herein contained and subject to all the terms and conditions set forth herein, each Underwriter agrees, severally and not jointly, to purchase from the Company, at a purchase price of $_____ per Share (the "purchase price per share"), the number of Firm Shares which bears the same proportion to the aggregate number of Firm Shares to be issued and sold by the Company as the number of Firm Shares set forth opposite the name of such Underwriter in Schedule II hereto (or such number of Firm Shares increased as set forth in Section 12 hereof) bears to the aggregate number of Firm Shares to be sold by the Company. The Selling Stockholders listed in Schedule I hereto also agree, subject to all the terms and conditions set forth herein, to sell to the Underwriters, and, upon the basis of the representations, warranties and agreements of the Company and the Selling Stockholders herein contained and subject to all the terms and conditions set forth herein, the Underwriters shall have the right to purchase from the Selling Stockholders listed in Schedule I hereto, at the purchase price per share, pursuant to an option (the "over-allotment option") which may be exercised at any time and from time to time prior to 9:00 P.M., New York City time, on the 30th day after the date of the Prospectus (or, if such 30th day shall be a Saturday or Sunday or a holiday, on the next business day thereafter when the New York Stock Exchange is open for trading), up to an aggregate of _______ Additional Shares from the Selling Stockholders listed in Schedule I hereto (the maximum number of Additional Shares which each of them agrees to sell upon the exercise by 2 the Underwriters of the over-allotment option is set forth opposite their respective names in Schedule I). Additional Shares may be purchased only for the purpose of covering over-allotments made in connection with the offering of the Firm Shares. The number of Additional Shares which the Underwriters elect to purchase upon any exercise of the over-allotment option shall be provided by each Selling Stockholder who has agreed to sell Additional Shares in proportion to the respective maximum numbers of Additional Shares which each such Selling Stockholder has agreed to sell. Upon any exercise of the over-allotment option, each Underwriter, severally and not jointly, agrees to purchase from each Selling Stockholder who has agreed to sell Additional Shares the number of Additional Shares (subject to such adjustments as you may determine in order to avoid fractional shares) which bears the same proportion to the number of Additional Shares to be sold by each Selling Stockholder who has agreed to sell Additional Shares as the number of Firm Shares set forth opposite the name of such Underwriter in Schedule II hereto (or such number of Firm Shares increased as set forth in Section 12 hereof) bears to the aggregate number of Firm Shares to be sold by the Selling Stockholders. Certificates in transferable form for the Shares (including any Additional Shares) which each of the Selling Stockholders agrees to sell pursuant to this Agreement have been placed in custody with ___________ (the "Custodian") for delivery under this Agreement pursuant to a Custody Agreement and Power of Attorney (the "Custody Agreement") executed by each of the Selling Stockholders appointing _______________ and ________________ as agents and attorneys-in-fact (the "Attorneys-in-Fact"). Each Selling Stockholder agrees that (i) the Shares represented by the certificates held in custody pursuant to the Custody Agreement are subject to the interests of the Underwriters, the Company and each other Selling Stockholder, (ii) the arrangements made by the Selling Stockholders for such custody are, except as specifically provided in the Custody Agreement, irrevocable, and (iii) the obligations of the Selling Stockholders hereunder and under the Custody Agreement shall not be terminated by any act of such Selling Stockholder or by operation of law, whether by the death or incapacity of any Selling Stockholder or the occurrence of any other event. If any Selling Stockholder shall die or be incapacitated or if any other event shall occur before the delivery of the Shares hereunder, certificates for the Shares of such Selling Stockholder shall be delivered to the Underwriters by the Attorneys-in-Fact in accordance with the terms and conditions of this Agreement and the Custody Agreement as if such death or incapacity or other event had not occurred, regardless of whether or not the Attorneys-in-Fact or any Underwriter shall have received notice of such death, incapacity or other event. Each Attorney-in-Fact is authorized, on behalf of each of the Selling Stockholders, to execute this Agreement and any other documents necessary or desirable in connection with the sale of the Shares to be sold hereunder by such Selling Stockholder, to make delivery of the certificates for such Shares, to receive the proceeds of the sale of such Shares, to give receipts for such proceeds, to pay therefrom any expenses to be borne by such Selling Stockholder in connection with the sale and public offering of such Shares, to distribute the balance thereof to such Selling Stockholder, and to take such other action as may be necessary or desirable in connection with the transactions contemplated by this Agreement. Each Attorney-in-Fact agrees to perform his duties under the Custody Agreement. 3 3. Terms of Public Offering. The Sellers have been advised by you that the ------------------------ Underwriters propose to make a public offering of their respective portions of the Shares as soon after the Registration Statement and this Agreement have become effective as in your judgment is advisable and initially to offer the Shares upon the terms set forth in the Prospectus. 4. Delivery of the Shares and Payment Therefor. Delivery to the Underwriters ------------------------------------------- of and payment for the Firm Shares shall be made at the office of Smith Barney Inc., 388 Greenwich Street, New York, NY 10013, at 10:00 A.M., New York City time, on ___________, 1995 (the "Closing Date"). The place of closing for the Firm Shares and the Closing Date may be varied by agreement among you, the Company and the Attorneys-in-Fact. Delivery to the Underwriters of and payment for any Additional Shares to be purchased by the Underwriters shall be made at the aforementioned office of Smith Barney Inc. at such time on such date (the "Option Closing Date"), which may be the same as the Closing Date but shall in no event be earlier than the Closing Date nor earlier than two nor later than ten business days after the giving of the notice hereinafter referred to, as shall be specified in a written notice from you on behalf of the Underwriters to the Company and the Attorneys- in-Fact of the Underwriters' determination to purchase a number, specified in such notice, of Additional Shares. The place of closing for any Additional Shares and the Option Closing Date for such Shares may be varied by agreement among you, the Company and the Attorneys-in-Fact. Certificates for the Firm Shares and for any Additional Shares to be purchased hereunder shall be registered in such names and in such denominations as you shall request prior to 9:30 A.M., New York City time, on the second business day preceding the Closing Date or any Option Closing Date, as the case may be. Such certificates shall be made available to you in New York City for inspection and packaging not later than 9:30 A.M., New York City time, on the business day next preceding the Closing Date or the Option Closing Date, as the case may be. The certificates evidencing the Firm Shares and any Additional Shares to be purchased hereunder shall be delivered to you on the Closing Date or the Option Closing Date, as the case may be, against payment of the purchase price therefor in immediately available funds. 5. Agreements of the Company. The Company agrees with the several ------------------------- Underwriters as follows: (a) If, at the time this Agreement is executed and delivered, it is necessary for the Registration Statement or a post-effective amendment thereto to be declared effective before the offering of the Shares may commence, the Company will endeavor to cause the Registration Statement or such post-effective amendment to become effective as soon as possible and will advise you promptly and, if requested by you, will confirm such advice in writing, when the Registration Statement or such post-effective amendment has become effective. (b) The Company will advise you promptly and, if requested by you, will confirm such advice in writing: (i) of any request by the Commission for amendment of or a 4 supplement to the Registration Statement, any Prepricing Prospectus or the Prospectus or for additional information; (ii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of the suspension of qualification of the Shares for offering or sale in any jurisdiction or the initiation of any proceeding for such purpose; and (iii) within the period of time referred to in paragraph (f) below, of any change in the Company's condition (financial or other), business, prospects, properties, net worth or results of operations, or of the happening of any event, which makes any statement of a material fact made in the Registration Statement or the Prospectus (as then amended or supplemented) untrue or which requires the making of any additions to or changes in the Registration Statement or the Prospectus (as then amended or supplemented) in order to state a material fact required by the Act or the regulations thereunder to be stated therein or necessary in order to make the statements therein not misleading, or of the necessity to amend or supplement the Prospectus (as then amended or supplemented) to comply with the Act or any other law. If at any time the Commission shall issue any stop order suspending the effectiveness of the Registration Statement, the Company will make every reasonable effort to obtain the withdrawal of such order at the earliest possible time. (c) The Company will furnish to you, without charge, four signed copies of the registration statement as originally filed with the Commission and of each amendment thereto, including financial statements and all exhibits thereto, and will also furnish to you, without charge, such number of conformed copies of the registration statement as originally filed and of each amendment thereto, but without exhibits, as you may request. (d) The Company will not (i) file any amendment to the Registration Statement or make any amendment or supplement to the Prospectus of which you shall not previously have been advised or to which you shall object after being so advised or (ii) so long as, in the opinion of counsel for the Underwriters, a Prospectus is required to be delivered in connection with sales by any Underwriter or dealer, file any information, documents or reports pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act") without delivering a copy of such information, documents or reports to you, as Representatives of the Underwriters, prior to or concurrently with such filing. (e) Prior to the execution and delivery of this Agreement, the Company has delivered to you, without charge, in such quantities as you have requested, copies of each form of the Prepricing Prospectus. The Company consents to the use, in accordance with the provisions of the Act and with the securities or Blue Sky laws of the jurisdictions in which the Shares are offered by the several Underwriters and by dealers, prior to the date of the Prospectus, of each Prepricing Prospectus so furnished by the Company. (f) As soon after the execution and delivery of this Agreement as possible and thereafter from time to time for such period as in the opinion of counsel for the Underwriters a prospectus is required by the Act to be delivered in connection with sales by any Underwriter or dealer, the Company will expeditiously deliver to each Underwriter and each dealer, without charge, as many copies of the Prospectus (and of any amendment or supplement thereto) as you 5 may request. The Company consents to the use of the Prospectus (and of any amendment or supplement thereto) in accordance with the provisions of the Act and with the securities or Blue Sky laws of the jurisdictions in which the Shares are offered by the several Underwriters and by all dealers to whom Shares may be sold, both in connection with the offering and sale of the Shares and for such period of time thereafter as the Prospectus is required by the Act to be delivered in connection with sales by any Underwriter or dealer. If during such period of time any event shall occur that in the judgment of the Company or in the opinion of counsel for the Underwriters is required to be set forth in the Prospectus (as then amended or supplemented) or should be set forth therein in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it is necessary to supplement or amend the Prospectus to comply with the Act or any other law, the Company will forthwith prepare and, subject to the provisions of paragraph (d) above, file with the Commission an appropriate supplement or amendment thereto, and will expeditiously furnish to the Underwriters and dealers a reasonable number of copies thereof. In the event that the Company and you, as Representatives of the several Underwriters, agree that the Prospectus should be amended or supplemented, the Company, if requested by you, will promptly issue a press release announcing or disclosing the matters to be covered by the proposed amendment or supplement. (g) The Company will cooperate with you and with counsel for the Underwriters in connection with the registration or qualification of the Shares for offering and sale by the several Underwriters and by dealers under the securities or Blue Sky laws of such jurisdictions as you may designate and will file such consents to service of process or other documents necessary or appropriate in order to effect such registration or qualification; provided that in no event shall the Company be obligated to qualify to do business in any jurisdiction where it is not now so qualified or to take any action which would subject it to service of process in suits, other than those arising out of the offering or sale of the Shares, in any jurisdiction where it is not now so subject. (h) The Company will make generally available to its security holders a consolidated earnings statement, which need not be audited, covering a twelve- month period commencing after the effective date of the Registration Statement and ending not later than 15 months thereafter, as soon as practicable after the end of such period, which consolidated earnings statement shall satisfy the provisions of Section ll(a) of the Act. (i) During the period of five years hereafter, the Company will furnish to you (i) as soon as available, a copy of each report of the Company mailed to stockholders or filed with the Commission, and (ii) from time to time such other information concerning the Company as you may request. (j) If this Agreement shall terminate or shall be terminated after execution pursuant to any provisions hereof (otherwise than pursuant to the second paragraph of Section 12 hereof or by notice given by you terminating this Agreement pursuant to Section 12 or Section 13 hereof) or if this Agreement shall be terminated by the Underwriters because of any failure or 6 refusal on the part of the Company or the Selling Stockholders to comply with the terms or fulfill any of the conditions of this Agreement, the Company agrees to reimburse the Representatives for all out-of-pocket expenses (including fees and expenses of counsel for the Underwriters) incurred by you in connection herewith. (k) The Company will apply the net proceeds from the sale of the Shares to be sold by it hereunder substantially in accordance with the description set forth in the Prospectus. (l) If Rule 430A of the Act is employed, the Company will timely file the Prospectus pursuant to Rule 424(b) under the Act and will advise you of the time and manner of such filing. (m) Except as provided in this Agreement, the Company will not sell, contract to sell or otherwise dispose of any Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock, or grant any options or warrants to purchase Common Stock, for a period of 180 days after the date of the Prospectus, without the prior written consent of Smith Barney Inc. (n) The Company has furnished or will furnish to you "lock-up" letters, in form and substance satisfactory to you, signed by each of its current officers and directors and each of its stockholders designated by you. (o) Except as stated in this Agreement and in the Prepricing Prospectus and Prospectus, the Company has not taken, nor will it take, directly or indirectly, any action designed to or that might reasonably be expected to cause or result in stabilization or manipulation of the price of the Common Stock to facilitate the sale or resale of the Shares. (p) The Company will use its best efforts to have the Common Stock listed, subject to notice of issuance, on the Nasdaq National Market concurrently with the effectiveness of the registration statement. 6. Agreements of the Selling Stockholders. Each of the Selling Stockholders -------------------------------------- agrees with the several Underwriters as follows: (a) Such Selling Stockholder will cooperate to the extent necessary to cause the registration statement or any post-effective amendment thereto to become effective at the earliest possible time. (b) Such Selling Stockholder will pay all Federal and other taxes, if any on the transfer or sale of the Shares being sold by the Selling Stockholder to the Underwriters. (c) Such Selling Stockholder will do or perform all things required to be done or performed by the Selling Stockholder prior to the Closing Date or any Option Closing Date, 7 as the case may be, to satisfy all conditions precedent to the delivery of the Shares pursuant to this Agreement. (d) Such Selling Stockholder has executed or will execute a "lock-up" letter as provided in Section 5(n) above and will not sell, contract to sell or otherwise dispose of any Common Stock, except for the sale of Shares to the Underwriters pursuant to this Agreement, prior to the expiration of 180 days after the date of the Prospectus, without the prior written consent of Smith Barney Inc. (e) Except as stated in this Agreement and in the Prepricing Prospectus and the Prospectus, such Selling Stockholder will not take, directly or indirectly, any action designed to or that might reasonably be expected to cause or result in stabilization or manipulation of the price of the Common Stock to facilitate the sale or resale of the Shares. (f) Such Selling Stockholder will advise you promptly, and if requested by you, will confirm such advice in writing, within the period of time referred to in Section 5(f) hereof, of any change in the Company's condition (financial or other), business, prospects, properties, net worth or results of operations or of any change in information relating to such Selling Stockholder or the Company or any new information relating to the Company or relating to any matter stated in the Prospectus or any amendment or supplement thereto which comes to the attention of such Selling Stockholder that suggests that any statement made in the Registration Statement or the Prospectus (as then amended or supplemented, if amended or supplemented) is or may be untrue in any material respect or that the Registration Statement or Prospectus (as then amended or supplemented, if amended or supplemented) omits or may omit to state a material fact or a fact necessary to be stated therein in order to make the statements therein not misleading in any material respect, or of the necessity to amend or supplement the Prospectus (as then amended or supplemented, if amended or supplemented) in order to comply with the Act or any other law. 7. Representations and Warranties of the Company. The Company represents and --------------------------------------------- warrants to each Underwriter that: (a) Each Prepricing Prospectus included as part of the registration statement as originally filed or as part of any amendment or supplement thereto, or filed pursuant to Rule 424 under the Act, complied when so filed in all material respects with the provisions of the Act. The Commission has not issued any order preventing or suspending the use of any Prepricing Prospectus. (b) The registration statement in the form in which it became or becomes effective and also in such form as it may be when any post-effective amendment thereto shall become effective and the prospectus and any supplement or amendment thereto when filed with the Commission under Rule 424(b) under the Act, complied or will comply in all material respects with the provisions of the Act and did not or will not at any such times contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or 8 necessary to make the statements therein not misleading, except that this representation and warranty does not apply to statements in or omissions from the registration statement or the prospectus made in reliance upon and in conformity with information relating to any Underwriter furnished to the Company in writing by or on behalf of any Underwriter through you expressly for use therein. (c) All the outstanding shares of Common Stock of the Company have been duly authorized and validly issued, are fully paid and nonassessable and are free of any preemptive or similar rights; the Shares to be issued and sold by the Company have been duly authorized and, when issued and delivered to the Underwriters against payment therefor in accordance with the terms hereof, will be validly issued, fully paid and nonassessable and free of any preemptive or similar rights; and the capital stock of the Company conforms to the description thereof in the registration statement and the prospectus. (d) The Company is a corporation duly organized and validly existing in good standing under the laws of the State of Delaware with full corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement and the Prospectus, and is duly registered and qualified to conduct its business and is in good standing in each jurisdiction or place where the nature of its properties or the conduct of its business requires such registration or qualification, except where the failure so to register or qualify does not have a material adverse effect on the condition (financial or other), business, properties, net worth or results of operations of the Company and the Subsidiaries (as hereinafter defined) taken as a whole. (e) All the Company's subsidiaries (collectively, the "Subsidiaries") are listed in an exhibit to the Registration Statement. Each Subsidiary is a corporation duly organized, validly existing and in good standing in the jurisdiction of its incorporation, with full corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement and the Prospectus, and is duly registered and qualified to conduct its business and is in good standing in each jurisdiction or place where the nature of its properties or the conduct of its business requires such registration or qualification, except where the failure so to register or qualify does not have a material adverse effect on the condition (financial or other), business, properties, net worth or results of operations of such Subsidiary; all the outstanding shares of capital stock of each of the Subsidiaries have been duly authorized and validly issued, are fully paid and nonassessable, and are owned by the Company directly, or indirectly through one of the other Subsidiaries, free and clear of any lien, adverse claim, security interest, equity or other encumbrance. (f) There are no legal or governmental proceedings pending or, to the knowledge of the Company, threatened, against the Company or any of the Subsidiaries, or to which the Company or any of the Subsidiaries, or to which any of their respective properties is subject, that are required to be described in the Registration Statement or the Prospectus but are not described as required, and there are no agreements, contracts, indentures, leases or other 9 instruments that are required to be described in the Registration Statement or the Prospectus or to be filed as an exhibit to the Registration Statement that are not described or filed as required by the Act. (g) Neither the Company nor any of the Subsidiaries is in violation of its certificate or articles of incorporation or by-laws, or other organizational documents, or of any law, ordinance, administrative or governmental rule or regulation applicable to the Company or any of the Subsidiaries or of any decree of any court or governmental agency or body having jurisdiction over the Company or any of the Subsidiaries, or in default in any material respect in the performance of any obligation, agreement or condition contained in any bond, debenture, note or any other evidence of indebtedness or in any material agreement, indenture, lease or other instrument to which the Company or any of the Subsidiaries is a party or by which any of them or any of their respective properties may be bound. (h) Neither the issuance and sale of the Shares, the execution, delivery or performance of this Agreement by the Company nor the consummation by the Company of the transactions contemplated hereby (A) requires any consent, approval, authorization or other order of or registration or filing with, any court, regulatory body, administrative agency or other governmental body, agency or official (except such as may be required for the registration of the Shares under the Act and the Exchange Act and compliance with the securities or Blue Sky laws of various jurisdictions, all of which have been or will be effected in accordance with this Agreement) or conflicts or will conflict with or constitutes or will constitute a breach of, or a default under, the certificate or articles of incorporation or bylaws, or other organizational documents, of the Company or any of the Subsidiaries or (B) conflicts or will conflict with or constitutes or will constitute a breach of, or a default under, any agreement, indenture, lease or other instrument to which the Company or any of the Subsidiaries is a party or by which any of them or any of their respective properties may be bound, or violates or will violate any statute, law, regulation or filing or judgment, injunction, order or decree applicable to the Company or any of the Subsidiaries or any of their respective properties, or will result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of the Subsidiaries pursuant to the terms of any agreement or instrument to which any of them is a party or by which any of them may be bound or to which any of the property or assets of any of them is subject. (i) The accountants, KPMG Peat Marwick LLP and Arthur Andersen LLP, who have certified or shall certify the financial statements included in the Registration Statement and the Prospectus (or any amendment or supplement thereto) are independent public accountants as required by the Act. (j) The financial statements, together with related schedules and notes, included in the Registration Statement and the Prospectus (and any amendment or supplement thereto), present fairly the consolidated financial position, results of operations and changes in financial position of the Company and the Subsidiaries on the basis stated in the Registration Statement at 10 the respective dates or for the respective periods to which they apply; such statements and related schedules and notes have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods involved, except as disclosed therein; and the other financial and statistical information and data included in the Registration Statement and the Prospectus (and any amendment or supplement thereto) are accurately presented and prepared on a basis consistent with such financial statements and the books and records of the Company and the Subsidiaries. (k) The execution and delivery of, and the performance by the Company of its obligations under, this Agreement have been duly and validly authorized by the Company, and this Agreement has been duly executed and delivered by the Company and constitutes the valid and legally binding agreement of the Company, enforceable against the Company in accordance with its terms, except as rights to indemnity and contribution hereunder may be limited by federal or state securities laws. (l) Except as disclosed in the Registration Statement and the Prospectus (or any amendment or supplement thereto), subsequent to the respective dates as of which such information is given in the Registration Statement and the Prospectus (or any amendment or supplement thereto), neither the Company nor any of the Subsidiaries has incurred any liability or obligation, direct or contingent, or entered into any transaction, not in the ordinary course of business, that is material to the Company and the Subsidiaries taken as a whole, and there has not been any change in the capital stock, or material increase in the short-term debt or long-term debt, of the Company or any of the Subsidiaries, or any material adverse change, or any development involving or which may reasonably be expected to involve, a prospective material adverse change, in the condition (financial or other), business, net worth or results of operations of the Company and the Subsidiaries taken as a whole. (m) Each of the Company and the Subsidiaries has good and marketable title to all property (real and personal) described in the Prospectus as being owned by it, free and clear of all liens, claims, security interests or other encumbrances except such as are described in the Registration Statement and the Prospectus or in a document filed as an exhibit to the Registration Statement and all the property described in the Prospectus as being held under lease by each of the Company and the Subsidiaries is held by it under valid, subsisting and enforceable leases. (n) The Company has not distributed and, prior to the later to occur of (i) the Closing Date and (ii) completion of the distribution of the Shares, will not distribute any offering material in connection with the offering and sale of the Shares other than the Registration Statement, the Prepricing Prospectus, the Prospectus or other materials, if any, permitted by the Act. (o) The Company and each of the Subsidiaries has such permits, licenses, franchises and authorizations of governmental or regulatory authorities ("permits") as are necessary to own its respective properties and to conduct its business in the manner described in 11 the Prospectus, subject to such qualifications as may be set forth in the Prospectus; the Company and each of the Subsidiaries has fulfilled and performed all its material obligations with respect to such permits and no event has occurred which allows, or after notice or lapse of time would allow, revocation or termination thereof or results in any other material impairment of the rights of the holder of any such permit, subject in each case to such qualification as may be set forth in the Prospectus; and, except as described in the Prospectus, none of such permits contains any restriction that is materially burdensome to the Company or any of the Subsidiaries. (p) The Company maintains a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management's general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (q) To the Company's knowledge, neither the Company nor any of its Subsidiaries nor any employee or agent of the Company or any Subsidiary has made any payment of funds of the Company or any Subsidiary or received or retained any funds in violation of any law, rule or regulation, which payment, receipt or retention of funds is of a character required to be disclosed in the Prospectus. (r) The Company and each of the Subsidiaries have filed all tax returns required to be filed, which returns are complete and correct, and neither the Company nor any Subsidiary is in default in the payment of any taxes which were payable pursuant to said returns or any assessments with respect thereto. (s) No holder of any security of the Company has any right to require registration of shares of Common Stock or any other security of the Company because of the filing of the registration statement or consummation of the transactions contemplated by this Agreement. (t) The Company and the Subsidiaries own or possess all patents, trademarks, trademark registrations, service marks, service mark registrations, trade names, copyrights, licenses, inventions, trade secrets and rights described in the Prospectus as being owned by them or any of them or necessary for the conduct of their respective businesses, and the Company is not aware of any claim to the contrary or any challenge by any other person to the rights of the Company and the Subsidiaries with respect to the foregoing. (u) The Company is not now, and after sale of the Shares to be sold by it hereunder and application of the net proceeds from such sale as described in the Prospectus under the caption "Use of Proceeds" will not be, an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 12 (v) The Company has complied with all provisions of Florida Statutes, '517.075, relating to issuers doing business with Cuba. 8. Representations and Warranties of the Selling Stockholders. Each Selling ---------------------------------------------------------- Stockholder represents and warrants to each Underwriter that: (a) Such Selling Stockholder now has, and on the Closing Date and any Option Closing Date will have, valid and marketable title to the Shares to be sold by such Selling Stockholder, free and clear of any lien, claim, security interest or other encumbrance, including, without limitation, any restriction on transfer. (b) Such Selling Stockholder now has, and on the Closing Date and any Option Closing Date will have, full legal right, power and authorization, and any approval required by law, to sell, assign transfer and deliver such Shares in the manner provided in this Agreement, and upon delivery of and payment for such Shares hereunder, the several Underwriters will acquire valid and marketable title to such Shares free and clear of any lien, claim, security interest, or other encumbrance. (c) This Agreement and the Custody Agreement have been duly authorized, executed and delivered by or on behalf of such Selling Stockholder and are the valid and binding agreements of such Selling Stockholder enforceable against such Selling Stockholder in accordance with their terms. (d) Neither the execution and delivery of this Agreement or the Custody Agreement by or on behalf of such Selling Stockholder nor the consummation of the transactions herein or therein contemplated by or on behalf of such Selling Stockholder requires any consent, approval, authorization or order of, or filing or registration with, any court, regulatory body, administrative agency or other governmental body, agency or official (except such as may be required under the Act or such as may be required under state securities or Blue Sky laws governing the purchase and distribution of the Shares) or conflicts or will conflict with or constitutes or will constitute a breach of, or default under, or violates or will violate, any agreement, indenture or other instrument to which such Selling Stockholder is a party or by which such Selling Stockholder is or may be bound or to which any of such Selling Stockholder's property or assets is subject, or any statute, law, rule, regulation, ruling, judgment, injunction, order or decree applicable to such Selling Stockholder or to any property or assets of such Selling Stockholder. (e) The Registration Statement and the Prospectus, insofar as they relate to such Selling Stockholder, do not and will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading. 13 (f) Such Selling Stockholder does not have any knowledge or any reason to believe that the Registration Statement or the Prospectus (or any amendment or supplement thereto) contains any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading. (g) The representations and warranties of such Selling Stockholder in the Custody Agreement are, and on the Closing Date and any Option Closing Date will be, true and correct. (h) Such Selling Stockholder has not taken, directly or indirectly, any action designed to or that might reasonably be expected to cause or result in stabilization or manipulation of the price of the Common Stock to facilitate the sale or resale of the Shares, except for the lock-up arrangements described in the Prospectus. 9. Indemnification and Contribution. -------------------------------- (a) The Company and each Selling Stockholder, jointly and severally, agree to indemnify and hold harmless each of you and each other Underwriter and each person, if any, who controls any Underwriter within the meaning of Section 15 of the Act or Section 20(a) the Exchange Act from and against any and all losses, claims, damages, liabilities and expenses (including reasonable costs of investigation) arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in any Prepricing Prospectus or in the Registration Statement or the Prospectus or in any amendment or supplement thereto, or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities or expenses arise out of or are based upon any untrue statement or omission or alleged untrue statement or omission which has been made therein or omitted therefrom in reliance upon and in conformity with the information relating to such Underwriter furnished in writing to the Company by or on behalf of any Underwriter through you expressly for use in connection therewith; provided, however, that the indemnification contained in this paragraph (a) with respect to any Prepricing Prospectus shall not inure to the benefit of any Underwriter (or to the benefit of any person controlling such Underwriter) on account of any such loss, claim, damage, liability or expense arising from the sale of the Shares by such Underwriter to any person if a copy of the Prospectus shall not have been delivered or sent to such person within the time required by the Act and the regulations thereunder, and the untrue statement or alleged untrue statement or omission or alleged omission of a material fact contained in such Prepricing Prospectus was corrected in the Prospectus, provided that the Company has delivered the Prospectus to the several Underwriters in requisite quantity on a timely basis to permit such delivery or sending. The foregoing indemnity agreement shall be in addition to any liability which the Company or any Selling Stockholder may otherwise have. (b) If any action, suit or proceeding shall be brought against any Underwriter or any person controlling any Underwriter in respect of which indemnity may be sought against 14 the Company or any Selling Stockholder, such Underwriter or such controlling person shall promptly notify the parties against whom indemnification is being sought (the "indemnifying parties"), and such indemnifying parties shall assume the defense thereof, including the employment of counsel and payment of all fees and expenses. Such Underwriter or any such controlling person shall have the right to employ separate counsel in any such action, suit or proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Underwriter or such controlling person unless (i) the indemnifying parties have agreed in writing to pay such fees and expenses, (ii) the indemnifying parties have failed to assume the defense and employ counsel, or (iii) the named parties to any such action, suit or proceeding (including any impleaded parties) include both such Underwriter or such controlling person and the indemnifying parties and such Underwriter or such controlling person shall have been advised by its counsel that representation of such indemnified party and any indemnifying party by the same counsel would be inappropriate under applicable standards of professional conduct (whether or not such representation by the same counsel has been proposed) due to actual or potential differing interests between them (in which case the indemnifying party shall not have the right to assume the defense of such action, suit or proceeding on behalf of such Underwriter or such controlling person). It is understood, however, that the indemnifying parties shall, in connection with any one such action, suit or proceeding or separate but substantially similar or related actions, suits or proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of only one separate firm of attorneys (in addition to any local counsel) at any time for all such Underwriters and controlling persons not having actual or potential differing interests with you or among themselves, which firm shall be designated in writing by Smith Barney Inc., and that all such fees and expenses shall be reimbursed as they are incurred. The indemnifying parties shall not be liable for any settlement of any such action, suit or proceeding effected without their written consent, but if settled with such written consent, or if there be a final judgment for the plaintiff in any such action, suit or proceeding, the indemnifying parties agree to indemnify and hold harmless any Underwriter, to the extent provided in the preceding paragraph, and any such controlling person from and against any loss, claim, damage, liability or expense by reason of such settlement or judgment. (c) Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company, its directors, its officers who sign the Registration Statement, each Selling Stockholder, and any person who controls the Company within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, to the same extent as the foregoing indemnity from the Company and the Selling Stockholders to each Underwriter, but only with respect to information relating to such Underwriter furnished in writing by or on behalf of such Underwriter through you expressly for use in the Registration Statement, the Prospectus or any Prepricing Prospectus, or any amendment or supplement thereto. If any action, suit or proceeding shall be brought against the Company, any of its directors, any such officer, any Selling Stockholder, or any such controlling person based on the Registration Statement, the Prospectus or any Prepricing Prospectus, or any amendment or supplement thereto, and in respect of which indemnity may be sought against any Underwriter pursuant to this paragraph (c), such Underwriter shall have the 15 rights and duties given to the Company by paragraph (b) above (except that if the Company shall have assumed the defense thereof such Underwriter shall not be required to do so, but may employ separate counsel therein and participate in the defense thereof, but the fees and expenses of such counsel shall be at such Underwriter's expense), and the Company, its directors, any such officer, the Selling Stockholder, and any such controlling person shall have the rights and duties given to the Underwriters by paragraph (b) above. The foregoing indemnity agreement shall be in addition to any liability which any Underwriter may otherwise have. (d) If the indemnification provided for in this Section 9 is unavailable to an indemnified party under paragraphs (a) or (c) hereof in respect of any losses, claims, damages, liabilities or expenses referred to therein, then an indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Selling Stockholders on the one hand and the Underwriters on the other hand from the offering of the Shares, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and the Selling Stockholders on the one hand and the Underwriters on the other in connection with the statements or omissions that resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Selling Stockholders on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company and the Selling Stockholders bear to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the Prospectus; provided that, in the event that the Underwriters shall have purchased any Additional Shares hereunder, any determination of the relative benefits received by the Company, the Selling Stockholders or the Underwriters from the offering of the Shares shall include the net proceeds (before deducting expenses) received by the Company and the Selling Stockholders, and the underwriting discounts and commissions received by the Underwriters, from the sale of such Additional Shares, in each case computed on the basis of the respective amounts set forth in the notes to the table on the cover page of the Prospectus. The relative fault of the Company and the Selling Stockholders on the one hand and the Underwriters on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Selling Stockholders on the one hand or by the Underwriters on the other hand and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. (e) The Company, the Selling Stockholders and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 9 were determined by a pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred 16 to in paragraph (d) above. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities and expenses referred to in paragraph (d) above shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating any claim or defending any such action, suit or proceeding. Notwithstanding the provisions of this Section 9, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price of the Shares underwritten by it and distributed to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations to contribute pursuant to this Section 9 are several in proportion to the respective numbers of Firm Shares set forth opposite their names in Schedule II hereto (or such numbers of Firm Shares increased as set forth in Section 12 hereof) and not joint. (f) No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action, suit or proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such action, suit or proceeding. (g) Any losses, claims, damages, liabilities or expenses for which an indemnified party is entitled to indemnification or contribution under this Section 9 shall be paid by the indemnifying party to the indemnified party as such losses, claims, damages, liabilities or expenses are incurred. The indemnity and contribution agreements contained in this Section 9 and the representations and warranties of the Company and the Selling Stockholders set forth in this Agreement shall remain operative and in full force and effect, regardless of (i) any investigation made by or on behalf of any Underwriter or any person controlling any Underwriter, the Company, its directors or officers or the Selling Stockholders or any person controlling the Company, (ii) acceptance of any Shares and payment therefor hereunder, and (iii) any termination of this Agreement. A successor to any Underwriter or any person controlling any Underwriter, or to the Company, its directors or officers, or any person controlling the Company, shall be entitled to the benefits of the indemnity, contribution and reimbursement agreements contained in this Section 9. 10. Conditions of Underwriters' Obligations. The several obligations of the --------------------------------------- Underwriters to purchase the Firm Shares hereunder are subject to the following conditions: (a) If, at the time this Agreement is executed and delivered, it is necessary for the registration statement or a post-effective amendment thereto to be declared effective before the offering of the Shares may commence, the registration statement or such post-effective amendment shall have become effective not later than 5:30 P.M., New York City time, on the date hereof, 17 or at such later date and time as shall be consented to in writing by you, and all filings, if any, required by Rules 424 and 430A under the Act shall have been timely made; no stop order suspending the effectiveness of the registration statement shall have been issued and no proceeding for that purpose shall have been instituted or, to the knowledge of the Company or any Underwriter, threatened by the Commission, and any request of the Commission for additional information (to be included in the registration statement or the prospectus or otherwise) shall have been complied with to your satisfaction. (b) Subsequent to the effective date of this Agreement, there shall not have occurred (i) any change, or any development involving a prospective change, in or affecting the condition (financial or other), business, properties, net worth, or results of operations of the Company or the Subsidiaries not contemplated by the Prospectus, which in your opinion, as Representatives of the several Underwriters, would materially, adversely affect the market for the Shares, or (ii) any event or development relating to or involving the Company or any officer or director of the Company or any Selling Stockholder which makes any statement made in the Prospectus untrue or which, in the opinion of the Company and its counsel or the Underwriters and their counsel, requires the making of any addition to or change in the Prospectus in order to state a material fact required by the Act or any other law to be stated therein or necessary in order to make the statements therein not misleading, if amending or supplementing the Prospectus to reflect such event or development would, in your opinion, as Representatives of the several Underwriters, materially adversely affect the market for the Shares. (c) You shall have received on the Closing Date, an opinion of Hale and Dorr, counsel for the Company and the Selling Stockholders, dated the Closing Date and addressed to you, as Representatives of the several Underwriters, to the effect that: (i) The Company is a corporation duly incorporated and validly existing in good standing under the laws of the State of Delaware with full corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement and the Prospectus (and any amendment or supplement thereto), and is duly registered and qualified to conduct its business and is in good standing in each jurisdiction or place where the nature of its properties or the conduct of its business requires such registration or qualification, except where the failure so to register or qualify does not have a material adverse effect on the condition (financial or other), business, properties, net worth or results of operations of the Company and the Subsidiaries taken as a whole; (ii) Each of the Subsidiaries is a corporation duly organized and validly existing in good standing under the laws of the jurisdiction of its organization, with full corporate power and authority to own, lease, and operate its properties and to conduct its business as described in the Registration Statement and the Prospectus (and any amendment or supplement thereto); and all the outstanding shares of capital stock of each of the Subsidiaries have been duly authorized and validly issued, are fully paid and 18 nonassessable, and are owned by the Company directly, or indirectly through one of the other Subsidiaries, free and clear of any perfected security interest, or, to the best knowledge of such counsel after reasonable inquiry, any other security interest, lien, adverse claim, equity or other encumbrance; (iii) The authorized and outstanding capital stock of the Company is as set forth under the caption "Capitalization" in the Prospectus; and the authorized capital stock of the Company conforms in all material respects as to legal matters to the description thereof contained in the Prospectus under the caption "Description of Capital Stock"; (iv) All the shares of capital stock of the Company outstanding prior to the issuance of the Shares to be issued and sold by the Company hereunder, have been duly authorized and validly issued, and are fully paid and nonassessable; (v) The Shares to be issued and sold to the Underwriters by the Company hereunder have been duly authorized and, when issued and delivered to the Underwriters against payment therefor in accordance with the terms hereof, will be validly issued, fully paid and nonassessable and free of any preemptive, or to the best knowledge of such counsel after reasonable inquiry, similar rights that entitle or will entitle any person to acquire any Shares upon the issuance thereof by the Company; (vi) The form of certificates for the Shares conforms to the requirements of the Delaware General Corporation Law; (vii) The Registration Statement and all post-effective amendments, if any, have become effective under the Act and, to the best knowledge of such counsel after reasonable inquiry, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose are pending before or contemplated by the Commission; and any required filing of the Prospectus pursuant to Rule 424(b) has been made in accordance with Rule 424(b); (viii) The Company has corporate power and authority to enter into this Agreement and to issue, sell and deliver the Shares to be sold by it to the Underwriters as provided herein, and this Agreement has been duly authorized, executed and delivered by the Company and is a valid, legal and binding agreement of the Company, enforceable against the Company in accordance with its terms, except as enforcement of rights to indemnity and contribution hereunder may be limited by Federal or state securities laws or principles of public policy and subject to the qualification that the enforceability of the Company's obligations hereunder may be limited by bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium, and other laws relating to or affecting creditors' rights generally and by general equitable principles; 19 (ix) Neither the Company nor any of the Subsidiaries is in violation of its respective certificate or articles of incorporation or bylaws, or other organizational documents, or to the best knowledge of such counsel after reasonable inquiry, is in default in the performance of any material obligation, agreement or condition contained in any bond, debenture, note or other evidence of indebtedness, except as may be disclosed in the Prospectus; (x) Neither the offer, sale or delivery of the Shares, the execution, delivery or performance of this Agreement, compliance by the Company with the provisions hereof, nor consummation by the Company of the transactions contemplated hereby conflicts or will conflict with or constitutes or will constitute a breach of, or a default under, the certificate or articles of incorporation or bylaws, or other organizational documents, of the Company or any of the Subsidiaries or any agreement, indenture, lease or other instrument to which the Company or any of the Subsidiaries is a party or by which any of them or any of their respective properties is bound that is an exhibit to the Registration Statement, or is known to such counsel after reasonable inquiry, or will result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of the Subsidiaries, nor will any such action result in any violation of any existing law, regulation, ruling (assuming compliance with all applicable state securities and Blue Sky laws), judgment, injunction, order or decree known to such counsel after reasonable inquiry, applicable to the Company, the Subsidiaries or any of their respective properties; (xi) No consent, approval, authorization or other order of, or registration or filing with, any court, regulatory body, administrative agency or other governmental body, agency, or official is required on the part of the Company (except as have been obtained under the Act and the Exchange Act or such as may be required under state securities or Blue Sky laws governing the purchase and distribution of the Shares) for the valid issuance and sale of the Shares to the Underwriters as contemplated by this Agreement; (xii) The Registration Statement and the Prospectus and any supplements or amendments thereto (except for the financial statements and the notes thereto and the schedules and other financial and statistical data included therein, as to which such counsel need not express any opinion) comply as to form in all material respects with the requirements of the Act; (xiii) To the best knowledge of such counsel after reasonable inquiry, (A) other than as described or contemplated in the Prospectus (or any supplement thereto), there are no legal or governmental proceedings pending or threatened against the Company or any of the Subsidiaries, or to which the Company or any of the Subsidiaries, or any of their property, is subject, which are required to be described in the Registration Statement or Prospectus (or any amendment or supplement thereto) and (B) there are no agreements, 20 contracts, indentures, leases or other instruments, that are required to be described in the Registration Statement or the Prospectus (or any amendment or supplement thereto) or to be filed as an exhibit to the Registration Statement that are not described or filed as required, as the case may be; (xiv) To the best knowledge of such counsel after reasonable inquiry, neither the Company nor any of the Subsidiaries is in violation of any law, ordinance, administrative or governmental rule or regulation applicable to the Company or any of the Subsidiaries or of any decree of any court or governmental agency or body having jurisdiction over the Company or any of the Subsidiaries; (xv) The statements in the Registration Statement and Prospectus, insofar as they are descriptions of contracts, agreements or other legal documents, or refer to statements of law or legal conclusions, are accurate and present fairly the information required to be shown; (xvi) This Agreement and the Custody Agreement have each been duly executed and delivered by or on behalf of each of the Selling Stockholders and are valid and binding agreements of each Selling Stockholder enforceable against each Selling Stockholder in accordance with their terms; (xvii) To the knowledge of such counsel, each Selling Stockholder has full legal right, power and authorization, and any approval required by law, to sell, assign, transfer and deliver good and marketable title to the Shares which such Selling Stockholder has agreed to sell pursuant to this Agreement; (xviii) The execution and delivery of this Agreement and the Custody Agreement by the Selling Stockholders and the consummation of the transactions contemplated hereby and thereby will not conflict with, violate, result in a breach of or constitute a default under the terms or provisions of any agreement, indenture, mortgage or other instrument known to such counsel to which any Selling Stockholder is a party or by which any of them or any of their assets or property is bound, or any court order or decree or any law, rule, or regulation applicable to any Selling Stockholder or to any of the property or assets of any Selling Stockholder; (xix) Upon delivery of the Shares pursuant to this Agreement and payment therefor as contemplated herein, the Underwriters will acquire good and marketable title to the Shares free and clear of any lien, claim, security interest, or other encumbrance, restriction on transfer or other defect in title; and (xx) Although counsel has not undertaken, except as otherwise indicated in their opinion, to determine independently, and does not assume any responsibility for, the accuracy or completeness of the statements in the Registration Statement, such counsel 21 has participated in the preparation of the Registration Statement and the Prospectus, including review and discussion of the contents thereof, and nothing has come to the attention of such counsel that has caused it to believe that the Registration Statement at the time the Registration Statement became effective, or the Prospectus, as of its date and as of the Closing Date or the Option Closing Date, as the case may be, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that any amendment or supplement to the Prospectus, as of its respective date, and as of the Closing Date or the Option Closing Date, as the case may be, contained any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading (it being understood that such counsel need express no opinion with respect to the financial statements and the notes thereto and the schedules and other financial and statistical data included in the Registration Statement or the Prospectus). In rendering their opinion as aforesaid, counsel may rely upon an opinion or opinions, each dated the Closing Date, of other counsel retained by them or the Company as to laws of any jurisdiction other than the United States, The Commonwealth of Massachusetts or the General Corporation Law of the State of Delaware, provided that (1) each such local counsel is acceptable to the Representatives, (2) such reliance is expressly authorized by each opinion so relied upon and a copy of each such opinion is delivered to the Representatives and is, in form and substance satisfactory to them and their counsel, and (3) counsel shall state in their opinion that they believe that they and the Underwriters are justified in relying thereon. (d) You shall have received on the Closing Date, an opinion of [Cameron & Mittleman], counsel for the Company, dated the Closing Date and addressed to you, as Representatives of the several Underwriters, to the effect that: (i) The Company and each of the Subsidiaries has full corporate power and authority, and all necessary governmental authorizations, approvals, orders, licenses, certificates, franchises and permits of and from all governmental regulatory officials and bodies (except where the failure so to have any such authorizations, approvals, orders, licenses, certificates, franchises or permits, individually or in the aggregate, would not have a material adverse effect on the business, properties, operations or financial condition of the Company and the Subsidiaries taken as a whole), to own their respective properties and to conduct their respective businesses as now being conducted, as described in the Prospectus; (ii) Except as disclosed in the Prospectus, the Company owns of record, directly or indirectly, all the outstanding shares of capital stock of each of the Subsidiaries free and clear of any lien, adverse claim, security interest, equity, or other encumbrance; 22 (iii) Other than as described or contemplated in the Prospectus (or any supplement thereto), there are no legal or governmental proceedings pending or threatened against the Company or any of the Subsidiaries, or to which the Company or any of the Subsidiaries, or any of their property, is subject, which are required to be described in the Registration Statement or Prospectus (or any amendment or supplement thereto); (iv) There are no agreements, contracts, indentures, leases or other instruments, that are required to be described in the Registration Statement or the Prospectus (or any amendment or supplement thereto) or to be filed as an exhibit to the Registration Statement that are not described or filed as required, as the case may be; (v) The Company and the Subsidiaries own all patents, trademarks, trademark registrations, service marks, service mark registrations, trade names, copyrights, licenses, inventions, trade secrets and rights described in the Prospectus as being owned by them or any of them or necessary for the conduct of their respective businesses, and such counsel is not aware of any claim to the contrary or any challenge by any other person to the rights of the Company and the Subsidiaries with respect to the foregoing; (vi) Neither the Company nor any of the Subsidiaries is in violation of any law, ordinance, administrative or governmental rule or regulation applicable to the Company or any of the Subsidiaries or of any decree of any court or governmental agency or body having jurisdiction over the Company or any of the Subsidiaries; (vii) Except as described in the Prospectus, there are no outstanding options, warrants or other rights calling for the issuance of, and such counsel does not know of any commitment, plan or arrangement to issue, any shares of capital stock of the Company or any security convertible into or exchangeable or exercisable for capital stock of the Company; and (viii) Except as described in the Prospectus, there is no holder of any security of the Company or any other person who has the right, contractual or otherwise, to cause the Company to sell or otherwise issue to them, or to permit them to underwrite the sale of, the Shares or the right to have any Common Stock or other securities of the Company included in the registration statement or the right, as a result of the filing of the registration statement, to require registration under the Act of any shares of Common Stock or other securities of the Company. (e) You shall have received on the Closing Date an opinion of Goodwin, Procter & Hoar LLP, counsel for the Underwriters, dated the Closing Date and addressed to you, as Representatives of the several Underwriters, with respect to the matters referred to in clauses (v) (with the exception of those matters addressed following the word "nonassessable"), (vii), (viii) (with the exception of those matters addressed prior to the words "this Agreement has been 23 duly Authorized"), (xii) and (xx) of the foregoing paragraph (c) and such other related matters as you may request. (f) You shall have received letters addressed to you, as Representatives of the several Underwriters, and dated the date hereof and the Closing Date from KPMG Peat Marwick LLP [and Arthur Andersen LLP], independent certified public accountants, substantially in the forms heretofore approved by you. (g)(i) No stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been taken or, to the knowledge of the Company, shall be contemplated by the Commission at or prior to the Closing Date; (ii) there shall not have been any change in the capital stock of the Company nor any material increase in the short-term or long-term debt of the Company (other than in the ordinary course of business) from that set forth or contemplated in the Registration Statement or the Prospectus (or any amendment or Supplement thereto); (iii) there shall not have been, since the respective dates as of which information is given in the Registration Statement and the Prospectus (or any amendment or supplement thereto), except as may otherwise be stated in the Registration Statement and Prospectus (or any amendment or supplement thereto), any material adverse change in the condition (financial or other), business, prospects, properties, net worth or results of operations of the Company and the Subsidiaries taken as a whole; (iv) the Company and the Subsidiaries shall not have any liabilities or obligations, direct or contingent (whether or not in the ordinary course of business), that are material to the Company and the Subsidiaries, taken as a whole, other than those reflected in the Registration Statement or the Prospectus (or any amendment or supplement thereto); and (v) all the representations and warranties of the Company contained in this Agreement shall be true and correct on and as of the date hereof and on and as of the Closing Date as if made on and as of the Closing Date, and you shall have received a certificate, dated the Closing Date and signed by the chief executive officer and the chief financial officer of the Company (or such other officers as are acceptable to you), to the effect set forth in this Section 10(g) and in Section 10(h) hereof. (h) The Company shall not have failed at or prior to the Closing Date to have performed or complied with any of its agreements herein contained and required to be performed or complied with by it hereunder at or prior to the Closing Date. (i) All the representations and warranties of the Selling Stockholders contained in this Agreement shall be true and correct on and as of the date hereof and on and as of the Closing Date as if made on and as of the Closing Date, and you shall have received a certificate, dated the Closing Date and signed by or on behalf of the Selling Stockholders to the effect set forth in this Section 10(i) and in Section 10(j) hereof. (j) The Selling Stockholders shall not have failed at or prior to the Closing Date to have performed or complied with any of their agreements herein contained and required to be performed or complied with by them hereunder at or prior to the Closing Date. 24 (k) The Shares shall have been listed or approved for listing upon notice of issuance on the Nasdaq National Market. (l) The Sellers shall have furnished or caused to be furnished to you such further certificates and documents as you shall have requested. All such opinions, certificates, letters and other documents will be in compliance with the provisions hereof only if they are satisfactory in form and substance to you and your counsel. Any certificate or document signed by any officer of the Company or any Attorney-in-Fact or any Selling Stockholder and delivered to you, as Representatives of the Underwriters, or to counsel for the Underwriters, shall be deemed a representation and warranty by the Company, the Selling Stockholders or the particular Selling Stockholder, as the case may be, to each Underwriter as to the statements made therein. The several obligations of the Underwriters to purchase Additional Shares hereunder are subject to the satisfaction on and as of any Option Closing Date of the conditions set forth in this Section 10, except that, if any Option Closing Date is other than the Closing Date, the certificates, opinions and letters referred to in paragraphs (c) through (i) shall be dated the Option Closing Date in question and the opinions called for by paragraphs (c), (d) and (e) shall be revised to reflect the sale of Additional Shares. 11. Expenses. The Sellers (in proportion to the number of Shares being -------- offered by each of them, including any Additional Shares which the Underwriters shall have elected to purchase) agree to pay the following costs and expenses and all other costs and expenses incident to the performance by them of their obligations hereunder: (i) the preparation, printing or reproduction, and filing with the Commission of the registration statement (including financial statements and exhibits thereto), each Prepricing Prospectus, the Prospectus, and each amendment or supplement to any of them; (ii) the printing (or reproduction) and delivery (including postage, air freight charges and charges for counting and packaging) of such copies of the registration statement, each Prepricing Prospectus, the Prospectus, and all amendments or supplements to any of them as may be reasonably requested for use in connection with the offering and sale of the Shares; (iii) the preparation, printing, authentication, issuance and delivery of certificates for the Shares, including any stamp taxes in connection with the original issuance and sale of the Shares; (iv) the printing (or reproduction) and delivery of this Agreement, the preliminary and supplemental Blue Sky Memoranda and all other agreements or documents printed (or reproduced) and delivered in connection with the offering of the Shares; (v) the registration of the Shares under the Exchange Act and the listing of the Shares on the Nasdaq National Market; (vi) the registration or qualification of the Shares for offer and sale under the securities or Blue Sky laws of the several states as provided in Section 5(g) hereof (including the reasonable fees, expenses and disbursements of counsel for the Underwriters relating to the preparation, printing or reproduction, and delivery of the preliminary and supplemental Blue Sky Memoranda and such registration and qualification); (vii) the filing fees and the fees and expenses of counsel for the 25 Underwriters in connection with any filings required to be made with the National Association of Securities Dealers, Inc.; (viii) the transportation and other expenses incurred by or on behalf of Company representatives in connection with presentations to prospective purchasers of the Shares; and (ix) the fees and expenses of the Company's accountants and the fees and expenses of counsel (including local and special counsel) for the Company and the Selling Stockholders. 12. Effective Date of Agreement. This Agreement shall become effective: --------------------------- (i) upon the execution and delivery hereof by the parties hereto; or (ii) if, at the time this Agreement is executed and delivered, it is necessary for the registration statement or a post-effective amendment thereto to be declared effective before the offering of the Shares may commence, when notification of the effectiveness of the registration statement or such post-effective amendment has been released by the Commission. Until such time as this Agreement shall have become effective, it may be terminated by the Company, by notifying you, or by you, as Representatives of the several Underwriters, by notifying the Company and the Selling Stockholders. If any one or more of the Underwriters shall fail or refuse to purchase Shares which it or they are obligated to purchase hereunder on the Closing Date, and the aggregate number of Shares which such defaulting Underwriter or Underwriters are obligated but fail or refuse to purchase is not more than one- tenth of the aggregate number of Shares which the Underwriters are obligated to purchase on the Closing Date, each non-defaulting Underwriter shall be obligated, severally, in the proportion which the number of Firm Shares set forth opposite its name in Schedule II hereto bears to the aggregate number of Firm Shares set forth opposite the names of all non-defaulting Underwriters or in such other proportion as you may specify in accordance with Section 20 of the Master Agreement Among Underwriters of Smith Barney Inc., to purchase the Shares which such defaulting Underwriter or Underwriters are obligated, but fail or refuse, to purchase. If any one or more of the Underwriters shall fail or refuse to purchase Shares which it or they are obligated to purchase on the Closing Date and the aggregate number of Shares with respect to which such default occurs is more than one-tenth of the aggregate number of Shares which the Underwriters are obligated to purchase on the Closing Date and arrangements satisfactory to you and the Company for the purchase of such Shares by one or more non-defaulting Underwriters or other party or parties approved by you and the Company are not made within 36 hours after such default, this Agreement will terminate without liability on the part of any non-defaulting Underwriter or the Company. In any such case which does not result in termination of this Agreement, either you or the Company shall have the right to postpone the Closing Date, but in no event for longer than seven days, in order that the required changes, if any, in the Registration Statement and the Prospectus or any other documents or arrangements may be effected. Any action taken under this paragraph shall not relieve any defaulting Underwriter from liability in respect of any such default of any such Underwriter under this Agreement. The term "Underwriter" as used in this Agreement includes, for all purposes of this Agreement, any party not listed in Schedule II hereto who, with your approval and the approval of the Company, purchases Shares which a defaulting Underwriter is obligated, but fails or refuses, to purchase. 26 Any notice under this Section 12 may be given by telegram, telecopy or telephone but shall be subsequently confirmed by letter. 13. Termination of Agreement. This Agreement shall be subject to ------------------------ termination in your absolute discretion, without liability on the part of any Underwriter to the Company or any Selling Stockholder, by notice to the Company, if prior to the Closing Date or any Option Closing Date (if different from the Closing Date and then only as to the Additional Shares), as the case may be, (i) trading in securities generally on the New York Stock Exchange, American Stock Exchange or the Nasdaq National Market shall have been suspended or materially limited, (ii) a general moratorium on commercial banking activities in New York or Connecticut shall have been declared by either federal or state authorities, or (iii) there shall have occurred any outbreak or escalation of hostilities or other international or domestic calamity, crisis or change in political, financial or economic conditions, the effect of which on the financial markets of the United States is such as to make it, in your judgment, impracticable or inadvisable to commence or continue the offering of the Shares at the offering price to the public set forth on the cover page of the Prospectus or to enforce contracts for the resale of the Shares by the Underwriters. Notice of such termination may be given to the Company by telegram, telecopy or telephone and shall be subsequently confirmed by letter. 14. Information Furnished by the Underwriters. The statements set forth ----------------------------------------- in the last paragraph on the cover page, the stabilization legend on the inside cover page, and the statements in the first and third paragraphs under the caption "Underwriting" in any Prepricing Prospectus and in the Prospectus, constitute the only information furnished by or on behalf of the Underwriters through you as such information is referred to in Sections 7(b) and 9 hereof. 15. Miscellaneous. Except as otherwise provided in Sections 5, 12 and 13 ------------- hereof, notice given pursuant to any provision of this Agreement shall be in writing and shall be delivered (i) if to the Company, at the office of the Company at 260 Lake Road, Dayville, Connecticut 06241, Attention: Norman Cloutier, Chairman of the Board; or (ii) if to the Selling Stockholders, in care of the Custodian at the Company's office address set forth above; or (iii) if to you, as Representatives of the several Underwriters, care of Smith Barney Inc., 388 Greenwich Street, New York, New York 10013, Attention: Manager, Investment Banking Division. This Agreement has been and is made solely for the benefit of the several Underwriters, the Company, its directors and officers, and the other controlling persons referred to in Section 9 hereof and their respective successors and assigns, to the extent provided herein, and no other person shall acquire or have any right under or by virtue of this Agreement. Neither the term "successor" nor the term "successors and assigns" as used in this Agreement shall include a purchaser from any Underwriter of any of the Shares in his status as such purchaser. 16. Applicable Law; Counterparts. This Agreement shall be governed by and ---------------------------- construed in accordance with the laws of the State of New York applicable to contracts made and to be performed within the State of New York. 27 This Agreement may be signed in various counterparts which together constitute one and the same instrument. If signed in counterparts, this Agreement shall not become effective unless at least one counterpart hereof shall have been executed and delivered on behalf of each party hereto. Please confirm that the foregoing correctly sets forth the agreement among the Company, the Selling Stockholders and the several Underwriters. Very truly yours, UNITED NATURAL FOODS, INC. By ---------------------------- Chairman of the Board Each of the Selling Stockholders named in Schedule I hereto By ---------------------------- Attorney-in-Fact By ---------------------------- Attorney-in-Fact Confirmed as of the date first above mentioned on behalf of themselves and the other several Underwriters named in Schedule II hereto. SMITH BARNEY INC. OPPENHEIMER & CO., INC. ROBERTSON, STEPHENS & COMPANY As Representatives of the Several Underwriters By SMITH BARNEY INC. By ------------------------------------ Managing Director 28 SCHEDULE I UNITED NATURAL FOODS, INC. Number of Selling Stockholders Additional Shares -------------------- ----------------- Funk Family 1992 Revocable Living Trust Triumph-Connecticut Limited Partnership ______________ Total........ ============== 29 SCHEDULE II UNITED NATURAL FOODS, INC. Number of Underwriter Firm Shares - ----------- ----------- Smith Barney Inc.............................. Oppenheimer & Co., Inc........................ Robertson, Stephens & Company................. ----------- Total............. =========== 30 EX-3.1 3 CERTIFICATE OF INCORPORATION EXHIBIT 3.1 ----------- CERTIFICATE OF INCORPORATION OF Cornucopia Natural Foods, Inc. 1. The name of the corporation is Cornucopia Natural Foods, Inc. 2. The address of its registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is the Corporation Trust Company. 3. The nature of the business or purposes to be conducted or promoted is: To engage in business of marketing, selling and distributing various natural foods and related products, and to otherwise engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. 4. The total number of shares of stock which the corporation shall have authority to issue is Two Hundred Thousand (200,000); all of such shares shall be without par value. 5A. The name and mailing address of each incorporator is as follows:
------------------------------------------------------------------- NAME MAILING ADDRESS ---- --------------- ------------------------------------------------------------------- J.L. Austin Corporation Trust Center 1209 Orange Street Wilmington, DE 19801 ------------------------------------------------------------------- A.S. Wright Corporation Trust Center 1209 Orange Street Wilmington, DE 19801 ------------------------------------------------------------------- T.D. Woehrle Corporation Trust Center 1209 Orange Street Wilmington, DE 19801 -------------------------------------------------------------------
5B. The name and mailing address of each person who is to serve as a director until the first annual meeting of the stockholders or until a successor is elected and qualified, is as follows:
------------------------------------------------------------------- NAME MAILING ADDRESS ---- --------------- ------------------------------------------------------------------- Norman A. Cloutier 260 Lake Road Dayville, CT 06211 ------------------------------------------------------------------- Steven Townsend 260 Lake Road Dayville, CT 06211 ------------------------------------------------------------------- Daniel Atwood 260 Lake Road Dayville, CT 06211 ------------------------------------------------------------------- Richard J. Williams 260 Lake Road Dayville, CT 06211 -------------------------------------------------------------------
6. The corporation is to have perpetual existence. 7. The corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statue, and all rights conferred upon stockholders herein are granted subject to this reservation. 8. Except to the extent that the General Corporation Law of the State of Delaware prohibits the elimination or limitation of liability of directors for breaches of fiduciary duty, no director of the corporation shall be liable for any breach of fiduciary duty. No amendment to or repeal of this Article shall apply to or have any effect on the liability or alleged liability of any director of the corporation for with respect to any acts or omissions of such director occurring prior to such amendment. 9. The corporation shall indemnify each person who is or was or has agreed to be a director or officer of the corporation against expenses (including attorney's fees and expenses), judgments, fines, penalties, and amounts paid in settlement in connection with defending, investigating, preparing to defend, or being or preparing to be a witness in any, threatened, pending, or completed action, suit, proceeding, or claim, whether civil, criminal, administrative, or investigative, to the maximum extent permitted from time to time under the law of the State of Delaware. Such indemnification shall not be exclusive of other indemnification rights arising under any by-law, contract, agreement, vote of directors or stockholders, or otherwise and shall inure to the benefits of the heirs and legal representatives of such person. WE, THE UNDERSIGNED, being each of the incorporators hereinbefore named, for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Delaware, do make this certificate, hereby declaring and certifying that this is our act and deed and the facts herein stated are true, and accordingly have hereunto set our hands this 11th day of February, 1994. /s/ J. L. Austin ----------------------------- J. L. Austin /s/ A. S. Wright ----------------------------- A. S. Wright /s/ T. D. Woehrle ----------------------------- T. D. Woehrle CERTIFICATE OF MERGER OF CORNUCOPIA NATURAL FOODS, INC., a Rhode Island corporation INTO CORNUCOPIA NATURAL FOODS, INC., a Delaware corporation ********** The undersigned corporation DOES HEREBY CERTIFY: FIRST: That the name and state of incorporation of each of the constituent corporations of the merger is as follows:
------------------------------------------------------------- NAME STATE OF INCORPORATION ------------------------------------------------------------- Cornucopia Natural Foods, Inc. Rhode Island ------------------------------------------------------------- Cornucopia Natural Foods, Inc. Delaware -------------------------------------------------------------
SECOND: That an Agreement of Merger between the parties to the merger has been approved, adopted, certified, executed and acknowledged by each of the constituent corporations in accordance with the requirements of section 252 of the General Corporation Law of Delaware. THIRD: That the name of the surviving corporation of the merger is Cornucopia Natural Foods, Inc., Delaware corporation. FOURTH: That the Certificate of Incorporation of Cornucopia Natural Foods, Inc., a Delaware corporation which is surviving the merger, shall be the Certificate of Incorporation of the surviving corporation. FIFTH: That the executed Agreement of Merger is on file at the principal place of business of the surviving corporation, the address of which is 260 Lake Road, Dayville, Connecticut 06241. SIXTH: That a copy of the Agreement of Merger will be furnished on request and without cost, to any stockholder of any constituent corporation. SEVENTH: The authorized capital stock of each foreign corporation which is a party to the merger is as follows:
- ----------------------------------------------------------------------------- Par value per share or statement Number of that shares are Corporation Class Shares without par value ----------- ----- ------ ----------------- - ----------------------------------------------------------------------------- Cornucopia Natural Foods, Inc. Common 200,000 no par value a Rhode Island corporation - -----------------------------------------------------------------------------
EIGHTH: That this Certificate of Merger shall be effective on the date of filing with the Secretary of State of Delaware. Dated: October 31, 1994 CORNUCOPIA NATURAL FOODS, INC. a Delaware corporation By: /s/ Norman A. Cloutier ------------------------------ Norman A. Cloutier President ATTEST: By: /s/ Steven Townsend -------------------------- Steven Townsend Vice President CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION Cornucopia Natural Foods, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST: That the Board of Directors of said Corporation, by the Unanimous Written Consent of its members, filed with the Minutes of the Board, adopted a resolution proposing and declaring advisable the following amendment to the Certificate of Incorporation of said Corporation: RESOLVED, that the Certificate of Incorporation of Cornucopia Natural Foods, Inc. be amended by changing the First Article thereof so that, as amended, said Article shall read in its entirety as follows: "The name of the Corporation is United Natural Foods, Inc." SECOND: That in lieu of a meeting and vote of stockholders, the stockholders have given unanimous written consent to said amendment in accordance with the provisions of Section 228 of the General Corporation Law of the State of Delaware. THIRD: That the aforesaid amendment was duly adopted in accordance with the applicable provisions of Section 242 and 228 of the General Corporation Law of the State of Delaware. FOURTH: This instrument is to become effective as of the 20th day of February, 1996. IN WITNESS WHEREOF, said Corporation has caused this Certificate to be signed by Steven Townsend, its Vice President, this 16th day of February, 1996. CORNUCOPIA NATURAL FOODS, INC. By: /s/ Steven Townsend ----------------------------- Steven Townsend Vice President SECOND CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF UNITED NATURAL FOODS, INC. Pursuant to Section 242 of the General Corporation Law of the State of Delaware, United Natural Foods, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Corporation"), does hereby certify as follows: FIRST: That the Board of Directors of the Corporation, at a meeting of the Board of Directors held on August 30, 1996, duly adopted resolutions, pursuant to Section 242 of the General Corporation Law of the State of Delaware, proposing and declaring advisable the following amendment to the Certificate of Incorporation of the Corporation, as amended by a Certificate of Merger filed with the Secretary of State of Delaware on November 1, 1994, and a Certificate of Amendment of Certificate of Incorporation filed on February 20, 1996: RESOLVED: That the Certificate of Incorporation of the - -------- Corporation, as amended, be further amended by deleting Section 4 in its entirety and inserting the following in lieu thereof: "4. The total number of shares of all classes of stock which the Corporation shall have authority to issue is Twenty- Five Million (25,000,000) shares of Common Stock, $.01 par value per share." SECOND: That the stockholders of the Corporation duly approved said proposed Second Certificate of Amendment of Certificate of Incorporation by written consent in accordance with Sections 228 and 242 of the General Corporation Law of the State of Delaware, and written notice of such consent has been given to all stockholders who have not consented in writing to said Second Certificate of Amendment. IN WITNESS WHEREOF, the Corporation has caused this Second Certificate of Amendment to be signed by its President this 3rd day of September, 1996. UNITED NATURAL FOODS, INC. By:Norman A. Cloutier ----------------------------- Norman A. Cloutier President EX-3.3 4 BY-LAWS EXHIBIT 3.3 ----------- AMENDED AND RESTATED BY-LAWS OF UNITED NATURAL FOODS, INC. Effective as of February 20, 1996 ARTICLE I CERTIFICATE OF INCORPORATION AND PROVISIONS OF LAW -------------------------------------------------- These by-laws, the powers of the Corporation and of its directors and shareholders and all matters concerning the conduct and regulation of the business of the Corporation shall be subject to such provisions in regard thereto, if any, as are provided by law or set forth in the Certificate of Incorporation. All references herein to the Certificate of Incorporation shall be construed to mean the Certificate of Incorporation of the Corporation as from time to time amended. ARTICLE II OFFICES ------- SECTION 2.01. Principal Office. The principal office of the Corporation ---------------- shall be located in Dayville, Connecticut or such other place within or without the State of Delaware as may be determined by the Board of Directors from time to time. SECTION 2.02. Other Offices. The Corporation may also have an office or ------------- offices at such other place or places either within or without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE III MEETINGS OF SHAREHOLDERS ------------------------ SECTION 3.01. Place of Meetings. All meetings of the shareholders of ----------------- the Corporation shall be held at the principal office of the Corporation or at such other place, within or without the States of Connecticut or Delaware, as shall be fixed by the Board of Directors and specified in the respective notices or waivers of notice of said meetings. SECTION 3.02. Annual Meetings. The annual meeting of the shareholders for --------------- the election of directors and for the transaction of such other business as may come before the meeting shall be held at eleven o'clock in the forenoon, local time, Tuesday of the third week in February of each year, if not a legal holiday, and, if a legal holiday, then on the next succeeding business day not a legal holiday. If such annual meeting is omitted by oversight or otherwise on the day herein provided therefor, a special meeting may be held in place thereof, and any business transacted or elections held at such special meeting shall have the same effect as if transacted or held at the annual meeting. The purposes for which an annual meeting is to be held, in addition to those prescribed by law or these by-laws, may be specified by a majority of the Board of Directors, the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, the President or a shareholder or shareholders holding of record at least twenty-five percent (25%) in voting power of the outstanding shares of the Corporation entitled to vote at such meeting. SECTION 3.03. Special Meetings. A special meeting of the shareholders ---------------- for any purpose or purposes, unless otherwise prescribed by statute, may be called at any time by the President, the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, by order of the Board of Directors or by a shareholder or shareholders holding of record at least twenty-five percent (25%) in voting power of the outstanding shares of the Corporation entitled to vote at such meeting. SECTION 3.04. Notice of Meetings. Notice of each meeting of the ------------------ shareholders shall be given to each shareholder of record entitled to vote at such meeting at least ten (10) days but not more than sixty (60) days before the day on which the meeting is to be held. Such notice shall be given by delivering a written or printed notice thereof personally or by mail. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, postage prepaid, addressed to the shareholder at the post office address of such shareholder as it appears upon the stock record books of the Corporation, or at such other address as such shareholder shall have provided to the Corporation for such purpose. No publication of any notice of a meeting of shareholders shall be required. Every such notice shall state the time and place of the meeting, and, in case of a special meeting, shall state the purpose or purposes thereof. Notice of any meeting of shareholders shall not be required to be given to any shareholder who shall attend such meeting in person or by proxy or who shall waive notice thereof in the manner hereinafter provided. Notice of any adjourned meeting of the shareholders shall not be required to be given. SECTION 3.05. Quorum. At each meeting of the shareholders, a majority of ------ the outstanding shares of the Corporation entitled to vote, represented in person or by proxy, shall constitute a quorum for the transaction of business. In the absence of a quorum, a majority of the shares so represented at such meeting, or, in the absence of all the shareholders entitled to vote, any officer entitled to preside or to act as secretary at such meeting, may adjourn the meeting from time to time without further notice. At -2- any such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. The absence from any meeting of shareholders holding a sufficient number of shares required for action on any given matter shall not prevent action at such meeting upon any other matter or matters which properly come before the meeting, if shareholders holding a sufficient number of shares required for action on such other matter or matters shall be present. The shareholders present or represented at any duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum. SECTION 3.06 Voting. Each shareholder of the Corporation shall be ------ entitled to one vote in person or by proxy for each share of the Corporation registered in the name of such shareholder on the books of the Corporation. The Corporation shall not vote directly or indirectly any shares held in its own name. Any vote of shares may be given by the shareholder entitled to vote such shares in person or by proxy appointed by an instrument in writing. At all meetings of the shareholders at which a quorum is present, all matters shall be decided by the affirmative vote of holders of a majority of the shares present in person or represented by proxy and entitled to vote thereat, unless the vote of a greater number of shares is required by law, by the Certificate of Incorporation or by these by-laws. ARTICLE IV BOARD OF DIRECTORS ------------------ SECTION 4.01. General Powers. The property, affairs and business of the -------------- Corporation shall be managed by the Board of Directors, and the Board shall have, and may exercise, all of the powers of the Corporation except such as are conferred by law, by the Certificate of Incorporation or by these bylaws upon the shareholders. SECTION 4.02. Number, qualifications and Term of Office. The number of ----------------------------------------- directors to constitute the Board of Directors shall be such number, not less than three, nor more than eight (8) as shall be fixed from time to time by the shareholders at any annual meeting or at any special meeting called for the purpose; provided, however, that between such meetings of shareholders the number so fixed may at any time be increased or decreased, subject to the above- specified limits, by the affirmative vote of such number of the members of the Board of Directors as shall equal a majority of the Board of Directors plus one (1); and, provided, further, that upon the sale by the Corporation of securities in a public offering pursuant to a registration statement filed by the Corporation with the Securities Exchange Commission, the number of directors shall be eight (8) . The number of directors and the names and addresses of the persons constituting the initial Board of directors shall be as set forth in the Certificate of Incorporation. Thereafter, except as provided in Sections 4.04, 4.14 and 6.02 below, directors shall be elected by the shareholders at each annual meeting of shareholders, -3- or at any special meeting held in place thereof. The directors shall serve staggered terms which shall not exceed three (3) years. Directors shall be classified, with respect to the time for which they hold office, into three (3) classes, as nearly equal in number as possible (and with equal representation by persons nominated under Section 6.02 to the extent possible), with the members of each class to hold office until their respective successors are duly elected and qualified. The term of office of the first class of directors ("Class 1") shall expire at the annual meeting of the shareholders of the Corporation next following the effectiveness of these By-Laws providing for classified terms for members of the Board of Directors; the term of office of the second class of directors ("Class 2") shall expire one (1) year thereafter; and the term of office of the third class of directors ("Class 3") shall expire two (2) years thereafter. The shareholders shall, on an annual basis, elect the number of directors equal to the number in the class whose term expires at the time of the election to hold office for three (3) years. A person may be re- elected a director without limitation as to the number of terms so elected. No director need be a shareholder. SECTION 4.03. Certain Actions of the Board of Directors. Notwithstanding ----------------------------------------- the provisions of Section 4.05, the Board of Directors shall take no action with regard to the following matters unless such action has been approved by the affirmative vote of such number of the members of the Board of Directors as shall equal a majority of the Board of Directors plus one (1): (i) action to cancel, limit, or in any way revoke the authority of the Nominating Committee, or to remove a member of the Nominating Committee; or (ii) action to amend Section 4.02 with regard to the number, term and classification of the members of the Board of Directors, (iii) amend this Section 4.03 or (iv) amend Article VI. SECTION 4.04. Election of Directors. Subject to any provisions in ---------------------- the Certificate of Incorporation providing for cumulative voting, at each meeting of the shareholders for the election of directors at which a quorum is present, the persons receiving the greatest number of votes shall be the directors, and each shareholder entitled to vote at such election shall have the right to vote, in person or by proxy, for as many nominees as the number of directors fixed as constituting the Board of Directors and to cast for each such nominee as many votes as the number of shares which such shareholder is entitled to vote, without the right to cumulate such votes. SECTION 4.05. Quorum and Manner of Acting. A majority of the total number --------------------------- of directors at the time in office shall constitute a quorum for the transaction of business at any meeting, and except as otherwise provided by these by-laws, the act of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board of Directors. In the absence of a quorum, a majority of the directors present may adjourn any meeting from time to time without further notice until a quorum be had. The directors shall act only as a Board, and the individual directors shall have no power as such. -4- SECTION 4.06. Place of Meetings. The Board of Directors may hold its ----------------- meetings at any place within or without the State of Delaware as it may from time to time determine or shall be specified or fixed in the respective notices or waivers of notice thereof. SECTION 4.07. Annual Meeting. The Board of Directors shall meet for the -------------- purpose of organization, the election of officers and the transaction of other business, as soon as practicable after each annual election of directors on the same day and at the same place at which such election of directors was held. Notice of such meeting need not be given. Such meeting may be held at any other time or place which shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors or in a consent and waiver of notice thereof signed by all the directors. SECTION 4.08. Regular Meetings. Regular meetings of the Board of Directors ---------------- shall be held at such places and at such times as the Board shall from time to time by vote determine. If any day fixed for a regular meeting shall be a legal holiday at the place where the meeting is to be held, then the meeting which would otherwise be held on that day shall be held at the same hour on the next succeeding business day not a legal holiday. Notice of regular meetings need not be given. SECTION 4.09. Special Meetings; Notice. Special meetings of the Board of ------------------------ Directors shall be held whenever called by the President, Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, or by not less than twenty-five percent (25%) of the members of the Board of Directors. Notice of each such meeting shall be given by, or at the order of, the Secretary or the person calling the meeting to each director by mailing the same addressed to the director's residence or usual place of business, or personally by delivery or by telegraph, cable or telephone, at least two (2) days before the day on which the meeting is to be held. Every such notice shall state the time and place of the meeting but need not state the purpose thereof except as otherwise in these by- laws expressly provided. SECTION 4.10. Presumption of Assent. A director of the Corporation who --------------------- is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the Secretary of the Corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action. SECTION 4.11. Telephone Meetings. Meetings of the Board of Directors, ------------------ regular or special, may be held by means of a telephone conference' circuit and connection to such circuit shall constitute presence at such meeting. -5- SECTION 4.12. Removal of Directors. Any director may be removed, with -------------------- and not without cause, at any time, by the affirmative vote of the holders of record of a majority of the issued and outstanding shares entitled to vote for the election of directors of the Corporation given at a special meeting of the shareholders called and held for the purpose. SECTION 4.13. Resignation. Any director of the Corporation may resign at ----------- any time by giving written notice to the Board of Directors or to the Chairman of the Board or to the Secretary of the Corporation. The resignation of any director shall take effect at the time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 4.14. Vacancies. Subject to any provisions of the Certificate of --------- Incorporation providing for cumulative voting, and except as provided in Section 6.02, any vacancy in the Board of Directors caused by death, resignation, removal, disqualification, an increase in the number of directors, or any other cause, shall be filled by vote of the remaining directors then in office, though less than a quorum, as set forth in Section 4.02, at any regular meeting or special meeting, including the meeting at which any such vacancy may arise, or by the shareholders of the Corporation at the meeting at which any such vacancy may arise or the next annual meeting or any special meeting, and each director so elected shall hold office until the expiration of the current term held by such vacating director, and until a successor shall have been duly elected and qualified, or until the death or resignation or removal of such director in the manner herein provided. ARTICLE V EXECUTIVE COMMITTEE ------------------- SECTION 5.01. Appointment. The Board of Directors may designate two or ----------- more of its members to constitute an Executive Committee. The designation of such committee and the delegation thereto of authority shall not operate to relieve the Board of Directors, or any member thereof, of any responsibility imposed by law. SECTION 5.02. Authority. The Executive Committee, when the Board of --------- Directors is not in session, shall have and may exercise all of the authority of the Board of Directors except to the extent, if any, that such authority shall be limited by the resolution appointing the Executive Committee and except also that the Executive Committee shall not have the authority of the Board of Directors in reference to amending the Certificate of Incorporation, recommending to the shareholders a plan of merger or consolidation, recommending to the shareholders the sale, lease or other disposition of all or substantially all of the property and assets of the Corporation otherwise than in the usual and regular course of its business, recommending to the shareholders a voluntary dissolution of the Corporation or a revocation thereof, -6- increasing the number of directors constituting the Board of Directors, filling any vacancies on the Board of Directors, removing or electing any officer of the Corporation or amending the by-laws of the Corporation. SECTION 5.03. Tenure and Qualifications. Each member of the Executive ------------------------- Committee shall hold office until the next regular annual meeting of the Board of Directors following designation and until a successor is designated as a member of the Executive Committee and is elected and qualified or until the death or resignation or removal of such member in the manner herein provided. SECTION 5.04. Meetings. Regular meetings of the Executive Committee may -------- be held without notice at such times and places as the Executive Committee may fix from time to time by resolution. Special meetings of the Executive Committee may be called by any member thereof upon not less than two (2) days' notice stating the place, date and hour of the meeting, which notice may be written or oral, and if mailed, shall be deemed to be delivered when deposited in the United States mail addressed to the member of the Executive Committee at such member's business address. Any member of the Executive Committee may waive notice of any meeting and no notice of any meeting need be given to any member thereof who attends in person. The notice of a meeting of the Executive Committee need not state the business proposed to be transacted at the meeting. SECTION 5.05. Quorum. A majority of the members of the Executive ------ Committee shall constitute a quorum for the transaction of business at any meeting thereof, and action of the Executive Committee shall be authorized by the affirmative vote of a majority of the members present at a meeting at which a quorum is present. SECTION 5.06. Telephone Meetings. Meetings of the Executive Committee may ------------------ be held by means of a telephone conference circuit and connection to such circuit shall constitute attendance at such meeting. SECTION 5.07. Vacancies. Any vacancy in the Executive ---------- Committee may be filled by a resolution adopted by a majority of the full Board of Directors. SECTION 5.08. Resignations and Removal. Any member of the Executive ------------------------ Committee may be removed at any time with or without cause by the Board of Directors. Any member of the Executive Committee may resign from the Executive Committee at any time by giving written notice to the President or Secretary of the Corporation, and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 5.09. Procedure. The Executive Committee may elect a presiding --------- officer from its members and may fix its own rules of procedure which shall not be -7- inconsistent with these by-laws. It shall keep regular minutes of its proceedings and report the same to the Board of Directors for its information at the meeting thereof held next after the proceedings shall have been taken. ARTICLE VI ---------- NOMINATING COMMITTEE -------------------- SECTION 6.01. Appointment. The Chairman and Vice Chairman of the Board of ----------- Directors shall constitute a Nominating Committee. The Nominating Committee shall have the powers and shall follow the procedures set forth in this Article VI until such time as the Board of Directors takes action as set forth in Section 6.03. The designation of such committee and the delegation thereto of authority shall not operate to relieve the Board of Directors, or any member thereof, of any responsibility imposed by law. SECTION 6.02. Authority. The Nominating Committee shall have the --------- authority to nominate persons to serve as directors and stand for election at the annual meeting of shareholders. Each member of the Nominating Committee shall have sole power and authority independent of the other, to nominate three (3) persons (one of whom may be himself) for election as director, comprising a total of three (3) directors for each Nominating Committee member, it being the intent that, with the three (3) Classes of directors, each member of the Nominating Committee will have the right, at all times the Nominating Committee shall have authority to act, to nominate a total of three (3) directors including himself, and that such nominees shall constitute the nominees of the full Board of Directors. As such, each member of the Nominating Committee shall have the right to nominate one person in each class of the Board of Directors (as set forth in Section 4.02), which, depending on the Class, may include himself. For the nomination and election of directors in any Class other than those above provided, and otherwise than any director that the Corporation is contractually obligated to a third-party to nominate and elect, the members of the Nominating Committee shall jointly nominate persons who are acceptable to both members ("Joint Nominees") . If unable to agree on Joint Nominees, then each member shall nominate one (1) person and the full Board of Directors by majority vote shall vote from among such two (2) nominees. In the event of a vacancy on the board, if one member of the Nominating Committee had the sole authority to nominate the person who vacated that seat, that Nominating Committee member shall have sole power and authority to nominate a person to fill such vacancy. Otherwise the members shall nominate a Joint Nominee and if unable to so agree, then each member shall nominate one (1) person and the full Board of Directors by majority vote shall vote from among such two (2) nominees. The members of the Nominating Committee shall have the authority, acting jointly, to direct the Trustee (the "Trustee") under the Employer Stock Ownership Plan of the Corporation (the "ESOP") with regard to all corporate matters involving a shareholder vote for which the -8- Corporation under the ESOP is entitled to direct the Trustee's vote, and if unable to so agree, the full Board of Directors by majority vote shall so direct the Trustee. Nothing set forth in this Section 6.02 shall prevent shareholders, at the annual meeting of shareholders, from nominating persons, other than those nominated by the Nominating Committee, to serve as directors. SECTION 6.03. Tenure and Qualifications. Each member of the Nominating ------------------------- Committee shall so serve as a member as long as that member holds the office of Chairman or Vice Chairman of the Board of Directors. The Nominating Committee shall continue to act until such time as the Board of Directors terminates the duties of the Committee, which right of termination is so reserved by the Board of Directors and which action may only be taken by the affirmative vote of such number of the members of the Board of Directors as shall equal a majority of the Board of Directors plus one (1). SECTION 6.04. Meetings. Meetings of the Nominating Committee may be held -------- without notice at such times and places as the Nominating Committee may fix from time to time by resolution or mutual agreement. The notice of any meeting of the Nominating Committee need not state the business proposed to be transacted at the meeting. SECTION 6.05. Quorum. Both of the members of the Nominating Committee ------ shall constitute a quorum for the transaction of business at any meeting thereof, and action of the Nominating Committee shall be authorized by the affirmative vote of both of the members present at a meeting. SECTION 6.06. Telephone Meetings. Meetings of the Nominating Committee ------------------ may be held by means of a telephone conference circuit and connection to such circuit shall constitute attendance at such meeting. SECTION 6.07. Vacancies. Any vacancy in the Nominating Committee shall --------- be filled by vote of a majority of the remaining members of the Board of Directors. SECTION 6.08. Resignations and Removal. Any member of the Nominating ------------------------ Committee may be removed at any time with and not without cause by the Board of Directors acting in accordance with the voting requirements of Section 4.03. Any member of the Nominating Committee may resign from the Nominating Committee at any time by giving written notice to the President or Secretary of the Corporation, and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 6.09. Procedure. The Nominating Committee by agreement of --------- its two (2) members may fix its own rules of procedure which shall not be inconsistent with these bylaws. It shall keep regular minutes of its proceedings and report the same -9- to the Board of Directors for its information at the meeting thereof held next after the proceedings shall have been taken. ARTICLE VII WAIVER OF NOTICE; WRITTEN CONSENT --------------------------------- SECTION 7.01. Waiver of Notice. Notice of the time, place and purpose of ---------------- any meeting of the shareholders, Board of Directors, Executive Committee, or Nominating Committee may be waived in writing by any shareholder or director either before or after such meeting. Attendance in person, or in case of a meeting of the shareholders, by proxy, at a meeting of the shareholders, Board of Directors, Executive Committee, or Nominating Committee shall be deemed to constitute a waiver of notice thereof. SECTION 7.02. Written Consent of Shareholders. Any action required or ------------------------------- permitted to be taken at a meeting of shareholders may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of such action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. SECTION 7.03. Written Consent of Directors. Unless otherwise restricted ---------------------------- by the Certificate of Incorporation or these by-laws, any action required or permitted to be taken at any meeting of the Board of Directors, Executive Committee, or Nominating Committee may be taken without a meeting if a consent in writing, setting forth the action so to be taken, shall be signed before or after such action by all of the directors, or all of the members of the Executive Committee, or all of the members of the Nominating Committee, as the case may be. Such written consent shall be filed with the records of the Corporation. ARTICLE VIII OFFICERS -------- SECTION 8.01. Number. The officers of the Corporation shall be a Chairman ------ of the Board of Directors ("Chairman"), a Vice Chairman of the Board of Directors ("Vice Chairman"), a President, one or more Vice Presidents, a Secretary, a Treasurer, and such other officers as the Board of Directors may from time to time appoint, including one or more Vice Presidents, one or more Assistant Secretaries and one or more Assistant Treasurers. One person may hold the offices and perform the duties of any two or more of said officers. The Chairman and the Vice Chairman shall be elected from the Board of Directors. -10- SECTION 8.02. Election, Qualifications and Term of Office. Each officer ------------------------------------------- shall be elected annually by the Board of Directors, or from time to time to fill any vacancy, and shall hold office until a successor shall have been duly elected and qualified, or until the death, resignation or removal of such officer in the manner hereinafter provided. SECTION 8.03. Removal. Any officer, except the Chairman and the Vice ------- Chairman, may be removed by the vote of a majority of the whole Board of Directors at a special meeting called for the purpose, whenever in the judgment of the Board of Directors the best interests of the Corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the officer so removed. Election or appointment of an officer or agent shall not of itself create contract rights. The Chairman and the Vice Chairman may be so removed only by vote of the affirmative vote of such number of the members of the Board of Directors as shall equal a majority of the Board of Directors plus one (1). SECTION 8.04. Resignation. Any officer may resign at any time by giving ----------- written notice to the Board of Directors or to the President or the Secretary. Any such resignation shall take effect at the date of receipt of such notice or at any later time specified therein; and unless otherwise specified therein the acceptance of such resignation shall not be necessary to make it effective. SECTION 8.05. Vacancies. A vacancy in any office because of death, --------- resignation, removal, disqualification or any other cause shall be filled for the unexpired portion of the term by the majority of the Board of Directors at any regular or special meeting and with respect to vacancies in the offices of the Chairman and Vice Chairman, the Vice Chairman shall succeed to the office of the Chairman, if that office is vacated, and the resulting vacancy in the office of Vice Chairman shall be filled for the unexpired portion of the term by the majority of the Board of Directors at any regular or special meeting. SECTION 8.06. Chairman of the Board. The Chairman of the Board of --------------------- Directors shall preside at all meetings of the shareholders and at all meetings of the Board of Directors and shall perform such other duties as may be prescribed from time to time by the Board of Directors or by the by-laws. SECTION 8.07. Vice Chairman of the Board. The Vice Chairman of the Board -------------------------- shall, in the absence or disability of the Chairman of the Board, perform the duties and exercise the powers of the Chairman of the Board and shall perform such other duties and have such other powers as may be prescribed from time to time by the Board of Directors or by the by-laws. SECTION 8.08. The President. The President shall be the chief executive ------------- officer of the Corporation and shall have general direction of the affairs of the Corporation. -11- In addition, the President shall perform such other duties and have such other responsibilities as the Board of Directors may from time to time determine. SECTION 8.09. The Vice Presidents. The Vice President, or if there shall ------------------- be more than one, the Vice Presidents in the order determined by the Board of Directors, shall, in the absence or disability of the President, perform the duties and exercise the powers of the President and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. SECTION 8.10. The Secretary. The Secretary shall record or cause to be ------------- recorded in books provided for the purpose all the proceedings of the meetings of the Corporation, including the shareholders, the Board of Directors, Executive Committee, Nominating Committee and all committees of which a secretary shall not have been appointed; shall see that all notices are duly given in accordance with the provisions of these by-laws and as required by law; shall be custodian of the records (other than financial) and of the seal of the Corporation; and in general, shall perform all duties incident to the office of Secretary and such other duties as may, from time to time, be assigned by the Board of Directors or the President. SECTION 8.11. The Assistant Secretaries. At the request, or in absence or ------------------------- disability, of the Secretary, the Assistant Secretary designated by the Secretary or the Board of Directors shall perform all the duties of the Secretary and, when so acting, shall have all the powers of the Secretary. The Assistant Secretaries shall perform such other duties as from time to time may be assigned to them by the Board of Directors, the President or the Secretary. SECTION 8.12. The Treasurer. The Treasurer shall have charge and custody ------------- of, and be responsible for, all funds and securities of the Corporation, and deposit all such funds to the credit of the Corporation in such banks, trust companies or other depositaries as shall be selected in accordance with the provisions of these by-laws; disburse the funds of the Corporation under the general control of the Board of Directors, based upon proper vouchers for such disbursements; receive, and give receipts for, moneys due and payable to the Corporation from any source whatsoever, render a statement of the condition of the finances of the Corporation at all regular meetings of the Board of Directors, and a full financial report at the annual meeting of the shareholders, if called upon to do so; and render such further statements to the Board of Directors, the Chairman, Vice Chairman and the President as they may respectively require concerning all transactions as Treasurer or the financial condition of the Corporation. The Treasurer shall also have charge of the books and records of account of the Corporation, which shall be kept at such office or offices of the Corporation as the Board of Directors shall from time to time designate; be responsible for the keeping of correct and adequate records of the assets, liabilities, business and transactions of the Corporation; at all reasonable times exhibit the books and records of account to any of the directors of the Corporation upon application at the office of the Corporation where -12- such books and records are kept; be responsible for the preparation and filing of all reports and returns relating to or based upon the books and records of the Corporation kept under the direction of the Treasurer; and, in general, perform all the duties incident to the office of Treasurer and such other duties as from time to time may be assigned by the Board of Directors or the President. SECTION 8.13. The Assistant Treasurers. At the request, or in the ------------------------ absence or disability, of the Treasurer, the Assistant Treasurer designated by the Treasurer or the Board of Directors shall perform all the duties of the Treasurer, and when so acting, shall have all the powers of the Treasurer. The Assistant Treasurers shall perform such other duties as from time to time may be assigned to them by the Board of Directors, the President or the Treasurer. SECTION 8.14. General Powers. Each officer shall, subject to these by- -------------- laws, have, in addition to the duties and powers herein set forth, such duties and powers as are commonly incident to the respective office, and such duties and powers as the Board of Directors shall from time to time designate. SECTION 8.15. Bonding. Any officer, employee, agent or factor shall give ------- such bond with such surety or sureties for the faithful performance of his or her duties as the Board of Directors may, from time to time, require. ARTICLE IX INDEMNIFICATION OF DIRECTORS, OFFICERS AND TRUSTEES --------------------------------------------------- The Corporation shall indemnify its officers, directors and any person serving as a trustee of an employee benefit plan at the request of the Corporation to the full extent permitted under Sections 8-102 and 8-145 of the General Corporation Law of Delaware. The foregoing right of indemnification shall in no way be exclusive of any other rights of indemnification to which any director, officer, trustee, employee or agent may be entitled, under any by-law, agreement, vote of shareholders or disinterested directors or otherwise, and shall continue as to a person who has ceased to be a director, officer, trustee, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. This provision specifically applies, without limitation, to any individual who, whether or not a director or officer of the Corporation, is or was serving at the request of the Corporation as a trustee of any employee benefit plan maintained by the Corporation. Furthermore, any amendment or modification of this Article IX shall not take effect until ninety (90) days after notice thereof to said director, officer or trustee, and any such amendment or modification shall not affect the Corporation's continuing indemnification obligations hereunder for matters arising prior to the date of such amendment or modification. -13- ARTICLE X EXECUTION OF DOCUMENTS ---------------------- SECTION 10.01. Contract, etc., How Executed. Unless the Board of ---------------------------- Directors shall otherwise determine, the President, Chairman, Vice Chairman, any Vice President or the Treasurer may execute any contract or other instrument, the execution of which is not otherwise specifically provided for, in the name and on behalf of the Corporation. The Board of Directors, except as in these by-laws otherwise provided, may authorize any other or additional officer or officers, agent or agents, of the Corporation to enter into any contract or execute and deliver any contract or other instrument in the name and on behalf of the Corporation, and such authority may be general or confined to specific instances. Unless authorized so to do by these by-laws or by the Board of Directors, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement, or to pledge its credit, or to render it liable pecuniarily for any purpose or to any amount. SECTION 10.02. Checks, Drafts, etc. All checks, drafts, bills of exchange ------------------- or other orders for the payment of money, obligations, notes, or other evidences of indebtedness, bills of lading, warehouse receipts and insurance certificates of the Corporation, shall be signed or endorsed by such officer or officers, employee or employees, of the Corporation as shall from time to time be determined by resolution of the Board of Directors. ARTICLE XI BOOKS AND RECORDS ----------------- SECTION 11.01. Place. The books and records of the Corporation, ----- including the stock record books, shall be kept at such places within or without the State of Delaware, as may from time to time be determined by the Board of Directors. SECTION 11.02. Addresses of Shareholders. Each shareholder shall ------------------------- designate to the Secretary of the Corporation an address at which notices of meetings and all other corporate notices may be served upon or mailed, and if any shareholder shall fail to designate such address, corporate notices may be served by mail directed to the shareholder's last known post office address, or by transmitting a notice thereof to such address by telegraph, cable, or telephone. -14- ARTICLE XII SHARES AND THEIR TRANSFER ------------------------- SECTION 12.01. Certificates for Shares. Every owner of shares of the ----------------------- Corporation shall be entitled to have a certificate certifying the number of shares owned by such owner in the Corporation and designating the class of shares to which such shares belong, which shall otherwise be in such form, in conformity to law, as the Board of Directors shall prescribe. Each such certificate shall be signed by such officer or officers as the Board of Directors may prescribe, or, if not so prescribed, by the President or a Vice President and the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer of the Corporation. SECTION 12.02. Record. A record shall be kept of the name of the person, ------ firm or corporation owning the shares of the Corporation issued, the number of shares represented by each certificate, and the date thereof, and, in the case of cancellation, the date of cancellation. The person in whose name shares stand on the books of the Corporation shall be deemed the owner thereof for all purposes as regards the Corporation. SECTION 12.03. Transfer of Shares. Transfers of shares of the Corporation ------------------ shall be made only on the books of the Corporation by the registered holder thereof, or by such holder's attorney thereunto authorized, and on the surrender of the certificate or certificates for such shares properly endorsed or accompanied by a properly executed stock power. SECTION 12.04. Closing of Transfer Books; Record Dates. Insofar as ---------------------------------------- permitted by law, the Board of Directors may direct that the stock transfer books of the Corporation be closed for a period not exceeding sixty (60) days nor less than ten (10) days preceding the date of any meeting of shareholders or the date for the payment of any dividend or the date for the allotment of rights or the date when any change or conversion or exchange of shares of the Corporation shall go into effect, or for a period not exceeding sixty (60) days nor less than ten (10) days in connection with obtaining the consent of shareholders for any purpose; provided, however, that in lieu of closing the stock transfer books as aforesaid, the Board of Directors may, insofar as permitted by law, fix in advance a date, not exceeding sixty (60) days nor less than ten (10) days preceding the date of any meeting of shareholders, or the date for the payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of shares of the Corporation shall go into effect, or a date in connection with obtaining such consent, as a record date for the determination of the shareholders entitled to notice of, and to vote at, any such meeting or any adjournment thereof, or entitled to receive payment of any such dividend, or to any such allotment of rights, or to exercise the rights in respect of any change, conversion or exchange of -15- shares of the Corporation, or to give such consent, and in each such case shareholders and only such shareholders as shall be shareholders of record on the date so fixed shall be entitled to notice of, and to vote at, such meeting and any adjournment thereof, or to receive payment of such dividend, or to receive such allotment of rights, or to exercise such rights or to give such consent, as the case may be, notwithstanding any transfer of any shares on the books of the Corporation after any such record date fixed as aforesaid. SECTION 12.05. Lost, Destroyed or Mutilated Certificates. In case of the ----------------------------------------- alleged loss or destruction or the mutilation of a certificate representing shares of the Corporation, a new certificate may be issued in place thereof, in the manner and upon such terms as the Board of Directors may prescribe. ARTICLE XIII SEAL ---- The Board of Directors may provide for a corporate seal, which shall be in the form of a circle and shall bear the name of the Corporation and the state and year of incorporation. ARTICLE XIV FISCAL YEAR ----------- Except as from time to time otherwise provided by the Board of Directors, the fiscal year of the Corporation shall be the year or other fiscal period ending on the last day of October in each year. ARTICLE XV AMENDMENTS ---------- All by-laws of the Corporation shall be subject to alteration or repeal, and new by-laws may be adopted either by the vote of a majority of the outstanding shares of the Corporation entitled to vote in respect thereof, or by the vote of the Board of Directors as set forth in these by-laws, when such power is conferred upon the Board of Directors by the Certificate of Incorporation, provided that in each case notice of the proposed alteration or repeal or of the proposed new by-laws be included in the notice of the meeting at which such alteration, repeal or adoption is acted upon, and provided further that any such action by the Board of Directors may be changed by the shareholders, except that no such change shall affect the validity of any actions theretofore taken pursuant to the by-laws as altered, repealed or adopted by the Board of Directors. -16- EX-10.1 5 EMPLOYEE STOCK OWNERSHIP PLAN Exhibit 10.1 ------------ CORNUCOPIA NATURAL FOODS, INC. EMPLOYEE STOCK OWNERSHIP PLAN Effective as of November 1, 1988 CORNUCOPIA NATURAL FOODS, INC. EMPLOYEE STOCK OWNERSHIP PLAN
INDEX ARTICLE Title Page No. - ------- ----- -------- ARTICLE 1 Name of Plan............................................ 1 ARTICLE 2 Definitions............................................. 2 ARTICLE 3 Eligibility For Participation........................... 10 ARTICLE 4 Contributions........................................... 11 ARTICLE 5 Allocation of Contributions............................. 12 ARTICLE 6 Vesting................................................. 16 ARTICLE 7 Distribution and Payment Requirements................... 19 ARTICLE 8 Death Benefits.......................................... 25 ARTICLE 9 Voting Rights........................................... 28 ARTICLE 10 Administration.......................................... 29 ARTICLE 11 Amendment and Termination............................... 34 ARTICLE 12 Successor and Merger or Consolidation Plans............. 36 ARTICLE 13 Funding Agent........................................... 38 ARTICLE 14 Limitations on Contributions and Allocations............ 41 ARTICLE 15 Top-Heavy Plan Provisions............................... 49 ARTICLE 16 Miscellaneous........................................... 58 ARTICLE 17 Diversification of Investments.......................... 64
(i) ARTICLE 1 NAME OF PLAN ------------ 1.01 The name of this Employee Stock Ownership Plan, as amended from time to time, shall be the Cornucopia Natural Foods, Inc., Employee Stock Ownership Plan (hereinafter the "Plan"). ARTICLE 2 DEFINITIONS ----------- The following words and phrases as used herein shall, when expressed with initial capitals, have the meaning specified below unless a different meaning is plainly required by the context: Section 2.01 Accounts. A Participant's Investment Account and Stock -------- Account. Section 2.02 Beneficiary. Any person or persons designated by the ----------- Participant, or otherwise entitled, to receive any benefit hereunder not received by the Participant. Section 2.03 Board. The Board of Directors of the Employer. ----- Section 2.04 Break in Service. A Break in Service is a Plan Year in which ---------------- an Employee has completed 500 or fewer Hours of Service. Section 2.05 Code. The Internal Revenue Code of 1986, as amended. ---- Section 2.06 Compensation. An Employee's earnings for the Plan Year ------------ which are subject to tax under Section 3101(a) of the Code without the dollar limitations of Section 3121(a). Compensation shall not be reduced by amounts which are electively deferred through a salary reduction agreement to any other cash or deferred plan under -2- Section 401(k) of the Code. Compensation does not include any income imputed to the Employee by reason of his use of employer owned or furnished property; payments made in lieu of vacation or other time off; reimbursements, including tax reimbursements, for moving expenses; or income due to employer paid life insurance in excess of nontaxable limits. For Plan Years beginning after December 31, 1988, Compensation in excess of $200,000 shall be disregarded except that such amount shall be adjusted by the Adjustment Factor at the same time and in such manner as permitted under Code Section 415(d). Section 2.07 Disability. A condition which the Employer in its sole ---------- discretion determines has incapacitated the Participant from satisfactorily performing his usual services for the Employer during the foreseeable future. Section 2.08 Effective Date. November 1, 1988. -------------- Section 2.09 Employee. Any person employed by the Employer. -------- Section 2.10 Employer. Cornucopia Natural Foods, Inc., or any person, -------- firm or corporation into which it may be merged or consolidated or by which it may be succeeded and which may adopt this Plan. -3- Section 2.11 Entry Date. The first day of each May and November. ---------- Section 2.12 Fund. The contributions deposited with and held by the ---- Funding Agent pursuant to the Plan and any property into which the same or any part thereof may, from time to time, be converted and any increment thereto and income thereon. Section 2.13 Funding Agent. The trustee, insurance company or other ------------- person or any combination of the foregoing which is maintaining custody of the funds which arise from contributions made pursuant to the Plan and from which benefits shall be paid, or any successor to any of such persons. Section 2.14 Funding Agreement. The agreement of trust and/or group ----------------- annuity contract pursuant to which the Funding Agent maintains custody of the Fund. Section 2.15 Hour of Service. The sum of the following: --------------- (a) Each hour for which an Employee is directly or indirectly paid, or entitled to payment, by the Employer, for the performance of duties, each such hour to be credited to the period in which the duties are performed; (b) Each hour for which an Employee is paid, or entitled to payment, by the Employer or Affiliated Employer, on account of a period of time during which no duties are performed (whether or not such person is an Employee on the date of payment) due to vacation, holiday, illness, incapacity, short-term disability, layoff, jury -4- duty, military duty, or leave of absence. Such hours shall be credited pursuant to Section 2530.200 b-2 of the Department of Labor Regulations which are incorporated herein by reference; (c) Each hour for which back pay, irrespective of mitigation of damages, has either been awarded or agreed to by the Employer, such hours to be credited to the period or periods to which the award or agreement for back pay pertains. (d) Solely for purposes of determining whether a Break in Service has occurred in a Plan Year, an individual who is absent from employment for a Maternity or Paternity Leave shall receive credit for the Hours of Service which would otherwise have been credited to such individual but for such absence, or in any case in which Hours of Service cannot be determined, 8 Hours of Service per day of such absence. The Hours of Service credited under this paragraph shall be credited for one Plan Year only, which shall be (i) the Plan Year in which the absence begins if such crediting is necessary to prevent a Break in Service in such Plan Year, or (ii) in all other cases, in the following Plan Year. No more than 501 Hours of Service shall be credited under subsection (b) for any single continuous period (whether or not such period occurs in a single computation period). The same Hours of Service shall not be credited under both subsection (a) or subsection (b), as the case may be, and under subsection (c). Section 2.16 Investment Manager. Any person, persons, firm or corporation ------------------ appointed by the Employer to manage any assets of the Plan. -5- Section 2.17 Limitation on Allocations. Certain definitions relating to ------------------------- the limitation on allocations required by section 415 of the Code are contained in Article 14 of this Plan. Section 2.18 Maternity or Paternity Leave. An absence from work (a) by ---------------------------- reason of the pregnancy of the Employee, (b) by reason of the birth of a child of the Employee, (c) by reason of the placement of a child with the Employee in connection with the adoption of such child by the Employee, or (d) for purposes of caring for such child for a period beginning immediately following such birth or placement. Section 2.19. Normal Retirement Date. The first day of the month ---------------------- following the date on which the Participant has reached the age of 65 and has five (5) Years of Vesting Service. Section 2.20 Participant. Any Covered Employee who has qualified under ----------- the Plan as provided in Article 3, and has not ceased to be a Participant. Section 2.21 Plan. Cornucopia Natural Foods, Inc. Employee Stock ---- Ownership Plan. Section 2.22 Plan Administrator. The Employer as provided in Article 10. ------------------ -6- Section 2.23 Plan Representative. Any named fiduciary, any member of ------------------- any committee, or any Employee of the Employer who has been assigned responsibility for working with Participants and their spouses in the choice of Plan distributions. Section 2.24 Plan Year. The twelve month period beginning November 1 and --------- ending October 31. Section 2.25 Qualified Domestic Relations Order. A domestic relations ---------------------------------- order defined as such in section 414(p) of the Code. Section 2.26 Qualified Election Period. The five Plan Year Period ------------------------- beginning with the later of (i) the Plan Year after the Plan Year in which the Participant attains age 55; or, (ii) the Plan Year after the Plan Year in which the Participant first becomes a Qualified Participant. Section 2.27 Qualified Participant. A Participant who has attained age 55 --------------------- and who has completed at least 10 Years of Vesting Service in the Plan. Section 2.28 Shares. Shares of common stock of the Employer which are ------ "qualifying employer securities" within the meaning of sections 409(l) and 4975(e)(8) of the Code, or any successor sections. -7- Section 2.29 Spouse or Surviving Spouse. The Spouse or Surviving Spouse -------------------------- of the Participant, provided that a former spouse will be treated as the Spouse or Surviving Spouse to the extent provided under a Qualified Domestic Relations Order as described in section 414(p) of the Code. Section 2.30 Stock Account. A Participant's interest in the Shares held ------------- by the Plan. Section 2.31 Stock Obligation. Indebtedness arising from any extension of ---------------- credit to the Plan or the Trust obtained for the purpose of buying Shares. Section 2.32 Top-Heaviness. Certain definitions relating to top-heaviness ------------- are contained in Article 15 of this Plan. Section 2.33 Unallocated Stock Account. The account maintained pursuant ------------------------- to Section 5.02 of the Plan. Section 2.34 Valuation Date. October 31 of each Plan Year. -------------- Section 2.35 Year of Eligibility Service. An annual period during which --------------------------- an Employee has 1,000 or more Hours of Service with the Employer, beginning on the date -8- the Employee first performs an Hour of Service. Subsequent annual periods are Plan Years. Section 2.36 Year of Vesting Service. A Plan Year during which an ----------------------- Employee has 1,000 or more Hours of Service with the Employer. -9- ARTICLE 3 ELIGIBILITY FOR PARTICIPATION ----------------------------- Section 3.01 Eligibility for Participation. An Employee shall become a ----------------------------- Participant on the Entry Date coinciding with or next following the date on which he has (i) completed one (1) Year of Eligibility Service and (ii) attained age 21. Each Participant who has been a Participant, but has incurred a Break in Service due to termination of employment, shall again become a Participant in the Plan on the first day of the month in which he first performed an Hour of Service upon becoming re-employed. Notwithstanding the foregoing, no Employee shall be a Participant in the Plan during any period in which he is covered by a collective bargaining agreement entered into with the Employer if such agreement does not provide for participation of such person in the Plan. Section 3.02 Termination of Participation. A Participant shall cease to ---------------------------- be a Participant upon his ceasing to be a Covered Employee. -10- ARTICLE 4 CONTRIBUTIONS ------------- Section 4.01 Contributions. Subject to the limitations imposed by ------------- Article 14, the Employer shall contribute to the Trust Fund for each Plan Year, within the time prescribed by law for filing of the income tax return for the Employer's fiscal year, including any extensions thereof, in cash or Shares as determined by the Board, such amount as shall be determined by the Board; provided, however, that the Employer intends to contribute to the Trust Fund hereunder amounts sufficient to pay, as they become due, all currently maturing obligations under any Stock Obligation. Employer Contributions for a Plan Year shall first be applied against Stock Obligations for that Plan Year unless the Employer directs otherwise. -11- ARTICLE 5 ALLOCATION OF CONTRIBUTIONS --------------------------- Section 5.01 Allocations of Contributions. Subject to the limitations of ---------------------------- Article 14, as of the last day of a Plan Year, the sum of (a) the Shares released from the Unallocated Stock Account for that Plan Year pursuant to Section 5.02, plus (b) any Employer contributions under Section 4.01 for that Plan Year not applied against Stock Obligations, shall be allocated among the Stock and Investment Accounts of the Participants as follows: (1) All of the Shares included in such sum shall be allocated among the Participants' Stock Accounts on the basis of the percentage that each Participant's Compensation during that portion of the Plan Year in which he was a Participant is to the total aggregate Compensation of all Participants for that portion of the Plan Year in which they were Participants; and (2) The amounts other than Shares included in such sums shall be allocated among the Participants' Investment Accounts on the basis of the percentage that each Participant's Compensation during that portion of the Plan Year in which he was a Participant is to the total aggregate Compensation of all Participants for that portion of the Plan Year in which they were Participants. Notwithstanding the foregoing, no allocation shall be made pursuant to this Section 5.01 to the Stock or Investment Account of a Participant who was not a -12- Participant on the last day of the Plan Year or who did not complete 1,000 or more Hours of Service in the Plan Years. Section 5.02 Release of Shares for Allocation. An Unallocated Stock -------------------------------- Account shall be maintained in which the Plan's holdings of Shares which have been purchased on credit, whether or not the Shares are pledged as collateral, shall be segregated until payments on the corresponding Stock Obligations permit the release of the Shares for allocation to Participants in accordance with this Section 5.02. Any dividends with respect to such segregated Shares which are paid by the Employer in the form of additional Shares shall also be segregated in the Unallocated Stock Account and thereafter treated in the same manner as the underlying segregated Shares. In each Plan Year in which Employer contributions or earnings on contributions are applied to satisfy a portion of a Stock Obligation, a certain number of Shares held in the Unallocated Stock Account shall be released for allocation among the Participants. The number of Shares released shall bear the same ratio to the number of shares attributable to the Stock Obligation which are then in the Unallocated Stock Fund (prior to the release) as (a) the principal payments made on the Stock Obligation in the Plan Year bears to (b) the payments described in clause (a) plus the total remaining principal payments required to satisfy the Stock Obligation. For this purpose, each Stock Obligation, the Shares purchased in connection with it, and any stock dividends on such Shares, shall be considered separately. -13- Section 5.03 Allocation of Dividends. Any cash dividends received on ----------------------- Shares allocated to Participants' Stock Accounts shall be allocated to their respective Investment Accounts. Any dividends in the form of additional Shares received on Shares allocated to Participants' Stock Accounts shall be allocated to the same Stock Accounts. Any cash dividends received on Shares held in the Unallocated Stock Account which are not used to satisfy Stock Obligations shall be included in the income (or loss) of the Trust for the Plan Year. Notwithstanding the foregoing, any cash dividends received on Shares which are distributed to Participants pursuant to Section 5.05 shall not be allocated to their Accounts. Section 5.04 Allocation of Net Income (or Loss) of the Trust. As of the ----------------------------------------------- last day of each Plan Year, the Administrator shall determine the net income (or loss) of the Trust for the Plan Year, which shall equal the increase or decrease in the fair market value of all assets held in the Trust Fund, excluding the following: (1) Shares, (2) dividends received on Shares allocated to Participants' Accounts pursuant to Section 5.3 and (3) Employer contributions for the Plan Year, since the first day of the Plan Year. Such net income (or loss) shall be allocated to each Participant's Investment Account in the ratio which the balance of his Investment Account bears to the total of the Investment Account balances for all Participants as of that date. The adjustments made pursuant to this Section 5.04 shall be made before any allocations are made pursuant to Section 5.01. -14- Section 5.05 Pass-Through of Dividends. Any cash dividends received by ------------------------- the Trust on Shares allocated to Participants' Accounts shall be paid in cash to such Participants, rather than being allocated to Participants' Accounts pursuant to Section 5.03, not later than 90 days after the close of the Plan Year in which such dividends are paid, if the Board so directs the Trustee. Section 5.06 Allocation of Forfeitures. As of the end of each Plan ------------------------- Year, the Administrator shall determine the value of forfeitures, pursuant to Section 6.03 hereof, during the Plan Year then ending. The Administrator shall use such forfeitures to reduce future Employer contributions. -15- ARTICLE 6 VESTING ------- Section 6.01 Vesting Schedule. A Participant shall have a vested right ---------------- to the balance of his Investment and Stock Accounts as follows:
Years of Vesting Service Non-forfeitable Percentage - ------------------------ -------------------------- Less than 5 0% 5 or more 100%
Notwithstanding the foregoing, a Participant shall have a vested right to the balance of his Investment and Stock Accounts upon attaining his Normal Retirement Date or in the event of his death or Disability. Section 6.02 Years of Vesting Service - Computation. For the purposes of -------------------------------------- Section 6.01, Years of Vesting Service shall include all Years of Vesting Service as an Employee subject to the following Break in Service rules: (a) If a Participant shall have a Break in Service, Years of Vesting Service prior to the Break in Service shall not be taken into account until the Participant has completed one Year of Vesting Service after the Break in Service. (b) If a Participant shall have five or more consecutive Breaks in Service, Years of Vesting Service prior thereto shall be taken into account only if either (a) the Participant was vested in his Accounts in the first Plan Year in which a Break in Service occurs, or (b) the number of consecutive Breaks in Service is less than the number of -16- Years of Vesting Service completed prior to the first Plan Year in which a Break in Service occurs. (c) If a Participant shall have five or more consecutive Breaks in Service, Years of Vesting Service completed thereafter shall be disregarded in computing the percentage of the Account vested prior thereto. Such Participant's Year of Vesting Service completed prior to the first Plan Year in which a Break in Service occurs shall be counted in determining the vested percentage of the Accounts derived from Employer contributions made after such five or more consecutive Breaks in Service only if either (a) the Participant was vested in his Accounts in the first Plan Year in which a Break in Service occurs, or (b) upon returning to service, his number of consecutive Breaks in Service is less than his number of Years of Vesting Service. Separate sub- portions will be maintained in the Participant's Accounts for the part of the Participant's Accounts derived from Employer contributions made with respect to Plan Years prior to the first Plan Year in which a Break in Service occurs, and for that part derived from Employer contributions made thereafter with both parts to share in the earnings and losses of the Fund. Section 6.03 Occurrence of Forfeitures. A forfeiture of a Participant's ------------------------- non-vested interest shall occur at the end of Plan Year during which a Participant shall have incurred five consecutive Breaks in Service. -17- Section 6.04 Application of Forfeitures. Forfeitures shall be used to -------------------------- reduce future Employer Contributions. -18- ARTICLE 7 DISTRIBUTION AND PAYMENT REQUIREMENTS ------------------------------------- Section 7.01 Benefits. A Participant whose employment with the Employer terminates for any reason shall be entitled to receive the vested portion of his Accounts as further set forth in this Article 7: Section 7.02 Commencement of Payment of Benefits. (a) Allocated Shares in Stock Account. The payment of benefits from --------------------------------- the Participant's Stock Account shall commence not later than one year after the close of the Plan Year in which a Participant terminates employment with the Employer for any reason and shall be paid in a form pursuant to Section 7.04. (b) Participant Consent. No distributions to a Participant shall be ------------------- made prior to the Participant's Normal Retirement Date if the Participant's vested portion of his Accounts exceeds $3,500 (or such larger amount as may be permitted by law or regulation) unless the Participant consents to the distribution, except that distributions of dividends to a Participant pursuant to section 404(k) of the Code may be made without the Participant's consent. Section 7.03 Latest Date for Commencement of Distribution. The vested -------------------------------------------- portion of the Accounts of a Participant determined with respect to the Plan Year ending in the calendar year in which such individual attains age 70 1/2 must be distributed, or -19- commence to be distributed, no later than the first day of April following the calendar year in which such individual attain age 70 1/2. Section 7.04 Form of Payment. The vested portion of the Accounts of a --------------- Participant shall be paid as follows: (a) Unless a Participant elects (b) or (c) below, a Participant shall receive his benefits in substantially equal annual payments to be made over a period of 5 years. The amount paid for the Shares in his Accounts shall be determined pursuant to Section 7.08 as of the Valuation Date preceding each annual payment. (b) A Participant may elect on a form to be provided to the Participant at the time of the Participant's separation from service to receive payment of his benefits in one lump sum amount to be made at the end of the 5 year period set forth in (a) above, in which the fair market value of the Shares in the Participant's Account is determined as of the Valuation Date preceding said payment. (c) A Participant may elect on a form to be provided to the Participant at the time of the Participant's separation from service to have the Shares in his Account repurchased by Employer at the fair market value determined as of the preceding Valuation Date. The proceeds from the sale of the Shares will be invested by the Trustees in a segregated account solely for the benefit of the Participant. The Trustees shall choose investments which maximize safety of principal. Payments from the segregated account to the Participant shall be made in accordance with the methods set forth in (a) or (b) above as elected by the Participant. -20- (d) The vested portion of the Accounts of a Participant may be distributed in cash or Shares, at the election of the Participant, except as provided in (e) below and Section 7.05. (e) If the charter or bylaws of the Employer restrict the ownership of substantially all outstanding Shares to Employees or to a trust described in Code section 401(a), then the vested portion of the Accounts of a Participant who is no longer an Employee shall be paid in cash to the Participant. Section 7.05 Put Option. ---------- (a) In the event that Shares which were acquired with the proceeds of a Stock Obligation are distributed pursuant to this Article 7, such Shares shall be subject to a put option, if, when distributed, such Shares are (i) not listed on a national securities exchange registered under Section 6 of the Securities Exchange Act of 1934 or quoted on a system sponsored by a national securities association registered under Section 15A(b) of the Securities Exchange Act ("Publicly Traded") or (ii) subject to a restriction ("Trading Restriction") under any Federal or state securities law or any regulation thereunder or under an agreement which makes such Shares not as freely tradable as Shares not subject to such restriction. The put option shall comply with the requirements of section 409(h) of the Code. (b) The put option shall be exercisable by the distributee of the Shares. (c) The put option shall permit the Shares to be put to the Employer at their fair market value as determined pursuant to Section 7.08. -21- (d) The put option shall be exercisable at any time during the sixty (60) day period commencing on the date of distribution of the Shares. If the distributee does not exercise the put option within such sixty (60) day period, the option will temporarily lapse. After the close of the Employer's taxable year in which such temporary lapse occurs and following a determination of the fair market value of the Shares as of the end of that taxable year, the Employer shall notify each distributee who did not exercise the initial put option in the preceding year of the fair market value of the Shares. Each such distributee shall then have the right to exercise the put option at any time during the sixty (60) day period following such notice. If the distributee does not exercise this put option, the Shares will cease to be subject to any put option. (e) If the distribution of Shares to the Participant is a total distribution of the balance in his Accounts, payments determined under Section 7.08 pursuant to the exercise of the put option shall be made in five substantially equal annual payments. The first installment shall be paid not later than 30 days after the Participant exercises the put option. The Plan will pay a reasonable rate of interest and provide adequate security on amounts not paid after 30 days. (f) If the distribution of shares to the Participant is not a total distribution pursuant to (e) above, the Plan shall pay the Participant an amount equal to the fair market value of the Shares (in accordance with Section 7.08) repurchased no later than 30 days after the Participant exercises the put option. -22- Section 7.06 Protections and Rights. Except as provided in Section 7.05 ---------------------- or as otherwise required by law, no Shares acquired with the proceeds of a Stock Obligation may be subject to a put, call or other option, or buy-sell or similar arrangements, while held by or when distributed from the Plan. Section 7.07 Protections and Rights Nonterminable. The provisions of ------------------------------------ Sections 7.05 and 7.06 are nonterminable, and shall continue notwithstanding the repayment of any Stock Obligation the proceeds of which were used to acquire Shares and notwithstanding the fact that the Plan ceases to be an employee stock ownership plan within the meaning of section 4975(e)(7) of the Code. Section 7.08 Fair Market Value. For purposes of this Plan, the fair ----------------- market value of the Shares shall be the average of closing bid and asked prices for the Shares on the date as of which the determination is made (or if such quotation occurred on that date, on the next preceding date on which there was such a quotation), as made available for publication by the National Association of Securities Dealers Automated Quotation System, or if no such prices are available, the fair market value as determined pursuant to section 401(a)(28)(C) of the Code. Section 7.09 Suspension of Payments. If a Participant who terminates ---------------------- his employment or incurs a One Year Break in Service subsequently again becomes a Participant while receiving payment of any benefits provided hereunder in installments, -23- the Administrator may, in its sole discretion, suspend further payments during the period in which he is a Participant. -24- ARTICLE 8 DEATH BENEFITS -------------- Section 8.01 Distribution Upon Death. If a person ceases to be a ----------------------- Participant by reason of his death, or if the Funding Agent holds any unpaid balance of the amount due to a former Participant at the death of such former Participant, his Account shall be distributed as provided in this Article 8. Such payment shall be made in a lump-sum as soon as reasonably practicable after notice of death (but in no event more than five years after death) and shall be in the amount determined as of the most recent Valuation Date. Notwithstanding the above, if a Participant dies after distribution of his or her Accounts has commenced, the remaining portion of such Accounts will be distributed at least as rapidly as the method of distribution being used as of the time of the Participant's death. Section 8.02 Surviving Spouse Except as provided in Section 8.03 or 8.04, such Accounts shall be distributed to the Participant's Surviving Spouse. Such distribution shall be made in a lump sum. Section 8.03 No Surviving Spouse; Waiver. If a Participant shall leave no --------------------------- Surviving Spouse or if the Surviving Spouse has consented to a Qualified Waiver, then the distribution shall be made to the Participant's Beneficiary. As used herein, the term "Qualified Waiver" means a waiver of the right of a Surviving Spouse to receive a -25- distribution, which waiver must be in writing and must be consented to by the Participant's Surviving Spouse. The Surviving Spouse's consent to a Qualified Waiver must be witnessed by a Plan Representative or notary public. Notwithstanding the requirement of consent by the Surviving Spouse, if the Participant established to the satisfaction of the Employer that written consent may not be obtained because there is no Spouse, or the Spouse cannot be located, or because the Spouse has abandoned the Participant and the Participant has obtained a judicial order to that effect, or because of such other circumstances as the Secretary of the Treasury may by regulations prescribe, a waiver by the Participant will be deemed a Qualified Election. Any consent necessary under this provision will be valid only with respect to the Spouse who signs the consent or, in the event of a deemed Qualified Election pursuant to the preceding sentence, the Spouse designated in such deemed Qualified Election. A Participant may from time to time and at any time revoke a prior waiver without consent of the Spouse. Section 8.04 Beneficiaries. A Participant or former Participant may ------------- designate a Beneficiary or Beneficiaries by executing and delivering to the Employer written notice thereof in such form as may be prescribed by the Employer at any time prior to his death, and he may revoke or change the Beneficiary or Beneficiaries so designated without their consent by other written notices executed and delivered to the Employer from time to time prior to his death. If such former Participant shall have failed to make such a designation, or if no designated Beneficiaries shall survive him, then the Beneficiary shall be the Participant's legal representative, or if no legal representative is -26- appointed within one year after the Participant's death, such of the next of kin and/or natural objects of the Participant's bounty as shall be selected by the Employer in its sole and uncontrolled discretion. -27- ARTICLE 9 VOTING RIGHTS ------------- 9.01 Voting Rights. ------------- (a) For any corporate matter of the Employer which involves the voting of shares pursuant to a corporate merger, consolidation, recapitalization, reclassification, liquidation, sale of substantially all the assets of a trade or business, or such similar transaction prescribed by Treasury Regulations, the Employer shall direct the Trustee to vote all allocated Shares as directed by the Participants to whose Account such Shares have been allocated. If no directions are received from a Participant, the Participant will be deemed to have directed the Trustee to abstain from voting. (b) For all corporate matters not specified in (a), the Shares allocated to Participants' Accounts shall be voted by the Trustee as directed by the Employer. (c) For all corporate matters, all Shares which are unallocated shall be voted by the Trustee as directed by the Employer. -28- ARTICLE 10 ADMINISTRATION -------------- Section 10.01 Named Fiduciaries. The following shall be named ----------------- fiduciaries of the Plan: (a) The Employer; (b) The Funding Agent; (c) The individuals, committees of individuals, firms or corporations, if any, to whom the Employer allocates its responsibilities in accordance with the provisions of Sections 10.02 and 10.03 of the Plan. Section 10.02 Responsibilities of the Employer as Plan Administrator. ------------------------------------------------------ The Employer shall be the Plan Administrator of the Plan. The Employer shall have the following powers and responsibilities as Plan Administrator of the Plan: (a) to determine benefit rights; (b) to instruct the Funding Agent in the disbursement of benefits; (c) to make such rules and regulations as it may deem necessary to carry out the provisions of the Plan; (d) to employ actuaries, attorneys, accountants and such other individuals as it shall deem necessary or desirable in the administration of the Plan, and to delegate to such individual such powers and responsibilities as it shall determine, -29- provided that such employment and delegation shall not ipso factor make such individuals fiduciaries of the Plan; (e) to determine, in accordance with uniform standards, any question arising in the administration, interpretation and application of the Plan, such determination to be conclusive and binding to the extent the same shall not be plainly inconsistent with the terms of the Plan or any applicable law; (f) to decide any disputes which may arise; (g) to give instructions and directions to the Funding Agent as necessary; (h) to designate. consistent with sound standards, the actuarial bases to be used for all actuarial calculations; and (i) to keep a record of all allocations and designations of fiduciary duties made in accordance with the provisions of this Article 10. The Employer may allocate some or all of its powers and responsibilities as Plan Administrator, as enumerated above, to such individuals, committees of individuals, firms or corporations as it shall determine, in which case such individuals, committees of individuals, firms or corporations shall be named fiduciaries. Such allocations shall be made in writing and shall name the entity to whom the allocation has been made and describe the fiduciary duties allocated by it. A copy of such allocation shall be filed with the Plan Administrator. Notwithstanding the foregoing, and until such time as the Board shall direct otherwise, all of the powers and responsibilities of the Employer as Plan Administrator -30- are hereby allocated to the Vice President/Administration of the Employer and the Vice President/Administration is hereby given further power to delegate such powers and responsibilities. Section 10.03 Responsibilities of the Employer Other Than as Plan --------------------------------------------------- Administrator. The Employer shall have the following powers and responsibilities - ------------- with regard to the Plan, apart from any responsibilities it shall have as Plan Administrator: (a) to amend or terminate the Plan; (b) to determine the funding policy of the Plan; (c) to appoint and change the Funding Agent; (d) to appoint and change an Investment Manager; (e) to review periodically the performance of all named fiduciaries and other entities to which the Employer allocates or delegates responsibilities. The Employer may allocate some or all of its powers and responsibilities under this Section to such individuals, committees of individuals, firms or corporations as it shall determine, in which case such individuals, committees of individuals, firms or corporations shall be named fiduciaries. Such allocations shall be made in writing and shall name the entity to whom the allocation has been made and describe the fiduciary duties allocated to it. A copy of such allocation shall be filed with the Plan Administrator. -31- Section 10.04 Employer to Act by Board. Whenever the Employer is ------------------------ required or authorized to make any appointments, or allocate or delegate any responsibilities, such action may be taken by its Board. Without limiting the generality of the foregoing, the Board may confer upon any individual, committee of individuals, firm or corporation further power to delegate responsibilities. Section 10.05 Responsibilities of the Funding Agent. The Funding Agent ------------------------------------- shall have the following powers and responsibilities: (a) to maintain custody of the Fund; (b) to manage and control the investment of the Fund consistent with the funding policy of the Plan, except to the extent that an Investment Manager (or Managers) is appointed; (c) to disburse benefits as instructed by the Plan Administrator or his agent under Section 10.02; (d) to purchase and sell securities as instructed by an Investment Manager, if any has been appointed; (e) to perform any other functions which are specifically allocated to it in the Funding Agreement. Section 10.06 Procedure for Named Fiduciaries to Designate Others to ------------------------------------------------------ Carry Out Responsibilities. Every named fiduciary shall have the power to - -------------------------- designate such other individual, committee of individuals, firm or corporation as it chooses to carry out some or all of its fiduciary duties. Such designation shall be made in writing, and shall name -32- the entity designated and describe the fiduciary duties. A copy of such designation shall be filed with the Plan Administrator. Section 10.07 Limitation of Responsibilities. The responsibility of the ------------------------------ Employer, Plan Administrator, any Funding Agent, any Investment Manager, or any individuals, committees of individuals, firms or corporations, to which fiduciary responsibilities are allocated, or who are designated to perform fiduciary responsibilities, as provided herein, shall be limited to that expressly granted and, except as may be provided in section 405 of the Employee Retirement Income Security Act of 1974, neither the Employer, Plan Administrator, any Funding Agent, any Investment Manager, nor any such individuals, committees of individuals, firms or corporations shall be responsible except for his, her, its or their own acts or omissions. -33- ARTICLE 11 AMENDMENT AND TERMINATION ------------------------- Section 11.01 Right to Amend and Terminate. The Employer hopes and ---------------------------- expects to continue the Plan and the payment of contributions hereunder indefinitely; but such continuance is not assumed as a contractual obligation, and in order to protect both Participants and the Employer against unforeseen contingencies, the Employer expressly reserves the right, by action of its Board, to amend the Plan as to its Participants with the consent of the Board of the Employer, and the Employer expressly reserves the right, by action of the Board, to terminate the Plan or to discontinue contributions completely. Section 11.02 Effect of Termination. Upon the termination or partial --------------------- termination of the Plan or upon any discontinuance or suspension of contributions constituting a discontinuance, the interest of each Participant in the Fund shall irrevocably vest in him. The Employer shall thereupon direct the Funding Agent to convert the Fund into cash and shall provide for the payment of all liabilities and expenses under the Plan and Funding Agreement. The Employer shall then compute the value of the interest of each Participant and direct the Funding Agent to pay an amount in cash equivalent thereto to such Participant or to his Beneficiary. Section 11.03 Impossibility of Diversion of Assets. Anything in this Plan ------------------------------------ which might be construed to the contrary notwithstanding, it shall be impossible at any time -34- prior to the satisfaction of all liabilities with respect to Participants and Beneficiaries for any funds held by the Funding Agent to be used for, or diverted to, purposes other than for purposes herein stated. -35- ARTICLE 12 SUCCESSOR AND MERGER OR CONSOLIDATION OF PLANS ---------------------------------------------- Section 12.01 Successor Employer. In the event of the dissolution, ------------------ merger, consolidation or reorganization of the Employer, provision may be made by which the Plan and Funding Agreement will be continued by the successor, and, in that event, such successor shall be substituted for the Employer under the Plan. The substitution of the successor shall constitute an assumption of Plan liabilities by the successor and the successor shall have all the powers, duties and responsibilities of the Employer under the Plan. Section 12.02 Merger or Consolidation. In the event of any merger or ----------------------- consolidation of the Plan with, or transfer in whole or in part of the assets and liabilities of the Plan to, a different plan of deferred compensation maintained or to be established for the benefit of all or some of the Participants of the Plan, the assets applicable to such Participants shall be transferred only if each Participant would (if either this Plan or the other plan then terminated) receive a benefit immediately after the merger, consolidation or transfer which is equal to or greater than the benefit he would have been entitled to receive immediately before the merger, consolidation or transfer (if this Plan had been terminated). No Funding Agent shall be required to make any such transfer except upon certification of resolutions of the Board of the Employer, or of the board of directors of any new or successor employer of the affected Participants, authorizing such -36- transfer, and upon adequate assurances that such other plan had qualified under section 401(a) and the related trust, if any, was exempt under section 501(a) of the Code. Nothing in this Section 12.02 shall be construed to imply that any merger or consolidation shall constitute a termination or discontinuance of the Plan or that the value of any Participant's benefit after any such merger or consolidation is guaranteed at any specific level. -37- ARTICLE 13 FUNDING AGENT ------------- Section 13.01 Appointment and Transfer of Funds. To carry out the --------------------------------- provisions of the Plan, the Employer may at any time provide for the custody and investment of the funds which arise from contributions pursuant to the Plan and for the payment of benefits under the Plan by contract with such insurance company or companies and/or with such trustee or trustees and/or with such other persons as it may from time to time determine. Subject to the provisions of Section 10.02 hereof, upon the written direction of the Employer, any Funding Agent may be instructed to pay over the funds (less any amount constituting charges and expenses payable therefrom) or such part thereof as the Employer shall specify to another Funding Agent. Section 13.02 Successor Funding Agents; Miscellaneous. The Employer, in --------------------------------------- its sole and absolute discretion, reserves the right at any time and from time to time to designate a successor Funding Agent or Agents; to enter into and make amendments to such contracts or agreements with Funding Agents as it may deem desirable to accomplish the objectives of the Plan; to provide for the payment thereafter of the contributions hereunder to other or additional Funding Agent or Agents; and to require a Funding Agent to transfer funds arising from contributions pursuant to the Plan to another Funding Agent, provided that the Employer shall have no power to perform any of such actions in such manner as will cause or permit any part of the funds -38- accumulated pursuant to the Plan to be directed to purposes other than for the exclusive benefit of Participants or their Beneficiaries, survivors or estates, retired employees or their Beneficiaries or as will cause or permit any portion of such funds to revert to or become the property of the Employer. Section 13.03 Investment. Any cash or any other property received by the ---------- Funding Agent and held in the Fund shall be invested as soon as and to the extent practicable in Shares or used to pay principal and/or interest on any outstanding Stock Obligation. Any cash or any other property received as a contribution from the Employer for any Plan Year shall be used to make the next regularly scheduled payment of principal and/or interest on any outstanding Stock Obligation. Any cash or other property remaining after such payment shall be invested as soon as and to the extent practicable in Shares. Neither the Employer nor the Funding Agent shall have any responsibility or duty to time any transaction involving Shares in order to anticipate market conditions or changes in stock value, nor shall any such person have any responsibility or duty to sell Shares held in the Fund (or otherwise to provide investment management for Shares held in the Fund) in order to maximize return or minimize loss. 13.04 Stock Obligations. The Employer may direct the Funding Agent to ----------------- incur Stock Obligations from time to time to effect the acquisition of Shares under the Plan or to repay a prior Stock Obligation. A Stock Obligation shall be for a specific term, shall, if required to bear interest, bear a reasonable rate of interest and shall not be payable on -39- demand except in the event of default. A Stock Obligation may be secured by a pledge of Shares so acquired (or acquired with the proceeds of a prior Stock Obligation which is refinanced with the new Stock obligation). No other Fund assets may be pledged as collateral for a Stock Obligation, and no lender shall have recourse against Fund assets other than any Shares remaining subject to pledge. Any pledge of Shares must provide for the release of Shares so pledged as payments on the Stock Obligation are made by the Funding Agent and such Shares are allocated to Participants' Accounts as provided in Article 5. Repayments of principal and interest (if any) on any Stock Obligation shall be made by the Funding Agent (as directed by the Committee) only from Employer contributions paid in cash to enable the Funding Agent to repay such Stock Obligation, from earnings attributable to such Employer contributions, from any cash dividends received by the Fund on such Shares or through the forgiveness of indebtedness. -40- ARTICLE 14 LIMITATIONS ON CONTRIBUTIONS AND ALLOCATIONS -------------------------------------------- Section 14.01 General. This Article 14 is intended to impose a ------- limitation on the allocations made to the Accounts of Participants in the Plan required by section 415 of the Code and the Regulations thereunder, the terms of which are specifically incorporated herein. The definitions contained in Section 14.05 shall apply to all terms used in this Article 14 regardless of any different definitions contained elsewhere in the Plan. Section 14.02 Limitation on Contributions. The total annual contribution --------------------------- of the Employer hereunder for any fiscal year of the Employer shall not exceed an amount equal to the sum of (1) all amounts deductible in prior fiscal years of the Employer as a result of Employer contributions that were carried forward pursuant to section 404(a)(3) of the Code, up to a maximum of fifteen percent (15%) of the aggregate Compensation of all Participants in the Plan in such fiscal year, and (2) fifteen percent (15%) of the aggregate Compensation of all Participants in the Plan in such fiscal year; provided, however, that such sum shall not exceed twenty-five percent (25%) of the aggregate Compensation of all Participants in the Plan in such fiscal year; and provided further, that such sum plus all Employer contributions to any defined benefit plan maintained by the Employer shall not exceed the greater of (1) twenty-five percent (25%) of the aggregate Compensation of all Participants in this Plan and all beneficiaries of the defined benefit plan in such fiscal year or (2) the amount of contributions necessary to -41- satisfy the minimum funding standard provided by section 412 of the Internal Revenue Code for the Plan Year which ends with or within such fiscal year. Notwithstanding the foregoing, the annual contribution of the Employer for each fiscal year of the Employer shall not be subject to the percentage limitations imposed by this Section 14.02 to the extent that such contribution is applied by the Trustee to the repayment of interest and/or principal due on any Stock Obligation; provided, however, that the amount of such contribution applied to the repayment of principal shall be so applied within the time prescribed by law for filing of the Employer's income tax return for such fiscal year, including any extensions thereof, and shall not exceed twenty-five (25%) of the aggregate Compensation of all Participants in the Plan in such fiscal year. Section 14.03 Limitation on Allocations. Anything to the contrary herein ------------------------- notwithstanding, in no event shall the Annual Additions (as defined in Section 14.05 of the Plan) to a Participant's Accounts hereunder and under any other defined contribution plan maintained by the Employer in any Plan Year exceed the Maximum Permissible Amount. The Maximum Permissable Amount shall be the greater of the lesser of (1) the Limitation Amount, as defined below, or (2) twenty-five percent (25%) of all the Participant's Compensation from the Employer for such Plan Year. The Limitation Amount shall be equal to $30,000 (which amount shall be subject to an annual cost of living adjustment as provided by Treasury Regulations in effect from time to time under section 415 of the Internal Revenue Code) (the "Primary Limitation Amount"), except that for any Plan Year in which no more than one-third (1/3) of the Employer -42- contributions are allocated to participants who are highly compensated employees within the meaning of section 414(q) of the Internal Revenue Code, the Limitation Amount will be equal to the Sum of the Primary Limitation Amount and the lesser of (1) the Primary Limitation Amount, or (2) the value of Shares contributed, or purchased with cash contributed, to the Plan. For purposes of this Section 14.03, Employer contributions used to repay principal and interest on a Stock Obligation shall be treated as a contribution of Shares to the Plan. Any Excess Amount shall be disposed of as provided in Section 14.04 of the Plan. Section 14.04 Additional Limitation - Members of Defined Benefit Plan. In ------------------------------------------------------- the case of any participant who is entitled to benefits due to Employer contributions under a defined benefit plan, in addition to the limitations imposed by Section 14.03 hereof, the sum of the Defined Benefit Fraction and the Defined Contribution Fraction for any Plan Year may not exceed 1.0. Section 14.05 Disposition of Excess Amount. If there is an Excess ---------------------------- Amount, it will be disposed of as follows: (i) if the participant is covered by the Plan at the end of the Limitation Year, the Excess Amount in the Participant's Account will be used to reduce Employer Contributions (including any allocation of forfeitures) for such Participant in the next Limitation Year, and each succeeding Limitation Year, if necessary; -43- (ii) if after the application of paragraph (i), an Excess Amount still exists, and the participant is not covered by the Plan at the end of the Limitation Year, the Excess Amount will be held unallocated in a suspense account. The suspense account will be applied to reduce future Employer contributions (including allocation of any forfeitures) for all remaining participants in the next Limitation Year and each succeeding Limitation Year, if necessary. If a suspense account is in existence at any time during the Limitation Year pursuant hereto, it will not participant in the allocation of the investment gains and losses of the Fund. Section 14.06 Definitions and Rules. --------------------- (a) Annual Additions. The sum of the following amounts credited to a ---------------- participant's Account for the Limitation Year: (i) Employer Contributions; (ii) forfeitures, if any; (iii) Employee Contributions if permitted by the Plan; (iv) amounts described in section 4l5(l)(1) of the Code; and (v) amounts described in section 419A(d)(2) of the Code. For this purpose any Excess Amount applied hereunder to reduce Employer contributions will be considered Annual Additions for such Limitation Year. (b) Annual Benefit. A retirement benefit under a defined benefit -------------- plan, as defined therein. -44- (c) Compensation. A participant's earned income, wages, salaries and ------------ fees for professional services, and other amounts received for personal services actually rendered in the course of employment with the Employer maintaining the Plan (including but not limited to, commissions paid salesmen, compensation for services on the basis of a percentage of the profits, commissions on insurance premiums, tips, and bonuses) and excluding the following: (i) Employer contributions to a plan of deferred compensation which are not included in the Employee's gross income for the taxable year in which contributed or employer contributions under a simplified employee pension plan to the extent such contributions are deductible by the Employee or any distributions from a plan of deferred compensation; (ii) Amounts realized from the exercise of a non-qualified stock option, or when restricted stock (or property) held by the Employee either becomes freely transferable or is no longer subject to a substantial risk of forfeiture; (iii) Amounts realized from the sale, exchange or other disposition of stock acquired under a qualified or incentive stock option; and (iv) Other amounts which received special tax benefits or contributions made by the Employer (whether or not under a salary reduction agreement) toward the purchase of an annuity described in section 403(b) of the Code (whether or not the amounts are actually excludable from the gross income of the Employee). -45- Compensation for any Limitation Year is the compensation actually paid or includable in gross income during such year. For Plan Years beginning after December 31, 1988, Compensation shall be limited to $200,000 (unless adjusted in the same manner as permitted under Code section 415(d)). (d) Defined Benefit Fraction. A fraction the numerator of which is ------------------------ the sum of the Participant's Projected Annual Benefits under all defined benefit plans, whether or not terminated, maintained by the Employer, and the denominator of which is the lesser of 125% of the dollar limitation in effect for the Limitation Year under section 4l5(b)(1)(A) of the Code or 140% of the Highest Average Compensation. (e) Defined Contribution Fraction. A fraction the numerator of which ----------------------------- is the sum of the Annual Additions to the Participant's Account under all defined contribution plans (whether or not terminated) maintained by the Employer for the current and all prior Limitation Years, (including the Annual Additions attributable to the Participant's nondeductible employee contributions to all defined benefit plans, whether or not terminated, maintained by the Employer, and the Annual Additions attributable to all welfare benefit funds, as defined in section 419(e) of the Code, maintained by the Employer) and the denominator of which is the sum of the maximum aggregate amounts for the current and all prior Limitation Years of service with the Employer (regardless of whether a defined contribution plan was maintained by the Employer). The maximum aggregate amount in any limitation year is the lesser of 125% of the dollar limitation in effect under section 4l5(c)(1)(A) of the Code or 35% of the Participant's Compensation for such year. -46- (g) Employer. The Employer that adopts this Plan and all members of a -------- controlled group of corporations (as defined in section 414(b) of the Code, as modified by section 415(h)), commonly controlled trades or businesses (as defined in section 414(c) of the Code, as modified by section 415(h)), or affiliated service groups (as defined in section 414(m) of the Code) of which the Employer is a part. (h) Excess Amount. The excess of the Participant's Annual Additions ------------- for the Limitation Year over the Maximum Permissible Amount. (i) Highest Average Compensation. The average Compensation for the ---------------------------- three consecutive Years of Vesting Service with the Employer that produces the highest average. (j) Limitation Year. The Plan Year. --------------- (k) Projected Annual Benefit. The annual retirement benefit (adjusted ------------------------ to an actuarial equivalent straight life annuity if such benefit is expressed in a form other than a straight life annuity or qualified joint and survivor annuity) to which the Participant would be entitled under the terms of a defined benefit plan, assuming (i) the Participant will continue employment until normal retirement age under the Plan (or current age if later) and (ii) the Participant's compensation for the current Limitation Year and all other relevant factors used to determine benefits under the Plan will remain constant for all future Limitation Years. -47- ARTICLE 15 TOP-HEAVY PROVISIONS -------------------- Section 15.01 Top-Heavy Definitions. --------------------- (a) Key Employee. Any Employee or former Employee (and the ------------ Beneficiaries of such Employee) who at any time during the determination period was: (i) an officer of the Employer if such individual's annual Compensation exceeds 150% of the dollar limitation under section 4l5(c)(1)(A) of the Code (but no more than 50 employees of the Employer (or, if lesser, the greater of three employees or 10 percent of employees) shall be treated as officers); (ii) an owner (or considered an owner under section 318 of the Code) of one of the ten largest interests in the Employer if such individual's compensation exceeds 100 percent of such dollar limitation; (iii) a five percent owner of the Employer; or (iv) a one percent owner of the Employer who has an annual Compensation of more than $150,000. The determination period is the Plan Year containing the Determination Date and the four preceding Plan Years. (b) Top-Heavy Plan. This Plan is Top-Heavy if any of the following -------------- conditions exist: (i) if the Top-Heavy Ratio for this Plan exceeds 60 percent and this Plan is not part of any Required Aggregation Group or Permissive Aggregation Group of plans; -48- (ii) if this Plan is part of a Required Aggregation Group of plans but not part of a Permissive Aggregation Group and the Top-Heavy Ratio for the group of plans exceeds 60 percent; (iii) if the Plan is part of a Required Aggregation Group and part of a Permissive Aggregation Group of plans and the Top-Heavy Ratio for the Permissive Aggregation Group exceeds 60 percent. (c) Top-Heavy Ratio. --------------- (i) If the Employer maintains one or more defined contribution plans (including any simplified employee pension plan) and the Employer has not maintained any defined benefit plan which during the five-year period ending on the Determination Date(s) has or has had accrued benefits, the Top-Heavy Ratio for this Plan alone or for the Required or Permissive Aggregation Group as appropriate is a fraction, the numerator of which is the sum of the Accounts of all Key Employees as of the Determination Date(s) (including any part of any Account distributed in the five-year period ending on the Determination Date(s)) and the denominator of which is the sum of all Accounts (including any part of any Account distributed in the five year period ending on the Determination Date(s)), both computed in accordance with section 416 of the Code and the regulations thereunder. Both the numerator and denominator of the Top-Heavy Ratio are adjusted to reflect any contribution not actually made as of the Determination Date, but which is required to be taken into account on that date under section 416 of the Code and the regulations thereunder. -49- (ii) If the Employer maintains one or more defined contribution plans (including any simplified employee pension) and the Employer maintains or has maintained one or more defined benefit plans which during the five-year period ending on the Determination Date(s) has or has had any accrued benefits, the Top-Heavy Ratio for any Required or Permissive Aggregation Group as appropriate is a fraction the numerator of which is the sum of the Accounts under the aggregated defined contribution plan or plans for all Key Employees, determined in accordance with (i) above, and the present value of accrued benefits under the aggregated defined benefit plan or plans for all Key Employees as of the Determination Date(s) and the denominator of which is the sum of the Accounts under the aggregated defined contribution plan or plans for all Participants determined in accordance with (i) above, and the present value of accrued benefits under the defined benefit plan or plans for all Participants as of the Determination Date(s), all determined in accordance with section 416 of the Code and the regulations thereunder. The accrued benefits under a defined benefit plan in both the numerator and denominator of the Top-Heavy Ratio are adjusted for any distribution of an accrued benefit made in the five-year period ending on the Determination Date. (iii) For purposes of (i) and (ii) above, the value of Accounts and the present value of accrued benefits will be determined as of the most recent Valuation Date that falls within or ends with the twelve-month period ending on the Determination Date, except as provided in section 416 of the Code and the -50- regulations thereunder for the first and second plan years of a defined benefit plan. The Accounts and accrued benefits of a Participant (A) who is not a Key Employee, but who was a Key Employee in a prior year, (B) who has not received any compensation from the Employer at any time during the five-year period ending on the Determination Date or (C) who has not performed any services for the Employer during the five-year period ending on the Determination Date will be disregarded. The calculation of the Top- Heavy Ratio and the extent to which distributions, rollovers and transfers are taken into account will be made in accordance with section 416 of the Code and the regulations thereunder. Deductible Employee contributions will not be taken into account for purposes of computing the Top-Heavy Ratio. When aggregating plans, the value of Accounts and accrued benefits will be calculated with reference to the Determination Date(s) that fall within the same calendar year. (d) Super Top-Heavy Plan. This Plan is a Super Top-Heavy Plan if the -------------------- Top-Heavy Ratio exceeds 90%. (e) Permissive Aggregation Group. The Required Aggregation Group of ---------------------------- plans, plus any other plans or plans of the Employer which when considered as a group with the Required Aggregation Group, would continue to satisfy the requirements of sections 401(a)(4) and 410 of the Code. (f) Required Aggregation Group. -------------------------- (i) Each qualified plan of the Employer in which at least one Key Employee participates, and -51- (ii) Any other qualified plan of the Employer which enables a plan described in (i) to meet the requirements of sections 401(a)(4) and 410 of the Code. (g) Determination Date. For any Plan Year subsequent to the first ------------------ Plan Year, the last day of the preceding Plan Year. For the first Plan Year of the Plan, the last day of that year. (h) Present Value. Present Value shall be based on the interest and ------------- mortality rates specified in any defined benefit plan adopted by the Employer. (i) Non Key Employee. Any employee who is not a key Employee, ---------------- including Employees who were formerly key Employees. (j) Valuation Date. The date specified in Section 2.34. -------------- Section 15.02 Effect of Top Heaviness. If the Plan is a Top-Heavy Plan ----------------------- in any Plan Year, the Plan must satisfy the additional requirements set forth in Section 15.03 through 15.05 which shall supersede any conflicting provisions in the Plan. Section 15.03 Minimum Allocation. In a Plan Year in which the Plan is ------------------ Top-Heavy, the Employer contributions and forfeitures allocated on behalf of any Participant who is not a Key Employee shall not be less than the lesser of 3% of such Participant's Compensation or the largest percentage of Employer contributions and forfeitures, as a percentage of the first $200,000 of the Key Employees' Compensation allocated on behalf of any Key Employee for that year. The minimum allocation shall -52- not be made to the Account of any Participant to the extent that the Participant is covered under any other plan or plans of the Employer and the Employer has provided that the minimum allocation or benefit requirements applicable to Top- Heavy Plans will be made in the other plan or plans. The minimum allocation shall be made even though under other Plan provisions the Participant would not otherwise be entitled to receive an allocation or would have received a lesser allocation for the year because of (a) the Participant's failure to complete the number of Hours of Service during the Plan Year otherwise required to participate in the allocation of a Employer contribution or (b) the Participant's failure to make any Employee contributions which might be considered mandatory contributions to the Plan or (c) such participant's having Compensation less than a stated amount. For purposes of computing the minimum allocation, compensation will mean compensation as defined in Section 14.05. The minimum allocation need not be made to any Participant who is not employed by the Employer on the last day of the Plan Year. If this Plan is not a Super Top-Heavy Plan, the 3% minimum allocation referred to above shall become a 4% minimum allocation for any Plan Year in which the Employer also maintains a defined benefit plan if such increase is necessary to avoid the application of section 416(h)(l) of the Code relating to special adjustments to section 415 of the Code's limitations for Plans which are Top-Heavy, if the adjusted limitations of section 416(h)(1) would otherwise be exceeded if such minimum allocation were not so increased. -53- Section 15.04 Effect of Top-Heaviness; Definition of Compensation. For --------------------------------------------------- any Plan Year beginning prior to January 1, 1989 in which the Plan is Top-Heavy, only the first $200,000 (or such larger amount as may be prescribed by the Secretary of the Treasury or his delegate) of a Participant's annual Compensation shall be taken into account for purposes of determining Employer contributions under the Plan. For Plan Years beginning after January 1, 1989, Compensation means the first $200,000 of a Participant's annual compensation (unless adjusted in such manner as permitted under section 415(d) of the Code). Section 15.05 Effect of Top-Heaviness; Minimum Vesting Schedules. For -------------------------------------------------- any Plan Year for which the Plan is Top-Heavy, a Participant who is credited with at least one Hour of Service in such year shall have a nonforfeitable interest to any portion of his Account Balances, except that attributable to Employee Contributions, (including any portion of the Account balance before the effective date of section 416 of the Code and before the Plan became Top-Heavy) equal to the following schedule to the extent that the following schedule produces a greater vested percentage than is otherwise provided in the Plan.
Years of Vesting Service Vested Percentage -------------------------- ------------------ Less than 3 0 3 or more 100%
This section shall not apply to any Employee who does not have an Hour of Service after the Plan has initially become Top-Heavy. -54- For any subsequent Plan Year in which the Plan is not Top-Heavy, the vesting schedule otherwise provided herein shall apply provided, however, that no reduction in vested benefits may occur by the imposition of such other vesting schedule; and provided further, that any Participant with at least five years of Vesting Service with the Employer at the time the Plan ceases to be Top-Heavy shall be subject to the vesting schedule provided in this Section 15.05. Section 15.06 Effect of Super Top-Heaviness; Limitations on Contributions. ----------------------------------------------------------- For any Limitation Year in which the Plan is determined to be a Super Top-Heavy Plan, the definitions of the "Defined Benefit Fraction" and "Defined Contribution Fraction" in Section 14.05 shall be changed by substituting in the denominator of each said fraction "100%" for "125%". -55- ARTICLE 16 MISCELLANEOUS ------------- Section 16.01 Exclusive Benefit. This Plan shall be for the exclusive ----------------- benefit of Participants and their Beneficiaries and all of the funds held by the Funding Agent shall be exclusively devoted to such purpose. No portion of any such funds shall revert to or become the property of the Employer prior to the termination of the Plan and the satisfaction of all liabilities with respect to Participants and their Beneficiaries. Section 16.02 No Right to Continued Employment. Nothing in this Plan -------------------------------- shall be construed as giving any employee of the Employer the right to be retained in the Employer's employ or the right to any payment whatsoever except to the extent of the benefits provided for in the Plan. The Employer expressly reserves the right to dismiss any employee at any time without liability for the effect which such dismissal might have upon him as a Participant in this Plan. Section 16.03 Nonalienation of Benefits. No benefit at any time under ------------------------- the Plan shall be subject in any manner to alienation, sale, transfer, assignment, pledge, attachment, or encumbrances of any kind. Any attempt to alienate, sell, transfer, assign, pledge or otherwise encumber any such benefits, whether presently or thereafter payable, shall be void. No retirement benefit nor the Fund shall in any manner be liable for or subject to the debts or liability of any Employee, participant, former Participant, -56- Beneficiary or pensioner entitled to any retirement benefit. If the Employee, participant, former Participant, Beneficiary or pensioner shall attempt to, or shall alienate, sell, transfer, assign, pledge or otherwise encumber his benefit under the Plan or any part thereof, or if by reason of his bankruptcy or other event happening at any time, such benefits would devolve upon anyone else or would not be enjoyed by him, then the Employer, in its discretion, may terminate his interest in any such benefit, and hold or apply it to or for the benefit of such person, his spouse, children, or other dependent or any of them, in such manner as the Employer may deem proper. The preceding paragraph shall also apply to the creation, assignment or recognition of a right to any benefit payable with respect to a Participant pursuant to a domestic relations order, unless such order is determined to be a Qualified Domestic Relations Order or any domestic relations order entered before January 1, 1985. Section 16.04 Facility of Payment. If the Employer shall receive ------------------- evidence satisfactory to it that any person entitled to receive any benefit hereunder is, at the time when such benefit becomes payable, physically, mentally or legally incompetent to receive such benefit and to give a valid receipt therefor and that another individual or institution is then maintaining or has custody of such person and that no guardian, committee or other representative of the estate of such person shall have been duly appointed, the Employer may cause payment of such benefit to such individual or institution maintaining or having the custody of such person, and the receipt of such individual or institution shall be a valid and complete discharge for the payment of such -57- benefit. If a person dies before cashing any or all of the checks representing a payment or payments due to him under the Plan, such payment or payments so payable to such deceased person shall be made in the discretion of the Employer either to: (a) the person or persons who would be entitled to the deceased person's personal property under the laws of the State of Rhode Island (which shall also fix the proportionate interest of such persons) if he had died intestate a resident of Rhode Island at the time for such payment under the provisions of the Plan; or (b) such relative or relatives of the deceased person by blood, marriage, or adoption as the Employer may select; or (c) the estate of the deceased person. Section 16.05 Sufficiency of Fund. All benefits payable under this Plan ------------------- shall be paid or provided for solely from the funds held by the Funding Agent in accordance with the Plan. The Employer shall not be liable for the payment thereof. Section 16.06 Claims Procedure. Any denial of a claim for benefits under ---------------- the Plan shall be stated in writing by the Employer and delivered or mailed to the Participant or Beneficiary whose claim for benefits has been denied, and shall set forth specific reasons for such denial, written in a manner calculated to be understood by such Participant or Beneficiary. Within sixty (60) days after receiving the notification of such denial, any such Participant or Beneficiary may notify the Employer of his desire for a review of such decision, and in the event of such notification, the Employer shall afford -58- a reasonable opportunity to such Participant or Beneficiary for a full and fair review of the decision denying the claim. Section 16.07 Effect of Failure to Qualify. This Plan is intended to ---------------------------- qualify as a tax-exempt trust under the provisions of section 401 of the Code. This Plan is executed upon, and contributions to this Plan are paid subject to, the express condition precedent that it shall be approved and qualified by the Internal Revenue Service as meeting the requirements of the Code and regulations issued thereunder with respect to employee trusts that permit the Employer to deduct, for income tax purposes, the amount of its contributions to the trust. If this Plan shall be held by the Internal Revenue Service not to be qualified, the Plan shall be void and all Employer contributions that were paid and conditioned on qualification of this Plan as amended shall be returned to the Employer within one year after the denial of the qualification of the Plan as amended. Section 16.08 Qualified Plan. The Plan is intended to be "qualified" -------------- under sections 401(a) and 4975(e)(7) of the Code, and any associated trust is intended to comply with all provisions of the Code and Employee Retirement Income Security Act of 1974 relating to such plans and trusts. All questions shall be resolved to be consistent with such intent. Section 16.09 Return of Employer Contributions Under Special ---------------------------------------------- Circumstances. Any Employer contribution made under a mistake of fact may be - ------------- returned to the -59- Employer within one year of such contribution. Any Employer contribution which is conditioned on the deductibility of such amount under section 404 of the Code may be returned to the Employer to the extent of the amount disallowed within one year after the disallowance of the deduction. Section 16.10 Governing Law. The provisions of the Plan shall be ------------- construed, administered and enforced according to the laws of the State of Rhode Island. Section 16.11 Gender and Number. Words used in the masculine include the ----------------- feminine gender. Words used in the singular or plural shall be construed as if plural or singular, respectively, where they would so apply. Section 16.12 Titles. Titles of articles and notes in margins are ------ inserted for convenience and shall not affect the meaning or construction of the Plan. -60- ARTICLE 17 DIVERSIFICATION OF INVESTMENTS ------------------------------ Section 17.01 Election By Qualified Participant. --------------------------------- (a) Each Qualified participant may elect to direct the Plan, within 90 days after the last day of each Plan Year during the Participant's Qualified Election Period, as to the investment of 25 percent of the value of the Participant's Stock Account. Within 90 days after the close of the last Plan Year in the Participant's Qualified Election Period, a Qualified Participant may elect to direct the Plan as to the investment of 50 percent of the value of the Stock Account. A Participant's right to elect hereunder shall be known as the Diversification Election. (b) The number of Shares in the Participant's Account which are subject to the Diversification Election shall be 25 percent of the total number of Shares in the Stock Account on the most recent Valuation Date, minus the number of Shares previously distributed, transferred or diversified pursuant to a prior Diversification Election except that for the last Plan Year in the Qualified Election Period, the percentage of Shares subject to the Diversification Election shall be 50 percent instead of 25 percent. The Employer may round up to the nearest whole integer the number of Shares subject to the Diversification Election. Section 17.02 Method of Directing Investment. The Participant's ------------------------------ Diversification Election shall be provided to the Plan Administrator in writing, shall be effective no later -61- than 180 days after the close of the Plan Year to which the Diversification Election applies, and shall specify which, if any, of the options set forth in Section 17.03 that the Participant selects. Section 17.03 Investment Options. ------------------ (a) At the election of the Qualified Participant, the Plan shall distribute (notwithstanding section 409(d) of the Code) the portion of the Participant's Account that is covered by the Diversification Election within 90 days after the last day of the period during which the Diversification Election may be made. For this distribution, the Participant does not have the right to demand that the distribution be in Shares. This Section 17.03 shall apply notwithstanding any other provisions of the Plan. (b) In lieu of distribution under Section 17.03(a), the Qualified Participant may, pursuant to his Diversification Election, direct the Plan to transfer the portion of the Qualified Participant's Stock Account that is covered by the Diversification Election to another qualified defined contribution plan of the Employer which accepts such transfers, provided that such Plan permits at least 3 different investment options (which are consistent with regulations prescribed by the Secretary) into which the Qualified Participant may direct the investment of the transferred portion of his Stock Account in accordance with the provisions of the qualified defined contribution plan. Such transfer shall be made no later than 90 days after the last day of the period during which the Diversification Election may be made. -62- Section 17.04 Exception from Diversification Requirements. ------------------------------------------- (a) Notwithstanding anything in Article 17 of the Plan to the contrary, if the fair market value, determined on the Valuation Date of the Plan immediately preceding the first day on which a Qualified Participant is eligible to make a Diversification Election, of the Shares acquired by or contributed to the Plan, and allocated to a Qualified Participant's Stock Account, is $500 or less, then such Shares will not be subject to the Diversification Election. For purposes of determining whether the $500 is exceeded, all Shares held by Plans defined in sections 4975(e)(7) and 409 of the Code that are maintained by the Employer shall be considered to be one Plan. (b) If the $500 amount in (a) above is exceeded, then all Shares allocated to a Qualified Participant's Stock Account shall be eligible for the Diversification Election. CORNUCOPIA NATURAL FOODS, INC. Dated: 11/1/88 /s/ Steven Townsend -------------------------- ----------------------------------- Steven Townsend Its Vice President -63- 1989-1st Amendment to The Cornucopia Natural Foods, Inc. Employee Stock Ownership Plan The Cornucopia Natural Foods, Inc. Employee Stock Ownership Plan is hereby amended effective November 1, 1988 as set forth below: 1. Section 2.15(b) is amended by replacing the last sentence therein with the following new last sentence: "Such hours shall be credited pursuant to section 2530.200b-2(b) and (c) of the Department of Labor Regulations which are incorporated herein by reference;" 2. Section 2.19, Normal Retirement Age, is hereby deleted and replaced --------------------- with the following new Section 2.19: "Section 2.19 Normal Retirement Age. The earliest to occur of the --------------------- following: a. the date a Participant reaches age 65 and has 5 Years of Vesting Service; or b. the latest of: i. the date a participant reaches age 65; ii. in the case of a Participant who commences participation in the Plan after his 60th birthday, the 5th anniversary of his participation in the Plan; or iii. in the case of a Participant who commences participation in the Plan before his 60th birthday, the 10th anniversary of his participation in the Plan." 3. Section 15.01(f) is hereby deleted and replaced with the following: (f) Required Aggregation Group. (i) Each qualified plan, including terminated plans, of the Employer in which at least one Key Employee participates (in the Plan Year containing the determination date or any of the four preceding Plan Years), and (ii) Any other qualified plan of the Employer which enables a plan described in (i) to meet the requirements of sections 410(a) (4) and 410 of the Code. 4. Section 15.03, Minimum Allocation, is amended by adding a new last ------------------ sentence to the first paragraph as follows: "In the event the percentage allocated to a Key Employee for a year in which the Plan is Top-Heavy is less than 3%, then amounts contributed as a result of a salary reduction agreement, if any, will be included in determining the percentage contributed on behalf of any Key Employee." -2- Adopted and approved this 30th day of October, 1989. CORNUCOPIA NATURAL FOODS, INC. By /s/ Steven Townsend ------------------- Steven Townsend Its Vice President -3- CORNUCOPIA NATURAL FOODS, INC. EMPLOYEE STOCK OWNERSHIP PLAN AMENDMENT NO. 2 --------------- THIS AMENDMENT, hereby made and entered into this 13th day of January, 1995 by CORNUCOPIA NATURAL FOODS, INC. (the "Employer"). WHEREAS, the Employer established the above-titled Plan by an instrument dated November 1, 1988; WHEREAS, the Employer previously amended the Plan by an instrument dated November 15, 1993; WHEREAS, the Employer desires to incorporate in this amendment provisions required by changes to the Internal Revenue Code; WHEREAS, under Section 11.01 of the Plan, the Employer has the right to amend the Plan by action of its Board of Directors. NOW THEREFORE, the Employer hereby amends the plan as follows: 1. The following Section 7.10 is added: 7.10 DIRECT ROLLOVER (a) This Section applies to distributions made on or after January 1, 1993. Notwithstanding any provision of the Plan to the contrary that would otherwise limit a distributee's election under this Section, a distributee may elect, at the time and in the manner prescribed by the Plan Administrator, to have any portion of an eligible rollover distribution paid directly to an eligible retirement plan specified by the distributee in a direct rollover. (b) For purposes of this Section the following definitions shall apply: (1) An eligible rollover distribution is any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributee and the distributee's designated beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Code Section 401(a) (9); and the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). (2) An eligible retirement plan is an individual retirement account described in Code Section 408(a), an individual retirement annuity described in Code Section 408(b), an annuity plan described in Code Section 403(a), or a qualified trust described in Code Section 401(a), that accepts the distributee's eligible rollover distribution. However, in the case of an eligible rollover distribution to the surviving spouse, an eligible retirement plan is an individual retirement account or an individual retirement annuity. (3) A distributee includes an Employee or former Employee. In addition, the Employee's or former Employee's surviving spouse and the Employee's or former Employee's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Code Section 414(p), are distributees with regard to the interest of the spouse or former spouse. (4) A direct rollover is a payment by the Plan to the eligible retirement plan specified by the distributee. (c) No direct rollovers or other rollovers shall be permitted into this Plan. (d) If a distribution is one to which Section 401(a) (11) and 417 of the Internal Revenue Code do not apply, such distribution -2- may commence less than 30 days after the notice required under Section 1.411(a)-11(c) of the Income Tax Regulations is given, provided that: (1) the plan administrator clearly informs the Participant that the Participant has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option), and (2) the Participant, after receiving the notice, affirmatively elects a distribution. 2. The following is added to the end of Section 2.06: In addition to other applicable limitations set forth in the Plan, and notwithstanding any other provisions of the Plan to the contrary, for Plan Years beginning on or after January 1, 1994, the annual Compensation of each Employee taken into account under the Plan shall not exceed the OBRA '93 annual compensation limit. OBRA '93 annual compensation limit is $150,000, as adjusted by the Commissioner for increases in the cost of living in accordance with Code Section 401 (a) (17) (B). The cost of living adjustment in effect for a calendar year applies to any period, not exceeding 12 months, over which Compensation is determined (determination period) beginning in such calendar year. If a determination period consists of fewer than 12 months, the OBRA '93 annual compensation limit will be multiplied by a fraction, the numerator of which is the number of months in the determination period, and the denominator of which is 12. For Plan Years beginning on or after January 1, 1994, any reference in this Plan to the limitation under Code Section 401(a) (17) shall mean the OBRA '93 annual compensation limit set forth in this provision. If Compensation for any prior determination period is taken into account in determining an Employee's benefits accruing in the current Plan Year, the Compensation for that prior determination period is subject to the OBRA '93 annual compensation limit in effect for that prior determination period. For this purpose, for determination periods -3- beginning before the first day of the first Plan Year beginning on or after January 1, 1994, the OBRA '93 annual compensation limit is $150,000. CORNUCOPIA NATURAL FOODS, INC. By: /s/ Steven Townsend ------------------- CEO Treasurer -4- CORNUCOPIA NATURAL, FOODS, INC. EMPLOYEE STOCK OWNERSHIP PLAN AMENDMENT NO. 3 --------------- THIS AMENDMENT is made and entered into this 16th day of June, 1995, by CORNUCOPIA NATURAL FOODS, INC. (the "Employer"). WHEREAS, the Employer established the above-titled Plan by instrument dated November 1, 1988; and WHEREAS, the Employer previously amended the Plan by instruments dated November 15, 1993 and January 13, 1995; and WHEREAS, the Employer desires to further amend the Plan as set forth herein; and WHEREAS, under Section 11.01 of the Plan, the Employer reserved the right to amend the Plan by action of its Board of Directors. NOW THEREFORE, the Employer hereby amends the Plan, effective November 1, 1994, as follows: 1. Article 18 is added to the Plan as follows: ARTICLE 18 PARTICIPATING EMPLOYERS Section 18.01 Adoption By Other Employers. --------------------------- Notwithstanding any provision of the Plan to the contrary, with the consent of the Employer, any other corporation which is a member of the same controlled group of corporations (within the meaning of (S) 409(1) (4) of the Code) may adopt this Plan and become, with the Employer, a Participating Employer hereunder by a written instrument evidencing said intent. Section 18.02 Conditions of Participation. --------------------------- (a) The Trustees shall commingle, hold and invest all contributions made by Participating Employers as a single Fund. (b) The transfer of any Employee from or to any Participating Employer shall not affect any of such Employee's rights under the Plan, and his accumulated service time with the transferor or predecessor and his length of participation in the Plan shall continue to his credit. Following the transfer, the Participating Employer to which the Employee is transferred shall be obligated with respect to such Employee in the same manner as the Participating Employer from which the Employee was transferred. (c) For purposes of allocating contributions and forfeitures, all Participating Employers shall be considered a single Employer, and all Participants shall be considered to be Employees of such Employer. (d) For purposes of service credit for eligibility and vesting, credit shall be given only for service after the Participating Employer becomes a member of the controlled group (within the meaning of (S) 409(1) (4) of the Code) of which the Employer is a member. (e) Contributions to the Plan shall be determined by the Employer, and each Participating Employer shall separately contribute a percentage thereof determined by the ratio that the Compensation (as determined under Article 14) of Participants employed by the Participating Employer bears to the total Compensation (similarly determined) of all Participating Employers. (f) Each Participating Employer shall be deemed to have irrevocably designated the Employer as its agent with respect to its relation with the Trustees and Plan Administrator. (g) Unless the context of the Plan clearly indicates the contrary, the word "Employer" shall be deemed to include each Participating Employer as related to its adoption of the Plan. -2- Section 18.03 Discontinuance Of Participation. ------------------------------- A Participating Employer may discontinue or revoke its participation in the Plan at any time by written notice to the Employer. At the time of any such discontinuance or revocation, satisfactory evidence thereof, and of any conditions imposed by the Employer with respect to the discontinuance shall be delivered to the Trustees. Section 18.04 Plan Administrator's Authority. ------------------------------- The Plan Administrator shall have authority to make any and all rules or regulations necessary to effectuate the purpose of this Article. IN WITNESS WHEREOF, the Employer has executed this Amendment No. 3 by its duly authorized officer the day and year first above written, effective as of November 1, 1994. CORNUCOPIA NATURAL FOODS, INC. By /s/ Steven Townsend ------------------- -3- CORNUCOPIA NATURAL FOODS, INC. EMPLOYEE STOCK OWNERSHIP PLAN AMENDMENT NO. 4 --------------- THIS AMENDMENT, hereby made and entered into this 31st day of October, 1995 by CORNUCOPIA NATURAL FOODS, INC. (the "Employer"). WHEREAS, the Employer established the above-titled Plan by an instrument dated November 1, 1988; WHEREAS, the Employer previously amended the Plan by instruments dated November 15, 1993, January 13, 1995, and June 16, 1995; WHEREAS, the Employer desires to further amend the Plan as set forth herein; WHEREAS, under Section 11.01 of the Plan, the Employer has the right to amend the Plan by action of its Board of Directors. NOW THEREFORE, the Employer hereby amends the plan as follows: 1. Section 7.04 (a), (b) and (c), regarding payment of the vested portion of the Accounts of a Participant, is amended in its entirety to read as follows: (a) Unless a Participant elects (b) or (c) below, benefits shall be distributed in the form of a single lump sum payment, payable as soon as reasonably practical following the event (i.e. termination of employment, death, or disability) to which the distribution relates. The amount paid for the Shares in the Participant's Accounts shall be determined pursuant to Section 7.08 as of the Valuation Date preceding each payment, except that, in the case of a distribution to a "disqualified person" as defined in Section 4975(e)(2) of the Code, valuation shall be determined as of the date of the transaction. (b) A Participant whose vested Accounts exceed $3,500 may elect on a form to be provided to the Participant at the time of the Participant's separation from service to receive payment of benefits (i) in one lump sum amount to be made at the end of a 5 year period, or (ii) in substantially equal annual installments over 5 years. In either case the fair market value of the Shares shall be determined as described in (a) above. (c) A Participant whose vested Accounts exceed $3,500 may elect on a form to be provided to the Participant at the time of the Participant's separation from service to have the Shares in his Account repurchased by Employer at the fair market value determined as described in (a) above. The proceeds from the sale of the Shares will be invested by the Trustees in a segregated account solely for the benefit of the Participant. The Trustees shall choose investments which maximize safety of principal. Payments from the segregated account to the Participant shall be made in accordance with the method set forth in (b) above as elected by the Participant. 2. Section 7.05(e), regarding payment when a Participant who has previously received distribution in the form of shares puts those shares back to the Employer, is amended to read in its entirety as follows: -2- (e) If the distribution of Shares to the Participant is a total distribution of the balance in his Accounts, then payments determined under Section 7.08 pursuant to the exercise of the put option shall be made in the Employer's discretion (determined on a uniform nondiscretionary basis) under terms that shall be reasonable, and in no event less favorable to the Participant than five substantially equal annual payments. Payment shall begin not later than 30 days after the Participant exercises the put option. The Plan will pay a reasonable rate of interest and provide adequate security on amounts not paid after 30 days. CORNUCOPIA NATURAL FOODS, INC. By: /s/ Steven Townsend ----------------------- Chief Financial Officer TJM:25264.1:AD1 -3- CORNUCOPIA NATURAL FOODS, INC. EMPLOYEE STOCK OWNERSHIP PLAN AMENDMENT NO. 5 --------------- THIS AMENDMENT, is made and entered into this 25th day of July, 1996 by United Natural Foods, Inc., formerly known as Cornucopia Natural Foods, Inc. (the "Employer"). WHEREAS, the Employer established the above-titled Plan by an instrument dated November 1, 1988; and WHEREAS, the Employer previously amended the Plan by instruments dated November 15, 1993, January 13, 1995, June 10, 1995, and October 31, 1995; and WHEREAS, the Employer desires to further amend the Plan as set forth herein; and WHEREAS, under Section 11.01 of the Plan, the Employer has the right to amend the Plan by action of its Board of Directors. NOW THEREFORE, the Employer hereby amends the Plan as follows: 1. The name of the Plan shall be "United Natural Foods, Inc. Employee Stock Ownership Plan," and throughout the Plan the name "United Natural Foods, Inc." shall be substituted for each reference to "Cornucopia Natural Foods, Inc." 2. Section 2.11 of the Plan is amended to read as follows: Section 2.11 Entry Date. The first day of each May and November ---------- through 1995. The first day of May, August and November, 1996. The first day of February and August for 1997 and succeeding years; except, however, that solely with respect to employees of Mountain Peoples' Warehouse Incorporated and NutraSource, Inc., March 1, 1996 shall also constitute an Entry Date. 3. Section 2.24 of the Plan is amended to read as follows: 2.24 Plan Year. For the period from the Effective Date through October --------- 31, 1995, the twelve consecutive month period beginning November 1 and ending October 31; for any period commencing on or after August 1, 1996, the twelve consecutive month period beginning August 1 and ending July 31; and the nine consecutive month period from November 1, 1995 through July 31, 1996. 4. Section 2.34 of the Plan is amended to read as follows: 2.34 Valuation Date. October 31 of each Plan Year through October 31, -------------- 1995; thereafter, July 31 of each Plan Year. 5. Section 2.35 of the Plan is amended to read as follows: Section 2.35 Year of Eligibility Service. An annual period during which an --------------------------- Employee has 1,000 or more Hours of Service with the Employer beginning on the date the Employee first performs an Hour of Service. Subsequent annual periods are Plan Years beginning with the Plan Year that includes the Employee's first anniversary date; provided, however, that an Employee whose initial eligibility computation period includes November 1, 1995 and who fails to complete 1,000 or more Hours of Service in said initial period, shall be credited with a Year of Eligibility Service for the twelve consecutive month period from November 1, 1995 through October 31, 1996 as if such period were a Plan Year. Notwithstanding any other provision of the Plan to the contrary, solely for purposes of determining eligibility to participate in the Plan, employees of Sunsplash Market, Inc. and Rainbow Natural Foods, Inc. shall be credited with Hours of Service for periods of employment with their respective employers prior to the date of their inclusion within the controlled group of corporations of which United Natural Foods, Inc. is a part, as if said employers were Participating Employers under the Plan. 6. Section 2.36 of the Plan is amended to read as follows: Section 2.36 Year of Vesting Service. A Plan Year during which an Employee ----------------------- has 1,000 or more Hours of Service with the Employer; provided, however, that an Employee with 1,000 or more Hours of Service for the twelve consecutive month period from November 1, 1995 through October 31, 1996, shall be credited with a full Year of Vesting Service in addition to any service required to be credited for vesting purposes for the Plan Year beginning August 1, 1996. -2- 7. Section 5.01 of the Plan shall be amended by deleting the last sentence thereof and substituting therefor the following: Notwithstanding the foregoing, no allocation shall be made pursuant to this Section 5.01 to the Stock or Investment Account of a Participant who was not a Participant on the last day of the Plan Year, and who did not complete 1,000 or more Hours of Service in the Plan Year or, with respect to the short Plan Year from November 1, 1995 through July 31, 1996, 400 Hours of Service for Employees of Mountain Peoples' Warehouse Incorporated and NutraSource, Inc., and 750 Hours of Service for all other Participants. 8. Section 6.03 entitled "Occurrence of Forfeitures" shall be amended in its entirety to read as follows: Section 6.03 Occurrence of Forfeitures. When a Participant who has no ------------------------- vested interest in the Plan terminates employment and incurs a Break in Service, the former Participant shall be deemed to have received a distribution of his entire vested interest on the last day of the Plan Year in which the former Participant incurs a Break in Service, and the nonvested portion shall be treated as a forfeiture. Nonvested former Participants whose interests in the Plan were not previously forfeited shall suffer a forfeiture of their nonvested interests in the Plan as of July 31, 1996 if they incurred a Break in Service in the Plan Year then ended. If a former Participant is deemed to receive a distribution pursuant to this Section 6.03, and the former Participant resumes employment under the Plan before the Participant incurs five consecutive Breaks in Service, upon the reemployment of such former Participant, his interest in the Plan will be restored to the amount on the date of such deemed distribution. The source for such reinstatement shall first be any forfeitures during the Plan Year. If such source is insufficient, the Employer shall contribute an amount which is sufficient to restore any such forfeited amounts. 9. Section 14.03 of the Plan is amended by deleting the second to last sentence thereof and substituting therefor the following: -3- The Limitation Amount shall be equal to $30,000 (which amount shall be subject to an annual cost of living adjustment as provided by Treasury Regulations in effect from time to time under Section 415 of the Internal Revenue Code) (the "Primary Limitation Amount"), except that for any Plan Year in which no more than one-third (1/3) of the Employer contributions are allocated to Participants who are highly compensated employees within the meaning of Section 414(q) of the Internal Revenue Code, the Limitation Amount will not apply to forfeitures, nor to any Employer contributions used to repay interest on a Stock Obligation. 10. Section 14.06 (j) of the Plan is amended to read as follows: (j) Limitation Year. For the period ending October 31, 1995 and the period --------------- commencing August 1, 1996, the Limitation Year shall be the Plan Year. The nine month period from November 1, 1995 through July 31, 1996 shall constitute a separate limitation period, in which the Limitation Amount as defined in Section 14.03 shall be equal to $22,500. IN WITNESS WHEREOF, the Employer has executed this Fifth Amendment the day and year first above written. UNITED NATURAL FOODS, INC. By: /s/ Steven Townsend -------------------- Its: Chief Financial Officer ------------------------ -4- EX-10.2 6 EMPLOYEE STOCK OWNERSHIP TRUST EXHIBIT 10.2 ------------ CORNUCOPIA NATURAL FOODS, INC. EMPLOYEE STOCK OWNERSHIP TRUST ------------------------------ THIS TRUST AGREEMENT, effective the 1st day of November, 1988, is made by and between Cornucopia Natural Foods, Inc., a corporation organized and existing under the laws of Rhode Island (hereinafter referred to as the "Company"), and Norman Cloutier, Steven Townsend, and Daniel Atwood (hereinafter the "Trustees"). W I T N E S S E T H: ------------------- WHEREAS, the Company adopted the Cornucopia Natural Foods, Inc. Employee Stock Ownership Plan (hereinafter the "Plan") for certain of its employees effective November 1, 1988; and WHEREAS, the Plan provides for contributions to the trustee to be held for the exclusive benefit of participants in the Plan and their beneficiaries after the payment of the reasonable expenses of administering the Plan; and WHEREAS, the Company desires the Trustees to act as said trustee and to hold the Trust Fund in trust and otherwise to administer the Trust Fund pursuant to the terms hereof and of the Plan; NOW THEREFORE, in consideration of the premises and mutual and dependent promises herein, the parties hereto covenant and agree as follows: ARTICLE I Establishment of Trust ---------------------- Section 1.01 The Trustees shall receive and hold, in trust (hereinafter ------------ the "Trust"), any contributions, in cash or other property acceptable to them, received from the Company, any participant in the Plan or any trust qualified under section 401 of the Internal Revenue Code of 1986, as amended (hereinafter the "Code"), pursuant to the terms of the Plan, which contributions, together with the income and gains therefrom, shall constitute the Trust Fund. Section 1.02 The Trustees shall hold, manage, invest and otherwise ------------ administer the Trust Fund pursuant to the terms of this Trust Agreement. The Trustees shall be responsible only for contributions actually received by them hereunder. The Trustees shall have no duty or authority to ascertain whether any contributions should be made to them pursuant to the Plan or to bring any action or proceeding to enforce any obligation to make any such contribution. Section 1.03 Notwithstanding anything to the contrary contained in the ------------ Plan or in this Trust Agreement or in any amendment, it shall be impossible at any time for any part of the Trust Fund to be used for or diverted to purposes other than the exclusive benefit of the participants and their beneficiaries or for any portion of the Trust Fund to revert to or become the property of the Company except in the event -2- of failure to receive an initial determination of qualification as provided in Section 7.03. ARTICLE II Duties of The Company --------------------- Section 2.01 The Company shall provide the Trustees with a certified copy ------------ of the Plan and with certified copies of all amendments thereto promptly upon their adoption. After the execution of this Trust Agreement, the Company shall promptly file with the Trustees a certified list of the names, specimen signatures and titles of any persons properly designated and authorized to exercise any discretionary authority, responsibility or control in the management or administration of the Plan or the Trust Fund or to render any investment advice for a fee or other compensation, including without limitation the members of any committee established under the Plan, and any member thereof authorized to act for it. The Company shall promptly notify the Trustees of the addition or deletion of any person's name to or from such list, respectively. Until receipt by the Trustees of notice that any person is no longer authorized so to act, the Trustees may continue to rely on the authority of such person. All certifications, notices and directions by any such person or persons to the Trustees shall be in writing signed by such person or persons. The Trustees may rely on any such certification, notice or direction purporting to have been signed by or on behalf of such person or persons that the -3- Trustees believes to have been signed thereby. The Trustees may rely on any certification, notice or direction of the Company that the Trustees believe to have been signed by a duly authorized officer or agent of the Company. The Company shall be responsible for keeping accurate books and records with respect to the employees of the Company, their compensation and their rights and interests in the Trust Fund. Section 2.02 The Company shall make its contributions to the Trust in ------------ accordance with appropriate corporate action, and shall deliver other contributions received by it as soon as practicable after the receipt thereof by it. Section 2.03 After the execution of this Trust Agreement, the Company ------------ shall promptly file with the Trustees a certified list of the names of each person who is a "party in interest" with respect to the Plan, as that term is defined in section 3(14) of the Employee Retirement Income Security Act of 1974, as amended from time to time (hereinafter the "Act"). The Company shall promptly notify the Trustees upon the addition or deletion of any person's name to or from such list, respectively. -4- ARTICLE III Investment and Administration of The Trust Fund ----------------------------------------------- Section 3.01 ------------ (a) The investment policy of the Plan and Trust shall be primarily to invest in and hold shares of common stock of the Company which are "qualifying employer securities" ("Shares") within the meaning of Section 409(l) and 4975(e)(8) of the Code, or any successor sections, for the exclusive benefit of the Participants and their Beneficiaries. The Trustees shall invest the Trust Fund primarily in Shares, and shall pay any indebtedness arising from any extension of credit to the Plan or the Trust obtained for the purposes of buying Shares ("Stock Obligations") out of assets of the Trust Fund in accordance with the documents governing such Stock Obligations and as instructed from time to time in writing by the Company. In connection with the acquisition of Shares, the Trustees may purchase newly issued or outstanding Shares from the Company or any other holders of Shares, including Participants and Beneficiaries. Investments in Shares shall be made only at the direction of the Company and the Trustees shall not be liable for following any such direction. Pursuant to Section 13.4 of the Plan, the Trustees, at the direction of the Company, may incur Stock Obligations and the Trustees shall not be liable for following any such direction. (b) All purchases and sales of Shares shall be made by the Trustees at fair market value. Such purchases may be made with assets of the Trust Fund, with -5- funds borrowed for this purpose (with or without guarantees of repayment to the lender), by installment payment contracts, or by any combination of the foregoing. (c) All Shares shall be voted by the Trustees in accordance with Article 9 of the Plan. Section 3.02 Except as provided in Sections 3.01 and 3.04, the Trustees ------------ shall discharge their duties hereunder with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims. The Trustees shall not be liable in discharging their duties hereunder, including without limitation their duties to invest and reinvest the Trust Fund, if they act in good faith and in accordance with the terms of this Trust Agreement and any applicable federal or state laws, rules or regulations. Section 3.03 Except as provided in Sections 3.01 and 3.04 hereof and where ------------ expressly permitted by the Plan, the Trustees shall have the power in investing and reinvesting the Trust Fund in their sole discretion: (a) To invest and reinvest in any property, real, personal or mixed, wherever situated and whether or not productive of income or consisting of wasting assets, including without limitation, common and preferred stocks, bonds, notes, debentures (including convertible stocks and securities), leaseholds, mortgages, certificates of deposit or demand or time deposits, shares of investment companies -6- and mutual funds, interests in partnerships and trusts, insurance policies and annuity contracts, and oil, mineral or gas properties, royalties, interests or rights, without being limited to the classes of property in which trustees are authorized to invest by any law or any rule of court of any state and without regard to the proportion any such property may bear to the entire amount of the Trust Fund; (b) To invest and reinvest all or any portion of the Trust collectively with funds of other trusts qualifying under Section 401 of the Code or through the medium of any other common, collective or commingled trust fund that may be established and maintained by any bank or trust company, the instrument or instruments establishing such trust fund or funds, as amended, being made part of this Trust so long as any portion of the Trust Fund shall be invested through the medium thereof; (c) Subject to subsection (a) of this Section 3.03, to retain any Property at any time received by the Trustees; (d) To sell or exchange any property held by them at public or private sale, for cash or on credit, to grant and exercise options for the purchase or exchange thereof, to exercise all conversion or subscription rights pertaining to any such property and to enter into any covenant or agreement to purchase any property in the future; (e) To participate in any plan of reorganization, consolidation, merger, combination, liquidation or other similar plan relating to property held by them and to consent to or oppose any such plan or any action thereunder or any contract, lease, -7- mortgage, Purchase, sale or other action by any person; (f) To deposit any property held by them with any protective, reorganization or similar committee, to delegate discretionary power thereto, and to pay part of the expenses and compensation thereof and any assessments levied with respect to any such Property so deposited; (g) To extend the time of payment of any obligation held by them; (h) To hold uninvested any monies received by them, without liability for interest thereof, until such monies shall be invested, reinvested or disbursed; (i) To exercise all voting or other rights with respect to any property held by them and to grant proxies, discretionary or otherwise; (j) To cause any property held by them to be registered and held in the name of one or more nominees, with or without the addition of words indicating that such securities are held in a fiduciary capacity, and to hold securities in bearer form; (k) To settle, compromise or submit to arbitration any claims, debts or damages due or owing to or from the Trust, respectively, to commence or defend suits or legal proceedings in any court or before any other body or tribunal; provided, however, that the Trustees shall not be required to take any such action unless they shall have been indemnified by the Bank to their reasonable satisfaction against liability or expenses they might incur therefrom; -8- (l) For the purposes of the Trust, to borrow money from others, to issue them Promissory note or notes therefor, and to secure the repayment thereof by pledging any property held by them; (m) To organize under the laws of any state a corporation or trust for the purpose of acquiring and holding title to any property which they are authorized to acquire hereunder and to exercise with respect thereto any or all of the powers set forth herein; (n) To manage, administer, operate, insure, repair, improve, develop, preserve, mortgage, lease or otherwise deal with, for any period, any real property or any oil, mineral or gas Properties, royalties, interests or rights held by them directly or through any corporation, either alone or by joining with others, using other Trust assets for any such purposes, to modify, extend, renew, waive or otherwise adjust any provision of any such mortgage or lease and to make provision for amortization of the investment in or depreciation of the value of such property; (o) To employ suitable agents and counsel, who may be counsel to the Bank, and to pay their reasonable expenses and compensation; and (p) Generally, to do all acts, whether or not expressly authorized, that the Trustees may deem necessary or desirable for the protection of the Trust Fund. Section 3.04 If (1) a registered investment adviser under the Investment ------------ Advisers Act of 1940, (2) a bank, as defined in that Act, or (3) an insurance company qualified to perform investment management services under the laws of more than -9- one state is duly appointed an "Investment Manager" with respect to the Plan, as that term is defined in Section 3(38) of the Employee Retirement Income Security Act of 1974, as amended from time to time (hereinafter "ERISA"), with the power to direct the investment and reinvestment of all or part of the Trust Fund, the Investment Manager shall, unless its appointment provides otherwise, have the Power to direct the Trustees in the exercise of the powers described in paragraphs (a) through (P) inclusive of Section 3.03 hereof with respect to all or part of the Trust Fund, as the case may be, and the Trustees shall, upon receipt of a copy of the Investment Manager's appointment and written acknowledgment of such appointment, satisfactory in form to the Trustees, exercise such powers as directed in writing by the Investment Manager, unless it knows that such direction is a breach of the Investment Manager's duty to act with care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims. If a registered investment adviser under the Investment Advisers Act of 1940 has not been so appointed, the Trustees shall have full authority to invest and reinvest the Trust Fund and shall not be required to follow the directions of any other Person, including without limitation the Bank, its Board of Directors, or any committee, notwithstanding any provision in the Plan to the contrary. Notwithstanding the foregoing, the Trustees shall follow any direction of the Bank to invest up to 100% of the Trust Fund in stock of the Bank. -10- Section 3.05 No person dealing with the Trustees shall be under any ------------ obligation to see to the proper application of any money paid or property delivered to the Trustees or to inquire into the Trustees' authority as to any transaction. Section 3.06 The Trustees shall distribute cash or Property (and shall ------------ stop such distributions) from the Trust Fund at such time or times, to such person or persons, including a paying agent or agents designated by the Company or the Company as paying agent, and for such purposes, as the Company shall direct in writing. Any cash or property so distributed to any paying agent shall be held in trust by such payee until disbursed in accordance with the Plan. Upon written direction by the Company, the Trustees shall distribute that part of the Trust Fund specified in such direction to any other trust established for the purpose of funding benefits under the Plan or under any other plan, qualifying under Section 401 of the Code, established for the benefit of the Participants in the Plan or their beneficiaries by the Company or any successor or transferee thereof. In directing the Trustees to make any such distribution (or to stop any such distribution), the Company shall follow the provisions of the Plan and, except as provided in Section 7.03 hereof, shall not direct that any payment be made, either during the existence or upon the discontinuance of the Plan, that would cause any part of the Trust Fund to be used for or diverted to purposes other than the exclusive benefit of the participants in the Plan and their beneficiaries after defraying reasonable expenses of administering the Plan, pursuant to the provisions of the Plan. -11- Any written direction of the Company shall constitute a certification that the distribution so directed is one that the Company is authorized to direct, and the Trustees need not make any further investigation. The Trustees may make any distribution required hereunder by mailing their check for the specified amount, or delivering the specified property, to the person to whom such distribution or payment is to be made, at such address as may have been last furnished to the Trustees, or if no such address shall have been so furnished, to such person in care of the Company, or (if so directed by the Company) by crediting the account of such person or by transferring funds to such person's account by bank or wire transfer. Section 3.07 To the extent permitted by law, the Company shall indemnify ------------ and save harmless the Trustees from and against any and all claims, loss, damages, expenses (including reasonable counsel fees) and liabilities (including reasonable amounts paid in settlement with the Company's approval) to which the Trustees may be subjected by reason of any act done or omitted to be done except where the same is finally adjudicated to be due to willful misconduct or neglect of the Trustees. -12- ARTICLE IV Taxes, Expenses and Compensation of Trustee ------------------------------------------- Section 4.01 The Trustees shall pay out of the Trust Fund any federal, ------------ state or local taxes on the Trust Fund, or any part thereof, or the income therefrom, or which the Trustees are required to pay with respect to the interest of any person therein. Section 4.02 The Trustees may be paid their reasonable expenses for the ------------ management and administration of the Trust Fund, including without limitation reasonable expenses of counsel and other agents employed by the Trustees, and reasonable compensation for their services as Trustees hereunder, the amount of which shall be agreed upon from time to time by the Company and the Trustees in writing. Such expenses and compensation shall be paid by the Company, or with the consent of the Company, from the Trust Fund. ARTICLE V Accounts - Reports ------------------ Section 5.01 The Trustees shall keep books of accounts that show all their ------------ receipts and disbursements hereunder. The books of account of the Trustees with respect to the Trust Fund shall be open to inspection by the Company, or its representatives, at all reasonable times during normal business hours of the Trustees -13- and may be audited not more frequently than once each fiscal year by an independent certified public accountant engaged by the Company. Section 5.02 Within ninety (90) days of the close of each fiscal year of ------------ the Company, or of any termination of the duties of the Trustees hereunder, the Trustees shall prepare and deliver to the Company an account of their acts and transactions as Trustees during such fiscal year or during such period from the close of the last fiscal year to the termination of their duties, respectively, including a statement of the then current value of the Trust Fund. Any such account shall be deemed accepted and approved by the Company, and the Trustees shall be relieved and discharged, as if such account had been settled and allowed by a judgment or decree of a court of competent jurisdiction, unless protested by written notice to the Trustees within ninety (90) days thereof. The Trustees of the Company shall have the right to apply at any time to a court of competent jurisdiction for judicial settlement of any account of the Trustees not previously settled as herein provided or for the determination of any question of construction or for instructions. In any such action or proceeding it shall be necessary to join as parties only the Trustees and the Company (although the Trustees may also join such other parties as they may deem appropriate), and any judgment or decree entered therein shall be conclusive. -14- ARTICLE VI Resignation, Removal and Replacement of Trustee ----------------------------------------------- Section 6.01 The Trustees may resign at any time by delivering written ------------ notice thereof to the Company; provided, however that no such resignation shall take effect until the earlier of (i) sixty (60) days from the date of delivery of such notice to the Company, or (ii) the appointment of successor Trustees. Section 6.02 The Trustees may be removed at any time by the Company, ------------ pursuant to a resolution of the Board of Directors of the Company, upon sixty (60) days' written notice to the Trustees, unless such notice period is waived in whole or in part by the Trustees, of (i) such removal, and (ii) the appointment of successor Trustees. Section 6.03 Upon the resignation or removal of the Trustees, successor ------------ Trustees shall be appointed by the Company. Such appointment shall take effect upon the delivery to the Trustees of (a) a written appointment of such successor Trustees, duly executed by the Company, and (b) a written acceptance by such successor Trustees, duly executed thereby. Any successor Trustees shall have all the rights, powers and duties granted the Trustees hereunder, except as may otherwise be agreed between the successor Trustees and the Company. -15- Section 6.04 If, within sixty (60) days of the delivery of the Trustees' ------------ written notice of resignation, successor Trustees shall not have been appointed, the Trustees may apply to any court of competent jurisdiction for the appointment of successor Trustees. Section 6.05 Upon the resignation or removal of the Trustees and the ------------ appointment of successor Trustees, and after the acceptance and approval of their account, the Trustees shall transfer and deliver the Trust Fund to such successor. ARTICLE VII Termination of Trust -------------------- Section 7.01 The Trust may be terminated at any time by the Trustees, ------------ pursuant to a resolution of the Board of Directors thereof, upon delivery to the Trustees of a written instrument of termination. Section 7.02 Upon the termination of the Trust, the Trustees shall, after ------------ the acceptance and approval of their account, distribute the Trust Fund as directed by the Company pursuant to Section 3.05 hereof, or in the absence of such direction, as directed by any court of competent jurisdiction. Upon completing such distribution, the Trustees shall be relieved and discharged. The powers of the Trustees shall continue so long as any part of the Trust Fund remains in his possession. -16- Section 7.03 If the Trustees shall receive written notice from the Company ------------ that the Internal Revenue Service has issued a final ruling in writing to the effect that the initial determination by the Internal Revenue Service was that the Trust did not qualify under section 401 of the Code, the Trust shall, without further action, be revoked, and the Trustees shall distribute the remainder of the Trust Fund as directed by the Company pursuant to Section 7.02 hereof; provided, however, that if the Company made a contribution thereto conditioned on the initial qualification of the Trust under section 401 of the Code, the remainder of such contribution, after payment of the Trustees' proper expenses and compensation, may be refunded to the Company upon the written direction of the Company. ARTICLE VIII Amendment --------- Section 8.01 This Trust Agreement may be amended, in whole or in part, at ------------ any time and from time to time, by the Company, pursuant to a resolution of the Board of Directors thereof, by delivery to the Trustees of a written instrument, except that the duties and responsibilities of the Trustees shall not be increased without the Trustees' written consent; provided, however, that no such amendment shall divert any part of the Trust Fund to purposes other than the exclusive benefit of the participants in the Plan and their beneficiaries. -17- ARTICLE IX Miscellaneous ------------- Section 9.01 This Trust Agreement shall be construed and interpreted ------------ under, and the Trust hereby created shall be governed by, the laws of Rhode Island insofar as such laws do not contravene any applicable federal laws, rules or regulations. Section 9.02 The titles to the Articles in this Trust Agreement are ------------ included for convenience of reference only and are not to be used in interpreting this Trust Agreement. Section 9.03 Neither the gender nor the number (singular or plural) of any ------------ word shall be construed to exclude another gender or number when a different gender or number would be appropriate. Section 9.04 No right or interest of any participant in the Plan or his ------------ beneficiaries in the Trust Fund shall be transferable or assignable or shall be subject to alienation, anticipation or encumbrance, and no right or interest of any participant in the Plan or his beneficiaries in the Trust Fund shall be subject to any garnishment, attachment or execution. -18- Section 9.05 This Trust Agreement may be executed in any number of ------------ counterparts, each of which shall be deemed to be an original, but all of which shall together constitute only one Trust Agreement. Section 9.06 Communications to the Trustees shall be sent to such address ------------ as the Trustees may specify in writing. No communication shall be binding upon the Trustees until it is received by the Trustees. Communications to the Company shall be sent to the Company's principal offices or to such other address as the Company may specify in writing. IN WITNESS WHEREOF, the parties hereto have executed this Trust agreement this 1st day of November, 1988. CORNUCOPIA NATURAL FOODS, INC. By: /s/ Norman A. Cloutier ---------------------------- Its President /s/ Norman Cloutier ------------------------------- Norman Cloutier, Trustee /s/ Steven Townsend ------------------------------- Steven Townsend, Trustee /s/ Daniel Atwood ------------------------------- Daniel Atwood, Trustee -19- 1993 - 1ST AMENDMENT TO THE CORNUCOPIA NATURAL FOODS, INC. EMPLOYEE STOCK OWNERSHIP TRUST The Cornucopia Natural Foods, Inc. Employee Stock Ownership Trust is hereby amended as set forth below: 1. Section 3.07 is hereby deleted and replaced with the following new Section 3.07. "Section 3.07 To the extent permitted by law, the Company shall indemnify ------------ and save harmless the Trustees from and against any and all claims, losses, damages, expenses (including reasonable counsel fees) and liabilities (including reasonable amounts paid in settlement with the Company's approval) to which the Trustees may be subjected by reason of any act done or omitted to be done except where the same is finally adjudicated to be due to willful misconduct or gross neglect of the Trustees. This indemnification shall not be construed to limit any indemnification otherwise available to the Trustees." 2. The last paragraph of Section 3.04 is hereby amended by substituting the word "Company" for the word "Bank" in each place where "Bank" appears in said paragraph. Adopted and approved this 15th day of November, 1993. CORNUCOPIA NATURAL FOODS, INC. By: /s/ Steven Townsend ----------------------- Steven Townsend Its Vice President -1- 1996 - 2ND AMENDMENT TO THE CORNUCOPIA NATURAL FOODS, INC. EMPLOYEE STOCK OWNERSHIP TRUST The Cornucopia Natural Foods, Inc. Employee Stock Ownership Trust is hereby amended as set forth below: 1. The name of the Trust shall be "United Natural Foods, Inc. Employee Stock Ownership Trust", and throughout the Trust, the name "United Natural Foods, Inc." shall be substituted for each reference to "Cornucopia Natural Foods, Inc.". Adopted and approved this 25th day of July, 1996. CORNUCOPIA NATURAL FOODS, INC. By: /s/ Steven Townsend ------------------- Steven Townsend Its Vice President -2- EX-10.3 7 LOAN AGREEMENT W/ NORMAN CLOUTIER Exhibit 10.3 ------------ ESOT LOAN AGREEMENT BETWEEN NORMAN CLOUTIER, STEVEN TOWNSEND, DANIEL ATWOOD AND THEODORE CLOUTIER AND CORNUCOPIA NATURAL FOODS, INC. EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST DATED AS OF NOVEMBER 1, 1988 ESOT LOAN AGREEMENT ------------------- The undersigned, Norman Cloutier, Steven Townsend, Daniel Atwood and Theodore Cloutier (the "Shareholders"), hereby agree to loan to Cornucopia Natural Foods, Inc. Employee Stock Ownership Plan and Trust, to be evidenced by a term Note, the aggregate principal amount of $4,080,000 (the "ESOT Loan"), on the following terms and conditions. I. DEFINITIONS --------------- 1.1 Definitions. As used herein, unless the context otherwise requires: ----------- "Business Day" means any date except Saturday or Sunday. "Code" means the Internal Revenue Code of 1986, as amended, or any successor federal tax code, and any reference to any statutory provision shall be deemed to be a reference to any successor provision or provisions. "Collective Bargaining Agreement" means at any time any agreement between the Company and any Union, whether a collective bargaining agreement, participation or other written document, which sets conditions of employment of the Company's employees who are represented by a Union and/or obligates the Company to contribute to a Plan on behalf of such employees. -2- "Company" means Cornucopia Natural Foods, Inc. and its successors and assigns. "Default" means any condition or event which constitutes an event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default. "Default Interest Rate" has the meaning set forth in Section 2.3(a). "Disqualified Person" means a disqualified person with respect to the Company within the meaning of section 4975(e)(2) of the Code or a party in interest with respect to the Company within the meaning of section 3(14) of ERISA. "Employer Securities" has the meaning given such term by section 409(1) of the Code with respect to the Company. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "ESOP" means the Cornucopia Natural Foods, Inc. Employee Stock Ownership Plan. -3- "ESOT" means the Cornucopia Natural Foods, Inc. Employee Stock Ownership Trust. "ESOT Loan" means the loan or loans from the Shareholders to the ESOT. "ESOT Loan Closing Date" has the meaning set forth in Section 2.1. "ESOT Loan Agreement" means this Agreement and all amendments and supplements hereto. "Event of Default" has the meaning set forth in Section 4. "Fixed Rate Note" means a promissory note of the Trust bearing a fixed rate of interest, substantially in the form of Exhibit A attached hereto. "Note" means a Fixed Rate Note. "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. -4- "Person" means any individual, corporation, partnership, association, estate, trust, joint venture or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "Plan" means any employee benefit plan within the meaning of Section 3(3) of ERISA which is established, sponsored or maintained by the Company, including, without limitation, the ESOP, and any such employee benefit plan to which the Company is required to contribute pursuant to any Collective Bargaining Agreement. "Prohibited Transaction" means any transaction described in section 406 of ERISA which is not exempt by reason of section 408 of ERISA and any transaction described in section 4975(c) of the Code which is not exempt by reason of section 4975(c)(2) or 4975(d) of the Code. "Trustees" means Norman Cloutier, Steven Townsend and Daniel Atwood, as Trustees of the ESOT, and their respective successors. "Union" means any recognized representative of the employees of the Company. -5- II. THE ESOT LOAN ------------- 2.1 ESOT Loan. The Trust shall borrow from the Shareholders the sum of --------- $4,080,000 in one installment (sometimes referred to hereinafter as the "ESOT Loan") on any Business Day (the "ESOT Loan Closing Date"). The Trust agrees to execute and deliver to the Shareholders on the ESOT Loan Closing Date, against the making by the Shareholders of the ESOT Loan in immediately available funds on said date, a Note in substantially the form of Exhibit A hereto. The Note shall be dated the ESOT Loan Closing Date, shall be payable to the order of the Shareholders or any one of them as Trustee for them all, and shall represent the obligation of the Trust to pay the principal amount of the ESOT Loan. The principal of the Note shall be paid in monthly installments commencing December 1, 1988, and thereafter on the 1st day of each month, with the final installment due and payable on November 1, 2013, unless sooner paid, as more fully described in Section 2.5 hereof. 2.2 Interest. The Note shall bear interest on the unpaid principal -------- balance at the rate of eight and fifty-five hundredths of a percent (8.55%) per annum, computed on a 360 day year, actual days elapsed basis. Interest will be payable as part of the monthly installments described in Section 2.5(a). -6- 2.3 Interest on Default; Surcharges. ------------------------------- (a) Upon the occurrence of an Event of Default hereunder or after maturity, by acceleration or otherwise, and until payment in full, the (Note shall bear interest at a rate per annum which is two percent (2%) in excess of the otherwise applicable interest (the "Default Interest Rate"). (b) Any expense, fee, charge or other payment payable by the Trust but made by the Shareholders as provided in this Agreement, the Note or any other document or instrument by which the ESOT Loan is evidenced or secured or which is executed by the Trust in connection with the ESOT Loan, which expense, fee, charge or other payment is not paid or reimbursed when due shall bear interest at a rate per annum which is two percent (2%) in excess of the Base Rate. 2.4 Purpose, Use of Proceeds. The Trust will use the proceeds of the ------------------------ Loan to purchase shares of the Company for the ESOP. The note or other documentation evidencing the ESOT Loan shall require the ESOT to use the proceeds of the ESOT Loan solely for the purpose of purchasing qualifying Employer Securities and shall contain such terms as shall be necessary to qualify the ESOT Loan under Section 4975(d) of the Code. -7- 2.5 Prepayment and Payment. ---------------------- (a) The Note shall be paid over a twenty-five (25) year period commencing November 1, 1988, unless sooner paid. The Trust shall pay the principal of the Note in three hundred (300) equal monthly installments of $13,600 each, with the final 300th payment being due on November 1, 2013, such payment being an amount equal to the balance of all unpaid principal. Each principal payment shall be due and payable on the 1st day of each month commencing December 1, 1988. In addition to the scheduled principal payments, interest on the unpaid principal balance of the Note at the rate provided therein shall also be due and payable on the date of each scheduled principal payment. (b) The Trust shall have the right from time to time to prepay all or, in amounts of at least $50,000, any part of the Note at any time outstanding prior to the expressed maturity thereof. The Trust shall give the Shareholders three (3) Business Days' notice of any such prepayment, which notice shall state the Business Day on which such prepayment shall be made. Upon the giving of such notice, the prepayment shall become due and payable on the date so specified, and if not so paid, the amount of the prepayment shall thereafter bear interest at the Default Interest Rate until paid. The prepayments may be made without penalty or premium, but the Trust shall pay the Shareholders on demand any expenses or losses it may sustain or incur as a result of the prepayment. -8- (c) All payments of principal upon the Note, whether by prepayment or otherwise, shall be made in lawful money of the United States of America in immediately available funds, and any partial prepayments of principal shall be applied in the inverse order of the maturity of principal installments. Interest accrued to the prepayment date on partial principal prepayments made on the Note shall be payable on the date of the partial prepayment. When the Note shall have been paid in full, the Note shall be cancelled and returned to the Trust. (e) Whenever any payment of principal or interest on the Note is due on a day which is not a Business Day, the date for payment shall be the next succeeding Business Day and interest shall be due and payable for such extended time. III. DEFAULT AND REMEDIES -------------------------- 3.1 Events of Default and Remedies. ------------------------------ (a) The occurrence of any failure by the ESOT to make any payment of the principal or interest on the Note when the same becomes due shall constitute an Event of Default, permitting the Shareholders, at their option, to exercise the remedies described in Section (b). (b) Upon an Event of Default, the Shareholders may declare the amount in default under the Note to be forthwith due and payable automatically -9- without notice or demand of any kind, where upon the same shall become forthwith due and payable, and the Shareholders may take any action or actions that are permitted by law to realize on the ESOT Loan. IV. CONDITIONS OF CLOSINGS --------------------------- 4.1 Conditions. The Shareholders' obligation to make any advance ---------- hereunder is subject to its receipt of the following, in form and substance satisfactory to the Shareholders and their counsel: (a) Note. A duly executed Note or Notes drawn to the order of the ---- Shareholders or any one of them as Trustee for them all in the amount of the ESOT Loan. (b) Stock Pledge Agreement. A duly executed Pledge Agreement ---------------------- granting the Shareholders a security interest in the Shares acquired by the Trust with the proceeds of the ESOT Loan. (c) Company Guaranty. A Guaranty from the Company of the Note and ---------------- the other obligations of the ESOT contained in this ESOT Agreement. (d) ESOP and ESOT. Copies of the ESOP and the ESOT and all ------------- amendments thereto. -10- (e) Fairness Opinion. A copy of the opinion of Murphy & Company, ---------------- Certified Public Accountants, as to the value of the stock of the Company in connection with the acquisition by the ESOT of the Company's stock, and a certificate from an officer of the Company as to the continuing validity thereof. V. MISCELLANEOUS ----------------- 5.1 Expenses. The ESOT agrees to pay claims, costs, liabilities and all -------- out-of-pocket expenses (including reasonable fees and expenses of the Shareholders' counsel) of the Shareholders incurred in connection with the transaction contemplated by this Agreement (which includes, without limitation, the ESOT Loan, the acquisition of Company stock by the ESOT and the preparation of this Agreement, the Note and any amendments or supplements hereto and thereto), and all expenses (including reasonable fees and expenses of the Shareholders' counsel) incidental to the collection of moneys due hereunder or under the Note and/or the enforcement of the rights (including the protection thereof) of the Shareholders under any provisions of this Agreement and the Note. The obligation of the Trust under this section shall survive the payment of the Note and the termination of this Agreement. 5.2 Covenants to Survive, Binding Agreement. All covenants, agreements, --------------------------------------- warranties and representations herein shall be binding of the Shareholders and the Trust, and their respective successors and assigns, whether or not so expressed. -11- 5.3 Amendments and Waivers. Neither this Agreement, the Note, nor any ---------------------- term, covenant or condition hereof or thereof may be changed, waived, discharged, modified or terminated except by a writing executed by the parties hereto or thereto. No failure on the part of the Shareholders to exercise, and no delay in exercising, any right, remedy or power hereunder or under the Notes shall preclude any other or future exercise thereof, or the exercise of any other right, remedy or power. The rights and remedies of the Shareholders herein are cumulative and not exclusive. 5.4 Notices. All notices, requests, consents, demands and other ------- communications hereunder shall be in writing and shall be mailed by first class mail, certified or registered, return receipt required, to the respective parties to this Agreement as follows: To the Shareholders: Steven Townsend, Trustee c/o Cornucopia Natural Foods, Inc. 8 Industrial Drive Coventry, RI 02816 To the Trust: Cornucopia Natural Foods, Inc. Employee Stock Ownership Trust 3 Industrial Drive Coventry, RI 02816 Attention: Norman Cloutier, Trustee Steven Townsend, Trustee Daniel Atwood, Trustee 5.5 Maximum Repayment. In no contingency or event whatsoever shall the ----------------- amount paid or agreed to be paid to the Shareholders for the use, forbearance or -12- detention of the indebtedness evidenced hereby exceed the maximum permissible under applicable law. If, for any circumstance whatsoever, fulfillment of any provisions hereof, or of any agreements between the parties at the time performance of such provisions shall be due, shall involve transcending the limit of validity prescribed by law, then, ipso facto, the obligation to be ---- ----- fulfilled shall be reduced to the limit of such validity, and if from any circumstance the Shareholders should ever receive as interest an amount which would exceed the highest lawful rate, such amount which would be excessive interest shall be applied to the reduction of the principal balance of the amounts due hereunder and not to the payment of interest. This provision shall control every other provision of all agreements between the Shareholders and the Trust. 5.6 Section Headings, Severability, Entire Agreement. Section and ------------------------------------------------ subsection headings have been inserted herein for convenience only and shall not be construed as part of this Agreement. Every provision of this Agreement and the Note is intended to be severable; if any term or provision of this Agreement, the Notes or any other document delivered in connection herewith shall be invalid, illegal or unenforceable for any reason whatsoever, the validity, legality and enforceability of the remaining provisions hereof or thereof shall not in any way be affected or impaired thereby. All Exhibits to this Agreement shall be annexed hereto and shall be deemed to be part of this Agreement. This Agreement and the Exhibits attached hereto embody the entire Agreement and understanding between the -13- Shareholders and the Trust and supersede all prior agreements and understandings relating to the subject matter hereof. 5.7 Governing Law. This Agreement, the Note and all other documents ------------- contemplated hereby are being delivered and are intended to be performed in the State of Rhode Island and shall be construed and enforceable in accordance with, and governed by, the laws of the State of Rhode Island. -14- This Agreement is entered into by the parties hereto as of the 1st day of November, 1988. CORNUCOPIA NATURAL FOODS, INC. SHAREHOLDERS EMPLOYEE STOCK OWNERSHIP TRUST - ------------ ------------------------------ /s/ Norman Cloutier By: /s/ Norman Cloutier, Trustee - ---------------------------- ------------------------------- Norman Cloutier Norman Cloutier /s/ Steven Townsend By: /s/ Steven Townsend, Trustee - ---------------------------- ------------------------------- Steven Townsend Steven Townsend /s/ Daniel Atwood By: /s/ Daniel Atwood, Trustee - ---------------------------- ------------------------------- Daniel Atwood Daniel Atwood /s/ Theodore Cloutier - ---------------------------- Theodore Cloutier -15- EXHIBIT A FIXED RATE TERM LOAN NOTE $4,080,000.00 Date: November 1, 1988 FOR VALUE RECEIVED, CORNUCOPIA NATURAL FOODS, INC., EMPLOYEE STOCK OWNERSHIP TRUST (the "Trust"), hereby promises to pay to the order of Steven Townsend, as Trustee for Norman Cloutier, Steven Townsend, Daniel Atwood, and Theodore Cloutier (the "Shareholders"), in lawful money of the United States, the principal sum of FOUR MILLION and EIGHTY THOUSAND and 00/100 DOLLARS ($4,080,000.00) together with interest on the unpaid principal balance at the rate of eight and fifty-five hundredths percent (8.55%) per annum. Interest shall be calculated on the basis of a 360 day year for the actual number of days elapsed. The principal of this Note shall be repaid in three hundred (300) equal monthly installments of $13,600.00 each, with a final and 300th payment being due on November 1, 2013, such payment being an amount equal to the balance of all unpaid principal. Principal payments shall be due and payable on the 1st day of each month, commencing December 1, 1988. Interest on all unpaid principal, from and including the date hereof until all amounts have been paid in full, shall be due and payable monthly in arrears, on the due date of each scheduled principal payment, -16- including November 1, 2013, at which time all unpaid interest on this Note shall be due and payable. If any payment on this Note becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day, and interest shall be due and payable with respect to the extended period. This Note is subject to prepayment, changes in interest rate, and its maturity is subject to acceleration, upon the terms contained in the ESOT Agreement, dated November 1, 1988, between the Shareholders and the Trust. Capitalized terms used herein shall be as defined in the ESOT Agreement. The Trust acknowledges that the Loan evidenced by this Note is a commercial transaction and waives its rights to notice and hearing allowed by the law of any state or federal law with respect to any prejudgment remedy which the Shareholders may desire to use, and further waives diligence, demand, presentment for payment, notice of nonpayment, protest and notice of protest, and notice of any renewals or extensions of this Note. The Trust agrees to pay the cost of collection, including attorneys' fees, in any action to collect this Note or any payment due thereunder. -17- In no contingency or event whatsoever, whether by reason of acceleration of maturity of the indebtedness or otherwise, shall the amount paid or agreed to be paid to the Shareholders for the use, forbearance or detention of the indebtedness evidenced hereby exceed the maximum permissible under applicable law. If, for any circumstance whatsoever, fulfillment of any provisions hereof, or of any agreements between the parties, at the time performance of such provisions shall be due, shall involve transcending the limit of validity prescribed by law, then, ipso facto, the obligation to be fulfilled shall be ---- ----- reduced to the limit of such validity, and if from any circumstance the Shareholders should ever receive as interest an amount which would exceed the highest lawful rate, such amount; which would be excessive interest shall be applied to the reduction of the principal balance of the amounts due hereunder and not to the payment of interest. CORNUCOPIA NATURAL FOODS, INC. EMPLOYEE STOCK OWNERSHIP TRUST By: /s/ Norman Cloutier, Trustee -------------------------------- Norman Cloutier By: /s/ Steven Townsend, Trustee -------------------------------- Steven Townsend By: /s/ Daniel Atwood, Trustee -------------------------------- Daniel Atwood -18- MODIFICATION TO FIXED RATE TERM LOAN NOTE THIS MODIFICATION TO PROMISSORY NOTE (the "Modification") made and entered into this 20th day of February, 1993 between Steven Townsend as trustee on behalf of himself, Norman Cloutier, Daniel Atwood and Theodore Cloutier (the "Shareholder Trustee") and CORNUCOPIA NATURAL FOODS, INC. EMPLOYEE STOCK OWNERSHIP TRUST (the "ESOT Trust") is firmly affixed to and made a part of a certain Fixed Rate Term Loan Note dated November 1, 1988 (the "Note") payable to the order of the Shareholder Trustees in the original principal amount of Four Million Eighty Thousand Dollars ($4,080,000). For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Shareholder Trustee and the ESOT Trust hereby agree as follows: 1. The ESOT Trust failed to tender any payments of the monthly installments of principal and interest due and owing under the Note during the period from February 1, 1991 through and including July 1, 1992, for a total of eighteen (18) payments (the "Late Payments"). 2. The ESOT Trust's obligation to pay any interest and penalties incurred or accruing in connection with the missed payments, is hereby waived. 3. From and after the date hereof, the ESOT Trust shall be obligated and liable for the payment in full, at such times and places as are set forth in the Note, of the monthly principal and interest payments provided in the Note (the "Note Payments"). 4. In addition to the Note Payments, the ESOT Trust shall also be obligated and liable for the payment in full of monthly payments of principal and interest, for a period of eighteen (18) successive months commencing December 1, 2013, and with the final payment being due on May 1, 2015 (the "Additional Payments"), each such payment to be paid to the Shareholder Trustee in such manner and in such amount as is set forth in the Note with respect to the Note Payments, except that the final payment shall be in an amount equal to the balance of all unpaid principal and interest on the Note, including the principal and interest in connection with the Additional Payments. -19- As hereby amended, the Note is hereby ratified and confirmed in all respects. THE SHAREHOLDER TRUSTEE: /s/ Steven Townsend ----------------------------- Steven Townsend, Trustee THE ESOT TRUST: CORNUCOPIA NATURAL FOODS, INC., EMPLOYEE STOCK OWNERSHIP TRUST By: /s/ Norman Cloutier ---------------------------- Norman Cloutier, Trustee By: /s/ Steven Townsend ---------------------------- Steven Townsend, Trustee By: /s/ Daniel Atwood ---------------------------- Daniel Atwood, Trustee -20- EX-10.4 8 STOCK PLEDGE AGREEMENT W/ S. TOWNSEND Exhibit 10.4 ------------ STOCK PLEDGE AGREEMENT ---------------------- This STOCK PLEDGE AGREEMENT (the "Agreement") is made and entered into this 1st day of November, 1988, by and between Cornucopia Natural Foods, Inc. Employee Stock Ownership Trust ("Pledgor") and Steven Townsend, Trustee for Norman Cloutier, Steven Townsend, Daniel Atwood and Theodore Atwood ("Shareholders"). W I T N E S S E T H: WHEREAS, the Shareholders intend to loan to Pledgor the sum of Four Million and Eighty Thousand Dollars ($4,080,000.00) (the "Loan") in connection with the Pledgor's purchase of shares of common stock of the Shareholders (the "Shares") in Cornucopia Natural Foods, Inc. (the "Company"); WHEREAS, the Shares will be contributed to the Cornucopia Natural Foods, Inc. Employee Stock Ownership Plan (the "ESOP") for the benefit of participants in the ESOP; WHEREAS, in return for the Loan, Pledgor has agreed to execute and deliver to the Shareholders a promissory note in the principal amount of the Loan, a copy of which is attached hereto as Exhibit A (the "Note"); WHEREAS, to induce the Shareholders to make the Loan, Pledgor has agreed to pledge the Shares to the Shareholders as security for the faithful repayment of the Note. NOW, THEREFORE, Pledgor and the Shareholders agree: 1. Pledge. In consideration of the sum of Four Million and Eighty ------ Thousand Dollars ($4,080,000.00) evidenced by Pledgor's Note, receipt of which is hereby acknowledged, Pledgor hereby grants a security interest to the Shareholders in instruments of the following description: Shares of the common stock of the Company represented by certificates No. ________________________, with a stock power duly endorsed in blank and delivered herewith to the Shareholders. The Shareholders shall hold the pledged Shares and stock power as security for the repayment of the Note, and shall not encumber or dispose of the Shares except in accordance with the provisions of paragraph 4. 2. Adjustments Warrants and Options. In the event that during the term Of -------------------------------- this Agreement, any share dividend, reclassification, readjustment, or other change is declared or made in the capital structure of the Company, or subscription warrants or any other rights or options shall be issued in connection with the pledged Shares, all such new, substituted, and additional shares or other securities issued by reason of any such change, and all such warrants, rights, and options shall be immediately delivered by Pledgor to the Shareholders, with stock powers executed in blank, and shall be held by the Shareholders under the terms of this Agreement in the same manner as the Shares originally pledged hereunder. 3. Release of Pledge. On each anniversary of the Loan, the Shareholders ----------------- shall release to Pledgor the number of pledged Shares that are to be allocated to ESOP participants under the terms of the ESOP due to payments of the Loan. The -2- Shareholders shall also release the stock powers, and any rights received by the Shareholders as a result of its record ownership of the pledged Shares to be released. 4. Default. ------- (a) A default shall arise under the Note as of the time a payment thereunder is past due. In the event of a default, Pledgor appoints the Vice President for Administration of the Company as its attorney-in-fact to arrange for the transfer of pledged Shares, which value equals the amount in default, into the name of the Shareholders on the books of the Company. In the event of a default, the Shareholders shall have the rights and remedies provided in the Uniform Commercial Code in force in the State of Rhode Island at the date of this Agreement, and in this connection, the Shareholders may, upon ten days notice to Pledgor sent by registered mail, and without liability for any diminution in price that may have occurred, sell that part of the pledged Shares, the value of which corresponds to the amount in default in such manner and for such price as Pledgee may determine. At any bona fide public sale, the Shareholders shall be free to purchase all or any part of the pledged Shares to be sold. Out of the proceeds of any sale, the Shareholders may retain an amount equal to the amount then due on the Note, plus the amount of the expenses of the sale, and shall pay any balance of such proceeds to Pledgor. In the event that the proceeds of any sale are insufficient to cover the expenses of sale and the amounts then due under the Note, Pledgor shall remain liable to the Shareholders for any deficiency. -3- (b) Notwithstanding (a) above, the Shareholders shall take no actions in connection with a default under the Note which are in violation of any provision of the Employee Retirement Income Security Act of 1974, as amended, the Internal Revenue Code of 1986, as amended, or any regulations promulgated thereunder. 5. Termination. This Agreement shall terminate upon payment in full of ----------- the Note. PLEDGOR By /s/ Norman Cloutier , Trustee ---------------------------- Norman Cloutier By /s/ Steven Townsend , Trustee ---------------------------- Steven Townsend By /s/ Daniel Atwood , Trustee ---------------------------- Daniel Atwood SHAREHOLDERS By /s/ Steven Townsend ----------------------------- Steven Townsend Trustee for Norman Cloutier, Steven Townsend, Daniel Atwood and Theodore Cloutier -4- EXHIBIT A FIXED RATE TERM LOAN NOTE $4,080,000.00 Date: November 1, 1988 FOR VALUE RECEIVED, CORNUCOPIA NATURAL FOODS, INC., EMPLOYEE STOCK OWNERSHIP TRUST (the "Trust"), hereby promises to pay to the order of Steven Townsend, as Trustee for Norman Cloutier, Steven Townsend, Daniel Atwood, and Theodore Cloutier (the "Shareholders"), in lawful money of the United States, the principal sum of FOUR MILLION and EIGHTY THOUSAND and 00/100 DOLLARS ($4,080,000.00) together with interest on the unpaid principal balance at the rate of eight and fifty-five hundredths percent (8.55%) per annum. Interest shall be calculated on the basis of a 360 day year for the actual number of days elapsed. The principal of this Note shall be repaid in three hundred (300) equal monthly installments of $13,600.00 each, with a final and 300th payment being due on November 1, 2013, such payment being an amount equal to the balance of all unpaid principal. Principal payments shall be due and payable on the 1st day of each month, commencing December 1, 1988. Interest on all unpaid principal, from and including the date hereof until all amounts have been paid in full, shall be due and payable monthly in arrears, on the due date of each scheduled principal payment, including November 1, 2013, at which time all unpaid interest on this Note shall be due and payable. If any payment on this Note becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day, and interest shall be due and payable with respect to the extended period. This Note is subject to prepayment, changes in interest rate, and its maturity is subject to acceleration, upon the terms contained in the ESOT Agreement, dated November 1, 1988, between the Shareholders and the Trust. Capitalized terms used herein shall be as defined in the ESOT Agreement. The Trust acknowledges that the Loan evidenced by this Note is a commercial transaction and waives its rights to notice and hearing allowed by the law of any state or federal law with respect to any prejudgment remedy which the Shareholders may desire to use, and further waives diligence, demand, presentment for payment notice of nonpayment, protest and notice of protest, and notice of any renewals or extensions of this Note. The Trust agrees to pay the cost of collection, including attorneys' fees, in any action to collect this Note or any payment due thereunder. In no contingency or event whatsoever, whether by reason of acceleration of maturity of the indebtedness or otherwise, shall the amount paid or agreed to be paid to the Shareholders for the use, forbearance or detention of the indebtedness evidenced hereby exceed the maximum permissible under applicable law. If, for any circumstance whatsoever, fulfillment of any provisions hereof, or of any agreements between the parties, at the time performance of such provisions shall be due, shall involve transcending the limit of validity prescribed by law, then, ipso facto, the ---- ----- obligation to be fulfilled shall be reduced to the limit of such validity, and if from any circumstance the Shareholders should ever receive as interest an amount which would exceed the highest lawful rate, such amount which would be excessive interest shall be applied to the reduction of the principal balance of the amounts due hereunder and not to the payment of interest. CORNUCOPIA NATURAL FOODS, INC. EMPLOYEE STOCK OWNERSHIP TRUST By /s/ Norman Cloutier , Trustee ------------------------ Norman Cloutier By /s/ Steven Townsend , Trustee ------------------------ Steven Townsend By /s/ Daniel Atwood , Trustee ------------------------ Daniel Atwood AMENDMENT TO STOCK PLEDGE AGREEMENT THIS AMENDMENT TO STOCK PLEDGE AGREEMENT (the "Agreement") made and entered into this 26th day of February, 1993, by and between Cornucopia Natural Foods, Inc. Employee Stock Ownership Trust (the "ESOT Trust") and Steven Townsend, Norman Cloutier, Daniel Atwood and Theodore Cloutier (collectively, the "Shareholders"). WITNESSETH: ---------- WHEREAS, the ESOT Trust and the Shareholders entered into that certain Stock Pledge Agreement (the "Agreement") dated November 1, 1988, pursuant to which the ESOT Trust pledged shares of the common stock of Cornucopia Natural Foods, Inc. (the "Shares") to the Shareholders as security for that certain Fixed Rate Term Loan Note dated November 1, 1988 (the "Note") payable to the order of Steven Townsend as trustee for the Shareholders (the "Shareholder Trustee") in the original principal amount of Four Million Eighty Thousand ($4,080,000). WHEREAS, the ESOT Trust and the Shareholder Trustee intend to modify the Note in order to waive interest and penalties on certain payments that were missed with respect to the Note, and to provide for additional payments to be made after the initial expiration of the Note. NOW, THEREFORE, in consideration of the mutual covenants set forth herein, the receipt and adequacy of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. Note referred to in the Agreement shall mean the Note, as amended by that certain Modification to Fixed Rate Term Loan Note, dated even date herewith. 2. Any defaults that have taken place with respect to the payments under the Note that were not tendered when due, between the months of February 1, 1991 through and including July 1, 1992, are hereby waived, and any defaults under the Agreement in connection therewith are also waived. As hereby amended, the Agreement is hereby ratified and confirmed in all respects. IN WITNESS WHEREOF, the undersigned have executedthis Amendment on the day and date first above written. CORNUCOPIA NATURAL FOODS, INC. EMPLOYEE STOCK OWNERSHIP TRUST By /s/ Norman Cloutier , Trustee ------------------------ Norman Cloutier By /s/ Steven Townsend , Trustee ------------------------ Steven Townsend By /s/ Daniel Atwood , Trustee ------------------------ Daniel Atwood THE SHAREHOLDERS /s/ Theodore Cloutier --------------------------- Theodore Cloutier /s/ Norman Cloutier --------------------------- Norman Cloutier /s/ Steven Townsend --------------------------- Steven Townsend /s/ Daniel Atwood --------------------------- Daniel Atwood MODIFICATION TO FIXED RATE TERM LOAN NOTE THIS MODIFICATION TO PROMISSORY NOTE (the "Modification") made and entered into this 20th day of February, 1993 between Steven Townsend as trustee on behalf of himself, Norman Cloutier, Daniel Atwood and Theodore Cloutier (the "Shareholder Trustee") and CORNUCOPIA NATURAL FOODS, INC. EMPLOYEE STOCK OWNERSHIP TRUST (the "ESOT Trust") is firmly affixed to and made a part of a certain Fixed Rate Term Loan Note dated November 1, 1988 (the "Note") payable to the order of the Shareholder Trustees in the original principal amount of Four Million Eighty Thousand Dollars ($4,080,000). For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Shareholder Trustee and the ESOT Trust hereby agree as follows: 1. The ESOT Trust failed to tender any payments of the monthly installments of principal and interest due and owing under the Note during the period from February 1, 1991 through and including July 1, 1992, for a total of eighteen (18) payments (the "Late Payments"). 2. The ESOT Trust's obligation to pay any interest and penalties incurred or accruing in connection with the missed payments, is hereby waived. 3. From and after the date hereof, the ESOT Trust shall be obligated and liable for the payment in full, at such times and places as are set forth in the Note, of the monthly principal and interest payments provided in the Note (the "Note Payments"). 4. In addition to the Note Payments, the ESOT Trust shall also be obligated and liable for the payment in full of monthly payments of principal and interest, for a period of eighteen (18) successive months commencing December 1, 2013, and with the final payment being due on May 1, 2015 (the "Additional Payments"), each such payment to be paid to the Shareholder Trustee in such manner and in such amount as is set forth in the Note with respect to the Note Payments, except that the final payment shall be in an amount equal to the balance of all unpaid principal and interest on the Note, including the principal and interest in connection with the Additional Payments. As hereby amended, the Note is hereby ratified and confirmed in all respects. THE SHAREHOLDER TRUSTEE: /s/ Steven Townsend ----------------------------- Steven Townsend, Trustee THE ESOT TRUST: CORNUCOPIA NATURAL FOODS, INC., EMPLOYEE STOCK OWNERSHIP TRUST By: /s/ Norman Cloutier ---------------------------- Norman Cloutier, Trustee By: /s/ Steven Townsend ---------------------------- Steven Townsend, Trustee By: /s/ Daniel Atwood ---------------------------- Daniel Atwood, Trustee EX-10.5 9 TRUST AGREEMENT W/ N. CLOUTIER Exhibit 10.5 ------------ TRUST AGREEMENT --------------- This Trust Agreement is made this 1 day of November, 1988, by Norman --- Cloutier of East Greenwich, Rhode Island, Steven Townsend of Brooklyn, Connecticut, Daniel Atwood of Newport, Rhode Island and Theodore Cloutier of Coventry, Rhode Island (the "Shareholders"), and Steven Townsend of Brooklyn, Connecticut (the "Trustee"). 1. Declaration of Trust. The Trustee declares that he holds in trust, for -------------------- the benefit of all the Shareholders, a promissory note in the principal amount of $4,080,000.00 payable to the Trustee for the benefit of the Shareholders, a copy of which is attached hereto as Exhibit A (the "Note"). 2. Income. The Trustee, after deducting any expenses incurred by him in ------ the protection and administration of the Trust, shall pay over monthly to the Shareholders each one's proportionate share, based on the beneficial interests in Section (3), of the payments made under the Note. 3. Beneficial interest. ------------------- a. Each Shareholder's beneficial interest in the Trust is as follows: Norman Cloutier 80.9% ----- Steven Townsend 9.5% ----- Daniel Atwood 4.6% ----- Theodore Cloutier 5.0% ----- b. The rights of a Shareholder shall be limited to those specifically set forth in the Note and in this instrument. No shareholder shall have the right to ask for partition of the Trust during the continuance of this Trust. No transfer by operation of law of the interest of a Shareholder during the continuance of the Trust shall terminate the Trust, nor entitle the legal representative of a deceased Shareholder to an accounting, or to any action in the courts, or otherwise against the Trust or the Trustee; but the executors, administrators, or assigns of a deceased Shareholder shall succeed to the rights and be subject to the liabilities of the decedent. 4. Records. The Trustee shall keep a book of accounts showing the ------- receipts and disbursements of the Trust. 5. Powers of Trustee. In the administration of the Trust, the Trustee ----------------- shall have the following powers: (a) To manage and control the Trust as it may deem for the best interests of the Shareholders, as fully as though the Trustee were the sole legal and equitable owner of the Trust property; and (b) To make agreements modifying, amending, or supplementing the Note, provided that the Shareholders give to the Trustee their unanimous written consent in advance. 6. Undertaking by Trustee. The Trustee undertakes to exercise only ---------------------- ordinary care in collecting the payments under the Note and in distributing the proceeds therefrom to the Shareholders. 7. Liability of Trustee. The Trustee shall not be liable for any error -------------------- of judgment or for any loss arising out of any act of commission or omission in the execution of the Trust so long as he acts in good faith. The Trustee shall not be required to give any bond to secure the performance of the Trust and shall not be subject to any obligations to the Shareholders other than those expressly assumed hereunder. Whenever the Trustee is obligated to pay money to the Shareholders hereunder, it is understood that such obligations are undertaken by him in his Trust capacity only and not personally, and that such payments are to be made only out of such funds as the Trustee has in this Trust available therefor. -2- 8. Indemnity. The Trustee shall be entitled to indemnity from the Trust --------- for any personal liability incurred by him in the proper administration of the Trust. The Trustee may secure advice from legal counsel and shall be protected as to any action taken in good faith and consistent with such advice; the Trustee shall also be protected in acting on any written document signed by the proper party and believed by him to be genuine. 9. Default Under the Note. In the event that the maker of the Note ---------------------- defaults in any of the provisions of the Note or the Loan Agreement pertaining thereto, so that in the opinion of the Trustee it may be necessary or advisable to pursue collection, or to foreclose on any security interests, or to make demand for payment under any guaranty of the Note, the Trustee shall give not less than 30 days' notice to the Shareholders by letter mailed to their last addresses as shown on the books on the Trustee, and shall request therein advice within ten days after the expiration of the period of notice above provided as to what actions to take. In the event of the failure of a majority of Shareholders to decide on how to proceed within the period above provided, then the Trustee shall have full authority to act as he may deem advisable for the best interests of the Shareholders. 10. Successor Trustee. In the event that (a) the Trustee, or any ----------------- successor hereafter appointed, shall desire to relinquish the Trust evidenced by this agreement, or (b) the Shareholders other than the Trustee, by their unanimous consent, desire to replace the Trustee and appoint a successor, or (c) the Trustee or his successor dies, then as soon as reasonably practicable thereafter, a majority of shareholders (except in the case of (b) above) shall appoint a Successor Trustee at which time the Trustee shall, upon rendering an accounting for all funds which have previously come into his possession, be discharged from further liability for actions to be taken in the future. In the event of the failure of a majority to express their choice of a Successor Trustee within 30 days after the Trustee resigns, is replaced, or dies, the Trustee or the executor of his estate shall select any qualified bank or trust company to serve as -3- Successor Trustee. Upon rendering of an accounting for all funds which have previously come into its possession, the Trustee or successor Trustee shall be discharged from further liability. In witness whereof the Shareholders and Trustee have signed and sealed this instrument. TRUSTEE SHAREHOLDERS - ------- ------------ /s/ Steven Townsend By: /s/ Norman Cloutier - --------------------------- --------------------------- Norman Cloutier By: /s/ Steven Townsend --------------------------- Steven Townsend By: /s/ Daniel Atwood --------------------------- Daniel Atwood By: /s/ Theodore Cloutier --------------------------- Theodore Cloutier -4- EX-10.6 10 GUARANTY AGREEMENT W/ S. TOWNSEND Exhibit 10.6 ------------ GUARANTY AGREEMENT ------------------ This Guaranty Agreement is made this 1st day of November, 1988, by Cornucopia Natural Foods, Inc., of Coventry, Rhode Island, a Rhode Island Corporation ("Guarantor"), to Steven Townsend, Trustee of a Trust Agreement dated Nov. 1 , 1988 for the benefit of Norman Cloutier, Steven Townsend, Daniel -------- Atwood, and Theodore Cloutier. PURPOSE ------- Cornucopia Natural Foods, Inc. Employee Stock Ownership Trust (the "Borrower") desires to obtain loans or other credit (the "Loan") from Norman Cloutier, Steven Townsend, Daniel Atwood and Theodore Cloutier (the "Shareholders") in order for Borrower to be able to purchase certain shares of the common stock of the Shareholders in the Guarantor. The Shareholders are willing to make the Loan to Borrower only if the Shareholders receive the guaranty of Guarantor covering the Obligations, as hereinafter defined. The Guarantor acknowledges that the Loan will enable the Borrower to purchase a larger number of the Shareholders' shares of the Guarantor, which benefits both Guarantor and its employees other than the Shareholders. NOW, THEREFORE, in consideration of the foregoing and in order to induce Shareholders to make the Loan or other financial accommodations to Borrower, and in consideration thereof and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and further acknowledging that the Shareholders intend to rely on the guaranty of the Guarantor hereunder, the Guarantor hereby agrees as follows: 1. Definitions. ----------- When used herein, the terms set forth below shall be defined as follows: (a) Borrower" means Cornucopia Natural Foods, Inc., Employee Stock Ownership Trust. (b) "Obligations" means all indebtedness, obligations and liabilities of Borrower to the Shareholders of every kind and description, direct or indirect, under the ESOT Loan Agreement between Borrower and the Shareholders dated November 1 , 1988, providing for the Loan to Borrower and all ---- Term Loan Notes issued at any time under such Loan Agreement (the "Notes"), and all documents executed and delivered in connection therewith, including the Stock Pledge Agreement of even date with such ESOT Loan Agreement, and all amendments, extensions and modifications thereof of whatever nature, and all fees, charges, expenses and attorneys' fees chargeable to Borrower or incurred by the Shareholders in connection with the foregoing. (c) "Additional Obligor" means any person, partnership, corporation or other entity, other than Borrower, which is or may hereafter be liable, primarily or secondarily, for payment or performance of all or any part of the Obligations. (d) "Event of Default" means: (i) any default with respect to payment or performance of, or the occurrence of any other default under, any of the Obligations; or (ii) default in the observance or performance of any covenant or agreement of Guarantor herein set forth or set forth in any other document or instrument delivered in connection herewith and securing performance hereof by Guarantor; or (iii) insolvency of Guarantor; or (iv) admission of Guarantor in writing of its inability to pay its debts generally as they become due; or (v) an assignment by the Guarantor for the benefit of creditors or a petition in bankruptcy is filed by or against Guarantor, or an order for relief in bankruptcy is entered against Guarantor; or (vi) if Guarantor applies for or permits the appointment of a receiver or trustee for any or all property or assets of Guarantor, or any such receiver or trustee shall have been appointed for any or all property or assets of Guarantor; or (vii) any of the above actions or proceedings whatsoever are commenced by or against Guarantor; or (viii) any representation made by Guarantor in connection with this Guaranty Agreement proves to have been incorrect in any material respect when made; or (ix) there is a material change in the financial status of Guarantor. -2- 2. Obligations and Duties. ---------------------- Guarantor hereby absolutely and unconditionally guarantees to the Shareholders: (i) the punctual payment, to the Shareholders, as and when due (whether by acceleration or otherwise) of all Obligations requiring payment; and (ii) the performance by Borrower, as and when required, of all Obligations requiring performance. Guarantor acknowledges receipt of copies of all documents evidencing the Obligations. 3. Obligations and Duties Unaffected. --------------------------------- Guarantor hereby agrees and acknowledges that in one or more instances and from time to time before, during or after the occurrence of any Event of Default, with or without notice to or further assent from Guarantor: (i) any document evidencing an Obligation, including, without limitation, the ESOT Loan Agreement, any Term Loan Note and the Stock Pledge Agreement, and any other contract or agreement to which any Borrower or any Additional Obligor is a party, may be modified, supplemented, extended, amended or terminated in any manner; (ii) all or any part of the Obligations, or the obligation of any Additional Obligor, may be changed, altered, renewed, extended, continued, surrendered, compromised, waived, terminated or released in whole or in part, or any default with respect thereto waived; and (iii) the Shareholders may extend further credit in any manner whatsoever to any Borrower, and generally deal with any Borrower or any security or any Additional Obligor as the Shareholders may, in their sole and absolute discretion, determine. Guarantor agrees that notwithstanding any of the foregoing actions Guarantor shall remain bound under this Guaranty, and that the Guarantor's obligations hereunder shall not be affected by the recovery of any judgment against any Borrower or any Additional Obligor or any action to enforce the same or by the failure to seek or obtain any such judgment or the settlement or compromise thereof with the Borrower or Additional Obligor, or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. -3- Guarantor agrees that this Guaranty shall remain in full force and effect and will not be discharged except by the complete performance of the Obligations in accordance with their respective terms and of the agreements and covenants of Guarantor contained herein. Guarantor further agrees that the invalidity, irregularity or unenforceability of all or any part of the Obligations or any security therefor shall not affect, impair or be a defense to this Guaranty or affect in any manner the liability of Guarantor hereunder. Guarantor further guarantees that all payments made to the Shareholders by Borrower will be final when made. If any payment is recovered from, or repaid by, the Shareholders, in whole or in part in any bankruptcy, insolvency, or similar proceeding, or an action claiming a fraudulent conveyance, instituted by or against Borrower, this Guaranty shall continue to be fully applicable to the same extent as though the repaid or recovered payment had never been made. 5. Covenants. --------- During such times as the Guaranty shall be effective, Guarantor agrees: (i) to promptly furnish the Shareholders from time to time with such information in such form, concerning the financial condition of Guarantor, as the Shareholders may reasonably request; and (ii) to promptly notify the Shareholders of any condition or event which constitutes, or would constitute the passage of time or giving of notice or both, an Event of Default. 6. Default. ------- If an Event of Default shall occur, then or at any time thereafter while such Event of Default shall continue, the Shareholders may declare all Obligations, regardless of their terms, for the purposes of this Guaranty, together with all obligations of Guarantor hereunder, to be due and payable. -4- 7. Rights and Remedies. ------------------- The Shareholders shall have, by way of example and not of limitation, the rights and remedies set forth below at all times prior to and/or after the occurrence of an Event of Default: (a) The Shareholders shall have the right to commence any court action against the Guarantor for collection of the obligations guaranteed under this Guaranty Agreement. (b) The Shareholders shall have a right to set off, at any time without notice to Guarantor, any and all deposits or other sums at any time or times credited by or due from the Shareholders to Guarantor whether in a special account or other account or represented by a certificate of deposit (whether or not matured), which deposits and other sums shall at all times constitute additional security for Obligations and the obligations of Guarantor under this Guaranty. (c) The Shareholders shall have, in addition to the rights and remedies contained in this Guaranty, any other rights and remedies contained in any mortgage deed, security agreement or other documents or instruments now or at any time or times hereafter executed and delivered by Guarantor in connection with this Guaranty and securing the obligations of the Guarantor hereunder. (d) The Shareholders may, from time to time, without notice to Guarantor, sell, assign, transfer or otherwise dispose of all or any part of the Obligations and/or rights under this Guaranty. In such event, each and every immediate and successive purchaser, assignee, transferee or holder of all or any part of the Obligations shall have the right to enforce this Guaranty, by legal action or otherwise, for its own benefit as fully as if such purchaser, assignee, transferee or holder were herein by name specifically given such right. The Shareholders shall have an unimpaired right to enforce this Guaranty for its benefit with respect to that portion of the Obligations of Borrower that the Shareholders have not sold, assigned, transferred or otherwise disposed of. (e) Guarantor agrees that the books and records of the Shareholders showing the amount owed by Borrower to the Shareholders from time to time shall -5- be admissible in any action or proceeding against Guarantor hereunder and shall be prima facie evidence of such amount owed. (f) All rights, powers and remedies of the Shareholders hereunder or under any document or instrument delivered in connection herewith are cumulative and non-exclusive and shall be in addition to all rights, powers and remedies given to the Shareholders by law. (g) With or without notice to Guarantor, the Shareholders, in their sole and absolute discretion, may apply on account of the Obligations any payment from Borrower, Guarantor or any Additional Obligor, or amounts realized from any security for the Obligations, in such manner and order or priority as the Shareholders shall determine. (h) Guarantor shall pay the Shareholders, on demand, for all costs, attorneys' fees and other expenses which the Shareholders may incur in the enforcement of this Guaranty or in the enforcement of their rights with respect to any property of Guarantor which is security for this Guaranty. 8. Duration of This Guaranty. ------------------------- This Guaranty is a continuing guaranty which shall remain in effect until all of the Obligations have been fully and finally paid. 9. General. ------- (a) Guarantor further acknowledges that some of the Obligations may be prepaid by Borrower and/or that Borrower may desire to convert a Term Loan Note to a different Note with a different form of interest computation. Guarantor acknowledges that its written consent will not be required before the Shareholders permit Borrower to prepay and/or to convert. (b) Each reference herein to the Shareholders shall be deemed to include their heirs, administrators or assigns, and each reference to the Borrower and Guarantor and any pronouns referring thereto as used herein shall be construed in the masculine, feminine or neuter, singular or plural, as the context may require, and -6- shall be deemed to include their successors and assigns, all of whom shall be bound by the provisions hereof. (c) No delay on the part of the Shareholders in exercising any rights hereunder or failure to exercise the same shall operate as a waiver of such rights; no notice to or demand on Guarantor shall be deemed to be a waiver of the right of the Shareholders to take other or further action without notice or demand as provided herein. In any event, no modification or waiver of the provisions hereof shall be effective unless in writing and signed by the Shareholders nor shall any waiver be applicable except in the specific instance or matter for which given. (d) Guarantor hereby certifies and covenants that all acts, conditions and things required to be done and performed, and to have happened precedent to the creation and issuance of this Guaranty, and to constitute valid and legally binding obligations of Guarantor in accordance with its terms, have been done and performed and have happened in due and strict compliance with all applicable laws. (e) This Guaranty is and shall be deemed to be a contract entered into and made pursuant to the laws of the State of Rhode Island and shall in all respects be governed, construed, applied and enforced in accordance with the laws of said state; in the event that the Shareholders bring any action hereunder in any court of record of Rhode Island or the United States, Guarantor consents to and confers personal jurisdiction over Guarantor by such court or courts and agrees that service of process may be made upon Guarantor by mailing a copy of the summons in the manner set forth in paragraph 9(h) hereof; and in any action hereunder Guarantor waives the right to demand a trial by jury. (f) Wherever possible, each provision of this Guaranty shall be interpreted in such manner as to be effective and valid under applicable law. Should any portion of this Guaranty be declared invalid for any reason in any jurisdiction, such declaration shall have no effect upon the remaining portions of this Guaranty; furthermore, the entirety of this Guaranty shall continue in full force and effect in all other jurisdictions and said remaining portions of this Guaranty shall continue in full -7- force and effect in the subject jurisdiction as if this Guaranty had been executed with the invalid portions thereof deleted. (g) The section headings herein are included for convenience only and shall not be deemed to be a part of this Guaranty. (h) Any notice given by Guarantor shall be effective only upon actual receipt by the Shareholders, at the Trustee's address; any notice the Shareholders may elect to give hereunder shall be deemed to be given an effective when deposited in the United States mail, return receipt requested, postage prepaid and addressed to Guarantor. IN WITNESS WHEREOF, this Guaranty is executed on the day and year first above written. Witness: CORNUCOPIA NATURAL FOODS, INC. /s/ Frank Williams By: /s/ Norman A. Cloutier - ------------------ ---------------------- Its: President --------- _______________________ STATE OF RHODE ISLAND ) ) ss. COUNTY OF KENT ) On this the 1st day of November, 1988, before me, /s/ Michael Ursillo , the --------------------- undersigned officer, personally appeared /s/ Norman Cloutier , who acknowledged --------------------- himself to be an officer of Cornucopia Natural Foods, Inc., a Rhode Island corporation, and that he, as such officer, being authorized to do so, executed the foregoing instrument for the purposes therein contained, by signing the name of the corporation by himself as such officer. In witness whereof hereunto set my hand. /s/ Michael Ursillo ------------------- Notary Public My commission expires: 6/30/91 --------- -8- EX-10.8 11 STOCK ACQUISITION AGREEMENT AND PLAN OF MERGER Exhibit 10.8 ------------ STOCK ACQUISITION AGREEMENT AND PLAN OF MERGER ------------------ AGREEMENT dated as of the 8th day of December, 1995, among CORNUCOPIA NATURAL FOODS, INC., a Delaware corporation ("CNF"), MPW ACQUISITION CORPORATION, a Delaware corporation ("Newco"), MICHAEL S. FUNK ("MSF") and JUDITH A. FUNK, of Nevada City, California, individually and as Trustees of the Funk Family 1992 Revocable Living Trust (the "Trustees"), and MOUNTAIN PEOPLE'S WAREHOUSE INCORPORATED, a California corporation ("MPW") WHEREAS, the Boards of Directors of CNF and MPW deem it advisable and in the best interests of each and its shareholders that CNF and MPW combine in order to advance the long-term interests of each corporation; WHEREAS, the Boards of Directors of CNF and MPW wish to effect such business combination through the merger of Newco into MPW following which MPW will become a wholly-owned subsidiary of CNF and the shareholders of MPW will become shareholders of CNF; WHEREAS, the parties intend that for federal income tax purposes the transactions contemplated hereby shall constitute a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"); and WHEREAS, the parties intend that for accounting purposes, the acquisition of the outstanding capital stock of MPW by CNF shall be accounted for as a pooling of interests; NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties and agreements contained herein, the parties agree as follows: 1. Merger. (i) Upon the terms and subject to the conditions set ------ forth herein, at the Effective Time (as defined below), Newco shall be merged (the "Merger") into MPW in accordance with applicable Delaware and California law, whereupon the separate existence of Newco shall cease, and MPW shall be the surviving corporation (the "Surviving Corporation"). (ii) As soon as practicable, and in any event not more than 30 days, after satisfaction or, to the extent permitted hereunder, waiver of all conditions to the Merger, Newco and MPW will file and CNF will cause to be filed the Certificate of Merger with the Secretaries of State of the States of Delaware and California and make all other filings or recordings required by applicable law in connection with the Merger. The Merger shall become effective at such time as the Certificate of Merger is duly filed with the Secretaries of State of the States of Delaware and California or at such later time as CNF and MPW may agree as set forth in the Certificate of Merger (the "Effective Time"). (iii) From and after the Effective Time, the Surviving Corporation shall possess all the rights, privileges, powers and franchises and be subject to all of the restrictions, disabilities and duties of Newco and MPW, all as provided under Delaware and California law. -2- 1.2 Conversion of Shares. At the Effective Time: -------------------- (i) each share of capital stock of MPW held by MPW as treasury stock shall be cancelled, and no payment shall be made with respect thereto; (ii) each share of capital stock of Newco outstanding immediately prior to the Effective Time shall be converted into and become one share of capital stock of the Surviving Corporation (the "MPW Merger Share") with the same rights and privileges as the shares so converted and shall constitute the only outstanding shares of capital stock of the Surviving Corporation; and (iii) each share of capital stock of MPW outstanding immediately prior to the Effective Time shall, except as otherwise provided in Section 1.4 with respect to shares as to which appraisal rights have been exercised, be converted into 584.2 shares of common stock, without par value, of CNF (the "CNF Shares") and all shares of capital stock of MPW outstanding immediately prior to the effective time shall be cancelled. In no event shall holders of capital stock of MPW be entitled to receive more than 58,420 shares of CNF common stock in connection with the Merger. 1.3 Surrender and Payment. (i) Each holder of shares of MPW that --------------------- have been converted into a right to receive the CNF Shares upon surrender to CNF of a certificate or certificates representing such shares, together with properly executed stock powers endorsed in blank with, if requested by CNF, signatures guaranteed, will be entitled to receive the CNF Shares to be issued in respect of such shares. -3- Until so surrendered, each such certificate shall, after the Effective Time, represent for all purposes only the right to receive such CNF Shares. (ii) Any portion of the CNF Shares to be distributed pursuant to Section 1.3(i) in exchange for shares of MPW capital stock for which appraisal rights have been perfected shall be returned to CNF upon demand. 1.4 Dissenting Shares. Notwithstanding the provisions of Section ----------------- 1.2, shares of MPW capital stock outstanding immediately prior to the Effective Time and held by a holder who has not voted in favor of the Merger or consented thereto in writing and who has demanded appraisal for such shares in accordance with applicable California law shall not be converted into a right to receive the CNF Shares, unless such holder fails to perfect or withdraws or otherwise loses his or her right to appraisal. If after the Effective Time such holder fails to perfect or withdraws or loses his or her right to appraisal, such shares shall be treated as if they had been converted as of the Effective Time into a right to receive the CNF Shares to be issued in respect of such shares. MPW shall give CNF prompt notice of any demands received by MPW for appraisal of shares, and CNF shall have the right to participate in all negotiations and proceedings with respect to such demands. MPW shall not, except with the prior written consent of CNF, make any payment with respect to, or settle or offer to settle, any such demands. 1.5 Certificate of Incorporation. The certificate of Incorporation ---------------------------- of MPW in effect at the Effective Time shall be the certificate of incorporation of the Surviving Corporation until amended in accordance with applicable law. -4- 1.6 Bylaws. The bylaws of MPW in effect at the Effective Time ------ shall be the bylaws of the Surviving Corporation until amended in accordance with applicable law. 1.7 Directors and Officers. From and after the Effective Time, ----------------------- until successors are duly elected or appointed in accordance with applicable law, (i) the directors of the Surviving Corporation shall consist of MSF and Norman A. Cloutier, and (ii) the officers of the Surviving Corporation shall consist of the persons holding office at the Effective Time. 2. Closing; Closing Date. As soon as practicable after the satisfaction --------------------- or waiver of the conditions set forth in this Agreement (but no later than ten (10) days thereafter) and prior to the filing of the Certificate of Merger, a closing (the "Closing") of the transactions contemplated hereby shall take place at the offices of Cameron & Mittleman, 56 Exchange Terrace, Providence, Rhode Island or at such other place or such other time or date as the parties shall agree. The time and date upon which the Closing occurs is herein called the "Closing Date". 3. Representations and Warranties of MPW and Trustees. Except as -------------------------------------------------- otherwise disclosed in a disclosure statement executed by MPW and the Trustees and delivered to CNF (the "MPW Disclosure Statement") on or before January 19, 1996 (the "Disclosure Date"), the Trustees and MPW, jointly and severally, represent and warrant to CNF as follows: 3.1 Title to Shares. The Trustees own beneficially and of record, --------------- free and clear of any lien, option or other encumbrance, all of the issued and outstanding -5- shares of capital stock of MPW (the "MPW Shares") . At the Effective Time the MPW Merger Share will constitute the only share of issued and outstanding capital stock of MPW, and CNF will become the owner thereof free and clear of any lien or other encumbrance and all the MPW Merger Share will be duly authorized, validly issued and non-assessable. 3.2 Outstanding Capital Stock. MPW is authorized to issue 100,000 ------------------------- shares, without par value, common stock, of which 100 shares are issued and outstanding and owned beneficially and of record by the Trustees. No other class of capital stock of MPW is authorized or outstanding. All of the MPW Shares are duly authorized and are legally and validly issued, fully paid and nonassessable. 3.3 Options. There are no outstanding options, warrants, ------- convertible securities, subscriptions or other commitments or rights of any nature to acquire any MPW Shares or any other securities of MPW from MPW or the Trustees. 3.4 Subsidiaries. MPW does not, directly or indirectly, own or ------------ have the power to vote any securities or other equity interest of any person, except NatureSource, Inc., a Washington corporation ("Subsidiary") . All of the outstanding securities and other equity interests of Subsidiary are owned beneficially and of record by MPW, free and clear of all liens and other encumbrances. There are no outstanding options, warrants, convertible securities, subscriptions or other commitments or rights of any nature to acquire any shares of capital stock or other securities of Subsidiary. -6- 3.5 Due Incorporation and Qualification. Each of MPW and ----------------------------------- Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of its state of incorporation, and has the corporate power and lawful authority to own, lease and operate its assets, properties and business and to carry on its business as now conducted. Neither MPW nor Subsidiary owns or leases property in any jurisdiction other than its state of incorporation and is not required to be qualified or otherwise authorized to do business in any other jurisdiction in which the failure to be qualified would have a material adverse effect on the business or properties of MPW or Subsidiary, respectively. 3.6 Financial Statements. -------------------- (i) The unaudited balance sheet of MPW as of August 31, 1995 (the "MPW Balance Sheet"), a correct and complete copy of which has been delivered to CNF, correctly and completely presents the financial position of MPW as at such date (the "MPW Balance Sheet Date") in accordance with generally accepted accounting principles ("GAAP") applied on a basis consistent with prior periods. The balance sheets of MPW as of December 31, 1992, December 31, 1993, and December 31, 1994 and each of (a) the respective related statements of operations and retained earnings, and (b) the respective related statements of cash flows for the years then ended, including the footnotes thereto, if any, reviewed by KPMG Peat Marwick LLP ("Peat Marwick"), independent certified public accountants, correct and complete copies of each of which have been or will be on or before the Disclosure Date delivered to CNF, fairly and completely present in all material respects the -7- financial position of MPW as at such dates and the results of its operations for the years then ended in accordance with GAAP applied on a basis consistent with prior periods. (ii) The unaudited balance sheet of Subsidiary as of August 31, 1995, a correct and complete copy of which has been delivered to CNF, correctly and completely presents the financial position of Subsidiary as at such date in accordance with generally accepted accounting principles ("GAAP") applied on a basis consistent with prior periods. The balance sheets of Subsidiary as of January 2, 1993 and January 2, 1994, December 31, 1994 and each of (a) the respective related statements of operation and shareholder's equity, (b) the respective related statements of cash flows, (c) the respective related statements of changes in financial position, and (d) the respective related statements of earnings and retained earnings for the years then ended, including the footnotes thereto, certified by Deloitte & Touche, independent certified public accountants, and covered by their reports for the fiscal years ended January 2, 1993, January 2, 1994, and December 31, 1994, correct and complete copies of each of which have been or will be on or before the Disclosure Date delivered to CNF, fairly and completely present in all material respects the financial position of Subsidiary as at such dates and the results of its operations for the years then ended in accordance with GAAP applied on a basis consistent with prior periods. 3.7 Continuity and No Material Adverse Change. Since the MPW ----------------------------------------- Balance Sheet Date, each of MPW and Subsidiary has operated in conformity with its -8- previous business practices and there has been no material adverse change in the assets, properties, business, prospects or condition, financial or otherwise, of MPW or Subsidiary, and none of the Trustees or MPW know of any such change which is threatened. Since the MPW Balance Sheet Date, there has been no damage, destruction or loss materially affecting the assets, properties, business, prospects or condition, financial or otherwise, of MPW or Subsidiary, whether or not covered by insurance. 3.8 Permits. Each of MPW and Subsidiary has complied in all ------- material respects with all federal, state, county, local and foreign laws, ordinances, regulations and orders applicable to it or its business. MPW holds all licenses, permits, orders and approvals of governmental and regulatory bodies (collectively "Permits") material to or necessary for the conduct of its business. All Permits of MPW and Subsidiary are in full force and effect, no violations are or have been recorded in respect of any Permit, and no proceeding is pending or, to the knowledge of any of the Trustees or MPW, threatened to revoke or limit any Permit. 3.9 Authority to Execute and Perform Agreements. Each of the ------------------------------------------- Trustees and MPW has the full legal right and power and all authority and, subject to formal approval by the Trustees and Board of Directors of MPW under applicable law (the "MPW Corporate Authorization"), approval required to enter into, execute and deliver this Agreement and to perform fully his, her and its obligations hereunder. This Agreement has been duly executed and delivered by, and constitutes the valid and binding obligation of, each of the Trustees, enforceable in -9- accordance with its terms. The Trustees and MPW shall cause the MPW Corporate Authorization to be obtained on or before the Disclosure Date, and following such action, this Agreement will be duly executed and delivered by and constitute the valid and binding obligation of, MPW enforceable in accordance with its terms. No approval or consent of any foreign, federal, state, county, local or other governmental or regulatory body, and no approval or consent of any other person, is required in connection with the execution and delivery by each of the Trustees and MPW of this Agreement and the performance by each of the Trustees and MPW of the transactions contemplated hereby. The execution and delivery of this Agreement, the consummation of the transactions contemplated under this Agreement, and the performance by each of the Trustees and MPW of this Agreement in accordance with its terms and conditions will not conflict with or result in the breach or violation of, any of the terms or conditions of, or constitute (or with notice or lapse of time or both would constitute) a default under: (i) the governing instruments of MPW; (ii) any contract to which any of the Trustees, MPW or Subsidiary is a party or by or to which it or its assets or properties are bound or subject; (iii) any statute or any regulation, order, judgment or decree of any court or governmental or regulatory body; or (iv) any Permit. 3.10 Litigation. Neither MPW nor Subsidiary is a party to, or ---------- threatened with, any litigation or judicial, administrative or arbitration proceeding which if decided adversely to MPW or subsidiary could have a material adverse effect upon the transactions contemplated hereby or upon its assets, properties, -10- business, prospects or condition, financial or otherwise, of MPW or Subsidiary. None of the Trustees or MPW knows of any dispute with any person which materially and adversely affects, or might materially and adversely affect, the assets, properties, business, prospects or condition, financial or otherwise, of MPW or Subsidiary. None of the Trustees or MPW knows of any present or threatened walkout, strike or any other similar occurrence which materially and adversely affects, or might materially and adversely affect, the assets, properties, business, prospects or condition, financial or otherwise, of MPW or Subsidiary or of any attempt to organize or represent the labor force of MPW or Subsidiary differently from the manner in which it is currently organized and represented. 3.11 Contracts. The MPW Disclosure Statement will set forth all of --------- the following contracts to which MPW or Subsidiary is a party or by or to which it or its assets or properties are bound or subject: (i) contracts with any current or former officer, director, employee, consultant, advisor or shareholder; (ii) contracts with any labor union or association representing any employee; (iii) contracts for the purchase or acquisition of materials, supplies, equipment, merchandise or services (other than purchase orders in the ordinary course of business and other than contracts relating to acquisition, leasing and maintenance of copiers, telephone and other office equipment arising in the ordinary course of business and involving annual payments of not more than $7,500 for each such contract); (iv) warehousing, distributorship, representative, management, marketing, sales agency, printing or advertising agreements; (v) contracts for the sale of any of assets or properties of -11- MPW or Subsidiary that have a value of $25,000 or more or that are other than in the ordinary course of business; (vi) contracts for the grant to any person of any preferential rights to purchase any of the assets or properties of MPW or Subsidiary; (vii) joint venture contracts relating to the assets, properties or business of MPW or Subsidiary or by or to which it or its assets or properties are bound or subject; (viii) contracts under which MPW or Subsidiary agrees to indemnify or guarantee the obligations of any party, or to refrain from competing with any party; and (ix) loan agreements and any other material contract whether or not made in the ordinary course of business. All of the contracts referred to in the preceding sentence and elsewhere referred to in this Agreement (collectively, the "MPW Contracts") are in full force and effect, and each of MPW and Subsidiary has paid in full or accrued all amounts due thereunder and has satisfied in full or provided for all of its liabilities and obligations thereunder, and is not in material default under any of them, nor is any other party to any MPW Contract in material default thereunder, nor to the knowledge of any of the Trustees or MPW does any condition exist which with notice or lapse of time or both would constitute a default thereunder. Neither MPW nor Subsidiary is a party to or bound by any contract which either individually or in the aggregate materially and adversely affects its assets, properties, business, prospects or condition, financial or otherwise. No approval or consent of any person is needed in order that the MPW Contracts continue in full force and effect following the consummation of the transactions contemplated by this Agreement. Each of the contracts referred to in the first sentence of this Section 3.11 -12- can be terminated upon not more than one month's notice without payment of premium or penalty or any other kind of payment. The MPW Disclosure Statement will include a list of all accounts and agreements of MPW and Subsidiary with banking and other financial institutions and the persons authorized to act thereunder. 3.12 Real Estate. ----------- 3.12.1 Ownership of Premises. Neither MPW nor --------------------- Subsidiary owns any real property or improvements, except leasehold improvements under the MPW Real Property Leases (as defined below). 3.12.2 Leased Properties. The MPW Disclosure ----------------- Statement will contain a correct and complete list of all leases, subleases, licenses and other contracts (collectively, the "MPW Real Property Leases") under which either MPW or Subsidiary uses or occupies or has the right to use or occupy, now or in the future, any real property (the land, buildings and other improvements covered by the MPW Real Property Leases being herein called the "MPW Real Estate"). Each MPW Real Property Lease is valid, binding and in full force and effect, all rent and other sums and charges payable by MPW or Subsidiary as tenant thereunder are current, no notice of default or termination under any MPW Real Property Lease is outstanding, no termination event or condition or uncured default on the part of MPW or Subsidiary, or to the knowledge of any of the Trustees and MPW, the landlord, exists under any MPW Real Property Lease, and to the knowledge of any of the Trustees and MPW, no event has occurred and no condition exists which, with the giving of notice or the lapse of time or both, would constitute such a default or termination -13- event or condition. There is no underlying mortgage, deed of trust, lease, grant of term or other estate in or interest affecting any MPW Real Estate which is superior to the interest of MPW or Subsidiary as tenant under the applicable MPW Real Property Lease. MPW or Subsidiary holds the leasehold estate under and interest in each MPW Real Property Lease free and clear of all liens or other encumbrances, except liens and encumbrances which do not and will not interfere with the use and enjoyment of the MPW Leased Real Property in the ordinary course of business. Neither MPW nor Subsidiary has any ownership, financial or other interest in the landlord under any MPW Real Property Lease. 3.12.3 Entire Premises. All of the land, buildings, --------------- structures and other improvements used by each of MPW and Subsidiary in the conduct of its business are included in the MPW Leased Real Property. 3.12.4 Space Leases. Neither MPW nor Subsidiary is a party to ------------ any lease, sublease, license or other contract granting to any person other than MPW or Subsidiary any right to the possession, use, occupancy or enjoyment of the MPW Real Estate or any portion thereof. 3.12.5 No Options. MPW does not own or hold, and is not ---------- obligated under or a party to, any option, right of first refusal or other contractual right to purchase, acquire, sell or dispose of the MPW Real Estate or any portion thereof or interest therein. 3.12.6 Condition and Operation of Improvements. All --------------------------------------- components of all buildings, structures and other improvements included within the -14- MPW Real Estate (the "MPW improvements") are in good and normal working order and repair. 3.12.7 Real Property Permits and Insurance. All certificates ----------------------------------- of occupancy, permits, licenses, franchises, approvals and authorizations (collectively, "MPW Real Property Permits") of all governmental authorities having jurisdiction over the MPW Real Estate, and from all insurance companies and fire rating and other similar boards and organizations (collectively, "insurance organizations"), required or appropriate to have been issued to MPW or Subsidiary to enable the MPW Real Estate to be lawfully occupied and used for all of the purposes for which they are currently occupied and used have been lawfully issued and are, as of the date hereof, in full force and effect. All policies of liability and casualty insurance (collectively, "MPW Insurance Policies") heretofore contracted for by MPW or subsidiary, or customarily maintained with respect to other similar properties in the region, or required in connection with the ownership, leasing, use occupancy or operation of the MPW Real Estate as currently used, occupied and operated, have been issued to MPW or subsidiary by reputable insurance companies and are currently in full force and effect. Neither MPW nor Subsidiary has received, or been informed by a third party of the receipt by it, of any notice from any governmental authority having jurisdiction over the MPW Real Estate or from any insurance organization threatening a suspension, revocation, modification or cancellation of any MPW Real Estate Permit or MPW Insurance Policy, as the case may be, and, to -15- the knowledge of each of the Trustees and MPW, there is no basis or the issuance of any such notice or the taking of any such action. 3.12.8 Compliance with Law. To the knowledge of each of the ------------------- Trustees and MPW, the MPW Real Estate is in compliance in all material respects with all applicable building, zoning, environmental and other land use and similar laws, codes, ordinances, rules, regulations and orders of governmental authorities (collectively, "Real Property Laws"), and none of the Trustees and MPW has received any notice of violation or claimed violation of any Real Property Law. 3.12.9 Condemnation. None of the Trustees and MPW has ------------ received notice of, and none has any knowledge of any pending, threatened or contemplated condemnation proceeding affecting the MPW Real Estate or any part thereof or of any sale or other disposition of the MPW Real Estate or any part thereof in lieu of condemnation. 3.12.10 Casualty. No portion of the MPW Real Estate has -------- suffered any material damage by fire or other casualty which has not been completely repaired and restored to its original condition. 3.12.11 Encroachments. To the knowledge of each of the ------------- Trustees and MPW, there are no encroachments or other facts or conditions affecting any parcel of MPW Real Estate that would be revealed by an accurate survey thereof which would, individually or in the aggregate, (i) interfere in any material respect with the use, occupancy or operation thereof as currently used, occupied and operated or as intended to be used, occupied and operated or (ii) materially reduce -16- the fair market value thereof below the fair market value such parcel would have had but for such encroachment or other fact or condition. To the knowledge of each of the Trustees and MPW, no portion of any MPW Improvement encroaches upon any property not included within the MPW Real Estate or upon the area of any easement affecting the MPW Real Estate. 3.13 Accounts and Notes Receivable. All accounts and notes ----------------------------- receivable reflected on the MPW Balance Sheet and the Subsidiary Balance Sheet and all accounts and notes receivable arising subsequent to the MPW Balance Sheet Date have or will have arisen in the ordinary course of business, represent valid obligations to MPW or Subsidiary, as the case may be, and have been collected or will be collected in the aggregate amounts thereof recorded on the books of MPW or subsidiary, as the case may be, in each case net of the reserve for bad debts reflected on the MPW Balance Sheet or Subsidiary Balance Sheet. 3.14 Inventory. The inventory of MPW and Subsidiary as set forth on --------- the MPW Balance Sheet and Subsidiary Balance Sheet, respectively, was, and the inventory of each of MPW and Subsidiary on the date hereof and on the Closing Date will be, in good and merchantable condition, reasonably in balance and in useable or saleable condition in the ordinary course of business, except for obsolete or defective materials and any excess stock items which alone and in the aggregate are not material. Such inventory does not include any material amounts of any item that was at any prior time written off or written down by MPW or Subsidiary. To the -17- knowledge of the Trustees and MPW, there is no adverse condition affecting the supply of materials or inventories available to MPW or Subsidiary. 3.15 Tangible Property. Each of MPW and Subsidiary owns or leases ----------------- all plant, machinery, equipment, furniture, leasehold improvements, fixtures, vehicles, structures, any related capitalized items and other tangible property material to its business and necessary to the continued conduct of business in the ordinary course by each of MPW and Subsidiary (collectively, "MPW Tangible Property"). All material leases, conditional sale contracts, franchises or licenses pursuant to which MPW or Subsidiary may hold or use any interest owned or claimed by it (including, without limitation, options) in or to Tangible Property are in full force and effect and, with respect to the performance by MPW or Subsidiary, there is no material default or event of default or event which with notice or lapse of time or both would constitute a material default. The MPW Tangible Property is in good and normal operating condition and repair, and MPW has not received notice, and none of the Trustees and MPW has any knowledge, that any of it is in material violation of any existing law or any building, zoning, health, safety or other ordinance, code or regulation. 3.16 Intangible Property. The MPW Disclosure Statement will set ------------------- forth all patents, copyrights, trademarks, service marks, trade names and franchises of MPW and Subsidiary (collectively, "MPW Intangible Property"), all applications for MPW Intangible Property, and all permits, grants and licenses or other rights running to or from MPW or Subsidiary relating to MPW Intangible Property which -18- are material to or used in the business of MPW or Subsidiary. All such MPW Intangible Property is owned by MPW and Subsidiary, as the case may be, free and clear of any liens or other encumbrances. MPW has no notice of any adversely held patent, invention, copyright, trademark, service mark or trade name of any other person or notice of any claim of any other person relating to any of the MPW Intangible Property or any process or confidential information of MPW or Subsidiary and none of the Trustees or MPW knows of any basis for any such charge or claim. 3.17 Liens. Each of MPW and Subsidiary owns and will on the Closing ----- Date own outright and has and will have good and marketable title to all of its assets and properties, including, without limitation, all of the assets and properties reflected on the MPW Balance Sheet and Subsidiary Balance Sheet, in each case free and clear of any lien or other encumbrance, except for: (i) immaterial assets and properties; and (ii) liens or other encumbrances securing taxes, assessments, governmental charges or levies, or the claims of materialmen, carriers, landlords and like persons, which are not yet due and payable. 3.18 Suppliers and Customers. The MPW Disclosure Statement will set ----------------------- forth the 20 largest suppliers and customers of MPW and Subsidiary, together, based on dollar values of September 30, 1995. The relationships of each of MPW and subsidiary with its suppliers and customers are good commercial working relationships, and no such supplier or customer has cancelled or threatened to cancel its relationship with MPW or subsidiary or has during the last 12 months decreased materially, or threatened to decrease or limit materially, its services, supplies or -19- materials to MPW or Subsidiary or its usage of MPW's or Subsidiary's services or products. MPW does not have any notice, and neither of the Trustees has any knowledge, that any such supplier or customer intends to cancel or otherwise modify its relationship with MPW or Subsidiary or to decrease materially or limit its services, supplies or materials to MPW or Subsidiary or its usage of the services or products of MPW or Subsidiary, and the Merger will not, to the best of the knowledge and belief of each of the Trustees and MPW, adversely affect the relationship with any such supplier or customer. 3.19 Insurance. The MPW Disclosure Statement sets forth all --------- policies or binders of fire, liability, workmen's compensation, product liability, vehicular or other insurance held by or on behalf of each of MPW and Subsidiary (specifying the insurer, the policy number or covering note number with respect to binders, and describing each pending claim thereunder of more than $25,000, other than workers compensation claims and personal injury claims fully covered by insurance and arising in the ordinary course of business). Such policies and binders are in full force and effect. Neither MPW nor Subsidiary is in default with respect to any provision contained in any such policy or binder and neither has failed to give any notice or present any claim under any such policy or binder in due and timely fashion. None of the Trustees or MPW has received a notice of cancellation or non-renewal of any such policy or binder. 3.20 Officers, Directors and Employees. The MPW Disclosure --------------------------------- Statement sets forth a correct and complete list of all officers, directors and -20- employees of each of MPW or Subsidiary as of the date thereof and the September 30, 1995 payroll of MPW and Subsidiary. There has been no material change in such payroll since such date. 3.21 Operations of MPW and Subsidiary. From the MPW Balance Sheet -------------------------------- Date through the date hereof neither MPW nor Subsidiary has: (i) merged with or into or consolidated with any other person, or changed or agreed to change in any manner the character of its business; (ii) entered into or amended any employment agreement, entered into any agreement with any labor union or association representing any employee or entered into or amended any MPW Benefit Plan (as defined in Section 3.26); (iii) incurred any indebtedness for borrowed money, except in the ordinary course of business under existing agreements; (iv) declared or paid any dividends or declared or made any distributions of any kind to its shareholders; (v) increased the aggregate amount of indebtedness and other liabilities of MPW or Subsidiary to the Trustees or either of them and all entities owned or controlled by the Trustees or either of them; (vi) waived any right of material value. to its business; (vii) materially changed any of its business policies, including, without limitation, advertising, marketing, pricing, purchasing, personnel, sales, returns, budget or product acquisition policies; -21- (viii) made any wage or salary increase or bonus, or increase in any other direct or indirect compensation, for or to any officer, employee, consultant or agent, or any accrual for or commitment or agreement to make or pay the same, other than to persons not officers, directors or shareholders of MPW or Subsidiary made in the ordinary course of business; (ix) made any loan or advance to any of its officers, directors, employees, consultants, agents or shareholders, other than travel advances made in the ordinary course of business; (x) made any payment or commitment to pay any severance or termination pay to any of its officers, directors, employees, consultants or agents, other than to persons not officers, directors or shareholders of MPW or Subsidiary made in the ordinary course of business; (xi) except in the ordinary course of business: entered into any lease (as lessor or lessee); sold, abandoned or made any other disposition of any of its assets or properties; granted or suffered any lien or other encumbrance on any of its assets or properties; entered into or amended any contract to which it is a party or by or to which it or its assets or properties are bound or subject or pursuant to which it agrees to indemnify any party or refrain from competing with any party; (xii) except in the ordinary course of business, incurred or assumed any debt, obligation or liability (whether absolute or contingent, whether or not currently due and payable and whether with an affiliate or otherwise); -22- (xiii) except for inventory or equipment acquired in the ordinary course of business, made any acquisition of all or any part of the assets, properties, capital stock or business of any other person; (xiv) except in the ordinary course of business, entered into any other material contract or other agreement or other material transaction; or (xv) except in the ordinary course of business, otherwise paid or transferred to any person any cash or cash equivalents of MPW or Subsidiary. 3.22 Potential Conflicts of Interest. No officer, director or ------------------------------- shareholder of MPW or Subsidiary (i) owns, directly or indirectly, any interest in (excepting not more than 1% stock holdings for investment purposes in securities of publicly held and traded companies) or is an officer, director, employee or consultant of any person which is a competitor, lessor, lessee, customer or supplier of MPW or Subsidiary; (ii) owns, directly or indirectly, in whole or in part, any copyright, trademark, trade name, service mark, franchise, patent, invention, permit, license or secret or confidential information which MPW or Subsidiary is using or the use of which is necessary for the business of MPW or Subsidiary; or (iii) has any cause of action or other claim whatsoever against, or owes any amount to, MPW or Subsidiary, except for claims in the ordinary course of business, such as for accrued vacation pay, accrued benefits under any MPW Benefit Plan and similar matters and agreements existing on the date hereof. 3.23 Full Disclosure. All documents and other papers delivered by --------------- or on behalf of the Trustees or MPW to CNF in connection with this Agreement and the -23- transactions contemplated hereby are and will be complete and correct in all material respects; and all contracts to which MPW or subsidiary is a party are valid, subsisting and binding on the parties thereto in accordance with their terms. The information furnished by or on behalf of the Trustees or MPW to CNF in connection with this Agreement and the transactions contemplated hereby does not and will not contain any untrue statement of a material fact and does not and will not omit to state any material fact necessary to make the statements made, in the context in which made, not false or misleading. 3.24 No Broker. No broker, finder, agent or similar intermediary --------- has acted for or on behalf of the Trustees or MPW in connection with this Agreement or the transactions contemplated hereby, and no broker, finder, agent or similar intermediary is entitled to any broker's, finder's or similar fee or other commission in connection therewith based on any agreement, arrangement or understanding with any of the Trustees or MPW or any action taken by any of them. 3.25 Liabilities. As at the MPW Balance Sheet Date, to the ----------- knowledge of any of the Trustees and MPW, neither MPW nor Subsidiary had any direct or indirect indebtedness, liability, claim, loss, damage, deficiency, obligation or responsibility, known or unknown, fixed or unfixed, choate or inchoate, liquidated or unliquidated, secured or unsecured, accrued, absolute, contingent or otherwise, including, without limitation, liabilities on account of Taxes (as defined in Section 11) other governmental charges or lawsuits brought, whether or not of a kind required by GAAP to be set forth on a financial statement ("Liabilities"), which are not fully -24- and adequately reflected on the MPW Balance Sheet or Subsidiary Balance Sheet. To the knowledge of each of the Trustees and MPW, neither MPW nor Subsidiary has any Liabilities, other than (i) Liabilities fully and adequately reflected on the MPW Balance Sheet or Subsidiary Balance Sheet and (ii) normal or recurring liabilities incurred since the MPW Balance Sheet Date in the ordinary course of business consistent with past practice. None of the Trustees and MPW has any knowledge of any circumstances, conditions, events or arrangements which may hereafter give rise to any Liabilities of MPW or Subsidiary or any successor to the business of MPW or Subsidiary except in the ordinary course of business. 3.26 Employee Benefit Plans. ---------------------- (i) If so requested MPW has delivered or will deliver to CNF complete and correct copies of: (a) all plan texts, agreements and material employee communications relating to each MPW Benefit Plan; (b) all summary plan descriptions (whether or not required to be furnished pursuant to ERISA), the most recent annual report (including all schedules thereto) and the most recent annual and periodic accounting of related plan assets with respect to each MPW Benefit Plan which is an "employee benefit plan" (within the meaning of section 3(3) of ERISA); and (c) the most recent actuarial valuation and the most recent determination letter received from the Internal Revenue Service with respect to each Pension Plan. (ii) No event has occurred, and there exists no condition or set of circumstances in connection with which MPW, Subsidiary or any MPW Benefit Plan or CNF, directly or indirectly, could be subject to any liability under ERISA, the -25- Code or any other law, regulation or governmental order with respect to any employee benefit plan described in section 3(3) of ERISA. (iii) With respect to each MPW Benefit Plan: (a) each of MPW and Subsidiary has made all payments due from it to date and all amounts properly accrued to date as liabilities of MPW or Subsidiary which have not been paid have been properly recorded on the books of MPW or Subsidiary; (b) no such plan which is subject to section 302 of ERISA or section 412 of the Code has incurred any "accumulated funding deficiency" (as defined in either such section), whether or not waived; (c) each such plan conforms to, and its administration is in compliance with, all applicable laws and regulations, including but not limited to ERISA and the Code; (d) each such plan which is a Pension Plan intended to qualify under section 401(a) or 403(a) of the Code has received a favorable determination letter from the Internal Revenue Service with respect to such qualification and with respect to the exempt status of its related trust under section 501(a) of the Code (or an application therefor is pending and such application, whether relating to initial qualification of such plan or a subsequent amendment or restatement thereof, has been timely filed to permit retroactive amendments to the plan, if required, pursuant to section 401(b) of the Code) and nothing has occurred since the date of such letter that would adversely affect such qualification or exemption; (e) each such plan which is a "group health plan" (as defined in ERISA Section 607(1)), has been operated in compliance with the provisions of Part 6 of Title I of ERISA and Code section 4980B at all times; (f) there is no contract or arrangement with respect to which either MPW or Subsidiary is -26- directly or indirectly liable that would result in the payment of any amount that would not, by operation of Code section 280G, be deductible; and (g) there are no actions, suits or claims pending (other than routine claims for benefits) or threatened with respect to any MPW Benefit Pan or against the assets of any MPW Benefit Plan. (iv) Neither MPW nor subsidiary has incurred any liability to the Pension Benefit Guaranty Corporation on account of the termination of a Pension Plan, and no proceeding has been initiated to terminate any such plan; and neither MPW nor Subsidiary has incurred, and MPW does not reasonably expect that either will incur, any liability on account of an employee benefit plan termination, whether to the Pension Benefit Guaranty Corporation or otherwise, except for required premium payments, which payments have been made when due. Excluding the transactions contemplated by this Agreement, no event has occurred, and there exists no condition or set of circumstances which presents a material risk of the partial termination of any Pension Plan. (v) No MPW Benefit Plan provides medical or death benefits (whether or not insured) with respect to current or former employees of MPW or Subsidiary beyond their retirement or other termination of service (other than (a) coverage mandated by law or (b) death benefits under any Pension Plan). (vi) There are no reserves, assets, surplus or prepaid premiums under any Benefit Plan which is a "welfare plan" (as defined in section 3 (1) of ERISA). -27- (vii) There are no unfunded benefit obligations arising in any jurisdiction which are not accounted for by reserves shown on the financial statements of MPW or Subsidiary and established under generally accepted accounting principles, or otherwise noted on such statements. (viii) The present value of all "benefit liabilities" (as defined in section 4001(a)(16) of ERISA) under each Pension Plan which is a "defined benefit plan" (as defined in section 3(35) of ERISA) did not exceed as of the most recent plan actuarial valuation date the then current fair market value of the assets of such plan. For purposes of determining the present value of benefit liabilities under any such plan, the actuarial assumptions and methods used under such plan for the most recent plan actuarial valuation shall be used, except that the interest and mortality assumptions utilized by the Pension Benefit Guaranty Corporation for valuing liabilities of Pension Plans terminating as of the Closing Date shall be substituted for the interest and mortality assumptions used by such plan, and all benefits provided under such plan shall be deemed to be fully vested. (ix) The consummation of the transactions contemplated by this Agreement will not (a) entitle any current or former employee of MPW or Subsidiary to severance pay, unemployment compensation or any similar payment, or (b) accelerate the time of payment or vesting, or increase the amount of any compensation due to any such employee or former employee. (x) No MPW Benefit Plan is a "multiple employer plan," within the meaning of the Code or ERISA or the regulations promulgated thereunder, -28- or a "multiemployer plan", as defined in section 4001(a)(3) of ERISA, and neither MPW nor the Subsidiary has made any contributions to or participated in any "multiple employer plan" or "multiemployer plan" (as defined above) since September 25, 1980. (xi) Whenever any of the terms set forth below is used in this Section 3.26 or elsewhere in this Agreement it shall have the following meaning: (a) "MPW Benefit Plan" shall mean any plan, agreement, arrangement or commitment which is an employment, consulting or deferred compensation agreement, or an executive compensation, incentive bonus, employee pension, profit-sharing, savings, retirement, stock option, stock purchase, or severance pay plan, or a life, health, disability or accident insurance plan, or a holiday, vacation, Christmas or other bonus practice or other employee benefit plan, agreement, arrangement or commitment, including, without limitation, any "employee benefit plan, as defined in section 3(3) of ERISA, maintained by or with respect to which MPW or Subsidiary has or in the future may have, any liability or obligation with respect to any current or former employees of MPW, Subsidiary, or its beneficiaries; (b) "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended; and (c) "Pension Plan" shall mean a Benefit Plan which is a "pension plan," as defined in section 3(2) of ERISA. 3.27 Tax Matters. ----------- (i) Each of MPW and Subsidiary has: (a) timely paid all Taxes required to be paid by it through the date hereof and shall timely pay all Taxes -29- required to be paid by it after the date hereof and through the Closing Date; and (b) timely filed all returns, declarations, reports, information returns and statements in respect of Taxes ("Tax Returns") required to be filed through the date hereof, and shall prepare and timely file all Tax Returns required to be filed after the date hereof and through the Closing Date. All Tax Returns filed pursuant to the preceding clause (b) after the date hereof shall, in each case, be prepared and filed in a manner consistent (including elections and accounting methods and conventions) with the Tax Return most recently filed in the relevant jurisdiction prior to the date hereof (or, if no such comparable return has previously been filed, in a manner consistent with the financial statements of MPW and Subsidiary dated as of December 31, 1994 and the other Tax Returns of MPW and Subsidiary), except as otherwise required by law or agreed to by CNF. (ii) The liability of MPW or Subsidiary for Taxes as of the MPW Balance Sheet Date does not exceed the amount of accrued Taxes reported on the MPW Balance Sheet and Subsidiary Balance Sheet, respectively and, other than in the ordinary course of business, such liability for Taxes has not increased since the MPW Balance Sheet Date and will not increase at any time through the Closing Date. (iii) No audit relating to Tax liability of MPW or Subsidiary is in progress, no extension of time is in force with respect to any date on which any Tax Return of MPW or Subsidiary was or is to be filed and no waiver or agreement is in force for the extension of time for the assessment or payment of any Tax by -30- MPW or Subsidiary, nor will any such extension of time or waiver or agreement be filed by or in effect for MPW or Subsidiary at any time through the Closing Date. (iv) Neither MPW nor Subsidiary has agreed, to make, or will at any time through the Closing Date agree to be required to make, any adjustment under (or in the manner provided by) section 481(a) of the Code by reason of a change in accounting method or otherwise. (v) None of MPW, Subsidiary and any predecessor of either has, at any time, consented under section 314(f) (1) of the Code, or agreed under section 314(f) (3) of the Code, or will at any time through the Closing Date consent or agree, to have the provisions of section 314 (f) (2) of the Code apply. (vi) As of the Closing Date (a) any existing tax sharing or similar agreement with respect to MPW or Subsidiary shall have been terminated and (b) neither MPW nor Subsidiary will have any obligation under any tax sharing or similar agreement or arrangement. 3.28 Environmental Matters. --------------------- (i) As of the date hereof, to the knowledge of any of the Trustees and MPW, no underground storage tanks are present under any property that MPW or any affiliate has at any time owned, operated, occupied or leased. As of the date hereof, no material amount of any substance that has been designated by any federal, state or local governmental agency, board or authority (a "Governmental Entity") or by applicable federal, state or local law to be radioactive, toxic, hazardous or otherwise a danger to health or the environment, including, without limitation, -31- PCBs, asbestos, petroleum, urea-formaldehyde and all substances listed as hazardous substances pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, or defined as a hazardous waste pursuant to the United States Conservation Recovery Act of 1976, as amended, and the regulations promulgated pursuant to said laws, (a "Hazardous Material"), but excluding office and janitorial supplies, are present, as a result of the actions of MPW or to the knowledge of any of MPW and the Trustees any actions of any third party or otherwise, in, on or under any property, including the land and the improvements, ground water and surface water, that MPW or any affiliate has at any time owned, operated, occupied or leased. (ii) At no time has MPW or an affiliate transported, stored, used, manufactured, disposed of, released or exposed its employees or others to Hazardous Materials in violation of any law in effect on or before the Closing Date, nor has MPW or any affiliate disposed of, transported, sold, or manufactured any product containing a Hazardous Material (collectively, "Hazardous Materials Activities") in violation of any rule, regulation, treaty or statute promulgated by any Governmental Entity to prohibit, regulate or control Hazardous Materials or any Hazardous Material Activity, which such violation would have a material adverse effect on MPW. (iii) Each of MPW and Subsidiary currently holds all environmental approvals, permits, licenses, clearances and consents (the "Environmental Permits") necessary for the conduct of its Hazardous Material -32- Activities and other businesses as such activities and businesses are currently being conducted, the absence of which would have a material adverse effect on MPW or Subsidiary. (iv) No action, proceeding, revocation proceeding, amendment procedure, writ injunction or claim is pending or, to the knowledge of any of the Trustees or MPW, threatened concerning any Environmental Permit or any Hazardous Materials Activity of MPW or Subsidiary. None of the Trustees or MPW is aware of any fact or circumstance which could involve MPW or Subsidiary in any environmental litigation or impose upon MPW or Subsidiary any environmental liability which would have a material adverse effect on MPW or Subsidiary. 3.29 Investment Representations. -------------------------- (i) Each of the Trustees is acquiring the CNF Shares for his or her own account for the purpose of investment, and not with a view to, or sale in connection with, any distribution thereof. (ii) Each of the Trustees has such knowledge and experience in financial and business matters that each is capable of evaluating the merits and risks of the proposed investment in the CNF Shares and has the capacity to protect his or her own interests in connection with his proposed investment in the CNF Shares. Each of the Trustees acknowledges that each, their respective attorneys, accountants and other representatives have had, prior to his execution of this Agreement, and will have prior to the Closing Date, the opportunity to ask questions of, and to receive -33- answers from, CNF concerning CNF, its affiliates and their business and financial condition. (iii) Each of the Trustees understands and acknowledges that all of the CNF Shares to be delivered pursuant to the provisions of this Agreement will be "restricted securities" within the meaning of the Securities Act of 1933, as amended (the "1933 Act") and agrees that the certificates therefor shall bear the following legend: THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED UNLESS COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT, A "NO ACTION" LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION WITH RESPECT TO SUCH TRANSFER, A TRANSFER MEETING THE REQUIREMENTS OF RULE 144 OF THE SECURITIES AND EXCHANGE COMMISSION OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY SUCH TRANSFER IS EXEMPT FROM SUCH REGISTRATION. Each of the Trustees further understands and acknowledges that stop transfer instructions will be issued by CNF to any transfer agent with respect to all of the CNF Shares to be delivered pursuant to the provisions of this Agreement. (iv) Each of the Trustees understands and acknowledges that none of the CNF Shares to be delivered pursuant to the provisions of this Agreement will be registered under the 1933 Act. Each of the Trustees recognizes that he or she may be required to bear the economic risk of his or her investment until such shares are registered and after such registration may lapse. The Trustees, jointly and severally, agree on behalf of themselves, and their respective heirs, executors, -34- successors and assigns, that he or she will only sell, transfer, pledge or hypothecate any of the CNF Shares to be acquired pursuant to the provisions of this Agreement pursuant to an effective registration statement under the 1933 Act or in a transaction wherein registration under the 1933 Act is not required. 3.30 Articles and Bylaws. Concurrently with the delivery of the MPW ------------------- Disclosure Statement, MPW shall deliver to CNF true and correct copies of the Articles of Incorporation and Bylaws of each of MPW and Subsidiary, and all amendments thereto, certified as true and correct by the Secretary of each of MPW and Subsidiary (collectively, the "MPW Organization Documents") 4. Representations and Warranties of CNF. Except as otherwise disclosed ------------------------------------- in a disclosure statement to be executed by CNF and delivered to MPW on or before the Disclosure Date (the "CNF Disclosure Statement"), CNF represents and warrants to MPW and the Trustees as follows: 4.1 Title to CNF Shares. The CNF Shares, when delivered to the ------------------- Trustees pursuant to the Merger, will be duly authorized, validly issued and fully paid and nonassessable. 4.2 Outstanding Capital Stock. CNF is authorized to issue 200,000 ------------------------- shares, of capital stock without par value, of which 100,000 shares are issued and outstanding. Norman A. Cloutier owns beneficially and of record not more than 58,420 shares of the issued and outstanding common stock of CNF. No other class of capital stock of the Company is authorized or outstanding. -35- 4.3 Options. There are no outstanding options, warrants, ------- convertible securities, subscriptions or other commitments or rights of any nature to acquire any CNF Shares or any other securities of CNF from CNF. 4.4 Subsidiaries. CNF does not, directly or indirectly, own or ------------ have the power to vote, any securities or other equity interest of any person except Newco, Natural Retail Group, Inc., a Delaware corporation ("NRG"), and its wholly owned subsidiaries. All of the outstanding securities and other equity interests of Newco and NRG are owned beneficially and of record by CNF, free and clear of all liens and other encumbrances. There are no outstanding options, warrants, convertible securities, subscriptions or other commitments or rights of any nature to acquire any shares of capital stock or other securities of Newco or NRG. Newco has not and will not engage in any business except as may be necessary to effect the Merger. 4.5 Due Incorporation and Qualification. Each of CNF, Newco and ----------------------------------- NRG is a corporation duly organized, validly existing and in good standing under the laws of the Delaware, and has the corporate power and lawful authority to own, lease and operate its assets, properties and business and to carry on its business as now conducted. Neither CNF nor NRG owns or leases property in any jurisdiction (other than Connecticut, Georgia, Florida, Pennsylvania and Colorado, in the case of CNF and other than Florida, Massachusetts and Maryland, in the case of NRG), and neither is required to be qualified or otherwise authorized to do business in any other jurisdiction in which the failure to be qualified would have a material adverse effect on the business or properties of CNF or NRG, respectively. -36- 4.6 Financial Statements. The unaudited consolidated balance sheet -------------------- of CNF as of August 31, 1995 (the "CNF Balance Sheet"), a correct and complete copy of which has been delivered to MPW correctly and completely presents the financial position of the Company as at such date (the "CNF Balance Sheet Date") in accordance with generally accepted accounting principles ("GAAP") applied on a basis consistent with prior periods. The balance sheets of CNF as of October 31, 1992, October 31, 1993, and October 31, 1994 and copies of each of (a) the respective related statements of income, (b) the respective related statements of stockholders' equity, and (c) the respective statements of cash flows for the years then ended, including the footnotes thereto, certified by Peat Marwick, independent certified public accountants, and covered by their reports dated December 14, 1992, December 15, 1993, and December 13, 1994, correct and complete copies of each of which have been or will be on or before the Disclosure Date delivered to MPW, correctly and completely present in all material respects the financial position of CNF as at such dates and the results of its operations for the years then ended in accordance with GAAP applied on a basis consistent with prior periods. 4.7 Continuity and No Material Adverse Change. Since the CNF ----------------------------------------- Balance Sheet Date, each of CNF and NRG has operated in conformity with its previous business practices, and there has been no material adverse change in the assets, properties, business, prospects or condition, financial or otherwise, of either CNF or NRG, and CNF does not know of any such change which is threatened, nor has there been any damage, destruction or loss materially affecting the assets, -37- properties, business, prospects or condition, financial or otherwise, of CNF or NRG, whether or not covered by insurance. 4.8 Permits. Each of CNF and NRG has complied in all material ------- respects with all federal, state, county, local and foreign laws, ordinances, regulations and orders applicable to it or its business. Each of CNF and NRG holds all Permits material to or necessary for the conduct of its business. All Permits of CNF and NRG are in full force and effect, no violations are or have been recorded in respect of any Permit, and no proceeding is pending or to the knowledge of CNF threatened to revoke or limit any Permit. 4.9 Authority to Execute and Perform Agreements. Subject to formal ------------------------------------------- approval by the Boards of Directors of CNF and Newco and shareholder of Newco under applicable law (the "CNF Corporate Authorization"), each of CNF and Newco has the full legal right and power and all authority and approval required to enter into, execute and deliver this Agreement and to perform fully its obligations hereunder. CNF shall cause the CNF Corporate Authorization to be obtained on or before January 26, 1996, and following such action, this Agreement will be duly authorized, executed and delivered and constitute the valid and binding obligation of each of CNF and Newco enforceable in accordance with its terms. No approval or consent of any foreign, federal, state, county, local or other governmental or regulatory body, and no approval or consent of any other person except Shawmut Capital Corporation and Triumph-Connecticut Limited Partnership (the "CNF Lenders") is required in connection with the execution and delivery by CNF and -38- Newco of this Agreement and the performance by CNF and Newco of the transactions contemplated hereby. Subject to the consent of the CNF Lenders, the execution and delivery of this Agreement, the consummation of the transactions contemplated under this Agreement, and the performance by CNF of this Agreement in accordance with its terms and condition, will not conflict with or result in the breach or violation of, any of the terms or conditions of, or constitute (or with notice or lapse of time or both would constitute) a default under: (i) the governing instruments of CNF; (ii) any contract to which CNF or CNF is a party or by or to which it or its assets or properties are bound or subject; (iii) any statute or any regulation, order, judgment or decree of any court or governmental or regulatory body; or (iv) any Permit. 4.10 Litigation. Neither CNF nor NRG is a party to, or threatened ---------- with, any litigation or judicial, administrative or arbitration proceeding which if decided adversely to CNF or NRG could have a material adverse effect upon the transactions contemplated hereby or upon the assets, properties, business, prospects or condition, financial or otherwise, of CNF or NRG. CNF does not know of any dispute with any person which materially and adversely affects, or might materially and adversely affect, the assets, properties business, prospects or condition, financial or otherwise, of CNF or NRG. CNF does not know of any present or threatened walkout, strike or any other similar occurrence which materially and adversely affects, or might materially and adversely affect, the assets, properties, business, prospects or condition, financial or otherwise, of CNF or NRG or of any attempt to -39- organize or represent the labor force of CNF differently from the manner in which it is currently organized and represented. 4.11 Contracts. The CNF Disclosure Statement will set forth all of --------- the following contracts to which CNF is a party or by or to which it or its assets or properties are bound or subject: (i) contracts with any current or former officer, director, employee, consultant, advisor or shareholder; (ii) contracts with any labor union or association representing any employee; (iii) contracts for the purchase or acquisition of materials, supplies, equipment, merchandise or services (other than purchase orders in the ordinary course of business and other than contracts relating to the acquisition, leasing or maintenance of repairs, telephones and other office equipment arising in the ordinary course of business and involving annual payments of not more than $7,500 for each such contract); (iv) warehousing, distributorship, representative, management, marketing, sales agency, printing or advertising agreements; (v) contracts for the sale of any of CNF'S assets or properties that have a value of $25,000 or more or that are other than in the ordinary course of business; (vi) contracts for the grant to any person of any preferential rights to purchase any of CNF's assets or properties; (vii) joint venture contracts relating to the assets, properties or business of CNF or by or to which it or its assets or properties are bound or subject; (viii) contracts under which it agrees to indemnify or guarantee the obligations of any party, or to refrain from competing with any party; and (ix) any loan agreements and other material contracts whether or not made in the ordinary course of business. All of the contracts referred to in the preceding sentence and -40- elsewhere referred to in this Agreement (collectively, the "CNF Contracts") are in full force and effect, and CNF has paid in full or accrued all amounts due thereunder and has satisfied in full or provided for all of its liabilities and obligations thereunder, and is not in default under any of them, nor to the knowledge of CNF, is any other party to any CNF Contract in material default thereunder, nor to the knowledge of CNF does any condition exist which with notice or lapse of time or both would constitute a default thereunder. Neither CNF nor NRG is a party to or bound by any contract which either individually or in the aggregate materially and adversely affects its assets, properties, business, prospects or condition, financial or otherwise. No approval or consent of any person is needed in order that the CNF Contracts continue in full force and effect following the consummation of the transactions contemplated by this Agreement. Each of the contracts referred to in the first sentence of this Section 4.11 can be terminated upon not more than one month's notice without payment of premium or penalty or any other kind of payment. 4.12 Real Estate. ----------- 4.12.1 Ownership of Premises. The CNF Disclosure Statement --------------------- will set forth all real property and improvements owned by CNF (the "CNF Real Property"). CNF is the owner of good, marketable and insurable fee title to the CNF Real Property, free and clear of all liens and other encumbrances, except as provided in Section 4.17. The CNF Real Property constitutes all of the real property owned by CNF. -41- 4.12.2 Leased Properties. The CNF Disclosure Statement will ----------------- contain a correct and complete list of all leases, subleases, licenses and other contracts (collectively, the "CNF Real Property Leases") under which CNF uses or occupies or has the right to use or occupy, now or in the future, any real property (the land, buildings and other improvements covered by the CNF Real Property Leases being herein called "CNF Real Property"). Each CNF Real Property Lease is valid, binding and in full force and effect, all rent and other sums and charges payable by CNF as tenant thereunder are current, no notice of default or termination under any CNF Real Property Lease is outstanding, no termination event or condition or uncured default on the part of CNF or, to CNF's knowledge, the landlord, exists under any Real Property Lease, and to the knowledge of CNF no event has occurred and no condition exists which, with the giving of notice or the lapse of time or both, would constitute such a default or termination event or condition. There is no underlying mortgage, deed of trust, lease, grant of term or other estate in or interest affecting any CNF Leased Real Property which is superior to the interest of CNF as tenant under the applicable CNF Real Property Lease. CNF holds the leasehold estate under and interest in each CNF Real Property Lease free and clear of all liens or other encumbrances, except liens and encumbrances which do not and will not interfere with the use and enjoyment of the CNF Leased Real Property in the ordinary course of business. CNF has no ownership, financial or other interest in the landlord under any CNF Real Property Lease. -42- 4.12.3 Entire Premises. All of the land, buildings, structures --------------- and other improvements used by CNF in the conduct of its business are included in the CNF Real Property and the CNF Leased Real Property. The CNF Owned Real Property and the CNF Leased Real Property are hereinafter collectively referred to as the "CNF Real Estate." 4.12.4 Space Leases. CNF is not a party to any lease, ------------ sublease, license or other contract granting to any person other than CNF any right to the possession, use, occupancy or enjoyment of the CNF Real Estate or any portion thereof. 4.12.5 No Options. CNF does not own or hold, and is not ---------- obligated under or a party to, any option, right of first refusal or other contractual right to purchase, acquire, sell or dispose of the CNF Real Estate or any portion thereof or interest therein. 4.12.6 Condition and Operation of Improvements. All --------------------------------------- components of all buildings, structures and other improvements included within the CNF Real Estate (the "CNF Improvements") are in good and normal working order and repair . 4.12.7 Real Property Permits and Insurance. All certificates ----------------------------------- of occupancy, permits, licenses, franchises, approvals and authorizations (collectively, "CNF Real Property Permits") of all governmental authorities having jurisdiction over the CNF Real Estate, and from all insurance organizations, required or appropriate to have been issued to CNF to enable the CNF Real Estate to be lawfully -43- occupied and used for all of the purposes for which they are currently occupied and used have been lawfully issued and are, as of the date hereof, in full force and effect. All policies of liability and casualty insurance (collectively, "CNF Insurance Policies") heretofore contracted for by CNF, or customarily maintained with respect to other similar properties in the region, or required in connection with the ownership, leasing, use, occupancy or operation of the CNF Real Estate as currently used, occupied and operated, have been issued to CNF by reputable insurance companies and are currently in full force and effect. CNF has not received, or been informed by a third party of the receipt by it, of any notice from any governmental authority having jurisdiction over the CNF Real Estate or from any insurance organization threatening a suspension, revocation, modification or cancellation of any CNF Real Estate Permit or CNF Insurance Policy as the case may be, and, to CNF's knowledge, there is no basis for the issuance of any such notice or the taking of any such action. 4.12.8 Compliance with Law. To CNF's knowledge, the CNF Real ------------------- Estate is in compliance in all material respects with all Real Property Laws, and CNF has not received any notice of violation or claimed violation of any Real Property Law. 4.12.9 Condemnation. CNF has not received notice and CNF has ------------ no knowledge of any pending, threatened or contemplated condemnation proceeding affecting the CNF Real Estate or any part thereof or of any sale or other disposition of the CNF Real Estate or any part thereof in lieu of condemnation. -44- 4.12.10 Casualty. No portion of the CNF Real Estate has -------- suffered any material damage by fire or other casualty which has not been completely repaired and restored to its original condition. 4.12.11 Encroachments. To the knowledge of CNF, there are no ------------- encroachments or other facts or conditions affecting any parcel of CNF Real Estate that would be revealed by an accurate survey thereof which would, individually or in the aggregate, (i) interfere in any material respect with the use, occupancy or operation thereof as currently used, occupied and operated or as intended to be used, occupied and operated or (ii) materially reduce the fair market value thereof below the fair market value such parcel would have had but for such encroachment or other fact or condition. To the knowledge of CNF, no portion of any CNF Improvement encroaches upon any property not included within the CNF Real Estate or upon the area of any easement affecting the CNF Real Estate. 4.13 Accounts and Notes Receivable. All accounts and notes ----------------------------- receivable reflected on the CNF Balance Sheet and all accounts and notes receivable arising subsequent to the CNF Balance Sheet Date have or will have arisen in the ordinary course of business, represent valid obligations to CNF and have been collected or will be collected in the aggregate amounts thereof recorded on the books of CNF, in each case net of the reserve for bad debts reflected on the Balance Sheet. 4.14 Inventory. The inventory of CNF as set forth on the CNF --------- Balance Sheet was, and the inventory of CNF on the date hereof and on the Closing Date will be, in good and merchantable condition, reasonably in balance and in useable or -45- saleable condition in the ordinary course of business, except for any obsolete or defective materials and any excess stock items which alone and in the aggregate are not material. Such inventory does not include any material amounts of any item that was at any prior time written off or written down by CNF. To the knowledge of CNF, there is no adverse condition affecting the supply of materials or inventories available to CNF. 4.15 Tangible Property. CNF owns or leases all plant, machinery, ----------------- equipment, furniture, leasehold improvements, fixtures, vehicles, structures, any related capitalized items and other tangible property material to the business of CNF and necessary to the continued conduct of business in the ordinary course by CNF ("CNF Tangible Property") . All material leases, conditional sale contracts, franchises or licenses pursuant to which CNF may hold or use any interest owned or claimed by it (including, without limitation, options) in or to Tangible Property are in full force and effect and, with respect to CNF's performance, there is no default or event of default or event which with notice or lapse of time or both would constitute a default. The Tangible Property of CNF is in good and normal operating condition and repair, and CNF has not received notice, and CNF has no knowledge, that it is in material violation of any existing law or any building, zoning, health, safety or other ordinance, code or regulation. 4.16 Intangible Property. The CNF Disclosure Statement sets forth ------------------- all patents, copyrights, trademarks, service marks, trade names and franchises (collectively, "CNF Intangible Property"), all applications for CNF Intangible -46- Property, and all permits, grants and licenses or other rights running to or from CNF relating to CNF Intangible Property which are material to or used in the business of CNF. All such CNF Intangible Property is owned by CNF, free and clear of any liens or other encumbrances. CNF has no notice of any adversely held patent, invention, copyright, trademark, service mark or trade name of any other person or notice of any claim of any other person relating to any of the CNF Intangible Property or any process or confidential information of CNF, and CNF does not know of any basis for any such charge or claim. 4.17 Liens. CNF owns and will on the Closing Date own outright and ----- has and will have good and marketable title to all of its assets and properties, including, without limitation, all of the assets and properties reflected on the CNF Balance Sheet, in each case free and clear of any lien or other encumbrance, except for: (i) immaterial assets and properties; and (ii) liens or other encumbrances securing taxes, assessments, governmental charges or levies, or the claims of materialmen, carriers, landlords and like persons, which are not yet due and payable. 4.18 Suppliers and Customers. The CNF Disclosure Statement will ------------------------- set forth the 20 largest suppliers and customers of CNF based on dollar value as of October 18, 1995. The relationships of CNF with its suppliers and customers are good commercial working relationships, and no such supplier or customer of CNF has cancelled or threatened to cancel Its relationship with CNF or has during the last 12 months decreased materially, or threatened to decrease or limit materially, its services, supplies or materials to CNF or its usage of CNF's services or products. -47- CNF does not have any notice, and CNF does not have any knowledge, that any such supplier or customer intends to cancel or otherwise modify its relationship with CNF or to decrease materially or limit its services, supplies or materials to CNF or its usage of the services or products of CNF, and the acquisition of the MPW Shares by the Trustees will not, to the best of the knowledge and belief of CNF, adversely affect the relationship of CNF with any such supplier or customer. 4.19 Insurance. The CNF Disclosure Statement will set forth all --------- policies or binders of fire, liability, workmen's compensation, product liability, vehicular or other insurance held by or on behalf of CNF (specifying the insurer, the policy number or covering note number with respect to binders, and describing each pending claim thereunder of more than $25,000 other than workers compensation claims and personal injury claims fully covered by insurance and arising in the ordinary course of business). Such policies and binders are in full force and effect. CNF is not in default with respect to any provision contained in any such policy or binder and has not failed to give any notice or present any claim under any such policy or binder in due and timely fashion. CNF has not received a notice of cancellation or non-renewal of any such policy or binder. 4.20 Officers, Directors and Employees. The CNF Disclosure --------------------------------- Statement will set forth a correct and complete list of all officers, directors and employees of CNF as of October 18, 1995 and the October 18, 1995 payroll of CNF. There has been no material change in such payroll since such date. -48- 4.21 Operations of CNF. From the CNF Balance Sheet Date through the ----------------- date hereof neither CNF nor NRG has: (i) merged with or into or consolidated with any other person, or changed or agreed to change in any manner the character of its business; (ii) entered into or amended any employment agreement, entered into any agreement with any labor union or association representing any employee or entered into or amended any CNF Benefit Plan (as defined in Section 4.26); (iii) incurred any indebtedness for borrowed money, except in the ordinary course of business under existing agreements; (iv) declared or paid any dividends or declared or made any distributions of any kind to its shareholders; (v) increased the aggregate amount of indebtedness and other liabilities of any shareholder of CNF to CNF and all entities owned or controlled by CNF; (vi) waived any right of material value to its business; (vii) materially changed any of its business policies, including, without limitation, advertising, marketing, pricing, purchasing, personnel, sales, returns, budget or product acquisition policies; (viii) made any wage or salary increase or bonus, or increase in any other direct or indirect compensation, for or to any officer, employee, consultant or agent of CNF, or any accrual for or commitment or agreement to make or pay the -49- same, other than to persons not officers, directors or shareholders of CNF made in the ordinary course of business; (ix) made any loan or advance to any of its officers, directors, employees' consultants, agents or shareholders, other than travel advances made in the ordinary course of business; (x) made any payment or commitment to pay any severance or termination pay to any of its officers, directors, employees, consultants or agents, other than to persons not officers, directors or shareholders of CNF made in the ordinary course of business; (xi) except in the ordinary course of business: entered into any lease (as lessor or lessee); sold, abandoned or made any other disposition of any of its assets or properties; granted or suffered any lien or other encumbrance on any of its assets or properties; entered into or amended any contract to which it is a party or by or to which it or its assets or properties are bound or subject or pursuant to which it agrees to indemnify any party or refrain from competing with any party; (xii) except in the ordinary course of business, incurred or assumed any debt, obligation or liability (whether absolute or contingent, whether or not currently due and payable and whether with an affiliate or otherwise); (xiii) except for inventory or equipment acquired in the ordinary course of business, made any acquisition of all or any part of the assets, properties, capital stock or business of any other person; -50- (xiv) except in the ordinary course of business, entered into any other material contract or other agreement or other material transaction; or (xv) except in the ordinary course of business, otherwise paid or transferred to any person any cash or cash equivalents of CNF or NRG. 4.22 Potential Conflicts of Interest. No officer, director or ---------------------------------- shareholder of CNF (i) owns, directly or indirectly, any interest in (excepting not more than 1% stock holdings for investment purposes in securities of publicly held and traded companies) or is an officer, director, employee or consultant of any person which is a competitor, lessor, lessee, customer or supplier of CNF; (ii) owns, directly or indirectly, in whole or in part, any copyright, trademark, trade name, service mark, franchise, patent, invention, permit, license or secret or confidential information which CNF is using or the use of which is necessary for the business of CNF; or (iii) has any cause of action or other claim whatsoever against, or owes any amount to, CNF, except for claims in the ordinary course of business, such as for accrued vacation pay, accrued benefits under any CNF Benefit Plan and similar matters and agreements existing on the date hereof. 4.23 Full Disclosure. All documents and other papers delivered by --------------- or on behalf of CNF to MPW in connection with this Agreement and the transactions contemplated hereby are and will be complete and correct in all material respects; and all contracts to which the CNF is a party are valid, subsisting and binding on the parties thereto in accordance with their terms. The information furnished by or on behalf of CNF in connection with this Agreement and the transactions contemplated -51- .hereby does not. and will not contain any untrue statement of a material fact and does not and will not omit to state any material fact necessary to make the statements made, in the context in which made, not false or misleading. 4.24 No Broker. No broker, finder, agent or similar intermediary --------- has acted for or on behalf of CNF in connection with this Agreement or the transactions contemplated hereby, and no broker, finder, agent or similar intermediary is entitled to any broker's, finder's or similar fee or other commission in connection therewith based on any agreement, arrangement or understanding with CNF or any action taken by CNF. 4.25 Liabilities. As at the CNF Balance Sheet Date, to the ----------- knowledge of CNF, CNF had no direct or indirect indebtedness, liability, claim, loss, damage, deficiency, obligation or responsibility, known or unknown, fixed or unfixed, choate or inchoate, liquidated or unliquidated, secured or unsecured, accrued, absolute, contingent or otherwise, including, without limitation, liabilities on account of Taxes, other governmental charges or lawsuits brought, whether or not of a kind required by GAAP to be set forth on a financial statement ("Liabilities"), which are not fully and adequately reflected on the CNF Balance Sheet. To the knowledge of CNF, CNF has no Liabilities, other than (i) Liabilities fully and adequately reflected on the CNF Balance Sheet and (ii) normal or recurring liabilities incurred since the CNF Balance Sheet Date in the ordinary course of business consistent with past practice. CNF has no knowledge of any circumstances, conditions, events or arrangements which may hereafter give rise to any Liabilities of CNF except in the ordinary course of business. -52- 4.26 Employee Benefit Plans. ---------------------- (i) If so requested, CNF has delivered or will deliver to MPW complete and correct copies of: (a) all plan texts, agreements and material employee communications relating to each CNF Benefit Plan; (b) all summary plan descriptions (whether or not required to be furnished pursuant to ERISA), the most recent annual report (including all schedules thereto) and the most recent annual and periodic accounting of related plan assets with respect to each CNF Benefit Plan which is an "employee benefit plan" (within the meaning of section 3(3) of ERISA); and (c) the most recent actuarial valuation and the most recent determination letter received from the Internal Revenue Service with respect to each Pension Plan. (ii) No event has occurred, and there exists no condition or set of circumstances in connection with which CNF or any CNF Benefit Plan, directly or indirectly, could be subject to any liability under ERISA, the Code or any other law, regulation or governmental order with respect to any employee benefit plan described in section 3(3) of ERISA. (iii) With respect to each CNF Benefit Plan: (a) CNF has made all payments due from it to date and all amounts properly accrued to date as liabilities of CNF which have not been paid have been properly recorded on the books of CNF; (b) no such plan which is subject to section 302 of ERISA or section 412 of the Code has incurred any "accumulated funding deficiency" (as defined in either such section), whether or not waived; (c) each such plan conforms to, and its administration is in compliance with, all applicable laws and regulations, including -53- but not limited to ERISA and the Code; (d) each such plan which is a Pension Plan intended to qualify under section 401(a) or 403(a) of the Code has received a favorable determination letter from the Internal Revenue Service with respect to such qualification and with respect to the exempt status of its related trust under section 501(a) of the Code (or an application therefor is pending and such application, whether relating to initial qualification of such plan or a subsequent amendment or restatement thereof, has been timely filed to permit retroactive amendments to the plan, if required, pursuant to section 401(b) of the Code) and nothing has occurred since the date of such letter that would adversely affect such qualification or exemption; (e) each such plan which is a "group health plan" (as defined in ERISA Section 607(1)), has been operated in compliance with the provisions of Part 6 of Title I of ERISA and Code section 4980B at all times; (f) there is no contract or arrangement with respect to which CNF is directly or indirectly liable that would result in the payment of any amount that would not, by operation of Code section 280G, be deductible; and (g) there are no actions, suits or claims pending (other than routine claims for benefits) or threatened with respect to any Benefit Plan or against the assets of any Benefit Plan. (iv) CNF has not incurred any liability to the Pension Benefit Guaranty Corporation on account of the termination of a Pension Plan, and no proceeding has been initiated to terminate any such plan; and CNF has not incurred, and does not reasonably expect to incur, any liability on account of an employee benefit plan termination, whether to the Pension Benefit Guaranty Corporation or -54- otherwise, except for required premium payments, which payments have been made when due. Excluding the transactions contemplated by this Agreement, no event has occurred, and there exists no condition or set of circumstances which presents a material risk of the partial termination of any Pension Plan. (v) No CNF Benefit Plan provides medical or death benefits (whether or not insured) with respect to current or former employees of CNF beyond their retirement or other termination of service (other than (a) coverage mandated by law or (b) death benefits under any Pension Plan). (vi) There are no reserves, assets, surplus or prepaid premiums under any Benefit Plan which is a "welfare plan" (as defined in section 3(1) of ERISA) (vii) There are no unfunded benefit obligations arising in any jurisdiction which are not accounted for by reserves shown on CNF's financial statements and established under generally accepted accounting principles, or otherwise noted on such statements. (viii) The present value of all "benefit liabilities" (as defined in Section 4001(a) (16) of ERISA) under each Pension Plan which is a "defined benefit plan" (as defined in section 3(35) of ERISA) did not exceed as of the most recent plan actuarial valuation date the then current fair market value of the assets of such plan. For purposes of determining the present value of benefit liabilities under any such plan, the actuarial assumptions and methods used under such plan for the most recent plan actuarial valuation shall be used, except that the interest and -55- mortality assumptions utilized by the Pension Benefit Guaranty Corporation for valuing liabilities of Pension Plans terminating as of the Closing Date shall be substituted for the interest and mortality assumptions used by such plan, and all benefits provided under such plan shall be deemed to be fully vested. (ix) The consummation of the transactions contemplated by this Agreement will not (a) entitle any current or former employee of CNF to severance pay, unemployment compensation or any similar payment, or (b) accelerate the time of payment or vesting, or increase the amount of any compensation due to any such employee or former employee. (x) No CNF Benefit Plan is a "multiple employer plan," within the meaning of the Code or ERISA or the regulations promulgated thereunder, or a "multiemployer plan", as defined in section 4001(a) (3) of ERISA, and neither CNF nor the Subsidiary has made any contributions to or participated in any "multiple employer plan," or multiemployer plan" (as defined above) since September 25, 1980. (xi) The term "CNF Benefit Plan" as used in this Section 4.29 or elsewhere in this Agreement shall mean any plan, agreement, arrangement or commitment which is an employment, consulting or deferred compensation agreement, or an executive compensation, incentive bonus, employee pension, profit-sharing, savings, retirement, stock option, stock purchase, or severance pay plan, or a life, health, disability or accident insurance plan, or a holiday, vacation, Christmas or other bonus practice or other employee benefit plan, agreement, -56- arrangement or commitment, including, without limitation, any "employee benefit plan," as defined in section 3(3) of ERISA, maintained by or with respect to which CNF has or in the future may have, any liability or obligation with respect to any current or former employees of CNF, or its beneficiaries. 4.27 Tax Matters. ----------- (i) Each of CNF and NRG has: (a) timely paid all Taxes required to be paid by it through the date hereof and shall timely pay all Taxes required to be paid by it after the date hereof and through the Closing Date; and (b) timely filed all returns, declarations, reports, information returns and statements in respect of Taxes ("Tax Returns") required to be filed through the date hereof, and shall prepare and timely file all Tax Returns required to be filed after the date hereof and through the Closing Date. All Tax Returns filed pursuant to the preceding clause (b) after the date hereof shall, in each case, be prepared and filed in a manner consistent (including elections and accounting methods and conventions) with the Tax Return most recently filed with the relevant jurisdiction prior to the date hereof (or, if no such comparable return has previously been filed, in a manner consistent with the financial statements of CNF dated as of October 31, 1994 and the other Tax Returns of CNF), except as otherwise required by law or agreed to by MPW and the Trustees. (ii) The liability of CNF or NRG for Taxes as of the CNF Balance Sheet Date does not exceed the amount of accrued Taxes reported on the CNF Balance Sheet and, other than in the ordinary course of business, such liability -57- for Taxes has not increased since the CNF Balance Sheet Date and will not increase at any time through the Closing Date. (iii) No audit relating to Tax liability of CNF is in progress, no extension of time is in force with respect to any date on which any Tax Return of CNF was or is to be filed and no waiver or agreement is in force for the extension of time for the assessment or payment of any Tax by CNF, nor will any such extension of time or waiver or agreement be filed by or in effect for CNF at any time through the Closing Date. (iv) CNF has neither agreed, nor is required to make, or will at any time through the Closing Date agree to be required to make, any adjustment under (or in the manner provided by) section 481(a) of the Code by reason of a change in accounting method or otherwise. (v) Neither CNF nor any predecessor of CNF has, at any time, consented under section 314 (f) (1) of the Code, or agreed under section 314(f) (3) of the Code, or will at any time through the Closing Date consent or agree, to have the provisions of section 314(f) (2) of the Code apply. (vi) As of the Closing Date, (a) any existing tax sharing or similar agreement with respect to CNF shall have been terminated, and (b) CNF will not have any obligation under any tax sharing or similar agreement or arrangement. 4.28 Environmental Matters. --------------------- (i) As of the date hereof, to the knowledge of CNF, no underground storage tanks are present under any property that CNF or any affiliate -58- has at any time owned, operated, occupied or leased. As of the date hereof, no material amount of any substance that has been designated by any Governmental Entity or by applicable federal, state, or local law to a Hazardous Material, but excluding office and janitorial supplies, are present, as a result of the actions of CNF or, to the knowledge of CNF, any actions of any third party or otherwise, in, on or under any property, including the land and the improvements, ground water and surface water, that CNF or any affiliate has at any time owned, operated, occupied or leased. (ii) At no time has CNF or any affiliate transported, stored, used, manufactured, disposed of, released or exposed its employees or others to Hazardous Materials in violation of any law in effect on or before the Closing Date, nor has CNF or any affiliate engaged in Hazardous Materials Activities in violation of any rule, regulation, treaty or statute promulgated by any Governmental Entity to prohibit, regulate or control Hazardous Materials or any Hazardous Material Activity, which such violation would have a material adverse effect on CNF. (iii) CNF currently holds all Environmental Permits necessary for the conduct of its Hazardous Material Activities and other businesses of CNF as such activities and businesses are currently being conducted, the absence of which would have a material adverse effect on CNF. (iv) No action, proceeding, revocation proceeding, amendment procedure, writ injunction or claim is pending or, to the knowledge of CNF, threatened concerning any Environmental Permit or any Hazardous Materials -59- Activity of CNF or NRG. CNF is not aware of any fact or circumstance which could involve CNF or NRG in any environmental litigation or impose upon CNF or NRG any environmental liability which would have a material adverse effect on CNF or NRG. 4.29 Investment Representations. -------------------------- (i) CNF is acquiring the MPW Merger Share for its own account for the purpose of investment, and not with a view to, or sale in connection with, any distribution thereof. (ii) CNF is an "accredited investor" within the meaning of the 1933 Act. CNF acknowledges that it, its attorneys, accountants and other representatives have had, prior to its execution of this Agreement, and will have prior to the Closing Date, the opportunity to ask questions of, and to receive answers from, MPW concerning MPW, its affiliates and their business and financial condition. (iii) CNF understands and acknowledges that the MPW Merger Share to be delivered to it pursuant to the provisions of this Agreement will be "restricted securities" within the meaning of the 1933 Act, and agrees that the certificates therefor shall bear the following legend: THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED UNLESS COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT, A" NO ACTION" LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION WITH RESPECT TO SUCH TRANSFER, A TRANSFER MEETING THE REQUIREMENTS OF RULE 144 OF THE SECURITIES AND EXCHANGE COMMISSION OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER TO THE -60- EFFECT THAT ANY SUCH TRANSFER IS EXEMPT FROM SUCH REGISTRATION. (iv) CNF understands and acknowledges that the MPW Merger Share to be delivered to it pursuant to the provisions of this Agreement will not be registered under the 1933 Act. CNF recognizes that it may be required to bear the economic risk of its investment until such share is registered and after such registration may lapse. CNF agrees on behalf of itself and its successors and assigns, that it will only sell, transfer, pledge or hypothecate the MPW Merger Share to be acquired by it pursuant to the provisions of this Agreement pursuant to an effective registration statement under the 1933 Act or in a transaction wherein registration under the 1933 Act is not required. 4.30 Articles and Bylaws. Concurrently with the delivery of the CNF ------------------- Disclosure Statement, CNF shall deliver to MPW true and correct copies of the Articles of Incorporation and Bylaws of each of CNF and NRG, and all amendments thereto, certified as true and correct by the Secretary of each of CNF and NRG (collectively, the "CNF Organization Documents"). 5. Covenants and Agreements. The parties covenant and agree as follows: ------------------------ 5.1 Conduct of Business. ------------------- (i) From the date hereof through the Closing Date, MPW shall, and shall cause Subsidiary to, conduct its business in the ordinary course and, without the prior written consent of CNF, not undertake any of the actions specified in Section 3.21. From the date hereof through the Closing Date, except in the ordinary course of business, MPW shall not, and shall not permit Subsidiary to, enter -61- into, or permit MPW or Subsidiary or the assets of either, to become bound by or subject to, any contracts of the type required to be disclosed pursuant to Section 3.11. From the date hereof through the Closing Date, MPW shall, and shall cause Subsidiary to, continue to manage the inventories, accounts receivable, accounts payable, and payroll of MPW and Subsidiary in accordance with past practice in the ordinary course of business. In the event that, in the ordinary course of business, MPW or Subsidiary enters into, or MPW or Subsidiary or its assets becomes bound by or subject to, any contracts of the type required to be disclosed pursuant to Section 3.11, MPW shall give CNF written notice thereof. Prior to the Closing Date, MPW shall terminate all MPW Real Property Leases between MPW and MSF (or any affiliate of MSF). (ii) From the date hereof through the Closing Date, CNF shall (a) conduct its business in the ordinary course and, without the prior written consent of MPW, not undertake any of the actions specified in Section 4.21 or, except in the ordinary course of business, enter into, or permit it or its assets to become bound by or subject to, any contracts of the type required to be disclosed pursuant to Section 4.11; and (b) continue to manage the inventories, accounts receivable, accounts payable, and payroll of CNF in accordance with past practice in the ordinary course of business. In the event that, in the ordinary course of business, CNF enters into, or CNF or its assets becomes bound by or subject to, any contracts of the type required to be disclosed pursuant to Section 4.11, CNF shall give MPW written notice thereof. Notwithstanding the foregoing and notwithstanding anything to the contrary -62- contained in this Agreement, MPW and the Trustees expressly acknowledge that (a) NRG shall have the right to acquire by purchase of assets or merger additional retail business consistent with past practices of NRG (the "Permitted Acquisitions"), and (b) the incurring of liabilities by NRG and CNF in connection with Permitted Acquisitions shall be expressly permitted and shall not constitute a violation or breach of this Agreement. 5.2 Insurance. From the date hereof through the Closing Date, MPW --------- shall, and shall cause Subsidiary to, maintain in force (including necessary renewals thereof) the insurance policies listed in the MPW Disclosure Statement, except to the extent that they may be replaced with equivalent policies appropriate to insure the assets and business of MPW and Subsidiary to the same extent as currently insured at the same or lower rates or at the rates approved by CNF. MPW shall cooperate with CNF in negotiating insurance policies, in form and substance reasonably satisfactory to CNF, to provide replacement coverage for the insurance policies listed on the MPW Disclosure Statement. 5.3 Preservation of Business. From the date hereof through the ------------------------ Closing Date, MPW shall, and shall cause Subsidiary to, and CNF shall, respectively, preserve its business organization intact, keep available the services of its present officers, employees, consultants and agents, maintain its present suppliers and customers and preserve its goodwill. 5.4 Litigation. From the date hereof through the Closing Date, MPW ---------- shall notify promptly CNF, and CNF shall notify MPW, of any actions or -63- proceedings, after the date hereof, of the type described in Section 3.10 or Section 4.10, respectively, commenced or threatened against MPW or CNF, as the case may be, or against any officer, director, employee, consultant, agent, shareholder or other representative of MPW and Subsidiary with respect to their affairs, or CNF with respect to CNF's affairs, respectively. 5.5 Continued Effectiveness of Representations and Warranties. --------------------------------------------------------- From the date hereof through the Closing Date, MPW shall, and shall cause Subsidiary to, and CNF shall, respectively, conduct its business in such a manner so that the representations and warranties contained in Section 3 and 4, respectively, shall continue to be true and correct on and as of the Closing Date as if made on and as of the Closing Date. Each party shall promptly be given notice by the other of any event, condition or circumstance occurring from the date hereof through the Closing Date that would constitute a violation or breach of this Agreement. 5.6 Corporation Examinations and Investigations. Prior to the ------------------------------------------- Closing Date, each of CNF and MPW shall be entitled, through its employees and representatives, including, without limitation, its counsel and accountants, to make such investigation, including, without limitation, environmental assessments and studies, of the assets, properties, business and operations of MPW and Subsidiary and CNF and NRG, respectively, and such examination of the books, records and financial condition of MPW and Subsidiary and CNF and NRG, respectively, as they wish. Any such investigation and examination shall be conducted at reasonable times and under reasonable circumstances, and each party shall cooperate fully -64- therein. In order that each of the parties may have full opportunity to make such business, accounting and legal review, examination or investigation as it may wish of the business and affairs of MPW and Subsidiary and CNF and NRG, respectively, MPW shall make available and shall cause Subsidiary to make available, and CNF shall make available, to the representatives of CNF and MPW, respectively, during such period all such information and copies of such documents concerning the affairs of MPW and Subsidiary and CNF and NRG, respectively, as such representatives may reasonably request and cause its officers, employees, consultants, agents, accountants and attorneys to cooperate fully with such representatives in connection with such review and examination. Each of MPW and CNF expressly authorize Peat Marwick to make available to each of the parties hereto information relating to MPW and CNF and their subsidiaries and to cooperate in carrying out the transactions contemplated hereby. 5.7 Related Parties. The Trustees shall, prior to the Closing, pay --------------- or cause to be paid to MPW all amounts owed to MPW and reflected on the MPW Balance Sheet or borrowed from or owed to MPW since the MPW Balance Sheet Date by the Trustees, or by any entity owned or controlled by the Trustees. 5.8 Expenses of Sale. Each of the parties hereto agrees that each ---------------- shall bear its own direct and indirect expenses incurred in connection with the negotiation and preparation of this Agreement and the consummation and performance of the transactions contemplated hereby. -65- 5.9 Further Assurances. Each of the Trustees and MPW shall execute ------------------ after the date hereof such documents and other papers and perform such further acts as may be reasonably required or desirable to satisfy the conditions precedent set forth in Section 6 and to carry out the provisions hereof and the transactions contemplated hereby. CNF shall execute after the date hereof such documents and other papers and perform such further acts as may be reasonably required or desirable to satisfy the conditions precedent set forth in Section 7 and to carry out the provisions hereof and the transactions contemplated hereby. 5.10 Tax Free Reorganization. Each of the parties hereto shall use ----------------------- its, his or her best efforts to cause the transactions contemplated hereby to be treated as a reorganization within the meaning of Section 368(a) of the Code. Each of the parties agrees to take such action and execute such documents and instruments as may be reasonably required by Peat Marwick or other party in order to obtain the Reorganization Opinion (as defined below). 5.11 Pooling Accounting. Each of the parties hereto shall use its, ------------------ his or her best efforts to cause the business combination to be effected by the transactions contemplated hereby to be accounted for as a pooling of interests. Each of the parties agrees to take such action and execute such documents and instruments as may be reasonably required by Peat Marwick or other party in order to obtain the Pooling Opinion (as defined below). 5.12 Legal Requirements. Each of the parties hereto will take all ------------------ reasonable actions necessary to comply promptly with all legal requirements which -66- may be imposed with respect to the transactions contemplated hereby (which actions shall include, without limitation, furnishing all information required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and, in the rules and regulations thereunder (the "HSR Act"). 5.13 Amendment to Documents. Each of MPW and the Trustees agree to ---------------------- take no action to amend, or permit the amendment of, any of the MPW Organization Documents without the prior written consent of CNF, which consent shall not be unreasonably withheld. Except as contemplated by the terms of Section 11, CNF agrees to take no action to amend or to permit the amendment of, any of the CNF Organization Documents without the prior written consent of MPW, which consent shall not be unreasonably withheld. 6. Conditions Precedent to the Obligation of CNF and Newco to Close. The ---------------------------------------------------------------- obligations of CNF and Newco to enter into and complete the Closing is subject, at its option, to the fulfillment on or prior to the Closing Date of the following conditions, any one or more of which may be waived: 6.1 Representations and Covenants. The representations and ----------------------------- warranties of MPW and the Trustees contained in this Agreement shall be true in all material respects on and as of the Closing Date with the same force and effect as though made on and as of the Closing Date. Each of the Trustees and MPW shall have performed and complied in all material respects with all covenants and agreements required by this Agreement to be performed or complied by each on or prior to the Closing Date. Each of the Trustees and MPW shall have delivered to -67- CNF a certificate, dated the Closing Date and signed by MPW and the Trustees, to the foregoing effect. 6.2 Opinion of Counsel to the Trustees and MPW. CNF shall have ------------------------------------------ received the opinion of Mendelson & Brown, counsel to the Trustees and MPW, dated the date of the Closing, addressed to CNF, in such form and with respect to such matters as CNF may reasonably request. The parties agree to use their best efforts to approve the form of such opinion and matters to be included therein on or before January 26, 1996. 6.3 Employment Agreement. Concurrently with the Closing, MSF shall -------------------- have entered into an Employment Agreement with CNF (the "Employment Agreement") in the form attached hereto as Exhibit A. 6.4 Consents and Approvals. CNF shall have received, without ---------------------- expense to it, executed originals of any and all consents, approvals and/or waivers required under the MPW Real Property Leases in order to permit the consummation of the transactions provided for herein without causing or resulting in a default, event of default, acceleration event or termination event under any of such documents and without entitling any party to any of such documents to exercise any other right or remedy adverse to the Interests of CNF or MPW thereunder. Each such consent, approval and/or waiver shall be in form satisfactory to counsel for CNF. 6.5 Tax Returns. CNF shall have received any and all real property ----------- transfer tax returns and other similar filings required by law in connection with the -68- transactions contemplated hereby, all duly and properly executed and acknowledged by MPW. 6.6 FIRPTA Affidavit. If requested by CNF, CNF shall have received ---------------- an affidavit of MPW and the Trustees, sworn to under penalty of perjury, setting forth the name, address and Federal tax identification number and stating that none is a "foreign person" within the meaning of' Section 1445 of the Code. 6.7 Satisfaction of Review. The matters contained in the MPW ---------------------- Disclosure Statement and the results of the investigation of the business properties and affairs of MPW and Subsidiary by CNF shall be satisfactory in all material respects to CNF and its counsel, which review shall be completed and any objection based thereon shall be given on or before January 26, 1996. 6.8 Opinions. CNF shall have received from Peat Marwick (or other -------- firm of independent certified public accountants or tax attorneys reasonably acceptable to CNF and MPW) a letter or letters or opinions, each dated the Closing Date and addressed to CNF and MPW and reasonably acceptable in form and substance to CNF and MPW that (a) the business combination to be effected by the transactions contemplated hereby will qualify as a pooling of interest under GAAP (the "Pooling Opinion") and (b) the issuance of the CNF Shares pursuant to the Merger and receipt of the MPW Merger Share by CNF constitute a reorganization within the meaning of Section 368(a) of the Code (the "Reorganization Opinion"). -69- 6.9 HSR Act. The waiting period applicable to the consummation of ------- the transactions contemplated hereby under the HSR Act shall have expired or been terminated. 6.10 Lenders' Consents. CNF shall have received the written ----------------- consents of each of the CNF Lenders. 6.11 Loan Agreements. MPW shall have validly terminated the loan --------------- agreements between MPW and Union Bank to permit the repayment of all indebtedness thereunder on the Closing Date, in each case without premium, penalty or other payment or consideration (except payment of rate differential for a period not to exceed 30 days) and CNF shall have arranged for the extension of credit on the Closing Date to MPW by CNF's lender, on terms and conditions reasonably satisfactory to MPW, for the purpose of repaying the indebtedness owed by MPW to Union Bank and providing working capital to MPW. 7. Conditions Precedent to the Obligation of MPW to Close. The ------------------------------------------------------ obligation of MPW to enter into and complete the Closing is subject, at its option, to the fulfillment of the following conditions, any one or more of which may be waived: 7.1 Representations and Covenants. The representations and ----------------------------- warranties of CNF contained in this Agreement shall be true in all material respects on and as of the Closing Date with the same force and effect as though made on and as of the Closing Date. CNF shall have performed and complied in all material respects with all covenants and agreements required by this Agreement to be performed or complied with by CNF on or prior to the Closing Date. CNF shall have -70- delivered to MPW a certificate, dated the Closing Date and signed by an officer of CNF, to the foregoing effect. 7.2 Opinion of Counsel to CNF. MPW shall have received the opinion ------------------------- of Cameron & Mittleman, counsel to CNF, dated the date of the Closing, addressed to MPW, in such form and with respect to such matters as MPW may reasonably request. The parties agree to use their best efforts to approve the form of such opinion and matters to be included therein on or before January 26, 1996. 7.3 Satisfaction of Review. The matters contained in the CNF ---------------------- Disclosure Statement and the results of the investigation of the business properties and affairs of CNF by MPW shall be satisfactory in all material respects to MPW and its counsel, which review shall be completed and any objection arising therefrom shall be given on or before January 26, 1996. 7.4 HSR Act. The waiting period applicable to the consummation of ------- the transactions contemplated hereby under the HSR Act shall have expired or been terminated. 7.5 Employment Agreement. The Employment Agreement shall have been -------------------- executed and delivered by each of the parties thereto. 7.6 Other Conditions. The conditions set forth in Sections 6.8 and ---------------- 6.11 shall have been satisfied. 8. Survival of Representations and Warranties. Notwithstanding any right ------------------------------------------ of either party fully to investigate the affairs of MPW and CNF, and notwithstanding any knowledge of facts determined or determinable by either party pursuant to -71- such investigation or right of investigation, each party has the right to rely fully upon the representations, warranties, covenants and agreements of the other party contained in this Agreement or in any document delivered in connection with the transactions contemplated by this Agreement. None of the representations, warranties, covenants and agreements shall survive the Closing, except as provided in Section 9 and except, in the case of MPW and the Trustees, the provisions of Sections 3.1, 3.2, 3.3, 3.4, 3.9, 3.24, 3.29, 9.1 and 9.3, and in the case of CNF, the provisions of Sections 4.1, 4.2, 4.3, 4.9, 4.24, 4.29 and 9.2 and 9.3 (collectively, the "Surviving Representations and Agreements"). 9. Indemnification. --------------- 9.1 Obligation of MPW and the Trustees to Indemnify. MPW and the ----------------------------------------------- Trustees, jointly and severally, shall indemnify, defend and hold harmless CNF, its successors in interest and its affiliates and assigns from and against any losses, liabilities, damages or deficiencies (including interest, penalties and reasonable attorneys' fees) ("Losses") based on, arising out of or due to a material inaccuracy in, or material breach of, any of the Surviving Representations and Agreements of MPW and the Trustees contained in this Agreement, provided that in the case of Surviving Representations and Agreements other than those in Section 3.29, such inaccuracy or breach arises from the fraud or willful misconduct of MPW or the Trustees. 9.2 Obligation of CNF to Indemnify. CNF shall indemnify, defend ------------------------------ and hold harmless MPW and the Trustees from and against any Losses based on, arising out of or due to a material inaccuracy in, or material breach of, any of the -72- Surviving Representations and Agreements of CNF contained in this Agreement, provided that in the case of Surviving Representations and Agreements other than those contained in Section 4.29, such inaccuracy or breach arises from the fraud or willful misconduct of CNF. 9.3 Notice to Indemnifying Party. If any party (the "Indemnitee") ---------------------------- receives notice of any claim or other commencement of any action or proceeding with respect to which any other party (or parties) is obligated to provide indemnification (the "Indemnifying Party") pursuant to Section 9.1, or 9.2, the Indemnitee shall promptly give the Indemnifying Party notice thereof. Such notice shall not be a condition precedent to any liability of the Indemnifying Party under the provisions for indemnification contained in this Agreement. The Indemnifying Party may compromise or defend, at such Indemnifying Party's own expense and by such Indemnifying Party's own counsel, any such matter involving the asserted liability of the Indemnitee. In the event that the Indemnifying Party elects not to compromise or defend such matter, then the Indemnitee, at the Indemnifying Party's expense, but by the Indemnitee counsel, may defend such matter. The Indemnitee may not compromise the defense of any such matter without the prior written consent of the Indemnifying Party, which consent shall not be unreasonably withhold. In any event, the Indemnitee, the Indemnifying Party and the Indemnifying Party's counsel (and, if applicable, the Indemnitee's counsel) shall cooperate in the compromise of, or defense against, any such asserted liability. If the Indemnifying Party answers the defense of such an action, no compromise or settlement thereof may be effected by the -73- Indemnifying Party without the Indemnitee's consent, which shall not be unreasonably withheld and the Indemnifying Party shall have no liability with respect to any compromise or settlement thereof effected without its consent, which shall not be unreasonably withheld. If the Indemnifying Party chooses to defend any claim, the Indemnitee shall make available to the Indemnifying Party any books, records or other documents within its control that are necessary or appropriate for such defense. 9.4 Sole Remedy. The sole and exclusive remedy for any and all ----------- Losses of a party hereto, based on, arising out of or due to a material inaccuracy in, or material breach of, any of the Surviving Representations and Agreements, or the breach or inaccuracy of any other representations or agreements of another party hereto, shall be limited to the indemnification rights set forth in this Article 9. Each party hereby waives and releases any common law or statutory claims it may have against any other party other than claims based on fraud or willful misconduct. 10. Termination. ----------- 10.1 Termination. This Agreement may be terminated at any time ----------- prior to the Closing Date by written notice as follows: (i) by mutual written consent of MPW and CNF; (ii) by MPW or CNF at any time after March 1, 1996 if the Effective Date has not then occurred; (iii) by either CNF or MPW if any of the conditions to the performance of its obligations set forth in Section 6 or 7, respectively, has not been satisfied or waived on or before March 15, 1996; or (iv) by CNF or MPW, if there has been a material breach of any representation, warranty, -74- covenant or agreement on the part of the other party set forth in this Agreement, which breach shall not have been cured within ten (10) business days following receipt by the breaching party of written notice of such breach from the other party, or prior to the Closing Date, whichever is earlier. 10.2 Effect of Termination. In the event of termination of this --------------------- Agreement as provided in Section 10.1, this Agreement shall immediately become void, and there shall be no liability or obligation on the part of MPW and the Trustees or CNF or their respective officers, directors, stockholders or affiliates except to the extent that such termination results from the willful breach by a party of any of its representations, warranties or covenants set forth in this Agreement or from the fraud of such party; provided that the provisions of Section 5.8 shall remain in full force and effect and survive any termination of this Agreement. 11. CNF Certificate of Incorporation; By-laws; Directors. Concurrently ---------------------------------------------------- with the filing of the Certificate of Merger, CNF shall cause its name to be changed to "United Natural Foods, Inc." Effective as of the Closing, CNF shall cause the Board of Directors of CNF to be expanded to seven (7) persons, consisting of the individuals and having initial terms as set forth in Exhibit B hereto. 12. Miscellaneous. ------------- 12.1 Certain Definitions. As used in this Agreement, the following ------------------- terms have the following meanings unless the context otherwise requires: (i) "affiliate," with respect to any person, means and --------- includes any person controlling, controlled by or under common control with such person. -75- (ii) "contracts" means and includes all contracts, --------- agreements, indentures, bonds, leases, mortgages, franchises, licenses, commitments or binding arrangements, express or implied. (iii) "document or other papers" means and includes any ------------------------ document, agreement, instrument, certificate, notice, consent, affidavit, letter, telegram, telex, statement, schedule (including any Schedule to this Agreement), exhibit (including any Exhibit to this Agreement) or any other paper relating to this Agreement. (iv) "knowledge" means, with respect to CNF, the current --------- actual knowledge of the President or Chief Financial Officer of CNF, with respect to the Trustees, the current actual knowledge of the Trustees or either of them, and with respect to MPW, the current actual knowledge of the President or Chief Financial Officer of MPW. (v) "lien or other encumbrance" means and includes any ------------------------- lien, pledge, mortgage, security interest, deed of trust, claim, lease, charge, option, right of first refusal, easement, restrictive covenant, encroachment or other survey defect or any other encumbrance whatsoever. (vi) "person" means any individual, corporation, ------ partnership, firm, joint venture, association, joint-stock company, trust, unincorporated organization or other entity. (vii) "Property" means real, personal or mixed property. -------- -76- (viii) "Taxes" means all federal, state, county, local, ----- foreign and other taxes (including, without limitation, income, profits, premium, estimated, excise, sales, use occupancy, gross receipts, franchise, ad valorem, severance, capital levy, production, transfer, withholding, employment and payroll related, and property taxes, import duties and other governmental charges and assessments), whether or not measured in whole or in part by net income, and including related interest, additions to tax and penalties. 12.2 Publicity. No publicity release or announcement concerning --------- this Agreement or the transactions contemplated hereby shall be issued without advance approval of the form and substance thereof by the Trustees and CNF. 12. 3 Notices. Any notice or other communication required or which ------- may be given hereunder shall be in writing and shall be delivered personally, sent by facsimile transmission or sent by certified, registered or express mail, postage prepaid, and shall be deemed given when so delivered personally, sent by facsimile transmission, or if mailed, three days after the date of mailing (two days in the case of express mail), but excluding Saturdays, Sundays and holidays, as follows: (i) if to CNF, to: Cornucopia Natural Foods, Inc. 260 Lake Road Dayville, Connecticut 06241 Telecopier No.: (203) 779-7172 Attention: Norman A. Cloutier President with a copy to: -77- Cameron & Mittleman 56 Exchange Terrace Providence, Rhode Island Te1ecopier No.: (401) 331-5787 Attention: E. Colby Cameron, Esq. (ii) if to MPW to: Mountain People's Warehouse Incorporated 12745 Earhart Avenue Auburn, California 95602 Telecopier No.: (918) 889-9544 (iii) if to the Trustees, in care of MPW with a copy of notices under clause (ii) or (iii) to: Mendelson & Brown 1040 Marina Village Parkway P.O. Box 2426 Alameda, California 34501 Attention: Richard A. Lyons, Esq. Telecopier No.: 510-521-7879 12.4 Entire Agreement. This Agreement (including the Exhibits ---------------- hereto and the MPW Disclosure Statement and the CNF Disclosure Statement) contains the entire agreement among the parties with respect to the acquisition of the MPW Shares and the CNF Shares and related transactions and supersedes all prior agreements, written or oral, with respect thereto; provided, however, that --------- ------- the obligations of CNF, MPW and MSF under a certain Confidentiality Agreement dated September 15, 1995 shall continue in full force and effect. 12.5 Waivers and Amendments. This Agreement may be amended, ---------------------- modified, superseded, cancelled, renewed or extended, and the terms and conditions -78- hereof may be waived only by a written instrument signed by the parties or, in the case of a waiver, the party waiving compliance. No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party of any right, power or privilege hereunder, nor any single or partial exercise of any right, power or privilege hereunder, preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder. The rights and remedies herein provided are cumulative and are not exclusive of any rights or remedies which any party may otherwise have at law or in equity. The rights and remedies of any party arising out of or otherwise in respect of any inaccuracy in or breach of any representation, warranty, covenant or agreement contained in this Agreement shall in no way be limited by the fact that the act, omission, occurrence or other state of facts upon which any claim of any such inaccuracy or breach is based may also be the subject matter of any other representation, warranty, covenant or agreement contained in this Agreement (or in any other agreement between the parties) as to which there is no inaccuracy or breach. 12.6 Governing Law. This Agreement shall be governed by and ------------- construed in accordance with the laws of the State of Delaware applicable to agreements made and to be performed entirely within such State. 12.7 No Assignment. This Agreement is not assignable except by operation -------------- of law. To the extent either or both of the Trustees is grantor or grantors of The Funk Family 1992 Revocable Living Trust (the "Trust"), each agrees to take no action revoking -79- or terminating the Trust. In the event the Trust is revoked by a third-party, each of the Trustees, in his or her capacity as Trustee, and individually, agrees to take such action and execute and deliver such documents and instruments as may be necessary to cause the owner of the MPW Shares to become a party to and bound by the terms and conditions of this Agreement. 12.8 Variations in Pronouns. All pronouns and any variations ---------------------- thereof refer to the masculine, feminine or neuter, singular or plural, as the identity of the person or persons may require. 12.9 Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 12.10 Headings. The headings in this Agreement are intended solely -------- for convenience of reference and shall be given no effect in the interpretation of this Agreement. [THE NEXT PAGE IS THE SIGNATURE PAGE] -80- IN WITNESS WHEREOF, the parties have executed this Agreement on the date first above written. CORNUCOPIA NATURAL FOODS, INC. By:/s/ Norman A. Cloutier ---------------------------------------- Norman A. Cloutier President /s/ Michael S. Funk -------------------------------------------- Michael S. Funk, individually and as Trustee of The Funk Family 1992 Revocable Trust /s/ Judith A. Funk -------------------------------------------- Judith A. Funk, individually and as Trustee of The Funk Family 1992 Revocable Trust MOUNTAIN PEOPLE'S WAREHOUSE INCORPORATED By: /s/ Michael S. Funk ----------------------------------------- Michael S. Funk President -81- EXHIBIT A --------- See Employment Agreement filed as Exhibit 10.14. -82- EX-10.9 12 ASSET PURCHASE AGREEMENT W/ PREM MARK EXHIBIT 10.9 ------------ ASSET PURCHASE AGREEMENT ------------------------ THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered into as of the 27th day of July, 1995, by and among PREM MARK, INC., d/b/a Rainbow Natural Foods Distributing, a Colorado corporation with its principal place of business at 4850 Moline Street, Denver, Colorado 80239 ("Seller") and CORNUCOPIA NATURAL FOODS, INC., a Delaware corporation and having its principal place of business at 260 Lake Road, Dayville, Connecticut 06241 ("Buyer"). RECITALS: A. Seller is engaged in the business of wholesale sales of natural foods and related products; and B. Buyer desires to purchase the business and assets of Seller and the Seller desires to sell such business and assets to the Buyer under the terms of this Agreement. NOW THEREFORE, Buyer and Seller, in consideration of the mutual promises contained in this Agreement, hereby agree as follows: ARTICLE I PURCHASE AND SALE OF ASSETS --------------------------- Section 1.1 Assets to be Purchased and Sold. - ----------- ------------------------------- (a) Description of Assets. At the Closing (defined in Section 1.2), --------------------- Seller shall sell and convey to Buyer, and Buyer shall purchase and acquire from Seller, the wholesale natural food business and assets of Seller existing and owned by Seller on the Closing Date (defined in Section 1.2) other than the Excluded Assets (defined in Section 1.1(b)). The assets of Seller to be purchased hereunder (which exclude the Excluded Assets) are referred to as the "Purchased Assets", and shall include without limitation: (i) all Seller's notes and accounts receivable (the "Receivables") existing on the Closing Date, including but not limited to those set forth on Exhibit 1.1(a) (i) and as reflected in the Closing Date Financial ----------------- Statements (defined in Section 1.3(a) (i). Buyer shall acquire such Receivables on a recourse basis. The amount of any of the Receivables not collected within ninety (90) days after the Closing Date after reasonable and good faith collection attempts by Buyer will be returned to Seller by written assignment and offset against reserves established in the Closing Date Financial Statements, and to the extent such uncollectible Receivables exceed such reserves, any excess shall immediately reduce the remaining principal balance of the Note (defined in Section 1.3(c). Customer payments made to Buyer on account of Receivables at any time after the Closing Date shall be applied by Buyer to the reduction of such customer's outstanding balance by first applying such payments to the oldest accounts; provided, however, if Buyer determines in good faith that a customer has directed that a payment be credited to accounts other than the oldest account because the customer disputes that account, Buyer will apply payment as directed until such time as Seller resolves the dispute and if the dispute is resolved within ninety (90) days after the Closing Date such payment will be applied as resolved and if not resolved within such ninety (90) days, that unresolved account amount shall be deemed uncollectible. Buyer shall be required to use only good faith collection attempts which are reasonable under the circumstances. Buyer shall not be required to refer such accounts to collection agencies or initiate legal action in any court. (ii) all Seller's inventories, supplies and other personal property held for sale, lease or consumption in Seller's business on the Closing Date (the "Inventory") which Inventory was counted by Seller and observed by Seller's auditors, Arthur Andersen LLP (the "Auditors"), on July 14 and 15, 1995 at the expense of the Seller, and was observed by Buyer's auditors, KPMG Peat Marwick LLP ("Buyer Auditors"), and shall be subject to sales and purchases from July 15, 1995 to the Closing Date and shall be verified by the Buyer and Seller and by the Buyer Auditors and the Auditors based on normal audit procedures as of the Closing Date. The Buyer shall have the right to exclude from the Inventory (and from the purchase thereof) all obsolete (namely products and/or product lines discontinued by the manufacturer and short date or expired date codes as determined in accordance with Seller's delivery standard) and damaged items of inventory as determined in accordance with generally accepted accounting principles ("GAAP"). The Seller shall prepare a detailed description of the Inventory to be purchased by Buyer and shall value the same on the lower of cost or market value thereof in accordance with GAAP as of the Closing Date, which shall be reviewed by the Auditors and by the Buyer Auditors for compliance with the provisions of this paragraph (ii) and which shall be included as Exhibit ------- 1.1(a) (ii); - ----------- (iii) all furniture, furnishings, fixtures, equipment, machinery, vehicles, material handling equipment, rolling stock, storage racks, shelving and all other tangible personal property (other than Inventory) of Seller as of the Closing Date (the "Equipment"), which Equipment to be transferred is described in Exhibit 1.1(a) (iii); -------------------- (iv) all rights of Seller under all contracts, leases and agreements as of the Closing Date (the "Contracts") existing on the Closing Date under those Contracts Described or referred to in Exhibit 1.1(a) (iv); ------------------- 2 (v) (A) all rights of Seller in (i) the name "Rainbow Natural Foods Distributing" which Seller has filed as a fictitious name with the Colorado Secretary of State and any trademarks, trade names or service marks in connection therewith (the "Name"), (ii) the trademark and service mark "Rainbow Natural Foods Distributing" and design and all registrations thereof and pending applications therefor (the "Mark"), (and Seller has no other trade names, trademarks, service marks, copyrights and registrations thereof or applications therefor) and (iii) customer lists and vendor lists and other property belonging to, used in or relative to Seller's business as of the Closing Date, including without limitation, those described in Exhibit 1.1(a) (v) hereto (together with the Name and the Mark, the ----------------- "Intellectual Property"); (vi) all Seller's business records relating to the Purchased Assets (the "Records"); (vii) all Seller's unemployment tax ratings relating to the business of Seller as of the Closing Date to the extent assignment thereof to Buyer is permitted by applicable law and Buyer requests that they be assigned; (viii) all Seller's federal, state and local governmental permits, licenses and approvals required for the conduct of its business (or held with respect to the assets and operations of the business of Seller) as of the Closing Date to the extent assignment thereof to Buyer is permitted by applicable law (the "Licenses") all of which Licenses are described in Exhibit 1.1(a) (viii) hereto; and -------------------------------------------------------------------------- (ix) all Seller's customer purchase orders related to the Seller's business as exist on the Closing Date, including deposits. (b) Excluded Assets. The Purchased Assets to be purchased and sold --------------- hereunder shall not include the following assets of Seller existing on the Closing Date (the "Excluded Assets"): (i) Seller's cash, cash equivalents, bank deposits and marketable securities (the "Cash"); provided, however, that any Cash ----------------- received after the Closing Date with respect to or as proceeds of any of the Purchased Assets purchased and sold hereunder shall be the property of Buyer; (ii) all claims and rights of Seller to federal, state and local income tax refunds, credits and benefits accrued as of the Closing Date (the "Tax Benefits"); (iii) Seller's corporate minute books, stock records and income tax records, and any other records of Seller relating exclusively to Excluded Assets (the "Excluded Records"); and 3 (iv) Seller's land, building and building improvements therein located at 4850 Moline Street, Denver, Colorado 80239 (the "Building"). Section 1.2 Closing Date. The closing date (the "Closing Date") shall be on - ----------- ------------ July 29, 1995 as of 11:59 P.M. on that date, provided that the conditions precedent referred to in Article V hereof have been fulfilled. The closing of this transaction (the "Closing") shall be held at the offices of counsel for the Seller, Ireland, Stapleton, Pryor & Pascoe, P.C., 1675 Broadway, Suite 2600, Denver, Colorado 80202. In the event that the transactions referred to herein shall not have closed by August 31, 1995, then either the Buyer or the Seller shall have the option to terminate this Agreement. Seller shall convey the Purchased Assets to Buyer by appropriate instruments of transfer and Buyer shall pay to Seller the Purchase Price as provided in Section 1.3 and shall assume the Assumed Obligations by appropriate instrument of assumption as provided in Section 1.4. Section 1.3 Purchase Price. - ----------- -------------- (a) Definitions. ----------- (i) "Closing Date Financial Statements" shall mean the audited balance sheet and related statement of income and retained income and cash flow of the Seller as of the Closing Date for the period January 1, 1995 to the Closing Date, prepared on a going concern basis, by the Auditors and at the expense of the Seller, without giving effect to the purchase and sale contemplated hereby, in accordance with GAAP applied in a manner consistent with the audited balance sheet and related statements of income and retained income and cash flow of Seller as of December 31, 1994, and the unaudited balance sheet of Seller as of March 25, 1995 (the "March 25, 1995 Balance Sheet") which Closing Date Financial Statements shall specifically schedule, in the notes or schedules thereto, as audited by the Auditors, and otherwise identify the Inventory, Receivables, Equipment and all of the Purchased Assets and the Assumed Obligations (defined in Section 1.4(b). The Seller shall request the Auditors to co-operate fully with Buyer Auditors, and shall request the Auditors to disclose and make available to Buyer Auditors all work papers, tax returns of Seller (and Seller hereby authorizes Creditors to release copies thereof to Buyer and Buyer Auditors) and all other relevant information as Buyer Auditors shall require to enable Buyer Auditors to issue a clean opinion to Buyer as to its starting amounts with respect to the Purchased Assets and the Assumed Obligations. (ii) "Payables" shall mean the liability of Seller for accounts payable at the Closing Date as shown on the Closing Date Financial Statements, limited to those items of current liabilities identified on the March 25, 1995 Balance Sheet as Accounts payable and accrued expenses, excluding accrued vacation expenses to the extent they are paid by Seller to its employees at Closing. 4 (b) Amount. The Purchase Price to be paid by Buyer to Seller for the ------ Purchased Assets (the "Purchase Price") shall be Eight Million Two Hundred Fifty Thousand Dollars ($8,250,000) and shall be paid as set forth in Section 1.3(c). (c) Payment of Purchase Price and Adjustments After Closing. ------------------------------------------------------- (i) On the Closing Date (or at the election of the Buyer, the Buyer may wire transfer to the Seller's account on July 28, 1995 in which event the Seller shall be permitted to use a portion thereof to pay off its line of credit with First Interstate Bank of Denver, N.A. to enable that bank to terminate its liens on Seller assets and shall retain the remainder in escrow until the Closing Date and completion of all closing transactions on the Closing Date, otherwise Seller shall return the remainder to the Buyer via wire transfer on July 31, 1995 and shall repay the remainder with interest at the rate stated in the Note no later than August 31, 1995), Buyer shall pay Seller Four Million Two Hundred Fifty Thousand Dollars ($4,250,000) in immediately available funds, with the remainder of the Purchase Price of Four Million Dollars ($4,000,000), subject to adjustment as set forth in Section 1.3(c) (ii) payable pursuant to the terms of a Promissory Note (the "Note") as set forth on Exhibit 1.3(c). The Note shall -------------- be secured under the terms of Security Agreement (the "Security Agreement") in the form agreed upon by the Buyer and Seller whereby the Buyer shall grant to the Seller a security interest in the Receivables and Inventory purchased by the Buyer and otherwise as shall from the Closing Date exist with respect to Buyer's business operations in Colorado second to the prior security interest granted to Shawmut Capital Corp. formerly Barclay's Business Credit, Inc. ("Barclay's") and a security interest in the Equipment and replacements thereof (other than replacements financed by purchase money security interests) second to the prior security interest held by Donald deLaski ("deLaski"). Furthermore, such Security Agreement and the security interests granted to the Seller shall be subject to the terms of an Intercreditor or Subordination Agreement to be entered into on the Closing Date by and among the Buyer, the Seller, Barclay's, Triumph- Connecticut Limited Partnership and deLaski. (ii) The parties acknowledge that the Closing Date Financial Statements, the Receivables Exhibit 1.1(a) (i), and the Inventory Exhibit ------------------ ------- 1.1(a) (ii) will not be available until after the Closing Date and they ---------- agree to cooperate with one another such that the Auditors may produce the Closing Date Financial Statements and such Exhibits as expeditiously as possible and no later than forty-five (45) days following the Closing Date. The Purchase Price shall be adjusted as set forth in Section l.3(c) (iii) based on the Closing Date Financial Statements. Any upward or downward adjustment in the Purchase Price shall be reflected in the principal balance of the Note and the Buyer shall amend the Note, with the consent of the Seller, to reflect such adjustment. At the Closing, the Buyer shall deliver the Note in the original principal balance of $4,000,000 to 5 counsel for the Seller who shall hold the same in escrow until such time as the Note is adjusted based on the adjustments required under Section 1.3(c) (iii) and when the Note, as so adjusted, has been executed and delivered to the Seller, such counsel shall return the Note delivered in escrow to the Buyer. If no adjustment to the Note is required, Buyer shall immediately authorize such counsel in writing to deliver the Note out of escrow to the Seller. Should any dispute arise as to the amount of the adjustment to the Note or otherwise, such counsel shall retain possession of the Note until the dispute is resolved or until as otherwise directed by a court of competent jurisdiction. (iii) The Purchase Price shall be adjusted as follows: (A) From the sum of Accounts receivable, net, Inventories and Prepaid expenses and other current assets (as those items of current assets are identified on the March 25, 1995 Balance Sheet) as set forth on the Closing Date Financial Statements; (B) Shall be subtracted the sum of all Payables (as defined in Section 1.3(a) (ii), as set forth on the Closing Date Financial Statements; and (C) In the event the amount of such remainder (the "Remainder") is greater or less than $3,446,547; (D) Then the Purchase Price shall be increased by the excess of the Remainder over $3,446,547 and shall be reduced by the difference between $3,446,547 and the Remainder if the Remainder is less than $3,446,547, it being understood that such amount of $3,446,547 is the difference between the amounts of those items identified in subsections (A) and (B) on the March 25, 1995 Balance Sheet [namely (1)] the sum of (a) Accounts receivable, net, (b) Inventories and (c) Prepaid expenses and other current items, less (2) the sum of (w) Negative cash and (x) Accounts payable and accrued expenses. (d) Allocation of Purchase Price. The Purchase Price will be ---------------------------- allocated among the Purchased Assets as set forth on Exhibit 1.3(d), which ----------------------- allocation shall be as determined by the Buyer subject to he approval of the Seller which shall not be unreasonably withheld or delayed. Each of the Buyer and Seller agrees that it will adopt and utilize the amounts so allocated for purposes of all federal, state and other tax returns filed by it and will not voluntarily take any position inconsistent therewith upon examination of any such tax return, in any claim, in any litigation or otherwise with respect to such tax returns. Notwithstanding any other provisions of this Agreement, the foregoing representation, warranty and agreement shall survive the Closing Date without limitation. 6 Section 1.4 Assumption of Obligations. - ----------- ------------------------- (a) Instrument of Assumption. At the Closing, Buyer shall, by separate ------------------------ instrument reasonably satisfactory to Seller, assume and agree to pay, perform and discharge, as and when they become due, all of the Assumed Obligations as herein defined existing on the Closing Date and as set forth in the Closing Date Financial Statements, and shall indemnify and save harmless Seller, its directors, officers and shareholders, and their respective successors and assigns, from and against any and all loss, liability, cost or expense (including without limitation reasonable attorneys' fees and expenses) incurred by them and arising out of the failure of Buyer to duly pay, perform and discharge the Assumed Obligations as and when they become due. (b) Assumed Obligations Defined. As used in this Agreement, "Assumed --------------------------- Obligations" means only those obligations, liabilities, covenants, commitments and undertakings of Seller (other than Excluded Liabilities and Obligations) existing on the, Closing Date and whether or not required under GAAP to be accrued as liabilities on the Closing Date Financial Statements arising under: (i) the Contracts described or referred to in Exhibit 1.1(a) -------------- (iv) hereto; ---- (ii) any ad valorem property taxes for the year 1995 with respect to the Purchased Assets to the extent not accrued as of the Closing Date; (iii) the Payables as defined in and as limited in Section 1.3(a) (ii); (iv) the remaining obligations of the Seller with respect to the Seller's note payable to the Seller's chairman of the board dated March 31, 1992, having an outstanding principal balance of $543,796 as of December 31, 1994 (which has been reduced by timely payment by Seller of monthly installments since that date), payable in monthly installments, maturity at March 30, 1999, collateralized by related warehouse equipment financed (the "Equipment Note"); and (v) the remaining obligations of Seller with respect to a Seller note or installment sales contract payable to Emich Oldsmobile-GMC Truck West, Inc. for a vehicle loan having an outstanding balance of $10,061.32 on the Closing Date. (c) Excluded Liabilities and Obligations Defined. As used in this -------------------------------------------- Agreement, the "Excluded Liabilities and Obligations" means all obligations, liabilities, covenants, commitments and undertakings of the Seller which are not expressly included within the definition of Assumed Obligations. (d) No Other Liabilities Assumed; Liabilities of Buyer After Closing. ---------------------------------------------------------------- Except for the Assumed Obligations, Buyer is not assuming any of Seller's liabilities, obligations, 7 covenants, commitments and undertakings, whether known or unknown, contingent or realized. ARTICLE II REPRESENTATIONS AND WARRANTIES OF SELLER ---------------------------------------- To induce Buyer to enter into this Agreement and to purchase the Purchased Assets, Seller hereby represents and warrants to the Buyer that: Section 2.1 Corporate Organization and Authority. Seller is a corporation duly - ----------- ------------------------------------ organized and validly existing in good standing under the laws of the State of Colorado, with full corporate power and authority to conduct its business as now conducted, to own its assets and enter into and perform its obligations under this Agreement. Seller's execution, delivery and performance of this Agreement and the sale to Buyer of the Purchased Assets have been duly authorized by all requisite corporate, director and shareholder action on the part of Seller, and this Agreement constitutes, and all deeds, bills of sale, assignments, agreements and other instruments and documents to be executed and delivered by Seller hereunder will constitute, Seller's legal, valid and binding obligations, enforceable against Seller in accordance with their respective terms. Section 2.2 Subsidiaries, Foreign Qualification and Ownership. - ----------- ------------------------------------------------- (a) Subsidiary. Seller has no subsidiaries and no other equity ---------- investments in any other corporation, partnership or other business entity. (b) Ownership. Seller's authorized capital stock consists of 5,000 --------- shares of $1.00 par value common stock, of which 264 shares have been duly authorized for issuance, have been validly issued and are outstanding, and are owned of record by Robert A. Jacobs, Trustee of the Onae Trust, Stephen Sardoni, Settlor, and Robert A. Jacobs, Trustee, dated December 20, 1985. Section 2.3 Absence of Conflicts and Consent Requirements. Seller's - ----------- --------------------------------------------- execution and delivery of this Agreement and performance of its obligations hereunder, including the sale of the Purchased Assets, will not conflict with, violate or result in any default under Seller's Articles of Incorporation or Bylaws or, except as set forth in Exhibit 2.3 hereto, any mortgage, indenture, ----------- agreement, instrument or other contract to which Seller is a party or by which Seller or its property is bound, nor will they violate any judgment, order, decree, law, statute, regulation or other judicial or governmental restriction to which Seller is subject. Except as set forth in Exhibit 2.3 hereto, Seller's ----------- execution and delivery of this Agreement and performance of its obligations hereunder, including the sale of the Purchased Assets, will not require the consent of, or any prior filing with or notice to, any governmental authority or other third party. 8 Section 2.4 Financial Statements. Seller's (a) audited financial statements - ----------- -------------------- for its fiscal years ended December 31, 1992, 1993, and 1994, consisting of its balance sheets as of such dates and its related statements of income and retained earnings and cash flows for the years then ended, and (b) unaudited balance sheet for the period ended March 25, 1995 and its related statements of income and retained earnings and cash flows (collectively, the "Financial Statements"), which Financial Statements are included as Exhibit 2.4 hereto, ----------- present fairly the financial position of Seller at the periods then ended and the results of its operations and cash flows for the periods then ended, in accordance with GAAP, provided, however, the March 25, 1995 Balance Sheet values Inventory at cost and not the lower of cost or market as required by GAAP. Section 2.5 Absence of Certain Changes. Since March 25, 1995, except as set - ----------- -------------------------- forth or referred to in Exhibit 2.5 hereto, there has not been: ----------- (a) any material adverse change in the financial position of Seller or in the results of its operations; (b) any change in the condition of the properties, business or liabilities of Seller except normal and usual changes in the ordinary course of business which have not been materially adverse; (c) any damage, destruction or loss (whether or not covered by insurance) materially and adversely affecting the properties or business of Seller; (d) any sale, lease, abandonment or other disposition by Seller of any interest in any machinery, equipment or other operating tangible personal property other than disposition of such tangible personal property which was no longer usable or required in Seller's business or which was replaced by tangible personal property of equal or greater value; (e) any change in the accounting methods or practices followed by Seller or in depreciation, amortization or inventory valuation policies theretofore used or adopted; (f) any material liability incurred by Seller contingent or otherwise, other than trade accounts, operating expenses, obligations under executory contracts incurred for fair consideration, taxes accrued with respect to operations during such period, and indebtedness for money borrowed or for the deferred purchase price of property purchased for fair consideration, all incurred in the ordinary course of Seller's business and in amounts and on terms consistent with prior practices; 9 (g) any increase, outside the ordinary course of business, in the compensation paid or to be paid, directly or indirectly, to any shareholder, officer or key employee of Seller, or any general increase in the rate of compensation paid to Seller's other employees; provided, however, it is understood by Buyer that Seller has made a separate severance payment to its President; (h) any resignation of any key management employee of Seller; or (i) any other material adverse change in the business or prospects of Seller, other than economic or regulatory changes generally known through Seller's industry as a whole and not unique to Seller's business. Section 2.6 Title to Assets. - ----------- --------------- (a) Intellectual Property. To the best knowledge of Seller, the Seller --------------------- has exclusive rights to use the Intellectual Property described on Exhibit ------- 1.1(a)(ix) in connection with its businesses as and where now conducted. The use - --------- of the Intellectual Property by Seller in its business as and where now conducted does not, to the best knowledge of Seller, violate or infringe the rights of any other person, nor is Seller a party to any agreement with any other person or entity with respect to the use of the Intellectual Property. (b) Contract Rights. The rights of Seller under the Contracts --------------- described or referred to in Exhibit 1.1(a) (iv) are valid and enforceable by ------------------ Seller, will, at the Closing, be validly assigned to and thereupon enforceable by Buyer, in each case in accordance with their respective terms. Seller is not in default in any material respects (nor does any circumstance exist which, with notice or the passage of time or both, would result in such a default) under any of the Contracts, and the assignment by Seller of its rights thereunder to Buyer will not violate the terms thereof. (c) Purchased Assets. Seller has good and marketable title to the ---------------- Purchased Assets, free and clear of all encumbrances other than those set forth on Exhibit 2.6 (the "Permitted Encumbrances"), has the right to convey ----------- the Purchased Assets to the Buyer, at the Closing shall have conveyed to Buyer good and marketable title to the Purchased Assets free and clear of all encumbrances other than the Permitted Encumbrances, and will warrant and defend the title to the Purchased Assets in Buyer against the lawful claims of all persons whomsoever, subject to the Permitted Encumbrances. Section 2.7 Condition of Tangible Assets. - ----------- ---------------------------- (a) Building. The Building is owned and occupied by Seller and the -------- Seller has full right, title and unencumbered interest therein (other than a first mortgage interest held by deLaski) and has full power and authority to enter into the Lease with the 10 Buyer. On the Closing Date, the Buyer will have full unobstructed right to occupy the Building which shall be vacated by the Seller on the Closing Date. (b) Equipment. All of the Equipment described in Exhibit 1.1(a) (iii) --------- ------------------- is currently operating and is in good condition and repair and will be in good operating condition and repair on the Closing Date subject to ordinary wear and tear. (c) Inventory. All of the Inventory to be shown on the Closing Date --------- Financial Statements will be valued at the lower of cost or market. Section 2.8 Equipment Leases. Except as set forth in Exhibit 2.8, none of the - ----------- ---------------- ----------- Equipment is leased by Seller to any other party and none of the real or tangible personal property used in Seller's business is leased by Seller from any other party. There is no default under the leases described on Exhibit 2.8 ----------- and such leases are valid and enforceable in accordance with their terms and the assignment by Seller of its rights thereunder to Buyer will not violate the terms thereof. Section 2.9 Adequacy of Assets. The Purchased Assets to be sold hereunder - ----------- ------------------ include all property, contract rights, leases and intangibles necessary for Buyer to continue in all material respects its ordinary course after the Closing the business now conducted by Seller, other than such business as Seller conducts with the Excluded Assets. Section 2.10 Litigation. Except as described in Exhibit 2.10 hereto, there are - ------------ ---------- ------------ no claims, actions, suits or other proceedings pending, or to the knowledge of Seller threatened, against the Purchased Assets or the Building before any court, agency or other judicial, administrative or other governmental body or arbitrator nor, to Seller's knowledge, does any state of facts exist which would be likely to give rise to any such claim, action, suit or other proceeding. Section 2.11 Compliance With Law. - ------------ ------------------- (a) Conduct of Business. Seller has conducted its business so as to ------------------- comply with, and is in material compliance with, all laws, statutes, regulations, rules and other requirements of any governmental authority applicable to it, including the Environmental Laws. (b) Investigations. Exhibit 2.11 describes all investigations of -------------- ------------ Seller or Seller's business known to Seller conducted by any grand jury, administrative agency or other governmental authority, and describes all inspection reports, inquiries, demands, requests for information, and claims of violations or noncompliance with law received by Seller from any governmental authority. (c) Judgments and Orders. Except as described in Exhibit 2.11, there -------------------- ------------ are no outstanding judgments, orders, writs or decrees of any judicial or other governmental 11 authority binding specifically upon Seller or the Purchased Assets and not of general application, other than judgments, orders, writs and decrees with which Seller has complied and which have no future applicability. (d) Capital Expenditures. There are no material capital expenditures -------------------- of which Seller has knowledge which will be required to be made in connection with Seller's business as now conducted in order to comply with any existing laws, regulations or other governmental requirements applicable to Seller's business, including without limitation requirements relating to occupational health and safety and protection of the environment. (e) Improper Payments. Neither Seller nor any shareholder, officer, ----------------- director, employee or other representative of Seller acting or purporting to act on behalf of Seller or of any business enterprise with which Seller has been associated or affiliated, has, directly or indirectly, made or authorized any payment, contribution or gift of money, property or services in violation of applicable law. Section 2.12 Hazardous Substances. Seller has not caused or permitted the - ------------ -------------------- Purchased Assets or the Excluded Assets to be used to generate, manufacture, refine, transport, treat, store, handle, dispose, transfer, produce or process Hazardous Substances, or other dangerous or toxic substances, or solid waste, except in compliance with all Environmental Laws, and has not caused or permitted and has no knowledge of the Release (as defined below) of any Hazardous Substances (as defined below) on or off-site of Seller's property, except as set forth in Exhibit 2.12. "Hazardous Substances" include any ------------ pollutants, dangerous substances, toxic substances, hazardous wastes, hazardous materials, or hazardous substances as defined in or pursuant to the Resource Conservation and Recovery Act 942 U.S.C. Section 6901, et seq.) ("RCRA") as -- --- amended, the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. Section 6901, et seq ("CERCLA") as amended, the Clean Air Act, -- --- as amended, the Clean Water Act, as amended, the Toxic Substances Control Act, as amended, or any other Environmental Law. "Release" means releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, disposing or dumping. In addition, except as set forth in Exhibit 2.12, Seller has complied with all applicable Environmental ------------ Laws and rules and regulations pertaining to Hazardous Substances or protection of environmental quality. For purposes of this Agreement, the term "Environmental Laws" means any federal, state or local laws, rules, regulations, ordinances, standards or judicial decisions relating to or regulating human safety or the condition of the environment, or the use, handling or disposal of any Hazardous Substance including, without limitation, RCRA, as amended, CERCLA, as amended, the Toxic Substances Control Act, as amended, or any other federal, state or local environmental law, ordinance, rule or regulation. 12 Section 2.13 Taxes. - ------------ ----- (a) Returns and Payment of Taxes. All tax returns required to be ---------------------------- filed on or prior to the Closing Date by Seller with all taxing authorities have been or prior to the Closing Date will have been filed; and all Taxes shown to be due and payable on such returns, all other Taxes, duties and other governmental charges payable by Seller and for the payment of which there may arise any lien upon the Purchased Assets sold hereunder subsequent to such sale, and all deficiencies, assessments, penalties and interest with respect thereto, notice of which has been received by Seller, in each case due and payable on or before the Closing Date, have been or prior to the Closing Date will have been paid. Copies of all state and federal income tax returns for the Seller for its last three (3) fiscal years have been separately delivered to Buyer, which copies are true and correct. (b) Taxes Defined. For purposes of this Agreement, "Tax" means any of ------------- the Taxes and "Taxes" means, (i) all income Taxes (including any tax on or based upon net income, or gross income, or income as specially defined, or earnings, or profits, or selected items of income, earnings or profits) and all gross receipts, sales, use, ad valorem, transfer, franchise, license, withholding, payroll, employment, unemployment, excise, severance, stamp, occupation, premium, property or windfall profits Taxes, alternative or add-on minimum Taxes, customs duties or other Taxes, fees, assessments or charges of any kind whatsoever, together with any interest and any penalties, additions to tax or additional amounts imposed by any taxing authority (domestic or foreign) and (ii) any liability for the payment of any amount of the type of described in the immediately preceding clause (i) as a result of being a "transferee") within the meaning of Section 6901 of the Internal Revenue Code or any other applicable law) of another person or entity or a member of an affiliated or combined group. (c) Tax Indemnification. Seller shall indemnify and hold harmless the ------------------- Buyer and the Purchased Assets from and against any and all claims, losses, damages, costs, and expenses which may be asserted against or incurred by Buyer with respect to any Taxes. Section 2.14 Employee Benefit Plans. - ------------ ---------------------- (a) Except as set forth on Exhibit 2.14, neither the Seller nor any ------------ person or entity under "common control" with it (as "common control" is defined under the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) currently maintains or contributes to, nor currently is a party to or may have liability with respect to (i) any bonus, pension, profit sharing, savings, retirement, or other similar deferred compensation plans, programs, or arrangements (including, but not limited to, "employee pension benefit plans" within the meaning of Section 3(1) of ERISA) which provides or provided benefits to any employees or other parties performing services for Seller (or their beneficiaries or dependents) ("Pension Benefit Plans"), or (ii) any 13 hospitalization, medical or dental reimbursement, severance pay, vacation pay, disability, death benefit, insurance, or other similar welfare benefit plans, programs, or arrangements (including, but not limited to, "employee welfare benefit plans" within the meaning of Section 3(2) of ERISA) which provides or provided benefits to any employees or other parties performing services for seller (or their beneficiaries or dependents) ("Welfare Benefit Plans"). Prior to the date hereof, Seller has delivered to the Buyer true copies of all documents, as they may have been amended to the date hereof, embodying or relating to all such plans set forth in Exhibit 2.14. ------------ (b) Except as set forth in Exhibit 2.14, as of the date hereof: ------------ (i) All payments required by any Pension Benefit Plan or Welfare Benefit Plan, any related trusts or any collective bargaining agreement or by law to be made by each such plan (including all insurance premiums or intercompany charges with respect to each such plan) with respect to all periods through the date hereof have been made, and all amounts have been properly accrued to date as liabilities under or with respect to each such plan for the current plan years; and (ii) Seller has performed all material obligations required to be performed by it under, and is not in material default under or in material violation, in form or in operation, of any term, provision, or condition of any Pension Benefit Plan or Welfare Benefit Plan. (c) Seller shall indemnify and hold harmless the Buyer from and against any and all claims, losses, damages, costs, and expenses which may be asserted against or incurred by Buyer with respect to any pension, welfare, fringe, or other employee benefit plan previously maintained or contributed to by Seller or any predecessor that provided benefits to any current or former employees or other parties by reason of services performed for Seller (or their beneficiaries or dependents). Section 2.15 Employee Relations. - ------------ ------------------ (a) Labor Organizations. Seller is not a party to, and there does not ------------------- otherwise exist, any union, collective bargaining or similar agreement with respect to employees of Seller. To the knowledge of Seller, there is no threatened strike, work stoppage work slowdown, or union organizing effort under way relating to Seller or its properties or business that may have a material adverse effect on the business, operations, or condition (financial or otherwise) of Seller. (b) Restrictions on Employees. To Seller's knowledge, no employee of ------------------------- Seller is subject to any agreement with any other person or entity which requires such officer or employee to assign any interest in inventions or other intellectual property or keep confidential any trade secrets, proprietary data, customer lists or other business 14 information or which restricts such employee from engaging in competitive activities or solicitation of customers. Section 2.16 Certain Contracts and Transactions. - ------------ ---------------------------------- Except as set forth in Exhibit 1.1(a) (iv) hereto or entered into between ------------------ the date hereof and the Closing Date with Buyer's prior consent, Seller is not party to any contract or agreement (including an option): (i) requiring performance by any party for a term of more than ninety (90) days from the Closing Date and not terminable prior to such time by Seller without cost, liability or penalty; (ii) providing for the sale or purchase by Seller of any equipment at a price of $5,000 or more; (iii) providing for payments by Seller in the aggregate amount of $5,000 or more for other than inventory purchased and other obligations in the ordinary course of business; (iv) evidencing, creating, guaranteeing or securing indebtedness of Seller for borrowed money or for the deferred purchase price of property; (v) pursuant to which any person or entity acts as agent, salesman, broker or in a similar representative capacity for Seller; (vi) establishing or providing for any joint venture, partnership or similar arrangement between Seller and any other person or entity; (vii) granting to any other person or entity a power of attorney or similar authority to act for Seller; (viii) under which the cost of Seller's performance is or is likely to be materially in excess of the benefits derived or expected to be derived by Seller thereunder; (ix) guaranteeing or endorsing the obligations of any other person or entity; (x) under which any person or entity described in clause (i), (ii) or (iii) of subsection (b) of this Section is a party or has an interest; or (xi) which is otherwise material to Seller's business or materially affects its assets, operations, profitability or prospects. 15 Section 2.17 Articles of Incorporation and Bylaws. Seller has delivered to - ------------ ------------------------------------ Buyer copies of its Articles of Incorporation and Bylaws and all amendments thereto, which documents are complete and correct as of the Closing Date. Section 2.18 Products. There are, to the knowledge of Seller, no orders or - ------------ -------- decrees of any court or governmental or regulatory body by which Seller or any of its assets or properties is bound and, to the knowledge of Seller, no statements, citations or decisions by any governmental or regulatory body that any product marketed or distributed by Seller ("Product") within one (1) year prior to the date of this Agreement, is defective or fails to meet in any material respect any standards promulgated by any such governmental or regulatory body. Within one (1) year prior to the date of this Agreement, there have been, to the best of Seller's knowledge, no recalls ordered by any such governmental or regulatory body with respect to any Product except as set forth on Exhibit 2.18. ------------- Section 2.19 No Material Misstatements or Omissions. The representations and - ------------ -------------------------------------- warranties of Seller in this Agreement do not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements made therein not misleading. ARTICLE III ----------- REPRESENTATIONS, WARRANTIES AND CERTAIN COVENANTS OF BUYER ---------------------------------------------------------- To induce Seller to enter into this Agreement and to sell the Purchased Assets, Buyer hereby represents and warrants to the Seller that: Section 3.1 Corporate Organization and Authority. Buyer is a corporation duly - ----------- ------------------------------------ organized and validly existing in good standing under the laws of the State of Delaware, with full corporate power and authority to conduct its business as now conducted and to enter into and perform its obligations under this Agreement and on the Closing Date will be duly qualified to do business in Colorado. Buyer's execution, delivery and performance of this Agreement and its acquisition of and payment for the Purchased Assets have been duly authorized by all requisite corporate action on the part of Buyer, and this Agreement constitutes, and all agreements and other instruments and documents to be executed and delivered by Buyer hereunder (including without limitation the Note) will constitute, Buyer's legal, valid and binding obligations, enforceable against Buyer in accordance with its terms. Section 3.2 Absence of Conflicts and Consent Requirements. Buyer's - ----------- -------------------------------------------------- execution and deliver of this Agreement and performance of its obligations hereunder, including the purchase of and payment for the Assets hereunder, do not and will not conflict with, violate or result in any default under Buyer's Articles of Incorporation or Bylaws or any mortgage, indenture, agreement, instrument or other contract to which Buyer is a party or any judgment, order, decree, law, statute, regulation or other judicial or governmental 16 restriction to which Buyer is subject. Buyer's execution and delivery of this Agreement and performance of its obligations hereunder, including the purchase of and payment for the Purchased Assets, and the issuance of the Note, do not and will not require the consent of, or any prior filing with or notice to, any governmental authority or other third party. Section 3.3 Financial Statements. Buyer's (a) audited financial statements for - ----------- -------------------- its fiscal years ended October 31, 1992, 1993 and 1994, consisting of its balance sheets as of such dates and its related statements of income and retained earnings and cash flows for the years then ended, and (b) unaudited balance sheet for the period ended April 30, 1995 and its related statements of income and retained earnings and cash flows (collectively, the "Buyer Financial Statements"), which Buyer Financial Statements are included as Exhibit 3.3 ----------- hereto, present fairly the financial position of Buyer at the periods then ended and the results of its operations and cash flows for the periods then ended, in accordance with GAAP. Section 3.4 Absence of Certain Changes. Since April 30, 1995, there has not - ----------- -------------------------- been: (a) any material adverse change in the financial position of Buyer or in the results of its operations; (b) any change in the condition of the properties, business or liabilities of Seller except normal and usual changes in the ordinary course of business which have not been materially adverse; (c) any damage, destruction or loss (whether or not covered by insurance) materially or adversely affecting the properties or business of Buyer; (d) any change in the accounting methods or practices followed by Buyer or in depreciation, amortization or inventory valuation policies theretofore used or adopted; (e) any material liability incurred by Seller contingent or otherwise, other than trade accounts, operating expenses, obligations under executory contracts incurred for fair consideration, taxes accrued with respect to operations during such period, and indebtedness for money borrowed or for the deferred purchase price of property purchased for fair consideration, all incurred in the ordinary course of Buyer's business and in amounts and on terms consistent with prior practices; or (f) any other material adverse change in the business or prospects of Buyer, other than economic or regulatory changes generally known through Buyer's industry as a whole and not unique to Buyer's business. 17 Section 3.5 No Material Misstatements or Omissions. The representations and - ----------- -------------------------------------- warranties of Buyer in this Agreement do not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements made therein not misleading. Section 3.6 Covenants to Buyer. Until the Note is paid in full, Buyer - ----------- ------------------ covenants and agrees with Seller that: (a) As soon as available and in any event within 120 days after the end of each fiscal year of the Buyer, Buyer will furnish to Seller audited consolidated statements of income, retained earnings and cash flows of the Buyer and its subsidiaries for such year and the related audited consolidated balance sheet as at the end of such year, prepared in accordance with GAAP on a last-in, first-out basis, and accompanied by an opinion thereon of KPMG Peat Marwick LLP or another firm of independent certified public accountants of recognized national standing, which opinion shall state that such consolidated financial statements fairly present the consolidated financial condition and results of operations of the Buyer and its subsidiaries as at the end of, and for, such fiscal year; (b) the Buyer shall keep, and shall cause each subsidiary to keep, adequate records and books of account with respect to its business activities in which proper entries are made in accordance with GAAP reflecting all financial transactions. (c) the Buyer shall pay and discharge and shall cause each of its subsidiaries to pay and discharge, all Taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits, or upon any property belonging to it, provided that neither the Buyer nor such subsidiary shall be required to pay any such Tax, assessment, charge, levy or claim the payment of which is being contested in good faith and by proper proceedings if it maintains adequate reserves with respect thereto. (d) the Buyer shall, and shall cause each of its subsidiaries to: (i) file all Federal, state and local tax returns and other reports that the Buyer or such subsidiary is required by law to file; (ii) maintain adequate reserves for the payment of all taxes, assessments, governmental charges and levies imposed upon it, its income or its profits or upon any Property or other asset owned by it. (e) the Buyer shall maintain, and shall cause each of its subsidiaries to maintain, insurance in such amounts and against such risks as is usually carried by owners of similar businesses and properties and Buyer shall cause its insurance carriers to name Seller as an additional insured and shall at the request of Seller, deliver certificates of insurance to Seller with respect thereto. 18 (f) the Buyer shall preserve and maintain, and shall cause each of its subsidiaries to preserve and maintain: (i) its separate corporate existence; (ii) all of its right, privileges and franchises necessary or desirable in the normal conduct of its business; and (iii) its qualification and good standing in all states in which such qualification is necessary in order for the Buyer or such subsidiary to conduct its business in such states. (g) the Buyer shall keep, and shall cause each of its subsidiaries to keep, all of its properties and other assets in good working order and condition (having regard to the condition of such properties and assets at the time such properties and assets were acquired by the Buyer or such subsidiary), ordinary wear and tear excepted; shall make, and shall cause each subsidiary to make, all necessary renewals, repairs, replacements, additions and improvements thereto. (h) the Buyer shall comply, and shall cause each of its subsidiaries to comply, with the requirements of all applicable laws, rules, regulations and orders of any governmental body or regulatory authority. (i) the Buyer shall, and shall cause its subsidiaries to, pay when due all indebtedness and other obligations of the Buyer or its subsidiaries. ARTICLE IV CERTAIN COVENANTS AND AGREEMENTS -------------------------------- Section 4.1 Conduct Prior to Closing. - ----------- ------------------------ (a) Ordinary Course of Business. From the date hereof through the --------------------------- Closing Date (the "Interim Period"), unless Buyer consents otherwise, Seller will conduct its business only in the ordinary course, will not dispose of any of the Equipment, will not enter into any contract, lease, agreement, transaction or arrangement which, if existing on the date hereof, would be required to be disclosed herein in response to any of the representations or warranties set forth in Article II, and will not take any other action which would cause any representation or warranty made in Article II hereof to be incorrect in any material respect if such representation or warranty were made on any date from the Closing Date through the Closing Date. Specifically, during the Interim Period, Seller shall not, without the written consent of Buyer: (i) Cancel any material debts or claims, or waive any rights of substantial value, or sell or otherwise dispose of or transfer any of the Purchased Assets, other than by transactions and actions in the ordinary course of business; 19 (ii) Permit or allow any of the Purchased Assets to be mortgaged, pledged, subjected to security interests or otherwise encumbered other than in the ordinary course of business, consistent with past practice; (iii) Make or incur any account payable other than in the ordinary course of business or incur any unusual or long-term commitment or other material obligation (whether absolute, accrued, contingent or other and whether due or to become due) affecting the business or Purchased Assets of Seller; (iv) Grant or pay any increase in salary or other type of bonus or compensation pursuant to any bonus, pension, profit-sharing or other plan or commitment, or otherwise, to any employee other than increases in the ordinary course of business; (v) Pay, loan or advance any amount to or in respect of, or sell, transfer or lease any properties or assets (real, personal or mixed, tangible or intangible) to or enter into any agreement, arrangement or transaction with any of the Shareholders, any of Seller's officers or directors, or any affiliate or associate (as the term "associate" is presently defined by the Rules and Regulations promulgated under the Securities Act of 1933, as amended) of any shareholder, or any of Seller's officers or directors, or any business or entity in which any shareholder, any officer or director of Seller, or any affiliate or associate of any such persons, has any direct or indirect interest, except for usual salary and expenses provided in the ordinary course of business; (vi) Reveal to any third person any customer lists or other confidential or proprietary information, or act otherwise in any manner which may materially adversely affect any of the Purchased Assets of Seller; (vii) Make any capital expenditures or commitments in excess of $10,000 in the aggregate for additions to equipment; or (viii) Make any material change in any method of accounting or accounting practice except as otherwise approved by Buyer. (b) Access. Through the Closing Date, Seller shall give Buyer and its ------ agents, attorneys and representatives full access to such of its properties, books, records and documents as Buyer may reasonably request; provided, however, ----------------- that until the Closing Buyer shall not disclose and shall cause its agents, attorneys and representatives not to disclose to any other party any confidential date or information secured from Seller, and, if the Closing does not occur as herein provided, Buyer will promptly return to Seller, at Buyer's expense, all documents, contracts and papers obtained from Seller or any of its representatives and all copies thereof and similarly, the Seller shall promptly return 20 to Buyer, at Seller's expense, all documents, contracts and papers obtained from Buyer or any of its representatives. (c) Insurance. Through the Closing Date Seller shall maintain in ---------- effect all insurance polices currently in effect. (d) Press Releases and Announcements. Through the Closing Date, -------------------------------- Buyer and Seller will cooperate in the preparation and dissemination of any press releases, announcements and other disclosures to others relating to the transactions contemplated hereby, and neither party shall make any such press releases, announcements or other disclosures, without the prior written consent of the other party; provided, however, that this subsection shall not preclude ----------------- either party from making any disclosure as to the transactions contemplated hereby which the disclosing party reasonably believes is required by applicable law; and provided, further, the Seller acknowledges that the Buyer in conducting its due diligence will be meeting representatives of two of the Seller's principal customers, Wild Oats Markets and Alfalfa's Markets, and Seller consents to such meetings. (e) Preservation of Business. Through the Closing Date, Seller will ------------------------ use its reasonable efforts to (i) preserve its present business organization intact, (ii) retain the services of its present officers and employees, (iii) preserve the present relationships of Seller with its customers, suppliers and other persons with whom it has business dealings, and (iv) preserve the good will of Seller's business. Section 4.2 Transfer of Name. The Seller does business under the Name which it - ----------- ---------------- has filed as a fictitious name with the Colorado Secretary of State and on the Closing Date the Seller will transfer the name to the Buyer to permit it to use the name from and after the Closing Date. Section 4.3 Maintenance of Records. Inasmuch as certain of the Seller's books, - ----------- ---------------------- records and documents are to be included as Purchased Assets and sold to Buyer hereunder, and certain other of Seller's books, records and documents are Excluded Assets to be retained by Seller hereunder, and Buyer or Seller may have need to have access to the books, records and documents held by the other after the Closing, Buyer and Seller agree that they shall each maintain for at least four years after the Closing Date (or for such longer period as may be required by applicable law) the respective books, records and documents sold or retained hereunder. During such period, representatives of Buyer shall be permitted to inspect and make copies of said books, records and documents retained by Seller during normal business hours and upon reasonable notice for purposes related to the continuation by Buyer of Seller's business; and representatives of Seller shall be permitted to inspect and make copies of said books, records, and documents sold to Buyer during normal business hours and upon reasonable notice for purposes related to winding up its affairs. 21 Section 4.4 Non-Compete Agreement. At the Closing, the Seller shall enter - ----------- --------------------- into a Non-Compete Agreement with the Buyer in substantially the form of Exhibit 4.4 hereto. - ----------- Section 4.5 Seller's Employees. Seller shall give such notice to its employees - ----------- ------------------ and to all governmental authorities, as required by applicable law, of the sale of the Purchased Assets to the Buyer under this Agreement on or prior to the Closing Date. Buyer may, but shall not be obligated pursuant to this Agreement, offer employment after the Closing to the employees of the Seller on such terms and conditions as Buyer may, in its sole discretion, determine appropriate; provided, however, in the event Buyer does offer employment commencing after Closing, Seller shall be responsible for all employment related liability related for any period through the Closing, including all accrued vacation leave for each former employee of Seller employed by Buyer. Buyer shall not have any liability to Seller or to any of Seller's employees for any employment related liability accruing on or before the Closing Date other than for amounts reflected as Assumed Obligations on the Closing Date Financial Statements. Prior to the Closing Date, Seller shall, to the extent permitted by law, provide Buyer with copies of the personnel records of all of its then current employees to include the two most recent employee evaluations for each such employee, if available. Seller will terminate employment of all of its employees on or before the Closing Date that are identified by Buyer to become employees of Buyer. Prior to the Closing Date, Buyer shall deliver to those employees of Seller which it has elected to employ a written offer of employment. The parties acknowledge that, effective as of the Closing Date, (i) no employee of the Seller shall be eligible to continue participation in any of the employee benefit plans of Seller, and (ii) Seller shall cease to provide any employee benefits or compensation to any such employee, except as required by law. Notwithstanding, Seller shall compensate all of its employees for accrued vacation pay or shall otherwise make arrangements with the Buyer to permit such employees to take accrued vacation of up to five (5) work days after the Closing Date but with Seller compensating Buyer therefore at the Closing Date. Seller shall deliver written verification to Buyer at the Closing as to each such employee who has elected to take such vacation days after the Closing Date. Section 4.6 Further Assurances. Seller and Buyer each hereby covenants and - ----------- ------------------ agrees with the other that at any time and from time to time it will promptly execute and deliver to the other such further assurances, instruments and documents and take such further action as the other may reasonably request in order to carry out the full intent and purpose of this Agreement. Section 4.7 Fees, Expenses and Sales Taxes. Seller, Shareholders and Buyer - ----------- ------------------------------ shall each bear their own expenses in connection with the negotiation and preparation of this Agreement and their consummation of the transactions contemplated hereby, including without limitation the fees and expenses of their respective counsel, accountants and consultants. The fees and expenses of preparing the Closing Date Financial Statements shall be borne by Seller. Buyer shall pay any Colorado and City of Denver or other sales 22 or use Taxes imposed on it with respect to its purchase of the Purchased Assets hereunder. Seller shall pay all transfer Taxes. Section 4.8 No Brokers. Other than the obligation of the Seller to pay a - ----------- ---------- broker's or finder's fee to Robertson, Stephens & Company, which Seller shall pay at Closing, Seller and Buyer each represent and warrant to the other that no broker or finder has been involved or engaged by it in connection with the transactions contemplated hereby, and each hereby agrees to indemnify and save harmless the other from and against any and all broker's or finder's fees, commissions or similar charges incurred or alleged to have been incurred by the indemnifying party in connection with the transactions contemplated hereby and any and all loss, liability, cost or expense (including reasonable attorneys' fees) arising out of any claim that the indemnifying party incurred any such fees, commissions or charges. Section 4.9 Payment of Excluded Liabilities. Seller covenants and agrees that - ----------- ------------------------------- it will pay, perform and discharge the Excluded Liabilities and Obligations as and when due, and will indemnify and save harmless Buyer therefrom. Buyer covenants and agrees that it will pay, perform and discharge the Assumed Obligations as and when due, and will indemnify and save harmless the Seller therefrom. Section 4.10 Bulk Transfer Compliance. Inasmuch as Buyer is to assume the - ------------ ------------------------ Assumed Liabilities and Obligations and Seller has agreed to duly pay, perform and discharge the Excluded Liabilities and Obligations, Buyer and Seller hereby mutually agree to waive compliance with the provision of Article 6 of the Colorado Uniform Commercial code and of the corresponding laws of any other jurisdiction, to the extent applicable to the transactions contemplated hereby. Seller covenants and agrees to indemnify and save harmless Buyer from and against any and all loss, liability, cost and expense (including reasonable attorneys' fees) arising out of noncompliance with said Bulk Transfers laws except to the extent arising out of Buyer's failure to pay, perform and discharge the Assumed Liabilities and Obligations as and when due. Section 4.11 Good Faith. From the date of this Agreement until the Closing, - ------------ ---------- neither Seller nor Buyer shall engage in any transaction or continue any course of conduct that, if engaged in or continued, would preclude or otherwise have a materially adverse effect on the consummation of the transactions contemplated hereby. Seller shall not take, or omit to take, any actions with respect to its assets or business, with the intent or the effect of causing Seller to breach its representations, warranties or covenants hereunder. Buyer and Seller will each exercise its reasonable efforts to cause all conditions to Closing set forth in Article V to be satisfied. Section 4.12 Prompt Action. Buyer and Seller shall proceed diligently and with - ------------ ------------- all practicable haste, and will use their respective best efforts, to prepare all necessary documentation and to complete all other matters relating to the Closing not later than July 29, 1995. 23 Section 4.13 Credit Cards. Certain of Seller's delivery driver employees and - ------------ ------------ certain other employees will have in their possession as of the Closing Date credit cards which they shall be permitted by Seller to retain and use in the ordinary course of business for the benefit of Buyer after the Closing Date. Buyer agrees to indemnify and hold harmless Seller for such credit card charges after the Closing Date and until August 31, 1995 or until such earlier time as the cards are cancelled and returned to Seller. Section 4.14 Insurance. As of the Closing Date, the Buyer shall have in full - ------------ --------- force and effect liability and property insurance with respect to the Purchased Assets in coverage amounts similar to those in effect on the Closing Date for the benefit of the Seller. To effect an orderly coverage transition, the Buyer shall arrange to acquire such insurance coverage through insurance carriers providing coverage for the Seller and the Seller shall cooperate with Buyer to enable Buyer to obtain such coverage. ARTICLE V CONDITIONS TO CLOSING --------------------- Section 5.1 Conditions to Buyer's Obligations. The obligations of Buyer to - ----------- --------------------------------- complete the Closing are contingent upon the fulfillment of each of the following conditions on or before the Effective Date, except to the extent that Buyer may, in its absolute discretion, waive in writing any one or more thereof in whole or in part: (a) Bringdown. The representations and warranties of Seller set forth --------- in this Agreement shall be true and correct in all material respects on the Closing Date with the same force and effect as though made on the Closing Date; all terms, covenants and conditions to be complied with and performed by Seller under this Agreement on or before the Closing Date shall have been duly complied with and duly performed; and Seller shall have delivered to Buyer at Closing a certificate, dated the Closing Date, to such effect. (b) Instruments of Transfer. Seller shall have delivered to Buyer such ----------------------- assignments, bills of sale, certificates of title, and other instruments of transfer, all in form reasonably satisfactory to Buyer, as are necessary to fully and effectively convey to Buyer all of the Purchased Assets in accordance with the terms hereof. (c) Consents. The consents described in Exhibit 2.3 hereto, and all -------- ----------- other consents required for Seller to perform its obligations hereunder, shall have been obtained in form reasonably satisfactory to Buyer. (d) Non-Compete Agreements. The Seller shall have executed and ---------------------- delivered a Non-Compete Agreement with Buyer in substantially the form of Exhibit 4.4 hereto. ----------- 24 (e) No Adverse Proceedings. No action, suit or proceeding before any ---------------------- court or governmental or regulatory authority shall have been commenced, no investigation by any governmental or regulatory authority shall have been commenced, and no action, suit or proceeding by any governmental or regulatory authority shall have been threatened, against any of the parties to this Agreement, or any of the principals, officers or directors of any of them, or any of the Purchased Assets seeking to restrain, prevent or change the transactions contemplated hereby or questioning the validity or legality of any of such transactions or seeking damages in connection with any of such transactions. (f) Legal Opinion. There shall have been delivered to Buyer the ------------- written legal opinion of Seller's counsel, Ireland, Stapleton, Pryor & Pascoe, P.C., dated the Closing Date, in substantially the form of Exhibit 5.1(f) ------------- hereto. (g) Shareholder and Director Approval. The transactions occurring --------------------------------- pursuant to this Agreement shall be approved by Seller's Board of Directors (and, to the extent necessary, by its shareholders) and Seller shall have delivered to Buyer copies of any resolutions approving the transactions occurring pursuant to this Agreement, certified by the Secretary of Seller. (h) Casualty. There shall not have occurred prior to the Closing Date -------- any material destruction, damage or loss to the Building or the Purchased Assets. (i) Articles of Incorporation and Bylaws. Seller shall have delivered ------------------------------------ to Buyer the Articles of Incorporation and the Bylaws, along with a certificate, dated as of the Closing Date, certifying as to the accuracy and completeness of the Articles of Incorporation and Bylaws. (j) Miscellaneous. A Certificate of Tax Good Standing and/or Waiver ------------- of Tax Lien issued by the relevant state taxing authority as to the Seller and its assets. (k) Seller Closing Deliveries. Seller shall have provided to the ------------------------- Buyer on or before the Closing Date the following: (i) a good standing certificate issued by the Secretary of State of Colorado with respect to Seller. (ii) certified copies of resolutions of the shareholders and board of directors of Seller authorizing the execution, delivery and performance by Seller of this Agreement, the conveyance of the Purchased Assets and the transactions contemplated hereby; 25 (iii) Seller shall have caused a search of the public records of the Secretary of State of Colorado and the Clerk and Records of the City and County of Denver relating to the existence of any Uniform Commercial Code financing statements and any statements of assignment thereof with respect to the Purchased Assets and shall cause its counsel to provide a report of such search to Buyer at the Closing; (iv) Seller shall provide evidence that it has given all required notices to appropriate taxing authorities with respect to the sale of the Purchased Assets and has paid all required taxes and Seller shall deliver tax lien releases or waivers to enable the Purchased Assets to be sold hereunder to the Buyer free and clear of all liens and encumbrances; and (iv) Seller shall have provided all information reasonably requested and shall have given representatives of Buyer access at all reasonable times to its place of business and property. (1) Lease Agreement. Seller shall execute and deliver to the Buyer a ---------------- lease for the Building (the "Lease") in the form as shall be agreed upon by the Buyer and Seller. (m) Customer Orders. There shall not have occurred any material (ten --------------- percent [10%] or more) decrease in sales volumes with either of the Seller's two (2) largest customers, Wild Oats Markets and Alfalfa's Markets comparing second quarter 1994 to second quarter 1995. (n) Inspections of Building and Equipment. The Buyer and its ------------------------------------- representatives shall have inspected the Building and Equipment and shall be reasonably satisfied as to the good operating condition of the Building and its operating systems and the Equipment such that the same shall be capable of its intended use by the Buyer in the continuance of the Seller's business. (o) Permits. Seller shall have assisted Buyer in obtaining all ------- necessary state and local operating permits and authorizations to enable Buyer to take over and continue the business of the Seller on and as of the Closing Date. Buyer and Seller shall timely cooperate with each other to enable Buyer to so conduct operations from and after the Closing Date. (p) Health Compliance and Other Assurances. Seller shall have -------------------------------------- delivered to Buyer an inspection report of the Denver Department of Health and Hospitals of the Building which shall be reasonably satisfactory to Buyer. Section 5.2 Conditions to Seller's Obligations. The obligations of Seller to - ----------- ---------------------------------- complete the Closing are contingent upon the fulfillment of each of the following conditions on or 26 before the Closing Date, except to the extent that Seller may, in its absolute discretion, waive any one or more thereof in whole or in part: (a) Bringdown. The representations and warranties of Buyer set forth in --------- the Agreement shall be true and correct in all material respects on the Closing Date with the same force and effect as though made on the Closing Date; all terms, covenants and conditions to be complied with and performed by Buyer under this Agreement on or before the Closing Date shall have been duly complied with and duly performed; and Buyer shall have delivered to Seller at Closing a certificate, dated the Closing Date, to such effect. (b) Payment of Adjusted Purchase Price and Assumption of Assumed ------------------------------------------------------------ Liabilities and Obligations. Buyer shall have paid to Seller the Purchase --------------------------- Price, as provided in Section 1.3(c) shall have delivered the Note in escrow to counsel for the Seller and shall have assumed the Assumed Obligations, as provided in Section 1.4 hereof, including without limitation, the remaining principal balances of the Equipment Note and the Vehicle Notes as exist on the Closing Date. (c) Corporate Approval. The transactions occurring pursuant to this ------------------ Agreement shall be approved by Buyer's Board of Directors (and, to the extent necessary by its shareholders) and Buyer shall have delivered to Seller copies of any resolutions approving the transactions contemplated by this Agreement, certified by the Secretary of the Buyer. (d) Non-Compete Agreements. Buyer shall have executed and delivered the ---------------------- Non-Compete Agreement with the Seller in substantially the form of Exhibit 4.4 ----------- hereto. (e) No Adverse Proceedings. No action, suit or proceeding before any court ---------------------- or governmental or regulatory authority shall have been commenced, no investigation by any governmental or regulatory authority shall have been commenced, and no action, suit or proceeding by any governmental or regulatory authority shall have been threatened, against any of the parties to this Agreement, or any of the principals, officers or directors of any of them, or any of the Purchased Assets seeking to restrain, prevent or change the transactions contemplated hereby or questioning the validity or legality of any of such transactions or seeking damages in connection with any of such transactions. (f) Legal Opinion. There shall have been delivered to Seller the written ------------- legal opinion of Buyer's counsel, Cameron & Mittleman, dated the Closing Date, in substantially the form of Exhibit 5.2(f) hereto. ------------- (g) Lease Agreement. Buyer shall have executed and delivered the Lease. --------------- 27 (h) Other Assurances. Buyer shall have delivered to Seller such other and ---------------- further certificates, assurances and documents as Seller may reasonably request in order to evidence the accuracy of Buyer's representations and warranties, the performance of its covenants and agreements to be performed at or prior to the Closing, and the fulfillment of the conditions to Seller's obligations. ARTICLE VI INDEMNIFICATION --------------- Section 6.1 Indemnification by Seller. Pursuant to the procedures and - ----------- ------------------------- limitations set forth in this Article VI, Seller hereby agrees that it will indemnify and save harmless Buyer from and against any and all Economic Loss (defined in Section 6.3) incurred by Buyer arising after the Closing out of any of the following: (a) Breach of Warranty. The falsity or incorrectness of any representation ------------------ or warranty made by Seller in this Agreement or in any instrument or document delivered by Seller to Buyer pursuant to this Agreement; (b) Breach of Covenants. Seller's failure to duly perform any covenant or ------------------- agreement to be performed by it under this Agreement or under any instrument or document delivered by Seller to Buyer pursuant to this Agreement; (c) Excluded Liabilities. The Excluded Liabilities and any other liability -------------------- or obligations, or alleged liability or obligations, of Seller other than the Assumed Liabilities; or (d) Claims Against Subject Assets. Any levy or other claim by any third ----------------------------- party against or with respect to the Purchased Assets, or any other claim by any third party against Buyer, arising out of any act or omission or alleged act or omission of Seller prior to the Closing, unless such claim or levy is with respect to Assumed Obligations or Permitted Encumbrances. Section 6.2 Indemnification by Buyer. Pursuant to the procedures and - ----------- ------------------------ limitations set forth in this Article VI, Buyer hereby agrees that it will indemnify and hold harmless Seller from and against any and all Economic Loss incurred by Seller arising after the Closing out of any of the following: (a) Breach of Warranty. The falsity or incorrectness of any representation ------------------ or warranty made by Buyer in this Agreement or in any instrument or document delivered by Buyer to Seller pursuant to this Agreement; (b) Breach of Covenants. Buyer's failure to duly perform any covenant or ------------------- agreement to be performed by it under this Agreement, the Note or the 28 Security Agreement or under any instrument or document delivered by Buyer to Seller pursuant to this Agreement; or (c) Assumed Obligations. The Assumed Obligations or any other liability ------------------- specifically undertaken by Buyer under this Agreement. Section 6.3 Economic Loss Defined. As used in this Agreement, the term - ----------- --------------------- "Economic Loss" means the aggregate amount of any losses, liabilities, damages, costs or expenses (including reasonable attorneys' fees and expenses incurred in connection with third party actions or enforcing this Agreement) incurred by Buyer or Seller arising out of the matters or circumstances referred to in subsections (a) through (d) of Section 6.1 as to Buyer and in subsections (a) through (c) of Section 6.2 as to Seller. Economic loss shall not include consequential damages. Section 6.4 Indemnity Claims by Buyer or Seller. - ----------- ----------------------------------- (a) Notice of Claim. If any matter shall arise which, in the opinion of --------------- Buyer, constitutes or may give rise to an Economic Loss subject to indemnification by Seller or Buyer, as the case may be, as provided herein (an "Indemnity Claim"), Buyer or Seller shall give prompt written notice (a "Notice of Claim") of such Indemnity Claim to the other party hereto, setting forth the relevant facts and circumstances of such Indemnity Claim in reasonable detail and the amount of indemnity sought from the other party with respect thereto, and shall give continuing notice promptly thereafter as to developments coming to such party's attention materially affecting any matter relating to such Indemnity Claim. (b) Third Party Claims. If any Indemnity Claim is based upon any claim, ------------------ demand, suit or action of any third party against Buyer or the Purchased Assets (a "Third Party Claim"), then Buyer, at the time it gives Seller the Notice of Claim with respect to such Third Party Claim, shall either (at Buyer's option): (i) Offer to Seller the option to have Seller assume the defense of such Third Party Claim, with counsel reasonably approved by Buyer, which option shall be exercised by Seller (if Seller elects to exercise) by written notice to Buyer within fifteen (15) days after Buyer gives written notice to Seller. If Buyer so offers such option and Seller so exercises such option, then Seller shall, at its own expense, assume the defense of such Third Party Claim, shall upon the final determination thereof duly discharge at its own expense all liability of Buyer with respect to such Third Party Claim, and shall be entitled, in its sole discretion and at its sole expense but without any liability of Buyer therefore, to compromise or settle such Third Party Claim upon terms acceptable to Seller. From the time Seller so assumes such defense and while such defense is pursued diligently and in good faith, Seller shall have no further liability for 29 attorneys' fees or other costs of defense thereafter incurred by Buyer in connection with such Third Party Claim; or (ii) undertake to defend such Third Party Claim itself. If Buyer so undertakes the defense of the Third Party Claim, it shall conduct such defense as would a reasonable and prudent person to whom no indemnity were available, shall permit Seller (at Seller's sole expense) to participate in (but not control) such defense, and shall not settle or compromise such Third Party Claim without Seller's consent. If Buyer fails to offer to Seller the option to assume the defense as provided in clause (i) above, or if Buyer so offers such option and Seller do not exercise such option within the time and in the manner therein provided, then Buyer shall undertake such defense in accordance with this clause (ii). (ii) As to any Third Party Claim against Seller, Seller shall provide Buyer the same rights as Buyer provides Seller in subparagraph (i) above. Section 6.5 Limitation of Seller's Liability. Except (i) as otherwise - ----------- -------------------------------- expressly provided in this Agreement, and (ii) in the case of fraud on the part of Seller, Seller shall not have any liability for any net Economic Loss otherwise indemnifiable hereunder with respect to which a Notice of Claim has not been given to the Seller prior to the expiration of eighteen (18) months after the Closing Date and the aggregate Economic Loss for which the Seller shall be liable to the Buyer hereunder shall not exceed $4,000,000, provided however, there shall be no limit, either in time or amount, with respect to Seller's obligations to fulfill all Excluded Liabilities and to pay all Taxes. The Buyer shall not seek indemnification under this Article VI until its Economic Loss is greater than $50,000 and thereafter shall be entitled to indemnification for any and all such Economic Loss above $25,000. Section 6.6 Set-Off. In addition to any other rights or remedies which Buyer - ----------- ------- may have, at law or equity, as a result of an Indemnity Claim, Buyer shall have the right to set-off the amount of such Indemnity Claim against any amounts due and owing under the Note or otherwise due the Seller under this Agreement or the Non-Compete Agreement. If an Indemnity Claim shall arise in an unliquidated amount, then in addition to any other rights or remedies which Buyer may have at law or in equity, Buyer shall have the right to pay any amounts owed under the Note into a segregated interest bearing account (the "Account") with Barclay's, until the amount of such Indemnity Claim shall become liquidated. At such time as the amount of the Indemnity Claim shall become liquidated, Buyer shall promptly pay any amounts in the Account in excess of the amount of the Indemnity Claim to Seller. Section 6.7 Survival of Seller's Warranties. The representations and - ----------- ------------------------------- warranties of Seller made in this Agreement or in any instrument or document delivered by Seller to Buyer pursuant to this Agreement shall survive the Closing to the extent, but only to the 30 extent, of the liability of Seller for indemnity with respect thereto as provided for in this Article VI. Section 6.8 Continued Liability for Indemnity Claims. The liability of Seller - ----------- ---------------------------------------- and the Buyer hereunder with respect to Indemnity Claims shall continue for so long as any Indemnity Claims may be made hereunder and, with respect to any such Indemnity Claims duly and timely made, thereafter until Seller's liability therefor is finally determined and satisfied, notwithstanding any prior liquidation or dissolution of Seller. If Seller shall liquidate or dissolve at any time when any liability of Seller with respect to Indemnity Claims may thereafter arise or be determined, then at the time of such liquidation or dissolution, the distributees of Seller's assets after the closing, including any liquidating trust established by the shareholders of the Seller shall assume Seller's liability with respect to Indemnity Claims to the extent of the value of all such assets distributed to them in such liquidation, and unless the shareholders or distributees expressly or by operation of law assume such liabilities, then Seller's or Buyer's liabilities and obligations to Buyer shall not be deemed to have been paid, discharged or provided for, and such distribution shall be void as against Buyer to the extent of such liabilities. ARTICLE VII MISCELLANEOUS ------------- Section 7.1 Merger Clause. This Agreement contains the final, complete and - ----------- ------------- exclusive statement of the agreement between the parties with respect to the transactions contemplated herein and all prior or contemporaneous written or oral agreements with respect to the subject matter hereof are merged herein. Section 7.2 Amendments. No change, amendment, qualification or cancellation - ----------- ---------- hereof shall be effective unless in writing and executed by each of the parties hereto by their duly authorized officers. Section 7.3 Benefits and Binding Effect. This Agreement shall be binding upon - ----------- --------------------------- and shall inure to the benefit of the parties hereto and their respective successors and assigns, provided, that neither party may sell, assign or otherwise convey its respective obligations hereunder. Section 7.4 Notices. All notices, requests and demands and other - ----------- ------- communications hereunder must be in writing and shall be deemed to have been duly given when personally delivered or when place in the United States Mails and forwarded by Registered or Certified Mail, return receipt requested, postage prepaid, addressed to the party to whom such notice is being given at the following addresses: 31 AS TO SELLER: Prem Mark, Inc. Donald Delaski, Chairman 8280 Greensboro Drive McLean, Virginia 22101 COPY TO: Robert A. Jacobs, Chairman c/o Milbank, Tweed, Hadley & McCloy 1 Chase Manhattan Plaza New York, New York 10005 COPY TO: Ireland, Stapleton, Pryor & Pascoe, P.C. 1675 Broadway, Suite 2600 Denver, Colorado 80202 Attn: Hardin Holmes AS TO BUYER: Cornucopia Natural Foods, Inc. 260 Lake Road Dayville, Connecticut 06241 Attn: Steven Townsend Chief Financial Officer COPY TO: Cameron & Mittleman 56 Exchange Terrace Providence, Rhode Island 02903 Attn: E. Colby Cameron Any party may change the address(es) to which notices to it are to be sent by giving notice of such change to the other parties in accordance with this Section. Section 7.5 Captions. The captions are for convenience of reference only and - ----------- -------- shall not be construed as a part of this Agreement. Section 7.6 Governing Law. This Agreement shall be construed, interpreted, - ----------- ------------- enforced and governed by and under the laws of the State of Colorado. Section 7.7 Exhibits. All of the Exhibits hereto referred to in this Agreement - ----------- -------- are hereby incorporated herein by reference and shall be deemed and construed to be a part of this Agreement for all purposes. 32 Section 7.8 Severability. The invalidity or unenforceability of any one or - ----------- ------------ more phrases, sentences, clauses or provisions of this Agreement shall not affect the validity or enforceability of the remaining portions of this Agreement or any part thereof. Section 7.9 Counterparts. This Agreement may be executed in any number of - ----------- ------------ counterparts, all of which shall constitute one and the same instrument. Section 7.10 Time. Time is of the essence of this Agreement and all of its - ------------ ---- terms and conditions. IN WITNESS WHEREOF, Seller and Buyer have each caused this Agreement to be executed by their respective duly authorized officers as of the day and year first above written. SELLER: BUYER: PREM MARK, INC. CORNUCOPIA NATURAL FOODS, INC. By: /s/ Donald deLaski By: /s/ Norman A. Cloutier ----------------------- --------------------------- Donald deLaski Norman A. Cloutier Chairman of the Board President 33 LIST OF EXHIBITS ---------------- Exhibit 1.1(a)(i) Accounts Receivable Exhibit 1.1(a)(ii) Inventory Exhibit 1.1(a)(iii) Equipment Exhibit 1.1(a)(iv) Contracts Exhibit 1.1(a)(v) Intellectual Property Exhibit 1.1(a)(viii) Licenses Exhibit 1.3(c) Note Exhibit 1.3(d) Allocation of Purchase Price Exhibit 2.2 Jurisdictions in Which Authorized to Conduct Business Exhibit 2.3 Conflicts and Consents Exhibit 2.4 Financial Statements Exhibit 2.5 Certain Changes Exhibit 2.6 Permitted Encumbrances Exhibit 2.8 Equipment Leases Exhibit 2.10 Litigation Exhibit 2.11 Compliance with Law Exhibit 2.12 Hazardous Substances Exhibit 2.14 Employee Benefit Plans Exhibit 2.18 Product Recalls Exhibit 3.3 Buyer Financial Statements Exhibit 4.4 Form of Non-Competition Agreement Exhibit 5.1(f) Form of Opinion of Seller's Counsel Exhibit 5.2(f) Form of Opinion of Buyer's Counsel 34 EX-10.11 13 NOTE & WARRANT PURCHASE AGREEMENT Exhibit 10.11 ------------- EXECUTION COPY -------------- ________________________________________________________________________________ ________________________________________________________________________________ NOTE AND WARRANT PURCHASE AGREEMENT by and between CORNUCOPIA NATURAL FOODS, INC. and TRIUMPH-CONNECTICUT LIMITED PARTNERSHIP _____________________________ Dated as of November 17, 1993 _____________________________ TABLE OF CONTENTS
ARTICLE 1 Definitions ----------- ARTICLE 2 Notes and Warrants ------------------ Section 2.1 Authorization of Issuance of Notes and Warrants........ 13 ----------------------------------------------- Section 2.2 Interest Rates......................................... 14 -------------- Section 2.3 Purchase and Sale of Notes and Warrants................ 14 --------------------------------------- Section 2.4 Optional Prepayment of Notes........................... 14 ---------------------------- Section 2.5 Mandatory Repayment of Notes........................... 15 ---------------------------- Section 2.6 Payments and Notations................................. 15 ---------------------- Section 2.7 Form and Terms of Payment.............................. 15 ------------------------- Section 2.8 Acquisition of Notes by Company........................ 16 ------------------------------- Section 2.9 Fee.................................................... 16 --- ARTICLE 3 Representations and Warranties of the Company --------------------------------------------- Section 3.1 Corporate Existence................................... 16 ------------------- Section 3.2 Information........................................... 17 ----------- Section 3.3 Litigation............................................ 19 ---------- Section 3.4 No Breach............................................. 19 --------- Section 3.5 Corporate Action...................................... 19 ---------------- Section 3.6 Approvals............................................. 20 --------- Section 3.7 Regulations G, T and X................................ 20 ---------------------- Section 3.8 ERISA................................................. 20 ----- Section 3.9 Taxes................................................. 22 ----- Section 3.10 Subsidiaries; Agreements; Licenses.................... 22 ---------------------------------- Section 3.11 Investment Company Act................................ 23 ---------------------- Section 3.12 Public Utility Holding Company Act.................... 23 ---------------------------------- Section 3.13 Ownership and Use of Properties....................... 23 ------------------------------- Section 3.14 Compliance With Applicable Laws....................... 23 ------------------------------- Section 3.15 Solvency.............................................. 24 -------- Section 3.16 Securities Act, Trust Indenture Act, Etc.............. 24 ---------------------------------------- Section 3.17 Offering of Notes and Warrants........................ 24 ------------------------------ Section 3.18 Broker's Commission................................... 24 ------------------- Section 3.19 Fiscal Year........................................... 25 ----------- Section 3.20 Other Agreements...................................... 25 ----------------
ARTICLE 4 Representations and Warranties of the Purchaser ----------------------------------------------- ARTICLE 5 Use of Proceeds --------------- ARTICLE 6 Conditions to Obligations ------------------------- Section 6.1 The Notes and the Warrants............................ 26 -------------------------- Section 6.2 Opinions and Certificates............................. 26 ------------------------- Section 6.3 No Default; Representations and Warranties............ 27 ------------------------------------------ Section 6.4 Closing of the Restructuring and the Loan ----------------------------------------- Agreement ......................................................... 27 --------- Section 6.5 Retail's Issuance of Common Stoc...................... 28 -------------------------------- Section 6.6 Copies of Agreements, Contracts. Leases and ------------------------------------------- Licenses........................................................... 28 -------- Section 6.7 Adverse Changes....................................... 28 --------------- Section 6.8 Guaranty.............................................. 28 -------- Section 6.9 Taxes................................................. 28 ----- Section 6.10 Closing............................................... 29 ------- Section 6.11 Non-Competition Agreement............................. 29 ------------------------- Section 6.12 Additional Documents and Actions...................... 29 -------------------------------- Section 6.13 Proceedings Satisfactory.............................. 29 ------------------------ ARTICLE 7 Affirmative Covenants --------------------- Section 7.1 Financial Statements and Other Information............ 29 ------------------------------------------ Section 7.2 Taxes, Liens and Claims............................... 32 ----------------------- Section 7.3 Tax Returns........................................... 32 ----------- Section 7.4 Insurance............................................. 32 --------- Section 7.5 Maintenance of Existence; Conduct of Business......... 32 --------------------------------------------- Section 7.6 Maintenance of and Access to Properties............... 32 --------------------------------------- Section 7.7 Compliance With Applicable Laws....................... 33 ------------------------------- Section 7.8 Litigation............................................ 33 ---------- Section 7.9 Warrants.............................................. 33 -------- Section 7.10 Payment of Indebtedness............................... 33 ----------------------- Section 7.11 Environmental Matters................................. 33 --------------------- Section 7.12 ERISA................................................. 34 ----- Section 7.13 Additional Notices to Purchase........................ 35 ------------------------------ Section 7.14 Landlord and Storage Agreement........................ 36 ------------------------------
Section 7.15 Subordination......................................... 36 ------------- Section 7.16 Further Assurances.................................... 36 ------------------ Section 7.17 Board Seat............................................ 36 ---------- ARTICLE 8 Negative Covenants ------------------ Section 8.1 Indebtedness.......................................... 37 ------------ Section 8.2 Mortgages and Liens................................... 37 ------------------- Section 8.3 Loans, Guaranties and Investments..................... 38 --------------------------------- Section 8.4 Restricted Payments................................... 39 ------------------- Section 8.5 Mergers; Consolidations; Sales of Assets; Changes in ----------------------------------------------------- Control; -------- and Acquisitions............................................ 40 ---------------- Section 8.6 ERISA................................................. 40 ----- Section 8.7 Minimum Adjusted Tangible Net Worth................... 41 ----------------------------------- Section 8.8 Minimum Operating Cash Flow........................... 41 --------------------------- Section 8.9 Minimum Ratio of Operating Cash Flow to --------------------------------------- Consolidated ------------ Interest Expense............................................ 41 ---------------- Section 8.10 Maximum Leverage...................................... 41 ---------------- Section 8.11 Transactions with Affiliates and Stockholders......... 42 --------------------------------------------- Section 8.12 Loans................................................. 42 ----- Section 8.13 Amendments to Certain Agreement....................... 42 ------------------------------- Section 8.14 Subsidiaries.......................................... 43 ------------- Section 8.15 Capital Expenditures.................................. 43 -------------------- Section 8.16 Business Locations.................................... 43 ------------------ Section 8.17 Change of Business.................................... 43 ------------------ Section 8.18 Use of Purchaser's and/or Holders' Names.............. 43 ---------------------------------------- Section 8.19 Restricted Investments................................ 44 ---------------------- Section 8.20 Leases................................................ 44 ------ Section 8.21 Tax Consolidation..................................... 44 ----------------- ARTICLE 9 Events of Default ----------------- Section 9.1 Events of Default..................................... 44 ----------------- ARTICLE 10 Remedies on Default ------------------- Section 10.1 Remedies on Default................................... 47 -------------------
ARTICLE 11 Restrictions on Transfer ------------------------ Section 11.1 Applicability of Restrictions......................... 48 ----------------------------- Section 11.2 Restrictive Legends................................... 48 ------------------- Section 11.3 Notice of Proposed Transfer; Opinion of Counsel....... 48 ----------------------------------------------- Section 11.4 Transfer Pursuant to Rule 144A........................ 49 ------------------------------ Section 11.5 Transfer of Warrants.................................. 49 -------------------- ARTICLE 12 Subordination of Notes ---------------------- Section 12.1 Notes Subordinate to Senior Indebtedness.............. 49 ---------------------------------------- Section 12.2 Payment Over of Proceeds Upon Dissolution Etc......... 49 ---------------------------------------------- Section 12.3 No Payment on Notes in Certain Circumstances.......... 50 -------------------------------------------- Section 12.4 Payment Permitted..................................... 51 ----------------- Section 12.5 Subrogation to Rights of Holders of Senior ------------------------------------------ Indebtedness....................................................... 52 ------------ Section 12.6 Provisions Solely to Define Relative Rights........... 52 ---------------------------------------------- Section 12.7 Certain Notices....................................... 52 --------------- Section 12.8 Reliance on Judicial Order or Certificate of -------------------------------------------- Liquidating Agent.................................................. 53 ----------------- Section 12.9 Legend................................................ 53 ------ Section 12.10 Exercise of Remedies.................................. 53 --------------------- ARTICLE 13 Expenses, Indemnity ------------------- Section 13.1 Expenses.............................................. 54 -------- Section 13.2 Indemnity............................................. 54 --------- ARTICLE 14 Amendments and Waivers ---------------------- Section 14.1 Amendments and Waiver................................. 55 --------------------- ARTICLE 15 Substitution and Replacement of Notes and Warrants -------------------------------------------------- Section 15.1 Registration; Exchange of Notes and Warran............ 55 ------------------------------------------ Section 15.2 Replacement of Notes.................................. 56 --------------------
ARTICLE 16 General Provisions ------------------ Section 16.1 Notices............................................... 57 -------- Section 16.2 Calculations.......................................... 57 ------------ Section 16.3 Successors and Assigns; Survival of Agreements........ 57 ---------------------------------------------- Section 16.4 Counterparts; Section Headings, Etc................... 58 ------------------------------------ Section 16.5 Entire Agreemen....................................... 58 --------------- Section 16.6 Governing Law; Jurisdiction........................... 58 --------------------------- Section 16.7 Severability.......................................... 59 ------------ Section 16.8 Estoppel Certificates................................. 59 --------------------- Section 16.9 Jury Waiver; Consequential Damages.................... 59 ----------------------------------- Section 16.10 PJR Waiver............................................ 59 ---------- Section 16.11 Notice of Breach by the Holders....................... 60 -------------------------------- Section 16.12 Concerning the Warrants............................... 60 ----------------------- Section 16.13 Rights and Remedies Cumulativ......................... 60 ------------------------------ Section 16.14 Accounting Terms...................................... 60 ----------------
Exhibits - -------- Exhibit A: Form of Guaranty Exhibit B: Form of Note Exhibit C: Form of Warrant Exhibit D: Form of Opinion of Counsel to the Company Exhibit D-2: Form of Opinion of Special Counsel to the Company Exhibit E: Existing Locations Exhibit F: Forms of Non-Competition Agreements Schedules - --------- Schedule 3.1(b): Existing Shareholders and Outstanding Stock Schedule 3.3: Litigation Schedule 3.8: ERISA Matters Schedule 3.10(a): Existing Subsidiaries, Affiliates and Investments in Joint Ventures and Other Persons Schedule 3.10(b): Existing Financing Agreements, Security Agreements, Etc., to which the Company or any of its Subsidiaries or Affiliates is a Party Schedule 3.10(c): Governmental Authorizations and Permits Schedule 3.13(b): Real Property Owned by the Company and its Subsidiaries and Affiliates Schedule 3.14: Environmental Matters NOTE AND WARRANT PURCHASE AGREEMENT NOTE AND WARRANT PURCHASE AGREEMENT, dated as of November 17, 1993 (this "Agreement"), by and between CORNUCOPIA NATURAL FOODS, INC., a Rhode Island corporation with its principal office at 260 Lake Road, Dayville, Connecticut 06241 and with its successors and assigns, the "Company"), and TRIUMPH- CONNECTICUT LIMITED PARTNERSHIP, a Connecticut limited partnership with its principal office located at CityPlace I, 35th Floor, Hartford, Connecticut 06103-3499 (the "Purchaser"); WHEREAS, Natural Retail Group, Inc., a Delaware corporation with its principal office at 260 Lake Road, Dayville, Connecticut 06241 (together with its successors and permitted assigns, "Retail") is a wholly-owned subsidiary of the Company formed to acquire and conduct all of the Company's retail sales operations and to further expand such operations; and WHEREAS, the Company intends to issue senior notes and warrants to purchase common stock of the Company and to transfer all of the proceeds of such issuance to Retail to finance such acquisition and expansion and for working capital purposes; and WHEREAS, the Purchaser desires to purchase such senior notes and warrants. NOW THEREFORE, the Company and the Purchaser hereby agree as follows: ARTICLE 1 Definitions ----------- As used herein the following terms have the following respective meanings: "Adjusted Tangible Assets" shall mean all assets of the Company except: ------------------------ (i) any surplus resulting from any write-up of assets subsequent to October 31, 1992; (ii) deferred assets, other than deferred taxes, prepaid insurance and prepaid taxes; (iii) patents, copyrights, trademarks, trade names, non-compete agreements, franchises and other similar intangibles; (iv) good will, including without limitation any amounts, however designated on a Consolidated balance sheet of a Person or its Subsidiaries, representing the excess of the purchase price paid for assets or stock over the value assigned thereto on the books of such Person; (v) Restricted Investments; (vi) unamortized debt discount and expense; and (vii) assets located and notes and receivables due from obligors outside the United States of America. -1- "Adjusted Tangible Net Worth" shall mean, at any date, with respect to a --------------------------- Person a sum equal to: (i) the net book value (after deducting related depreciation, obsolescence, amortization, valuation and other proper reserves) at which Adjusted Tangible Assets of such Person would be shown on a balance sheet at such date in accordance with GAAP, minus (ii) the amount at which such Person's liabilities (other than capital stock and surplus) would be shown on such balance sheet in accordance with GAAP, including as liabilities all reserves for contingencies and other potential liabilities and, in the case of the Company, excluding as a liability the Indebtedness evidenced by the ESOP Notes and all of the Company's other obligations with respect to the ESOP Notes. "Affiliate" shall mean, with respect to any Person, (i) any member, general --------- or limited partner, stockholder, director, officer or employee of such Person; (ii) any corporation, partnership, association, firm or other entity of or in which such Person is a director, partner, officer or employee; (iii) any other Person directly or indirectly Controlling, Controlled by or under direct or indirect common Control with such Person; (iv) any other Person which beneficially owns or holds, directly or indirectly, 25% or more of any class of such Person's Voting Stock (or in the case of a Person which is not a corporation, 25% or more of the issued and outstanding equity interests of such Person); or (v) any other Person if such Person beneficially owns or holds, directly or indirectly, 25% or mote of any class of such other Person's Voting Stock (or in the case of another Person which is not a corporation, 25% or more of the issued and outstanding equity interests of such other Person). "Agreement" shall mean this Note and Warrant Purchase Agreement, as the --------- same may be amended and/or supplemented from time to time. "Authorized Person" shall mean the Chairman, Chief Executive Officer, ----------------- President or Vice President of a Person, or any other officer duly authorized to act for such person. "Barclays's Indebtedness" shall mean the $13,000,000 principal amount ----------------------- revolving and term credit and letter of credit facility provided to the Company by the Lender under the Loan Agreement and any interest accrued thereon. "Basic Documents" shall mean the Company Documents, the Guaranty, the --------------- documents implementing the Restructuring and the Loan Agreement. "Business Day" shall mean any day other than a Saturday, Sunday and any ------------ other day which is a legal holiday in the State of Connecticut or a day on which banking institutions located therein are required or authorized by law to close. "Capital Expenditure" shall mean expenditures made or liabilities incurred ------------------- for the acquisition of any fixed assets or improvements, replacements, substitutions or -2- additions thereto which have a useful life of more than one (1) year, including without limitation the direct or indirect acquisition of such assets by way of increased product or service charges, offset items or otherwise and the principal portion of payments with respect to Capitalized Lease Obligations. "Capitalized Lease Obligation" shall mean any Indebtedness represented by ---------------------------- obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP, and the amount of such Indebtedness shall be the capitalized amount of such obligations determined in accordance with GAAP. "Capital Lease" shall mean any Lease which, in accordance with GAAP, is or ------------- would be required to be capitalized on the lessee's balance sheet, in each case taken at the amount thereof capitalized in accordance with GAAP. "CERCLA" shall mean the Comprehensive Environmental Response, Compensation ------ and Liability Act of 1989, as amended, and all rules, regulations and rulings issued thereunder. "Certificate of Incorporation" shall mean, with respect to any Person which ---------------------------- is a corporation, the certificate of incorporation, articles of incorporation, charter or other constitutional documents of such Person. "Closing Date" shall mean November 17, 1993, or such other day as the ------------ Purchaser and the Company may agree. "Code" shall mean the Internal Revenue Code of 1986, as amended from time ---- to time, and the regulations and rulings issued thereunder. "Commission" shall mean the Securities and Exchange Commission or any other ---------- Federal agency administering the Securities Act. "Common Stock" shall mean the Company's voting common stock, no par value ------------ per share. "Company" shall have the meaning given to that term in the preamble of this ------- Agreement. "Company Documents" shall mean this Agreement, the Notes, the Registration ----------------- Rights Agreement and the Warrants. "Consolidated" refers to the consolidation of accounts of a Person in ------------ accordance with GAAP, including without limitation principles of consolidation, consistent with those applied in the preparation of the consolidated financial statements referred to in Section 3.2. -3- "Control" shall mean the possession, directly or indirectly, of the power ------- to direct or cause the direction of the management and policies of a Person, whether through the ownership of Voting Stock, by contract or otherwise. "Current Assets" shall mean at any date the amount at which all of the -------------- current assets of a Person properly would be classified as current assets shown on a balance sheet at such date in accordance with GAAP. "Default" shall mean an event or condition the occurrence or existence of ------- which would, with the lapse of time or the giving of a required notice or both, become an Event of Default. "Default Rate" shall mean the rate per annum equal to the interest rate ------------ payable on the Notes plus 2%, or, if lower, the highest rate permitted by applicable law. "Distribution" shall mean and include with respect to any corporation: ------------ (i) the payment of any dividends or other distributions on capital stock of the corporation (except distributions in such stock) and (ii) the redemption or acquisition of Securities unless made contemporaneously from the net proceeds of the sale of Securities. "Environmental Laws" shall mean any and all Federal, state, local and ------------------ foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, codes, plans, injunctions, permits, concessions, grants, franchises, licenses, agreements or other governmental restrictions relating to the environment or to emissions, discharges or releases of pollutants, contaminants, petroleum or petroleum products, chemicals or industrial, toxic or hazardous substances or wastes into the environment, including without limitation ambient air, surface water, ground water or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, petroleum or petroleum products, chemicals or industrial, toxic or hazardous substances or wastes or the clean-up or other remediation thereof. "Environmental Liabilities" means all liabilities of the Company and each ------------------------- Subsidiary, whether vested or unvested, contingent or fixed, actual or potential, known or unknown, which arise under or relate to Environmental Laws or arise in connection with or relate to any matter disclosed or required to be disclosed in Schedule 3.14. ------------- "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as ----- amended from time to time, and the regulations and rulings issued thereunder. -4- "ERISA Affiliate" shall mean all members of a controlled group of --------------- corporations and all trades or businesses (whether or not incorporated) under common control that, together with the Company, would be treated as a single employer under Section 414 of the Code. "ESOP Guaranty" shall mean that certain Guaranty Agreement made the 1st ------------- day of November, 1988, by the Company to Steven Townsend, Trustee of a Trust Agreement dated November 1, 1988 for the benefit of Norman Cloutier, Steven Townsend, Daniel Atwood and Theodore Cloutier. "ESOP Notes" shall mean that certain promissory note executed by the ---------- Trustees of the Company's Employee Stock Ownership Trust in favor of Steven Townsend as Trustee for Norman Cloutier, Steven Townsend, Daniel Atwood and Theodore Cloutier in the original principal amount of $4,080,000, dated November 1, 1988, as amended by the certain Modification to Fixed Rate Term Loan Note dated February 26, 1993, together with any amendment, extension, replacement or renewal thereof. "Event of Default" shall have the meaning set forth in Article 9. ---------------- "Fiscal Month" shall mean a fiscal month of the Company consisting of a ------------ calendar month. "Fiscal Quarter" shall mean a fiscal quarter of the Company consisting of a -------------- calendar quarter ending on January 31, April 30, July 31 or October 31, as the case may be. "Fiscal Year" shall mean a fiscal year of the Company commencing on ----------- November 1 and ending on October 31. "Funded Indebtedness" shall mean (i) all Indebtedness as defined in clauses ------------------- (i), (ii), (iii), (iv), (v) and (vi) of the definition of Indebtedness which matures or is extendible to, a date twelve months after the date of calculation and (ii) all Short-Term Indebtedness which is outstanding for 12 consecutive months without having been repaid for a period of not less than 30 consecutive days during such period. "GAAP" shall mean generally accepted accounting principles, consistently ---- applied. "Guaranteed Indebtedness" of any Person means all Indebtedness referred to ----------------------- in clause (i), (ii), (iii) or (iv) of the definition of "Indebtedness" in this Article 1 guaranteed directly or indirectly in any manner by such Person, or in effect guaranteed directly or indirectly by such Person (or secured by any assets of such -5- Person) through an agreement (i) to pay or purchase such Indebtedness or to advance or supply funds for the payment or purchase of such Indebtedness, (ii) to purchase, sell or lease (as lessee or lessor) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such Indebtedness or to assure the holder of such Indebtedness against loss, (iii) to supply funds to, or in any other manner invest in, the debtor (including without limitation any agreement to pay for property or services irrespective of whether such property is received or such services are rendered) or (iv) otherwise to assure a creditor against loss or to grant a security interest in property for the benefit of any such creditor. On the date of this Agreement, the Company's Guaranteed Indebtedness includes without limitation the ESOP Notes. "Guarantor" shall mean (i) Retail and (ii) each other Person that from time --------- to time becomes a party to the Guaranty or otherwise guarantees the obligations of the Company hereunder. "Guaranty" shall mean the Guaranty in the form of Exhibit A entered into by -------- --------- the Guarantor. "Holders" shall mean the Purchaser and any subsequent holder of Notes or ------- Warrants other than the Company or any of the Companys' Affiliates. "Indebtedness" of any Person means (without duplication), as of any ------------ specified date, the aggregate amount outstanding or owing under (i) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services or amounts payable under any contracts (including without limitation all obligations in respect of principal and interest payable on such indebtedness and all other obligations, contingent or otherwise, of such Person in connection with letter of credit facilities, acceptance facilities or other similar facilities and in connection with any agreement to purchase, redeem, exchange, convert or otherwise acquire for value any capital stock of, or other equity interest in, such Person or any other Person), (ii) all obligations of such Person evidenced by bonds, notes, debentures or other similar instruments, (iii) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (iv) all obligations of such Person under any Capital Lease, (v) all Indebtedness referred to in clause (i), (ii), (iii) or (iv) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any lien, security interest or other charge or encumbrance upon or in property (including without limitation accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness, (vi) all Guaranteed Indebtedness of such Person, (vii) all liabilities incurred by such Person or any ERISA Affiliate to the PBGC upon the termination under Section 4041 -6- or Section 4042 of ERISA of any Pension Plan, (viii) all Withdrawal Liabilities of such Person or any of its ERISA Affiliates and (ix) all increases in the amount of contributions required to be made by such Person and its ERISA Affiliates in each fiscal year of such Person to Multiemployer Plans, due to the reorganization or termination of any such Multiemployer Plan within the meaning of Title IV of ERISA, over the average annual amount of such contributions required to be made during the last three (3) years preceding such reorganization or termination. "Insufficiency" shall mean with respect to any Plan, at any time, the ------------- amount (if any) by which (i) the present value of all benefits under such Plan exceeds (ii) the fair market value of all Plan assets allocable to such benefits, all determined as of the then most recent valuation date for such Plan. "Interest Expense" shall mean, for any accounting period, the aggregate ---------------- amount of interest expense accrued for such period on Indebtedness of the Company and its Subsidiaries (on a Consolidated basis), including without limitation imputed interest expense under Capital Leases, all determined in accordance with GAAP, excluding amortization of debt discount and expense and interest paid in kind. "Interest Payment Date" shall mean January 1, April 1, July 1 and October 1 --------------------- of each year. "Inventory" shall mean all of the Company's and its Subsidiaries' --------- inventory, whether now owned or hereafter acquired, including without limitation all goods intended for sale or lease by such Person, or for display or demonstration; all work in process; all raw materials and other materials and supplies of every nature and description used or which might be used in connection with the manufacture, printing, packing, shipping, advertising, selling, leasing or furnishing of such goods or otherwise used or consumed in such Person's business; and all documents evidencing and general intangibles relating to any of the foregoing, whether now owned or hereafter acquired by such Person. "Investment" shall mean any direct or indirect investment in any Person ---------- whether by means of share purchase, asset purchase, loan, capital contribution, advance, or otherwise. "Lease" shall mean any lease or other periodic payment arrangement for the ----- use of property (real, personal or mixed). "Lender" shall mean Barclays Business Credit, Inc., a Connecticut ------ corporation and its successors and assigns. -7- "Leverage" shall mean with respect to any fiscal period all Indebtedness of -------- the Company (but, for purposes of this definition of Leverage only, exclusive of the aggregate outstanding balance due under or in respect of the ESOP Notes) divided by the sum of (i) Adjusted Tangible Net Worth and (ii) the aggregate outstanding balance due under or in respect of the ESOP Notes. "Licenses" shall mean all authorizations, orders, variances, approvals, -------- licenses, franchises and permits granted by any public or governmental regulatory body which are now or hereafter held by the Company and/or its Subsidiaries or under which the Company and/or its Subsidiaries now or hereafter have the right to conduct their business as proposed to be conducted or which are now or hereafter material to the conduct of the business of the Company and/or its Subsidiaries, either individually or in the aggregate, as proposed to be conducted, including without limitation any and all extensions or renewals thereof. "Loan Agreement" shall mean the Loan and Security Agreement, dated January -------------- 21, 1993, between the Company and the Lender, as amended from time to time, and any other certificates, exhibits, or instruments relating thereto. "Maturity Date" shall mean October 31, 1998. ------------- Multiemployer Plan" shall mean a "multiemployer plan" as defined in ------------------ Section 4001(a) (3) of ERISA, to which the Company or any ERISA Affiliate is making or accruing an obligation to make contributions or has within any of the preceding five (5) plan years made or accrued an obligation to make contributions. "Note or Notes" shall mean the Senior Notes issued by the Company ------------- hereunder, and such term shall include each note which shall be delivered in substitution or exchange for any such note which is at the time outstanding. "Operating Cash Flow" shall mean, for any accounting period, the sum ------------------- (without duplication), determined on a Consolidated basis for the Company, of (i) net income for such period, plus (ii) to the extent deducted in determining ---- net income for such period, the sum of (a) depreciation and amortization (including without limitation deferred financing costs, organization costs and non-compete amortization) for such period, (b) interest expense for such period, (c) provision for income taxes for such period, (d) extraordinary losses for such period, (e) non-compete expenses for such period to the extent not capitalized in accordance with GAAP and (f) losses on sales of fixed assets not in the ordinary course of business for such period after giving effect to any related charges for, reductions of or provisions for taxes thereon, minus (iii) ----- to the extent included in the calculation of net income for such period, the sum of (a) other income (including without limitation interest income) for such period, (b) extraordinary gains for such period (c) gains on sales of fixed assets not in the ordinary course of business for such period after giving effect to any related -8- charges for, reductions of or provision for taxes thereon, and (d) provision for income tax credit for such period not otherwise netted against income taxes in clause (ii) (c) above; and minus (iv) the amount of any Capital Expenditures ----- other than Capital Expenditures included in the purchase price of any Permitted Retail Investment. "Payment Blockage Period" shall mean the period commencing on the date of ----------------------- receipt by the Holders of written notice from the Lender of a Senior Nonmonetary Default and ending on the earlier of (i) the date on which such Senior Nonmonetary Default shall have been cured or waived or shall have ceased to exist or the Senior Indebtedness shall have been discharged or (ii) the 120th day after the date of such receipt of such written notice. "PBGC" shall mean the Pension Benefit Guaranty Corporation and any ---- successor or substitute organization performing similar functions. "Pension Plan" shall mean an employee pension benefit plan which is ------------ covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code and is either (i) maintained by the Company or any ERISA Affiliate for employees of the Company or any ERISA Affiliate or (ii) maintained pursuant to a collective bargaining agreement or any other arrangement under which more than one (1) employer makes contributions and to which the Company or any ERISA Affiliate is then making or accruing an obligation to make contributions or has within the preceding five (5) plan years made contributions. "Permitted Retail Investments" shall mean the purchase by Retail or one of ---------------------------- Retail's Wholly-Owned Subsidiaries of all but not less than all of the capital stock of or all or substantially all of the assets of one or more Persons engaged in the retail sale of natural foods so long as after giving effect to such purchase no Default or Event of Default exists or would exist under this Agreement. "Person" shall mean any corporation, association, partnership, joint ------ venture, limited liability company, organization, business, individual, government or any agency or political subdivision thereof or any other entity. "Plan" shall mean an employee benefit plan, as defined in Section 3(3) of ---- ERISA, at any time maintained by the Company or any ERISA Affiliate for employees of the Company or any ERISA Affiliate or in which any such employees participate or at any time participated when employed by the Company or any ERISA Affiliate. "Preferred Stock" as applied to the capital stock of any corporation, means --------------- the capital stock of any class or classes (however designated) which is preferred as to the payment of dividends or as to the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of such corporation, over shares of -9- capital stock of any other class of such corporation. The "amount" of any Preferred Stock outstanding means the aggregate amount of liquidation preferences (voluntary or involuntary, whichever is greater), and accrued but unpaid dividends payable, in respect of the issued and outstanding shares of such Preferred Stock. "Properties" shall mean the real properties owned or leased by the Company ---------- or its Subsidiaries. "Purchaser" shall have the meaning given to that term in the preamble of --------- this Agreement. "Registration Rights Agreement" shall mean the Registration Rights ----------------------------- Agreement by and between the Company and the Purchaser dated as of the Closing Date. "Registration Statement" shall mean a registration statement filed by the ---------------------- Company with the Commission for a public offering and sale of securities of the Company (other than a registration statement on Form S-8 or Form S-4, or their successor forms, or any registration statement covering only securities proposed to be issued in exchange for securities or assets of another entity). "Rentals" shall mean, as of the date of determination, all payments which ------- the lessee is required to make by the terms of any lease. "Requisite Holders" shall mean, with respect to the Notes, the Holders of a ----------------- majority of the outstanding principal amount of Notes; and "Requisite Holders of -------------------- the Warrants" shall have the meaning assigned thereto in the Warrant. - ------------ "Restricted Action" shall mean the sale, transfer, pledge or other ----------------- disposition of any Note. "Restricted Investment" shall mean any Investment in cash or by delivery of --------------------- any interest in any kind of property or asset, whether real, personal or mixed, tangible or intangible (for purposes of this definition, "Property"), to any Person, whether by acquisition of stock, Indebtedness or other obligation or Security, or by loan, advance or capital contribution, or otherwise, or in any Property except the following: (i) investments in one or more Wholly-Owned Subsidiaries of the Company, including without limitation wholly-Owned Subsidiaries of Retail; (ii) Property to be used in the ordinary course of business; (iii) Current Assets arising from the sale of goods and services in the ordinary course of business of the Company and its Subsidiaries; (iv) investments in direct obligations of the United States of America, provided that such obligations mature within one (1) year from the date of acquisition thereof; (v) investments in certificates of deposit maturing within one (1) year from the date of acquisition issued by a bank or trust company organized under the laws of the United States of America or any state thereof having -10- capital surplus and undivided profits aggregating at least $100,000,000; (vi) investments in commercial paper given the highest rating by a national credit rating agency and maturing not more than 270 days from the date of creation thereof; and (vii) Permitted Retail Investments. "Restructuring" shall mean the contribution by the Company to Retail of all ------------- of the issued and outstanding stock of Cheese & Stuff, Inc., Food for Thought Foods Market, Inc. and The Health Hut, Inc. and the assumption by Retail of certain of the Company's liabilities incurred in connection with the Company's acquisition of such stock. "Retail" shall have the meaning assigned to that term in the recitals of ------ this Agreement. "Securities Act" shall mean the Securities Act of 1933, as amended, or any -------------- similar Federal statute, and the rules and regulations promulgated by the Commission thereunder, all as the same shall be in effect at the time. "Security" or "Securities" shall have the meaning assigned to that term by -------- ---------- Section 2(1) of the Securities Act. "Seller Financing Indebtedness" shall mean (i) the Indebtedness of the ----------------------------- Company to the sellers of the common stock of The Health Hut, Inc., Food for Thought Natural Foods Market, Inc. and Cheese & Stuff, Inc.; and (ii) any Indebtedness of the Company and/or any of its Subsidiaries incurred in connection with the acquisition by the Company or any of its Subsidiaries of additional retail operations. "Senior Indebtedness" shall mean all obligations of the Company under the ------------------- Loan Agreement for the payment in accordance with the terms of the Loan Agreement as in effect on the date hereof of principal not in excess of $15,000,000, premium, if any, and interest in respect of the indebtedness outstanding thereunder. "Senior Nonmonetarv Default" shall mean the Company's failure or neglect to -------------------------- perform, keep or observe any covenant contained in the Loan Agreement other than such failure or neglect which results in a Senior Payment Default. "Senior Notes or Senior Notes" shall mean the Note or Notes. ---------------------------- "Senior Payment Default" shall mean any default in the payment of principal ---------------------- of (or premium, if any) or interest on, any Senior Indebtedness upon the maturity thereof by lapse of time beyond any applicable grace period with respect thereto, acceleration (unless rescinded or annulled) or otherwise. -11- "Short-Term Indebtedness" shall mean for any accounting period Indebtedness ----------------------- which by its terms matures less than 12 months from the date of calculation, except that any such Indebtedness which is outstanding for 12 months without having been repaid for 30 consecutive days during such period shall be deemed to be Funded Indebtedness. "Solvent" shall mean, as applied to any Person, that such Person (i) has ------- capital, cash flows and sources of working capital financing sufficient to carry on its business and transactions and all business and transactions in which it is about to engage, (ii) is able to pay its debts as they mature, and (iii) now owns assets (tangible and intangible) whose fair valuation and fair salable value presently exceeds its total liabilities (including without limitation its contingent, subordinated, unmatured and unliquidated liabilities). "Standard Rate of Contribution" shall mean the specific rate at which ----------------------------- contributions are made to any Plan. "Subsidiary" shall mean with respect to any Person a corporation of which ---------- such Person owns, directly or indirectly, 50% or more of the shares of stock entitled to vote in the election of directors (excluding shares so entitled to vote only upon a failure to pay dividends or other contingencies) or a limited partnership of which such Person owns, directly or indirectly, 50% or more of the aggregate partnership interests outstanding at the time of such determination or of which such Person or any Subsidiary of such Person is a general partner. "Termination Event" shall mean (i) a "reportable event," as such term is ----------------- described in Section 4043 of ERISA, unless the 30 day notice requirement with respect thereto has been waived by the PBGC, or an event described in Section 4062(a) of ERISA, (ii) the withdrawal of the Company or any ERISA Affiliate from a Pension Plan having a plan year in which it was a "substantial employer," as such term is defined in Section 4001(a)(2) of ERISA, or the incurrence of liability by the Company or any ERISA Affiliate under Title IV of ERISA upon the termination of a Pension Plan, (iii) the provision of a notice of intent to terminate any Pension Plan under Title IV of ERISA other than in a standard termination within the meaning of Section 4041 of ERISA, (iv) the institution of proceedings to terminate a Pension Plan by the PBGC, (v) the complete or partial withdrawal of the Company or any ERISA Affiliate from any Multiemployer Plan, (vi) any other event or condition that might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or, (vii) any other event or condition which under the Code or ERISA might constitute grounds for the imposition of any liability or lien on the assets of the Company or any ERISA Affiliate in respect of any Pension Plan or any Multiemployer Plan. -12- "Voting Stock" of a Person shall mean such Securities of such Person the ------------ holders of which are ordinarily, in the absence of contingencies, entitled to elect such Person's corporate directors (or persons performing similar functions). "Warrant or Warrants" shall have the meaning set forth in Section 2.1(b). ------------------- "Warrant Certificate" shall mean a certificate setting forth the terms and ------------------- conditions of the Warrants. "Warrant Stock" shall mean the shares of Common Stock issuable upon the ------------- exercise of the Warrants. "Wholly-Owned Subsidiary" shall mean with respect to any Person a ----------------------- Subsidiary which is directly or indirectly wholly-owned by such Person. "Withdrawal Liability" shall have the meaning given to such term under Part -------------------- I of the Subtitle E of Title IV of ERISA. ARTICLE 2 Notes and Warrants ------------------ Section 2.1 Authorization of Issuance of Notes and Warrants. ----------------------------------------------- (a) The Company shall authorize the issuance of its Senior Notes in the aggregate principal amount of $6,500,000, to be dated the date of issue thereof, to mature on the Maturity Date, to bear interest on the outstanding and unpaid balance thereof at a rate equal to eight percent (8%) per annum from and including the date of issuance through and including October 31, 1994; nine percent (9%) per annum from and including November 1, 1994 through and including October 31, 1995; ten percent (10%) per annum from and including November 1, 1995 through and including October 31, 1996; eleven percent (11%) per annum from and including November 1, 1996 through and including October 31, 1997; and twelve percent (12%) per annum from and including November 1, 1997 through and including the Maturity Date; payable quarterly in arrears on each Interest Payment Date, commencing on the Interest Payment Date which most closely succeeds the date of issuance, and to be substantially in the form of Exhibit B. --------- All interest shall be calculated on the basis of a 360-day year comprised of twelve 30-day months. (b) The Company shall authorize the issuance of warrants to purchase 21,212 shares (subject to adjustment as provided in the Warrants) of its Common Stock (the "Warrants"), which Warrants shall be substantially in the form of Exhibit C. - --------- -13- Section 2.2 Interest Rates. It is the intent of the Purchaser and the -------------- Company that the rates of interest and all other charges hereunder and under the Notes be lawful. In no event shall the interest charged with respect to this Agreement or the Notes exceed the maximum amount permitted under the laws of the State of Connecticut or of any other applicable jurisdiction. Notwithstanding anything to the contrary herein or elsewhere, if at any time the rate of interest called for hereunder or under any Note (the "Stated Rate") exceeds the highest rate of interest permissible under any applicable law (the "Maximum Lawful Rate"), then for so long as the Maximum Lawful Rate would be so exceeded, the rate of interest payable shall be equal to the Maximum Lawful Rate; provided, however, that if at any time thereafter the Stated Rate is less than - -------- ------- the Maximum Lawful Rate, the Company shall, to the extent permitted by law, continue to pay interest at the Maximum Lawful Rate until such time as the total interest received by the Holders is equal to the total interest which the Holders would have received had the Stated Rate been (but for the operation of this Section 2.2) the interest rate payable. Thereafter, the interest rate payable shall be the Stated Rate unless and until the Stated Rate again exceeds the Maximum Lawful Rate, in which event this Section 2.2 shall again apply. In no event shall the total interest received by the Holders exceed the amount which the Holders could lawfully have received had the interest been calculated for the full term of this Agreement at the Maximum Lawful Rate. In computing interest payable with reference to the Maximum Lawful Rate, such interest shall be calculated at a daily rate equal to the Maximum Lawful Rate divided by 360 days for each year in which such calculation is made. If the Holders have received interest hereunder in excess of the Maximum Lawful Rate, then such amount shall be applied to the unpaid principal balances of the Notes, Pro rata -------- in accordance with their respective unpaid balances, or if the Notes have been paid in full, shall promptly be refunded to the Company. Section 2.3 Purchase and Sale of Notes and Warrants. On the Closing --------------------------------------- Date, the Company hereby agrees to sell to the Purchaser and, subject to the terms and conditions set forth herein and in the Warrant, as applicable, the Purchaser agrees to purchase $6,500,000 aggregate principal amount of Notes and the Warrants for an aggregate purchase price of $6,500,000. At 10:00 a.m. New York City local time on the Closing Date, or at such other time as the Purchaser and the Company may agree, the Company shall deliver to the Purchaser at the offices of Robinson & Cole, Hartford, Connecticut, the Notes and the Warrants, registered in the Purchaser's name, against payment of the purchase price there for by fedwire transfer of immediately available funds to the account of the Company and/or the Company's designee(s). Section 2.4 Optional Prepayment of Notes. ----------------------------- (a) The Notes shall be subject to prepayment, in whole or in part, at the option of the Company in integral multiples of $100,000 of prepaid principal. -14- (b) The Company shall give each holder of Notes irrevocable written notice of each optional prepayment not less than 20 nor more than 40 Business Days prior to the prepayment date, specifying the prepayment date and the principal amount of Notes held by such holder to be prepaid. Such notice of prepayment having been given, on the prepayment date specified in such notice there shall become due and payable, and the Company shall pay, the aggregate principal amount of the Notes specified therein, together with all interest accrued thereon. Section 2.5 Mandatory Repayment of Notes. Upon the closing of any ---------------------------- public offering, private placement or similar sale or transfer of any debt or equity securities of the Company or any of its Subsidiaries, the net proceeds to the Company of such transaction shall, at the election of the Purchaser, be paid to the Purchaser. The Purchaser shall apply such payment among the Notes held by the Holders Pro rata in accordance with their respective outstanding principal --- ---- amounts, first to any amounts then due under this Agreement other than interest or principal, second to interest accrued and then due, and the balance to principal then outstanding. The Company shall pay to the Purchaser by fedwire transfer all amounts required to be paid pursuant to this Section 2.5 out of the proceeds of such offering, placement or sale or transfer on the date such transaction is consummated. Section 2.6 Payments and Notations. ---------------------- (a) Except as otherwise expressly provided in this Agreement, each payment of principal of and interest on the Notes, including without limitation each prepayment of the principal of the Notes and interest accrued on the amount prepaid, shall be applied among the Notes held by the Holders pro rata in -------- accordance with their respective outstanding principal amounts, first to any amounts then due under this Agreement other than interest or principal, second to interest accrued and then due, and the balance to principal then due. (b) Prior to any sale or other disposition of any Note, the Holder thereof may make a notation thereon (or on a paper annexed thereto) of the unpaid principal amount thereof and the last date to which principal and interest have been paid thereon; provided that the Holders shall have no obligation to make -------- such notation and the obligations of the Company under the Notes shall not be affected by any failure of a Holder to make such notation or by any such notation. Upon payment in full of the principal of and interest on a Note, it shall be canceled and returned to the Company. Section 2.7 Form and Terms of Payment. All payments by the Company of ------------------------- the principal of and interest on the Notes shall be made in immediately available funds by 1:00 p.m., New York City local time on the due date thereof at the address of the Purchaser specified in Section 16.1 (or at such other address or addresses as shall have been furnished to the Company in writing not less than ten (10) days prior -15- to the applicable payment date). If any payment of the principal of or interest on the Notes shall become due on a day which is not a Business Day, such payment shall be made on the next preceding Business Day. Section 2.8 Acquisition of Notes by Company. The Company shall not, and ------------------------------- shall not permit any Subsidiary or Affiliate of the Company to, directly or indirectly, purchase or otherwise acquire any Notes except by way of an offer to the Holders of all outstanding Notes to purchase a pro rata portion of each such --- ---- Note. Section 2.9 Fee. The Company has agreed to pay a nonrefundable --- investment banking fee of $200,000 to The Boston Corporate Finance Group, Inc., on the Closing Date. The Company acknowledges that the foregoing fee has been fully earned and is not subject to refund for any reason. The aggregate amount of fees and expenses payable by the Company pursuant to this Section 2.9 and pursuant to the first sentence of Section 13.1 with respect to the Purchaser's expenses incurred in connection with the preparation of this Agreement, the Notes and the Warrants on or before the Closing Date shall not exceed $220,000. ARTICLE 3 Representations and Warranties of the Company --------------------------------------------- In order to induce the Purchaser to enter into this Agreement and to purchase the Notes and Warrants, the Company makes the following representations and warranties to the Purchaser as of the date of this Agreement (unless otherwise stated): Section 3.1 Corporate Existence. (a) Each of the Company and its ------------------- Subsidiaries: (i) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation; (ii) has all requisite corporate power, and has all governmental licenses, authorizations, consents, permits and approvals (including without limitation all Licenses and any other license, authorization, consent, permit or approval required under any Environmental Law) necessary to own its assets and carry on its business as now being or as proposed to be conducted and to consummate the transactions contemplated hereunder (except such licenses, authorizations, consents and approvals which, in the aggregate, will not materially adversely affect the condition (financial or otherwise), assets, nature of assets, liabilities (including without limitation tax, ERISA and Environmental Liabilities) or prospects of the Company and its Subsidiaries either individually or taken as a whole), and (iii) is qualified to do business in all jurisdictions in which the nature of the business it conducts makes such qualification necessary or where failure so to qualify would have a material adverse effect on its condition (financial or otherwise), assets, nature of assets, liabilities (including without limitation tax, ERISA -16- and Environmental Liabilities) or prospects of the Company and its Subsidiaries either individually or taken as a whole. (b) The Company has authorized capital consisting solely of 200,000 shares of Common Stock, no par value per share, and 100,000 shares of Common Stock are issued and outstanding. Schedule 3.1(b) sets forth the authorized capital of --------------- each Subsidiary of the Company and the number of shares of each class of such authorized capital which are issued and outstanding. Schedule 3.1(b) sets forth --------------- the holders and number of outstanding shares of capital stock of the Company held by each such holder. All of such outstanding shares have been duly authorized and validly issued and are fully paid and nonassessable. Except as otherwise stated in this Section 3.1 and Schedule 3.1(b) and except for the -------------- shares of Common Stock to be issued upon the exercise of the Warrants, neither the Company nor any of its Subsidiaries nor any holder of capital stock of the Company or any of its Subsidiaries has granted or issued, or agreed to grant or issue, any options, warrants or similar rights to acquire, subscribe for or receive any of the shares of capital stock of any class of the Company or any securities convertible into shares of such capital stock. (c) The Common Stock initially issuable upon exercise of the Warrants has been duly authorized and reserved for issuance upon exercise of the Warrants, and, when issued as provided in the Warrants against payment therefor in accordance with the terms of the Warrants, such Common Stock will be duly authorized, validly issued, fully paid and nonassessable. Section 3.2 Information. (a) Neither this Agreement, the Notes, the ----------- Warrants and the Schedules attached thereto nor any other document, certificate or written statement of the Company or any of its Affiliates furnished to the Purchaser in connection herewith will contain as of the Closing Date any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained herein and therein not misleading. There is no fact that the Company or any of its Affiliates has knowingly failed to disclose to the Purchaser in writing that materially affects adversely, or so far as the Company can now foresee, will materially affect adversely the Properties, business, prospects, profits or condition (financial or otherwise) of the Company or any of its Subsidiaries or the ability of the Company or any of its Subsidiaries to perform this Agreement. (b) Without limiting the generality of Section 3.2(a): (i) The audited Consolidated balance sheet of the Company and its Subsidiaries as of October 31, 1992 and the related audited Consolidated statements of income, changes in stockholders' equity and cash flow for the Fiscal Year ended October 31, 1992 (collectively, the "Financial Statements"), have been prepared in accordance with GAAP. The Financial Statements fairly present the financial position of the Company and its Subsidiaries as of -17- October 31, 1992, and the results of their operations and their cash flows for the Fiscal Year ended October 31, 1992, in conformity with GAAP. (ii) The monthly management reports of the Company and its Subsidiaries (on a Consolidated basis) as of September 30, 1993 (collectively, the "Interim Financial Statements") have been prepared in accordance with GAAP. The Interim Financial Statements fairly present the financial position of the Company and its Subsidiaries as of September 30, 1993 and the results of their operations and their cash flows for the eleven-month period then ended, in conformity with GAAP. (iii) The pro forma monthly management report of the Company and its Subsidiaries as of September 30, 1993, a copy of which has heretofore been delivered to the Purchaser, fairly presents in conformity with GAAP on a pro forma basis what the financial position of the Company and its Subsidiaries would have been on such date, adjusted to give effect to the transfer to Retail of the retail sales assets and liabilities of the Company. (iv) The pro forma Consolidated balance sheet of the Company and its Subsidiaries as of September 30, 1993, a copy of which has heretofore been delivered to the Purchaser, fairly presents in conformity with GAAP on a pro forma basis what the financial position of the Company and its Subsidiaries would have been as of such date, as adjusted to give effect to the consummation of the Restructuring. (v) The Company and its Subsidiaries did not on the date of the balance sheets referred to in Section 3.2(b)(i), and the Company and its Subsidiaries will not on the Closing Date, have any material contingent liabilities, material liabilities for taxes, unusual and material forward or long-term commitments or material unrealized or anticipated losses from any unfavorable commitments, except as referred to or reflected or provided for in such balance sheets. (c) The Company has disclosed to the Purchaser in writing any and all facts (other than general economic conditions) which materially and adversely affect or may affect (to the extent it can reasonably foresee) the condition (financial or otherwise), assets, nature of assets, liabilities (including without limitation tax, ERISA and Environmental Liabilities) or prospects of the Company and its Subsidiaries, taken as a whole, or the ability of the Company or any Guarantor to perform its obligations under each Basic Document to which it is a party or the ability of the Company or any Subsidiary of the Company to conduct its activities or operations in the normal course of business at any of its owned or leased properties. -18- (d) Since October 31, 1992, there has been no material adverse change in the condition (financial or otherwise), assets, nature of assets, liabilities (including without limitation tax, ERISA and Environmental liabilities) or prospects of the Company or any of its Subsidiaries or to the best of the Company's knowledge after due inquiry, in the ability of the Company or any Guarantor to perform its obligations under each Basic Document to which it is a party. (e) Immediately prior to the consummation of the Restructuring (i) Retail had authorized capital consisting solely of 10,000 shares of common stock, no par value per share; (ii) Retail had 1,000 shares of common stock issued and outstanding, all of which shares were owned by the Company; (iii) all of such outstanding shares had been duly authorized and validly issued and were fully paid and nonassessable; and (iv) Retail had no material liabilities and no assets other than the consideration Retail received for the issuance of such common stock. Section 3.3 Litigation. Except as set forth on Schedule 3.3, there are ---------- ------------ no legal or arbitral proceedings or any proceedings by or before any governmental or regulatory authority or agency, now pending or, to the best of the Company's knowledge after due inquiry, threatened against or affecting the Company or any of its Subsidiaries in which there is a reasonable possibility of an adverse decision which could have a material adverse effect on the condition (financial or otherwise), assets, nature of assets, liabilities (including without limitation tax, ERISA and Environmental Liabilities) or prospects of such Persons, taken either individually or as a whole, or, to the best of the Company's knowledge after due inquiry, on the ability of the Company or any Guarantor to perform its obligations under each Basic Document to which it is a party. Section 3.4 No Breach. The execution and delivery of the Basic --------- Documents, the consummation of the Restructuring and the transactions therein contemplated and the compliance with the terms and provisions thereof will not (a) conflict with or result in a breach of, or require any consent under, the certificate of incorporation or by-laws of the Company or any of its Subsidiaries; any applicable law or regulation; any order, writ, injunction or decree of any court or governmental authority or agency; any material lease; or any other material agreement or instrument to which the Company or any of its Subsidiaries is a party or by which it is bound or to which it is subject; (b) constitute a default under any such lease, agreement or instrument; or (c) (except for the liens created pursuant to the Loan Agreement) result in the creation or imposition of any lien upon any of the revenues or assets of the Company or any of its Subsidiaries pursuant to the terms of any such agreement or instrument. Section 3.5 Corporate Action. Each of the Company and its Subsidiaries ---------------- and the Guarantor has all necessary corporate power and authority to consummate the Restructuring and to execute, deliver and perform its obligations under the Basic -19- Documents to which it is a party; the consummation of the Restructuring and the execution, delivery and performance by the Company, (and after giving effect to the Restructuring) Retail and the Guarantor of the Basic Documents to which they are parties have been duly authorized by all necessary corporate action; and each Basic Document has been duly and validly executed and delivered by the Company and each of its Subsidiaries that is a party thereto, including without limitation the Guarantor, and constitutes the legal, valid and binding obligation of the Company and such Subsidiary, in each case enforceable in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization or moratorium or other similar laws relating to the enforcement of creditors' rights generally and by general equitable principles. Section 3.6 Approvals. Each of the Company and its Subsidiaries and the --------- Guarantor has obtained all authorizations, approvals and consents of, and has made all filings and registrations with, any governmental or regulatory authority or agency necessary for the consummation of the Restructuring and the execution, delivery or performance by it of any Basic Document to which it is a party, or for the validity or enforceability thereof, except for filings and recordings of the liens created pursuant to, or permitted by, the Loan Agreement. Section 3.7 Regulations G, T and X. None the Company or any of its ---------------------- Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any margin security (within the meaning of Regulation G of the Board of Governors of the Federal Reserve System) and no part of the proceeds of the Notes or the Warrants will be used, directly or indirectly, to purchase or carry, or for the purpose of reducing or retiring any Indebtedness which was originally incurred to carry, any such margin security or for any purpose which might cause this Agreement and the transactions contemplated hereby to violate Regulation G, Regulation T, Regulation X or any other Regulation of the Board of Governors of the Federal Reserve System or the Securities Exchange Act of 1934, as amended. If requested by the Purchaser, the Company shall promptly furnish the Purchaser with a statement in conformity with the requirements of Federal Reserve Form G-1 referred to in Regulation G. Section 3.8 ERISA. (a) Except as set forth in Schedule 3.8, as of the ----- ------------ date of this Agreement, neither the Company nor any of its ERISA Affiliates maintains or contributes to any Plan or Multiemployer Plan. No Termination Event has occurred or is planned with respect to any Pension Plan or Multiemployer Plan which Termination Event could result in a material liability of the Company or its ERISA Affiliates. No condition or event currently exists that could result in a Termination Event that could result in a material obligation of the Company or its ERISA Affiliates. Except as set forth in Schedule 3.8, if any ------------ Pension Plan were to be terminated, neither the Company nor its ERISA Affiliates would incur any material liability under Title IV of ERISA. If the Company or its ERISA Affiliates were to -20- completely or partially withdraw from any Multiemployer Plan, the Company would not incur any material liability under Title IV of ERISA. No Pension Plan of the Company which is subject to Section 302 of ERISA or Section 412 of the Code has incurred any "accumulated funding deficiency" (as defined in such Sections) (b) The Company and its ERISA Affiliates have made all contributions to each Pension Plan and each Multiemployer Plan which they are required to make. (c) Except as set forth in Schedule 3.8, the Company and its ERISA ------------ Affiliates have complied with the requirements of Section 4980B of the Code in respect of each Plan which any one or more of them maintains and which is subject to Sections 162(i) and 4980B of the Code. (d) As of the date of this Agreement, neither the Company nor its ERISA Affiliates maintains, plans to contribute to or reasonably expects to contribute to any Plan which provides benefits, including without limitation, death or medical benefits (whether or not insured), with respect to current or former employees of the Company or its ERISA Affiliates beyond their retirement or other termination of service, except (i) coverage mandated by statute, (ii) death benefits under any Pension Plan or Multiemployer Plan, (iii) retirement benefits under any Pension Plan or Multiemployer Plan, (iv) benefits in the nature of severance pay, or (v) programs for postemployment medical insurance the cost of which is borne entirely by the covered former employee. (e) Neither the Company nor its ERISA Affiliates nor any Plan, nor to the best of the Company's knowledge after due inquiry, any Multiemployer Plan, has engaged in any transaction that could, directly or indirectly, result in any material liability of the Company or its ERISA Affiliates taken as a whole pursuant to (i) Sections 302, 409, 502(i), 4062, 4063, 4064 or 4069 of ERISA, (ii) Sections 4971, 4972, 4975, 4976, 4979 or 4980 of the Code, or (iii) any statute or agreement pursuant to which the Company or its ERISA Affiliates has agreed to indemnify or is required to indemnify any Person against liability incurred under, or for a violation or failure to satisfy the requirements of, any such statute. (f) The consummation of the transactions contemplated in the Basic Documents does not and will not result in any prohibited transaction described in Section 406 of ERISA or Section 4975 of the Code, for which an exemption is not available or has not been obtained. (g) Neither the Company nor its ERISA Affiliates has received any notification that any Multiemployer Plan is in reorganization or has been terminated, within the meaning of Title IV of ERISA, and, to the best of the Company's knowledge after due inquiry, no such Multiemployer Plan is reasonably expected to be in reorganization or to be terminated within the meaning of Title IV of ERISA. -21- Section 3.9 Taxes. Each of the Company and its Subsidiaries has filed ----- all United States Federal income tax returns and all other material tax returns which are required to be filed by it and has paid all taxes due pursuant to such returns or pursuant to any assessment received by it, except to the extent the same may be contested as permitted by Section 7.2. The charges, accruals and reserves on the books of such Persons in respect of taxes and other governmental charges are, in the opinion of the Company, adequate. Section 3.10 Subsidiaries; Agreements; Licenses. ---------------------------------- (a) Schedule 3.10(a) is a complete and correct list, as of the date of ---------------- this Agreement and after giving effect to the Restructuring, of all Subsidiaries of the Company and of all Investments held by the Company or any of its Subsidiaries in any joint venture or other Person. Except for the liens created under the Loan Agreement and those liens listed on Schedule 3.10(a), the Company ---------------- or Retail owns, or after the Restructuring will own, free and clear of liens, all outstanding shares of such Subsidiaries and all such shares are validly issued, fully paid and nonassessable and the Company (or the respective Subsidiary of the Company) also owns, or after the Restructuring will own, free and clear of liens, all such Investments. (b) Schedule 3.10(b) is a complete and correct list of all credit --------------- agreements, indentures, capitalized leases, obligations in respect of letters of credit, guaranties, joint venture agreements, and other material instruments in effect as of the date of this Agreement providing for, evidencing, securing or otherwise relating to any Indebtedness or any Material Lease Obligations (as hereinafter defined) of the Company or any of its Subsidiaries (after giving effect to the Restructuring), and all obligations of the Company or any of its Subsidiaries (after giving effect to the Restructuring) to issuers of surety or appeal bonds issued for account of the Company or any of its Subsidiaries (after giving effect to the Restructuring), and such list correctly sets forth the names of the debtor or lessee and creditor or lessor with respect to the Indebtedness or lease obligations outstanding or to be outstanding and the property subject to any lien securing such Indebtedness or lease obligation. The Company has heretofore delivered to the Purchaser a complete and correct copy of all such credit agreements, indentures, capitalized leases, letter of credit obligations, guaranties, joint venture agreements and other material instruments, including without limitation any modifications or supplements thereto, as in effect on the date thereof. As used herein, the term "Material Lease Obligations" shall mean any operating lease which requires aggregate annual rentals during any period of twelve months during the term of such lease in an amount in excess of $100,000. (c) Schedule 3.10(c) accurately and completely lists all of the Licenses ---------------- as of the date of this Agreement. All of such Licenses are in full force and effect and have been duly issued; no default or breach exists thereunder; and no consent, approval or assignment (other than those which have been obtained and are in full force and -22- effect) is necessary in connection with transactions contemplated hereby to provide the Company and its Subsidiaries (as the case may be) with the full benefit of such Licenses. Section 3.11 Investment Company Act. None of the Company or its ---------------------- Subsidiaries is an investment company within the meaning of the Investment Company Act of 1940, as amended, or, directly or indirectly, controlled by or acting on behalf of any Person which is an investment company, within the meaning of said Act. Section 3.12 Public Utility Holding Company Act. None of the Company or ---------------------------------- its Subsidiaries is a "holding company", or an "affiliate" of a "holding company" or a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. Section 3.13 Ownership and Use of Properties. (a) Each of the Company ------------------------------- and its Subsidiaries shall have on the Closing Date, and at all times thereafter, legal title or ownership of, or the right to use pursuant to enforceable and valid agreements or arrangements, all tangible property, both real and personal and all franchises, licenses, copyrights, patents and know-how which are material to the operation of its business as proposed to be conducted. (b) Schedule 3.13(b) accurately and completely describes all real property ---------------- owned or leased by the Company or its Subsidiaries or in which the Company or its Subsidiaries has an interest. (c) The real properties owned or used by the Company or its Subsidiaries, and the uses thereof, comply in all material respects with all applicable laws, regulations, codes, orders, ordinances, rules and statutes, including without limitation those relating to zoning and the environmental protection, and none of such properties is subject to any restrictive covenants, land use restrictions or zoning restrictions which materially interfere with its use. Section 3.14 Compliance With Applicable Laws. To the best of the ------------------------------- Company's and each of its Subsidiaries' knowledge, after due inquiry, the Company and each of its Subsidiaries has complied in all material respects with, and all of its Properties and other assets, business operations and Leases are in compliance in all material respects with, the provisions of all Federal, state and local laws, rules and regulations applicable to the Company, its Subsidiaries, their respective Properties and other assets and the conduct of their respective businesses, including without limitation OSHA and all Environmental Laws, and there has been no citation, notice or order of noncompliance issued to the Company or any of its Subsidiaries under any such law, rule or regulation. -23- Section 3.15 Solvency. At the Closing Date and after giving effect to -------- the consummation of the transactions contemplated by the Restructuring, the Loan Agreement and this Agreement, the Company and the Guarantor will be Solvent. Section 3.16 Securities Act, Trust Indenture Act, Etc. ---------------------------------------- (a) Neither the registration of any security under the Securities Act or the securities laws of any state, nor the qualification of an indenture in respect thereof under the Trust Indenture Act of 1939, as amended, is required in connection with the issuance, execution and/or delivery of any Notes or Warrants. (b) All outstanding capital stock of the Company and its Subsidiaries has been offered, issued and sold in compliance with the requirements of all Federal and state laws applicable to the offer, issuance and sale of securities. Section 3.17 Offering of Notes and Warrants. Neither the Company, nor, ------------------------------ to the best of the Company's knowledge after due inquiry, Fieldstone Private Capital Group, L.P. or The Boston Corporate Finance Group, Inc. (the only Persons authorized or employed by the Company as an agent, broker, dealer or otherwise in connection with the offering or sale of the Notes and Warrants or any other security of the Company) nor any other agent acting on the Company's behalf has, directly or indirectly, offered the Notes and Warrants or any similar security of the Company for sale to, or solicited any offers to buy the Notes and/or Warrants or any similar security of the Company, or otherwise approached or negotiated with respect thereto with more than 225 Persons including the Purchaser (all of which Persons are institutional investors), and neither the Company nor any agent acting on behalf of either has taken or will take any action which would subject the issuance or sale of the Notes or Warrants to the provisions of Section 5 of the Securities Act, or to the registration or qualification requirements of any securities or Blue Sky laws of any applicable jurisdiction. Section 3.18 Broker's Commission. No broker's, lender's, finder's or ------------------- placement fees or commissions or any similar fees or commissions will be payable with respect to the issuance of the Notes or Warrants and/or the transactions contemplated by this Agreement or was payable in connection with any previously proposed issuances of securities by the Company, except for the $100,000.00 fee of Fieldstone Private Capital Group, L.P. to be paid by the Company and the fee payable to The Boston Corporate Finance Group, Inc., pursuant to the first sentence of Section 2.9, and the Company shall indemnify and hold the Purchaser harmless from any claim, demand or liability for any broker's, lender's, finder's or placement fees or commissions or any similar fees or commissions incurred or alleged to have been incurred in connection with the transactions contemplated by this Agreement. -24- Section 3.19 Fiscal Year. The Company's Fiscal Year commences on ----------- November 1 and ends on October 31 of the calendar year. Section 3.20 Other Agreements. ---------------- (a) The Company has delivered to the Purchaser a true, correct and complete copy of each of the following documents in the form in which it has been executed and delivered: (i) the Loan Agreement, as amended and supplemented to the date of this Agreement, and (ii) each of the documents heretofore delivered or to be delivered in connection with the consummation of the Restructuring and the transactions contemplated by the Loan Agreement. (b) Except as disclosed in writing by the Company to the Purchaser, all representations and warranties of the Company contained in each of the documents described in Section 3.20(a) are true in all material respects on the date of this Agreement as if made on and as of the date of this Agreement. Except as disclosed in writing by the Company to the Purchaser, the Company has no reason to believe that any representation or warranty of any other party thereto contained in any of the documents described in Section 3.20(a) is incorrect in any material respect or that any other party thereto has breached in any respect any covenant contained therein. (c) The Company has delivered to the Purchaser true and complete copies of the Certificate of Incorporation and bylaws of the Company and the Certificate of Incorporation and bylaws of each of its Subsidiaries, each as amended and in full force and effect as of the date of this Agreement. (d) Neither the Company nor any other party thereto has given any waiver or consent under any of the documents described in Section 3.20(a). ARTICLE 4 Representations and Warranties of the Purchaser ----------------------------------------------- The Purchaser represents and warrants for itself only, and each subsequent holder of any Notes or Warrants, by acquiring them, shall also be deemed to have represented and warranted for itself only, that it is acquiring the Notes and Warrants to be acquired by it for its own account for investment and not with a view to, or for sale in connection with, any distribution thereof, but subject, nevertheless, to any requirement of law that the disposition of its property shall at all times remain within its control. The Purchaser understands that none of the Notes or Warrants has been registered under the Securities Act. Except as described in Section 3.18, the Purchaser -25- is not aware of any broker's, lender's, finder's or placement fees or commissions or any similar fees or commissions that will be payable with respect to the issuance of the Notes or Warrants and/or the transactions contemplated by this Agreement. ARTICLE 5 Use of Proceeds --------------- The proceeds from the sale of the Notes and Warrants will be used to finance the Company's investment in Retail and for the Company's working capital and other general corporate purposes. Retail shall use such proceeds to repay a portion of certain indebtedness under the Loan Agreement which has been assumed by Retail pursuant to the Restructuring, to finance the expansion of Retail's retailing operations and for working capital purposes, provided that pending -------- such use of such proceeds Retail may lend such proceeds to the Company to be used temporarily to reduce the outstanding principal balance of the Company's indebtedness under the Loan Agreement on terms and conditions reasonably acceptable to the Purchaser. ARTICLE 6 Conditions to Obligations ------------------------- The obligation of the Purchaser to purchase the Notes and the Warrants on the Closing Date and/or any subsequent issue date is subject to the satisfaction of the following conditions: Section 6.1 The Notes and the Warrants. -------------------------- (a) The Purchaser shall have received a Note or Notes in the aggregate principal amount of $6,500,000 in the form of Exhibit B, each dated the Closing --------- Date, registered in the name of and payable to the Purchaser, duly executed by the Company. (b) The Purchaser shall have received a single certificate representing the Warrants in the form of Exhibit C, dated the Closing Date, registered in the --------- name of the Purchaser. Section 6.2 Opinions and Certificates. On the Closing Date, the ------------------------- Purchaser shall have received: -26- (a) The opinion, dated the Closing Date, of Cameron & Mittleman, counsel to the Company, substantially in the form of Exhibit D-1, and by the execution ----------- and delivery of this Agreement, the Company hereby authorizes and directs such counsel to render such opinion to the Purchaser; and (b) The opinion, dated the Closing Date, of Peabody & Brown, special counsel to the Company, substantially in the form of Exhibit D-2, and by the ----------- execution and delivery of this Agreement, the Company hereby authorizes and directs such counsel to render such opinion to the Purchaser; and (c) A Certificate, dated the Closing Date and signed by the President of the Company, certifying that as of the Closing Date all conditions specified in Sections 6.3, 6.4 and 6.7 have been satisfied in full, and having attached the statement of sources and uses of funds required by Section 6.5; and (d) Certificates of the Secretary of the Company and the Secretary of Retail attesting as to the incumbency of each officer of each such Person; and (e) Certificates of insurance evidencing compliance with the requirements of Section 7.4; and (f) The consent of the Lender to the consummation of the transactions contemplated by this Agreement and amendments to the Loan Agreement in form and substance satisfactory to the Purchaser in its sole discretion. Section 6.3 No Default; Representations and Warranties. As of the ------------------------------------------ Closing Date, (a) the representations and warranties contained in this Agreement shall be true in all material respects as if they had been made at such time, (b) the Company shall be in compliance with all of the terms and provisions set forth in this Agreement to be observed or performed at or prior to the Closing Date and (c) after giving effect to issue and sale of the Notes and Warrants and the consummation of the other transactions contemplated by this Agreement, no Default or Event of Default shall have occurred and be continuing. Section 6.4 Closing of the Restructuring and the Loan Agreement. On the --------------------------------------------------- Closing Date, (a) all representations and warranties contained in the documents implementing the Restructuring and the Loan Agreement shall be true and correct in all material respects as if made on the Closing Date; (b) the Restructuring shall have been consummated, without waiver, modification or postponement; (c) all deliveries, actions and other conditions precedent to the obligation of the Lender under the Loan Agreement shall have been satisfied in accordance with the terms thereof without waiver, modification or postponement, and no default shall have occurred or be continuing thereunder; and (d) the Company shall have delivered to the Purchaser a true, correct and complete executed counterpart (or copy thereof) of each document -27- and instrument delivered and to be delivered in connection with the closing of the transactions contemplated by the Restructuring. Section 6.5 Retail's Issuance of Common Stock. Retail shall have issued --------------------------------- a total of 1,000 shares of its common stock, no par value per share, to the Company and shall have received not less than $1,000.00 as payment therefor. Retail shall have delivered to the Purchaser a statement of sources and uses of funds in such detail as the Purchaser may reasonably request. Section 6.6 Copies of Agreements, Contracts. Leases and Licenses. On or ---------------------------------------------------- prior to the Closing Date, the Company shall have delivered to the Purchaser and to special counsel to the Purchaser accurate and complete copies of the Certificate of Incorporation and Bylaws of the Company and Certificate of Incorporation and Bylaws of each of the Company's Subsidiaries, any shareholders' agreements, all material employment or compensation agreements, including without limitation agreements relating to management incentive or bonus compensation, management or consulting contracts, joint venture agreements, that are binding upon the Company or any one or more its Subsidiaries, or to be entered into by the Company or any one or more of its Subsidiaries, and all other material contracts of the Company or its Subsidiaries requested by the Purchaser. Section 6.7 Adverse Changes. There shall not have occurred any change --------------- or changes (or development involving a prospective change) in the business, properties, financial condition or results of operations of the Company or its Subsidiaries since October 31, 1992, which, in the Purchaser's opinion, are, individually or in the aggregate, materially adverse. Since October 31, 1992, (a) no material action, proceeding or investigation shall have been commenced against the Company or any of its Subsidiaries by any Person or governmental body; (b) the Company shall not have declared any dividends or made any payment on account of any capital stock of the Company, or made any other distribution in respect thereof, either directly or indirectly, whether in cash, property or obligations of the Company or redeemed any capital stock of the Company; (c) neither the Company nor its Subsidiaries shall have entered into any material contracts, commitments, joint ventures or transactions with any Person; and (d) the Company shall not have changed its accounting methods in any material way. Section 6.8 Guaranty. The Purchaser shall have received the Guaranty -------- duly executed by the Guarantor. Section 6.9 Taxes. On or prior to the Closing Date, the Company and ----- each of its Subsidiaries shall have paid or caused to be paid all transfer, mortgage, debt, stamp, recording, document, intangibles and similar taxes and fees required to be paid in connection with the execution and delivery of the documents implementing the Restructuring, this Agreement, the Loan Agreement, the issuance of -28- the Notes and the Warrants, the issuance by Retail of its Common Stock as required by Section 6.5, and the Purchaser shall have received evidence of such payment. Section 6.10 Closing. The Closing Date must occur on or before November ------- 30, 1993. Section 6.11 Non-Competition Agreement. The Company, Norman Cloutier, ------------------------- Steven Townsend and Daniel Atwood shall have executed and delivered non- competition agreements substantially in the respective forms attached hereto as Exhibit F. - --------- Section 6.12 Additional Documents and Actions. The Purchaser shall have -------------------------------- received such additional agreements, instruments, certificates and other documents, and such additional actions shall have been taken, in connection with the consummation of the transactions contemplated by this Agreement as the Purchaser may reasonably request. Section 6.13 Proceedings Satisfactory. All proceedings and actions taken ------------------------ in connection with the consummation of the transactions contemplated by this Agreement, the Loan Agreement, the Restructuring and all instruments, agreements, certificates and other documents executed and delivered pursuant hereto and thereto or in connection herewith and therewith shall be satisfactory in form and substance to the Purchaser. ARTICLE 7 Affirmative Covenants --------------------- Section 7.1 Financial Statements and Other Information. The Company ------------------------------------------ covenants and agrees that so long as any Notes or Warrants or any Warrant Stock shall remain outstanding: (a) The Company shall deliver to the Purchaser and each subsequent Holder of the Notes, Warrants or Warrant Stock: (i) as soon as available and in any event within 90 days after the end of each Fiscal Year of the Company, audited Consolidated and unaudited consolidating statements of income, retained earnings and cash flows of the Company and its Subsidiaries for such year and the related audited Consolidated and unaudited consolidating balance sheet as at the end of such year, prepared in accordance with GAAP on a last-in, first-out basis, and accompanied, in the case of such Consolidated financial statements, by an opinion thereon of KPMG Peat Marwick or another firm of independent -29- certified public accountants of recognized national standing, which opinion shall state that such Consolidated financial statements fairly present the Consolidated financial condition and results of operations of the Company and its Subsidiaries as at the end of, and for, such Fiscal Year, and shall otherwise be in scope and substance reasonably satisfactory to the Purchaser; (ii) as soon as available and in any event within 45 days after the end of each Fiscal Month of the Company commencing after the Closing Date, unaudited, interim Consolidated and consolidating statements of income, retained earnings and cash flows of the Company and its Subsidiaries, in each case in a form satisfactory to the Purchaser, for such Fiscal Month and for the portion of the Fiscal Year ended at the end of such Fiscal Month, each prepared in accordance with GAAP on a first-in, first-out basis, and the related Consolidated and consolidating balance sheet as at the end of such Fiscal Month, and accompanied, in each case, by a certificate of the principal financial officer of the Company which certificate shall state that the Consolidated financial statements fairly present the Consolidated financial condition and results of operations of the Company and its Subsidiaries in accordance with GAAP (except for the absence of footnotes), consistently applied, as at the end of, and for, such month and period (subject to normal, non-recurring year-end audit adjustments); (iii) as soon as available, and in any event no later than 30 days prior to the end of each Fiscal Year of the Company, a copy of the Consolidated operating budget, including without limitation projections of the anticipated cash flow, of the Company and its Subsidiaries for the next three (3) Fiscal Years, year by year, and for the forthcoming Fiscal Year, month by month, such budget to be accompanied by a certificate of the principal financial officer of the Company specifying the assumptions on which such budget was prepared, stating that such officer has no reason to question the reasonableness of any material assumptions on which such budget was prepared, and providing such other details as the Purchaser may reasonably request; (iv) promptly upon the mailing thereof to the shareholders or creditors of the Company generally, copies of all financial statements, reports and proxy statements so mailed; (v) promptly upon the filing thereof, copies of all registration statements (other than any registration statements on Form S-8 or its equivalent) and any regular, periodic or special reports which the Company shall have filed with the Commission or any national securities exchange; (vi) promptly following the delivery thereof to the Company or management of the Company, a copy of any written report by independent -30- public accountants with respect to the financial condition, operations, accounting systems or procedures, business or prospects of the Company; (vii) promptly after management of the Company knows or has reason to know that any Default or Event of Default has occurred and is continuing, a notice of such Default or Event of Default, describing the same in reasonable detail; (viii) from time to time such other data and information regarding the financial condition, operations, prospects or business of the Company as the Holders may reasonably request, including without limitation the Company's Federal income tax returns and bank statements. (b) Concurrently with the delivery of the financial statements described in Sections 7.1(a)(i) or 7.1(a)(ii), the Company shall cause to be prepared and furnished to each Person entitled to receive such financial statements, a certificate of its principal financial officer or the Company certifying to such Person(s) that, to the best of such Person's knowledge after due inquiry, the Company has kept, observed, performed and fulfilled each and every covenant, obligation and agreement binding upon the Company in this Agreement and the other Basic Documents and that no Default or Event of Default has occurred, or if such Default or Event of Default has occurred, specifying the nature thereof. (c) The Company shall keep, and shall cause each Subsidiary to keep, adequate records and books of account with respect to its business activities in which proper entries are made in accordance with GAAP reflecting all of such Person's financial transactions. (d) From time to time, as often as may be reasonably requested, and upon at least two (2) Business Days' prior notice, but only during normal business hours, the Company shall, and shall cause each of its Subsidiaries to, permit the Purchaser and/or its representatives to inspect, audit and make copies of the books and records of the Company and its Subsidiaries, to discuss the business and affairs of the Company and its Subsidiaries with the officers and employees of the Company and its Subsidiaries, and to visit and inspect any of the Properties or other assets of the Company and its Subsidiaries. (e) Upon three (3) Business Days' prior notice to the Company, the Purchaser shall have the right to confer in its discretion with the independent certified public accountants of the Company at any time during normal business hours upon any matter involving the financial condition of the Company and such accountants are hereby irrevocably authorized to fully discuss with and disclose to the Purchaser all such matters. -31- Section 7.2 Taxes, Liens and Claims. The Company covenants and agrees ----------------------- that so long as any Notes shall remain outstanding the Company shall pay and discharge, and shall cause each of its Subsidiaries to pay and discharge, all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits, or upon any property belonging to it, including without limitation any one or more of the Properties, prior to the date on which penalties attach thereto or interest becomes payable thereon, and all lawful claims other than Permitted Liens (as that term is defined in the Loan Agreement) which, if unpaid, might become a lien upon the property of the Company or such Subsidiary, including without limitation any one or more of the Properties, provided that neither the Company nor such Subsidiary shall be -------- required to pay any such tax, assessment, charge, levy or claim the payment of which is being contested in good faith and by proper proceedings if it maintains adequate reserves with respect thereto. Section 7.3 Tax Returns. The Company covenants and agrees that so long ----------- as any Notes shall remain outstanding the Company shall, and shall cause each of its Subsidiaries to: (a) file all Federal, state and local tax returns and other reports that the Company or such Subsidiary is required by law to file; (b) maintain adequate reserves for the payment of all taxes, assessments, governmental charges and levies imposed upon it, its income or its profits or upon any Property or other asset owned by it. Section 7.4 Insurance. The Company covenants and agrees that so long as --------- any Notes shall remain outstanding the Company shall maintain, and shall cause each of its Subsidiaries to maintain, insurance in such amounts and against such risks as is usually carried by owners of similar businesses and properties in the same general areas in which the Company and its Subsidiaries operate Section 7.5 Maintenance of Existence; Conduct of Business. The Company --------------------------------------------- covenants and agrees that so long as any Notes or Warrants or any Warrant Stock shall remain outstanding the Company shall preserve and maintain, and shall cause each of its Subsidiaries to preserve and maintain: (a) its separate corporate existence; (b) all of its rights, privileges and franchises necessary or desirable in the normal conduct of its business; and (c) its qualification and good standing in all states in which such qualification is necessary in order for the Company or such Subsidiary to conduct its business in such states. Section 7.6 Maintenance of and Access to Properties. The Company --------------------------------------- covenants and agrees that so long as any Notes or Warrants or any Warrant Stock shall remain outstanding the Company shall keep, and shall cause each of its Subsidiaries to keep, all of its Properties and other assets in good working order and condition (having regard to the condition of such Properties and assets at the time such Properties and assets were acquired by the Company or such Subsidiary), ordinary wear and tear excepted; shall make, and shall cause each Subsidiary to -32- make, all necessary renewals, repairs, replacements, additions and improvements thereto; and shall permit the Holders to inspect such Properties and assets and, upon reasonable notice and at reasonable times, to examine and make extracts and copies from the books and records of the Company and any such Subsidiary. Section 7.7 Compliance With Applicable Laws. The Company covenants and ------------------------------- agrees that so long as any Notes shall remain outstanding the Company shall comply, and shall cause each of its Subsidiaries to comply, with the requirements of all applicable laws, rules, regulations and orders of any governmental body or regulatory authority (including without limitation ERISA and all Environmental Laws); and shall obtain and keep in force, and shall cause each Subsidiary to obtain and keep in force, any and all Licenses. Section 7.8 Litigation. The Company covenants and agrees that so long as ---------- any Notes shall remain outstanding the Company shall promptly give to the Purchaser notice in writing of (a) all judgments against it or any of its Subsidiaries; and (b) all litigation and of all proceedings of which it is aware before any courts, arbitrators or governmental or regulatory agencies affecting the Company or any of its Subsidiaries, except litigation or proceedings which, if adversely determined, would not in the reasonable opinion of the Company materially and adversely affect the condition (financial or otherwise), assets, nature of assets, liabilities (including without limitation tax, ERISA and Environmental Liabilities) or prospects of the Company and its Subsidiaries, taken as a whole and for which the Company or its Subsidiary, as applicable, maintains adequate reserves. Solely for purposes of this Section 7.8, litigation or proceedings which if adversely determined could result, directly or indirectly, in liability of the Company and/or one or more of its Affiliates in an amount equal to or exceeding $100,000 shall be material. Section 7.9 Warrants. The Company covenants and agrees that so long as -------- any Warrants or Warrant Stock shall remain outstanding: (a) the Company shall at all times duly reserve for issuance the Common Stock which is to be issued upon the exercise of the Warrants; and (b) the Company shall comply with the terms and conditions of the Warrants as set forth in the Warrant Certificate and perform all of its obligations thereunder. Section 7.10 Payment of Indebtedness. The Company covenants and agrees ----------------------- that so long as any Notes shall remain outstanding the Company shall, and shall cause its Subsidiaries to, pay when due all Indebtedness and other obligations of the Company or its Subsidiaries. Section 7.11 Environmental Matters. The Company covenants and agrees that --------------------- so long as any Notes shall remain outstanding the Company shall, and shall cause its Subsidiaries to, at all times comply in all material respects with all Environmental Laws. Within ten (10) days of receipt by the Company or its -33- Subsidiaries of any (a) notice of any material violation or alleged material violation of any Environmental Law or Laws or alleging responsibility for any remediation thereunder or (b) listing or proposed inclusion of any of the Company's or its Subsidiaries' Properties on the National Priorities List or any similar list or inventory of sites requiring response or cleanup, the Company shall provide the Holders with a copy of such notice or listing. Within 15 days of the date the Company shall have knowledge of the enactment of any Environmental Law or Laws which may have a material adverse affect on the business, condition (financial or otherwise), performance or operations of any one or more of the Company or its Subsidiaries, the Company shall send a notice to the Purchaser setting forth such Environmental Law or Laws and specifying in reasonable detail the effect of such Environmental Law or Laws on the Company or its Subsidiaries, as applicable. Section 7.12 ERISA. The Company covenants and agrees that so long as any ----- Notes shall remain outstanding the Company shall, and shall cause each of its ERISA Affiliates to, at all times (x) make prompt payment of all contributions to each Plan which are required in order to meet the minimum funding standards set forth in ERISA with respect to such Plan and (y) satisfy any and all of its obligations under the ESOP Notes and any other obligations under or with respect to any Plan. The Company shall deliver to the Purchaser: (a) as soon as possible and in any event (i) within 30 days after the Company or any ERISA Affiliate knows or has reason to know that any Termination Event described in clause (i) of the definition of Termination Event with respect to any Pension Plan has occurred and (ii) within 20 days after the Company or any ERISA Affiliate knows or has reason to know that any other Termination Event with respect to any Pension Plan or Multiemployer Plan has occurred, a certificate signed by the President or a Vice President of the Company describing such Termination Event and the action, if any, that the Company or such ERISA Affiliate proposes to take with respect thereto; (b) promptly and in any event within five (5) Business Days after receipt thereof by the Company or any ERISA Affiliate, copies of each notice from the PBGC stating its intention to terminate or administer any Pension Plan or Multiemployer Plan; (c) promptly and in any event within five (5) Business Days after receipt thereof by the Company or any ERISA Affiliate, copies of any notice from the Internal Revenue Service, the PBGC or the Department of Labor stating an intent to impose a lien on the Company or any ERISA Affiliate or informing the Company or any ERISA Affiliate of the imposition of any liability on the Company or any ERISA Affiliate under the Code or ERISA with respect to any Pension Plan; (d) promptly and in any event within 30 days after the filing thereof with -34- the Internal Revenue Service, copies of each Schedule B (Actuarial Information) to the annual report (Form 5500 Series) with respect to each Pension Plan maintained by or contributed to by the Company; (e) promptly and in any event within five (5) Business Days after the receipt thereof from the sponsor of a Multiemployer Plan, a copy of each notice concerning (i) the imposition of Withdrawal Liability by a Multiemployer Plan, (ii) the determination that the Multiemployer Plan is, or is expected by the sponsor to be, in reorganization within the meaning of Title IV of ERISA, (iii) the termination of a Multiemployer Plan within the meaning of Title IV of ERISA, or (iv) the amount of liability incurred, or expected to be incurred, in connection with any event described in any of Sections 7.12(e)(i), 7.12(e)(ii) or 7.12(e) (iii); (f) promptly and in any event within five (5) Business Days after receipt thereof a copy of each notice concerning the imposition, or the sponsor's expectation of the imposition of, a contribution in excess of the Standard Rate of Contribution, if applicable to any Plan; and (g) promptly and in any event within five (5) Business Days after the giving or receipt thereof a copy of any notice that the Company or any of its ERISA Affiliates (i) gives or is required to give to the PBGC of any "reportable event" (as defined in Section 4043 of ERISA) with respect to any Plan which might constitute grounds for a termination of such Plan under Title IV of ERISA, or knows that the plan administrator of any Plan has given or is required to give notice of any such reportable event, a copy of the notice of such reportable event given or required to be given to the PBGC, (ii) receives of complete or partial withdrawal liability under Title IV of ERISA, a copy of such notice; or (iii) receives from the PBGC under Title IV of ERISA of an intent to terminate or appoint a trustee to administer the Plan. Section 7.13 Additional Notices to Purchaser. The Company covenants and ------------------------------- agrees that so long as any Notes or Warrants or any Warrant Stock shall remain outstanding the Company shall notify the Purchaser in writing: (a) at least 15 days prior thereto, of the Company's or any of its Subsidiary's opening of any new office or place of business or the Company's or any of its Subsidiary's closing of any existing office or place of business; (b) promptly after the Company's learning thereof, of any labor dispute to which the Company's or any of its Subsidiary's may become a party, any strikes or walkouts relating to any of such Person's plants or other facilities, and the expiration of any labor contract to which such Person is a party or by which such Person is bound; (c) promptly after the Company's learning thereof, of any material default by the Company or any of its Subsidiaries under any note, indenture, loan agreement, mortgage, lease, deed, guaranty or other similar agreement relating to any Indebtedness of the Company or any of its Subsidiaries -35- exceeding $100,000.00; (d) promptly after the occurrence thereof, of any default by any obligor under any note or other evidence of Indebtedness payable to the Company or any of its Subsidiaries. Section 7.14 Landlord and Storage Agreements. The Company covenants and ------------------------------- agrees that so long as any Notes shall remain outstanding the Company shall provide the Purchaser with copies of all agreements between the Company or any of it Subsidiaries and any landlord or warehouseman which owns any premises at which Inventory with an aggregate invoice cost in excess of $250,000 may, from time to time, be kept. Section 7.15 Subordinations. The Company covenants and agrees that so -------------- long as any Notes shall remain outstanding the Company shall provide the Purchaser with debt subordination agreements in form and substance satisfactory to the Purchaser executed by the Company and/or its Subsidiaries and any Person who is an officer, director or Affiliate of the Company or any of its Subsidiaries to whom the Company and/or its Subsidiaries are or hereafter become indebted for borrowed money, subordinating in right of payment and claim all of such Indebtedness and any future advances thereon to the full and final payment and performance of the obligations evidenced by the Notes. Section 7.16 Further Assurances. The Company covenants and agrees that ------------------ so long as any Notes or Warrants or any Warrant Stock shall remain outstanding the Company shall, at the Purchaser's request, promptly execute or cause to be executed and delivered to the Purchaser any and all documents, instruments and agreements deemed necessary by the Purchaser to give effect to or carry out the terms or intent of this Agreement or any of the other Basic Documents. Section 7.17 Board Seat. As long as the Purchaser shall hold a Note, a ---------- Warrant, or not less than 2,500 shares of the Company's Common Stock, the Purchaser shall have the right to nominate one person to the Board of Directors of the Company and any executive or similar committee of such Board, and the Company will nominate and use its best efforts to cause such nominee (or his successor similarly nominated) to be elected to the Company's Board of Directors and any such executive or similar committee at the December, 1993 meeting of the Board and to be continually elected thereafter. ARTICLE 8 Negative Covenants ------------------ The Company covenants and agrees that so long as any Notes or Warrants shall remain outstanding or as otherwise provided in this Article 8: -36- Section 8.1 Indebtedness. The Company covenants and agrees that so long ------------ as any Note shall remain outstanding the Company shall not, and shall not permit any of its Subsidiaries to, create, incur, assume, or become or remain liable with respect to any Indebtedness, except: (a) Indebtedness evidenced by the Notes; and (b) Current liabilities for trade payables of the Company or its Subsidiaries (i) incurred for the acquisition of property or services entered into in the ordinary course of its business and in accordance with customary trade practices or (ii) acquired in connection with a Permitted Retail Investment; and (c) The Barclays's Indebtedness or any refinancings of such Indebtedness with the Lender in a principal amount not to exceed $15,000,000; and (d) The ESOP Notes, provided that the Company may make payments (but not -------- prepayments) of principal and interest when due under the terms of the ESOP Notes so long as no Default or Event of Default shall have occurred and be continuing at the time of or after giving effect to any such payment; and (e) Seller Financing Indebtedness that is subordinated to the repayment of the Notes on terms reasonably acceptable to the Purchaser; and (f) Capitalized Lease Obligations of Retail with respect to the lease of equipment in connection with the operation of retail sales operations, provided that such Capitalized Lease Obligations shall not exceed $1,000,000 in the aggregate at any one time outstanding. The Company shall not permit any Subsidiary to create, incur, assume or become liable with respect to any Indebtedness or issue any Preferred Stock. Section 8.2 Mortgages and Liens. The Company covenants and agrees that ------------------- so long as any Note shall remain outstanding the Company shall not, and shall not permit any Subsidiary to, directly or indirectly, create, incur, assume, or permit to continue in existence, any mortgage, deed of trust, lien, charge or encumbrance on, or security interest in, or pledge or deposit of, or conditional sale or other title retention agreement or Capital Lease with respect to, any property or asset now owned or leased or hereafter acquired or leased by the Company or any of its Subsidiaries, except: (a) Mortgages, liens and security interests granted by the Company or any Subsidiary pursuant to the Loan Agreement or pursuant to any Indebtedness of the Company to the Lender entered into to refinance the Barclays's Indebtedness which is incurred in compliance with Section 8.1(c); and -37- (b) The mortgages, liens and security interests, if any, set forth in Schedule 3.10(b); and - ---------------- (c) Liens for taxes, assessments and governmental charges other than liens imposed pursuant to any provision of ERISA, the payment of which is not required by Section 7.2; and (d) Liens in connection with workers' compensation, unemployment insurance or other social security obligations; and (e) Statutory mechanics', workmen's, materialmen's or other like liens arising in the ordinary course of business of the Company or its Subsidiaries in respect of obligations which are not yet due or which are being contested in good faith with appropriate reserves having been established and being maintained therefor; and (f) Other liens or encumbrances upon the assets of the Company and its Subsidiaries incidental to the conduct of the business of the Company or its Subsidiaries or to the ownership of the properties or assets, which were not incurred in connection with the acquisition of assets or borrowing of money or the obtaining of credit and which do not materially detract from the value of the properties or assets of the Company or any of its Subsidiaries, either individually or taken as a whole, or adversely affect the operations of the Company or any of its Subsidiaries, either individually or taken as a whole. Section 8.3 Loans, Guaranties and Investments. The Company covenants --------------------------------- and agrees that so long as any Note shall remain outstanding the Company shall not, and shall not permit its Subsidiaries to, make or permit to remain outstanding any Investment in, or guarantee or endorse (except for endorsements of negotiable instruments for deposit or collection in the ordinary course of business) or otherwise assume or remain liable with respect to any obligation of, any other Person, except: (a) the Guaranty; and (b) extensions of credit (other than those to Affiliates of the Company) by the Company or its Subsidiaries in connection with trade receivables incurred in the ordinary course of business and in accordance with customary trade practices; and (c) Investments in (i) direct obligations of the United States of America or any agency thereof with maturities of one (1) year or less from the date of acquisition; (ii) commercial paper of a domestic issuer rated at least "A-1" by Standard & Poor's Corporation or "P-1" by Moody's Investors Service, Inc., and (iii) certificates of deposit with maturities of one (1) year or less from the date of -38- acquisition issued by any commercial bank operating within the United States of America having capital and surplus in excess of $500,000,000; and (d) loans and advances made in the ordinary course of business, including without limitation the extension of credit to customers in accordance with customary trade practices; provided that no Default or Event of Default is in -------- existence at the time of or would be caused by such loan or advance; and (e) Investments in less than all of the capital stock of one or more Persons that are corporations engaged in the retail or wholesale sale of natural foods; provided, that (i) before and after giving effect to such acquisition, no -------- Default or Event of Default shall result therefrom or shall have occurred and be continuing, and (ii) all such acquisitions of capital stock shall not exceed in the aggregate $2,500,000; (f) Investments existing on the date of this Agreement in any Wholly-Owned Subsidiary and any intercompany loans or equity contributions among the Company and any Wholly-Owned Subsidiary; and (g) the acquisition of all the outstanding capital stock of, or operating assets of, any Person engaged in the retail or wholesale sale of natural foods; provided, that before and after giving effect to such acquisition no Default or - -------- Event of Default shall result therefrom or shall have occurred and be continuing; and (h) guaranties by Subsidiaries of Retail, whether existing on the date of this Agreement or entered into hereafter, in favor of Persons who are not Affiliates of Retail, provided that such guaranties are subordinated to any -------- guaranties by such Subsidiaries in favor of the Purchaser on terms reasonably acceptable to the Purchaser. Section 8.4 Restricted Payments. The Company covenants and agrees that ------------------- so long as any Note shall remain outstanding the Company shall not, and shall not permit any Subsidiaries to, declare any dividends or returns on or make any payment on account of, any capital stock of any class of the Company or any Subsidiary, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash, property or obligations of the Company or its Subsidiaries or make any payments of, or retire, redeem, purchase, or otherwise acquire for value, any Indebtedness of the Company or its Subsidiaries subordinate to the Notes, any capital stock of any class of the Company or any warrants, rights, or options to purchase capital stock of any class of the Company or its Subsidiaries or set aside any amounts for such purposes. Notwithstanding the foregoing (a) the Company's Subsidiaries may pay dividends to the Company in the ordinary course of business; and (b) the Company may make payments under the ESOP Guaranty, provided that no Default or -------- Event of Default shall exist at the time of or as a result of any such payment. -39- Section 8.5 Mergers; Consolidations; Sales of Assets; Changes in ---------------------------------------------------- Control; and Acquisitions. The Company covenants and agrees that so long as any - -------------------------- Note shall remain outstanding: (a) The Company shall not, and shall not permit any of its Subsidiaries to, be a party to any merger or consolidation without the prior written consent of the Purchaser, except that a Wholly-Owned Subsidiary of the Company may merge or consolidate with the Company, or any other Wholly-Owned Subsidiary of the Company so long as such transaction does not affect the Consolidated financial condition of the Company. (b) The Company shall not, and shall not permit any of its Subsidiaries to, sell, convey, transfer, lease or otherwise dispose of (including without limitation through a sale and leaseback transaction) any of its properties or assets (including without limitation any capital stock or other securities of the Company or any Subsidiary), except (i) sales of Inventory in the ordinary course of such Person's business so long as no Event of Default is continuing; (ii) transfers of assets to the Company from its Subsidiaries; (iii) transfer of assets from the Company to the Company's Wholly-Owned Subsidiaries; (iv) sales of assets in the ordinary course of such Person's business, provided that no -------- Default or Event of Default is continuing, and no single transaction shall result in the transfer of assets with a fair market value in excess of $150,000; and (v) dispositions expressly authorized by the Purchaser in writing. (c) So long as any Note remains outstanding, the Company shall not, and shall not permit any of its Subsidiaries to, (i) sell, convey, transfer or otherwise dispose of any of the outstanding capital stock of the Company or any Subsidiary, or (ii) consent to or permit any stockholder to sell, convey, transfer or otherwise dispose of any capital stock or other securities of the Company if after giving effect to such transfer, any Person which is not a stockholder on the Closing Date shall hold more than 40% of the outstanding capital stock of any class of the Company. Section 8.6 ERISA. The Company covenants and agrees that so long as ----- any Note shall remain outstanding: (a) The Company shall not, and shall not permit any ERISA Affiliate to, permit any Termination Event with respect to a Plan to occur if the sum (determined as of the date of occurrence of such Termination Event) of the Insufficiency of such Plan and the Insufficiency of any and all other Plans with respect to which a Termination Event shall have occurred and then exist (or in the case of a Pension Plan with respect to which a Termination Event described in clause (ii) of the definition of Termination Event shall have occurred and then exist, the liability related thereto due and payable in any year) is equal to or greater than $250,000; -40- (b) The Company shall not, and shall not permit any ERISA Affiliate to, engage in any prohibited transaction for which an exemption is not available or has not been previously obtained from the Department of Labor and in connection with which the Company or any ERISA Affiliate could be subject to either a material civil penalty assessed pursuant to Section 502(i) of ERISA or an excise tax imposed by Section 4975 of the Code; (c) The Company shall not, and shall not permit any ERISA Affiliate to, permit the imposition of any lien under Section 302(f) of ERISA on any of the assets of the Company or any ERISA Affiliate; and (d) The Company shall not, and shall not permit any ERISA Affiliate to, fail to make full payment when due of all amounts required to be made as contributions by the Company or any ERISA Affiliate under the provisions of any Pension Plan or Multiemployer Plan, except as permitted under Section 9.1(n). Section 8.7 Minimum Adjusted Tangible Net Worth. The Company covenants ----------------------------------- and agrees that so long as any Note shall remain outstanding the Company shall maintain at all times an Adjusted Tangible Net Worth, calculated on a first-in, first-out basis, of not less than $4,000,000. Section 8.8 Minimum Operating Cash Flow. The Company covenants and --------------------------- agrees that so long as any Note shall remain outstanding the Company shall achieve Operating Cash Flow, calculated on a first-in, first-out basis, of not less $4,000,000 during the preceding four (4) fiscal quarters ending on the last day of any fiscal quarter following the Closing Date. Section 8.9 Minimum Ratio of Operating Cash Flow to Consolidated ---------------------------------------------------- Interest Expense. The Company covenants and agrees that so long as any Note - ---------------- shall remain outstanding the Company shall not permit the ratio of Operating Cash Flow to Consolidated Interest Expense, calculated on a first-in, first-out basis, tested commencing October 31, 1993, at the end of each Fiscal Quarter and each Fiscal Year of the Company for the six-month period then ending, to be less than: (a) 3.0 to 1.0 during the period from the Closing Date to October 31,1994; (b) 3.25 to 1.0 during the period November 1, 1994, to October 31, 1995; and (c) 3.5 to 1.0 thereafter Section 8.10 Maximum Leverage. The Company covenants and agrees that so ---------------- long as any Note shall remain outstanding the Company shall maintain at all times Leverage, calculated on a first-in, first-out basis, not in excess of 4.0 to 1.0. -41- Section 8.11 Transactions with Affiliates and Stockholders. The Company --------------------------------------------- covenants and agrees that so long as any Note or Warrant shall remain outstanding: (a) The Company shall not, and shall not permit any of its Subsidiaries to, be a party to, directly or indirectly, any transaction with any Affiliate or stockholder of the Company or any such Subsidiary except in the ordinary course of and pursuant to the reasonable requirements of the Company's or its Subsidiaries' business and on terms that are (i) no less favorable to the Company or such Subsidiary than those which might be obtained at the time from Persons who are not Affiliates or stockholders of the Company or such Subsidiary, (ii) in accordance with standard industry practices, and (iii) fully disclosed to the Purchaser. (b) The Company shall provide the Purchaser with an opinion, addressed to and otherwise in form and substance satisfactory to the Purchaser, of an investment banking firm selected by the Company and reasonably acceptable to the Purchaser as to the fairness of any transaction or series of transactions between the Company or any of its Subsidiaries with any Affiliate where the aggregate consideration transferred in connection with such transaction or series of transactions equals or exceeds $3,000,000. Section 8.12 Loans. The Company covenants and agrees that so long as any ----- Note shall remain outstanding the Company shall not, nor permit any of its Subsidiaries to, make any loan or other advance of money (other than for salaries, travel advances, advances against commissions, loans to the Company's employees made by the Company in accordance with the Company's employee policy manual and other similar advances made in the ordinary course of the Company's or such Subsidiary's business) to any of the Company's or any of its Subsidiaries' stockholders, directors, officers or employees. Section 8.13 Amendments to Certain Agreements. The Company covenants and -------------------------------- agrees that so long as any Note shall remain outstanding the Company shall not, and shall not permit any Subsidiary to, (a) cancel or terminate any material contract, agreement or lease or consent to or accept any cancellation or termination thereof, if such cancellation or termination would have a material adverse effect on the business, condition (financial or otherwise) or performance of the Company or its Subsidiaries; (b) amend or otherwise modify any term or provision of any such material contract, agreement or lease or give any consent, waiver or approval with respect thereto, if such amendment, other modification, consent, waiver or approval would have a material adverse effect on the business, condition (financial or otherwise) or performance of the Company or its Subsidiaries; (c) waive any breach of any term or provision thereof or any default thereunder as a result thereof, if such waiver or default would have a material adverse effect on the business, condition (financial or otherwise) or performance of the Company or its -42- Subsidiaries; or (d) take any other action in connection therewith that would have a material adverse affect on the business, condition (financial or otherwise) or performance of the Company or its Subsidiaries. Section 8.14 Subsidiaries. The Company covenants and agrees that so long ------------ as any Note shall remain outstanding the Company shall not, and shall not permit any of its Subsidiaries to, hereafter (a) create or acquire any Subsidiary except Wholly- Owned Subsidiaries created or acquired in the ordinary course of such Person's business; (b) divest itself of any material assets by transferring such assets to any Subsidiary; or (c) acquire all or any substantial part of the assets of any Person except by a Permitted Retail Investment. Section 8.15 Capital Expenditures. The Company covenants and agrees that -------------------- so long as any Note shall remain outstanding the Company shall not, and shall not permit any of its Subsidiaries to, make Capital Expenditures (including without limitation by way of Capital Leases), other than Capital Expenditures included in the purchase price of any Permitted Retail Investment, which, in the aggregate, as to the Company and it Subsidiaries, exceed $1,500,000 during any Fiscal Year of the Company. Section 8.16 Business Locations. The Company covenants and agrees that so ------------------ long as any Note shall remain outstanding the Company shall not, and shall not permit any of its Subsidiaries to, transfer such Person's principal place of business or chief executive office, or open any new manufacturing plants, or maintain warehouses or records with respect to accounts receivable or Inventory, to or at any locations other than those at which the same are presently kept or maintained, as set forth on Exhibit E, except upon at least 30 days prior --------- written notice to the Purchaser. Section 8.17 Change of Business. The Company covenants and agrees that so ------------------ long as any Note or Warrant shall remain outstanding except as previously disclosed to the Purchaser in respect of the Company's plans to expand its business operations into retail ownership and sales, neither the Company nor any of its Subsidiaries shall enter into any new business or make any material change in any of such Person's business objectives, purposes and operations, provided, however, that the Company's plans to expand its business into retail - ----------------- ownership and sales shall be carried out in a manner consistent with the provisions of this Agreement. Section 8.18 Use of Purchaser's and/or Holders' Names. The Company shall ---------------------------------------- not, and shall not permit any of its Subsidiaries, at any time without the prior written consent of the Purchaser, to use the name of the Purchaser or the name of any Affiliate of the Purchaser in connection with any of the Company's businesses or activities, except in connection with internal business matters, as required in dealings with governmental agencies and financial institutions and to trade creditors of the Company solely for credit reference purposes. -43- Section 8.19 Restricted Investments. The Company covenants and agrees ---------------------- that so long as any Note shall remain outstanding the Company shall not make or have, or permit any Subsidiary to make or have, any Restricted Investment. Section 8.20 Leases. The Company covenants and agrees that so long as any ------ Note shall remain outstanding the Company shall not, and shall not permit any Subsidiary to, become a lessee under any operating lease (other than a lease under which the Company is lessor) of Property if the aggregate Rentals payable during any current or future period of 12 consecutive months under the lease in question and all other leases under which the Company and/or its Subsidiaries are then lessees would exceed $10,000,000.00. Section 8.21 Tax Consolidation. The Company covenants and agrees that so ----------------- long as any Note shall remain outstanding the Company shall not, and shall not permit any Subsidiary to, file or consent to the filing of any consolidated income tax return with any Person other than a Subsidiary. ARTICLE 9 Events of Default ----------------- Section 9.1 Events of Default. If any one or more of the following ----------------- events or conditions (each such event or condition being herein referred to as an "Event of Default") shall occur or exist for any reason whatsoever (and whether such occurrence shall be voluntary or involuntary or come about or be affected by operation of law or otherwise): (a) The Company shall default (for any reason) in the payment of the principal of any Note when the same becomes due in accordance with the provisions of this Agreement and such Note, whether at maturity or at a date fixed for the payment or prepayment of any portion thereof or by declaration, acceleration or otherwise; or (b) The Company shall default (for any reason) in the payment of interest on any Note when the same becomes due in accordance with the provisions of this Agreement and such Note and the continuance of such default for ten (10) days after the same becomes due in accordance with such provisions; or (c) The Company shall default (for any reason) in the performance of or compliance with any covenant or agreement in Sections 7.9 or 8.4; (d) The Company shall default (for any reason) in the performance of or compliance with any other covenant or agreement in this Agreement (other than a -44- covenant on agreement a default in the performance of which is elsewhere in this Section 9.1 specifically dealt with), and the continuance of such default for 30 days after the notice thereof to the Company from the Purchaser; or (e) Any representation or warranty made by the Company in connection with this Agreement or any certificate or financial information delivered pursuant to this Agreement shall prove to have been incorrect in any material respect when made; or (f) There shall exist an Event of Default (as that term is defined in the Loan Agreement) under the Loan Agreement; or (g) The Company or any Subsidiary shall default for any reason (as principal, lessee, guarantor or other surety) in the payment of any amounts due under any Indebtedness in an aggregate principal amount exceeding $100,000 or in the performance of or compliance with any other material term of any evidence or evidences of such Indebtedness or of any mortgage, indenture or other agreement relating thereto and the holder or holders of such Indebtedness shall have accelerated the maturity thereof or such default would permit (with notice or the lapse of time) the holders to accelerate the maturity thereof; or (h) The Company or any Subsidiary shall discontinue its business, or shall make an assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts as such debts become due, or shall apply for or consent to the appointment of or taking possession by a trustee, receiver or liquidator (or other similar official) of any substantial part of its property, or shall commence a case or have an order for relief entered against it under the Federal bankruptcy laws, as now or hereafter constituted, or any other applicable Federal or state bankruptcy, insolvency or other similar law, or the Company or any Subsidiary shall take any action to authorize any of the actions set forth in this Section 9.1(h); or (i) Within 60 days after the commencement against the Company or any Subsidiary of a case under the Federal bankruptcy laws, as now or hereafter constituted, or any other applicable Federal, territorial or state bankruptcy, insolvency or other similar law, such case shall not have been dismissed or all orders or proceedings thereunder affecting the assets, operations or business of such Person shall not have been stayed, or the stay of any such order or proceeding shall thereafter be set aside and not be reinstated within 30 days, or within 60 days after the entry of a decree appointing a trustee, receiver or liquidator (or other similar official) of any substantial part of the property of such Person, such appointment shall not have been vacated or stayed, or the Company or any Subsidiary shall at any time consent to, agree to, approve or acquiesce in any such case or the entry of any such decree; or -45- (j) A final judgment or final order which, together with all other outstanding final judgments and final orders against the Company and/or one or more of its Subsidiaries, exceeds an aggregate of $100,000 shall be rendered against the Company and/or one or more of its Subsidiaries and, within 45 days after entry thereof, such judgment shall not have been paid, satisfied, dismissed, bonded or discharged or the execution thereof stayed pending appeal, or within 45 days after the expiration of any such stay, such judgment shall not have been paid, satisfied, dismissed or discharged; or (k) The Company shall fail (i) to permit the exercise of any Warrant and promptly issue the Warrant Stock with respect thereto or fulfill the terms thereof or (ii) to purchase Warrants or Warrant Stock tendered pursuant to Sections 8 or 10 of the Warrant Certificate or (iii) to purchase Warrants or Warrant Stock called by the Company pursuant to Section 10 of the Warrant Certificate; or (l) The Company or any ERISA Affiliate shall have incurred any Withdrawal Liability to any Multiemployer Plan which, when aggregated with all other amounts required to be paid to Multiemployer Plans in connection with Withdrawal Liabilities (determined as of the date of such notification), will result in an annual payment in excess of $100,000 and such amount is not paid within 30 days of when such payment is due; or (m) The Company or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or is being terminated, within the meaning of Title IV of ERISA, if as a result of such reorganization or termination the aggregate annual contributions of the Company and its ERISA Affiliate to all Multiemployer Plans which are then in reorganization or being terminated have been or will be increased over the average annual amounts contributed to such Multiemployer Plans for the most recent plan year which includes the date of this Agreement by an amount exceeding $100,000 if the Company may have liability therefor; or (n) The Company or any ERISA Affiliate shall have (i) incurred with respect to any Pension Plan an accumulated funding deficiency under Section 302 of ERISA or Section 412 of the Code for a plan year of such Pension Plan (determined as of the latest date for which a deductible contribution could be made for such plan year under Section 404 of the Code), other than an accumulated funding deficiency which has been properly waived by the Internal Revenue Service or which is the subject of a pending waiver before the Internal Revenue Service, and (ii) the amount of all such accumulated funding deficiencies which then exist with respect to all Pension Plans equals or exceeds $100,000 and such amount together with any interest, taxes or penalties in respect thereof is not paid with 30 days of when such amount is due; -46- then, (A) upon the actual or deemed entry of an order for relief with respect to the Company or any Subsidiary under the Bankruptcy Reform Act of 1978, as amended, the aggregate unpaid principal amount of and all interest accrued on the Notes shall be and become immediately due and payable without any notice of any kind or other act on the part of the Holders, and (B) in any such other event, and at any time thereafter, if any Event of Default shall then be continuing, the Purchaser may by written notice to the Company declare the aggregate unpaid principal amount of and all interest accrued on the Notes to be forthwith due and payable, whereupon the aggregate unpaid principal amount of and all interest accrued on the Notes, and all other amounts owing by the Company to the Purchaser or the Holders of the Notes under this Agreement and the Notes shall become forthwith due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Company. If any principal of or interest on the Notes shall not be paid in full immediately upon the date when the same shall become due and payable, whether at maturity or at the date fixed for payment or prepayment, by declaration, acceleration or otherwise, interest shall accrue from such due date (without regard to any grace period) on the unpaid amount at the Default Rate. ARTICLE 10 Remedies on Default ------------------- Section 10.1 Remedies on Default. In case any one or more Events of ------------------- Default shall have occurred and be continuing, or if the Company or any Subsidiary is in breach of any other covenant or agreement contained in this Agreement, the Purchaser, the Requisite Holders, or the Requisite Holders of the Warrants may proceed to protect and enforce their rights by an action at law, suit in equity or other appropriate proceedings, whether for the specific performance of any agreement contained or referred to herein or in the Notes or for an injunction against a violation of any of the terms hereof or thereof, or in aid of the exercise of any power granted hereby or thereby or by law. No course of dealing and no delay on the part of any Holder in exercising any right shall operate as a waiver thereof or otherwise prejudice such Holder's or any other Holder's rights. No right conferred hereby or by any Note or Warrant upon the Holders shall be exclusive of any other right referred to herein or therein or now or hereafter available at law, in equity, by statute or otherwise. ARTICLE 11 Restrictions on Transfer ------------------------- -47- Section 11.1 Applicability of Restrictions. Notwithstanding any ----------------------------- provisions to the contrary contained in this Agreement or any Notes, the provisions of this Section 11.1 shall apply to any Restricted Action. The Holder of each Note, by its acceptance thereof, agrees that it will not take any Restricted Action prior to the delivery to the Company of the opinion or opinions of counsel referred to in, and to the effect described in, Section 11.3, or until registration under the Securities Act of the Notes involved in such Restricted Action has become effective, and in the case of any transfer to any Person who is not an institutional investor or who competes in any respect with the Company or its Subsidiaries in the retail or wholesale sale of foods or related products, without the written consent of the Company (which shall not be unreasonably withheld). Section 11.2 Restrictive Legends. Each Note (unless at the time of ------------------- issuance such Note is registered under the Securities Act), and each Note issued upon the transfer or exchange of any such Note (except as otherwise permitted by this Article 11), shall be stamped or otherwise imprinted with a legend in substantially the following form: This Note has not been registered under the Securities Act of 1933, as amended, and neither this Note nor any interest therein may be sold, transferred, pledged or otherwise disposed of in the absence of such registration or an exemption under such Act and the rules and regulations thereunder. The transfer of such Notes is subject to the restrictions set forth in Article 11 of that certain Note and Warrant Purchase Agreement dated as of November 17, 1993, between Cornucopia Natural Foods, Inc. (the "Company"), and Triumph-Connecticut Limited Partnership, copies of which are available for inspection at the office of the Company, and such Notes may be transferred only in compliance with the terms and conditions of Article 11 of such Note and Warrant Purchase Agreement. Section 11.3 Notice of Proposed Transfer; Opinion of Counsel. Each Holder ----------------------------------------------- of any Notes by its acceptance thereof, agrees that, except as otherwise expressly provided in this Section 11.3 prior to the taking of any Restricted Action, such Holder will give 20 days written notice to the Company of such Holder's intention to take such Restricted Action accompanied by an opinion of counsel to such Holder. Each such notice shall describe the manner and circumstances of the proposed Restricted Action and such counsel's opinion shall state that in the opinion of such counsel the proposed Restricted Action may be effected without registration under the Securities Act of any Note involved in such Restricted Action. Such Holder shall thereupon be entitled to effect such Restricted Action in accordance with the terms of the notice delivered by such Holder to the Company, and the Company promptly shall effect any transfer of any Notes involved in such Restricted Action and deliver new Notes bearing (or not bearing, if in the opinion of such counsel such -48- legend is no longer required to insure compliance with the Securities Act) the legend set forth in Section 11.2. Section 11.4 Transfer Pursuant to Rule 144A. The Company agrees to ------------------------------ provide to the Holders and, upon a Holder's request, to any prospective purchaser designated by the Holder the financial and other information specified in Rule 144A(d) (4) under the Securities Act; provided that each of the Holder -------- and any such prospective purchaser agrees to execute a confidentiality agreement relating to the non-disclosure of information that the Company determines in good faith to be confidential. The Company also agrees to take any other action or to execute any certificates necessary to permit a transfer by any Holder to qualify for the exemption set forth in Rule 144A. Section 11.5 Transfer of Warrants. The provisions of the Warrant -------------------- Certificate shall apply to the transfer of the Warrants and any Warrant Stock issuable upon exercise thereof. ARTICLE 12 Subordination of Notes ---------------------- Section 12.1 Notes Subordinate to Senior Indebtedness. The Company, and ---------------------------------------- each Holder of the Notes by becoming a Holder thereof, each covenant and agree that, to the extent and in the manner hereinafter set forth in this Article 12, the Indebtedness represented by the Notes and the payment of the principal of and interest on each and all of the Notes are hereby expressly made subordinate and subject in right of payment to the prior payment in full of all amounts which constitute Senior Indebtedness. Section 12.2 Payment Over of Proceeds Upon Dissolution Etc. In the event --------------------------------------------- of (a) any insolvency or bankruptcy case or proceeding, or any receivership, liquidation, relief, arrangement, reorganization or other similar case or proceeding in connection therewith, relative to the Company or any of its Subsidiaries or to any of their respective creditors, as such, or to any of their assets, or (b) any liquidation, dissolution, reorganization or other winding up of the Company or any of its Subsidiaries, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy, or (c) any assignment for the benefit of creditors or any other marshalling of assets and liabilities of the Company or any of its Subsidiaries, then the holders of the Senior Indebtedness shall be entitled to receive payment in full of all amounts due or to become due on or in respect of the Senior Indebtedness, or provision shall be made for such payment in cash, before the Holders of the Notes are entitled to receive any payment on account of principal of or interest on the -49- Notes, and to that end the holders of the Senior Indebtedness shall be entitled to receive, for application to the payment thereof, any payment or distribution of any kind or character, whether in cash, property or securities (including without limitation any such payment or distribution which may be payable or deliverable by reason of the payment of any other Indebtedness of the Company being subordinated to the payment of the Notes) which may be payable or deliverable in respect of the Notes in any such case, proceeding, dissolution, liquidation or other winding up or event. Notwithstanding the foregoing provisions of this Section 12.2, if the Holder of any Note shall have received any payment or distribution of assets of the Company or any of its Subsidiaries of any kind or character, whether in cash, property or securities (including without limitation any such payment or distribution which may be payable or deliverable by reason of the payment of any other Indebtedness of the Company being subordinated to the payment of the Notes) during the pendency of any proceeding referred to in this Section 12.2, before all Senior Indebtedness is paid in full or payment thereof provided for, then such payment or distribution shall be paid over or delivered forthwith to the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other person making payment or distribution of assets of the Company or such Subsidiary for the application to the payment of all the Senior Indebtedness remaining unpaid, to the extent necessary to pay all the Senior Indebtedness in full, after giving effect to any concurrent payment or distribution to or for the holders of the Senior Indebtedness. Section 12.3 No Payment on Notes in Certain Circumstances. -------------------------------------------- (a) After the occurrence and during the continuance of any Senior Payment Default, unless and until such default shall have been cured or waived or shall have ceased to exist and any declaration that the Senior Indebtedness has become due and payable prior to the date on which it would otherwise have become due and payable shall have been rescinded or annulled, or if any judicial proceeding shall be pending with respect to any such default, then no payment (including without limitation any payment which may be payable by reason of the payment of any other Indebtedness of the Company being subordinated to the payment of the Notes) shall be made by the Company or any if its Subsidiaries on account of principal of or interest on the Notes or on account of the purchase or other acquisition of the Notes. Notwithstanding the foregoing, if the Company shall make any payment to the Holder of any Note prohibited by the foregoing provisions of this Section 12.3(a), and if such fact shall, at or prior to the time of such payment or within 90 days of the date such payment was made, have been made known to such Holder, then such payment shall be paid over and delivered forthwith to the Company for application to the payment of the Senior Indebtedness. -50- The provisions of this Section 12.3(a) shall not apply to any payment with respect to which Section 12.2 would be applicable. (b) If any Senior Nonmonetary Default shall have occurred and be continuing then, upon the receipt by the Company and the Holders of the Notes of written notice of such Senior Nonmonetary Default from the Lender, no payment (including without limitation any payment which may be payable by reason of the payment of any other Indebtedness of the Company being subordinated to the payment of the Notes) shall be made by the Company or any of its Subsidiaries on account of principal of or interest on the Notes or on account of the purchase or other acquisition of any Notes during the Payment Blockage Period; provided, -------- however, that there shall be no more than two (2) Payment Blockage Periods - ------- during the term of the Notes, no more than one (1) Payment Blockage Period during any 365-day period and any notice by the Lender hereunder given within 365 days of any day during a Payment Blockage Period shall be of no force and effect. Subject to the provisions of Section 12.3(a), the Company may resume payments on the Notes after such Payment Blockage Period. No Event of Default which had occurred and was continuing on the date of receipt by the Company of a written notice commencing a Payment Blockage Period may be made the basis for the delivery of a second notice to commence a Payment Blockage Period whether or not within any 365-day period, unless such Event of Default shall have been cured or waived for a period of not less than 90 consecutive days. Notwithstanding the foregoing, if the Company shall make any payment to the Holder of any Note prohibited by the foregoing provisions of this Section 12.3(b), and if such fact shall, at or prior to the time of such payment, have been made known to such Holder, then and in such event such payment shall be paid over and delivered forthwith to the Company. The provisions of this Section 12.3(b) shall not apply to any payment with respect to which Section 12.2 would be applicable. Section 12.4 Payment Permitted. Nothing contained in this Article 12 or ----------------- elsewhere in this Agreement shall prevent the Company, at any time except during the pendency of any case, proceeding, dissolution, liquidation or other winding up, assignment for the benefit of creditors or other marshalling of assets and liabilities of the Company referred to in Section 12.2 or under the conditions described in Section 12.3, from making payments at any time of principal of or interest on the Notes or any other amounts payable under this Agreement. No Holder of the Notes shall be required to pay over any payment received in respect of the Notes other than as expressly provided in this Agreement. The Holders of the Notes shall have no obligation to turn over, and shall be entitled to retain, any payment or distribution received in respect of the Notes if at the time of receipt thereof such Holders had no knowledge of the event giving rise to a prohibition of payment under Section 12.3. -51- Section 12.5 Subrogation to Rights of Holders of Senior Indebtedness. ------------------------------------------------------- Subject to the payment in full of all Senior Indebtedness, the Holders of the Notes shall be subrogated, to the extent of the payments or distributions made to the holders of the Senior Indebtedness pursuant to the provisions of this Article 12, to the rights of the holders of the Senior Indebtedness to receive payments and distributions of cash, property and securities applicable to the Senior Indebtedness until the principal of and interest on the Notes, and all other amounts payable under this Agreement, shall be paid in full. For purposes of such subrogation, no payments or distributions to the holders of the Senior Indebtedness of any cash, property or securities to which the Holders of the Notes would be entitled except for the provisions of this Article 12, and no payments made pursuant to the provisions of this Article 12 to the holders of the Senior Indebtedness by Holders of the Notes, shall, as among the Company, its creditors other than holders of the Senior Indebtedness and the Holders of the Notes, be deemed to be a payment or distribution by the Company to or on account of the Senior Indebtedness. Section 12.6 Provisions Solely to Define Relative Rights. The provisions ------------------------------------------- of this Article 12 are and are intended solely for the purpose of defining the relative rights of the Holders of the Notes on the one hand and the holders of the Senior Indebtedness on the other hand. Nothing contained in this Article 12 or in the Notes is intended to or shall (a) impair, as among the Company, its creditors other than holders of the Senior Indebtedness and the Holders of the Notes, the obligation of the Company, which is absolute and unconditional (and which, subject to the rights under this Article 12 of the holders of the Senior Indebtedness, is intended to rank equally with all other general obligations of the Company) to pay to the Holders of the Notes the principal of and interest on the Notes when the same shall become due and payable in accordance with their terms; or (b) affect the relative rights against the Company of the Holders of the Notes and creditors of the Company other than the holders of the Senior Indebtedness; or (c) prevent the Holder of any Note from exercising all remedies otherwise permitted by applicable law upon default under such Note or this Agreement, subject to the rights, if any, under this Article 12 of the holders of the Senior Indebtedness. Section 12.7 Certain Notices. The Company shall give prompt written --------------- notice to the Holders of the Notes and the Senior Indebtedness of any fact known to the Company which would prohibit the making of any payment in respect of the Notes. The Holders of the Notes shall not be charged with knowledge of the existence of any facts which would prohibit the making of any payment in respect of the Notes, unless and until such Holders shall have received written notice thereof from the Company or a holder of the Senior Indebtedness. Prior to the receipt of any such written notice, the Holders shall be entitled in all respects to assume that no such facts exist. -52- Section 12.8 Reliance on Judicial Order or Certificate of Liquidating -------------------------------------------------------- Agent. Upon any payment or distribution of assets of the Company or any of its - ----- Subsidiaries referred to in this Agreement, the Holders of the Notes shall be entitled to rely upon any order or decree entered by any court of competent jurisdiction in which such insolvency, bankruptcy, receivership, liquidation, reorganization, dissolution, winding up or similar case or proceeding is pending, or a certificate of the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit of creditors, agent or other person making such payment or distribution, delivered to the Holders of Notes, for the purpose of ascertaining the persons entitled to participate in such payment or distribution, the holders of the Senior Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Agreement. Section 12.9 Legend. So long as any Notes remain outstanding, each Note ------ shall be stamped or otherwise imprinted with a legend in the following form: The indebtedness represented by this security is, to the extents provided in that certain Note and Warrant Purchase Agreement, dated as of November 17, 1993, between Cornucopia Natural Foods, Inc. (the "Company") and Triumph-Connecticut Limited Partnership, subordinated and subject in right of payment to the prior payment in full of all Senior Indebtedness (as defined in such Note and Warrant Purchase Agreement). Each holder hereof by accepting this security, agrees to and shall be bound by the provisions of such Note and Warrant Purchase Agreement and authorizes the Company to take such action as may be necessary or appropriate to effectuate the subordination so provided. Section 12.10 Exercise of Remedies. During the pendency of any Payment -------------------- Blockage Period, no Holder of any Note shall commence any proceeding to collect amounts owing under the Notes or file or join in the filing of any case involving the Company under the Federal bankruptcy laws, as now or hereafter constituted, or any other applicable Federal, territorial or state bankruptcy, insolvency or similar laws, until the earlier of (a) the termination of such Payment Blockage Period, (b) the acceleration of the Senior Indebtedness, (c) the taking of any enforcement action by the holder of any Senior Indebtedness, or (d) the occurrence of any Event of Default under Section 9.1(h) or 9.1(i); provided, that the holders of the Senior Indebtedness shall have given the - -------- Holders 30 days' prior notice of their intention to take any action referred to in Section 12.10(b) or 12.10(c) or of any transfer or agreement by the Company to transfer any interest in any assets of the Company for which consent of the Holders is required under this Agreement during the pendency of any Payment Blockage Period. -53- ARTICLE 13 Expenses, Indemnity ------------------- Section 13.1 Expenses. Whether or not the transactions contemplated -------- hereby shall be consummated, the Company agrees to pay or reimburse the Purchaser on demand for all expenses, including without limitation the reasonable fees and expenses of legal counsel for the Purchaser, incurred by the Purchaser in connection with (a) the preparation, administration, amendment, modification, or enforcement of this Agreement, the Notes and the Warrants, (b) the transactions contemplated by this Agreement, and (c) the collection or attempted collection of any of the Notes in connection with this Agreement (including without limitation any such fees and expenses related to any bankruptcy or insolvency proceeding involving the Company and/or any one or more of its Subsidiaries), provided, however that the Company's obligation pursuant -------- to this sentence with respect to the Purchaser's expenses incurred in connection with the preparation of this Agreement, the Notes and the Warrants on or before the Closing Date shall not exceed $20,000. The Company further agrees to pay to the Purchaser interest at the Stated Rate on the amount of any such expenses incurred by the Purchaser in connection with the enforcement of this Agreement, the Notes and the Warrants and/or the collection or attempted collection of any of the Notes in connection with this Agreement (including without limitation any such fees and expenses related to any bankruptcy or insolvency proceeding involving the Company and/or any one or more of its Subsidiaries) and not paid on demand by the Purchaser, from the date of demand until paid. Section 13.2 Indemnity. The Company agrees and covenants to indemnify, --------- defend and hold harmless the Purchaser and subsequent Holders (including without limitation any director, officer, employee, agent or controlling person of any of the Holders) from and against any losses, claims, damages, liabilities and expenses (including without limitation reasonable fees and disbursements of counsel and expenses of investigation) to which the Purchaser or any such Person may become subject insofar as such losses, claims, damages, liabilities and/or expenses arise out of or by reason of any investigation, litigation or other proceeding(s) related to the transactions contemplated by this Agreement, the Notes and/or the Warrants or any claim by any Person or Persons in connection with or under any applicable law, including without limitation any environmental law or securities law, whether or not such Holder is a party thereto, except to the extent any of the foregoing arises out of the negligence or willful misconduct of such Holder. The indemnity contained in the preceding sentence shall survive the payment or prepayment of the Notes. ARTICLE 14 -54- Amendments and Waivers ---------------------- Section 14.1 Amendments and Waivers. ---------------------- (a) Any term, covenant, agreement or condition of this Agreement or the Notes or the Warrants may be amended, and compliance therewith may be waived (either generally or in a particular instance and either retroactively or prospectively), and any approval or consent required to be given by the Purchaser may be given, only if the Company shall have obtained the agreement in writing of (i) in the case of any of the foregoing which affects the Notes, the Purchaser, or (ii) in the case of any of the foregoing which affects the Warrants, the Requisite Holders of the Warrants (without counting for such purpose Notes or Warrants held by the Company) except that without the prior written consent of the Holders of all the Warrants at the time outstanding amend or modify any provisions in Sections 2, 5, 6, 7 and 10 of the Warrant Certificate (or any related definitions) in a manner adverse to the Holders of the Warrants or change the number of shares of Warrant Stock which may be purchased or the purchase price therefor. Any consideration given to any Holder to obtain his consent shall be given pro rata to all such Holders whether or not --- ---- they give their consent. No such amendment or waiver shall extend to or affect any obligation not expressly amended or waived or impair any right dependent thereon. (b) The failure of any Holder to insist upon the strict performance of any term, condition or other provision of this Agreement, the Notes or the Warrants or to exercise any right or remedy hereunder or thereunder, shall not constitute a waiver by such Holder of any such term, condition or other provision or a waiver of any Default or Event of Default in connection therewith; and any waiver of any such term, condition or other provision or of any Default or Event of Default shall not affect or alter this Agreement, the Notes or the Warrants, and each and every term, condition and other provision hereof and thereof shall, in such event, continue in full force and effect and shall be operative with respect to any other then existing or subsequent Default or Event of Default. ARTICLE 15 Substitution and Replacement of Notes and Warrants -------------------------------------------------- Section 15.1 Registration; Exchange of Notes and Warrants. -------------------------------------------- (a) The Company shall keep at its office, located at the address set forth at the beginning of this Agreement or at such other address as the Company shall designate by notice to the Holders of the Notes and Warrants, a register in which the Company shall provide for the registration and transfer of the Notes and Warrants. The Holder of any Notes may, at its option, in person or by duly authorized attorney, -55- surrender the same for transfer (in accordance with Article 11) or exchange at such office of the Company and within a reasonable time thereafter and without expense (other than the payment by such Holder of any applicable transfer taxes); such transfer shall be registered or, in the case of an exchange the Holders shall receive in exchange one or more duly executed Notes of like tenor in aggregate principal amount equal to the aggregate original principal amount of the Notes so surrendered. Notes issued upon an exchange or transfer shall be in the minimum principal amount of $500,000, or any multiple of $100,000 in excess thereof. Each new Note shall be dated the date of the surrendered Note or Notes, shall bear a notation setting forth the date to which interest has been paid on the surrendered Note or Notes and the aggregate amount of principal prepayments made on the surrendered Note or Notes, and shall be registered in such name or names as such Holder may designate; and the Company covenants and agrees to take and cause to be taken all action necessary to effect such registrations, transfers and exchanges. (b) The Company and any agent of the Company may treat the Person in whose name any Note is registered as the owner of such Note for the purpose of receiving payment of the principal of and interest on such Note and for all other purposes, whether or not such Note is overdue, and neither the Company nor any such agent shall be affected by notice to the contrary. (c) The Company may at any time appoint a paying agent to maintain a register of the registered owners of the Notes and to pay on behalf of the Company principal of or interest on, the Notes. All of the costs and expenses incurred with respect to such agent shall be borne by the Company. Section 15.2 Replacement of Notes. Upon receipt by the Company of an -------------------- affidavit or other evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of any Note and (a) in the case of loss, theft or destruction, of indemnity reasonably satisfactory to the Company (provided, if the Holder of such Note is the -------- Purchaser, the Purchaser's unsecured agreement of indemnity shall be satisfactory), or (b) in the case of mutilation, upon surrender and cancellation thereof, the Company shall execute and deliver in lieu thereof, a replacement Note, of like tenor and date and containing the notation described in Section 15.1(a). ARTICLE 16 General Provisions ------------------ -56- Section 16.1 Notices. ------- (a) All notices and other communications hereunder shall be in writing and shall be mailed by certified mail, return receipt requested, postage prepaid, or delivered by reliable overnight delivery service (receipt confirmed) or facsimile transmission (receipt confirmed), addressed (i) if to the Purchaser, whether in its capacity as the Purchaser or as a Holder, to it at CityPlace 1, 35th Floor, Hartford, Connecticut 06103-3499, attention: Richard J. Williams, or at such other address as the Purchaser shall have furnished to the Company in writing, or (ii) except as set forth in Section 16.1(b), if to any other Holder of any Note or Warrant, to it at such address as such Holder shall have furnished to the Company in writing, or, until such Holder so furnishes an address to the Company, then to and at the address of the last Holder of such Note or Warrant who has so furnished an address to the Company, or (iii) if to the Company, to it at 260 Lake Road, P.O. Box 999, Dayville, Connecticut 06241, attention Steven Townsend or at such other address as the Company shall have furnished in writing to the Holders. (b) Anything contained in this Agreement to the contrary notwithstanding, if at any time there shall be more than four (4) Holders in addition to the Purchaser, then the Purchaser shall be the agent for such other Holders solely for purposes of receiving such notices and other communications, or if the Purchaser no longer is a Holder then such other Holders shall elect an agent for such purposes, and all such notices and other communications shall be deemed to have been made in accordance with this Agreement if mailed by certified mail, return receipt requested, postage prepaid, or delivered by reliable overnight delivery service (receipt confirmed) or facsimile transmission (receipt confirmed), to such agent. (c) All such notices and other communications shall be deemed to be delivered (i) in the case of personal delivery or delivery by telecopy, on the date of such delivery, (ii) in the case of dispatch by nationally recognized overnight courier marked for next day delivery, on the next Business Day following such dispatch, and (iii) in the case of mailing, on the third Business Day after the posting thereof. Section 16.2 Calculations. Calculations hereunder shall be made and ------------ financial data required hereby shall be prepared, both as to classification of items and as to amounts, in accordance with GAAP and generally accepted accounting practices, which principles and practices shall be consistently applied and in conformity with those used in the preparation of the financial statements referred to herein. Section 16.3 Successors and Assigns; Survival of Agreements. This ---------------------------------------------- Agreement shall inure to the benefit of and be binding on the Purchaser and the Company, and their respective successors and permitted assigns, including, in the case of the Purchaser, the Holders from time to time of the Notes and the Warrants; -57- provided, however, that the Company shall not assign, voluntarily, by operation - ----------------- of law or otherwise, any of its rights or delegate any of its obligations under this Agreement without the prior written consent of the Purchaser and the Requisite Holders of the Warrants, and any such attempted assignment or delegation without such consent shall be null and void. All agreements, representations and warranties made herein shall survive the execution and delivery of this Agreement and the issue of the Notes and Warrants hereunder. Section 16.4 Counterparts; Section Headings, Etc. This Agreement may be ----------------------------------- executed in any number of counterparts, and each such counterpart hereof when so executed and delivered shall be an original instrument, but all such counterparts shall together constitute one and the same instrument. The section headings and Table of Contents of this Agreement are inserted for convenience of reference only and shall not be construed as part of this Agreement. Unless specifically stated otherwise, all references in this Agreement to Sections, clauses, Exhibits and Schedules refer to the Sections and clauses of and Exhibits and Schedules to this Agreement. Section 16.5 Entire Agreement. This Agreement, the Notes and the Warrants ---------------- and the documents expressly contemplated hereby and thereby collectively constitute the entire agreement and understanding between the parties hereto relating to the transactions contemplated hereby and thereby and supersede and take the place of all prior and contemporaneous agreements and understandings, written or oral, of the parties hereto relating to the transactions contemplated hereby. Section 16.6 Governing Law; Jurisdiction. This Agreement and the Notes --------------------------- and Warrants (except to the extent, if any, expressly provided to the contrary in any Note or Warrant) shall be governed by and construed, applied and enforced in accordance with the laws of the State of Connecticut, including without limitation the Uniform Commercial Code, except that no doctrine of choice of law shall be used to apply any law other than that of the State of Connecticut, and no defense, counterclaim or right of set-off given or allowed by the laws of any other state or jurisdiction, or arising out of the enactment, modification or repeal of any law, regulation, ordinance or decree of any foreign jurisdiction, shall be interposed in any action upon or relating to this Agreement. The Company agrees that any action or proceeding to enforce or arising out of this Agreement may be commenced in the Superior Court for the judicial district of Hartford at Hartford, Connecticut or in the United States District Court for the District of Connecticut, and the Company consents to such jurisdiction, agrees that venue will be proper in such courts in any such matter, agrees that Connecticut is the most convenient forum for litigation in any such suit, action or legal proceeding, and waives personal service of process and agrees that a summons and complaint commencing an action or proceeding in any such court shall be properly served and shall confer personal jurisdiction if served by registered or certified mail to the Company, or as otherwise provided by the laws of -58- the State of Connecticut or the United States. The Company 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. Section 16.7 Severability. The invalidity or unenforceability of any one ------------ or more phrases, sentences, clauses, or Sections contained herein in any jurisdiction shall not affect the validity or enforceability of this Agreement or the remaining provisions of this Agreement in any jurisdiction or affect the validity or enforceability of such provisions in any other jurisdiction. Section 16.8 Estoppel Certificates. Within 15 days after the Purchaser --------------------- requests that the Company do so, the Company shall execute and deliver to the Holders a statement certifying (a) that this Agreement is in full force and effect and has not been modified except as described in such statement, (b) the interest payment date to which the interest on the Notes has been paid, (c) the unpaid principal balance of each Note, (d) whether or not to the best of its knowledge after due inquiry a Default or Event of Default has occurred and is continuing, and, if so, specifying in reasonable detail each such Default or Event of Default of which it has knowledge, (e) whether to the best of its knowledge after due inquiry the Company has any defense, setoff or counterclaim to the payment of any Notes in accordance with their terms, and, if so, specifying each defense, setoff or counterclaim of which it has knowledge in reasonable detail (including where applicable the amount thereof), and (f) as to any other matter reasonably requested by the Purchaser. Section 16.9 Jury Waiver; Consequential Damages. (a) THE COMPANY WAIVES ---------------------------------- TRIAL BY JURY IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF, THIS AGREEMENT, THE NOTES OR THE WARRANTS, OR THE VALIDITY, PROTECTION, INTERPRETATION, COLLECTION OR ENFORCEMENT HEREOF OR THEREOF. THIS WAIVER IS INFORMED AND FREELY MADE. (b) NEITHER THE HOLDERS NOR THE COMPANY NOR ANY AGENT OR ATTORNEY OF ANY OF THEM SHALL BE LIABLE TO THE OTHER FOR CONSEQUENTIAL DAMAGES ARISING FROM ANY BREACH OF CONTRACT, TORT OR OTHER WRONG RELATING TO THE ESTABLISHMENT, ADMINISTRATION OR COLLECTION OF THE OBLIGATIONS RELATING IN ANY WAY TO THIS AGREEMENT OR THE NOTES OR THE WARRANTS OR THE ACTION OR INACTION OF THE COMPANY UNDER ANY ONE OR MORE HEREOF OR THEREOF. Section 16.10 PJR Waiver. THE COMPANY HEREBY ACKNOWLEDGES THAT THE ---------- TRANSACTION OF WHICH THIS AGREEMENT IS A PART IS A COMMERCIAL TRANSACTION, AND HEREBY WAIVES TO THE MAXIMUM -59- EXTENT PERMITTED BY APPLICABLE LAW ITS RIGHT TO NOTICE AND HEARING UNDER CHAPTER 903a OF THE CONNECTICUT GENERAL STATUTES, OR AS OTHERWISE ALLOWED BY ANY STATE OR FEDERAL LAW, WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH THE HOLDERS OR THEIR SUCCESSORS OR ASSIGNS MAY DESIRE TO USE. Section 16.11 Notice of Breach by the Holders. The Company agrees to give ------------------------------- the Holders written notice of any action or inaction by the Holders or any agent or attorney of the Holders in connection with this Agreement or the Notes or Warrants that may be actionable against the Holders or any agent or attorney of the Holders or a defense to payment of the Notes for any reason, including without limitation commission of a tort or violation of any contractual duty or duty implied by law. The Company agrees that unless such notice is duly given as promptly as possible (and in any event within 30 days) after the Company has knowledge, or with the exercise of reasonable diligence should have had knowledge, of any such action or inaction, the Company shall not assert, and the Company shall be deemed to have waived, any claim or defense arising therefrom. Section 16.12 Concerning the Warrants. ----------------------- (a) The Purchaser and the Company agree that the allocation of the issue price of the Notes and the Warrants as determined under Proposed Treasury Regulation 1.1273-2(d)(2)(iv) is $3,000,000 to the Notes and $3,500,000 to the Warrants. (b) The Company shall not declare or value the Warrants and the initial unamortized discount applicable to the Notes in any return filed with the Internal Revenue Service or for financial reporting purposes or for any other purpose in amounts inconsistent with the allocation agreed to in Section 16.12(a). Section 16.13 Rights and Remedies Cumulative. The rights and remedies ------------------------------ provided in this Agreement, the Notes and each document contemplated hereby or thereby shall be cumulative and not exclusive of any rights or remedies provided by law. Section 16.14 Accounting Terms. Unless otherwise specified herein, all ---------------- accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with generally accepted accounting principles as in effect from time to time, applied on a basis consistent (except for changes concurred in by the Company's independent public accountants) with the most recent audited consolidated financial statements of the Company and its Consolidated Subsidiaries delivered in accordance with Section 7.1; provided -------- that, if the Company notifies the Purchaser that the Company wishes to amend any covenant in Article 7 or Article 8 to eliminate the effect of any change in generally accepted -60- accounting principles on the operation of such covenant (or if the Purchaser notifies the Company that the Purchaser wishes to amend Article 7 and/or Article 8 for such purpose), then the Company's compliance with such covenant shall be determined on the basis of generally accepted accounting principles in effect immediately before the relevant change in generally accepted accounting principles became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Company and the Purchaser. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement in Hartford, Connecticut as of the date first above written. CORNUCOPIA NATURAL FOODS, INC. By: /s/ Norman A. Cloutier ---------------------- Norman A. Cloutier Its President TRIUMPH-CONNECTICUT LIMITED PARTNERSHIP, by its general partner Triumph-Connecticut Capital Advisors, Limited Partnership By: /s/ Richard J. Williams ----------------------- Richard J. Williams Its Principal, duly authorized -61- EXEXCUTION COPY --------------- EXHIBIT A --------- The obligations represented by this Guaranty are, to the extent provided in this Guaranty, subordinated and subject in right of payment to the prior payment in full of all Senior Indebtedness (as defined in this Guaranty). Each holder of Notes, by accepting this Guaranty, agrees to and shall be bound by the provisions of Section 9, and authorizes the Company to take such action as may be necessary or appropriate to effectuate the subordination so provided. SENIOR SUBSIDIARY GUARANTY SENIOR SUBSIDIARY GUARANTY, dated as of November 17, 1993 (this "Guaranty"), of NATURAL RETAIL GROUP, INC., a Delaware corporation (being hereinafter referred to, together with its successors and permitted assigns, as the "Guarantor") in favor of TRIUMPH-CONNECTICUT LIMITED PARTNERSHIP, a Connecticut limited partnership (the "Purchaser"), and the Holders from time to time of the Notes issued pursuant to the Note Purchase Agreement referred to below. W I T N E S S E T H WHEREAS, Cornucopia Natural Foods, Inc., a Rhode Island corporation (the "Company"), and the Purchaser have entered into a certain Note and Warrant Purchase Agreement, dated as of November 17, 1993 (as the same may be amended and in effect from time to time, the "Note Purchase Agreement"), providing, subject to the terms and conditions thereof, for the sale by the Company to the Purchaser of Notes and Warrants to purchase Common Stock of the Company; and WHEREAS, the Company owns all of the outstanding shares of capital stock of the Guarantor; and WHEREAS, it is a condition of the Note Purchase Agreement that the Guarantor execute and deliver a guaranty whereby the Guarantor shall guarantee the payment when due of all principal, interest and other amounts that shall be at any tine payable by the Company under the Note Purchase Agreement and the Notes; and WHEREAS, the Company has used the proceeds of the transactions contemplated by the Note Purchase Agreement to a $6.5 million capital contribution to the Guarantor; and A-1 WHEREAS, in consideration of the financial and other support that the Company has provided, and such financial and other support as the Company may in the future provide, to the Guarantor, and in order to induce Purchaser to enter into the Note Purchase Agreement, the Guarantor is willing to guarantee the obligations of the Company under the Note Purchase Agreement and the Notes. NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Guarantor hereby agrees as follows: Section 1. Definitions. As used in this Guaranty: ----------- "Senior Indebtedness" shall mean all obligations of the Guarantor under the ------------------- Loan Agreement and/or any guaranty of the Company's obligations under the Loan Agreement for the payment in accordance with the terms of the Loan Agreement and any such guaranty, each as in effect on the date hereof, of principal not in excess of $15,000,000, premium, if any, and interest in respect of the indebtedness outstanding under the Loan Agreement. All terms used in this Guaranty which are not defined in this Section 1 shall have the meanings respectively set forth elsewhere in this Guaranty or in the Note Purchase Agreement. Section 2. Representations and Warranties. The Guarantor represents ------------------------------ and warrants that: (a) The Guarantor (i) is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation; (ii) has all requisite corporate power, and has all governmental licenses, authorizations, consents and approvals (including without limitation all Licenses and any other license, authorization, consent, permit or approval required under any Environmental Law) necessary to own its assets and carry on its business as now being or as proposed to be conducted and to consummate the transactions contemplated by this Guaranty; and (iii) is qualified to do business in all jurisdictions in which the nature of the business its conducts makes such qualification necessary or where failure so to qualify would have a material adverse effect on its condition (financial or otherwise), assets, nature of assets, liabilities (including without limitation tax, ERISA and Environmental Liabilities) or prospects. (b) The Guarantor has all necessary corporate power and authority to execute, deliver and perform its obligations under this Guaranty; the execution, delivery and performance by the Guarantor of this Guaranty has been duly authorized by all necessary corporate action; and this Guaranty has been duly and validly executed and delivered by the Guarantor and constitutes the legal, valid and A-2 binding obligation of the Guarantor, enforceable in accordance with its terms, except as the enforceability of this Guaranty nay be limited by bankruptcy, insolvency, reorganization or moratorium or other similar laws relating to the enforcement of creditors' rights generally and by general equitable principles. (c) The execution and delivery of this Guaranty, the consummation of the transactions contemplated by this Guaranty and the compliance with the terms and provisions of this Guaranty by the Guarantor will not (i) conflict with or result in a breach of, or require any consent under, the certificate of incorporation or by-laws of the Guarantor; any applicable law or regulation; any order, writ, injunction or decree of any court or governmental authority or agency; any material lease; or any other material agreement or instrument to which the Guarantor is a party or by which it is bound or to which it is subject; (ii) constitute a default under any such lease, agreement or instrument; or (iii) result in the creation or imposition of any lien upon any of the revenues or assets of the Guarantor pursuant to the terms of any such agreement or instrument. Section 3. The Guaranty. The Guarantor hereby unconditionally ------------ guarantees the full and punctual payment (whether at stated maturity, upon acceleration or otherwise) of (a) the principal of and interest on each Note issued by the Company pursuant to the Note Purchase Agreement, and (b) the full and punctual payment of all other amounts payable by the Company under the Note Purchase Agreement. Upon any failure by the Company punctually to pay any such amount, the Guarantor agrees that it shall forthwith on demand pay the amount not so paid. Section 4. Guaranty Unconditional. The Guarantor's obligations under ---------------------- this Guaranty shall be unconditional and absolute and, without limiting the generality of the foregoing, shall not be released, discharged or otherwise affected by: (a) any extension, renewal, settlement, compromise, waiver or release in respect of any obligation of the Company under the Note Purchase Agreement and/or one or more of the Notes, or any obligation of the Guarantor under this Guaranty, by operation of law or otherwise; (b) modification or amendment of or supplement to the Note Purchase Agreement and/or one or more of the Notes; (c) any release, non-perfection or invalidity of any direct or indirect security, whenever given, for any obligation of the Company under the Note Purchase Agreement and/or one or more of the Notes; (d) any change in the corporate existence, structure or ownership of the Company, or any insolvency, bankruptcy, reorganization or other similar proceeding affecting the Company or its assets or any resulting release or discharge of any A-3 obligation of the Company contained in the Note Purchase Agreement and/or one or more of the Notes; (e) the existence of any claim, set-off or other rights which the Guarantor may have at any time against the Company, the Purchaser, any Holder, or any other Person, whether in connection with this Guaranty or any unrelated transaction(s); (f) any invalidity or unenforceability relating to or against the Company for any reason of the Note Purchase Agreement and/or one or more of the Notes, or any provision of applicable law or regulation purporting to prohibit the payment by the Company of the principal of or interest on any one or more of the Notes or any other amount payable by the Company under the Note Purchase Agreement or the Warrant; (g) any other act or omission to act or delay of any kind by the Company, the Guarantor, any Holder or any other Person; or (h) other circumstance whatsoever which might, but for the provisions of this Section 4, constitute a legal or equitable discharge of the Guarantor's obligations under this Guaranty. Section 5. Discharge Only Upon Payment in Full; Reinstatement in ----------------------------------------------------- Certain Circumstances. The Guarantor's obligations under this Guaranty shall - --------------------- remain in full force and effect until the principal of and interest on the Notes, and all other amounts payable by the Company under the Note Purchase Agreement have been finally and indefeasibly paid in full. If at any time any payment of the principal of or interest on any one or more of the Notes or any other amount payable by the Company under the Note Purchase Agreement is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of the Company or otherwise, the Guarantor's obligations under this Guaranty with respect to such payment shall be reinstated as though such payment had been due but not made at the time of such rescission, restoration or return. Section 6. Waiver by the Guarantor. The Guarantor irrevocably waives ----------------------- acceptance of this Guaranty, presentment, demand, protest and, to the fullest extent permitted by law, any notice not provided for in this Guaranty, as well as any requirement that at any tine any action be taken by any Person against the Company, the Guarantor under this Guaranty, or any other Person. Section 7. Waiver of Subrogation. The Guarantor hereby waives any --------------------- right or claim of exoneration, reimbursement, subrogation, contribution or indemnity and any other similar right or claim arising out of any payment by the Guarantor under this Guaranty. A-4 Section 8. Stay of Acceleration. Except as provided in Section 9, if -------------------- acceleration of the time for payment of any amount payable by the Company under the Note Purchase Agreement and/or one or more of the Notes is stayed upon the insolvency, bankruptcy or reorganization of the Company, all such amounts otherwise subject to acceleration under the terms of the Note Purchase Agreement shall nonetheless be payable by the Guarantor under this Guaranty forthwith on demand by any Holder. Section 9. Subordination. (a) The Guarantor and the Purchaser and each ------------- Holder of a Note by becoming a Holder thereof, agree that the obligations of the Guarantor under this Guaranty are hereby expressly made subordinate and subject in right of payment to the prior payment in full of all obligations of the Guarantor which constitute Senior Indebtedness. (b) In the event of (i) any insolvency or bankruptcy case or proceeding, or any receivership, liquidation, relief, arrangement, reorganization or other similar case or proceeding in connection therewith, relative to the Guarantor or to its creditors, as such, or to its assets, or (ii) any liquidation, dissolution, reorganization or other winding up of the Guarantor, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy, or (iii) any assignment for the benefit of creditors or any other marshalling of assets and liabilities of the Guarantor, then and in any such event the holders of the Senior Indebtedness shall be entitled to receive payment in full of all amounts due or to become due on or in respect of the Senior Indebtedness, or provision shall be made for such payment in cash, before the Holders of the Notes are entitled to receive any further payment under this Guaranty, and to that end the holders of the Senior Indebtedness shall be entitled to receive, for application to the payment thereof, any payment or distribution of any kind or character, whether in cash, property or securities which may be payable or deliverable under this Guaranty in any such case, proceeding, dissolution, liquidation or other winding up or event. If, notwithstanding the foregoing provisions of this Section 9(b), the Holders of the Notes shall have received any payment or distribution of assets of the Guarantor of any kind or character, whether in cash, property or securities, before all Senior Indebtedness is paid in full or payment thereof provided for, and if such fact shall, at or prior to the time of such payment or distribution, have been made known to such Holders, then and in such event such payment or distribution shall be paid over or delivered forthwith to the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other person making payment or distribution of assets of the Guarantor for application to the payment of all the obligations of the Guarantor to guaranty payment of Senior Indebtedness remaining unpaid, to the extent necessary to pay all the Senior Indebtedness in full, after giving effect to any concurrent payment or distribution to or for the holders of the Senior Indebtedness. A-5 (c) No payment shall be made to the holder of this Guaranty by the Guarantor during any period of time during which any payments with respect to the Notes are prohibited under Section 12.3 of the Note Purchase Agreement. The terms of subordination set forth in Sections 12.4 through 12.10 of the Note Purchase Agreement shall apply to the subordination of the obligations of the Guarantor hereunder to the payment of the Senior Indebtedness mutatis ------- mutandis and such terms are incorporated herein by reference as if fully set - -------- forth herein. Section 10. Modification; Amendments; Waivers; Rights and Remedies ------------------------------------------------------ Cumulative. The terms and provisions of this Guaranty may not be modified or - ---------- amended, nor may any provision be waived, discharged or terminated except pursuant to a writing signed by the Guarantor, the Purchaser and the Requisite Holders of the Notes; provided, however, that (a) no amendment, modification or -------- ------- waiver of any term of this Guaranty which has a discriminatory effect with respect to the rights of any Holder shall be made unless such Holder executes, or consents in writing to, such amendment, modification or waiver and (b) without the prior written consent of the Holder or Holders of all the Notes at the time outstanding, no amendment to this Guaranty shall (i) change the Guarantor's obligations hereunder with respect to: (A) the maturity of any installment of principal of any Note; (B) the principal of, or the rate or time of payment of interest payable with respect to, any Note; (C) the time or amount of any required payments or prepayments with respect to the Notes; or (D) the subordination provisions of this Guaranty or the Note Purchase Agreement, in a manner adverse to the Holder of any Note(s), or (ii) reduce the proportion of the principal amount of Notes required with respect to any consent. No failure or delay by any Holder in exercising any right, power or privilege under this Guaranty shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies provided in this Guaranty and the Note Purchase Agreement and any one or more of the Notes shall be cumulative and not exclusive of any rights or remedies provided by law. Section 11. Notices. All notices, requests and other communications ------- hereunder shall be in writing and shall be mailed by certified mail, return receipt requested, postage prepaid, or delivered by reliable overnight delivery service (receipt confirmed) or facsimile transmission (receipt confirmed), addressed (a) if to the Purchaser, to it at CityPlace I, 35th Floor, Hartford, Connecticut 06103-3499, attention: Richard J. Williams, or at such other address as the Purchaser shall have furnished to the Guarantor in writing, or (b) if to any other Holder of any Note, to it at such address as such Holder shall have furnished to the Guarantor in writing, or (c) if to the Guarantor at its address set forth on the signature page hereof or at such other address as the Guarantor shall have furnished in writing to the Holders. Except as otherwise specifically provided in this Guaranty, all such notices and A-6 other communications shall be deemed to have been delivered (i) in the case of personal delivery or delivery by telecopy, on the date of such delivery, (ii) in the case of dispatch by nationally recognized overnight courier marked for next day delivery, on the next Business Day following such dispatch and (iii) in the case of mailing, on the third Business Day after the posting thereof. Section 12. Successors and Assigns; Survival of Agreements. This ---------------------------------------------- Guaranty shall inure to the benefit of and be binding upon the Holders and the Guarantor, and their respective successors and permitted assigns; provided, -------- however, that the rights of each Holder hereunder shall be freely assignable in - ------- the event of an assignment of the Notes or other amounts payable under the Note Purchase Agreement and the rights of each Holder hereunder, to the extent applicable to the indebtedness so assigned, may be transferred with such indebtedness; and provided further that the Guarantor shall not assign, -------- ------- voluntarily, by operation of law or otherwise, any of its rights or delegate any of its obligations under this Agreement without the prior written consent of the Holders of at least 75% of the face value of the Notes then outstanding held by the Holders as a group, and any such attempted assignment or delegation without such consent shall be null and void. All agreements, representations and warranties made herein shall survive the execution and delivery of this Guaranty and the Note Purchase Agreement and the issue of the Notes. Section 13. Counterparts; Section Headings, Etc. This Guaranty may be ------------------------------------ executed in any number of counterparts, and each such counterpart hereof when so executed and delivered shall be an original instrument, but all the counterparts shall together constitute one and the same instrument. The section headings of this Guaranty are inserted for convenience of reference only and are not to be construed as part of this Guaranty. Unless specifically stated otherwise, all references in this Guaranty to Sections, clauses, Exhibits and Schedules refer to the Sections and clauses of and Exhibits and Schedules to this Guaranty. 14. Entire Agreement. This Guaranty and the documents expressly ---------------- contemplated hereby collectively constitute the entire agreement and understanding between the parties hereto relating to the transactions contemplated hereby and thereby and supersede and take the place of all prior and contemporaneous agreements and understandings, written or oral, of the parties hereto relating to the transactions contemplated hereby. 15. Governing Law; Jurisdiction. This Guaranty shall be governed by --------------------------- and construed, applied and enforced in accordance with the laws of the State of Connecticut, including without limitation the Uniform Commercial Code, except that no doctrine of choice of law shall be used to apply any law other than that of the State of Connecticut, and no defense, counterclaim or right of set-off given or allowed by the laws of any other state or jurisdiction, or arising out of the enactment, modification or repeal of any law, regulation, ordinance or decree of any foreign A-7 jurisdiction, shall be interposed in any action hereon. The Guarantor agrees that any action or proceeding to enforce or arising out of this Guaranty may be commenced in the Superior Court for the judicial district of Hartford at Hartford, Connecticut or in the United States District Court for the District of Connecticut, and the Guarantor consents to such jurisdiction, agrees that venue will be proper in such courts in any such matter, agrees that Connecticut is the most convenient forum for litigation in any such suit, action or legal proceeding, and waives personal service of process and agrees that a summons and complaint commencing an action or proceeding in any such court shall be properly served and shall confer personal jurisdiction if served by registered or certified mail to the Guarantor, or as otherwise provided by the laws of the State of Connecticut or the United States. The Guarantor 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. Section 16. Severability. The invalidity or unenforceability of any ------------ one or more phrases, sentences, clauses, or Sections contained herein in any jurisdiction shall not affect the validity or enforceability of this Guaranty or the remaining provisions of this Guaranty or affect the validity or enforceability of such provisions in any other jurisdiction. Section 17. Jury Waiver; Consequential Damages. (a) THE GUARANTOR ---------------------------------- WAIVES TRIAL BY JURY IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF, THIS GUARANTY, OR THE VALIDITY, PROTECTION, INTERPRETATION, COLLECTION OR ENFORCEMENT HEREOF. THIS WAIVER IS INFORMED AND FREELY MADE. (b) NEITHER THE HOLDERS NOR THE GUARANTOR NOR ANY AGENT OR ATTORNEY OF ANY OF THEM SHALL BE LIABLE TO THE OTHER FOR CONSEQUENTIAL DAMAGES ARISING FROM ANY BREACH OF CONTRACT, TORT OR OTHER WRONG RELATING TO THE ESTABLISHMENT, ADMINISTRATION OR COLLECTION OF THE OBLIGATIONS RELATING IN ANY WAY TO THIS GUARANTY OR THE NOTE PURCHASE AGREEMENT OR THE NOTES OR THE ACTION OR INACTION OF THE GUARANTOR UNDER ANY ONE OR MORE HEREOF OR THEREOF. Section 18. PJR Waiver. THE GUARANTOR HEREBY ACKNOWLEDGES THAT THE ---------- TRANSACTION OF WHICH THIS GUARANTY IS A PART IS A COMMERCIAL TRANSACTION, AND HEREBY WAIVES TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW ITS RIGHT TO NOTICE AND HEARING UNDER CHAPTER 903a OF THE CONNECTICUT GENERAL STATUTES, OR AS OTHERWISE ALLOWED BY ANY STATE OR FEDERAL LAW WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH THE HOLDERS OR THEIR SUCCESSORS OR ASSIGNS MAY DESIRE TO USE. A-8 Section 19. Notice of Breach by the Holders. The Guarantor agrees to give ------------------------------- the Holders written notice of any action or inaction by the Holders or any agent or attorney of the Holders in connection with this Guaranty, the Note Purchase Agreement or the Notes that may be actionable against the Holders or any agent or attorney of the Holders or a defense to payment of the Notes for any reason, including without limitation commission of a tort or violation of any contractual duty or duty implied by law. The Guarantor agrees that unless such notice is duly given as promptly as possible (and in any event within 30 days) after the Guarantor has knowledge, or with the exercise of reasonable diligence should have had knowledge, of any such action or inaction, the Guarantor shall not assert, and the Guarantor shall be deemed to have waived, any claim or defense arising therefrom. IN WITNESS WHEREOF, the Guarantor has executed and delivered this Guaranty in Hartford, Connecticut as of the date first above written. NATURAL RETAIL GROUP, INC. By: /s/ Norman A. Cloutier --------------------------- Norman A. Cloutier Title: President Address for Notices: c/o Cornucopia Natural Foods, Inc. P.O. Box 299 260 Lake Road Dayville, CT 06241 Telecopy No.: 203-779-2811 A-9 EXHIBIT B --------- See Exhibit 10.12 B-1 EXECUTION COPY -------------- EXHIBIT C --------- THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR TRANSFERRED UNLESS THE REGISTRATION PROVISIONS OF SUCH ACT HAVE BEEN COMPLIED WITH OR UNLESS IN THE OPINION OF COUNSEL REQUIRED BY SECTION 5 OF THIS WARRANT COMPLIANCE WITH SUCH PROVISIONS IS NOT REQUIRED. THE TRANSFER OF SUCH SECURITIES IS SUBJECT TO THE RESTRICTIONS SET FORTH IN SECTION 5 OF THIS WARRANT, AND SUCH SECURITIES MAY BE TRANSFERRED ONLY IN COMPLIANCE WITH THE TERMS AND CONDITIONS OF SUCH SECTION 5. CORNUCOPIA NATURAL FOODS, INC. Common Stock Purchase Warrant ----------------------------- Dated as of November 17, 1993 Void after the Expiration Date (as defined below) 21,212 shares of Common Stock, no par value per share, subject to adjustment as set forth herein. THIS COMMON STOCK PURCHASE WARRANT CERTIFIES that, for valuable consideration received, TRIUMPH-CONNECTICUT LIMITED PARTNERSHIP, a Connecticut limited partnership (the "Purchaser"), or its registered assigns, is entitled, from time --------- to time or at any time during the period commencing on the Original Issue Date (as hereinafter defined) and terminating upon the close of business on the Expiration Date, to subscribe for and purchase from CORNUCOPIA NATURAL FOODS, INC., a Rhode Island corporation (together with any Person(s) which shall succeed to or assume the obligations of the Company under this Warrant, the "Company"), an aggregate of 21,212 shares of fully paid and non-assessable - -------- Common Stock, no par value, of the Company, for a purchase price of $0.01 per share, subject to adjustment as to such price per share (such price per share, as so adjusted from time to time pursuant to the terms hereof, being hereinafter called the "Per Share Purchase Price") and such number of shares as hereinafter ------------------------ provided. This Common Stock Purchase Warrant (this "Warrant") has been issued by the ------- Company to the Purchaser under the terms of the Note Purchase Agreement (as hereinafter defined), and the rights of the holder of this Warrant and of the holders of the Warrant Stock (as hereinafter defined) purchasable upon the exercise of this C-1 Warrant are subject to the provisions of the Note Purchase Agreement. Copies of the Note Purchase Agreement are on file and available for inspection at the principal office of the Company, 260 Lake Road, Dayville, Connecticut 06241, or at such other office of the Company as the Company shall designate by notice in writing to the registered holder hereof at the address of such holder appearing on the books of the Company. This Warrant is subject to the following terms and conditions: Section 1. Definitions. ----------- For the purposes of this Warrant: "Bona Fide Offer" shall have the meaning given to that term in Section --------------- 5(d). "Certificate of Incorporation" shall mean the Articles of Incorporation of ---------------------------- the Company, as in effect on the Original Issue Date. "Commission" shall mean the Securities and Exchange Commission or any ---------- other Federal agency then administering the Securities Act. "Common Stock" shall mean the Company's voting common stock, no par value ------------ per share. Subject to the provisions of Section 7, shares purchasable upon the exercise of this Warrant shall include only shares of the class designated as Common Stock of the Company at the date of this Warrant or shares of any class or classes resulting from any reclassification or reclassifications thereof that have no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company; provided, that if at any time there shall be more than one such -------- resulting class, the shares of each such class then so purchasable in connection with this Warrant shall be substantially in the proportion which the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications. "Company" shall have the meaning given to that term in the first paragraph ------- of this Warrant. "Convertible Securities" shall mean and include any Securities convertible ---------------------- into or exchangeable for shares of Common Stock. "Current Market Price" shall mean, with respect to any Security, asset, -------------------- right or evidence of indebtedness, on any date, the average of the daily closing prices per unit of such Security, asset, right or evidence of indebtedness for the 25 consecutive C-2 trading days on the New York Stock Exchange composite tape commencing not less than 45 trading days before, and ending not later than, the earlier of the date in question and the day before the "ex" date for the distribution requiring such computation. The closing price for each day shall be the last sale price regular way or, in case no such sale takes place on such day, the average of the closing bid and asked prices regular way, in either case on the New York Stock Exchange composite tape; or, if such Security, asset, right or evidence of indebtedness is not listed or admitted to trading on such exchange, on the principal national securities exchange on which such Security, asset, right or evidence of indebtedness is listed or admitted to trading; or, if not listed or admitted to trading on any national securities exchange, on the NASDAQ National Market System; or, if such Security, asset, right or evidence of indebtedness is not listed or admitted to trading on any national securities exchange or quoted on the NASDAQ National Market System, the average of the highest reported bid and lowest reported asked prices for such security, asset, right or evidence of indebtedness as furnished by NASDAQ or a similar organization if NASDAQ no longer is reporting such information. "Event of Default" shall have the meaning given to that term in the Note ---------------- Purchase Agreement. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, ------------ or any similar Federal statute, and the rules and regulations promulgated by the Commission thereunder, all as the same shall be in effect at the time. "Expiration Date" shall mean the later of (a) October 31, 2000, or (b) the --------------- date when all principal and interest on and other sums due and owing pursuant to the terms of the Notes issued under the Note Purchase Agreement has been paid in full. "Fair Market Value" of any security, asset, right or evidence of ----------------- indebtedness shall mean, on any date, the Current Market Price of such Security, asset, right or evidence of indebtedness, or, if on any such date the, price of such Security, asset, right or evidence of indebtedness is not quoted by any organization referred to in the definition of Current Market Price, an amount determined in good faith by the Board of Directors of the Company or if the Requisite Holders of the Warrants object to such determination, by an independent investment banking firm mutually agreed upon by the Company and such Requisite Holders. The Company shall bear the fees and expenses of any such firm if such investment banking firm concludes an adjustment of more than 5% to the Board of Directors' determination is required, otherwise the Warrantholders shall bear such fees and expenses. Such investment banking firm's determination of the Fair Market Value of such Security, asset, right or evidence of indebtedness shall be binding upon the Company and the Warrantholders. "Fully Diluted Basis" shall mean, at the time in question, the aggregate ------------------- number C-3 of shares of Common Stock which would then be outstanding, assuming the exercise of all Securities exercisable for Common Stock, other than Management Options, and the conversion or exchange of all Securities convertible into or exchangeable for Common Stock. "Indebtedness" of any Person shall mean any indebtedness, contingent or ------------ otherwise, in respect of borrowed money. "Internal Rate of Return" shall mean the internal rate of return on the ----------------------- Purchaser's investment in the Notes and Warrants as calculated by the Purchaser in accordance with the Purchaser's investment policies and generally accepted financial practices based upon payments to be received upon the sale of the Warrants and/or Warrant Stock to the Company. "Loan Agreement" shall have the meaning given to that term in the Note -------------- Purchase Agreement. "Lock In Date" (a) at any time shall mean the later to occur of the Public ------------ Offering Date and the date on which there no longer are any Notes outstanding; (b) between the second and third anniversaries of the Original Issue Date shall also mean the later to occur of (i) a Bona Fide Offer by the Company to purchase the Warrants and all outstanding Warrant Stock for an aggregate purchase price that provides the Purchaser with an Internal Rate of Return of not less than 35% and (ii) the date on which there no longer are any Notes outstanding; and (c) between the third and fourth anniversaries of the Original Issue Date shall also mean the later to occur of (i) a Bona Fide Offer by the Company to purchase the Warrants and all outstanding Warrant Stock for an aggregate purchase price that provides the Purchaser with an Internal Rate of Return of not less than 30% and (ii) the date on which there are no longer are any Notes outstanding. "Management Options" shall mean options to purchase shares of the Common ------------------ Stock owned by the officers and/or directors of the Company which are exercisable in the aggregate for not more than 11,111 shares of Common Stock, provided that Management Options shall include options to purchase up to 2,778 - -------- shares of Common Stock with an unrestricted exercise price per share; options to purchase up to 2,778 shares of Common Stock with an exercise price per share that is not less than $150; and options to purchase up to 5,555 shares of Common Stock with an exercise price per share that is not less than $300, and provided -------- further that Management Options shall not include options to purchase shares of Common Stock granted to Norman A. Cloutier on or after the date of this Agreement and on or before the date of the consummation of the initial public offering of the Common Stock of the Company if such options have a per share exercise price of less than $150. The number of shares subject to Management Options and the per share exercise price of such options shall be subject to adjustment in the manner described in Sections 7(a), C-4 7(b), 7(c), 7(f), 7(g) and 7(1) upon the happening of any of the events described in such Sections. "Note Purchase Agreement" shall mean that certain Note and Warrant ----------------------- Purchase Agreement, dated as of the Original Issue Date, by and between the Company and the Purchaser, as the same may be amended from time to time. "Notes" shall mean the Senior Notes issued by the Company and executed and ----- delivered pursuant to the Note Purchase Agreement, and such term shall include each note which shall be delivered in substitution or exchange for any such note which is at the time outstanding. "Option Price" shall mean the fair market value of the Warrant(s) and the ------------ Warrant Stock proposed to be purchased or sold based upon a price per share determined as if the Common Stock and Warrant Stock were fully registered and freely tradeable and a liquid public market existed for such Securities. "Original Issue Date" shall mean November 17, 1993. ------------------- "Per Share Purchase Price" shall have the meaning given to that term in ------------------------ the first paragraph of this Warrant. "Person" shall mean any corporation, association, partnership, joint ------ venture, limited liability company, organization, business, individual, government or any agency or political subdivision thereof or any other entity. "Public Offering Date" shall mean (a) the date of effectiveness under the -------------------- Securities Act of a registration statement relating to an underwritten initial public offering of the Common Stock which includes not less than 20% of the Warrant Stock if the Purchaser requests such inclusion and (b) the date of effectiveness of such a registration statement if the Purchaser does not request registration of the Warrant Stock thereunder. "Purchase Price" at any time shall moan the Per Share Purchase Price -------------- applicable at such time multiplied by the number of shares of Common Stock purchasable upon the exercise of this Warrant at such time. "Purchaser" shall have the meaning given to that term in the first --------- paragraph of this Warrant. "Registration Rights Agreement" shall mean the Registration Rights ----------------------------- Agreement by and between the Company and the Purchaser dated as of the Original Issue Date. "Registration Statement" shall mean a registration statement filed by ---------------------- the C-5 Company with the Commission for a public offering and sale of securities of the Company (other than a registration statement on Form S-8 or Form S-4, or their successor forms, or any registration statement covering only securities proposed to be issued in exchange for securities or assets of another entity). "Requisite Holders of the Warrants" shall mean the registered holders of --------------------------------- Warrants entitling such registered holders to purchase from the Company a majority of the Common Stock which is then purchasable pursuant to the Warrants. "Securities Act" shall mean the Securities Act of 1933, as amended, or any -------------- similar Federal statute, and the rules and regulations promulgated by the Commission thereunder, all as the same shall be in effect at the time. "Security" or "Securities" shall have the meaning assigned to that term by -------- ---------- Section 2(1) of the Securities Act. "Subsidiary" shall mean with respect to any Person a corporation of which ---------- such Person owns, directly or indirectly, 50% or more of the shares of stock entitled to vote in the election of directors (excluding shares so entitled to vote only upon a failure to pay dividends or other contingencies) or a limited partnership of which such Person owns, directly or indirectly, 50% or more of the aggregate partnership interests outstanding at the time of such determination or of which such Person or any Subsidiary of such Person is a general partner. "Transaction" shall mean any of the following transactions: (a) the issue, ----------- sale, transfer or other disposition after the Original Issue Date by the Company or any of its Subsidiaries of shares of Common Stock or any Securities convertible into shares of Common Stock (other than Excluded Securities) in the aggregate representing more than 25% of the outstanding Common Stock on a Fully Diluted Basis; (b) any merger or consolidation of the Company or any of its Subsidiaries or sale, transfer or other disposition of all or substantially all of the assets of the Company and/or one or more of its Subsidiaries either individually or taken as a whole, whether in one transaction or a series of transactions and whether through disposition of capital stock of the Company or any of its Subsidiaries or by merger of any one or more of such Subsidiaries; and/or (c) any transaction described in Section 8.5(c) of the Note Purchase Agreement. "Transfer" as used in Section 5 hereof, shall include without limitation -------- any disposition of any Warrants or shares of Warrant Stock or of any interest therein which would constitute a sale thereof within the meaning of the Securities Act, but shall not include any disposition of Warrants or Warrant Stock (by sale, assignment, operation of law or otherwise) to a corporation, firm or other entity controlling, controlled by or under common control with the transferor if in connection with such disposition the transferor delivers to the Company an opinion of counsel to the effect C-6 set forth in Section 5(b) hereof. "Warrant Stock" shall mean the shares of Common Stock purchasable upon the ------------- exercise of the Warrants. "Warrantholders" shall mean the registered holders of the Warrants and, to -------------- the extent holders of Warrants have exercised Warrants, the registered holders of the Warrant Stock. "Warrant" shall mean the Company's Common Stock Purchase Warrants ------- (including without limitation this Warrant) initially issued pursuant to the Note Purchase Agreement, whether issued or issuable, identical as to terms and conditions, except as to the names and addresses of the Warrantholders thereunder and the number of shares of Warrant Stock purchasable upon the exercise of such Warrants, evidencing the right to purchase shares of Warrant Stock, together with all Warrants issued in exchange, transfer or replacement thereof. All terms used in this Warrant which are not defined in this Section 1 shall have the meanings respectively set forth elsewhere in this Warrant or in the Note Purchase Agreement. Section 2. Exercise of Warrant. The purchase rights represented by this ------------------- Warrant are exercisable by the registered holder hereof, in whole or in part, at any tine or from time to time upon and after the Original Issue Date and through the close of business on the Expiration Date, by the surrender of this Warrant and the Subscription Form annexed hereto (duly executed) at the principal office of the Company at 260 Lake Road, Dayville, Connecticut 06241 (or at such other office of the Company as the Company shall designate by notice in writing to the registered holder hereof at the address of such holder appearing on the books of the Company), and upon payment to the Company of the applicable Purchase Price for the Warrant Stock thereby purchased. Such payment shall be paid either (a) in cash, by wire transfer or by certified or official bank check payable to the Company; or (b) by surrender of a portion of the Notes in a principal amount equal to the applicable Purchase Price. If such registered holder purchases less than all of the Warrant Stock purchasable hereunder, the Company shall cancel this Warrant upon the surrender hereof, and shall forthwith execute and deliver to such registered holder hereof a new Warrant of like tenor and date for the balance of the Warrant Stock purchasable hereunder. The Company agrees that upon the receipt of this Warrant in proper form for exercise, accompanied by the full Purchase Price, the Warrant Stock so purchased shall be and be deemed to be issued to the registered holder hereof as the record C-7 owner of such Warrant Stock as of the close of business of the Company on the date on which this Warrant shall have been exercised as aforesaid. The Company covenants, represents, warrants and agrees that all of the shares of Warrant Stock which are issued upon the exercise of the Warrants shall be duly authorized, validly issued, fully paid and nonassessable and free from all preemptive or similar rights on the part of any holders of any shares of capital stock of the Company, free from all taxes, liens and charges with respect to the issuance of such shares, and free from all personal liability arising from the issuance thereof which attaches to the ownership thereof (except such liability, if any, which may attach by law or by reason of the acts of the Warrantholders). Each certificate for shares of Warrant Stock purchased upon the exercise of this Warrant shall be delivered to the Person entitled thereto within a reasonable time, not exceeding ten (10) days, after the date on which the rights represented by this Warrant shall have been exercised. Unless at the time of such exercise such shares of Warrant Stock are registered under the Securities Act, each certificate for such shares shall bear the following legend: SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR TRANSFERRED UNLESS THE REGISTRATION PROVISIONS OF SUCH ACT HAVE BEEN COMPLIED WITH OR UNLESS IN THE OPINION OF COUNSEL COMPLIANCE WITH SUCH PROVISIONS IS NOT REQUIRED. THE TRANSFER OF SUCH COMMON STOCK IS SUBJECT TO THE RESTRICTIONS SET FORTH IN SECTION 5 OF THAT CERTAIN COMMON STOCK PURCHASE WARRANT, DATED AS OF NOVEMBER 17, 1993, OF CORNUCOPIA NATURAL FOODS, INC., AND SUCH SHARES MAY BE TRANSFERRED ONLY IN COMPLIANCE WITH THE TERMS AND CONDITIONS OF SUCH SECTION 5. Nothing contained in the Note Purchase Agreement or in any of the Warrants shall be construed as conferring upon the holders of any Warrants, or their transferees, prior to the exercise of any Warrant the right to vote or to receive dividends or to consent or to receive notice as holders of Common Stock in respect of any meeting of shareholders for the election of directors of the Company or any other matter, or any rights whatsoever as holders of Common Stock of the Company. Section 3. No Fractional Shares or Scrip. No fractional shares or scrip ----------------------------- representing fractional shares shall be issued upon the exercise of this Warrant or any portion hereof. With respect to any fraction of a share called for upon the exercise of this Warrant or any portion hereof, the Company shall pay to the registered holder hereof in cash an amount equal to such fraction multiplied by the then current value C-8 of a share of Warrant Stock, such current value to be determined in good faith by the Board of Directors of the Company as of the close of business on the date of exercise of this Warrant. Section 4. Charges, Taxes and Expenses. Issuance to the Warrantholder of --------------------------- the Warrant Stock and certificates therefor upon the exercise of this Warrant or any portion hereof shall be made without charge to the registered holder hereof for any issue or transfer taxes or any other incidental expenses in respect of the issuance of such shares and certificates, all of which taxes and expenses shall be paid by the Company, and such shares and certificates shall be issued in the name of the registered holder of this Warrant or, upon payment by the Warrantholder of any transfer taxes payable as a result of such transfer, in the name of such Person as such Warrantholder shall request. Section 5. Restrictions on Exercise and Transfer; Securities Act ----------------------------------------------------- Registration. - ------------ (a) Any provision contained in this Warrant to the contrary notwithstanding, this Warrant shall not be exercisable or transferable, and the related shares of Warrant Stock shall not be transferable, except upon the conditions specified in this Section 5, which conditions are intended, among other things, to ensure compliance with the provisions of the Securities Act in respect of the exercise or Transfer of this Warrant or Transfer of such shares. The holder of this Warrant agrees that it will not (i) Transfer this Warrant prior to the earlier of (A) delivery to the Company of the opinion of counsel referred to in, and to the effect described in, Section 5(b) hereof, or (B) registration of this Warrant and the related shares of Warrant Stock under the Securities Act has become effective; (ii) exercise this Warrant prior to the earlier of (A) delivery to the Company of the opinion of counsel referred to in, and to the effect described in, Section 5(b) hereof, or (B) registration of the related shares of Warrant Stock under the Securities Act has become effective; or (iii) Transfer such shares of Warrant Stock prior to the earlier of (A) delivery to the Company of the opinion of counsel referred to in, and to the effect described in, Section 5(b) hereof, or (B) registration of such shares under the Securities Act has become effective. (b) The holder of this Warrant agrees that prior to any exercise or Transfer of this Warrant or any Transfer of the related shares of Warrant Stock, such holder will give notice to the Company of its intention to effect such exercise or such transfer (and, in the case of a disposition, of the intended method of disposition), together with an opinion (if requested by the Company), in form and substance reasonably satisfactory to the Company and addressed to the Company, of such holder's counsel as to the non-necessity for registration under the Securities Act in connection with such exercise or Transfer. The Company shall pay the reasonable fees and expenses of such holder's counsel in giving such opinion. The following provisions shall then apply: C-9 (i) If, in the opinion of such holder's counsel, either the proposed exercise or Transfer of this Warrant or the proposed Transfer of such shares may be accomplished without registration under the Securities Act of this Warrant or such shares, as the case may be, then such holder shall be entitled to exercise or Transfer this Warrant or to Transfer such shares in accordance with the intended method of disposition specified in the notice delivered by such holder to the Company; provided, that in the -------- case of any Transfer to any Person who is not an institutional investor or who competes in any respect with the Company or any one or more of its Subsidiaries in the wholesale or retail sale of foods or related products, the written consent of the Company shall be required prior to such Transfer, which consent shall be deemed to have been given if no objection is received within 20 days of receipt by the Company of the notice of intention to Transfer. (ii) If, in the opinion of such holder's counsel, either the proposed exercise or Transfer of this Warrant or the proposed Transfer of such shares may not be accomplished without registration under the Securities Act of this Warrant or such shares, as the case may be, then such holder shall not be entitled to exercise or Transfer this Warrant or to Transfer such shares, as the case may be, until such registration is effective. (iii) If such information is reasonably available, the Company agrees to provide to the Warrantholders and, upon any such Warrantholder's request, to any prospective purchaser designated by such Warrantholder the financial and other information specified in Rule 144A(d) (4) under the Securities Act and to take any other action reasonably requested by such Warrantholder or to execute any certificates necessary to permit a Transfer by any such Warrantholder to qualify for the exemption set forth in Rule 144A under the Securities Act. (c) This Warrant and the shares of Warrant Stock purchasable upon the exercise hereof are entitled to the benefit of the Registration Rights Agreement. Each Warrantholder shall be entitled to the benefits of such agreement upon becoming a registered holder of the Warrant or the Warrant Stock. (d) At any time prior to the effectiveness under the Securities Act of a registration statement relating to an underwritten initial public offering of the Common Stock, if the Purchaser desires to sell all or a portion of this Warrant and/or the Warrant Stock, the Purchaser shall notify the Company of such desire, and the Company shall have a right to make an offer to the Purchaser to purchase not less than all of such Warrant and/or Warrant Stock covered by the Purchaser's notice. Such an offer by the Company shall be a Bona Fide Offer if it is (i) made within 30 days of the Purchaser's notice, (ii) an unconditional offer to purchase for cash not less than all of such Warrant or the Warrant Stock within 30 days of the date of such C-10 offer, and (iii) accompanied by appropriate evidence of the Company's ability to consummate the transactions contemplated by such Offer. The Purchaser shall not be required to accept any offer from the Company, including without limitation a Bona Fide Offer. If Purchaser receives a Bona Fide Offer from the Company, then for a period of 180 days following the date on which the Company made such Bona Fide Offer: (x) the Purchaser shall not sell the portion of the Warrant and/or Warrant Stock that was the subject of such Bona Fide Offer for an aggregate price less than or equal to the Bona Fide Offer price; and (y) the Purchaser may sell the portion of the Warrant and/or Warrant Stock that was the subject of such Bona Fide Offer for an aggregate price which exceeds the Bona Fide Offer price without any notice to the Company. (e) The Purchaser agrees to obtain from each prospective purchaser of any portion of this Warrant and/or the Warrant Stock a confidentiality agreement relating to the non-disclosure of information that the Company determines in good faith to be confidential. (f) Anything contained in this Warrant to the contrary notwithstanding, at no time shall there be more than four (4) holders of the Warrants. (g) Notwithstanding the foregoing provisions of this Section 5, the restrictions imposed by this Section 5 upon the transferability of this Warrant and/or any Warrant Stock issued pursuant to the terms hereof shall cease and terminate when (i) any such Warrant Stock is sold or otherwise disposed of pursuant to an effective Registration Statement under the Securities Act and the securities so transferred are not required to bear the legend set forth in Section 2 or (ii) the registered holder of such Warrant Stock has met the requirements for transfer of such Warrant Stock pursuant to subparagraph (k) of Rule 144. Whenever the restrictions imposed by this Section 5 shall terminate, as herein provided, the registered holder of any Warrant Stock as to which such restrictions have terminated shall be entitled to receive from the Company, without expense, a new certificate not bearing the restrictive legend set forth in Section 2 and not containing any other reference to the restrictions imposed by this Section 5. Section 6. Certain Obligations of the Company. ---------------------------------- (a) So long as any of the Warrants shall remain outstanding, the Company covenants that it shall at all times reserve and keep available solely for the purpose of issuance upon the exercise of the purchase rights evidenced by this Warrant, such number of shares of Common Stock as shall then be purchasable upon the exercise of all outstanding Warrants hereunder. (b) So long as any of the Warrants shall remain outstanding, the Company shall not, by amendment of the Certificate of Incorporation, or through C-11 reorganization, consolidation, merger, dissolution, issuance of capital stock or sale of treasury stock or sale of assets, or by any other voluntary act or deed, avoid or seek to avoid the performance or observance of any one or more of the covenants, stipulations or conditions in this Warrant to be observed or performed by the Company. The Company shall not enter into, or become subject to, any agreement which by its terms limits or restricts, or has the effect of significantly impairing, the Company's ability to comply with the terms of this Warrant. The Company shall at all times and in good faith assist, insofar as it is able, the Warrantholders in the carrying out of all of the provisions of this Warrant in a reasonable manner. (c) So long as Warrants to purchase not less than 1,100 shares of Common Stock, as adjusted pursuant to Section 7 shall remain outstanding, the Company shall not, without the prior written consent of the Requisite Holders of the Warrants, amend the Certificate of Incorporation (i) to establish any class of capital stock which has rights prior or in preference to those attributable to the shares of Common Stock as to dividends or as to the distribution of assets upon voluntary or involuntary liquidation, dissolution or winding-up; (ii) to increase the number of authorized shares of any existing class of such capital stock; or (iii) in any other manner which would have a material adverse effect on the rights of the Warrantholders. The Requisite Holders of the Warrants shall not unreasonably withhold their consent to any amendment described in this Section 6(c) if such amendment would not have a material adverse effect on the Warrantholders. The Requisite Holders of the Warrants shall not be required to consent to any amendment described in this Section 6(c) if such amendment would have a material adverse effect on the Warrantholders. (d) So long as Warrants to purchase not less than 1,100 shares of Common Stock, as adjusted pursuant to Section 7 shall remain outstanding, if the Company engages in any Transaction, as a condition precedent to such Transaction, the Company shall cause effective provisions to be made so that the Warrantholders shall have the right thereafter by exercising this Warrant at any time prior to the expiration of this Warrant, to purchase the kind and amount of shares of stock and other Securities and/or property receivable upon the consummation of such Transaction by a registered holder of the number of shares of Common Stock which might have been purchased upon the exercise of this Warrant immediately prior to the consummation of such Transaction. Any such provision shall include provisions for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in Section 7 and elsewhere in this Warrant. The foregoing provisions of this Section 6(d) shall similarly apply to successive Transactions. (e) So long as Warrants to purchase not less than 1,100 shares of Common Stock, as adjusted pursuant to Section 7 shall remain outstanding, except as permitted by Sections 8 and 10, the Company shall not, and shall not permit any Affiliate of the Company to, directly or indirectly, purchase or otherwise acquire any Warrants C-12 (including without limitation this Warrant) or any shares of Warrant Stock issued upon the exercise of any Warrant except by way of an offer to the Holders of all outstanding Warrants and Warrant Stock to purchase a pro rata portion of --- ---- each such Holder's Warrants and Warrant Stock. Neither the Company nor any of its Affiliates shall have any right to vote any Warrants or Warrant Stock no matter how it is acquired. (f) So long as any of the Warrants or shares of Warrant Stock shall remain outstanding, the Company shall comply with Section 12 of the Registration Rights Agreement. (g) So long as any of the Warrants shall remain outstanding, if any shares of Warrant Stock required to be reserved for the purpose of exercise of this Warrant require registration with or approval of any governmental authority under any Federal law (other than the Securities Act) or under any state law before such shares may be issued upon the exercise of this Warrant, the Company shall, at its expense, as expeditiously as possible, use its best efforts to cause such shares to be duly registered or approved, as the case may be. (h) So long as any of the Warrants or shares of Warrant Stock shall remain outstanding, if, and so long as, any class of capital stock of the Company is listed on any national securities exchange (as defined in the Exchange Act), the Company shall, at its expense, obtain and maintain the approval for listing, upon official notice of issuance, of all shares of Warrant Stock receivable upon the exercise of the Warrants at the time outstanding and maintain the listing of such shares after their issuance; and the Company shall so list on such national securities exchange, shall register under the Exchange Act, and shall maintain such listing of, any other Securities that at any time are purchasable upon the exercise of the Warrants, if and at the time that any Securities of the same class shall be listed on such national securities exchange by the Company. (i) So long as Warrants to purchase not less than 1,100 shares of Common Stock, as adjusted pursuant to Section 7, shall remain outstanding, the Company agrees promptly to give notice to the Warrantholders before the Company shall file with the Commission or with any national securities exchange (as defined in the Exchange Act) an application to register any Securities of the Company pursuant to Section 12 of the Exchange Act. Thereafter, the Company agrees to review its ownership ledgers, transfer books and other corporate records periodically (and not less than once in each calendar quarter) in order to determine whether any Warrantholder is or shall have become, directly or indirectly, the owner of record of more than such, percentage of any class of the Company's equity securities (as defined in the Exchange Act) as shall cause such Warrantholder to be required to make any filings or declarations to the Company, the Commission or any national securities exchange pursuant to the provisions of the Exchange Act, and the C-13 Company shall give prompt notice to such Warrantholder whenever the Company shall have determined, upon the basis of information disclosed by any such review, that such Warrantholder is or has become such a holder, which notice shall also specify the information upon which the Company bases such determination. (j) So long as any Warrant shall remain outstanding, the Company shall maintain an office where presentations and demands to or upon the Company in respect of this Warrant may be made. The Company shall give notice in writing to the registered holder of this Warrant, at the address of the registered holder of this Warrant appearing on the books of the Company, of each change in the location of such office. (k) So long as Warrants to purchase not less than 1,100 shares of Common Stock, as adjusted pursuant to Section 7, shall remain outstanding, if the Company declares a cash dividend or distribution, the Company shall give at least ten (10) days prior written notice to all Warrantholders of the record date for determining those holders of shares of Common Stock who will be entitled to receive such dividend or distribution. (l) So long as any shares of Warrant Stock or Warrants to purchase not less than 1,100 shares of Common Stock, as adjusted pursuant to Section 7, shall remain outstanding, the Company shall not issue any shares of its capital stock, including without limitation Common Stock, for a price less than the Fair Market Value per share on the date of such issuance, provided that the restrictions set -------- forth in this Section 6(l) shall not apply to Management Options. 7. Adjustment of Purchase Price and Number of Shares of Warrant Stock. ------------------------------------------------------------------ The number and kind of Securities purchasable upon the exercise of each Warrant and the Purchase Price shall be subject to adjustment pursuant to the provisions of this Section 7. (a) In case, at any time after the Original Issue Date, the Company shall declare a cash dividend upon its Common Stock payable otherwise than out of earned surplus or shall distribute to holders of its Common Stock shares of its capital stock (other than Common Stock), stock or other Securities of any other Person(s), evidences of indebtedness issued by the Company or any other Person(s), other assets or options or warrants or rights, then, in each such case, immediately following the record date fixed for the determination of the holders of Common Stock entitled to receive such dividend or distribution: (i) The number of shares of Common Stock purchasable upon the exercise of the Warrants thereafter shall be determined by multiplying the number of shares of Common Stock purchasable upon the exercise of the Warrants immediately prior to such record date by a fraction, of which the C-14 numerator shall be $300 and the denominator shall be an amount equal to (A) $300 minus (B) the Fair Market Value of the stock, securities, evidences of indebtedness, assets, options, warrants or rights so distributed in respect of one share of Common Stock; and (ii) the Purchase Price shall be adjusted (to the nearest cent) by multiplying the Purchase Price in effect immediately prior to the record date for such dividend or distribution by a fraction, of which the numerator shall be an amount equal to (A) $300 minus (B) the Fair Market Value of the stock, securities, evidences of indebtedness, assets, options, warrants or rights so distributed in respect of one share of Common Stock and the denominator shall be $300; and (iii) each adjustment made pursuant to this Section 7(a) shall be made on the date such dividend or distribution is made, and shall become effective at the opening of business on the business day next following the record date for the determination of stockholders entitled to such dividend or distribution. (b) In case at any time after the Original Issue Date the number of shares of Common Stock outstanding is increased by a stock dividend payable in shares of Common Stock or by a subdivision or split-up of shares of Common Stock, then, following the record date fixed for the determination of holders of Common Stock entitled to receive such stock dividend, subdivision or split-up, the number of shares of Warrant Stock purchasable upon the exercise of this Warrant shall be increased in proportion to such increase in outstanding shares and the Purchase Price in effect immediately prior to such stock dividend, subdivision or split- up shall be proportionately reduced. Conversely, in case at any tine after the Original Issue Date the Company shall combine its outstanding shares of Common Stock into a smaller number of shares, the number of shares of Warrant Stock purchasable upon exercise of this Warrant immediately prior to such combination shall be proportionately reduced and the Purchase Price in effect immediately prior to such combination shall be proportionately increased. (c) If at any time while any Warrants are outstanding any capital reorganization or reclassification of the capital stock of the Company (other than a change in par value or from no par value to par value or as a result of a stock dividend or subdivision or split-up or combination of shares), or consolidation or merger of the Company with another corporation, or the sale or other disposition of all or substantially all of the Company's or any of its Subsidiaries' properties and assets to another Person, shall be effected in such a way that holders of shares of Common Stock shall be entitled to receive stock, other Securities or assets with respect to or in exchange for Common Stock, then, as a condition of such reorganization, reclassification, consolidation, merger, sale or disposition, lawful and C-15 adequate provision shall be made whereby each warrantholder shall thereafter have the right to receive upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Warrant Stock immediately theretofore receivable upon the exercise of such Warrants, such shares of stock, other securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of Common Stock equal to the number of shares of such Warrant Stock immediately theretofore so receivable had such reorganization, reclassification, consolidation, merger, sale or disposition not taken place, and in any such case lawful and adequate provision shall be made with respect to the rights and interests of the Warrantholders to the end that the provisions of this Warrant (including without limitation provisions for adjustment of the Purchase Price and of the number of shares of Warrant Stock purchasable upon the exercise of this Warrant and for the registration of the Warrants and the shares of Warrant Stock to the extent and as provided in the Registration Rights Agreement) shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, other Securities or assets thereafter deliverable upon the exercise of such Warrants. The Company shall not effect any such consolidation, merger or sale unless prior to or simultaneously with the consummation thereof the survivor or successor corporation (if other than the Company) resulting from such consolidation or merger or the Person purchasing such properties and assets shall assume by written instrument executed and mailed or delivered to each warrantholder, the obligation to deliver to such Warrantholder such shares of stock, other Securities or assets as, in accordance with the foregoing provisions, such Warrantholder may be entitled to receive, and containing the express assumption of such successor Person of the due and punctual performance and observance of every provision of this Warrant and the Registration Rights Agreement to be performed and observed by the Company and of all liabilities and obligations of the Company hereunder. The provisions of this Section 7(c) shall similarly apply to successive reorganizations, reclassifications, consolidations, mergers, sales or other dispositions. (d) In addition to all other adjustments to the number of shares of Common Stock purchasable upon the exercise of this Warrant set forth elsewhere in this Warrant, if the Company shall at any time or from time to time after the Original Issue Date issue or sell any shares of Common Stock (or be deemed to have issued any shares of Common Stock as provided herein), other than shares of Common Stock issuable upon the exercise of one or more Management Options, without consideration or for a consideration per share less than $300 (subject to the adjustments to the Purchase Price set forth in Sections 7(a), 7(b) and 7(c)): (i) the number of shares of Common Stock purchasable upon the exercise of this Warrant automatically and forthwith shall be increased by multiplying the number of shares of Warrant Stock purchasable upon the exercise of this Warrant immediately prior to such issuance by a fraction, of which the numerator shall be $300 and the denominator shall be the lowest C-16 price per share at which the Company has issued or has been deemed to have issued shares of Common Stock on or after the Original Issue Date; and (ii) the Purchase Price automatically and forthwith shall be adjusted (to the nearest cent) by multiplying the Purchase Price in effect immediately prior to such issuance by a fraction, of which the numerator shall be the lowest price per share at which the Company has issued or has been deemed to have issued shares of Common Stock on or after the Original Issue Date and the denominator shall be $300. Anything else contained in this Section 7(d) to the contrary notwithstanding, the provisions of this Section 7(d) shall not apply to issuances or sales by the Company of an aggregate number of shares of Common stock in an amount up to one-half of one percent (0.5%) of the then issued and outstanding shares of Common Stock without regard to the issue or purchase price of such shares of Common Stock. (e) For the purposes of any adjustment of the number of shares purchasable upon the exercise of this Warrant pursuant to Section 7(d), the following provisions shall be applicable: (i) In the case of the issuance of Common Stock for cash, the consideration received upon such issuance shall be deemed to be the gross amount of cash paid therefor. (ii) In the case of the issuance of Common Stock for a consideration in whole or in part other than cash, the consideration received upon such issuance other than cash shall be deemed to be the Fair Market Value thereof; provided, however, that the aggregate Fair Market Value of such -------- ------- non-cash and cash consideration shall equal the Current Market Price of the shares of Common Stock being issued if such issuance occurs after the Public Offering Date. (iii) In the case of the issuance of Common Stock without consideration, the consideration received upon such issuance shall be deemed to be $0.01 per share. (iv) In the case of the issuance of (A) options to purchase or rights to subscribe for Common Stock other than Management Options, (B) Securities by their terms convertible into or exchangeable for Common Stock or (C) options to purchase or rights to subscribe for such convertible or exchangeable Securities: (1) the aggregate maximum number of shares of Common Stock deliverable upon the exercise of such options to C-17 purchase or rights to subscribe for Common Stock shall be deemed to have been issued at the time such options or rights were issued and for a consideration equal to the consideration (determined in the manner provided in Sections 7(e)(i) through 7(e) (iii) inclusive), if any, received by the Company upon the issuance of such options or rights plus the minimum purchase price provided in such options or rights for the Common Stock covered thereby; and (2) the aggregate maximum number of shares of Common Stock deliverable upon conversion of or in exchange for any such convertible or exchangeable Securities or upon the exercise of options to purchase or rights to subscribe for such convertible or exchangeable Securities and subsequent conversion or exchange thereof shall be deemed to have been issued at the time such Securities were issued or such options or rights were issued and for a consideration equal to the consideration, if any, received by the Company for any such Securities and related options or rights (excluding any cash received on account of accrued interest or accrued dividends), plus the additional consideration, if any, to be received by the Company upon the conversion or exchange of such Securities or the exercise of any related options or rights (the consideration in each case to be determined in the manner provided in Sections 7(e)(i) through 7(e)(iii) inclusive); and (3) on any change in the number of shares or exercise price of Common Stock deliverable upon the exercise of any such options or rights or conversions of or exchanges for such Securities, other than a change resulting from the anti-dilution provisions thereof, the number of shares purchasable upon the exercise of this Warrant automatically and forthwith shall be readjusted to such number as would have obtained had the adjustment made upon the issuance of such options, rights or other Securities not converted prior to such change or options or rights related to such Securities not converted prior to such change been made upon the basis of such change; and (4) on the expiration of all such options or rights, the termination of all such rights to convert or exchange or the expiration of all options or rights related to such convertible or exchangeable Securities, the number of shares purchasable upon the exercise of this Warrant automatically and forthwith shall be readjusted to such number as would have obtained had the adjustment made upon the issuance of such options, rights or other Securities or options or rights related to such Securities not been made. C-18 (f) In case at any tine or from tine to tine after the original Issue Date conditions arise by reason of any action(s) taken or omitted to be taken by the Company which, in the opinion of the Company's Board of Directors, are not adequately covered by the provisions of this Section 7, and which might materially and adversely affect the exercise rights of the Warrantholders, the Company shall obtain an opinion of KPMG Peat Marwick, the Company's independent certified public accountants, or of other independent certified public accountants selected by the Company and reasonably satisfactory to the Requisite Holders of the unexercised Warrants, setting forth any adjustment of the number of shares of Warrant Stock purchasable upon the exercise of the Warrants and/or of the Purchase Price, on a basis consistent with the standards established in the other provisions of this Section 7, necessary in order to preserve, without diminution of the proportionate interest in the Common Stock purchasable upon the exercise of the Warrants and the exercise rights of the Warrantholders. Upon receipt of such opinion, the Board of Directors of the Company shall forthwith make the adjustments described therein. (g) For purposes of this Section 7 the number of shares of Common Stock outstanding or deemed to be outstanding at any given time shall not include shares owned or held by or for the account of the Company, and the disposition of any such shares shall be considered an issuance or sale of Common Stock for the purposes of Section 7(d). (h) Upon each adjustment of the Purchase Price and upon each change in the number shares of Warrant Stock purchasable upon the exercise of this Warrant, and in the event of any change in the rights of the holder of this Warrant by reason of any other event(s) herein set forth, then and in each such case the Company promptly shall deliver to each Warrantholder, by first-class certified mail, return receipt requested, postage prepaid, a statement, signed by the Company's principal financial officer, showing in reasonable detail the basis of such determination or the facts requiring such adjustment and/or change, and stating the adjusted Purchase Price and the new number of shares of Warrant Stock so purchasable, or specifying the other shares of stock, other Securities or assets and the amount thereof receivable as a result of such change in rights, and setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. Where appropriate, such statement may be given in advance and nay be included as part of a notice required to be mailed under the provisions of Section 7(i). (i) If the Company shall propose to take any action requiring a calculation pursuant to this Section 7, the Company shall give notice to each Warrantholder in the manner set forth in Section 7(h), which notice shall specify the record date, if any, with respect to any such action and the date on which such action is to take place. Such notice also shall set forth such facts with respect thereto as shall be reasonably necessary to indicate the effect of such action (to the extent such effect may be known at the date of such notice) on the number of shares purchasable upon the exercise of C-19 the Warrants held by such Warrantholder and the number, kind or class of shares or other Securities or other property or assets which shall be deliverable or purchasable upon the occurrence of such action or deliverable upon the exercise of the Warrants. In the case of any action which would require the fixing of a record date, such notice shall be given at least 15 days prior to the date so fixed, and in the case of all other actions, such notice shall be given at least 15 days prior to the taking of such proposed action. Failure to give such notice, or any defect therein, shall not affect the legality or validity of any such action. The Requisite Holders of the Warrants may within 15 days of any notice delivered by the Company pursuant to this Section 7(i) object to any of the Company's calculations contained in such notice by delivery of a notice setting forth such objection in reasonable detail. If the Requisite Holders of the Warrants and the Company shall be unable to resolve such objection within 10 days of delivery of such notice to the Company, such objection shall be resolved by an independent accounting firm mutually agreed upon by the Company and the Requisite Holders of the Warrants. The Company shall bear the fees and expenses of such firm if the Company's calculations are not upheld by such firm. The Warrantholders shall bear the fees and expenses of such firm if the Company's calculations are upheld by such firm. (j) Irrespective of any adjustments in the Purchase Price or the number or kind of cash, Securities or other property or assets purchasable upon the exercise of the Warrants, this Warrant may continue to express the same price and number and kind of Securities as are stated in this Warrant. (k) The Company shall pay all documentary, stamp or other transactional taxes attributable to the issuance or delivery of shares of capital stock of the Company upon the exercise of the Warrants. (l) All calculations under this Section 7 shall be made to the nearest sixth decimal place. Section 8. Warrant and Warrant Stock Repurchase Rights. ------------------------------------------- (a) If the Lock In Date occurs at any time after the Original Issue Date but prior to the second anniversary of the Original Issue Date, on and after the Lock In Date the Company shall have the right to repurchase, pro rata from all -------- the Warrantholders, Warrants exercisable for 10,101 shares of Common Stock, adjusted as set forth in Section 7, for an aggregate repurchase price equal to $0.01 per share, adjusted as set forth in Section 7, multiplied by the number of shares represented by the Warrants so repurchased. (b) If the Lock In Date occurs at any time after the second anniversary of the Original Issue Date but prior to the third anniversary of the Original Issue Date, on and after the Lock In Date the Company shall have the right to repurchase, pro --- C-20 rata from all the Warrantholders, Warrants exercisable for 6,926 shares of - ---- Common Stock, adjusted as set forth in Section 7, for an aggregate repurchase price equal to $0.01 per share, adjusted as set forth in Section 7, multiplied by the number of shares represented by the Warrants so repurchased. (c) If the Lock In Date occurs at any tine after the third anniversary of the Original Issue Date but prior to the fourth anniversary of the Original Issue Date, on and after the Lock In Date the Company shall have the right to repurchase, pro rata from all the Warrantholders, Warrants exercisable for 3,565 -------- shares of Common Stock, adjusted as set forth in Section 7, for an aggregate repurchase price equal to $0.01 per share, adjusted as set forth in Section 7, multiplied by the number of shares represented by the Warrants so repurchased. If and only if one or more the Warrantholders does not on the Lock In Date possess Warrants sufficient to permit the Company to repurchase from such Warrantholder such holder's pro rata share of the Warrants subject to repurchase -------- under Section 8(a), 8(b) or 8(c), as applicable, then such Warrantholders, or their transferees, shall be required to surrender to the Company any combination of (i) shares of Warrant Stock and (ii) Warrants equal to and/or exercisable for the number of shares of Common Stock for which such Warrantholder's pro rata -------- share of the Warrants subject to repurchase would be exercisable, for an aggregate repurchase price equal to $0.01 per share, adjusted as set forth in Section 7. (e) The repurchase rights set forth in this Section 8 are exercisable by the Company upon payment by the Company of the applicable repurchase price for the Warrants and/or Warrant Stock thereby repurchased. Such payment shall be in cash, by fedwire transfer or by certified or official bank check payable to the respective Warrantholders whose Warrants and/or Warrant Stock are being repurchased. Upon the consummation of any such repurchase, the Company shall cancel this Warrant and/or any certificates representing Warrant Stock upon the surrender hereof and/or thereof, and shall forthwith execute and deliver to the registered holder(s) hereof and thereof, as applicable, a new Warrant of like tenor and date for the balance of the Warrant Stock purchasable hereunder and/or a new certificate or certificates representing the balance of such registered holder's Warrant Stock. Such new Warrant and/or new certificate for shares of Warrant Stock shall be delivered to the Person entitled thereto within a reasonable tine, not exceeding ten (10) days, after the date on which such Warrant and/or certificate is surrendered to the Company. (f) All repurchase rights set forth in this Warrant shall terminate on the fourth anniversary of the original Issue Date if the Lock In Date has not occurred prior to such fourth anniversary. C-21 Section 9. Prior Notice of Certain Events. In case at any time: ------------------------------ (a) the Company shall pay any dividend payable in any capital stock or other Securities (including without limitation rights, options or warrants) upon its Common Stock or make any distribution to any stockholders; or (b) there shall be any capital reorganization or reclassification of the Common Stock, including without limitation any subdivision, split, combination or reverse split, or any consolidation or merger of the Company with another Person or a sale, transfer or other disposition of all or substantially all of its assets; or (c) the Company shall offer for subscription to all of the holders of any class of its capital stock any additional shares or any other rights; or (d) shall be a voluntary or involuntary dissolution, liquidation or winding-up of the Company; then, in any of such cases, the Company shall give prior written notice, by first-class mail, postage prepaid, addressed to the Warrantholders at the address of each such holder as shown on the registration books of the Company, of the date on which (i) the books of the Company shall close or a record shall be taken for such dividend, distribution or subscription rights, and (ii) such reorganization, reclassification, consolidation, merger, sale, transfer or other disposition, dissolution, liquidation or winding-up shall take place, as the case may be. Such notice also shall specify the date as of which the holders of Common Stock of record shall participate in such dividend, distribution or subscription rights, or shall be entitled to exchange their Common Stock for Securities or other property deliverable upon such reorganization, reclassification, consolidation, merger or sale, transfer or other disposition, dissolution, liquidation or winding-up, as the case may be. Such written notice shall be given not less than 30 days prior to the action in question or to any record date or the date on which the Company's transfer books are closed in respect thereto. In case any of the foregoing constitute a Transaction or cause the occurrence of an Event of Default under Section 9.1(a), (b) or (c) of the Note Purchase Agreement and the continuance of such Event of Default for a period of 30 days, the Warrantholders shall be permitted to exercise the Warrants effective as of the record date applicable to any such action or the effective date thereof, as the case may be, so that any Warrantholder exercising Warrants shall be entitled to participate in such transaction as a holder of the Common Stock received upon such exercise. Section 10. Put/Call. -------- (a) Except as provided in Section 10(e), as of the sixth anniversary of the Original Issue Date the Company shall have the right to purchase all the Warrants and all Warrant Stock from the Warrantholders for the Option Price. C-22 (b) Except as provided in Section 10(e), as of the sixth anniversary of the Original Issue Date each of the Warrantholders shall have the right to require the Company to purchase such all Warrantholders Warrants and Warrant Stock for the Option Price. (c) If any party desires to exercise its rights pursuant to this Section 10, the exercising party shall notify the other party of its intent not more than 60 days nor less than 30 days prior to the sixth anniversary of the Original Issue Date, provided that the exercising party may withdraw such notice -------- within ten (10) days of receipt of the final determination of the Option Price pursuant to this Section 10(c). Following the giving of such notice, the Option Price shall be determined by a nationally recognized investment banking firm that is mutually acceptable to the Company and the Purchaser. If the parties cannot agree on a mutually acceptable firm, each of the Purchaser and the Company shall select a nationally recognized investment banking firm, the two firms so selected shall select a third nationally recognized investment banking firm, and such third firm's determination of the Option Price shall be binding upon the Company and any Holder. (d) Company and the Warrantholders shall each bear one-half (1/2) of all fees and expenses of the investment banking firm(s) in connection with the determination of the Option Price. (e) Anything else contained in this Agreement to contrary notwithstanding, the parties' respective rights and obligations under this Section 10 shall expire upon the consummation of any underwritten public offering of the Common Stock. (f) The Option Price, if any, payable pursuant to Section 10(a) shall be payable in cash at the closing of the transactions contemplated by Section 10(a). The Company's obligation to pay the Option Price, if any, pursuant to Section 10(b) shall be evidenced by and pursuant to the terms of a promissory note containing such terms and conditions as are mutually agreed upon in good faith by the selling Warrantholder(s) and the Company, provided that such -------- promissory note shall be payable to the selling Warrantholder(s) or order, shall be in a principal account equal to such Option Price, shall bear interest at the rate of ten percent (10%) per annum, shall mature on the ninth anniversary of the original Issue Date unless the Company and the selling Warrantholder(s) agree on an earlier maturity date, shall require the payment of interest on the outstanding principal balance of such promissory note to be paid in cash quarterly in arrears. Anything contained in this Section 10(f) to the contrary notwithstanding, the Company's obligation to pay any Option Price, including without limitation the terms of any promissory note evidencing such obligation, shall be subject to the restrictions contained in the documents that create and evidence the Senior Indebtedness. C-23 Section 11. Exchange. This Warrant is exchangeable, upon the surrender -------- hereof by the registered holder at the office of the Company referred to in Section 6(j), for new Warrants of like tenor and date representing the right to purchase the shares of Warrant Stock purchasable hereunder. Section 12. Loss, Theft, Destruction or Mutilation of Warrant. Upon ------------------------------------------------- receipt by the Company of an affidavit from the Warrantholder or other evidence reasonably satisfactory to it as to the loss, theft, destruction or mutilation of this Warrant, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to the Company (which in the case of the Purchaser shall be its unsecured undertaking), and upon reimbursement to the Company of all reasonable expenses incidental thereto, and upon the surrender and cancellation of this Warrant, if mutilated, the Company shall make and deliver a new Warrant of like tenor and date, in lieu of this Warrant. Section 13. Title to Warrant. Subject to Section 5, this Warrant and all ---------------- rights hereunder are transferable, in whole or in part, at the office of the Company referred to in Section 6(j) by the registered holder hereof in person or by a duly authorized attorney, upon the surrender of this Warrant together with an assignment hereof properly endorsed. Until transfer hereof on the registration books of the Company, the Company may treat the registered holder hereof as the owner hereof for all purposes. Section 14. Notices. ------- (a) All notices and other communications hereunder shall be in writing and shall be mailed by certified mail, return receipt requested, postage prepaid, or delivered by reliable overnight delivery service (receipt confirmed) or facsimile transmission (receipt confirmed), addressed (A) if to the Purchaser, whether in its capacity as the Purchaser or as a Warrantholder, to it at CityPlace I, 35th Floor, Hartford, Connecticut 06103-3499, attention: Richard J. Williams, or at such other address as the Purchaser shall have furnished to the Company in writing, or (B) except as set forth in Section 14(b), if to any other Warrantholder, to it at such address as such Warrantholder shall have furnished to the Company in writing, or, until such Warrantholder so furnishes an address to the Company, then to and at the address of the last registered holder of this Warrant who has so furnished an address to the Company, or (C) if to the Company, to it at 260 Lake Road, Dayville, Connecticut 06241, attention Steven Townsend or at such other address as the Company shall have furnished in writing to the Warrantholders. (b) Anything contained in this Warrant to the contrary notwithstanding, if at any time there shall be more than four (4) Warrantholders in addition to the Purchaser, then the Purchaser shall be the agent for such other Warrantholders solely for purposes of receiving such notices and other communications, or if the Purchaser C-24 no longer is a Warrantholder then such other Warrantholders shall elect an agent for such purposes, and all such notices and other communications shall be deemed to have been made in accordance with this Warrant if mailed by certified mail, return receipt requested, postage prepaid, or delivered by reliable overnight delivery service (receipt confirmed) or facsimile transmission (receipt confirmed), to such agent. (c) All such notices and other communications shall be deemed to be delivered (A) in the case of personal delivery or delivery by telecopy, on the date of such delivery, (B) in the case of dispatch by nationally recognized overnight courier marked for next day delivery, on the next Business Day following such dispatch, and (C) in the case of nailing, on the third Business Day after the posting thereof. Section 15. Sundays, Holidays, Etc. If the last or appointed day for ---------------------- the taking of any action required or the expiration of any right granted herein shall be a Saturday or Sunday or shall be a legal holiday in Hartford, Connecticut, or in Boston, Massachusetts, then such action may be taken or right may be exercised on the next succeeding day which is not a Saturday, Sunday or legal holiday in either of such cities. Section 16. Remedies. The Company stipulates that the remedies at law -------- of the Warrantholders in the event of any default by the Company in the performance of or compliance with any of the terms of the Warrants are not and will not be adequate, and that the same may be specifically enforced. Section 17. Severability. The invalidity or unenforceability of any one ------------ or more phrases, sentences, clauses, or Sections contained herein in any jurisdiction shall not affect the validity or enforceability of this Warrant or the remaining provisions of this Warrant in any jurisdiction or affect the validity or enforceability of such provisions in any other jurisdiction. Section 18. Amendments and Waivers. No term, covenant, agreement or ---------------------- condition of the Warrants may be amended, and compliance therewith may not be waived, except in compliance with Section 14.1 of the Note Purchase Agreement. Section 19. Miscellaneous. This Warrant shall inure to the benefit of ------------- and be binding on the Purchaser and the Company, and their respective successors and permitted assigns. This Warrant shall be governed by and construed, applied and enforced in accordance with the laws of the State of Connecticut, including without limitation the Uniform Commercial Code, except that no doctrine of choice of law shall be used to apply any law other than that of the State of Connecticut, and no defense, counterclaim or right of set-off given or allowed by the laws of any other state or jurisdiction, or arising out of the enactment, modification or repeal of any law, regulation, ordinance or decree of any foreign jurisdiction, shall be interposed in any action hereon. C-25 IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in its name by its duly authorized officer. CORNUCOPIA NATURAL FOODS, INC. By: /s/ Norman A. Cloutier ---------------------- Norman A. Cloutier Its President C-26 FORM OF SUBSCRIPTION -------------------- (To be signed only on exercise of Warrant) TO: CORNUCOPIA NATURAL FOODS, INC. The undersigned, the registered holder of the within Warrant, hereby irrevocably elects to exercise such Warrant to purchase thereunder _____________________________________ shares of Common Stock of CORNUCOPIA NATURAL FOODS, INC., and herewith makes payment therefor, and requests that Common Stock be registered in the name of, and a certificate representing such Common Stock be issued to, _______________________, whose address is: Dated:_____________________ _______________________________ (Signature must conform in all respects to name of registered holder as specified on the face of the Warrant) _______________________________ Address Signed in the presence of: __________________________ C-27 FORM OF ASSIGNMENT ------------------ (To be signed only on transfer of Warrant) For value received, the undersigned hereby sells, assigns, and transfers unto ___________________ the right represented by the within Warrant to purchase ___________________________ shares of Common Stock of CORNUCOPIA NATURAL FOODS, INC., to which the within Warrant relates, and appoints _____________________ its Attorney to transfer such right on the books of ___________________ with full power of substitution in the premises. Dated:_____________________ (Signature must conform in all respects to name of registered holder as specified on the face of the Warrant) _____________________________ Address Signed in the presence of: ___________________________ C-28 AMENDMENT NO. 1 TO THE NOTE AND WARRANT PURCHASE AGREEMENT This AMENDMENT No. 1 TO THE NOTE AND WARRANT PURCHASE AGREEMENT (the "Amendment") is made as of May 31, 1996, by and between Triumph-Connecticut Limited Partnership, a Connecticut limited partnership with an office located at CityPlace I, 35th Floor, Hartford, Connecticut 06103-3499 (the "Purchaser") and United Natural foods, Inc., formerly known as Cornucopia Natural Foods, Inc., a Delaware corporation with its principal office at 260 Lake Road, Dayville, Connecticut 06241 (the "Company"); WHEREAS, the Purchaser and the Company are parties to a certain Note and Warrant Purchase Agreement, dated as of November 17, 1993 (the "Agreement"); WHEREAS, the Company entered into an Amended and Restated Loan and Security Agreement (the "Fleet Agreement"), dated February 20, 1996, with Fleet Capital Corporation, which is the successor to Barclays Business Credit, Inc.; WHEREAS, the Purchase and the Company desire to amend the Agreement to conform certain covenants contained in the Agreement to those contained in the Fleet Agreement; NOW THEREFORE, in consideration of one dollar ($1.00) and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Purchaser and the Company agree as follows: 1. Amendment of Agreement. The Purchaser and the Company hereby amend ---------------------- the Agreement as follows: a. Section 8.7 of the Agreement, entitled "Minimum Adjusted Tangible Net Worth," is hereby repealed in its entirety and the following is inserted in lieu thereof as a new Section 8.7: "Section 8.7 Minimum Adjusted Tangible Net Worth. The Company ----------------------------------- covenants and agrees that so long as any Note shall remain outstanding, the Company shall maintain at all times an Adjusted Tangible Net Worth (which, for purposes of this Section 8.7 shall include the indebtedness evidenced by the ESOP Notes and the value of Inventory shall be calculated on a first-in-first-out basis) of not less than the amount shown below for the period corresponding thereto;
Period Amount ------ ------
-1- Through the end of Borrowers' Fiscal Year 1996 $4,750,000 During Borrowers' Fiscal Year 1997 $5,450,000 During Borrowers' Fiscal Year 1998 $6,150,000
For purposes of this Section 8.7 only, all capitalized terms contained in this Section 8.7, except for the terms "Company" and "Note", shall have the meaning given to such terms in the Fleet Agreement, attached hereto as Exhibit A. The terms "Company" and "Note" shall have the meanings given to such terms in the Agreement." b. Section 8.8 of the Agreement, entitled "Minimum Operating Cash Flow," is hereby repealed in its entirety and the following is inserted in lieu thereof as a new Section 8.8: "Section 8.8 Cash Flow. The Company covenants and agrees that so --------- long as any Note shall remain outstanding, the Company shall achieve Cash Flow of not less than $175,000 during each fiscal quarters of the Borrowers. For purposes of this Section 8.8 only, all capitalized terms contained in this Section 8.8, except for the terms "Company" and "Note", shall have the meaning given to such terms in the Fleet Agreement, attached hereto as Exhibit A. The terms "Company" and "Note" shall have the meanings given to such terms in the Agreement. c. Section 8.9 of the Agreement, entitled "Minimum Ratio of Operating Cash flow to consolidated Interest Expense," is deleted in its entirety. d. Section 8.10 of the Agreement, entitled "Maximum Leverage," is deleted in its entirety. e. Section 8.15 of the Agreement, entitled "Capital Expenditures," is hereby repealed in its entirety and the following is inserted in lieu thereof as a new Section 8.15; "Section 8.15 Capital Expenditures. The Company covenants and agrees -------------------- that so long as any Note shall remain outstanding, the Company shall not, and shall not permit any of its Subsidiaries to, make Capital Expenditures (including without limitation by way of Capital Leases) which, in the aggregate, as to the Company and its Subsidiaries, exceed -2- $8,000,000 during the Company's Fiscal Year ending in October 1996, and $1,500,000 during any Fiscal Year of the Company thereafter." f. Subsection (c) of Section 8.1 of the Agreement, relating to "Indebtedness" of the Company, is hereby amended by substituting "$50,000,000" for "$15,000,000" in said subsection (c). g. The definition of "Senior Indebtedness" contained in Article 1 of the Agreement, relating to "Definitions," is hereby amended by substituting "$50,000,000" for "$15,000,000" in said definition. h. Section 8.20 of the Agreement, relating to "Leases," is hereby amended by substituting "$15,000,000.00" for "$10,000,000.00". 2. Effect of Amendment. The Purchaser and the Company hereby agree and ------------------- acknowledge that except as provided in this Amendment, the Agreement and all documents executed in connection therewith shall remain in full force and effect and have not been modified or amended in any other respect, it being the intention of the Purchaser and the Company that this Amendment and the Agreement be read, construed and interpreted as one and the same instrument. 3. Capitalized Terms. ----------------- a. All capitalized terms not otherwise defined in this Amendment shall have the meanings given to such terms in the Agreement. Except as otherwise provided in Section 1(a) and 1(b) hereof, the definitions contained in the Fleet Agreement shall not be used for any other purpose. b. The Fleet Agreement contains certain defined terms which are applicable only to Sections 1(a) and 1(b) hereof. To the extent any applicable defined term in the Fleet Agreement contains within it a reference to a provision or section of the "Agreement," reference is made to the Fleet Agreement (and not to the Agreement, as defined in this Amendment) for the meaning of such defined term. 4. Governing Law. This Amendment shall be governed by and construed, ------------- applied and enforced in accordance with the laws of the State of Connecticut. 5. Successors and Assigns. This Amendment shall inure to the benefit of ---------------------- and be binding upon the Purchaser and the Company, and their respective successors and permitted assigns, including, in the case of the Purchaser, the Holders from time to time of the Notes and the Warrants. IN WITNESS WHEREOF, the parties hereto have executed and delivered this -3- Amendment as of the date first written above. UNITED NATURAL FOODS, INC. (formerly known as Cornucopia Natural Foods, Inc.) By: /s/ Steven Townsend ---------------------------------- Steven Townsend Its Chief Financial Officer TRIUMPH-CONNECTICUT LIMITED PARTNERSHIP, by its general partner Triumph-Connecticut Capital Advisors, Limited Partnership By: /s/ Richard J. Williams -------------------------------- Richard J. Williams Its Principal, duly authorized -4- EX-10.12 14 SENIOR NOTE WITH TRIUMPH EXHIBIT 10.12 ------------- EXECUTION COPY -------------- SENIOR NOTE This Note has not been registered under the Securities Act of 1933, as amended, and neither this Note nor any interest herein may be sold, transferred, pledged or otherwise disposed of in the absence of such registration or an exemption under such Act and the rules and regulations thereunder. The transfer of this Note is subject to the restrictions set forth in Article 11 of that certain Note and Warrant Purchase Agreement dated as of November 17, 1993, by and between CORNUCOPIA NATURAL FOODS, INC. (the "Company") and TRIUMPH-CONNECTICUT LIMITED PARTNERSHIP (as the same may hereafter be amended and/or supplemented, the "Note Purchase Agreement"), copies of which are available for inspection at the office of the Company, and this Note may be transferred only in compliance with the terms and conditions of Article 11 of the Note Purchase Agreement. The indebtedness represented by this security is, to the extent provided in the Note Purchase Agreement, subordinated and subject in right of payment to the prior payment in full of all Senior Indebtedness (as defined in the Note Purchase Agreement). Each holder hereof by accepting this security, agrees to and shall be bound by the provisions of the Note Purchase Agreement and authorizes the Company to take such action as may be necessary or appropriate to effectuate the subordination so provided. CORNUCOPIA NATURAL FOODS, INC. Senior Note Due October 31, 1998 No. 1 November 17, 1993 $6,500,000.00 CORNUCOPIA NATURAL FOODS, INC., a Rhode Island corporation (the "Company"), for value received, hereby promises to pay to TRIUMPH-CONNECTICUT LIMITED PARTNERSHIP (the "Purchaser," and together with each subsequent holder from time to time of this Note being hereinafter called the "Holder"), or order, the principal amount of SIX MILLION FIVE HUNDRED -1- THOUSAND AND NO /100 U.S. DOLLARS ($6,500,000.00), together with all interest accrued thereon from and including November 17, 1993 through and including October 31, 1998 (the "Maturity Date"). Interest shall accrue on the unpaid principal balance of this Note from time to time outstanding until paid in full (computed on the basis of a 360-day year of twelve 30-day months), at the rate of eight percent (8%) per annum from and including November 17, 1993 through and including October 31, 1994; nine percent (9%) per annum from and including November 1, 1994 through and including October 31, 1995; ten percent (10%) per annum from and including November 1, 1995 through and including October 31, 1996; eleven percent (11%) per annum from and including November 1, 1996 through and including October 31, 1997; and twelve percent (12%) per annum from and including November 1, 1997 through and including the Maturity Date, as set forth in that certain Note and Warrant Purchase Agreement, dated as of November 17, 1993 (as the same may hereafter be amended and/or supplemented, the "Note Purchase Agreement"), by and between the Company and the Purchaser. Interest shall be payable quarterly in arrears on each January 1, April 1, July 1, and October 1, of each year commencing on January 1, 1994. All terms used in this Note which are defined in the Note Purchase Agreement shall have the meanings assigned to them in the Note Purchase Agreement. Payments of principal of and interest on this Note shall be made in lawful money of the United States of America by (a) fedwire transfer of immediately available funds by 1:00 p.m., New York City local time, on the due date thereof at Bank of Boston Connecticut, 100 Pearl Street, Hartford, Connecticut 06103 for the account of the Purchaser account number 804-75993, ABA number 011- 100805, Notify Karen Hile, Director of Institutional Banking upon receipt, or (b) bank check in immediately available funds delivered to the offices of the Purchaser no later than 1:00 p.m., New York City local time, provided that such -------- payments shall be made by fedwire transfer of immediately available funds or bank check in immediately available funds at such other place in the United States of America as the Holder hereof shall designate in writing to the Company from time to time. This Note is one of the Company's duly authorized Senior Notes issued in an aggregate original principal amount of $6,500,000 pursuant to and subject to the provisions of the Note Purchase Agreement, and is entitled to the benefit of the Note Purchase Agreement and the Guaranty. Neither this reference to the Note Purchase Agreement nor any provision thereof shall affect or impair the obligations of the Company to pay the principal of and interest on this Note as provided herein, which obligations are absolute, unconditional and not subject to defense, set-off or counterclaim. This Note is subject to prepayment at the option of the Company and mandatory repayment upon the terms and conditions and in the manner set forth in -2- the Note Purchase Agreement. Should the Indebtedness represented by this Note or any part thereof be collected in any proceeding provided for in the Note Purchase Agreement or be placed in the hands of attorneys for collection, the Company agrees to pay, in addition to the principal and interest due and payable hereon, and all costs of collecting this Note, including reasonable attorneys' fees and expenses. If an Event of Default, as defined in the Note Purchase Agreement, shall occur and be continuing, this Note may be declared due and payable in the amount, in the manner and with the effect provided in the Note Purchase Agreement. As provided in the Note Purchase Agreement, and subject to certain limitations set forth therein, the transfer of this Note is registerable upon the surrender of this Note for registration of transfer at the office of the Company, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company duly executed by the Holder hereof or his, her or its attorney duly authorized in writing, and thereupon one or more new Notes of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Notes are issuable only in registered form without coupons in denominations of $500,000 and any integral multiple of $100,000 in excess thereof. As provided in the Note Purchase Agreement and subject to certain limitations therein set forth, the Notes are exchangeable for a like aggregate principal amount of Notes of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Note for registration of transfer, the Company and any agent of the Company may treat the Person in whose name this Note is registered as the owner hereof for all purposes, whether or not this Note be overdue, and neither the Company, nor any such agent shall be affected by notice to the contrary. This Note shall be governed by and construed, applied and enforced in accordance with the laws of the State of Connecticut, including without limitation the Uniform Commercial Code, except that no doctrine of choice of law shall be used to apply any law other than that of the State of Connecticut, and no defense, counterclaim or right of set-off given or allowed by the laws of any other state or jurisdiction, or arising out of the enactment, modification or repeal of any law, -3- regulation, ordinance or decree of any foreign jurisdiction, shall be interposed in any action hereon. THE COMPANY WAIVES TRIAL BY JURY IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS NOTE, THE NOTE PURCHASE AGREEMENT, OR THE VALIDITY, PROTECTION, INTERPRETATION, COLLECTION OR ENFORCEMENT HEREOF OR THEREOF. THIS WAIVER IS INFORMED AND FREELY MADE. NEITHER THE HOLDERS NOR THE COMPANY NOR ANY AGENT OR ATTORNEY OF ANY OF THEM SHALL BE LIABLE TO THE OTHER FOR CONSEQUENTIAL DAMAGES ARISING FROM ANY BREACH OF CONTRACT, TORT OR OTHER WRONG RELATING TO THE ESTABLISHMENT, ADMINISTRATION OR COLLECTION OF THE OBLIGATIONS RELATING IN ANY WAY TO THIS NOTE OR THE NOTE PURCHASE AGREEMENT OR THE ACTION OR INACTION OF THE COMPANY UNDER ANY ONE OR MORE HEREOF OR THEREOF. THE COMPANY HEREBY ACKNOWLEDGES THAT THE TRANSACTION OF WHICH THIS NOTE IS A PART IS A COMMERCIAL TRANSACTION, AND HEREBY WAIVES TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW ITS RIGHT TO NOTICE AND HEARING UNDER CHAPTER 903a OF THE CONNECTICUT GENERAL STATUTES, OR AS OTHERWISE ALLOWED BY ANY STATE OR FEDERAL LAW WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH THE HOLDERS OR THEIR SUCCESSORS OR ASSIGNS MAY DESIRE TO USE. This Note shall be binding upon the successors and assigns of the Company and is executed on the date first above written. CORNUCOPIA NATURAL FOODS, INC. By: /s/ Norman A. Cloutier --------------------------------- Norman A. Cloutier Its: President -4- EX-10.13 15 REGISTRATION RIGHTS AGREEMENT W/ TRIUMPH EXHIBIT 10.13 ------------- EXECUTION COPY -------------- REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is dated as of November 17, 1993, by and between CORNUCOPIA NATURAL FOODS, INC., a Rhode Island corporation (the "Company"), and TRIUMPH-CONNECTICUT LIMITED PARTNERSHIP, a Connecticut limited partnership (the "Purchaser," and together with any permitted successor holders of the Warrant or any Registrable Shares, the "Holders"). WHEREAS, the Holders own or have the right to acquire shares of Common Stock of the Company; and WHEREAS, the Company and the Holders deem it to be in their respective best interests to set forth the rights of the Holders in connection with public offerings and sales of Common Stock. NOW, THEREFORE, in consideration of the premises and mutual covenants and obligations hereinafter set forth, the Company and the Holders hereby agree as follows: Section 1. Definitions. As used in this Agreement, the following terms ----------- shall have the following meanings: "Business Day" shall mean any day other than a Saturday, Sunday and any ------------ other day which is a legal holiday in the State of Connecticut or a day on which banking institutions located therein are required or authorized by law to close. "Commission" shall mean the Securities and Exchange Commission or any other ---------- Federal agency then administering the Securities Act. "Common Stock" shall mean the Company's voting common stock, no par value ------------ per share. "Company" shall have the meaning given to that term in the preamble to this ------- Agreement. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, ------------ or any similar Federal statute, and the rules and regulations promulgated by the Commission thereunder, all as the same shall be in effect at the time. "Holders" shall have the meaning given to that term in the preamble to this ------- Agreement. "Information" shall have the meaning given to that term in Section 5(i). ----------- "Inspectors" shall have the meaning given to that term in Section 5(i). ---------- "Note Purchase Agreement" shall mean that certain Note and Warrant Purchase ----------------------- Agreement, dated as of the Original Issue Date, by and between the Company and the Purchaser. "Original Issue Date" shall mean November 17, 1993. ------------------- "Other Shares" shall mean at any time those shares of Common Stock which do ------------ not constitute Primary Shares or Registrable Shares. "Person" shall mean any corporation, association, partnership, joint ------ venture, limited liability company, organization, business, individual, government or any agency or political subdivision thereof or any other entity. "Primary Shares" shall mean at any time the authorized but unissued shares -------------- of Common Stock or shares of Common Stock held by the Company in its treasury. "Public Offering Date" shall mean the date of effectiveness under the -------------------- Securities Act of a Registration Statement relating to an underwritten initial public offering of the Common Stock. "Purchaser" shall have the meaning given to that term in the preamble to --------- this Agreement. "Records" shall have the meaning given to that term in Section 5(i). ------- "Registrable Shares" shall mean, at any time, the shares of Common Stock at ------------------ such time held by the Holders which constitute Restricted Shares. "Registration Statement" shall mean a registration statement filed by the ---------------------- Company with the Commission for a public offering and sale of securities of the Company (other than a registration statement on Form S-8 or Form S-4, or their successor forms, or any registration statement covering only securities proposed to be issued in exchange for securities or assets of another entity). "Restricted Shares" shall mean, at any time, the shares of Common Stock or ----------------- any other securities which by their terms are exercisable or exchangeable for or convertible into Common Stock, and any securities received in respect thereof, which are at such time held by the Holders and which theretofore have not been sold to the public pursuant to a Registration Statement under the Securities Act or Rule 144. -2- "Rule 144" shall mean Rule 144 promulgated under the Securities Act or any -------- successor rule thereto or any complementary rule thereto (including without limitation Rule 144A). "Securities Act" shall mean the Securities Act of 1933, as amended, or any -------------- similar Federal statute, and the rules and regulations promulgated by the Commission thereunder, all as the same shall be in effect at the time. "Transfer" shall include without limitation any disposition of any -------- Restricted Shares or of any interest therein which would constitute a sale thereof within the meaning of the Securities Act other than any such disposition which is made pursuant to an effective Registration Statement under the Securities Act and complies with all applicable state securities and "blue sky" laws. All terms used in this Agreement which are not defined in this Section 1 shall have the meanings respectively set forth elsewhere in this Agreement or in the Note Purchase Agreement. Section 2. Required Registration. If, on any date 180 days or more --------------------- following the Public Offering Date any Holder shall request that the Company effect registration under the Securities Act of the Registrable Shares held by such Holder, then, so long as the Persons making such request hold at least a majority of the Restricted Shares, the Company shall promptly give written notice of such proposed registration to all holders of outstanding Restricted Shares and shall offer to include in such proposed registration any Registrable Shares requested to be included in such proposed registration by the holders of Restricted Shares who shall respond in writing to the Company's notice within 30 days after delivery of such notice. The Company shall promptly use its best efforts to effect such registration under the Securities Act of the Registrable Shares which the Company has been so requested to register; provided, however, -------- ------- that the Company shall not be obligated to effect any registration under the Securities Act except in accordance with the following provisions: (a) the Company shall not be obligated to use its best efforts to file and cause to become effective (i) more than two Registration Statements initiated at the request of the Holders (or permitted assignees or transferees thereof) pursuant to this Section 2; or (ii) any Registration Statement during any period in which any other Registration Statement pursuant to which Primary Shares are to be or were sold has been filed and not withdrawn or has been declared effective within the prior 180 days; (b) the Company may delay the filing or effectiveness of any Registration Statement for a period of up to 90 days after the date of a request for registration pursuant to this Section 2 if at the time of such request (i) the Company is engaged, -3- or has fixed plans to engage, within 60 days of the time of such request, in a firm commitment underwritten public offering of Primary Shares in which the holders of Restricted Shares may include Registrable Shares pursuant to Section 3; or (ii) the Company is currently engaged in a self-tender or exchange offer and the filing of a Registration Statement would cause a violation of the Exchange Act; and (c) with respect to any registration pursuant to this Section 2, the Company may include in such registration any Primary Shares or Other Shares; provided, however, that if the managing underwriter advises the Company that the - -------- ------- inclusion of all Registrable Shares, Primary Shares and Other Shares proposed to be included in such registration would interfere with the successful marketing (including pricing) of the Registrable Shares proposed to be included in such registration, then the number of Registrable Shares, Primary Shares and Other Shares proposed to be included in such registration shall be included in the following order: (i) first, the Registrable Shares, pro rata among the holders of ----- --- ---- Restricted Shares which have requested that their Restricted Shares be included in such registration, based upon the number of Restricted Shares which each such holder of Restricted Shares has requested to be registered; (ii) second, the Primary Shares; and ------ (iii) third, the Other Shares; and ----- (d) the Company shall have the right to select any underwriter employed in connection with any registration pursuant to this Section 2, subject to the prior approval of the Holders, which approval shall not unreasonably be withheld. Section 3. Piggyback Registration. If the Company at any time proposes to ---------------------- register Primary Shares or Other Shares pursuant to a Registration Statement for any reason, including without limitation the proposed distribution of such shares through a firm of underwriters or otherwise, the Company shall promptly give written notice to the Holders of its intention so to register such Primary Shares or Other Shares and, upon the written request, given within 30 days after delivery of any such notice by the Company, of the Holders to include in such registration Registrable Shares (which request shall specify the number of Registrable Shares proposed to be included in such registration), the Company shall use its best efforts to cause all such Registrable Shares to be included in such registration and, if applicable, underwriting, on the same terms and conditions as the securities otherwise being registered in such registration, including without limitation the sale thereof; provided, however that the -------- Purchaser shall only be permitted to exercise its rights pursuant to this Section 3 under any four Registration Statements that become effective after the Original Issue Date with respect to Primary Shares and/or Other Shares; provided -------- that any -4- Registration Statement which includes less than all Registrable Shares covered by the Holders' request pursuant to this Section 3 shall not be counted as one of the four Registration Statements under the immediately preceding proviso; and provided further that if the managing underwriter of a proposed underwriting - -------- advises the Company that the inclusion of all Registrable Shares, Primary Shares and Other Shares proposed to be included in such registration would interfere with the successful marketing (including pricing) of Primary Shares proposed to be registered by the Company, then the number of Primary Shares, Registrable Shares and Other Shares proposed to be included in such registration shall be included in the following order: (a) first, the Primary Shares; ----- (b) second, the Registrable Shares, pro rata among the holders of ------ --- ---- Restricted Shares that have requested that their Restricted Shares be included in such registration based upon the number of Restricted Shares that each such holder of Restricted Shares has requested to be registered; and (c) third, the Other Shares; ----- provided further, however, that in any such registration the number of - -------- Registrable Shares included in such registration shall not be reduced by operation of the foregoing allocation principle to less than 25% of the total number of shares included in such registration. The Company shall have the right to select any underwriter employed in connection with a registration that is subject to this Section 3. Section 4. Holdback Agreement. If the Company at any time shall register ------------------ shares of Common Stock under the Securities Act (including any registration pursuant to Section 2 or 3) for sale to the public, the Holders shall not sell publicly, make any short sale of, grant any option for the purchase of, or otherwise dispose publicly of, any Restricted Shares (other than those shares of Common Stock included in such registration pursuant to Section 2 or 3) without the prior written consent of the Company for a period requested by the Company's underwriters and designated by the Company in writing to the Holders, which period shall not begin more than ten (10) days prior to the effectiveness of the Registration Statement pursuant to which such public offering shall be made and shall not end any later than the soonest to expire of any similar restrictions placed on any of the Company's officers, directors and/or Affiliates in connection with such public offering of Common Stock. Section 5. Preparation and Filing. If and whenever the Company is under ---------------------- an obligation pursuant to the provisions of this Agreement to use its best efforts to effect the registration of any Registrable Shares, the Company shall, as expeditiously as practicable: -5- (a) use its best efforts to cause a Registration Statement that registers such Registrable Shares to become and remain effective for a period of 270 days or until all of such Registrable Shares have been disposed of (whichever is earlier); and (b) furnish to the Holders holding such Registrable Shares, a reasonable time before filing a Registration Statement that registers such Registrable Shares, any prospectus relating to such Registrable Shares and any amendments or supplements relating to such a Registration Statement and/or prospectus and copies of all such documents proposed to be filed; and (c) prepare and file with the Commission such amendments and supplements to such Registration Statement and the prospectus used in connection therewith as may be necessary to keep such Registration Statement effective for at least a period of 90 days or until all of such Registrable Shares have been disposed of (whichever is earlier) and to comply with the provisions of the Securities Act with respect to the sale or other disposition of such Registrable Shares; and (d) promptly notifying the Holders in writing (i) of the receipt by the Company of any notification with respect to any comments by the Commission with respect to such Registration Statement or prospectus or any amendment or supplement thereto or any request by the Commission for the amending or supplementing thereof or for additional information with respect thereto, (ii) of the receipt by the Company of any notification with respect to the issuance by the Commission of any stop order suspending the effectiveness of such Registration Statement or prospectus or any amendment or supplement thereto or the initiation or threatening of any proceeding for that purpose and (iii) of the receipt by the Company of any notification with respect to the suspension of the qualification of such Registrable Shares for sale in any jurisdiction or the initiation or threatening of any proceeding for such purposes; and (e) use its best efforts to register or qualify such Registrable Shares under such other securities or blue sky laws of such jurisdictions as the Holders holding such Registrable Shares reasonably request and do any and all other acts and things which may be reasonably necessary or advisable to enable such Holders to consummate the disposition in such jurisdictions of the Registrable Shares owned by them; provided, however, that the Company shall not -------- ------- be required to qualify generally to do business, or consent to general service of process, in any jurisdiction where it would not otherwise be required to do so but for this Section 5(e); and (f) furnish to the Holders holding such Registrable Shares such number of copies of a summary prospectus or other prospectus, including without limitation a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as such Holders reasonably may request in order to facilitate the public sale or other disposition of such Registrable Shares; and -6- (g) use its best efforts to cause such Registrable Shares to be registered with or approved by such other governmental agencies or authorities as may be necessary by virtue of the business and operations of the Company to enable the Holders holding such Registrable Shares to consummate the disposition of such Registrable Shares in the United States; and (h) notify the Holders holding such Registrable Shares on a timely basis at any time when a prospectus relating to such Registrable Shares is required to be delivered under the Securities Act within the appropriate period mentioned in Section 5(a), of the happening of any event as a result of which the prospectus included in such Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements contained therein not misleading in light of the circumstances then existing and, at the request of such Holders, prepare and furnish to such Holders a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the offerees of such shares, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; and (i) make available for inspection by the Holders holding such Registrable Shares, any underwriter participating in any disposition pursuant to such Registration Statement and any attorney, accountant or other agent retained by such Holders or underwriter (collectively, the "Inspectors"), all financial and other records, corporate documents and properties of the Company (collectively, the "Records"), as shall be necessary to enable them to exercise their due diligence responsibility, and cause the Company's officers, directors and employees to supply all information (together with the Records, the "Information") requested by any such Inspector in connection with such Registration Statement; and (j) use its best efforts to obtain from its independent certified public accountants "cold comfort" letters in customary form and at customary times and covering matters of the type customarily covered by cold comfort letters if such cold comfort letters are reasonably obtainable; and (k) use its best efforts to obtain from its counsel an opinion or opinions in customary form; and (l) provide a transfer agent and registrar (which may be the same entity and which may be the Company) for such Registrable Shares; and (m) list such Registrable Shares on any national securities exchange on which any shares of the Common Stock are listed or, if the Common Stock is not -7- listed on a national securities exchange, use its best efforts to qualify such Registrable Shares for inclusion on the automated quotation system of the National Association of Securities Dealers, Inc. (the "NASD"), or such other national securities exchange as the holders of a majority of such Registrable Shares shall request (which exchange shall be approved by the Company); and (n) otherwise use its best efforts to comply with all applicable rules and regulations of the Commission and make available to its security holders, as soon as reasonably practicable, earnings statements (which need not be audited) covering a period of 12 months beginning within three (3) months after the effective date of the Registration Statement, which earnings statements shall satisfy the provisions of Section 11(a) of the Securities Act; and (o) use its best efforts to take all other steps necessary to effect the registration of such Registrable Shares contemplated hereby. Section 6. Expenses. All expenses incurred by the Company in complying -------- with Section 5, including without limitation all registration and filing fees (including without limitation all expenses incident to filing with the NASD), fees and expenses of complying with securities and blue sky laws, printing expenses, fees and expenses of the Company's counsel and accountants and reasonable fees and expenses of a single firm of attorneys representing all of the Holders, shall be paid by the Company; provided, however, that the -------- ------- underwriting discounts and selling commissions applicable to the Registrable Shares sold pursuant to any Registration Statement shall not be borne by the Company but shall be borne by the Holders selling such Registrable Shares, in proportion to the number of Registrable Shares sold by each such Holder pursuant to such Registration Statement; and provided further that if the Holders -------- withdraw a request made pursuant to Section 2 the Holders shall elect either (a) to count such withdrawn request as one of the Registration Statements initiated at the request of the Holders pursuant to Section 2, or (b) to reimburse the Company for all expenses that otherwise would be payable by the Company under this Section 6 with respect to the Registration Statement covered by such withdrawn request. Section 7. Indemnification. In connection with any registration of any --------------- Registrable Shares under the Securities Act pursuant to this Agreement, the Company shall indemnify and hold harmless the holders of Registrable Shares, each underwriter, broker or any other Person acting on behalf of the holders of Registrable Shares and each other Person, if any, who controls any of the foregoing Persons within the meaning of the Securities Act against any losses, claims, damages or liabilities, joint or several (or actions in respect thereof), to which any of the foregoing Persons may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact -8- contained in the Registration Statement under which such Registrable Shares were registered under the Securities Act, any preliminary prospectus or final prospectus contained therein or otherwise filed with the Commission, any amendment or supplement thereto or any document incident to registration or qualification of any Registrable Shares, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements contained therein not misleading or, with respect to any prospectus, necessary to make the statements contained therein in light of the circumstances under which they were made not misleading, or any violation by the Company of the Securities Act or state securities or blue sky laws applicable to the Company and relating to action or inaction required of the Company in connection with such registration or qualification under such state securities or blue sky laws; and shall reimburse the holders of Registrable Shares, such underwriter, such broker or such other Person acting on behalf of the holders of Registrable Shares and each such controlling Person for any legal or other expenses reasonably incurred by any of them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company shall not be liable in -------- ------- any such case (i) to the extent that any such loss, claim, damage, liability or action arises out of or is based upon an untrue statement or omission made in said Registration Statement, preliminary prospectus, final prospectus, amendment, supplement or document incident to registration or qualification of any Registrable Shares in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by the holders of Registrable Shares or any underwriter specifically for use in the preparation thereof or (ii) if such untrue statement or omission was corrected in an amendment or supplement to the Registration Statement and such amendment or supplement was delivered to such seller, underwriter or controlling Person prior to such Person's use of the prospectus relating to such Registration Statement. In connection with any registration of Registrable Shares under the Securities Act pursuant to this Agreement, each holder of Registrable Shares shall severally and not jointly indemnify and hold harmless (in the same manner and to the same extent as set forth in the preceding paragraph of this Section 7) the Company, each director of the Company, each officer of the Company who shall sign such Registration Statement, each underwriter, broker or other Person acting on behalf of such holder of Registrable Shares and each Person who controls any of the foregoing Persons within the meaning of the Securities Act with respect to any statement or omission from such Registration Statement, any preliminary prospectus or final prospectus contained therein or otherwise filed with the Commission, any amendment or supplement thereto or any document incident to registration or qualification of any Registrable Shares, if such statement or omission was made in reliance upon and in conformity with written information furnished to the Company or such underwriter through an instrument duly executed by such holder of Registrable Shares specifically for use in connection with the preparation of such Registration Statement, -9- preliminary prospectus, final prospectus, amendment, supplement or document; provided, however, that the maximum amount of liability in respect of such - -------- ------- indemnification shall be limited, in the case of each seller of Registrable Shares, to an amount equal to the net proceeds actually received by such seller from the sale of Registrable Shares effected pursuant to such registration. Promptly after receipt by an indemnified party of notice of the commencement of any action involving a claim referred to in the preceding paragraphs of this Section 7, such indemnified party shall, if a claim in respect thereof is made against an indemnifying party, give written notice to the latter of the commencement of such action. In case any such action is brought against an indemnified party, the indemnifying party shall be entitled to participate in and to assume the defense of such action, jointly with any other indemnifying party similarly notified to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be responsible for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof; provided, however, that if any indemnified -------- ------- party shall have reasonably concluded upon written advice of counsel that there may be one or more legal or equitable defenses available to such indemnified party in addition to or which conflict with those available to the indemnifying party, or that such claim or litigation involves or could have an effect upon matters beyond the scope of the indemnity agreement provided in this Section 7, the indemnifying party shall not have the right to assume the defense of such action on behalf of such indemnified party, and such indemnifying party shall reimburse such indemnified party and any Person controlling such indemnified party for that portion of the fees and expenses of any counsel retained by the indemnified party which is reasonably related to the matters covered by the indemnity agreement provided in this Section 7. No indemnified party shall consent to entry of any judgment or settle any claim or litigation without the prior written consent of the indemnifying party, which consent shall not be unreasonably withheld. If the indemnification provided for in this Section 7 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, claim, damage, liability or action referred to herein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amounts paid or payable by such indemnified party as a result of such loss, claim, damage, liability or action in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions which resulted in such loss, claim, damage, liability or action as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the indemnifying party or by -10- the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. Section 8. Underwriting Agreement. Notwithstanding the provisions of ---------------------- Sections 4, 5, 6 and 7, to the extent that the Holders shall enter into an underwriting or similar agreement, which agreement contains provisions covering one or more issues addressed in such Sections, the provisions contained in such agreement covering such issues or issues shall control. Section 9. Information Furnished by Holders. The Holders shall furnish to -------------------------------- the Company such written information regarding the Holders and the distribution proposed by the Holders as the Company may reasonably request in writing and as shall be reasonably required in connection with any registration referred to in this Agreement. Section 10. Exchange Act Compliance. From the Public Offering Date or ----------------------- such earlier date as a Registration Statement filed by the Company pursuant to the Exchange Act relating to any class of the Company's securities shall have become effective, the Company shall comply with all of the reporting requirements of the Exchange Act (whether or not it shall be required to do so) and shall comply with all other public information reporting requirements of the Commission which are conditions to the availability of Rule 144 for the sale of the Common Stock. The Company shall cooperate with the Holders in supplying such information as may be necessary for the Holders to complete and file any information reporting forms presently or hereafter required by the Commission as a condition to the availability of Rule 144. Section 11. No Conflict of Rights. The Company represents and warrants to --------------------- the Holders that the registration rights granted to the Holders hereby do not conflict with any other registration rights granted by the Company. The Company shall not, after the date hereof, grant any registration rights which conflict with or impair the registration rights granted hereby; and, in any event, (a) any registration rights granted by the Company after the date hereof to any Person other than the Holders (or any of the Holders' respective permitted assignees or transferees), which are in any way more favorable than the rights granted hereunder to the Holders shall also be granted to the Holders (or any of the Holders' respective permitted assignees or transferees) and (b) the Company may not grant "demand" registration rights to Persons other than the Holders. Section 12. Termination. This Agreement shall terminate and be of no ----------- further force or effect on the earlier to occur of the seventh anniversary of the Original Issue Date or the first date on which there shall not be any Restricted Shares. -11- Section 13. Notices. -------- (a) All notices and other communications hereunder shall be in writing and shall be mailed by certified mail, return receipt requested, postage prepaid, or delivered by reliable overnight delivery service (receipt confirmed) or facsimile transmission (receipt confirmed), addressed (i) if to the Purchaser, whether in its capacity as the Purchaser or as a Holder, to it at CityPlace I, 35th Floor, Hartford, Connecticut 06103-3499, attention: Richard J. Williams, or at such other address as the Purchaser shall have furnished to the Company in writing, or (ii) except as set forth in Section 13(b), if to any other Holder, to it at such address as such Holder shall have furnished to the Company in writing, or, until such Holder so furnishes an address to the Company, then to and at the address of the last Holder who has so furnished an address to the Company, or (iii) if to the Company, to it at 260 Lake Road, P.O. Box 999, Dayville, Connecticut 06241, attention Steven Townsend or at such other address as the Company shall have furnished in writing to the Holders. (b) Anything contained in this Agreement to the contrary notwithstanding, if at any time there shall be more than four (4) Holders in addition to the Purchaser, then the Purchaser shall be the agent for such other Holders solely for purposes of receiving such notices and other communications, or if the Purchaser no longer is a Holder then such other Holders shall elect an agent for such purposes, and all such notices and other communications shall be deemed to have been made in accordance with this Agreement if mailed by certified mail, return receipt requested, postage prepaid, or delivered by reliable overnight delivery service (receipt confirmed) or facsimile transmission (receipt confirmed), to such agent. (c) All such notices and other communications shall be deemed to have been delivered (i) in the case of personal delivery or delivery by telecopy, on the date of such delivery, (ii) in the case of dispatch by nationally recognized overnight courier marked for next day delivery, on the next Business Day following such dispatch and (iii) in the case of mailing, on the third Business Day after the posting thereof. Section 14. Successors and Assigns; Survival of Agreements. This ---------------------------------------------- Agreement shall inure to the benefit of and be binding upon the Company and the Holders and, subject to Section 15, the respective successors and permitted assigns of the Company and the Holders and the respective transferees of the Holders, as contemplated by Section 15. All agreements, representations and warranties made herein shall survive the execution and delivery of this Agreement and the issue of the Notes, the Warrants and the Warrant Stock. Section 15. Assignment. Each Holder may assign its rights hereunder to ---------- any purchaser or transferee of Restricted Shares; provided, however, (a) there -------- ------- shall be no assignment of rights hereunder to a purchaser of Restricted Shares which constitute -12- less than one (1) percent of the shares of the then outstanding capital stock of the Company on a Fully Diluted Basis and (b) that such purchaser or transferee shall, as a condition to the effectiveness of such assignment, be required to execute (i) a counterpart to this Agreement agreeing to be treated as a Holder whereupon such purchaser or transferee shall have the benefits of, and shall be subject to the restrictions contained in, this Agreement and (ii) a confidentiality agreement relating to the non-disclosure of information that the Company determines in good faith to be confidential. Section 16. Counterparts; Section Headings, Etc. This Agreement may be ----------------------------------- executed in any number of counterparts, and each such counterpart hereof when so executed and delivered shall be an original instrument, but all such counterparts shall together constitute one and the same instrument. The section headings of this Agreement are inserted for convenience of reference only and shall not be construed as part of this Agreement. Unless specifically stated otherwise, all references in this Agreement to Sections, clauses, Exhibits and Schedules refer to the Sections and clauses of and Exhibits and Schedules to this Agreement. Section 17. Entire Agreement. This Agreement and the Note Purchase ---------------- Agreement and the documents expressly contemplated hereby and thereby collectively constitute the entire agreement and understanding between the parties hereto relating to the transactions contemplated hereby and supersede and take the place of all prior and contemporaneous agreements and understandings, written or oral, of the parties hereto relating to the transactions contemplated hereby. Section 18. Governing Law; Jurisdiction. This Agreement and the Notes and --------------------------- Warrants (except to the extent, if any, expressly provided to the contrary in any Note or Warrant) shall be governed by and construed, applied and enforced in accordance with the laws of the State of Connecticut, including without limitation the Uniform Commercial Code, except that no doctrine of choice of law shall be used to apply any law other than that of the State of Connecticut, and no defense, counterclaim or right of set-off given or allowed by the laws of any other state or jurisdiction, or arising out of the enactment, modification or repeal of any law, regulation, ordinance or decree of any foreign jurisdiction, shall be interposed in any action hereon. The Company agrees that any action or proceeding to enforce or arising out of this Agreement may be commenced in the Superior Court for the judicial district of Hartford at Hartford, Connecticut or in the United States District Court for the District of Connecticut, and the Company consents to such jurisdiction, agrees that venue will be proper in such courts in any such matter, agrees that Connecticut is the most convenient forum for litigation in any such suit, action or legal proceeding, and waives personal service of process and agrees that a summons and complaint commencing an action or proceeding in any such court shall be properly served and shall confer personal jurisdiction if served by registered or certified mail to the Company, or as otherwise provided by the laws of the State of Connecticut or the -13- United States. The Company 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 judgement or in any other manner provided by law. Section 19. Severability. The invalidity or unenforceability of any one ------------ or more phrases, sentences, clauses, or Sections contained herein in any jurisdiction shall not affect the validity or enforceability of this Agreement or the remaining provisions of this Agreement in any jurisdiction or affect the validity or enforceability of such provisions in any other jurisdiction. Section 20. Modification; Amendments; Waivers; Rights and Remedies ------------------------------------------------------ Cumulative. The terms and provisions of this Agreement may not be modified or - ---------- amended, nor may any provision be waived, discharged or terminated except pursuant to a writing signed by the Company, the Purchaser and the holders of at least 75% of the Restricted Shares at the time outstanding held by the Holders as a group; provided, however, that no amendment, modification or waiver of any -------- ------- term of this Agreement which has a discriminatory effect with respect to the rights of any holder of Restricted Shares shall be made unless such holder executes, or consents in writing to, such amendment, modification or waiver. No failure or delay by any Holder of Restricted Shares in exercising any right, power or privilege under this Agreement shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies provided in this Agreement, the Note Purchase Agreement and any one or more of the Notes shall be cumulative and not exclusive of any rights or remedies provided by law. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement in Hartford, Connecticut as of the date first above written. CORNUCOPIA NATURAL FOODS, INC. By: /s/ Norman A. Cloutier --------------------------- Norman A. Cloutier Its: President Holder: TRIUMPH-CONNECTICUT LIMITED PARTNERSHIP, by its general partner Triumph-Connecticut Capital Advisors, Limited Partnership By: /s/ Richard J. Williams --------------------------- Richard J. Williams Its Principal, duly authorized -14- EX-10.14 16 EMPLOYMENT AGREEMENT W/ MOUNTAIN PEOPLE'S EXHIBIT 10.14 ------------- EMPLOYMENT AGREEMENT -------------------- THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of February 20, 1996 between UNITED NATURAL FOODS, INC., a Delaware corporation (F/K/A Cornucopia Natural Foods, Inc.) (the "Company"), and MOUNTAIN PEOPLE'S WAREHOUSE INCORPORATED, a California corporation ("MPW"), and MICHAEL S. FUNK ("Funk"). RECITALS: A. MPW is a distributor of natural foods and products with operations primarily in the Western United States. The Company, through its Cornucopia Natural Foods division, is a distributor and retailer of natural foods and products with operations primarily in the Eastern United States. The Company also distributes natural foods and products in Colorado through its Rainbow division, which is located in Denver, Colorado ("Rainbow"). B. Funk is the founder and President and was the sole owner of MPW. Pursuant to a Stock Acquisition Agreement and Plan of Merger dated as of December 8, 1995, effective on the date first above written, the Company has acquired by merger all of the issued and outstanding capital stock of MPW in exchange for common stock of the Company. C. The Company and Funk desire that MPW shall be operated independently from the Cornucopia division of the Company and that Funk shall serve as President and a Director of MPW and as Executive Vice President and Vice Chairman of the Company on the terms and conditions provided in this Agreement. NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows: 1. Employment. ---------- (a) MPW hereby employees Funk as President of MPW for the Term (as defined in Section 2 below). (b) The Company, as sole shareholder of MPW, hereby agrees that the number of Directors of MPW shall be fixed at two (2) during the Term and that Funk shall be elected as one (1) of the two (2) Directors of MPW during the Term. (c) The Company hereby employs Funk as Executive Vice President of the Company and appoints Funk as Vice Chairman of the Board of Directors of the Company during the Term. (d) Upon the designation by the Board of Directors of the Company of a Compensation Committee consisting of members of the Board, Funk shall be appointed Chairman of such Committee for a term ending on the third anniversary of his appointment. Funk may decline to serve of such Committee or may resign therefrom at any time without reduction of compensation or benefits to which he is entitled under this Agreement. 2. Term. ---- (a) The term of this Agreement shall commence on the date first above written and shall continue through December 31, 2000, unless earlier terminated as hereinafter provided in this Agreement (the term of employment is referred to as the "Term"). (b) The Term may be extended by Funk until December 31, 2005 by written notice of such extension from Funk to the Company at least ninety (90) days before the expiration of the original term set forth in Section 2(a). 3. Power, Authority and Duties. --------------------------- (a) As President of MPW, Funk shall act as chief executive officer of MPW and shall have the duties, responsibility and authority consistent with such position. Funk shall have the responsibility of managing and directing the business of MPW and its subsidiaries, including such of its operations as may be started, acquired or formed after the date of this Agreement. It is the intention of the Company to cause the operations of Rainbow to be transferred to MPW. (b) The extent reasonably practicable and as permitted under applicable laws and regulations, it is the intention of the Company that MPW be operated as an independent subsidiary or division of the Company and in a manner consistent with the operations of MPW prior to the date hereof. (c) Funk shall regularly meet and confer with the President of the Company and its directors with regard to the operations of MPW, its subsidiaries and divisions. Funk shall provide the Company with yearly, monthly and quarterly budgets for MPW, showing, among other things, its projected working capital requirements for the budget period. The budget shall be subject to the Company's reasonable approval. The Company shall use reasonable efforts, consistent with the best interests of the Company as a whole, to provide MPW with the working capital specified in such budget. (d) The exercise by Funk of his duties and responsibilities shall be subject to such direction, management and review by the Board of Directors of the Company as -2- may be required in order to carry out its fiduciary duties and obligations and those required by applicable laws. 4. Extent of Services. ------------------ Funk shall devote substantially all of his time and effort to the management and direction of the affairs of MPW and the Company and its subsidiaries and shall not engage in any other employment or activity without the prior written consent of the Board of Directors of the Company. Funk shall be free to conduct such reasonable activities as are related to the management of his personal finances without the prior written consent of the Board of Directors of the Company. Funk shall be permitted to continue to act as an officer and director of MP Wine Distribution, Inc., a California corporation ("MP Wine"), provided the same does not interfere with the performance of his -------- duties hereunder and provided MP Wine shall engage only in the distribution and -------- sale of wine and alcoholic beverages. 5. Compensation. ------------ In consideration of the services to be performed by Funk for MPW and the Company as hereinabove provided, MPW shall pay to Funk, as compensation for his employment, base compensation at least equal to that paid to the President of the Company and bonuses and other additional compensation so that Funk's total annual compensation is at least equal to 90% of the total annual compensation paid to the President of the Company. Base compensation shall be paid to Funk at least bi-weekly. In no event shall Funk's annual base compensation be less than One Hundred Thirty Thousand Dollars ($130,000). 6. Additional Benefits. ------------------- In addition to compensation payable to Funk, as provided above, Funk shall be entitled to participate in any and all pension plans, profit sharing plans, stock option plans, retirement programs, life insurance programs, health insurance programs and any other Company or MPW benefit programs which the Company or MPW, from time to time, shall offer generally to its executive officers. In addition, Funk shall receive automobile allowances, vacation and similar benefits available to the Company's executive officers. The Company shall cause MPW, during the Term, to continue to provide Funk with a life insurance policy in the amount and on the basis provided immediately prior to the date hereof. The Company shall cause MPW to reimburse Funk for all necessary disbursements and out-of-pocket expenses incurred by him in connection with the performance of his duties under the terms of this Agreement during the term in accordance with applicable policies of the Company. The Company shall cause MPW also to reimburse Funk for membership in social and civic organizations approved by the Board of Directors of the Company. -3- 7. Termination. ----------- This Agreement may be terminated under Sections 7(a) through 7(d). In the event of such termination, Funk shall be released from all obligations under this Agreement, except obligations under Sections 7 and 8. (a) Early Termination by the Company for Cause: This Agreement may be ------------------------------------------ terminated for cause by the Company upon written notice to Funk, and Funk shall not be entitled to receive compensation or other benefits for any period after termination for Cause. Termination by the Company of Funk's employment for "Cause" shall mean termination upon (i) the willful and continued failure by Funk to substantially perform his duties with MPW (other than any such failure resulting from Funk's incapacity due to physical or mental illness) after a written demand for substantial performance is delivered to Funk by the Board of the Company, which demand specifically identifies the manner in which the Board of the Company believes that Funk has not substantially performed his duties, and Funk's failure to take action to correct the deficiencies identified in such notice within thirty (30) days after receipt thereof, or (ii) Funk shall have been adjudged guilty by a court of competent jurisdiction of any act or acts of dishonesty constituting a felony or (iii) Funk shall have given aid to a competitor of the Company or any of its subsidiaries to the material detriment of the Company. In the event Funk's employment is terminated pursuant to this subsection (a), Funk's base compensation and, to the extent permitted under the various employee benefit plans and programs, the additional compensation and benefits to which Funk may be entitled for the then current year will be prorated as of, and will terminate upon, the date specified in the foregoing written notice to Funk. (b) Early Termination by Funk: This Agreement may be terminated by Funk ------------------------- upon ninety (90) days' prior written notice to the Company and in the event of such termination under this Section 7(b), he shall be entitled to compensation and benefits otherwise provided in this Agreement to the date of termination together with any bonus prorated to the date of termination. (c) Early Termination upon Disability: If Funk becomes disabled during the --------------------------------- Term because of physical or mental disability so that he is unable to perform his duties hereunder, the Company may at its option terminate this Agreement. In the event of termination under this Section 7(c), Funk shall be entitled to the salary as provided in Section 7(a) of this Agreement and to any bonus prorated to the date of termination. (d) Death During Employment. If Funk dies during the Term, this Agreement ----------------------- shall terminate, and the Company shall pay to the estate of Funk base compensation to the date of death, any bonus prorated to the date of death and shall make payments provided for in Section 8(d). In addition, in the event Funk -4- predeceases Norman A. Cloutier within three (3) years of the date hereof and prior to the completion of an initial public offering of the common stock of the Company, the Company shall pay to the widow of Funk a monthly death benefit equal to (i) 2.9 times the then annual base compensation of Funk divided by (ii) twelve (12), such amount to be paid monthly until the earlier of fifteen (15) months from the date of Funk's death or the sale of all of the capital stock of the Company and beneficially or of record by Funk at the date of his death. 8. Non-Competition. --------------- (a) During the Term of this Agreement (as the same may be extended) and for a period of three (3) years after termination of his employment, Funk shall not, directly or indirectly, either as an employee, employer, consultant, agent, principal, partner, stockholder, corporate officer, director, or in any other individual or representative capacity, engage or participate in (i) any wholesale distribution business that is in competition with the wholesale distribution business of the Company or MPW or any of its subsidiaries or affiliates as now conducted or in the future during the term conducted or planned, or (ii) any retail business that is in competition with any retail operations of the Company or its subsidiaries as now conducted or in the future during the term conducted or planned and has a location within fifteen (15) miles from a retail store now owned by the Company or its subsidiaries or planned or acquired during the term, provided, however, that Funk's management -------- ------- and ownership of MP Wine shall not be deemed a breach of this covenant unless MP Wine distributes products east of the Mississippi River or unless MP Wine engages in a business other than the distribution and sale of wine and alcoholic beverages. For purposes hereof, "affiliate" means a company controlling, controlled by or under common control with the Company. (b) During the Term of this Agreement, Funk shall not divert, take away, interfere with or attempt to take away any present or future employee or customer of the Company or MPW or any of its subsidiaries or affiliates. (c) In the event that the provisions of this Section 8 shall ever be deemed to exceed the time or geographic limitations or any other limitations permitted by applicable law, then such provisions shall be deemed reformed to the maximum permitted by applicable law. Funk acknowledges and agrees that the foregoing covenant is an essential element of this Agreement and that, but for the agreement of Funk to comply with the covenant, the Company would not have entered into this Agreement, and that the remedy at law for any breach of the covenant will be inadequate and the Company or MPW, in addition to any other relief available to it, shall be entitled to temporary and permanent injunctive relief without the necessity of proving actual damage. -5- 9. Confidential Information. ------------------------ (a) The parties acknowledge and agree that during the Term of this Agreement and in the course of the discharge of his duties hereunder, Funk shall have access to and become acquainted with information concerning the operation of the Company or MPW, including without limitation, customer lists, patents, inventions, copyrights, methods of doing business, and proprietary information that is owned by the Company or MPW and regularly used in the operation of the Company's or MPW's business and that this information constitutes the Company's or MPW's trade secrets. (b) Funk agrees that he shall not disclose any such trade secrets, directly or indirectly, to any other person or use them in any way, either during the Term of this Agreement or at any other time thereafter, except as is (i) required in the course of his employment with the Company or MPW; (ii) in the public domain; (iii) acquired prior to the discussions concerning the acquisition of MPW by the Company; (iv) required to be disclosed in litigation or to governmental authorities; or (v) acquired from third parties without knowledge of any confidentiality obligation. (c) Funk further agrees that all files, records, documents, equipment, and similar items relating to the Company's or MPW's business, whether prepared by Funk or others, are and shall remain exclusively the property of the Company or MPW and that they shall be removed from the premises of the Company or MPW only as it necessary in the ordinary conduct of business. (d) Funk specifically acknowledges and agrees that the remedy at law for any breach of the foregoing shall be inadequate and that the Company or MPW, in addition to any other relief available to them, shall be entitled to temporary and permanent injunctive relief without the necessity of proving actual damage. 10. Corporate Opportunities. ----------------------- During Funk's employment with the Company or MPW, Funk shall not take any action which might divert from the Company or MPW or any of its subsidiaries or affiliates any opportunity which would be within the scope of any of the present or future businesses of the Company or MPW or any of its subsidiaries or affiliates. 11. General. ------- This Agreement is further governed by the following provisions: (a) Entire Agreement: This Agreement supersedes any and all other ---------------- agreements, either oral or in writing, among the parties hereto with respect to the employment of Funk by the Company or MPW and contains all of the covenants and -6- agreements among the parties with respect to such employment. Any modification, waiver or amendment of this Agreement will be effective only if it is in writing and signed by the party to be charged. (b) Waiver: Any waiver by any party of a breach of any provision of this ------ Agreement shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Agreement. The failure of a party to insist upon strict adherence to any term of this Agreement on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. (c) Choice of Law: This Agreement shall be governed by and construed in ------------- accordance with the laws of the State of Delaware. (d) Binding Effect of Agreement: This Agreement shall inure to the benefit --------------------------- of and be binding upon the Company and MPW, and their respective successors and assigns, including without limitation, any person, partnership, corporation or other business entity which may acquire all or substantially all of the Company's or MPW's assets and business, or with or into which the Company or MPW may be consolidated, merged or otherwise reorganized, and this provision shall apply in the event of any subsequent merger, consolidation, reorganization, or transfer. The provisions of this Agreement shall be binding upon and inure to the benefit of Funk and his heirs and personal representatives. The rights and obligations of Funk under this Agreement shall not be transferrable by assignment or otherwise, such rights shall not be subject to commutation, encumbrance, or the claims of Funk's creditors, and any attempt to do any of the foregoing shall be void. (e) Indemnification: The Company shall indemnify Funk to the extent and in --------------- the manner the Company provides indemnification for its other officers and directors under the Bylaws of the Company and the Delaware Corporation Law. (f) Severability: In the event that any term of condition contained in ------------ this Agreement shall, for any reason, be held by a court of competent jurisdiction to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not effect any other term or condition of this Agreement, but this Agreement shall be construed as if such invalid or illegal or unenforceable term or condition had never been contained herein. (g) Headings: The headings in this Agreement are solely for the -------- convenience of reference and shall be given no effect in the construction or interpretation of this Agreement. -7- (h) Notices: Any notices to be given hereunder by any party to another ------- party may be effected by personal delivery in writing or by mail, registered or certified, postage prepaid with return receipt requested. Mailed notices shall be addressed to the parties at the addresses indicated at the end of this Agreement, but each party may change his or its address by written notice in accordance with this Section. Notices delivered personally shall be deemed communicated as of actual receipt; mailed notices shall be deemed communicated as of five (5) days after mailing. (i) Attorneys' Fees and Costs: If any action at law or in equity, or any ------------------------- arbitration proceeding, is brought to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs and necessary disbursements in addition to any other remedies to which he or it may be entitled. IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective on the date first above written. UNITED NATURAL FOODS, INC. By: /s/ Norman Cloutier ------------------------------ President MOUNTAIN PEOPLE'S WAREHOUSE INCORPORATED By: /s/ Michael S. Funk, President ------------------------------ /s/ Michael S. Funk ---------------------------------- Michael S. Funk -8- EX-10.15 17 NON-COMPETITION AGREEMENT W/ N. CLOUTIER EXHIBIT 10.15 ------------- EXECUTION COPY -------------- NON-COMPETITION AGREEMENT THIS NON-COMPETITION AGREEMENT (this "Agreement"), dated as of the 16th day of November, 1993, is entered into by and between Cornucopia Natural Foods, Inc., a Rhode Island corporation (the "Company") and Norman A. Cloutier (the "Shareholder"). WHEREAS, the Triumph-Connecticut Limited Partnership (the "Purchaser") and the Company have entered into a Note and Warrant Purchase Agreement of even date herewith (the "Note Purchase Agreement"), pursuant to which the Purchaser acquired certain senior promissory notes (the "Notes") and warrants (the "Warrants") to acquire the common stock of the Company; and WHEREAS, prior to, at the time of and after such acquisition by the Purchaser, the Company was, is and will be engaged in the wholesale and retail distribution of foods and related products (the "Business"); and WHEREAS, the Shareholder has intimate knowledge of the Business, which, if exploited by him in contravention to the terms of this Agreement, would seriously, adversely and irreparably affect the Company's ability to satisfy its obligations under the Note Purchase Agreement and the Notes as well as the value of the Warrants; and WHEREAS, the execution of this Agreement is a condition precedent to the consummation of the transactions contemplated by the Note Purchase Agreement; and WHEREAS, the Company and the Shareholder desire to consummate the transactions contemplated by the Note Purchase Agreement and to execute this Agreement. NOW, THEREFORE, the parties hereto, in consideration of the foregoing premises, the mutual covenants and agreements herein set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, agree as follows: 1. Restrictive Covenants. For good and valuable consideration as set --------------------- forth herein, the Shareholder covenants and agrees as follows: (a) During the Restricted Period (as defined below), he shall not, within 25 miles of any location in which the Company or any of its Affiliates (as that term is defined in the Note Purchase Agreement) is doing business (the "Area"), directly own, manage, operate, join, control or participate in the ownership, management, operation or control of, any entity, business, enterprise or operation engaged in a Competing Business (as defined below). (b) During the Restricted Period, he shall not induce or attempt to induce or influence any employee of the Company to terminate his or her employment with the Company, or to engage in any business which is in competition with the Business. (c) Without limiting the foregoing, the Shareholder specifically acknowledges and agrees that the time period and scope of the non-compete covenants provided for in this Agreement have been determined after negotiations at arm's length; that he was represented by counsel of his choice in such negotiations; and that he understands the terms of the covenants contained in this Section 1. (d) For purposes of this Agreement, the term "Restricted Period" means the period commencing on the date of this Agreement and continuing until the earlier to occur of (i) the fifth (5th) anniversary of the date hereof; (ii) the termination of the Shareholder's employment by the Company without Cause (as that term is defined below); or (iii) the first anniversary of (A) the Shareholder's voluntary termination of employment with the Company or (B) the termination of the Shareholder's employment by the Company for Cause. For purposes of this Agreement, the term "Competing Business" means any business involving the retail or wholesale distribution of natural food items. For purposes of this Section 1(d), the term "Cause" shall mean (x) the material violation of any written employment agreement between the Company and the Shareholder, (y) gross and habitual neglect of duty by the Shareholder, and/or (z) dishonesty or fraud by the Shareholder. 2. Equitable Relief. The Shareholder acknowledges that: (a) his ---------------- expertise in the Business is of a special, unique, unusual, extraordinary and intellectual character, which gives said expertise a peculiar value; (b) if he breaches any of the provisions of this Agreement, the Company cannot reasonably or adequately be compensated in damages in an action at law; and (c) a breach by him of any of the provisions of this Agreement will cause the Company and the Purchaser irreparable injury and damage. The Shareholder further acknowledges that he possesses unique skills, knowledge and ability and that competition by him, in violation of this Agreement or any other breach of any provision of this Agreement would be extremely detrimental to the Company and the Purchaser. The Shareholder therefore agrees that the Company shall be entitled, in addition to any other remedies the Company may have under this Agreement or otherwise, to preliminary and permanent injunctive and other equitable relief to prevent a breach or curtail any breach or threatened breach of this Agreement by the Shareholder; provided, however, that no specification in this Agreement of a -------- specific legal or equitable remedy shall be construed as a waiver or prohibition against the pursuit of any other -2- legal or equitable remedies in the event of such a breach. 3. Reformation. If the provisions of this Agreement should ever be deemed ----------- to exceed the temporal or geographic limitations or any other limitations permitted by applicable laws, then such provisions shall be deemed reformed to the maximum time or geographic limitations permitted by applicable law without any change to the consideration to be paid hereunder. The Shareholder specifically acknowledges and agrees that the foregoing restrictions are reasonable and necessary to protect the legitimate interests of the Company and the Purchaser, and that the Purchaser would not have entered into the Note Purchase Agreement in the absence of such restrictions. 4. Consideration. The Shareholder, by virtue of his status as a ------------- shareholder of the Company, has benefitted directly from the transactions contemplated by the Note Purchase Agreement, and the execution and delivery of this Agreement is a condition precedent to the Purchaser's execution and delivery of the Note Purchase Agreement. 5. Representations. The Shareholder hereby represents and warrants that --------------- this Agreement constitutes his valid and binding obligation enforceable in accordance with its terms and that the execution, delivery and performance of this Agreement does not violate any agreement, arrangement or restriction of any kind to which he is a party or by which he is bound. 6. Assignment. The Shareholder may not assign any of his rights or ---------- obligations hereunder without the prior written consent of the Company. 7. Binding Effect; Benefits. This Agreement shall inure to the benefit of ------------------------ and be binding upon the parties hereto and their respective heirs, executors, successors, legal representatives and permitted assigns; nothing in this Agreement, express or implied, is intended to confer on any person other than the parties hereto, or their respective heirs, executors, successors, legal representatives and permitted assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement. 8. Severability. If any term or provision of this Agreement shall be held ------------ to be invalid or unenforceable for any reason, such term or provision shall be ineffective to the extent of such invalidity or unenforceability without invalidating the remaining terms and provisions hereof, and this Agreement shall be construed as if such invalid or unenforceable term or provisions had not been contained herein. 9. Conditional Effectiveness. All of the liabilities and obligations of ------------------------- the parties under this Agreement are subject to and conditioned upon the consummation of the closing under the Note Purchase Agreement. -3- 10. Amendment and Waiver. This Agreement may not be changed or terminated -------------------- orally. No waiver of compliance with any provision or condition hereof, and no consent provided for herein shall be effective unless evidenced by a written instrument duly executed by the party hereto sought to be charged with such waiver or consent. 11. Miscellaneous. The Section headings of this Agreement are for ------------- convenience of reference only, are not a part hereof and do not in any way modify, interpret or construe the intentions of the parties. This Agreement may be executed in one or more counterparts, and all such counterparts shall constitute one and the same instrument. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Connecticut without giving effect to the conflict of laws principles thereof. IN WITNESS WHEREOF, the Shareholder and the Company, acting herein by its proper corporate officer duly authorized, have caused this Agreement to be signed as of the day and year first above written. SHAREHOLDER /s/ Norman A. Cloutier ---------------------- Norman A. Cloutier CORNUCOPIA NATURAL FOODS, INC. By: /s/ Steven Townsend ------------------- Name: Steven Townsend Its: Vice President -4- EX-10.16 18 AMENDED & RESTATED LOAN & SECURITY AGREE. Exhibit 10.16 ------------- ______________________________ UNITED NATURAL FOODS, INC. MOUNTAIN PEOPLE'S WAREHOUSE INCORPORATED NATURAL RETAIL GROUP, INC. RAINBOW NATURAL FOODS, INC. NUTRASOURCE, INC. ______________________________ ______________________________ ______________________________ AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT Dated: February 20, 1996 $50,000,000.00 ______________________________ ______________________________ ______________________________ FLEET CAPITAL CORPORATION ______________________________ TABLE OF CONTENTS
Page ---- SECTION 1. CREDIT FACILITY.................................................................... 2 1.1. Revolving Credit Loans............................................................. 2 ---------------------- 1.1.1. Loans and Reserves........................................................ 2 ------------------ 1.1.2. Use of Proceeds........................................................... 2 --------------- 1.2. Term Loans......................................................................... 2 ---------- 1.2.1. Consolidated Term Loan.................................................... 2 ---------------------- 1.2.2. Real Estate Term Loan..................................................... 3 --------------------- 1.3. Letters of Credit; LC Guaranties................................................... 3 -------------------------------- SECTION 2. INTEREST, FEES AND CHARGES......................................................... 3 2.1. Interest........................................................................... 3 -------- 2.1.1. Rates of Interest......................................................... 3 ----------------- 2.1.2. Default Rate of Interest.................................................. 4 ------------------------ 2.1.3. Maximum Interest.......................................................... 4 ---------------- 2.2. Computation of Interest and Fees................................................... 4 -------------------------------- 2.3. Amendment Fee...................................................................... 4 ------------- 2.4. Letter of Credit and LC Guaranty Fees.............................................. 4 ------------------------------------- 2.6. Collection Charges................................................................. 5 ------------------ 2.7. Annual Facility Fee................................................................ 5 ------------------- 2.8. Reimbursement of Expenses.......................................................... 5 ------------------------- 2.9. Bank Charges....................................................................... 6 ------------ SECTION 3. LOAN ADMINISTRATION................................................................ 6 3.1. Manner of Borrowing Revolving Credit Loans......................................... 6 ------------------------------------------ 3.1.1. Loan Requests............................................................. 6 ------------- 3.1.2. Disbursement.............................................................. 7 ------------ 3.1.3. Authorization............................................................. 7 -------------
-ii- 3.2. Payments........................................................................... 7 -------- 3.2.1. Principal................................................................. 7 --------- 3.2.2. Interest.................................................................. 8 -------- 3.2.3. Costs, Fees and Charges................................................... 8 ----------------------- 3.2.4. Other Obligations......................................................... 8 ----------------- 3.2.5. Mandatory Prepayments..................................................... 8 --------------------- 3.3. Designation of Agent by Borrowers.................................................. 8 --------------------------------- 3.4. Application of Payments and Collections............................................ 8 --------------------------------------- 3.5. All Loans to Constitute One Obligation............................................. 9 -------------------------------------- 3.6. Loan Account....................................................................... 9 ------------ 3.7. Statements of Account.............................................................. 9 --------------------- 3.8. Funding Losses on Euro-Dollar Loans................................................ 9 ----------------------------------- 3.9. Changes in Law and Euro-Dollar Loans............................................... 10 ------------------------------------ SECTION 4. TERM AND TERMINATION............................................................... 10 4.1. Term of Agreement.................................................................. 10 ----------------- 4.2. Termination........................................................................ 11 ----------- 4.2.1. Termination by Lender..................................................... 11 --------------------- 4.2.2. Termination by Borrower................................................... 11 ----------------------- 4.2.3. Termination Charges....................................................... 11 ------------------- 4.2.4. Effect of Termination..................................................... 11 --------------------- SECTION 5. SECURITY INTERESTS................................................................. 11 5.1. Security Interest in Collateral.................................................... 12 ------------------------------- 5.2. Lien Perfection; Further Assurances................................................ 12 ----------------------------------- SECTION 6. COLLATERAL ADMINISTRATION.......................................................... 12 6.1. General............................................................................ 12 ------- 6.1.1. Location of Collateral.................................................... 12 ---------------------- 6.1.2. Insurance of Collateral................................................... 12 ----------------------- 6.1.3. Protection of Collateral.................................................. 13 ------------------------
-iii- 6.2. Administration of Accounts......................................................... 13 -------------------------- 6.2.1. Records, Schedules and Assignments of Accounts............................ 13 ---------------------------------------------- 6.2.2. Discounts, Allowances, Disputes........................................... 14 ------------------------------- 6.2.3. Taxes..................................................................... 14 ----- 6.2.4. Account Verification...................................................... 14 -------------------- 6.2.5. Maintenance of Cash Management System..................................... 14 ------------------------------------- 6.2.6. Collection of Accounts, Proceeds of Collateral............................ 14 ---------------------------------------------- 6.3. Administration of Inventory........................................................ 15 --------------------------- 6.3.1. Records and Reports of Inventory.......................................... 15 -------------------------------- 6.3.2. Returns of Inventory...................................................... 15 -------------------- 6.4. Administration of Equipment........................................................ 15 --------------------------- 6.4.1. Records and Schedules of Equipment........................................ 15 ---------------------------------- 6.4.2. Dispositions of Equipment................................................. 15 ------------------------- 6.5. Payment of Charges................................................................. 16 ------------------ SECTION 7. REPRESENTATIONS AND WARRANTIES..................................................... 16 7.1. General Representations and Warranties............................................. 16 -------------------------------------- 7.1.1. Organization and Qualification............................................ 16 ------------------------------ 7.1.2. Corporate Power and Authority............................................. 16 ----------------------------- 7.1.3. Legally Enforceable Agreement............................................. 16 ----------------------------- 7.1.4. Capital Structure......................................................... 17 ----------------- 7.1.5. Corporate Names........................................................... 17 --------------- 7.1.6. Business Locations; Agent for Process..................................... 17 ------------------------------------- 7.1.7. Title to Properties; Priority of Liens.................................... 17 -------------------------------------- 7.1.8. Accounts.................................................................. 17 -------- 7.1.9. Equipment................................................................. 18 --------- 7.1.10. Financial Statements; Fiscal Year......................................... 19 --------------------------------- 7.1.11. Full Disclosure........................................................... 19 --------------- 7.1.12. Solvent Financial Condition............................................... 19 --------------------------- 7.1.13. Surety Obligations........................................................ 19 ------------------ 7.1.14. Taxes..................................................................... 20 ----- 7.1.15. Brokers................................................................... 20 ------- 7.1.16. Patents, Trademarks, Copyrights and Licenses.............................. 20 -------------------------------------------- 7.1.17. Governmental Consents..................................................... 20 --------------------- 7.1.18. Compliance with Laws...................................................... 20 -------------------- 7.1.19. Restrictions.............................................................. 20 ------------ 7.1.20. Litigation................................................................ 21 ---------- 7.1.21. No Defaults............................................................... 21 ----------- 7.1.22. Leases.................................................................... 21 ------ 7.1.23. Pension Plans............................................................. 21 -------------
-iv- 7.1.24. Trade Relations........................................................... 21 --------------- 7.1.25. Labor Relations........................................................... 22 --------------- 7.1.26. Merger.................................................................... 22 ------ 7.2. Continuous Nature of Representations and Warranties................................ 22 --------------------------------------------------- 7.3 Survival of Representations and Warranties......................................... 22 ------------------------------------------ SECTION 8. COVENANTS AND CONTINUING AGREEMENTS................................................ 22 8.1. Affirmative Covenants.............................................................. 22 --------------------- 8.1.1. Visits and Inspections.................................................... 22 ---------------------- 8.1.2. Notices................................................................... 23 ------- 8.1.3. Financial Statements...................................................... 23 -------------------- 8.1.4. Landlord and Storage Agreements........................................... 24 ------------------------------- 8.1.5. Guarantor Financial Statements............................................ 24 ------------------------------ 8.1.6. Projections............................................................... 24 ----------- 8.1.7. Taxes and Liens........................................................... 24 --------------- 8.1.8. Tax Returns............................................................... 24 ----------- 8.1.9. Business and Existence.................................................... 25 ---------------------- 8.1.10. Maintain Properties....................................................... 25 ------------------- 8.1.11. Compliance with Laws...................................................... 25 -------------------- 8.1.12. ERISA Compliance.......................................................... 25 ---------------- 8.1.13. Subordinations............................................................ 25 -------------- 8.1.14. Further Assurances........................................................ 25 ------------------ 8.2. Negative Covenants................................................................. 26 ------------------ 8.2.1. Mergers; Consolidations; Acquisitions..................................... 26 ------------------------------------- 8.2.2. Loans..................................................................... 26 ----- 8.2.3. Total Indebtedness........................................................ 26 ------------------ 8.2.4. Affiliate Transactions.................................................... 27 ---------------------- 8.2.5. Limitation on Liens....................................................... 27 ------------------- 8.2.6. Subordinated Debt......................................................... 28 ----------------- 8.2.7. Distributions............................................................. 29 ------------- 8.2.8. Capital Expenditures...................................................... 29 -------------------- 8.2.9. Disposition of Assets..................................................... 29 --------------------- 8.2.10. Stock of Subsidiaries..................................................... 29 --------------------- 8.2.11. Bill-and-Hold Sales, Etc.................................................. 29 ------------------------- 8.2.12. Restricted Investment..................................................... 29 --------------------- 8.2.13. Leases.................................................................... 29 ------ 8.2.14. Tax Consolidation......................................................... 29 ----------------- 8.2.15. Business Locations........................................................ 30 ------------------ 8.2.16. Guaranties................................................................ 30 ---------- 8.2.17. Adverse Transactions...................................................... 30 --------------------
-v- 8.2.18. Subsidiaries.............................................................. 30 ------------ 8.2.19. Change of Business........................................................ 30 ------------------ 8.2.20. Name of Borrowers......................................................... 30 ----------------- 8.2.21. Executive Compensation.................................................... 30 ---------------------- 8.2.22. Use of Lender's Name...................................................... 31 -------------------- 8.2.23. Margin Securities......................................................... 31 ----------------- 8.3. Specific Financial Covenants....................................................... 31 ---------------------------- 8.3.1. Minimum Working Capital................................................... 31 ----------------------- 8.3.2. Minimum Adjusted Tangible Net Worth....................................... 31 ----------------------------------- 8.3.2. Current Ratio............................................................. 31 ------------- 8.3.4. Cash Flow................................................................. 31 --------- SECTION 9. CONDITIONS PRECEDENT............................................................... 32 9.1. Conditions to Closing.............................................................. 32 --------------------- 9.1.1. Documentation............................................................. 32 ------------- 9.1.2. No Default................................................................ 32 ---------- 9.1.3. Other Loan Documents...................................................... 32 -------------------- 9.1.4. Landlord Waivers.......................................................... 32 ---------------- 9.1.5. Consummation of Merger.................................................... 32 ---------------------- 9.1.6. Legal Opinions............................................................ 32 -------------- 9.1.7. No Litigation............................................................. 32 ------------- 9.1.8. Lien Filings.............................................................. 33 ------------ 9.1.9. No Material Adverse Change................................................ 33 -------------------------- 9.1.10. Insurance................................................................. 33 --------- 9.2. Conditions to All Loans............................................................ 33 ----------------------- SECTION 10. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT.................................. 34 10.1. Events of Default.................................................................. 34 ----------------- 10.1.1. Payment of Notes.......................................................... 34 ---------------- 10.1.2. Payment of Other Obligations.............................................. 34 ---------------------------- 10.1.3. Misrepresentations........................................................ 34 ------------------ 10.1.4. Breach of Specific Covenants.............................................. 34 ---------------------------- 10.1.5. Breach of Other Covenants................................................. 34 ------------------------- 10.1.6. Default Under Security Documents/Other Agreements......................... 34 ------------------------------------------------- 10.1.7. Other Defaults............................................................ 34 -------------- 10.1.8. Uninsured Losses.......................................................... 35 ---------------- 10.1.9. Adverse Changes........................................................... 35 --------------- 10.1.10. Insolvency and Related Proceedings........................................ 35 ---------------------------------- 10.1.11. Business Disruption; Condemnation......................................... 35 ---------------------------------
-vi- 10.1.12. Change of Ownership....................................................... 35 ------------------- 10.1.13. ERISA..................................................................... 36 ----- 10.1.14. Challenge to Agreement.................................................... 36 ---------------------- 10.1.15. Repudiation of or Default Under Guaranty Agreement........................ 36 -------------------------------------------------- 10.1.16. Criminal Forfeiture....................................................... 36 ------------------- 10.1.17. Judgments................................................................. 36 --------- 10.2. Acceleration of the Obligations.................................................... 36 ------------------------------- 10.3. Other Remedies..................................................................... 37 -------------- 10.3.1. Rights as a Secured Party................................................. 37 ------------------------- 10.3.2. Right to Possession....................................................... 37 ------------------- 10.3.3. Right of Disposition...................................................... 37 -------------------- 10.3.4. License Granted........................................................... 37 --------------- 10.3.5. Deposit Option............................................................ 38 -------------- 10.4. Remedies Cumulative; No Waiver..................................................... 38 ------------------------------ SECTION 11. MISCELLANEOUS...................................................................... 38 11.1. Power of Attorney.................................................................. 38 ----------------- 11.1.1 Endorsement............................................................... 38 ----------- 11.1.2. Other Rights of Lender.................................................... 39 ---------------------- 11.2. Indemnity.......................................................................... 39 --------- 11.3. Modification of Agreement; Sale of Interest........................................ 39 ------------------------------------------- 11.4. Severability....................................................................... 40 ------------ 11.5. Successors and Assigns............................................................. 40 ---------------------- 11.6. Cumulative Effect; Conflict of Terms............................................... 40 ------------------------------------ 11.7. Execution in Counterparts.......................................................... 40 ------------------------- 11.8. Notice............................................................................. 40 ------ 11.9. Lender's Consent................................................................... 42 ---------------- 11.10. Credit Inquiries................................................................... 42 ---------------- 11.11. Time of Essence.................................................................... 42 ---------------
-vii- 11.12. Entire Agreement................................................................... 42 ---------------- 11.13. Interpretation..................................................................... 42 -------------- 11.14. Joint and Several Liability........................................................ 42 --------------------------- 11.15. Suretyship Waivers and Consents.................................................... 43 ------------------------------- 11.16. Contribution Agreement............................................................. 45 ---------------------- 11.17. Transitional Arrangements.......................................................... 45 ------------------------- 11.17.1. Original Credit Agreement................................................. 45 ------------------------- 11.17.2. Return and Cancellation of Notes.......................................... 46 -------------------------------- 11.17.3. Real Estate Term Loan and Note............................................ 46 ------------------------------ 11.17.4. Fees Under Superseded Agreement........................................... 46 ------------------------------- 11.18. GOVERNING LAW; CONSENT TO FORUM.................................................... 46 ------------------------------- 11.19. WAIVERS BY BORROWERS............................................................... 47 -------------------- 11.20. PREJUDGMENT REMEDIES............................................................... 48 --------------------
-viii- AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT is made this 20th day of February, 1996, by and between FLEET CAPITAL CORPORATION ("Lender"), a Connecticut corporation with an office at 200 Glastonbury Boulevard, Glastonbury, Connecticut 06033 and United Natural Foods, Inc. (f/k/a Cornucopia Natural Foods, Inc.), a Delaware corporation ("UNF") with its chief executive office and principal place of business at 260 Lake Road, Dayville, Connecticut 06241, Mountain People's Warehouse Incorporated, a California corporation ("MPW") with its chief executive office and principal place of business at 12745 Earhart Avenue, Auburn, California 95602, Natural Retail Group, Inc., a Delaware corporation ("NRG") with its chief executive office and principal place of business at 260 Lake Road, Dayville, Connecticut 06241, Rainbow Natural Foods, Inc., a Colorado corporation ("Rainbow") with its chief executive office and principal place of business at 4805 Moline Street, Denver, Colorado 80239, and NutraSource, Inc., a Washington corporation ("NutraSource") with its chief executive office and principal place of business at 4005 Sixth Avenue, Seattle, Washington 98108 (UNF, MPW, NRG, Rainbow and NutraSource are individually referred to as a Borrower and collectively referred to as "Borrowers"). Capitalized terms used herein which are not otherwise defined in the text hereof, shall have the meanings assigned to them in Appendix A, General Definitions. Accounting terms not otherwise specifically defined herein shall be construed in accordance with GAAP consistently applied. BACKGROUND: - ---------- The predecessor to the Lender, Barclays Business Credit, Inc., a Connecticut corporation, and UNF entered into a Loan and Security Agreement, dated January 21, 1993, which Loan and Security Agreement was amended on November 3, 1993, April 5, 1995 and August 9, 1995 (the "Original Agreement"). UNF has entered into a Stock Acquisition Agreement and Plan of Merger dated December 8, 1995 with MPW Acquisition Corporation, a Delaware corporation ("MPW Acquisition"), Michael S. Funk and Judith A. Funk, individually and as trustees of the Funk Family 1992 Revocable Living Trust and MPW pursuant to which MPW Acquisition is to be merged with and into MPW and following which MPW will become a wholly owned subsidiary of UNF. In connection with this transaction, UNF has requested that the Lender agree to (a) accept UNF, MPW, NRG, Rainbow and NutraSource as joint and several co-borrowers; (b) increase the maximum amount of Revolving Credit Loans available to be borrowed by $21,000,000.00; (c) increase the cap on inventory-based borrowings by $13,000,000.00; (d) consolidate the two existing term loans and increase the amount of the term loan by $3,300,000.00; (e) increase the percentage of Eligible Accounts available for -1- accounts receivable based borrowings by five percent (5%); and (f) permit the Borrowers to use the proceeds of the loans to repay indebtedness of MPW and NutraSource. Lender has agreed to the foregoing, subject to the terms and conditions of this Amended and Restated Loan and Security Agreement (the "Agreement"), which amends and restates the Original Agreement in its entirety. SECTION 1. CREDIT FACILITY Subject to the terms and conditions of, and in reliance upon the representations and warranties made in this Agreement and the other Loan Documents, Lender agrees to make a Total Credit Facility of up to $50,000,000.00 available upon Borrowers' request therefor, as follows: 1.1. Revolving Credit Loans. ---------------------- 1.1.1. Loans and Reserves. Lender agrees, for so long as no Default ------------------ or Event of Default exists, to make Revolving Credit Loans to Borrowers from time to time, as requested by Borrowers in the manner set forth in subsection 3.1.1 hereof, up to a maximum principal amount at any time outstanding equal to the Borrowing Base at such time minus the amount of reserves, if any. Lender ----- shall have the right to establish reserves in such amounts, and with respect to such matters, as Lender shall reasonably deem necessary or appropriate, against the amount of Revolving Credit Loans which Borrowers may otherwise request under this subsection 1.1.1, including, without limitation, with respect to (i) price adjustments, damages, unearned discounts, returned products or other matters for which credit memoranda are issued in the ordinary course of Borrowers' business; (ii) shrinkage, spoilage and obsolescence of Inventory; (iii) slow moving Inventory; (iv) other sums chargeable against Borrowers' Loan Account as Revolving Credit Loans under any section of this Agreement; (v) amounts owing by Borrowers to any Person to the extent secured by a Lien on, or trust over, any Property of Borrowers; and (vi) such other matters, events, conditions or contingencies as to which Lender, in its reasonable credit judgment, determines reserves should be established from time to time hereunder. 1.1.2. Use of Proceeds. The Revolving Credit Loans shall be used --------------- solely for the satisfaction of existing Indebtedness of MPW and NutraSource owing to Union Bank and for Borrowers' general operating capital needs in a manner consistent with the provisions of this Agreement and all applicable laws. 1.2. Term Loans. ---------- 1.2.1. Consolidated Term Loan. Lender agrees to make a term loan to ---------------------- Borrowers on the Closing Date in the principal amount of $5,000,000.00, which shall be repayable in accordance with the terms of the Term Note and shall be secured by all of the Collateral. The Term Loan shall be a consolidation of the Amended and -2- Restated Secured Promissory Note dated April 5, 1995 in the original principal amount of $700,000 (the "Amended Term Note") and a certain Promissory Note dated August 9, 1995 in the original principal amount of $1,000,000 (the "Second Term Note") executed in connection with the Original Agreement and the additional proceeds thereof shall be used for purposes for which the proceeds of the Revolving Credit Loans are authorized to be used. 1.2.2. Real Estate Term Loan. The Real Estate Term Loan made pursuant --------------------- to the Real Estate Term Note dated as of August 9, 1995 in the original principal amount of $6,000,000 shall continue in effect subject to the terms of this Agreement. 1.3. Letters of Credit; LC Guaranties. Lender agrees, for so long as no -------------------------------- Default or Event of Default exists and if requested by Borrowers, to (i) issue its, or cause to be issued its Affiliate's, Letters of Credit for the account of Borrowers or (ii) execute LC Guaranties by which Lender or its Affiliate shall guaranty the payment or performance by Borrowers of their reimbursement obligations with respect to Letters of Credit and letters of credit issued for Borrowers' account by other Persons in support of Borrowers' obligations (other than obligations for the repayment of Money Borrowed), provided that the LC -------- Amount at any time shall not exceed $ 1,500,000.00. No Letter of Credit or LC Guaranty may have an expiration date that is after the last day of the Original Term or the then applicable Renewal Term. Any amounts paid by Lender under any LC Guaranty or in connection with any Letter of Credit shall be treated as Revolving Credit Loans, shall be secured by all of the Collateral and shall bear interest and be payable at the same rate and in the same manner as Revolving Credit Loans. SECTION 2. INTEREST, FEES AND CHARGES 2.1. Interest. -------- 2.1.1. Rates of Interest. Interest shall accrue on the Term Loan in ----------------- accordance with the terms of the Term Note and on the Real Estate Term Loan in accordance with the terms of the Real Estate Term Note. Interest shall accrue on the principal amount of the Revolving Credit Loans outstanding from the respective dates that such principal amounts are advanced until paid (whether at stated maturity, on acceleration, or otherwise) at a rate per annum equal to the applicable rate indicated below as selected by Borrowers from time to time pursuant to Section 3.1.1: (i) For each Revolving Credit Loan bearing interest based upon the Base Rate, at a fluctuating rate per annum equal to one quarter of one percent (.25%) plus the Base Rate; and (ii) For each Euro-Dollar Loan, at a rate per annum equal to two and one quarter percent (2.25%) plus the Euro-Dollar Rate for the applicable -3- Euro-Dollar Interest Period selected by Borrowers in conformity with this Agreement. The rate of interest determined by referring to the Base Rate shall increase or decrease by an amount equal to any increase or decrease in the Base Rate, effective as of the opening of business on the day that any such change in the Base Rate occurs. 2.1.2. Default Rate of Interest. Upon and after the occurrence of an ------------------------ Event of Default, and during the continuation thereof, the principal amount of all Loans (except for Euro-Dollar Loans) shall bear interest at a rate per annum equal to two percent (2.00%) above the interest rate otherwise applicable thereto and for Euro-Dollar Loans at four and one quarter percent (4.25%) above the Euro-Dollar Rate otherwise applicable thereto (collectively, the "Default Rate"). 2.1.3. Maximum Interest. In no event whatsoever shall the aggregate ---------------- of all amounts deemed interest hereunder or under the Term Note and charged or collected pursuant to the terms of this Agreement or pursuant to the Term Note or Real Estate Term Note exceed the highest rate permissible under any law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto. If any provisions of this Agreement, the Term Note or Real Estate Term Note are in contravention of any such law, such provisions shall be deemed amended to conform thereto. 2.2. Computation of Interest and Fees. Interest, Letter of Credit and LC -------------------------------- Guaranty fees, unused line fees and other fees and charges hereunder shall be calculated daily and shall be computed on the actual number of days elapsed over a year of 360 days. 2.3. Amendment Fee. Borrowers shall pay to Lender an amendment fee of ------------- $35,000.00, which shall be fully earned and nonrefundable on the Closing Date and shall be paid concurrently with the initial Loan hereunder. 2.4. Letter of Credit and LC Guaranty Fees. Borrower shall pay to Lender: ------------------------------------- (i) for standby Letters of Credit and LC Guaranties of standby Letters of Credit, one and one half percent (1.5%) per annum of the aggregate face amount of such Letters of Credit and LC Guaranties outstanding from time to time during the term of this Agreement, plus all ---- normal and customary charges associated with the issuance thereof, which fees and charges shall be deemed fully earned upon issuance of each such Letter of Credit or LC Guaranty, shall be due and payable on the first Business Day of each month and shall not be subject to rebate or proration upon the termination of this Agreement for any reason; and -4- (ii) for documentary Letters of Credit and LC Guaranties of documentary Letters of Credit, a fee equal to one and one quarter percent (1.25%) per annum of the face amount of each such Letter of Credit or LC Guaranty, payable upon the issuance of such Letter of Credit or execution of such LC Guaranty and an additional fee equal to one and one quarter percent (1.25%) per annum of the face amount of such Letter of Credit or LC Guaranty payable upon each renewal thereof and each extension thereof plus the normal and customary charges associated with the issuance and ---- administration of each such Letter of Credit or LC Guaranty (which fees and charges shall be fully earned upon issuance, renewal or extension (as the case may be) of each such Letter of Credit or LC Guaranty, shall be due and payable on the first Business Day of each month, and shall not be subject to rebate or proration upon the termination of this Agreement for any reason). 2.6. Collection Charges. In lieu of the payment of a collection charge on ------------------ items of payment received by Lender, Borrowers shall pay Lender a collection fee of $5,000 per annum in equal monthly installments on the first Business Day of each month. 2.7. Annual Facility Fee. Borrowers shall pay to Lender an annual facility ------------------- fee (the "Facility Fee") equal to $27,500 per annum. The Facility Fee shall be paid in monthly installments on the first Business Day of each month and shall compensate Lender for, among other things, administrative, general overhead and lost opportunity costs associated with the transactions contemplated by the terms of this Agreement, but not including any expenses for which Borrowers have agreed to reimburse Lender pursuant to the terms of this Agreement or any of the other Loan Documents, such as, by way of example, legal fees and expenses. Borrowers' payment of the Facility Fee shall terminate upon termination of this Agreement pursuant to Section 4.1. 2.8. Reimbursement of Expenses. If, at any time or times regardless of ------------------------- whether or not an Event of Default then exists, Lender or any Participating Lender incurs legal or accounting expenses or any other costs or out-of-pocket expenses in connection with (i) the negotiation and preparation of this Agreement or any of the other Loan Documents, any amendment of or modification of this Agreement or any of the other Loan Documents, or any sale or attempted sale of any interest herein to a Participating Lender; (ii) the administration of this Agreement or any of the other Loan Documents and the transactions contemplated hereby and thereby to the extent not covered by the Facility Fee; (iii) any litigation, contest, dispute, suit, proceeding or action (whether instituted by Lender, any Borrower or any other Person) in any way relating to the Collateral, this Agreement or any of the other Loan Documents or Borrowers' affairs; (iv) any attempt to enforce any rights of Lender or any Participating Lender against any Borrower or any other Person which may be obligated to Lender by virtue of this Agreement or any of the other Loan Documents, including, without limitation, the Account Debtors; or (v) any attempt to inspect or verify, or, after an Event of Default, to protect, preserve, restore, collect, sell, liquidate -5- or otherwise dispose of or realize upon the Collateral; then all such legal and accounting expenses, other costs and out of pocket expenses of Lender shall be charged to Borrowers. Lender will endeavor in good faith to notify Borrowers of such charges prior to charging the Borrower's Loan Account therefore but Lender's failure to so notify Borrowers shall not affect Borrowers' obligation to pay hereunder. All amounts chargeable to Borrowers under this Section 2.8 shall be Obligations secured by all of the Collateral, shall be payable on demand to Lender or to such Participating Lender, as the case may be, and shall bear interest from the date such demand is made until paid in full at the rate applicable to Revolving Credit Loans bearing interest with reference to the Base Rate from time to time. Borrowers shall also reimburse Lender for expenses incurred by Lender in its administration of the Collateral to the extent and in the manner provided in Section 6 hereof. 2.9. Bank Charges. Borrowers shall pay to Lender, on demand, any and all ------------ fees, costs or expenses which Lender or any Participating Lender pays to a bank or other similar institution (including, without limitation, any fees paid by Lender to any Participating Lender) arising out of or in connection with (i) the forwarding to Borrowers or any other Person on behalf of Borrowers, by Lender or any Participating Lender, of proceeds of loans made by Lender to Borrowers pursuant to this Agreement and (ii) the depositing for collection, by Lender or any Participating Lender, of any check or item of payment received or delivered to Lender or any Participating Lender on account of the Obligations. SECTION 3. LOAN ADMINISTRATION. 3.1. Manner of Borrowing Revolving Credit Loans. Borrowings under the credit ------------------------------------------ facility established pursuant to Section 1 hereof shall be as follows: 3.1.1. Loan Requests. A request for a Revolving Credit Loan shall be ------------- made, or shall be deemed to be made, in the following manner: (i) (a) for Revolving Credit Loans bearing interest with reference to the Base Rate, Borrowers may give Lender notice of their intention to borrow, in which notice Borrowers shall specify the amount of the proposed borrowing and the proposed borrowing date, no later than 1:00 p.m. Hartford, Connecticut time on the proposed borrowing date, and (b) with respect to any request for a Euro-Dollar Loan, Borrowers shall give Lender not less than three (3) Business Days prior irrevocable written notice thereof specifying the amount of such Euro-Dollar Loan, which shall not be less than $ 1,000,000.00 or an integral multiple thereof, the date of the requested Euro-Dollar Loan (which shall be a Business Day) and the duration of the Euro-Dollar Interest Period of such Euro-Dollar Loan, provided, however, that in no event shall the number of Euro-Dollar Loans -------- ------- outstanding at any time exceed seven (7), and provided, further, that no such -------- ------- Loan request may be made at a time when there exists a Default or an Event of Default; and (ii) the becoming due of any amount required to be paid under this Agreement, the Term Note or the Real Estate Term Note, whether as interest or -6- for any other Obligation, shall be deemed irrevocably to be a request for a Revolving Credit Loan on the due date in the amount required to pay such interest or other Obligation. As an accommodation to Borrowers, Lender may permit telephonic requests for loans and electronic transmittal of instructions, authorizations, agreements or reports to Lender by Borrowers. Unless Borrowers specifically direct Lender in writing not to accept or act upon telephonic or electronic communications from Borrowers, Lender shall have no liability to Borrowers for any loss or damage suffered by Borrowers as a result of Lender's honoring of any requests, execution of any instructions, authorizations or agreements or reliance on any reports communicated to it telephonically or electronically and purporting to have been sent to Lender by a Borrower, unless it is determined by a final and nonappealable judgment or court order binding on the Lender that such loss or damage was solely the result of the gross negligence or willful misconduct of Lender. Lender shall have no duty to verify the origin of any such communication or the authority of the person sending it. 3.1.2. Disbursement. Each Borrower hereby irrevocably authorizes ------------ Lender to disburse the proceeds of each Revolving Credit Loan requested, or deemed to be requested, pursuant to this subsection 3.1.2 as follows: (i) the proceeds of each Revolving Credit Loan requested under subsection 3.1.1(i) shall be disbursed by Lender in lawful money of the United States of America in immediately available funds, in the case of the initial borrowing, in accordance with the terms of the written disbursement letter from the Agent for the Borrowers, and in the case of each subsequent borrowing, by wire transfer to such bank account as may be agreed upon by Borrower and Lender from time to time or elsewhere if pursuant to a written direction from the Agent for the Borrowers; and (ii) the proceeds of each Revolving Credit Loan requested under subsection 3.1.1(ii) shall be disbursed by Lender by way of direct payment of the relevant interest or other Obligation. 3.1.3. Authorization. Borrowers hereby irrevocably authorize Lender, ------------- in Lender's sole discretion, to advance to Borrowers, and to charge to Borrowers' Loan Account hereunder as a Revolving Credit Loan, a sum sufficient to pay all interest accrued on the Obligations during the immediately preceding month and to pay all costs, fees and expenses at any time owed by Borrowers to Lender hereunder. 3.2. Payments. Except where evidenced by notes or other instruments issued or -------- made by Borrowers or any of them to Lender specifically containing payment provisions which are in conflict with this Section 3.2 (in which event the conflicting provisions of said notes or other instruments shall govern and control), the Obligation shall be payable as follows: 3.2.1. Principal. Principal payable on account of Revolving Credit --------- Loans shall be payable by Borrowers to Lender immediately upon the earliest of (i) the receipt by Lender of any proceeds of any of the Collateral, to the extent of said -7- proceeds or of any payment made by Borrower on the Revolving Credit Loans, (ii) the occurrence of an Event of Default in consequence of which Lender elects to accelerate the maturity and payment of the Obligations, or (iii) termination of this Agreement pursuant to Section 4 hereof; provided, however, that if -------- ------- Borrowers shall request and Lender shall, in its sole and absolute discretion, make an Overadvance or an Overadvance shall for any other reason exist at any time, Borrowers shall, on demand, repay the Overadvance. 3.2.2. Interest. Interest accrued on the Revolving Credit Loans shall -------- be due on the earliest of (i) the first calendar day of each month (for the immediately preceding month), computed through the last calendar day of the preceding month, (ii) the occurrence of an Event of Default in consequence of which Lender elects to accelerate the maturity and payment of the Obligations or (iii) termination of this Agreement pursuant to Section 4 hereof. 3.2.3. Costs, Fees and Charges. Costs, fees and charges payable ----------------------- pursuant to this Agreement shall be payable by Borrowers as and when provided in Section 2 hereof, to Lender or to any other Person designated by Lender in writing. 3.2.4. Other Obligations. The balance of the Obligations requiring ----------------- the payment of money, if any, shall be payable by Borrowers to Lender as and when provided in this Agreement, the Other Agreements or the Security Documents, or on demand, whichever is earlier. 3.2.5. Mandatory Prepayments. Except as Provided in Section 6.4.2., --------------------- if the Borrowers sell any of the Equipment or real estate Collateral or if any of the Collateral is taken by condemnation, Borrowers shall pay to Lender, unless otherwise agreed by Lender, as and when received by the Borrowers as a mandatory prepayment of the Loans, a sum equal to the proceeds received by the Borrowers from such sale or condemnation. 3.3. Designation of Agent by Borrowers. Each of the Borrowers hereby --------------------------------- irrevocably appoints and constitutes UNF to be its Agent under this Loan Agreement, the Loan Documents or otherwise to (i) request all Loans and LC Guaranties and Letters of Credit, to select the interest rates and, for Euro- Dollar Loans, Euro-Dollar Interest Period, pursuant to Section 3.1.1; (ii) receive all notices, reports, statements and any other information or communications from the Lender to the borrowers or any of them; (iii) receive the proceeds of Loans from the Lender and to distribute such proceeds among the Borrowers in accordance with the terms of this Agreement; and (iv) otherwise to take such action as may be required or permitted by the terms of this Agreement by and on behalf of the Borrowers. 3.4. Application of Payments and Collections. All items of payment received --------------------------------------- by Lender by 1:00 p.m., Hartford, Connecticut time, on any Business Day shall be -8- deemed received on that Business Day. All items of payment received after 1:00 p.m., Hartford, Connecticut time, on any Business Day shall be deemed received on the following Business Day. Borrowers irrevocably waive the right to direct the application of any and all payments and collections at any time or times hereafter received by Lender from or on behalf of Borrowers, and Borrowers hereby irrevocably agree that Lender shall have the continuing exclusive right to apply and reapply any and all such payments and collections received at any time or times hereafter by Lender or its agent against the Obligations, in such manner as Lender may deem advisable, notwithstanding any entry by Lender upon any of its books and records. If as the result of collections of Accounts as authorized by subsection 6.2.6 hereof a credit balance exists in the Loan Account, such credit balance shall not accrue interest in favor of Borrowers, but shall be available to Borrowers at any time or times for so long as no Default or Event of Default exists. Such credit balance shall not be applied or be deemed to have been applied as a prepayment of the Term Loan or Real Estate Term Loan, except that Lender may, at its option, offset such credit balance against any of the Obligations upon and after the occurrence of an Event of Default. 3.5. All Loans to Constitute One Obligation. The Loans shall constitute one -------------------------------------- general Obligation of Borrowers, jointly and severally, and shall be secured by Lender's Lien upon all of the Collateral. 3.6. Loan Account. Lender shall enter all Loans as debits to the Loan Account ------------ and shall also record in the Loan Account all payments made by any Borrower on any Obligations and all proceeds of Collateral which are finally paid to Lender, and may record therein, in accordance with customary accounting practice, other debits and credits, including interest and all charges and expenses properly chargeable to any Borrower. 3.7. Statements of Account. Lender will account to Borrowers monthly with a --------------------- statement of Loans, charges and payments made pursuant to this Agreement, and such account rendered by Lender shall be deemed final, binding and conclusive upon Borrowers unless Lender is notified by Borrowers in writing to the contrary within thirty (30) days of the date each accounting is mailed to Borrowers. Such notice shall only be deemed an objection to those items specifically objected to therein. 3.8. Funding Losses on Euro-Dollar Loans. In the event that any Euro-Dollar ----------------------------------- Loan is repaid or terminated for any reason on a date prior to the expiration of the Euro-Dollar Interest Period with respect thereto, then in addition to any other amounts which are due and payable under the terms of this Agreement (including, but not limited to, Section 4.2.3 hereof) Borrowers shall pay to Lender, upon Lender's demand therefor, such amount or amounts as shall compensate Lender for any loss, costs or expense incurred by Lender (in connection with the relevant Euro-Dollar Interest Period) as a result of (i) any payment or prepayment (whether pursuant to -9- Section 4.2 or otherwise) of a Euro-Dollar Loan on a date other than the last day of the Euro-Dollar Interest period applicable to such Euro-Dollar Loan, or (ii) any failure by Borrowers to pay or prepay a Euro-Dollar Loan on the date specified in the relevant notice of prepayment delivered by Borrowers, or (iii) any failure by Borrowers to borrow a Euro-Dollar Loan on the date specified in the applicable notice delivered pursuant to Section 3.1.1. Such compensation shall include, without limitation, an amount equal to the excess, if any, of (x) the amount of interest which would have accrued on the amount so paid or prepaid or not prepaid or borrowed for the period from the date of such payment, prepayment or failure to prepay or borrow to the last day of the applicable Euro-Dollar Interest Period for such Euro-Dollar Loan (or, in the case of a failure to prepay or borrow, the Euro-Dollar Interest Period for such Euro- Dollar Loan which would have commenced on the date of such failure to prepay or borrow) at the applicable rate of interest for such Euro-Dollar Loan, over (y) the amount of interest (as reasonably determined by Lender) that Lender would have been paid on deposits in United States dollars of comparable amounts for a comparable period of time by leading banks in the London Interbank Market. 3.9. Changes in Law and Euro-Dollar Loans. Notwithstanding any other ------------------------------------ provision hereof, if any applicable law, treaty, regulation or directive, or any change therein or in the interpretation or application thereof, shall make it unlawful for Lender to make or maintain its Euro-Dollar Loans, or if with respect to any Euro-Dollar Rate relating thereto, or adverse or unusual conditions in or changes in applicable law relating to the applicable London Interbank Market make it, in the reasonable good faith judgment of Lender, impracticable to fund any of the Euro-Dollar Loans or make the projected Euro- Dollar Rate unreflective of the actual costs of funds therefor to Lender, the obligation of Lender to make Euro-Dollar Loans hereunder shall forthwith be canceled and the Borrowers shall, if any affected Euro-Dollar Loans are then outstanding, promptly upon request of Lender, either pay all such affected Euro- Dollar Loans or convert such affected Euro-Dollar Loans into Loans bearing interest with reference to the Base Rate. If any such payment or conversion of any Euro-Dollar Loan is made on a day that is not applicable to such Euro-Dollar Loan, Borrowers shall pay Lender, upon Lender's request, such amount or amounts as may be necessary to compensate Lender for any loss or expense sustained or incurred by Lender in respect of such Euro-Dollar Loan as a result of such payment or conversion, including (but not limited to) any interest or other amounts payable in respect of funds obtained by Lender in order to make or maintain such Euro-Dollar Loan. A certificate as to any additional amounts payable pursuant to the foregoing sentence submitted by Lender to Borrowers shall be conclusive absent manifest error. SECTION 4. TERM AND TERMINATION 4.1. Term of Agreement. Subject to Lender's right to cease making Loans to ----------------- Borrowers upon or after the occurrence of any Default or Event of Default, this -10- Agreement shall be in effect from the date hereof through and including July 31, 1998 (the "Original Term"), and this Agreement shall automatically renew itself for one-year periods thereafter (the "Renewal Terms"), unless terminated as provided in Section 4.2 hereof. 4.2. Termination. ----------- 4.2.1. Termination by Lender. Upon at least ninety (90) days prior --------------------- written notice to Borrowers, Lender may terminate this Agreement as of the last day of the Original Term or the then current Renewal Term and Lender may terminate this Agreement without notice upon or after the occurrence of an Event of Default. 4.2.2. Termination by Borrower. Upon at least ninety (90) days prior ----------------------- written notice to Lender, Borrowers may, at their option, terminate this Agreement; provided, however, no such termination shall be effective until -------- ------- Borrowers have paid all of the Obligations in immediately available funds and all Letters of Credit and LC Guaranties have expired or have been cash collateralized to Lender's satisfaction. Any notice of termination given by Borrowers shall be irrevocable unless Lender otherwise agrees in writing, and Lender shall have no obligation to make any Loans or issue or procure any Letters of Credit or LC Guaranties on or after the termination date stated in such notice. Borrowers may elect to terminate this Agreement in its entirety only. No section of this Agreement or type of Loan available hereunder may be terminated singly. 4.2.3. Termination Charges. At the effective date of termination of ------------------- this Agreement by Borrowers for any reason, Borrowers shall pay to Lender (in addition to the then outstanding principal, accrued interest and other charges owing under the terms of this Agreement and any of the other Loan Documents) as liquidated damages for the loss of the bargain and not as a penalty, an amount equal to one percent (1%) of the Average Monthly Loan Balance if termination occurs during the period from the Closing Date through the first anniversary of the date hereof (February 20, 1997). Notwithstanding the foregoing, no such payment shall be due in the event that Borrowers terminate this Agreement at anytime on or after the Closing Date on account of Borrowers' public issuance of capital stock for an aggregate cash amount of not less than $ 10,000,000.00. 4.2.4. Effect of Termination. All of the Obligations shall be --------------------- immediately due and payable upon the termination date stated in any notice of termination of this Agreement. All undertakings, agreements, covenants, warranties and representations of Borrowers contained in the Loan Documents shall survive any such termination and Lender shall retain its Liens in the Collateral and all of its rights and remedies under the Loan Documents notwithstanding such termination until Borrowers have paid the Obligations to Lender, in full, in immediately available funds, together with the applicable termination charge, if any. Notwithstanding the payment in full of the -11- Obligations, Lender shall not be required to terminate its security interests in the Collateral unless, with respect to any loss or damage Lender may incur as a result of dishonored checks or other items of payment received by Lender from any Borrower or any Account Debtor and applied to the Obligations, Lender shall, at its option, (i) have received a written agreement, executed by all Borrowers and by any Person whose loans or other advances to a Borrower are used in whole or in part to satisfy the Obligations, indemnifying Lender from any such loss or damage; or (ii) have retained such monetary reserves and Liens on the Collateral for such period of time as Lender, in its reasonable discretion, may deem necessary to protect Lender from any such loss or damage. SECTION 5. SECURITY INTERESTS 5.1. Security Interest in Collateral. To secure the prompt payment and ------------------------------- performance to Lender of the Obligations, each Borrower hereby grants to Lender a continuing Lien upon all of the assets of each Borrower, including all of the following Property and interests in Property of each Borrower, whether now owned or existing or hereafter created, acquired or arising and wheresoever located: (i) Accounts; (ii) Inventory; (iii) Equipment; (iv) General Intangibles; (v) All monies and other Property of any kind now or at any time or times hereafter in the possession or under the control of Lender or a bailee or Affiliate of Lender; (vi) All accessions to, substitutions for and all replacements, products and cash and non-cash proceeds of (i) through (v) above, including, without limitation, proceeds of and unearned premiums with respect to insurance policies insuring any of the Collateral; and (vii) All books and records (including, without limitation, customer lists, credit, files, computer programs, print-outs, and other computer materials and records) of any Borrower pertaining to any of (i) through (vi) above. 5.2. Lien Perfection; Further Assurances. Borrowers shall execute such UCC-l ----------------------------------- financing statements as are required by the Code and such other instruments, assignments or documents as are necessary to perfect Lender's Lien upon any of the Collateral and shall take such other action as may be required to perfect or to -12- continue the perfection of Lender's Lien upon the Collateral. Unless prohibited by applicable law, each Borrower hereby authorizes Lender to execute and file any such financing statement on such Borrower's behalf. The parties agree that a carbon, photographic or other reproduction of this Agreement shall be sufficient as a financing statement and may be filed in any appropriate office in lieu thereof. At Lender's request, Borrowers shall also promptly execute or cause to be executed and shall deliver to Lender any and all documents, instruments and agreements deemed necessary by Lender to give effect to or carry out the terms or intent of the Loan Documents. SECTION 6. COLLATERAL ADMINISTRATION 6.1. General. ------- 6.1.1. Location of Collateral. All Collateral, other than Inventory ---------------------- in transit and motor vehicles, will at all times be kept by Borrowers and their Subsidiaries at one or more of the business locations set forth in Exhibit B --------- hereto and shall not, without the prior written approval of Lender, be moved therefrom except, prior to an Event of Default and Lender's acceleration of the maturity of the Obligations in consequence thereof, for (i) sales of Inventory in the ordinary course of business; (ii) removals in connection with dispositions of Equipment that are authorized by subsection 6.4.2 hereof; and (iii) temporary transfers (for a period not to exceed three (3) months in any event) of Equipment from a location set forth on Exhibit B to another location --------- if done for the limited purpose of repairing, refurbishing or overhauling such Equipment in the ordinary course of the Borrowers' business. 6.1.2. Insurance of Collateral. Borrowers shall maintain and pay for ----------------------- insurance upon all Collateral wherever located and with respect to Borrowers' businesses, covering casualty, hazard, public liability and such other risks in such amounts and with such insurance companies as are reasonably satisfactory to Lender. Borrowers shall deliver the originals of such policies to Lender with satisfactory lender's loss payable endorsements, naming Lender as loss payee, assignee or additional insured, as appropriate. Each policy of insurance or endorsement shall contain a clause requiring the insurer to give not less than thirty (30) days prior written notice to Lender in the event of cancellation of the policy for any reason whatsoever and a clause specifying that the interest of Lender shall not be impaired or invalidated by any act or neglect of any Borrower or the owner of the Property or by the occupation of the premises for purposes more hazardous than are permitted by said policy. The Borrowers will maintain, with financially sound and reputable insurers, insurance with respect to its Properties and business against such casualties and contingencies of such type (including public liability, product liability, larceny, embezzlement, or other criminal misappropriation insurance) and in such amounts as is reasonable and customary in the business for the protection of the Collateral. If Borrowers fail to provide and pay for such insurance, Lender may, at its option, but -13- shall not be required to, procure the same and charge Borrowers therefor. Borrowers agree to deliver to Lender, promptly as rendered, true copies of all reports made in any reporting forms to insurance companies. 6.1.3. Protection of Collateral. All insurance expenses and expenses ------------------------ of protecting, storing, warehousing, insuring, handling, maintaining and shipping the Collateral, any and all excise, property, sales, and use taxes imposed by any state, federal, or local authority on any of the Collateral or in respect of the sale thereof shall be borne and paid by Borrowers. If Borrowers fail to promptly pay any portion thereof when due, Lender may, at its option, but shall not be required to, pay the same and charge Borrowers therefor. Lender shall not be liable or responsible in any way for the safekeeping of any of the Collateral or for any loss or damage thereto (except for reasonable care in the custody thereof while any Collateral is in Lender's actual possession) or for any diminution in the value thereof, or for any act or default of any warehouseman, carrier, forwarding agency, or other person whomsoever, but the same shall be at Borrowers' sole risk. 6.2. Administration of Accounts. -------------------------- 6.2.1. Records, Schedules and Assignments of Accounts. Borrowers ---------------------------------------------- shall keep accurate and complete records of their Accounts and all payments and collections thereon and shall submit to Lender on such periodic basis as Lender shall request a sales and collections report for the preceding period, in form satisfactory to Lender (which, initially, shall be weekly except for the final week of each calendar month). On or before the fifteenth (15th) day of each month from and after the date hereof, Borrowers shall deliver to Lender, in form acceptable to Lender, a detailed aged trial balance of all Accounts existing as of the last day of the preceding month, specifying the names, addresses, face value, dates of invoices and due dates for each Account Debtor obligated on an Account so listed ("Schedule of Accounts"), and, upon Lender's request therefor, copies of proof of delivery and the original copy of all documents, including, without limitation, repayment histories and present status reports relating to the Accounts so scheduled and such other matters and information relating to the status of then existing Accounts as Lender shall reasonably request. In addition, if Accounts in an aggregate face amount in excess of $100,000.00 become ineligible because they fall within one of the specified categories of ineligibility set forth in the definition of Eligible Accounts or otherwise established by Lender, Borrowers shall notify Lender of such occurrence on the first Business Day following such occurrence and the Borrowing Base shall thereupon be adjusted to reflect such occurrence. If requested by Lender, Borrowers shall execute and deliver to Lender formal written assignments of all of its Accounts weekly or daily, which shall include all Accounts that have been created since the date of the last assignment, together with copies of invoices or invoice registers related thereto. -14- 6.2.2. Discounts, Allowances, Disputes. If a Borrower grants any ------------------------------- discounts, allowances or credits that are not shown on the face of the invoice for the Account involved, Borrowers shall report such discounts, allowances or credits, as the case may be, to Lender as part of the next required Schedule of Accounts. If any amounts due and owing in excess of $l00,000.00 are in material dispute between a Borrower and any Account Debtor, Borrowers shall provide Lender with written notice thereof at the time of submission of the next Schedule of Accounts, explaining in detail the reason for the dispute, all claims related thereto and the amount in controversy. Upon and after the occurrence of an Event of Default, Lender shall have the right to settle or adjust all disputes and claims directly with the Account Debtor and to compromise the amount or extend the time for payment of the Accounts upon such terms and conditions as Lender may deem advisable, and to charge the deficiencies, costs and expenses thereof, including attorney's fees, to Borrowers. 6.2.3. Taxes. If an Account includes a charge for any tax payable to ----- any governmental taxing authority, Lender is authorized, in its sole discretion, to pay the amount thereof to the proper taxing authority for the account of Borrowers and to charge Borrowers therefor, provided, however that Lender shall not be liable for any taxes to any governmental taxing authority that may be due by any Borrower. 6.2.4. Account Verification. Whether or not a Default or an Event of -------------------- Default has occurred, any of Lender's officers, employees or agents shall have the right, at any time or times hereafter, in the name of Lender, any designee of Lender or any Borrower, to verify the validity, amount or any other matter relating to any Accounts by mail, telephone, telegraph or otherwise. Borrowers shall cooperate fully with Lender in an effort to facilitate and promptly conclude any such verification process. 6.2.5. Maintenance of Cash Management System. Borrowers shall ------------------------------------- maintain a cash management system acceptable to Lender with such banks as may be selected by Borrowers and be acceptable to Lender. All accounts, including depository accounts and funds in such cash management system and remittances deposited into such depository accounts shall be subject to Lender's first priority security interest and Borrower shall enter into agreements with each of the banks in such system as may be necessary or appropriate for Lender to obtain a valid and perfected first priority security interest in such accounts, deposits and remittances. 6.2.6. Collection of Accounts, Proceeds of Collateral. To expedite ---------------------------------------------- collection, Borrowers shall endeavor in the first instance to make collection of their Accounts for Lender. All remittances received by Borrowers on account of Accounts, together with the proceeds of any other Collateral, shall be held as Lender's property by Borrowers as trustees of an express trust for Lender's benefit and Borrowers shall immediately deposit same in kind in the Borrower's cash management system. Lender retains the right at all times after the occurrence of a Default or an Event of Default to notify Account Debtors that Accounts have been assigned to Lender and to collect Accounts -15- directly in its own name and to charge the collection costs and expenses, including attorneys' fees to Borrowers. 6.3. Administration of Inventory. --------------------------- 6.3.1. Records and Reports of Inventory. Borrowers shall keep -------------------------------- accurate and complete records of their inventory. Borrowers shall furnish to Lender Inventory reports in form and detail satisfactory to Lender at such times as Lender may request, but at least once each month, not later than the twentieth day of such month. Borrowers shall maintain a perpetual inventory system which shall include cycle counts no less frequently than annually and shall provide to Lender a report based on perpetual inventory system promptly thereafter, together with such supporting information as Lender shall request. 6.3.2. Returns of Inventory. If at any time or times hereafter any -------------------- Account Debtor returns any Inventory to a Borrower the shipment of which generated an Account on which such Account Debtor is obligated in excess of $ 100,000.00, Borrowers shall immediately notify Lender of the same, specifying the reason for such return and the location, condition and intended disposition of the returned Inventory. 6.4. Administration of Equipment. --------------------------- 6.4.1. Records and Schedules of Equipment. Borrowers shall keep ---------------------------------- accurate records itemizing and describing the kind, type, quality, quantity and value of its Equipment and all dispositions made in accordance with subsection 6.4.2 hereof, and shall furnish Lender with a current schedule containing the foregoing information on at least an annual basis and more often if requested by Lender. Immediately on request therefor by Lender, Borrowers shall deliver to Lender any and all evidence of ownership, if any, of any of the Equipment. 6.4.2. Dispositions of Equipment. Borrowers will not sell, lease or ------------------------- otherwise dispose of or transfer any of the Equipment or any part thereof without the prior written consent of Lender; provided, however, that the -------- ------- foregoing restriction shall not apply, for so long as no Default or Event of Default exists, to (i) dispositions of Equipment which, in the aggregate during any consecutive twelve-month period, has a fair market value or book value, whichever is less, of $100,000.00 or less, provided that all proceeds thereof are remitted to Lender for application to the Loans, or (ii) replacements of Equipment that is substantially worn, damaged or obsolete with Equipment of like kind, function and value, provided that the replacement Equipment shall be acquired prior to or concurrently with any disposition of the Equipment that is to be replaced, the replacement Equipment shall be free and clear of Liens other than Permitted Liens that are not Purchase Money Liens, and Borrowers shall have given Lender at least five (5) days prior written notice of such -16- disposition. 6.5. Payment of Charges. All amounts chargeable to Borrowers under Section 6 ------------------ hereof shall be Obligations secured by all of the Collateral, shall be payable on demand and shall bear interest from the date such advance was made until paid in full at the rate applicable to Revolving Credit Loans bearing interest with reference to the Base Rate from time to time. SECTION 7. REPRESENTATIONS AND WARRANTIES 7.1. General Representations and Warranties. To induce Lender to enter into -------------------------------------- this Agreement and to make advances hereunder, each Borrower warrants, represents and covenants to Lender that: 7.1.1. Organization and Qualification. Each of the Borrowers and each ------------------------------ of their Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation. Each of the Borrowers and each of their Subsidiaries is duly qualified and is authorized to do business and is in good standing as a foreign corporation in each state or jurisdiction listed on Exhibit C hereto and in all other states and --------- jurisdictions where the character of its Properties or the nature of its activities make such qualification necessary, or in which the failure of a Borrower or any of its Subsidiaries to be so qualified would have a material adverse effect on the financial condition, business or Properties of any such Borrower or any of its Subsidiaries. 7.1.2. Corporate Power and Authority. Each of the Borrowers and each ----------------------------- of their Subsidiaries is duly authorized and empowered to enter into, execute, deliver and perform this Agreement and each of the other Loan Documents to which it is a party. The execution, delivery and performance of this Agreement and each of the other Loan Documents have been duly authorized by all necessary corporate action and do not and will not (i) require any consent or approval of the shareholders of any Borrower or any of their Subsidiaries; (ii) contravene any Borrower's or any of their Subsidiaries' charter, articles or certificate of incorporation or by-laws; (iii) violate, or cause any Borrower or any of their Subsidiaries to be in default under, any provision of any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award in effect having applicability to any Borrower or any of their Subsidiaries; (iv) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which any Borrower or any of their Subsidiaries is a party or by which it or its Properties may be bound or affected; or (v) result in, or require, the creation or imposition of any Lien (other than Permitted Liens) upon or with respect to any of the Properties now owned or hereafter acquired by any Borrower or any of their Subsidiaries. -17- 7.1.3. Legally Enforceable Agreement. This Agreement is, and each of ----------------------------- the other Loan Documents when delivered under this Agreement will be, a legal, valid and binding obligation of each Borrower and their Subsidiaries enforceable against each of them in accordance with its respective terms. 7.1.4. Capital Structure. Exhibit D hereto states (i) the correct ----------------- --------- name of each of the Subsidiaries of the Borrowers, its jurisdiction of incorporation and the percentage of its Voting Stock owned by Borrowers, (ii) the name of each corporate or joint venture Affiliate of the Borrowers and the nature of the affiliation, (iii) the number, nature and holder of all outstanding Securities of each Borrower and each Subsidiary of a Borrower and (iv) the number of authorized, issued and treasury shares of each Borrower and each Subsidiary of a Borrower. Each Borrower has good title to all of the shares it purports to own of the stock of each of its Subsidiaries, free and clear in each case of any Lien other than Permitted Liens. All such shares have been duly issued and are fully paid and non-assessable. Except as set forth on Exhibit D, --------- there are no outstanding options to purchase, or any rights or warrants to subscribe for, or any commitments or agreements to issue or sell, or any Securities or obligations convertible into, or any powers of attorney relating to, shares of the capital stock of any Borrower or any of their Subsidiaries. Except as set forth on Exhibit D, there are no outstanding agreements or --------- instruments binding upon any shareholders of any Borrower relating to the ownership of their shares of capital stock. 7.1.5. Corporate Names. No Borrower nor any of their Subsidiaries has --------------- been known as or used any corporate, fictitious or trade names except those listed on Exhibit E hereto. Except as set forth on Exhibit E, no Borrower nor --------- --------- any of their Subsidiaries has been the surviving corporation of a merger or consolidation or acquired all or substantially all of the assets of any Person. 7.1.6. Business Locations; Agent for Process. Each Borrower's and ------------------------------------- their Subsidiaries' chief executive office and other places of business are as listed on Exhibit B hereto. During the preceding one-year period, no Borrower nor any of their Subsidiaries has had an office, place of business or agent for service of process other than as listed on Exhibit B. Except as shown on Exhibit --------- ------- B, no Inventory having an aggregate value in excess of $100,000.00 is stored - - with a bailee, warehouseman or similar party, nor is any Inventory consigned to any Person without Lender's prior written consent. 7.1.7. Title to Properties; Priority of Liens. Each Borrower and -------------------------------------- their Subsidiaries has good, indefeasible and marketable title to and fee simple ownership of, or valid and subsisting leasehold interests in, all of its real Property, and good title to all of the Collateral and all of its other Property, in each case, free and clear of all Liens except Permitted Liens. Each Borrower has paid or discharged all lawful claims which, if unpaid, might become a Lien against any of such Borrower's -18- Properties that is not a Permitted Lien. The Liens granted to Lender under Section 5 hereof are first priority Liens, subject only to Permitted Liens. 7.1.8. Accounts. Lender may rely, in determining which Accounts are -------- Eligible Accounts, on all statements and representations made by Borrowers with respect to any Account or Accounts. Unless otherwise indicated in writing to Lender, with respect to each Account: (i) It is genuine and in all respects what it purports to be, and it is not evidenced by a judgment; (ii) It arises out of a completed, bona fide sale and ---- ---- delivery of goods or rendition of services by a Borrower in the ordinary course of its business and in accordance with the terms and conditions of all purchase orders, contracts or other documents relating thereto and forming a part of the contract between a Borrower and the Account Debtor; (iii) It is for a liquidated amount maturing as stated in the duplicate invoice covering such sale or rendition of services, a copy of which has been furnished or is available to Lender; (iv) Such Account, and Lender's security interest therein, is not, and will not (by voluntary act or omission of a Borrower) be in the future, subject to any offset, Lien, deduction, defense, dispute, counterclaim or any other adverse condition except for disputes resulting in returned goods where the amount in controversy is less than $100,000, and each such Account is absolutely owing to a Borrower and is not contingent in any respect or for any reason; (v) No Borrower has made an agreement with any Account Debtor thereunder for any extension, compromise, settlement or modification of any such Account or any deduction therefrom, except discounts or allowances which are granted by a Borrower in the ordinary course of its business for prompt payment and which are reflected in the calculation of the net amount of each respective invoice related thereto and are reflected in the Schedules of Accounts submitted to Lender pursuant to subsection 6.2.1 hereof; (vi) To the best of Borrowers' knowledge, there are no facts, events or occurrences which in any way impair the validity or enforceability of any Accounts or tend to reduce the amount payable thereunder from the face amount of the invoice and statements delivered to Lender with respect thereto; (vii) To the best of Borrowers' knowledge, the Account Debtor thereunder (a) had the capacity to contract at the time any contract or other -19- document giving rise to the Account was executed and (b) such Account Debtor is Solvent; and (viii) To the best of Borrowers' knowledge, there are no proceedings or actions which are threatened or pending against any Account Debtor thereunder which might result in any material adverse change in such Account Debtor's financial condition or the collectability of such Account. 7.1.9. Equipment. The Equipment is in good operating condition and --------- repair, and all necessary replacements of and repairs thereto shall be made so that the value and operating efficiency of the Equipment shall be maintained and preserved, reasonable wear and tear excepted. Borrowers will not permit any of the Equipment to become affixed to any real Property leased to Borrowers so that an interest arises therein under the real estate laws of the applicable jurisdiction unless the landlord of such real Property has executed a landlord waiver or leasehold mortgage in favor of and in form acceptable to Lender, and Borrowers will not permit any of the Equipment to become an accession to any personal Property other than Equipment that is subject to first priority Liens (except for Permitted Liens) in favor of Lender. 7.1.10. Financial Statements; Fiscal Year. The Consolidated and --------------------------------- consolidating balance sheets of Borrowers and such other Persons described therein (including the accounts of all Subsidiaries of Borrowers for the respective periods during which a Subsidiary relationship existed) as of the end of the fiscal years of the Borrowers ended in 1995, and the related statements of income, changes in stockholder's equity, and changes in financial position for the periods ended on such dates, have been prepared in accordance with GAAP, and present fairly the financial positions of Borrowers and such Persons at such dates and the results of Borrowers' operations for such periods. Since such 1995 fiscal year ends, there has been no material change in the condition, financial or otherwise, of Borrowers and such other Persons as shown on the Consolidated balance sheet as of such date and no change in the aggregate value of Equipment and real Property owned by Borrowers or such other Persons, except changes in the ordinary course of business, none of which individually or in the aggregate has been materially adverse. The fiscal year of Borrowers and each of their Subsidiaries ends on October 31 of each year. 7.1.11. Full Disclosure. The financial statements referred to in --------------- subsection 7.1.10 hereof do not, nor does this Agreement or any other written statement of Borrowers to Lender, contain any untrue statement of a material fact or omit a material fact necessary to make the statements contained therein or herein not misleading. There is no fact which any Borrower has failed to disclose to Lender in writing which materially affects adversely or, so far as any Borrower can now foresee, will materially affect adversely the Properties, business, prospects, profits or condition (financial or otherwise) of any Borrower or any of its Subsidiaries or the -20- ability of any Borrower or their Subsidiaries to perform this Agreement or the other Loan Documents. 7.1.12. Solvent Financial Condition. Each Borrower and each Subsidiary --------------------------- of Borrowers is now and, after giving effect to the Loans to be made and the Letters of Credit and LC Guaranties to be issued hereunder, at all times will be, Solvent. 7.1.13. Surety Obligations. No Borrower nor any of their Subsidiaries ------------------ is obligated as surety or indemnitor under any surety or similar bond or other contract issued or entered into any agreement to assure payment, performance or completion of performance of any undertaking or obligation of any Person, other than as set forth on Exhibit Q hereto. 7.1.14. Taxes. The federal tax identification number of each Borrower ----- and each of their Subsidiaries is shown on Exhibit F hereto. Each Borrower and --------- each of its Subsidiaries has filed all federal, state and local tax returns and other reports it is required by law to file and has paid, or made provision for the payment of, all material taxes, assessments, fees, levies and other governmental charges upon it, its income and Properties as and when such taxes, assessments, fees, levies and charges that are due and payable, unless and to the extent any thereof are being actively contested in good faith and by appropriate proceedings and Borrowers maintain reasonable reserves on their books therefor. The provision for taxes on the books of Borrowers and their Subsidiaries are adequate for all years not closed by applicable statutes, and for its current fiscal year. 7.1.15. Brokers. There are no claims for brokerage commissions, ------- finder's fees or investment banking fees in connection with the transactions contemplated by this Agreement. 7.1.16. Patents, Trademarks, Copyrights and Licenses. Each Borrower -------------------------------------------- and each Subsidiary of Borrowers owns or possesses all the patents, trademarks, service marks, trade names, copyrights and licenses necessary for the present and planned future conduct of its business without any known conflict with the rights of others. All such patents, trademarks, service marks, trade names, copyrights, licenses and other similar rights are listed on Exhibit G hereto. --------- 7.1.17. Governmental Consents. Each Borrower and each Subsidiary of --------------------- Borrowers has, and is in good standing with respect to, all governmental consents, approvals, licenses, authorizations, permits, certificates, inspections and franchises necessary to continue to conduct its business as heretofore or proposed to be conducted by it and to own or lease and operate its Properties as now owned or leased by it, except for those that would not have a material adverse effect on the business, prospects, profits, properties, or condition (financial or otherwise) of the Borrowers. -21- 7.1.18. Compliance with Laws. Each Borrower and each Subsidiary of -------------------- Borrowers has duly complied with, and its Properties, business operations and leaseholds are in compliance in all material respects with, the provisions of all federal, state and local laws, rules and regulations applicable to such Borrower or such Subsidiary, as applicable, its Properties or the conduct of its business and there have been no citations, notices or orders of noncompliance issued to any Borrower or any of its Subsidiaries under any such law, rule or regulation, except for those that would not have a material adverse effect on the business, prospects, profits, properties, or condition (financial or otherwise) of the Borrowers. Each Borrower and each Subsidiary of Borrowers has established and maintains an adequate monitoring system to insure that it remains in compliance with all federal, state and local laws, rules and regulations applicable to it. No Inventory has been produced in violation of the Fair Labor Standards Act (29 U.S.C. (S) 201 et seq.), as amended. -- --- 7.1.19. Restrictions. No Borrower nor any of its Subsidiaries is a ------------ party or subject to any contract, agreement, or charter or other corporate restriction, which materially and adversely affects its business or the use or ownership of any of its Properties. No Borrower nor any of its Subsidiaries is a party or subject to any contract or agreement which restricts its right or ability to incur Indebtedness, other than as set forth on Exhibit H hereto, none --------- of which prohibit the execution of or compliance with this Agreement or the other Loan Documents by any Borrower or any of their Subsidiaries, as applicable. 7.1.20. Litigation. Except as set forth on Exhibit I hereto, there are ---------- --------- no actions, suits, proceedings or investigations pending, or to the knowledge of any Borrower, threatened, against or affecting any Borrower or any of its Subsidiaries that would, if adversely determined, have a material adverse effect on the business, prospects, profits, properties, or condition (financial or otherwise) of the Borrowers. No Borrower nor any of their Subsidiaries is in default with respect to any order, writ, injunction, judgment, decree or rule of any court, governmental authority or arbitration board or tribunal. 7.1.21. No Defaults. No event has occurred and no condition exists ----------- which would, upon or after the execution and delivery of this Agreement or Borrowers' performance hereunder, constitute a Default or an Event of Default. No Borrower nor any of their Subsidiaries is in default, and no event has occurred and no condition exists which constitutes, or which with the passage of time or the giving of notice or both would constitute, a default in the payment of any Indebtedness to any Person for Money Borrowed. 7.1.22. Leases. Exhibit J hereto is a complete listing of all ------ --------- capitalized leases of each Borrower and its Subsidiaries and Exhibit K hereto is --------- a complete listing of all operating leases of each Borrower and its Subsidiaries. Each Borrower and each -22- Subsidiary of Borrowers is in full compliance with all of the terms of each of its respective capitalized and operating leases. 7.1.23. Pension Plans. Except as disclosed on Exhibit L hereto, no ------------- --------- Borrower nor any of its Subsidiaries has any Plan. Each Borrower and each of its Subsidiaries is in full compliance with the requirements of ERISA and the regulations promulgated thereunder with respect to each Plan. No fact or situation that could result in a material adverse change in the financial condition of any Borrower or any of its Subsidiaries exists in connection with any Plan. No Borrower nor any of its Subsidiaries has any withdrawal liability in connection with a Multiemployer Plan. 7.1.24. Trade Relations. There exists no actual or threatened --------------- termination, cancellation or limitation of, or any modification or change in, the business relationship between any Borrower or any of its Subsidiaries and any customer or any group of customers whose purchases individually or in the aggregate are material to the business of such Borrower or any of its Subsidiaries, or with any material supplier, and there exists no present condition or state of facts or circumstances which would materially affect adversely any Borrower or any of its Subsidiaries or prevent any Borrower or any of its Subsidiaries from conducting such business after the consummation of the transaction contemplated by this Agreement in substantially the same manner in which it has heretofore been conducted. 7.1.25. Labor Relations. Except as described on Exhibit M hereto, no --------------- --------- Borrower nor any of its Subsidiaries is a party to any collective bargaining agreement. There are no material grievances, disputes or controversies with any union or any other organization of any Borrower or any of its Subsidiaries' employees, or threats of strikes, work stoppages or any asserted pending demands for collective bargaining by any union or organization. 7.1.26. Merger. The Merger is valid and effective in accordance with ------ the terms of the Merger Agreements, and the corporation statutes of the States of California and Delaware and MPW is the surviving corporation pursuant to the Merger. All actions and proceedings required by the Merger Agreements, applicable law and regulation (including, but not limited to, compliance with the Hart-Scott-Rodino Anti-Trust Improvements Act of 1976, as amended) have been taken and the transactions required thereunder had been duly and validly taken and consummated in accordance with applicable law and regulation. No court of competent jurisdiction has issued any injunction, restraining order or other order which prohibits consummation of the transactions described in the Merger Agreements and no governmental action or proceeding has been threatened or commenced seeking any injunction, restraining order or other order which seeks to void or otherwise modify the transactions described in the Merger Agreements. Borrowers have delivered, or caused to be delivered, to Lender, true, correct and complete copies of the Merger Agreements. -23- 7.2. Continuous Nature of Representations and Warranties. Each representation --------------------------------------------------- and warranty contained in this Agreement and the other Loan Documents shall be continuous in nature and shall remain accurate, complete and not misleading at all times during the term of this Agreement, except for changes in the nature of a Borrower's or its Subsidiaries' business or operations that would render the information in any exhibit attached hereto either inaccurate, incomplete or misleading, so long as Lender has consented to such changes or such changes are expressly permitted by this Agreement. 7.3. Survival of Representations and Warranties. All representations and ------------------------------------------ warranties of Borrowers contained in this Agreement or any of the other Loan Documents shall survive the execution, delivery and acceptance thereof by Lender and the parties thereto and the closing of the transactions described therein or related thereto. SECTION 8. COVENANTS AND CONTINUING AGREEMENTS 8.1. Affirmative Covenants. During the term of this Agreement, and thereafter --------------------- for so long as there are any Obligations to Lender, each Borrower covenants that, unless otherwise consented to by Lender in writing, it shall: 8.1.1. Visits and Inspections. Permit representatives of Lender, from ---------------------- time to time, as often as may be reasonably requested, but only during normal business hours, to visit and inspect the Properties of each Borrower and each of its Subsidiaries, inspect, audit and make extracts from its books and records, and discuss with its officers, its employees and its independent accountants, each Borrower's and each of its Subsidiaries' business, assets, liabilities, financial condition, business prospects and results of operations. 8.1.2. Notices. Promptly notify Lender in writing of the occurrence ------- of any event or the existence of any fact which renders any representation or warranty in this Agreement or any of the other Loan Documents inaccurate, incomplete or misleading. 8.1.3. Financial Statements. Keep, and cause each Subsidiary to keep, -------------------- adequate records and books of account with respect to its business activities in which proper entries are made in accordance with GAAP reflecting all its financial transactions; and cause to be prepared and furnished to Lender the following (all to be prepared in accordance with GAAP on a first-in, first-out basis for Borrowers' interim financial statements and on a last-in, first-out basis for Borrower's audited financial statements, applied on a consistent basis, unless Borrowers' certified public accountants concur in any change therein and such change is disclosed to Lender and is consistent with GAAP): -24- (i) as soon as possible, but no later than ninety (90) days after the close of each fiscal year of Borrowers, unqualified audited financial statements of Borrowers and their Subsidiaries as of the end of such year, on a Consolidated basis, certified by a firm of independent certified public accountants of recognized standing selected by Borrowers but acceptable to Lender (except for a qualification for a change in accounting principles with which the accountant concurs) together with consolidating financial statements prepared by management of the Borrowers in accordance with GAAP; (ii) as soon as possible, but not later than forty-five (45) days after the end of each month hereafter, including the last month of Borrowers' fiscal year, unaudited interim financial statements of Borrowers and their Subsidiaries as of the end of such month and of the portion of Borrowers' financial year then elapsed, on a Consolidated and consolidating basis, certified by the principal financial officer of Borrowers as prepared in accordance with GAAP and fairly presenting the Consolidated financial position and results of operations of Borrowers and their Subsidiaries for such month and period subject only to changes from audit and year-end adjustments and except that such statements need not contain notes; (iii) promptly after the sending or filing thereof, as the case may be, copies of any proxy statements, financial statements or reports which any Borrower has made available to its shareholders and copies of any regular, periodic and special reports or registration statements which any Borrower files with the Securities and Exchange Commission or any governmental authority which may be substituted therefor, or any national securities exchange; (iv) upon Lender's request, promptly after the filing thereof, copies of any annual report to be filed with ERISA in connection with each Plan; and (v) such other data and information (financial and otherwise) as Lender, from time to time, may reasonably request, bearing upon or related to the Collateral or any Borrower's and each of its Subsidiaries' financial condition or results of operations. Concurrently with the delivery of the financial statements described in clause (i) of this subsection 8.1.3, Borrower shall forward to Lender a copy of the accountants' letter to Borrower's management that is prepared in connection with such financial statements. Concurrently with the delivery of the financial statements described in clauses (i) and (ii) of this subsection 8.1.3, or more frequently if requested by Lender, Borrowers shall cause to be prepared and furnished to Lender a -25- Compliance Certificate in the form of Exhibit N hereto executed by the Chief --------- Financial Officer of Borrowers. 8.1.4. Landlord and Storage Agreements. Upon Lender's request, ------------------------------- provide Lender with copies of all agreements between any Borrower or any of its Subsidiaries and any landlord or warehouseman which owns any premises at which any Inventory may, from time to time, be kept. 8.1.5. Guarantor Financial Statements. Deliver or cause to be ------------------------------ delivered to Lender financial statements for the Guarantors as consolidated as a group with NRG, in form and substance reasonably satisfactory to Lender at such intervals and covering such time periods as Lender may request. 8.1.6. Projections. No later than the first day of each fiscal year ----------- of Borrowers, deliver to Lender Projections of Borrowers for the forthcoming three (3) years, year by year, and for the forthcoming fiscal year, month by month. 8.1.7. Taxes and Liens. Pay and discharge, and cause each Subsidiary --------------- to pay and discharge, all taxes, assessments and government charges upon it, its income and Properties as and when such taxes, assessments and charges are due and payable, unless and to the extent only that such taxes, assessments and charges are being contested in good faith and by appropriate proceedings and the Borrowers maintain reasonable reserves on their books therefor. The Borrowers shall also pay and discharge any lawful claims which, if unpaid, might become a Lien against any of the Borrowers' Properties except for Permitted Liens. 8.1.8. Tax Returns. File, and cause each Subsidiary of the Borrowers ----------- to file, all federal, state and local tax returns and other reports the Borrowers or each Subsidiary of the Borrowers as required by law to file and maintain adequate reserves for the payment of all taxes, assessments, governmental charges, and levies imposed upon them, their income, or their profits, or upon any Properties belonging to them. 8.1.9. Business and Existence. Preserve and maintain, and cause each ---------------------- Subsidiary of the Borrowers to preserve and maintain, its separate corporate existence and all rights, privileges, and franchises in connection therewith, and maintain, and cause each Subsidiary of the Borrowers to maintain, its qualification and good standing in all states in which such qualification is necessary in order for the Borrowers or its Subsidiary to conduct business in such states. 8.1.10. Maintain Properties. Maintain and cause each Subsidiary of the ------------------- Borrowers to maintain its properties in good condition and make, and cause each Subsidiary of the Borrowers to make all necessary renewals, repairs, replacements, additions or improvements thereto. -26- 8.1.11. Compliance with Laws. Comply, and cause each Subsidiary to -------------------- comply, with all laws, ordinances, governmental rules and regulations to which it is subject, and obtain and keep in force any and all licenses, permits, franchises, or other governmental authorizations necessary to the ownership of its properties to the conduct of its business, which violation or failure to obtain might materially and adversely effect the business, prospects, profits, properties, or condition (financial or otherwise) of the Borrowers. 8.1.12. ERISA Compliance. (i) at all times make prompt payment of ---------------- contributions required to meet the minimum finding standard set forth in ERISA with respect to each Plan; (ii) if so requested by the Lender, promptly after the filing thereof, furnish to Lender copies of annual report required to be filed pursuant to ERISA in connection with each Plan and any other employee benefit plan of it and its Subsidiaries subject to said Section; (iii) notify Lender as soon as practicable of any Reportable Event and of any additional act or condition arising in connection with any Plan which the Borrowers believe might constitute grounds for the termination thereof by the Pension Benefit Guaranty Corporation or for the appointment by the appropriate United States District Court of a Trustee to administer the Plan; and (iv) furnish to lender, promptly upon Lender's request therefor, such additional information concerning any Plan or any other such employee benefit plan as may be reasonably requested. 8.1.13. Subordinations. Provide Lender with a debt subordination -------------- agreement, in form and substance satisfactory to Lender, executed by the Borrowers and any Person who is an officer, director or affiliate of the Borrowers to whom the Borrowers are or hereafter become indebted for Money Borrowed subordinating in right of payment and claim all of such indebtedness and any future advances, to the full and final payment and performance of the Obligations. 8.1.14. Further Assurances. At Lender's request, promptly execute or ------------------ cause to be executed and delivered to Lender any and all documents, instruments and agreements deemed necessary by Lender to give effect to or carry out the terms or intent of this Agreement or any of the Loan Documents. Without limiting the generality of the foregoing, if any of the Accounts, the face value of which exceeds $50,000, arises out of a contract with the United States of America, or any department, agency, subdivision or instrumentality thereof, the Borrowers shall promptly notify Lender thereof in writing and shall execute any instruments and take any other action required or requested by Lender to comply with the provision of the Federal Assignment of Claims Act. 8.2. Negative Covenants. During the term of this Agreement, and thereafter ------------------ for so long as there are any Obligations to Lender, each Borrower covenants that, unless Lender has first consented thereto in writing, it will not: -27- 8.2.1. Mergers; Consolidations; Acquisitions. Merge or consolidate, ------------------------------------- or permit any Subsidiary or New Subsidiary of Borrowers to merge or consolidate, with any Person (except for the merger or consolidation involving only a Borrower and one or more wholly owned Subsidiaries or New Subsidiaries); nor acquire, nor permit any of its Subsidiaries to acquire, all or any substantial part of the Properties of any Person except a New Subsidiary. 8.2.2. Loans. Make, or permit any Subsidiary of any Borrower to make, ----- any loans or other advances of money (other than for salary, travel advances, advances against commissions and other similar advances in the ordinary course of business or as existing on the Closing Date and disclosed on Exhibit R hereto) to any Person; provided, however, that Borrowers may accept promissory notes for loans to their customers in the normal course of business to the extent not prohibited by the terms of this Agreement or the Note Purchase Agreement. Without limiting any other rights the Borrowers may have under this Agreement to advance funds to the New Subsidiaries, so long as the Aggregate Adjusted Availability is equal to at least $2,500,000, NRG shall be entitled to receive, and advance to the New Subsidiaries, Revolving Credit Loans up to an amount equal to the amount available to be borrowed with respect to New Subsidiary Eligible Inventory only under subparagraph (ii)(c)(2) of the definition of the term "Borrowing Base" (subject always, to the other limitations of the Borrowing Base) (such advances are referred to herein as the "NRG Advances"). All of the Borrowers shall be jointly and severally liable to the Bank for repayment of all NRG Advances, together with all interest and fees accruing thereon. 8.2.3. Total Indebtedness. Create, incur, assume, or suffer to exist, ------------------ or permit any Subsidiary of Borrowers to create, incur or suffer to exist, any Indebtedness, except: (i) Obligations owing to Lender; (ii) Subordinated Debt, including the Indebtedness of UNF to TLCP existing on the date of this Agreement; (iii) Indebtedness of any Subsidiary of a Borrower to such Borrower; (iv) accounts payable to trade creditors and current operating expenses (other than for Money Borrowed) which are not aged more than one hundred and twenty (120) days from billing date and current operating expenses (other than for Money Borrowed) which are not more than sixty (60) days past due, in each case incurred in the ordinary course of business and paid within such time period, unless the same are being actively contested in good faith and by appropriate and lawful proceedings; and a Borrower or such -28- Subsidiary shall have set aside such reserves, if any, with respect thereto as are required by GAAP and deemed adequate by such Borrower or such Subsidiary and its independent accountants; (v) Obligations to pay Rentals permitted by subsection 8.2.13; (vi) Permitted Purchase Money Indebtedness; (vii) Contingent liabilities arising out of endorsements of checks and other negotiable instruments for deposit or collection in the ordinary course of business; (viii) Indebtedness evidenced by the ESOP Notes to the extent that such Indebtedness is attributable to UNF in accordance with GAAP; (ix) Indebtedness existing on the date hereof as set forth in the financial statements furnished to Lender pursuant to Section 7.1.10 hereof; and (x) Indebtedness not included in paragraphs (i) through (ix) above which does not exceed at any time, in the aggregate, the sum of $250,000.00. 8.2.4. Affiliate and Subsidiary Transactions. Enter into, or be a ------------------------------------- party to, or permit any Subsidiary of a Borrower to enter into or be a party to, any transaction with any Affiliate of any Borrower or stockholder, except in the ordinary course of and pursuant to the reasonable requirements of such Borrower's or such Subsidiary's business and upon fair and reasonable terms which are set forth on Exhibit R hereto or are no less favorable to a Borrower --------- than would obtain in a comparable arm's length transaction with a Person not an Affiliate or stockholder of Borrower or such Subsidiary. 8.2.5. Limitation on Liens. Create or suffer to exist, any Lien upon ------------------- any of its Property, income or profits, whether now owned or hereafter acquired, except: (i) Liens at any time granted in favor of Lender; (ii) Liens for taxes (excluding any Lien imposed pursuant to any of the provisions of ERISA) not yet due, or being contested in the manner described in subsection 7.1.14 hereto, but only if in Lender's judgment such Lien does not adversely affect Lender's rights or the priority of Lender's Lien in the Collateral; (iii) Liens arising in the ordinary course of Borrower's business by operation of law or regulation, but only if payment in respect of any such Lien -29- is not at the time required and such Liens do not, in the aggregate, materially detract from the value of the Property of Borrower or materially impair the use thereof in the operation of Borrower's business; (iv) Purchase Money Liens securing Permitted Purchase Money Indebtedness; (v) Liens securing Indebtedness of one of Borrowers' Subsidiaries to a Borrower or another such Subsidiary; (vi) such other Liens as appear on Exhibit O hereto; --------- (vii) attachment, judgment, and other similar non-tax liens arising in connection with court proceedings, but only if and for so long as the execution or other enforcement of such liens is and continues to be effectively stayed and bonded on appeal, the validity and amount of the claims secured thereby are being actively contended in good faith and by appropriate lawful proceedings and such liens do not, in the aggregate, materially detract from the value of the Property of the Borrowers or materially impair the use thereof in the operation of the Borrowers' business; (viii) reservations, exceptions, easements, rights of way, and other similar encumbrances effecting real property, provided that, in Lender's sole judgment, they do not in the aggregate materially detract from the value of said Properties or materially interfere with their use in the ordinary conduct of the Borrowers' business and, if said real property constitutes Collateral, Lender has consented thereto; and (ix) such other Liens as Lender may hereafter approve in writing. 8.2.6. Subordinated Debt. (i) Make, or permit any Subsidiary of a ----------------- Borrower to make, any payment of any part or all of any Subordinated Debt or otherwise repurchase, redeem or retire any instrument evidencing any such Subordinated Debt prior to maturity except in accordance with the terms of this Agreement or the Subordination Agreement applicable thereto, or (ii) enter into any agreement (oral or written) which could in any way be construed to amend, modify, alter or terminate any one or more instruments or agreements evidencing or relating to any Subordinated Debt; provided, however, UNF may make payments of scheduled principal and interest under the terms of the TCLP Note (subject to the provisions of Article 12 of the Note Purchase Agreement) and UNF may amend the Note Purchase Agreement (except for Article 12 thereof) in any manner that does not adversely affect the Lender or take any other action or omit to take any other action in respect of any Subordinated Debt, except in accordance with the Subordination Agreement relative thereto. -30- 8.2.7. Distributions. Declare or make, or permit any Subsidiary of ------------- Borrower to declare or make, any Distributions except distributions made by a wholly owned Subsidiary of a Borrower to such Borrower in the ordinary course of business. 8.2.8. Capital Expenditures. Make Capital Expenditures (including, -------------------- without limitation, by way of capitalized leases) which, in the aggregate, as to the Borrowers and their Subsidiaries, exceed $8,000,000 during Borrower's fiscal year ending in October 1996 and $1,500,000 during any fiscal year of Borrower thereafter. 8.2.9. Disposition of Assets. Sell, lease or otherwise dispose of any --------------------- of, orpermit any Subsidiary of any Borrower to sell, lease or otherwise dispose any of, its Properties, including any disposition of Property as part of a sale and leaseback transaction, to or in favor of any Person, except (i) sales of Inventory in the ordinary course of business for so long as no Event of Default exists hereunder, (ii) a transfer of Property to a Borrower by a Subsidiary of such Borrower, or (iii) dispositions expressly authorized by this Agreement. 8.2.10. Stock of Subsidiaries. Permit any of their Subsidiaries to --------------------- issue any additional shares of its capital stock except director's qualifying shares. 8.2.11. Bill-and-Hold Sales, Etc. Make a sale to any customer on a ------------------------ bill-and-hold, guaranteed sale, sale and return, sale on approval or consignment basis, or any sale on a repurchase or return basis. 8.2.12. Restricted Investment. Make or have, or permit any Subsidiary --------------------- of any Borrower to make or have, any Restricted Investment. 8.2.13. Leases. Become, or permit any of its Subsidiaries to become, a ------ lessee under any operating lease (other than a lease under which Borrower or any of its Subsidiaries is lessor) of Property if the aggregate Rentals payable during any current or future period of twelve (12) consecutive months under the lease in question and all other leases under which Borrower or any of its Subsidiaries is then lessee would exceed $15,000,000.00. The term "Rentals" means, as of the date of determination, all payments which the lessee is required to make by the terms of any lease. 8.2.14. Tax Consolidation. File or consent to the filing of any ----------------- consolidated income tax return with any Person other than a Subsidiary of Borrowers. 8.2.15. Business Locations. Transfer its principal place of business ------------------ or chief executive office, or open any new business location or maintain warehouses other than as set forth on Exhibit B hereto, except upon at least --------- thirty (30) days prior written notice to Lender and after deliver to Lender of financing statements if required by Lender in form satisfactory to Lender to perfect or continue the perfection and priority of Lender's Lien and security interest hereunder. -31- 8.2.16. Guaranties. Except as set forth in Exhibit Q hereto, guaranty, ---------- --------- assume, endorse or otherwise, in any way, become directly or contingently liable with respect to the Indebtedness of any Person except by endorsement or instruments or items of payment for deposit or collection, provided, however, that the Borrowers may (a) enter into guaranties in the ordinary course of business of indebtedness and obligations incurred by New Subsidiaries in connection with the opening of retail stores and (b) make payments (but not prepayments) of principal and interest when due under the terms of the ESOP Notes to the extent that no Default or Event of Default shall have occurred and be continuing at the time of or hereafter giving effect to any such payment. 8.2.17. Adverse Transactions. Enter into any transaction or permit any -------------------- Subsidiary to enter into any transaction, which materially and adversely effects or may materially adversely effect the Collateral or the Borrowers' ability to repay the Obligations or permit or agree to any material extension, compromise or settlement or make any change or modification of any kind or nature with respect to any Account, including any of the terms relating thereto, other than discounts and allowances in the ordinary course of business, all of which shall be reflected in the Schedules of Accounts submitted to Lender pursuant to Section 6.2.1 of this Agreement. 8.2.18. Subsidiaries. Hereafter create any Subsidiary except in the ------------ ordinary course of Borrowers' business or divest itself of any material assets by transferring them to any Subsidiary to whose existence Lender has not consented. 8.2.19. Change of Business. Enter into any new business or make any ------------------ material change in any of Borrowers' business objectives, purposes and operations. 8.2.20. Name of Borrowers. Use any corporate name (other than its own) ----------------- or any fictitious name, trade style or "d/b/a" except for the names disclosed on Exhibit E attached hereto. - --------- 8.2.21. Executive Compensation. Permit the total annual compensation ---------------------- (including, without limitation, salaries, fees, bonuses, commissions and other payments, whether direct or indirect, in money, or otherwise) of its officers, shareholders and directors to exceed during any fiscal year of the Borrowers' one hundred and twenty (120%) percent of the amount paid during the preceding fiscal year after such executive compensation equal $1,000,000. 8.2.22. Use of Lender's Name. Without prior written consent of Lender, -------------------- use the name of Lender or the name of any Affiliates of Lender in connection with any of the Borrowers' business or activities, except in connection with internal business matters, as required in dealings with governmental agencies and financial institutions and to trade creditors of the Borrowers solely for credit reference purposes. -32- 8.2.23. Margin Securities. Own, purchase or acquire (or enter into any ----------------- contracts to purchase or acquire) any "margin security" as defined by any regulation of the Federal Reserve Board as now in effect or as the same may hereafter be in effect unless, prior to any such purchase or acquisition or entering into any such contract, Lender shall have received an opinion of counsel satisfactory to Lender that the effect of such purchase or acquisition will not cause this Agreement to violate regulations (G) or (U) or any other regulation of the Federal Reserve Board then in effect. 8.3. Specific Financial Covenants. During the term of this Agreement, and ---------------------------- thereafter for so long as there are any Obligations to Lender, Borrowers covenant that, unless otherwise consented to by Lender in writing, they shall: 8.3.1. Minimum Working Capital. Maintain at all times Working Capital ----------------------- of not less than $2,000,000. 8.3.2. Minimum Adjusted Tangible Net Worth. Maintain at all times an ----------------------------------- Adjusted Tangible Net Worth (which, for purposes of this Section 8.3.2 shall include the indebtedness evidenced by the ESOP Notes and the value of Inventory shall be calculated on a first-in-first-out basis) of not less than the amount shown below for the period corresponding thereto:
Period Amount ------ ------ Closing Date through the end of $5,000,000 Borrowers' Fiscal Year 1996 During Borrowers' Fiscal Year 1997 $5,700,000 During Borrowers' Fiscal Year 1998 $6,400,000
8.3.3. Current Ratio. Maintain at all times a ratio of Current Assets ------------- to Current Liabilities of not less than 1.03 to 1.0. 8.3.4. Cash Flow. Achieve Cash Flow of not less than $200,000 during --------- each fiscal quarter of the Borrowers. SECTION 9. CONDITIONS PRECEDENT 9.1 Conditions to Closing. Notwithstanding any other provision of this --------------------- Agreement or any of the other Loan Documents, and without affecting in any manner the rights of Lender under the other sections of this Agreement, Lender shall not be required to make any Loan under this Agreement unless and until each of the following conditions has been and continues to be satisfied: -33- 9.1.1. Documentation. Lender shall have received, in form and ------------- substance satisfactory to Lender and its counsel, a duly executed copy of this Agreement and the other Loan Documents, together with such additional documents, instruments and certificates as Lender and its counsel shall require in connection therewith from time to time, all in form and substance satisfactory to Lender and its counsel. 9.1.2. No Default. No Default or Event of Default shall exist under ---------- this Agreement or the Original Agreement. 9.1.3. Other Loan Documents. Each of the conditions precedent set -------------------- forth in the other Loan Documents shall have been satisfied. 9.1.4. Landlord Waivers. Lender shall have received landlord or ---------------- warehouseman agreements with respect to all premises leased by any Borrower as identified in Paragraph 1 of Exhibit B hereto; --------- 9.1.5. Consummation of Merger. Lender shall have received in form and ---------------------- substance satisfactory to Lender, evidence that the Merger Agreements have been duly executed and delivered by and to the appropriate parties thereto and the transactions contemplated under the terms of the Merger Agreements have been consummated prior to or contemporaneously with the execution of this Agreement, including, without limitation evidence, satisfactory to Lender, that the Certificates of Merger with respect to the Merger have been filed with the Secretary of State of the State of California and the Secretary of State of the State of Delaware and the Merger is valid and effective in accordance with the terms and provisions of the Merger Agreements and the applicable corporation statutes of the State of California and the State of Delaware. 9.1.6. Legal Opinions. Lender shall have received, in form and -------------- substance satisfactory to Lender, the opinion letter of counsel(s) the Borrower with respect to the Merger Agreements, the effectiveness of the Merger as of the date hereof, this Agreement and the Loan Documents and the security interests and liens of Lender with respect to the Collateral and such other matters as Lender may request. 9.1.7. No Litigation. No action, proceeding, investigation, ------------- regulation or legislation shall have been instituted, threatened or proposed before any court, governmental agency or legislative body to enjoin, restrain or prohibit, or to obtain damages in respect of, or which is related to or arises out of this Agreement or the consummation of the transactions contemplated hereby. 9.1.8 Lien Filings. Lender shall have received copies of all filing ------------ reports or acknowledgments issued to evidence all filings or recordations necessary to perfect the Liens of Lender in the Collateral in form satisfactory to Lender to ensure that -34- such Liens constitute first priority and only perfected liens, subject only to Permitted Liens. 9.1.9. No Material Adverse Change. Since the last fiscal year end of -------------------------- each Borrower, there shall not have occurred any material adverse change in the business, operations or condition (financial or otherwise) of any Borrower or any of its Subsidiaries, or the existence or value of any Collateral or any event, condition or state of facts which would reasonably be expected to materially and adversely affect the business, operations or condition (financial or otherwise of any Borrower or any of its Subsidiaries. 9.1.10. Insurance. Borrowers shall deliver to Lender copies of --------- Borrowers' casualty insurance policies, together with certificates of insurance evidencing loss payable endorsements on Lender's standard form of loss payee endorsement naming Lender as loss payee, and certified copies of Borrowers' liability insurance policies, together with endorsements showing Lender as a co- insured. 9.2. Conditions to All Loans. Notwithstanding any other provision of this ----------------------- Agreement or other Loan Documents and without affecting in any manner the rights of Lender under the other sections of this Agreement, Lender shall not be required to make any Loan (including the initial Loans) unless each of the following conditions are satisfied: (i) All representations and warranties contained herein and in the other Loan Documents shall be true and correct in all respects; (ii) No material adverse change in the business, financial condition, or results of operations of any Borrower or its Subsidiaries shall have occurred since the date of Lender's latest audit of those entities, including, without limitation, that no material investigation, litigation or other proceedings shall be pending or threatened against any Borrower or any of its Subsidiaries; (iii) No Default or Event of Default shall exist; and (iv) Lender shall have received such additional documents, statements, opinions, certificates, information and evidence as Lender may reasonably request and all documents and all actions required to be taken on or before the making of any Loan shall have been taken. SECTION 10. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT 10.1. Events of Default. The occurrence of one or more of the following events ----------------- shall constitute an "Event of Default": -35- 10.1.1. Payment of Notes. Borrowers shall fail to pay any installment ---------------- of principal, interest or premium, if any, owing on the Term Note or Real Estate Term Note on or within ten (10) days after the due date of such installment. 10.1.2. Payment of Other Obligations. Borrowers shall fail to pay any ---------------------------- of the Obligations that are not evidenced by the Term Note or Real Estate Term Note or on the due date thereof (whether due at stated maturity, on demand, upon acceleration or otherwise). 10.1.3. Misrepresentations. Any representation, warranty or other ------------------ statement made or furnished to Lender by or on behalf of any Borrower, any Subsidiary of any Borrower or Guarantor in this Agreement, any of the other Loan Documents or any instrument, certificate or financial statement furnished in compliance with or in reference thereto proves to have been false or misleading in any material respect when made or furnished or when reaffirmed pursuant to Section 7.2 hereof. 10.1.4. Breach of Specific Covenants. Any Borrower shall fail or ---------------------------- neglect to perform, keep or observe any covenant contained in Sections 5.2, 6.1.1, 6.2, 6.3, 6.4, 8.1.1, 8.1.3, 8.2 or 8.3 hereof on the date that Borrowers are required to perform, keep or observe such covenant. 10.1.5. Breach of Other Covenants. Any Borrower shall fail or neglect ------------------------- to perform, keep or observe any covenant contained in this Agreement (other than a covenant which is dealt with specifically elsewhere in Section 10.1 hereof) and the breach of such other covenant is not cured to Lender's satisfaction within thirty (30) days after the sooner to occur of Borrowers' receipt of notice of such breach from Lender or the date on which such failure or neglect first becomes known to any officer of any Borrower. 10.1.6. Default Under Security Documents/Other Agreements. Any event ------------------------------------------------- of default shall occur under, or if a Borrower shall default in the performance or observance of any term, covenant, condition or agreement contained in, any of the Security Documents or the Other Agreements and such default shall continue beyond any applicable grace period. 10.1.7. Other Defaults. There shall occur any default or event of -------------- default on the part of Borrowers under any agreement, document or instrument to which any Borrower is a party or by which any Borrower or any of its Property is bound, creating or relating to any Indebtedness (other than the Obligations) if the payment or maturity of such Indebtedness is accelerated in consequence of such event of default or demand for payment of such Indebtedness is made. 10.1.8. Uninsured Losses. Any material loss, theft, damage or ---------------- destruction of any of the Collateral not fully covered (subject to such deductibles as Lender shall -36- have permitted) by insurance, or a sale, lease or encumbrance of any collateral or the making of a levy, seizure, or attachment thereof or thereon except in all cases as may be specifically permitted by other provisions of this Agreement. 10.1.9. Adverse Changes. There shall occur any material adverse change --------------- in the financial condition or business prospects of any Borrower or the Guarantors, consolidated as a group with NRG. 10.1.10. Insolvency and Related Proceedings. Any Borrower or any ---------------------------------- Guarantor shall cease to be Solvent or shall suffer the appointment of a receiver, trustee, custodian or similar fiduciary, or shall make an assignment for the benefit of creditors, or any petition for an order for relief shall be filed by or against any Borrower or any Guarantor under the Bankruptcy Code (if against any Borrower or any Guarantor, the continuation of such proceeding for more than thirty (30) days), or any Borrower or any Guarantor shall make any offer of settlement, extension or composition to their respective unsecured creditors generally. 10.1.11. Business Disruption; Condemnation. There shall occur a --------------------------------- cessation of a substantial part of the business of any Borrower, any Subsidiary of a Borrower or any Guarantor for a period which significantly affects Borrower's or such Guarantor's capacity to continue its business, on a profitable basis; or any Borrower, any Subsidiary of a Borrower or any Guarantor shall suffer the loss or revocation of any license or permit now held or hereafter acquired by a Borrower or such Guarantor which is necessary to the continued or lawful operation of its business; or any Borrower or any Guarantor shall be enjoined, restrained or in any way prevented by court, governmental or administrative order from conducting all or any material part of its business affairs; or any material lease or agreement pursuant to which a Borrower or any Guarantor leases, uses or occupies any Property shall be canceled or terminated prior to the expiration of its stated term; or any part of the Collateral shall be taken through condemnation or the value of such Property shall be impaired through condemnation. 10.1.12. Change of Ownership. (i) Norman Cloutier and UNF's Employee ------------------- Stock Ownership Plan shall cease to own or control beneficially and of record at least 51% in the aggregate of the issued and outstanding capital stock of UNF or the issued and outstanding capital stock of any Person which may own or control beneficially and of record the issued and outstanding capital stock of UNF (except to the extent that the decrease in such ownership percentage is the result of the initial public offering of UNF's capital stock for an aggregate cash amount of not less than $10,000,000), or (ii) Norman Cloutier, Steven Townsend and Daniel Atwood shall cease to control the day-to-day affairs of UNF's Employee Stock Option Plan, whether as trustees, plan administrators or in any similar capacity. -37- 10.1.13. ERISA. A Reportable Event shall occur which Lender, in its ----- sole discretion, shall determine in good faith constitutes grounds for the termination by the Pension Benefit Guaranty Corporation of any Plan or for the appointment by the appropriate United States district court of a trustee for any Plan, or if any Plan shall be terminated or any such trustee shall be requested or appointed, or if any Borrower, any Subsidiary of any Borrower or any Guarantor is in "default" (as defined in Section 4219(c)(5) of ERISA) with respect to payments to a Multiemployer Plan resulting from Borrower's, such Subsidiary's or such Guarantor's complete or partial withdrawal from such Plan. 10.1.14. Challenge to Agreement. Any Borrower, any Subsidiary of any ---------------------- Borrower or any Guarantor, or any Affiliate of any of them, shall challenge or contest in any action, suit or proceeding the validity or enforceability of this Agreement, or any of the other Loan Documents, the legality or enforceability of any of the Obligations or the perfection or priority of any Lien granted to Lender. 10.1.15. Repudiation of or Default Under Guaranty Agreement. Any -------------------------------------------------- Guarantor shall revoke or attempt to revoke the Guaranty Agreement signed by such Guarantor, or shall repudiate such Guarantor's liability thereunder or shall be in default under the terms thereof. 10.1.16. Criminal Forfeiture. Any Borrower, any Subsidiary of any ------------------- Borrower or any Guarantor shall be criminally indicted or convicted under any law that could lead to a forfeiture of any Property of any Borrower, any Subsidiary of any Borrower or any Guarantor. 10.1.17. Judgments. Any money judgment, writ of attachment or similar --------- process is filed against any Borrower, any Subsidiary of Borrower or Guarantors consolidated as a group with NRG, or any of their respective Property in an amount in excess of $100,000 and such judgment, attachment or similar process is not satisfied or stayed on appeal within thirty (30) days. 10.2. Acceleration of the Obligations. Without in any way limiting the right ------------------------------- of Lender to demand payment of any portion of the Obligations payable on demand in accordance with Section 3.2 hereof, upon or at any time after the occurrence of an Event of Default, all or any portion of the Obligations shall, at the option of Lender and without presentment, demand protest or further notice by Lender, become at once due and payable and Borrowers shall forthwith pay to Lender, the full amount of such Obligations, provided, that upon the occurrence -------- of an Event of Default specified in subsection 10.1.10 hereof, all of the Obligations shall become automatically due and payable without declaration, notice or demand by Lender. -38- 10.3. Other Remedies. Upon and after the occurrence of an Event of Default, -------------- Lender shall have and may exercise from time to time the following rights and remedies: 10.3.1. Rights as a Secured Party. All of the rights and remedies of a ------------------------- secured party under the Code or under other applicable law, and all other legal and equitable rights to which Lender may be entitled, all of which rights and remedies shall be cumulative and shall be in addition to any other rights or remedies contained in this Agreement or any of the other Loan Documents, and none of which shall be exclusive. 10.3.2. Right to Possession. The right to take immediate possession of ------------------- the Collateral, and to (i) require Borrowers to assemble the Collateral, at Borrowers' expense, and make it available to Lender at a place designated by Lender which is reasonably convenient to both parties, and (ii) enter any premises where any of the Collateral shall be located and to keep and store the Collateral on said premises until sold (and if said premises be the Property of any Borrower, Borrowers agree not to charge Lender for storage thereof). 10.3.3. Right of Disposition. The right to sell or otherwise dispose -------------------- of all or any Collateral in its then condition, or after any further manufacturing or processing thereof, at public or private sale or sales, with such notice as may be required by law, in lots or in bulk, for cash or on credit, all as Lender, in its sole discretion, may deem advisable. Borrowers agree that ten (10) days written notice to Borrowers of any public or private sale or other disposition of Collateral shall be reasonable notice thereof, and such sale shall be at such locations as Lender may designate in said notice. Lender shall have the right to conduct such sales on Borrowers' premises, without charge therefor, and such sales may be adjourned from time to time in accordance with applicable law. Lender shall have the right to sell, lease or otherwise dispose of the Collateral, or any part thereof, for cash, credit or any combination thereof, and Lender may purchase all or any part of the Collateral at public or, if permitted by law, private sale and, in lieu of actual payment of such purchase price, may set off the amount of such price against the Obligations. The proceeds realized from the sale of any Collateral may be applied, after allowing two (2) Business Days for collection, first to the costs, expenses and attorneys' fees incurred by Lender in collecting the Obligations, in enforcing the rights of Lender under the Loan Documents and in collecting, retaking, completing, protecting, removing, storing, advertising for sale, selling and delivering any Collateral, second to the interest due upon any of the Obligations; and third, to the principal of the Obligations. If any deficiency shall arise, each Borrower and each Guarantor shall remain jointly and severally liable to Lender therefor. 10.3.4. License Granted. Lender is hereby granted a license or other --------------- right to use, without charge, Borrowers' labels, patents, copyrights, rights of use of any name, -39- trade secrets, tradenames, trademarks and advertising matter, or any Property of a similar nature, as it pertains to the Collateral, in advertising for sale and selling any Collateral and Borrowers' rights under all licenses and all franchise agreements shall inure to Lender's benefit. 10.3.5. Deposit Option. Lender may, at its option, require Borrowers -------------- to deposit with Lender funds equal to the LC Amount and, if Borrowers fail to promptly make such deposit, Lender may advance such amount as a Revolving Credit Loan (whether or not an Overadvance is created thereby). Any such deposit or advance shall be held by Lender as a reserve to fund future payments on such LC Guaranties and future drawings against such Letters of Credit. At such time as all LC Guaranties have been paid or terminated and all Letters of Credit have been drawn upon or expired, any amounts remaining in such reserve shall be applied against any outstanding Obligations, or, if all Obligations have been indefeasibly paid in full in immediately available funds, returned to Borrowers. 10.4. Remedies Cumulative; No Waiver. All covenants, conditions, provisions, ------------------------------ warranties, guaranties, indemnities, and other undertakings of Borrowers contained in this Agreement and the other Loan Documents, or in any document refereed to herein or contained in any agreement supplementary hereto or in any schedule or in any Guaranty Agreement given to Lender or contained in any other agreement between Lender and Borrowers, heretofore, concurrently, or hereafter entered into, shall be deemed cumulative to and not in derogation or substitution of any of the terms, covenants, conditions, or agreements of Borrowers herein contained. The failure or delay of Lender to require strict performance by Borrowers or any of them of any provision of this Agreement or to exercise or enforce any rights, Liens, powers, or remedies hereunder or under any of the aforesaid agreements or other documents or security or Collateral shall not operate as a waiver of such performance, Liens, rights, powers and remedies, but all such requirements, Liens, rights, powers, and remedies shall continue in full force and effect until all Loans and all other Obligations owing or to become owing from Borrowers to Lender shall have been fully satisfied. None of the undertakings, agreements, warranties, covenants and representations of Borrower contained in this Agreement or any of the other Loan Documents and no Event of Default by Borrowers under this Agreement or any other Loan Documents shall be deemed to have been suspended or waived by Lender, unless such suspension or waiver is by an instrument m writing specifying such suspension or waiver and is signed by a duly authorized representative of Lender and directed to Borrowers. SECTION 11. MISCELLANEOUS 11.1. Power of Attorney. Each Borrower hereby irrevocably designates, makes, ----------------- constitutes and appoints Lender (and all Persons designated by Lender) as such Borrower's true and lawful attorney (and agent-in-fact) and Lender, or Lender's -40- agent, may, without notice to Borrowers and in either any Borrower's or Lender's name, but at the cost and expense of Borrowers: 11.1.1. Endorsement. At such time or times as Lender or said agent, in ----------- its sole discretion, may determine, endorse Borrowers' names on any checks, notes, acceptances, drafts, money orders or any other evidence of payment or proceeds of the Collateral which come into the possession of Lender or under Lender's control. 11.1.2. Other Rights of Lender. At such time or times upon or after ---------------------- the occurrence of an Event of Default as Lender or its agent in its sole discretion may determine: (i) demand payment of the Accounts from the Account Debtors, enforce payment of the Accounts by legal proceedings or otherwise, and generally exercise all of Borrowers' rights and remedies with respect to the collection of the Accounts; (ii) settle, adjust, compromise, discharge or release any of the Accounts or other Collateral or any legal proceedings brought to collect any of the Accounts or other Collateral; (iii) sell or assign any of the Accounts and other Collateral upon such terms, for such amounts and at such time or times as Lender deems advisable; (iv) take control, in any manner, of any item of payment or proceeds relating to any Collateral; (v) prepare, file and sign Borrowers' names to a proof of claim in bankruptcy or similar document against any Account Debtor or to any notice of lien, assignment or satisfaction of lien or similar document in connection with any of the Collateral; (vi) receive, open and dispose of all mail addressed to Borrowers and to notify postal authorities to change the address for delivery thereof to such address as Lender may designate; (vii) endorse the names of Borrowers upon any of the items of payment or proceeds relating to any Collateral and deposit the same to the account of Lender on account of the Obligations; (viii) endorse the name of Borrowers upon any chattel paper, document, instrument, invoice, freight bill, bill of lading or similar document or agreement relating to the Accounts, Inventory and any other Collateral; (ix) use Borrowers' stationery and sign the names of Borrowers to verifications of the Accounts and notices thereof to Account Debtors; (x) use the information recorded on or contained in any data processing equipment and computer hardware and software relating to the Accounts, Inventory, Equipment and any other Collateral; (xi) make and adjust claims under policies of insurance; and (xii) do ail other acts and things necessary, in Lender's determination, to fulfill Borrowers' Obligations under this Agreement. 11.2. Indemnity. Each Borrower hereby agrees to indemnify Lender and hold --------- Lender harmless from and against any liability, loss, damage, suit, action or proceeding ever suffered or incurred by Lender (including reasonable attorneys fees and legal expenses) as the result of Borrowers' failure to observe, perform or discharge Borrowers' duties hereunder. In addition, Borrower shall defend Lender against and save it harmless from all claims of any Person with respect to the Collateral. Without limiting the generality of the foregoing, these indemnities shall extend to any claims asserted against Lender by any Person under any -41- Environmental Laws or similar laws by reason of any Borrower's or any other Person's failure to comply with laws applicable to solid or hazardous waste materials or other toxic substances. The indemnities provided herein shall be limited to the extent that it is determined by a final and nonappealable judgment or order binding the Lender that the liability, loss or damages were solely the result of Lender's acts or omissions constituting gross negligence or willful misconduct. Notwithstanding any contrary provision in this Agreement, the obligation of Borrowers under this Section 11.2 shall survive the payment in full of the Obligations and the termination of this Agreement. 11.3. Modification of Agreement; Sale of Interest. This Agreement may not be ------------------------------------------- modified, altered or amended, except by an agreement in writing signed by Borrowers (or their Agent) and Lender. Borrowers may not sell, assign or transfer any interest in this Agreement, any of the other Loan Documents, or any of the Obligations, or any portion thereof, including, without limitation, Borrowers' rights, title, interests, remedies, powers, and duties hereunder or thereunder. Upon receipt of prior notice thereof, Borrowers hereby consent to Lender's participation, sale, assignment, transfer or other disposition, at any time or times hereafter, of this Agreement and any of the other Loan Documents, or of any portion hereof or thereof, including, without limitation, Lender's rights, title, interests, remedies, powers, and duties hereunder or thereunder. In the case of an assignment, the assignee shall have, to the extent of such assignment, the same rights, benefits and obligations as it would if it were "Lender" hereunder and Lender shall be relieved of all obligations hereunder upon any such assignments. Borrowers agree that they will use their best efforts to assist and cooperate with Lender in any manner reasonably requested by Lender to effect the sale of participations in or assignments of any of the Loan Documents or any portion thereof or interest therein, including, without limitation, assisting in the preparation of appropriate disclosure documents. Borrowers further agree that Lender may disclose credit information regarding Borrowers and their Subsidiaries to any potential participant or assignee. 11.4. Severability. Wherever possible, each provision of this Agreement shall ------------ be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 11.5. Successors and Assigns. This Agreement, the Other Agreements and the ---------------------- Security Documents shall be binding upon and inure to the benefit of the successors and assigns of Borrowers and Lender permitted under Section 11.3 hereof. 11.6. Cumulative Effect; Conflict of Terms. The provisions of the Other ------------------------------------ Agreements and the Security Documents are hereby made cumulative with the provisions of this -42- Agreement. Except as otherwise provided in Section 3.2 hereof and except as otherwise provided in any of the other Loan Documents by specific reference to the applicable provision of this Agreement, if any provision contained in this Agreement is in direct conflict with, or inconsistent with, any provision in any of the other Loan Documents, the provision contained in this Agreement shall govern and control. 11.7. Execution in Counterparts. This Agreement may be executed in any number ------------------------- of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which counterparts taken together shall constitute but one and the same instrument. 11.8. Notice. Except as otherwise provided herein, all notices, requests and ------ demands to or upon a party hereto, to be effective, shall be in writing and shall be sent by certified or registered mail, return receipt requested, by personal delivery against receipt, by overnight courier or by facsimile and, unless otherwise expressly provided herein, shall be deemed to have been validly served, given or delivered immediately when delivered against receipt, one Business Day after deposit in the mail, postage prepaid, or with an overnight courier or, in the case of facsimile notice, when sent, addressed as follows: If to Lender: Fleet Capital Corporation 200 Glastonbury Boulevard Glastonbury, CT 06033 Attention: Timothy Johnson, Region Vice President Facsimile No.: (203) 657-7759 With a copy to: Brown Rudnick Freed & Gesmer One Financial Center Boston, MA 02111 Attention: Jeffery L. Keffer, Esq. Facsimile No.: (617) 856-8201 If to Borrowers: United Natural Foods, Inc. 260 Lake Road, Dayville, CT 06241 Attention: Steven Townsend Facsimile No: (860) 779-7172 Mountain People's Warehouse Incorporated 12745 Earhart Avenue Auburn, CA 95602 Attention: Michael F. Funk Facsimile No.: (916) 889-9544 -43- Natural Retail Group, Inc. 260 Lake Road Dayville, Connecticut 06241 Attention: Steven Townsend Facsimile No.: (860) 779-7172 NutraSource, Inc. 4005 Sixth Avenue Seattle, Washington 98108 Attention: President Facsimile No.: (206) 682-1485 Rainbow Natural Foods, Inc. 4850 Moline Street Denver, Colorado 80239 Attention: President Facsimile No.: (303)-373-1869 With a copy to: Cameron & Mittleman 56 Exchange Terrace Providence, RI 02903 Attention: E. Colby Cameron, Esq. Facsimile No.: (401) 331-5700 or to such other address as each party may designate for itself by notice given in accordance with this Section 11.8; provided, however, that any notice, -------- ------- request or demand to or upon Lender pursuant to subsection 3.1.1 or 4.2.2 hereof shall not be effective until received by Lender. 11.9. Lender's Consent. Whenever Lender's consent is required to be obtained ---------------- under this Agreement, any of the Other Agreements or any of the Security Documents as a condition to any action, inaction, condition or event, Lender shall be authorized to give or withhold such consent in its reasonable credit judgment and to condition its consent upon the giving of additional collateral security for the Obligations, the payment of money or any other matter. 11.10. Credit Inquiries. Borrowers hereby authorize and permit Lender to ---------------- respond to usual and customary credit inquiries from third parties concerning Borrowers or any of their Subsidiaries. 11.11. Time of Essence. Time is of the essence of this Agreement, the Other --------------- Agreements and the Security Documents. -44- 11.12. Entire Agreement. This Agreement and the other Loan Documents, together ---------------- with all other instruments, agreements and certificates executed by the parties in connection therewith or with reference thereto, embody the entire understanding and agreement between the parties hereto and thereto with respect to the subject matter hereof and thereof and supersede all prior agreements, understandings and inducements, whether express or implied, oral or written. 11.13. Interpretation. No provision of this Agreement or any of the other Loan -------------- Documents shall be construed against or interpreted to the disadvantage of any party hereto by any court or other governmental or judicial authority by reason of such party having or being deemed to have structured or dictated such provision. 11.14. Joint and Several Liability. All Loans, Letters of Credit and LC --------------------------- Guaranties made or issued hereunder are made to or for the benefit of each of the Borrowers. The Borrowers are jointly and severally, directly and primarily liable for the full and indefeasible payment when due and performance of all Obligations and for the prompt and full payment and performance of all of the promises, covenants, representations, and warranties made or undertaken by each Borrower under this Agreement and the Loan Documents and Borrowers agree that such liability is independent of the duties, obligations, and liabilities of each of the joint and several Borrowers. In furtherance of the foregoing, each Borrower jointly and severally, absolutely and unconditionally guaranties to Lender and agrees to be liable for the full and indefeasible payment and performance when due of all the Obligations. This guarantee is a continuing guarantee, and shall apply to all Obligations whenever arising. 11.15. Suretyship Waivers and Consents. ------------------------------- (i) Each Borrower acknowledges that the obligations of such Borrower undertaken herein might be construed to consist, at least in part, of the guaranty of obligations of persons other than such Borrower (including the other Borrowers) and, in full recognition of that fact, each Borrower consents and agrees that Lender may, at any time and from time to time, without notice or demand (except as provided in and in accordance with the terms of this Agreement), whether before or after any actual or purported termination, repudiation or revocation of this Agreement by any Borrower, and without affecting the enforceability or continuing effectiveness hereof as to each Borrower: (a) increase, extend, or otherwise change the time for payment or the terms of the Obligations or any part thereof; (b) supplement, restate, modify, amend, increase, decrease, or waive, or enter into or give any agreement, approval or consent with respect to, the Obligations or any part thereof, this Agreement, or any of the Loan Documents or any additional security or guarantees, or any condition, covenant, default, remedy, right, representation, or term thereof or thereunder; (c) accept new or additional instruments, documents, or agreements in exchange for or relative to any of the loan Documents or the -45- Obligations or any part thereof; (d) accept partial payments on the Obligations; (e) receive and hold additional security or guarantees for the Obligations or any part thereof; (f) release, reconvey, terminate, waive, abandon, fail to perfect, subordinate, exchange, substitute, transfer, or enforce any Collateral, security or guarantees, and apply any Collateral or security and direct the order or manner of sale thereof as Lender in its sole and absolute discretion may determine; (g) release any person from any personal liability with respect to the Obligations or any part thereof; (h) settle, release on terms satisfactory to Lender or by operation of applicable laws or otherwise liquidate or enforce any Obligations and any Collateral or security therefor or guaranty thereof in any manner, consent to the transfer of any Collateral or security and bid and purchase at any sale; or (i) consent to the merger, change, or any other restructuring or termination of the corporate or partnership existence of any Borrower, and correspondingly restructure the Obligations, and any such merger, change, restructuring, or termination shall not affect the liability of any Borrower or the continuing effectiveness hereof, or the enforceability hereof with respect to all or any part of the Obligations. (ii) Lender may enforce this Agreement independently as to each Borrower and independently of any other remedy or security Lender at any time may have or hold in connection with the Obligations, and it shall not be necessary for Lender to marshal assets in favor of any Borrower or to proceed upon or against or exhaust any Collateral or security or remedy before proceeding to enforce this Agreement. Each Borrower expressly waives any right to require Lender to marshal assets in favor of any Borrower or any guarantor of the Obligations or to proceed against any other Borrower, and agrees that Lender may proceed against Borrowers or any Collateral in such order as Lender shall determine in its sole and absolute discretion. (iii) Lender may file a separate action or actions against any Borrower, whether such action is brought or prosecuted with respect to any security or against any guarantor of the Obligations, or whether any other person is joined in any such action or actions. Each Borrower agrees that Lender and each Borrower and any affiliate of any Borrower may deal with each other in connection with the Obligations or otherwise, or alter any contracts or agreements now or hereafter existing between any of them, in any manner whatsoever, all without in any way altering or affecting the continuing enforceability of this Agreement. Each Borrower, as a joint and several Borrower hereunder, expressly waives the benefit of any statute of limitations affecting its joint and several liability hereunder or the enforcement of the Obligations or any rights of Lender created or granted herein. (iv) Lender's rights hereunder shall be reinstated and revived, and the enforceability of this Agreement shall continue, with respect to any amount at any time paid on account of the Obligations which thereafter shall be required to be restored or returned by Lender, all as though such amount had not been paid. The -46- rights of Lender created or granted herein and the enforceability of this Agreement at all times shall remain effective to cover the full amount of all the Obligations even though the Obligations, including any part thereof or any Collateral, other security or guaranty therefor, may be or hereafter may become invalid or otherwise unenforceable as against any Borrower and whether or not any Borrower shall have any personal liability with respect thereto. (v) Each Borrower expressly waives any and all defenses now or hereafter arising or asserted by reason of (a) any disability or other defense of any other Borrower with respect to the Obligations; (b) the unenforceability or invalidity of any security or guaranty for the Obligations or the lack of perfection or continuing perfection or failure of priority of any security for the Obligations; (c) the cessation for any cause whatsoever of the liability of any Borrower (other than by reason of the full payment and performance of all Obligations as required herein); (d) any failure of Lender to marshall assets in favor of any Borrower; (e) any failure of Lender to give notice to any Borrower of sale or other disposition of Collateral of another Borrower or any defect in any notice that may be given in connection with any such sale or disposition of Collateral of any Borrower securing the Obligations; (f) any failure of Lender to comply with applicable law in connection with the sale or other disposition of any Collateral or other security of any Borrower, for any Obligation, including any failure of Lender to conduct a commercially reasonable sale or other disposition of any Collateral or other security of any Borrower for any Obligation; (g) any act or omission of Lender or others that directly or indirectly results in or aids the discharge or release of any Borrower or the Obligations of any Borrower or any security or guaranty therefor by operation of law or otherwise; (h) any law which provides that the obligation of a surety or guarantor must neither be larger in amount nor in other respects more burdensome than that of the principal or which reduces a surety's or guarantor's obligation in proportion to the principal obligation; (i) any failure of Lender to file or enforce a claim in any bankruptcy or other proceeding with respect to any Borrower; (j) the avoidance of any lien or security interest in assets of any Borrower in favor of Lender for any reason; or (k) any action taken by Lender that is authorized by this section or any other provision of any Loan Document. Until such time, if any, as all of the Obligations have been indefeasibly paid and performed in full and no portion of any commitment of Lender to Borrowers under any Loan Document remains in effect, each Borrowers' indebtedness, claims and rights of subrogation, contribution, reimbursement, or indemnity against the other Borrowers shall be fully and completely subordinated to the indefeasible repayment in full of the Obligations, and each Borrower expressly waives until such indefeasible payment any right to enforce any remedy that it now has or hereafter may have against any other Person and waives the benefit of, or any right to participate in, any Collateral now or hereafter held by Lender. (vi) To the fullest extent permitted by applicable law, each Borrower expressly waives and agrees not to assert, any and all defenses in its favor -47- based upon an election of remedies by Lender which destroys, diminishes, or affects such Borrower's subrogation rights against the other Borrowers, or against any Guarantor, and/or (except as explicitly provided for herein) any rights to proceed against each other Borrower, or any other party liable to Lender, for reimbursement, contribution, indemnity, or otherwise. (vii) Borrowers and each of them warrant and agree that each of the waivers and consents set forth herein are made after consultation with legal counsel and with full knowledge of their significance and consequences, with the understanding that events giving rise to any defense or right waived may diminish, destroy, or otherwise adversely affect rights which Borrowers otherwise may have against each other, Lender, or others, or against Collateral, and that, under the circumstances, the waivers and consents herein given are reasonable and not contrary to public policy or law. If any of the waivers or consents herein are determined to be contrary to any applicable law or public policy, such waivers and consents shall be effective to the maximum extent permitted by law. 11.16. Contribution Agreement. As an inducement to Lender to enter into this ---------------------- Agreement and to make the Loans and extend credit to the Borrowers, each Borrower agrees to indemnify and hold the other harmless from and each shall have a continuing right of contribution against the other Borrowers, if and to the extent that a Borrower makes or is caused to make disproportionate payments in excess of that Borrower's Proportionate Share (as defined below) of the Loans or contributions (from dispositions of its assets or otherwise) to the repayment and satisfaction of the Obligations. These indemnification and contribution obligations shall be unconditional and continuing obligations of the Borrowers and shall not be waived, rescinded, modified, limited or terminated in any way whatsoever without the prior written consent of Lender, in its sole discretion. For purposes hereof, Proportionate Share shall mean the actual amount of Loans made to a Borrower and Letters of Credit or LC Guaranties issued for the account of such Borrower based upon the lending formulas and other provisions of Section 2 hereof. 11.17. Transitional Arrangements. ------------------------- 11.17.1. Original Credit Agreement. This Agreement shall, on and as of ------------------------- the Closing Date, amend and restate the Original Agreement in its entirety, except as provided in this Section 11.17.1. On the Closing Date, the rights and obligations of the parties under the Original Agreement, the Amended Term Note and the Second Term Note shall be amended and restated pursuant to this Agreement and by the Term Note, provided, however, that each of the "Revolving -------- ------- Credit Loans" (as defined in the Original Agreement) outstanding under the Original Agreement on the Closing Date shall continue to bear interest up to the Closing Date at the rate at which they bear interest under the Original Agreement and, on and after the Closing Date, all of such Revolving Credit Loans under the Original Agreement shall be converted to -48- Revolving Credit Loans hereunder and shall bear interest at the rates set forth hereunder; and provided, further, that any Letter of Credit or LC Guaranty -------- ------- thereof outstanding under the Original Agreement on the Closing Date shall for the purposes of this Agreement, be a Letter of Credit and/or LC Guaranty hereunder. 11.17.2. Return and Cancellation of Term Notes. Upon its receipt of ------------------------------------- this Agreement and the Term Note hereunder on the Closing Date, the Lender will promptly return to the Borrower, marked "canceled", the Amended Term Note and the Second Term Note held by the Lender pursuant to the Original Agreement. 11.17.3. Real Estate Term Loan and Note. The Real Estate Term Loan and ------------------------------ the Secured Promissory Note evidencing the Real Estate Term Note shall continue in effect as an Obligation subject to the terms of this Agreement. 11.17.4. Fees Under-Superseded Agreement. All fees, letter of credit ------------------------------- fees and other fees and expenses owing or accruing under or in respect of the Original Agreement shall be calculated as of the Closing Date (prorated in the case of any fractional periods), and shall be paid in accordance with the method and on the dates, specified in the Original Agreement, as if the Original Agreement were still in effect. 11.18. GOVERNING LAW; CONSENT TO FORUM. THIS AGREEMENT HAS BEEN NEGOTIATED, ------------------------------- EXECUTED AND DELIVERED AT AND SHALL BE DEEMED TO HAVE BEEN MADE IN GLASTONBURY, CONNECTICUT. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CONNECTICUT: PROVIDED, HOWEVER, THAT IF ANY OF THE -------- ------- COLLATERAL SHALL BE LOCATED IN ANY JURISDICTION OTHER THAN CONNECTICUT, THE LAWS OF SUCH JURISDICTION SHALL GOVERN THE METHOD, MANNER AND PROCEDURE FOR FORECLOSURE OF LENDER'S LIEN UPON SUCH COLLATERAL AND THE ENFORCEMENT OF LENDER'S OTHER REMEDIES IN RESPECT OF SUCH COLLATERAL TO THE EXTENT THAT THE LAWS OF SUCH JURISDICTION ARE DIFFERENT FROM OR INCONSISTENT WITH THE LAWS OF CONNECTICUT. AS PART OF THE CONSIDERATION FOR NEW VALUE RECEIVED, AND REGARDLESS OF ANY PRESENT OR FUTURE DOMICILE OR PRINCIPAL PLACE OF BUSINESS OF EACH BORROWER OR LENDER, BORROWER HEREBY CONSENTS AND AGREES THAT THE SUPERIOR COURT OF HARTFORD, CONNECTICUT, OR, AT LENDER'S OPTION, THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF CONNECTICUT DIVISION, SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN BORROWER AND LENDER PERTAINING TO THIS AGREEMENT OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT. EACH BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH BORROWER HEREBY -49- WAIVES ANY OBJECTION WHICH SUCH BORROWER MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE ----- -------------- GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. BORROWER HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO A BORROWER AT THE ADDRESS SET FORTH IN THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF A BORROWER'S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID. NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO AFFECT THE RIGHT OF LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW, OR TO PRECLUDE THE ENFORCEMENT BY LENDER OF ANY JUDGMENT OR ORDER OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO ENFORCE SAME IN ANY OTHER APPROPRIATE FORUM OR JURISDICTION. 11.19. WAIVERS BY BORROWERS. EACH BORROWER WAIVES (i) THE RIGHT TO TRIAL BY -------------------- JURY (WHICH LENDER HEREBY ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO ANY OF THE LOAN DOCUMENTS, THE OBLIGATIONS OR THE COLLATERAL: (ii) PRESENTMENT, DEMAND AND PROTEST AND NOTICE OF PRESENTMENT, PROTEST, DEFAULT, NON PAYMENT, MATURITY, RELEASE, COMPROMISE, SETTLEMENT, EXTENSION OR RENEWAL OF ANY OR ALL COMMERCIAL PAPER, ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS, INSTRUMENTS CHATTEL PAPER AND GUARANTIES AT ANY TIME HELD BY LENDER ON WHICH A BORROWER MAY IN ANY WAY BE LIABLE AND HEREBY RATIFIES AND CONFIRMS WHATEVER LENDER MAY DO IN THIS REGARD; (iii) NOTICE PRIOR TO TAKING POSSESSION OR CONTROL OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING LENDER TO EXERCISE ANY OF LENDER'S REMEDIES; (iv) THE BENEFIT OF ALL VALUATION, APPRAISEMENT AND EXEMPTION LAWS; AND (v) NOTICE OF ACCEPTANCE HEREOF. EACH BORROWER ACKNOWLEDGES THAT THE FOREGOING WAIVERS ARE A MATERIAL INDUCEMENT TO LENDER'S ENTERING INTO THIS AGREEMENT AND THAT LENDER IS RELYING UPON THE FOREGOING WAIVERS IN ITS FUTURE DEALINGS WITH BORROWERS. EACH BORROWER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THE FOREGOING WAIVERS WITH ITS LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. -50- 11.20. PREJUDGMENT REMEDIES. EACH BORROWER HEREBY WAIVES SUCH RIGHTS AS IT MAY -------------------- HAVE TO NOTICE AND/OR HEARING UNDER ANY APPLICABLE FEDERAL OR STATE LAWS INCLUDING, WITHOUT LIMITATION, CONNECTICUT GENERAL STATUTES SECTIONS 52-278A, ET-SEQ., AS AMENDED, PERTAINING TO THE EXERCISE BY LENDER OF SUCH RIGHTS AS THE - -- LENDER MAY HAVE INCLUDING, BUT NOT LIMITED TO, THE RIGHT TO SEEK PREJUDGMENT REMEDIES AND/OR DEPRIVE BORROWERS OF OR AFFECT THE USE OF OR POSSESSION OR ENJOYMENT OF BORROWERS' PROPERTY PRIOR TO THE RENDITION OF A FINAL JUDGMENT AGAINST A BORROWER. EACH BORROWER FURTHER WAIVES ANY RIGHT IT MAY HAVE TO REQUIRE LENDER TO PROVIDE A BOND OR OTHER SECURITY AS A PRECONDITION TO OR IN CONNECTION WITH ANY PREJUDGMENT REMEDY SOUGHT BY LENDER. IN WITNESS WHEREOF, this Agreement has been duly executed in Glastonbury, Connecticut, on the day and year specified at the beginning of this Agreement. ATTEST: UNITED NATURAL FOODS, INC. /s/ Steven Townsend By: /s/ Norman A. Cloutier - ------------------------------------ ------------------------------------- Secretary Name: Norman A. Cloutier ----------------------------------- [CORPORATE SEAL] Title: President ---------------------------------- ATTEST: MOUNTAIN PEOPLE'S WAREHOUSE INCORPORATED /s/ Michael S. Funk By: /s/ Michael S. Funk - ------------------------------------ ------------------------------------- Secretary Name: Michael S. Funk ----------------------------------- [CORPORATE SEAL] Title: President ---------------------------------- -51- ATTEST: NATURAL RETAIL GROUP, INC. /s/ Steven Townsend By: /s/ Norman A. Cloutier - ------------------------------------ ------------------------------------- Secretary Name: Norman A. Cloutier ----------------------------------- [CORPORATE SEAL] Title: chairman ---------------------------------- ATTEST: NUTRASOURCE, INC. /s/ Michael S. Funk By: /s/ Michael S. Funk - ------------------------------------ ------------------------------------- Secretary Name: Michael S. Funk ----------------------------------- [CORPORATE SEAL] Title: President ---------------------------------- ATTEST: RAINBOW NATURAL FOODS, INC. /s/ Steven Townsend By: /s/ Norman A. Cloutier - ------------------------------------ ------------------------------------- Secretary Name: Norman A. Cloutier ----------------------------------- [CORPORATE SEAL] Title: President ---------------------------------- Accepted in Glanstonbury, Connecticut FLEET CAPITAL CORPORATION By: /s/ Timothy G. Johnson ------------------------------------- Name: Timothy G. Johnson ----------------------------------- Title: Vice President ---------------------------------- -52- APPENDIX A GENERAL DEFINITIONS When used in the Amended and Restated Loan and Security Agreement dated as of February 20, 1996, by and between Fleet Capital Corporation and Cornucopia Natural Foods, Inc., Mountain People's Warehouse Incorporated, Natural Retail Group, Inc., NutraSource, Inc., the following terms shall have the following meanings (terms defined in the singular to have the same meaning when used in the plural and vice versa): Account Debtor - any Person who is or may become obligated under or on -------------- account of an Account. Accounts - all accounts, contract rights, chattel paper, instruments and -------- documents, whether now owned or hereafter created or acquired by Borrowers or in which Borrowers now have or hereafter acquired any interest. Adjusted Net Earnings From Operations - with respect to any fiscal period, ------------------------------------- means the net earnings (or loss) after provision for income taxes for such fiscal period of Borrowers, as reflected on the financial statement of Borrowers supplied to Lender pursuant to Subsection 8.1.3 of the Agreement, but excluding: (i) any gain or loss arising from the sale of capital assets; (ii) any gain arising from any write-up of assets; (iii) earnings of any Subsidiary of any Borrower accrued prior to the date it became a Subsidiary (unless the Subsidiary is acquired on the basis of the pooling of interest accounting method); (iv) earnings of any corporation, substantially all the assets of which have been acquired in any manner by any Borrower, realized by such corporation prior to the date of such acquisition; (v) net earnings of any business entity (other than a Subsidiary of any Borrower) in which any Borrower has an ownership interest unless such net earnings shall have actually been received by any Borrower in the form of cash distributions; (vi) any portion of the net earnings of any Subsidiary of any Borrower which for any reason is unavailable for payment of dividends to any Borrower; -1- (vii) the earnings of any Person to which any assets of any Borrower shall have been sold, transferred of disposed of, or into which any Borrower shall have merged, or been a party to any consolidation or other form of reorganization, prior to the date of such transaction; (viii) any gain arising from the acquisition of any Securities of any Borrower; and (ix) any gain arising from extraordinary or non-recurring items. Adjusted Tangible Assets - all assets except: (i) any surplus resulting ------------------------ from any write-up of assets subsequent to September 30, 1992; (ii) deferred assets, other than prepaid insurance and prepaid taxes; (iii) patents, copyrights, trademarks, trade names, non-compete agreements, franchises and other similar intangibles; (iv) goodwill, including any amounts, however designated on a Consolidated balance sheet of a Person or its Subsidiaries, representing the excess of the purchase price paid for assets or stock over the value assigned thereto on the books of such Person; (v) Restricted Investments; (vi) unamortized debt discount and expense; (vii) assets located and notes and receivables due from obligors outside of the United States of America; and (viii) Accounts, notes and other receivables due from Affiliates or employees to the extent that such Accounts, notes and other receivables exceed an aggregate outstanding amount of $ 1,500,000.00. Adjusted Tangible Net Worth - at any date means a sum equal to: (i) the --------------------------- net book value (after deducting depreciation, obsolescence, amortization, valuation, and other proper reserves) at which such Adjusted Tangible Assets of a Person would be shown on a balance sheet at such date in accordance with GAAP, minus (ii) the amount at which such Person's liabilities (other than capital stock and surplus) would be shown on such balance sheet in accordance with GAAP, and including as liabilities all reserves for contingencies and other potential liabilities. Affiliate - a Person (other than a Subsidiary): (i) which directly or --------- indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, a Person; (ii) which beneficially owns or holds 25% or more of any class of the Voting Stock of a Person; or (iii) 25% or more of the Voting Stock (or in the case of a Person which is not a corporation, 25% or more of the equity interest) of which is beneficially owned or held by a Person or a Subsidiary of a Person. Agreement - the Loan and Security Agreement referred to in the first --------- sentence of this Appendix A, all Exhibits thereto and this Appendix A. Aggregate Adjusted Availability - as of any date, an amount equal to (A) ------------------------------- the amount of Revolving Credit Loans available to Borrowers hereunder, minus (B) the sum of (i) the unpaid aggregate balance of all Revolving Credit Loans plus the LC -2- Amount as of such date, plus (ii) all sums due and owing by Borrowers to their trade creditors which sums remain outstanding beyond customary trade terms or special terms granted by such trade creditors. Availability - the amount of money which Borrowers are entitled to borrow ------------ from time to time as Revolving Credit Loans, such amount being the difference derived when the sum of the principal amount of Revolving Credit Loans then outstanding (including any amounts which Lender may have paid for the account of Borrowers pursuant to any of the Loan Documents and which have not been reimbursed by Borrowers) and the LC Amount is subtracted from the Borrowing Base. If the amount outstanding is equal to or greater than the Borrowing Base, Availability is 0. Bank - Fleet National Bank of Connecticut (f/k/a Shawmut Bank of ---- Connecticut, N.A.). Base Rate - the rate of interest announced or quoted by Bank from time to --------- time as its prime rate for commercial loans, whether or not such rate is the lowest rate charged by Bank to its most preferred borrowers; and, if such prime rate for commercial loans is discontinued by Bank as a standard, a comparable reference rate designated by Bank as a substitute there for shall be the Base Rate. Borrowing Base - as at any date of determination thereof, an amount equal -------------- to the lesser of: (i) $50,000,000.00 minus the unpaid principal balance of (a) the ----- Term Loan; (b) the Real Estate Term Loan and (c) the face amount of any LC Guaranty outstanding at such date; or (ii) an amount equal to: (a) ninety percent (90%) of the net amount of Eligible Accounts outstanding at such date, not including UNF's Eligible Accounts due from the New Subsidiaries and Rainbow; PLUS (b) the lesser of (1) $25,000,000.00 or (2) fifty-five percent (55%) of the value of the Eligible Inventory at such date, not including the Eligible Inventory of the New Subsidiaries and Rainbow, consisting of finished goods calculated on the basis of the lower -3- of cost or market with the cost of finished goods calculated on a first-in, first-out basis; PLUS (c) either (1) seventy-five percent (75%) of the net amount of the UNF's Eligible Accounts due from the New Subsidiaries and Rainbow outstanding at such date; or (2) fifty-five percent (55%) of the value of the Eligible Inventory of the New Subsidiaries and Rainbow at such date, consisting of finished goods calculated on the basis of the lower of cost or market with the cost of finished goods calculated on a first-in, first- out basis; MINUS (d) an amount equal to the face amount of any LC Guaranty outstanding on such date. For purposes hereof, the net amount of Eligible Accounts at any time shall be the face amount of such Eligible Accounts less any and all returns, rebates, discounts (which may, at Lender's option, be calculated on shortest terms), credits, allowances or excise taxes of any nature at any time issued, owing, claimed by Account Debtors, granted, outstanding or payable in connection with such Accounts at such time. Business Day - any day excluding Saturday, Sunday and any day which is a ------------ legal holiday under the laws of the State of Connecticut or is a day on which banking institutions located in such state are closed. Capital Expenditures - expenditures made or liabilities incurred for the -------------------- acquisition of any fixed assets or improvements replacements, substitutions or additions thereto which have a useful life of more than one year, including the total principal portion of Capitalized Lease Obligations. Capitalized Lease Obligation - any Indebtedness represented by obligations ---------------------------- under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP. Cash Flow - for any period, means Borrowers' Consolidated (i) Adjusted Net --------- Earnings for such fiscal period, (ii) depreciation and amortization expenses for such period, minus (iii) nonfinanced Capital Expenditures for such fiscal ----- period, minus (iv) Distributions by Borrowers during such fiscal period, and ----- minus (v) any prepayments - ----- -4- or scheduled payments of principal made by Borrowers during such fiscal period in respect of any Indebtedness, as all such are determined in accordance with GAAP. Closing Date - the date on which all of the conditions precedent in Section ------------ 9 of the Agreement are satisfied and the initial Loan is made or the initial Letter of Credit or LC Guaranty is issued under the Agreement. Code - the Uniform Commercial Code as adopted and in force in the State of ---- Connecticut, as from time to time in effect. Collateral - all of the Property and interests in Property described in ---------- Section 5 of the Agreement, and all other Property and interests in Property that now or hereafter secure the payment and performance of any of the Obligations. Consolidated - the consolidation in accordance with GAAP of the accounts or ------------ other items as to which such term applies. Current Assets - at any date means the amount at which all of the current -------------- assets of a Person would be properly classified as current assets shown on a balance sheet at such date in accordance with GAAP except that amounts due from Affiliates and investments in Affiliates shall be excluded therefrom to the extent that such amounts or investments exceed $2,500,000. Current Liabilities - at any date means the amount at which all of the ------------------- current liabilities of a Person would be properly classified as current liabilities on a balance sheet at such date in accordance with GAAP. Default - an event or condition the occurrence of which would, with the ------- lapse of time or the giving of notice, or both, become an Event of Default. Default Rate - as defined in subsection 2.1.2 of the Agreement. ------------ Distribution - in respect of any corporation means and includes: (i) the ------------ payment of any dividends or other distributions on capital stock of the corporation (except distributions in such stock) and (ii) the redemption or acquisition of Securities unless made contemporaneously from the net proceeds of the sale of Securities. Eligible Account - an Account arising in the ordinary course of Borrowers' ---------------- business from the sale of goods or rendition of services which Lender, in its reasonable credit judgment, deems to be an Eligible Account. Without limiting the generality of the foregoing, no Account shall be an Eligible Account if: -5- (i) it arises out of a sale made by any Borrower to a Subsidiary (other than the New Subsidiaries or Rainbow) or an Affiliate of any Borrower or to a Person controlled by an Affiliate of any Borrower; or (ii) it is due or unpaid more than ninety (90) days after the original invoice date or, in respect of Accounts due from the New Subsidiaries or Rainbow, thirty (30) days after the original invoice date; or (iii) fifty percent (50%) or more of the Accounts from the Account Debtor are not deemed Eligible Accounts hereunder; or (iv) the total unpaid Accounts of the Account Debtor exceed twenty (20%) of the net amount of all Eligible Accounts, to the extent of such excess; or (v) any covenant, representation or warranty contained in the Agreement with respect to such Account has been breached; or (vi) the Account Debtor is also any Borrower's creditor or supplier, or the Account Debtor has disputed liability with respect to such Account, or the Account Debtor has made any claim with respect to any other Account due from such Account Debtor to Borrower, or the Account otherwise is or may become subject to any right of setoff by the Account Debtor; or (vii) the Account Debtor has commenced a voluntary case under the federal bankruptcy laws, as now constituted or hereafter amended, or made an assignment for the benefit of creditors, or a decree or order for relief has been entered by a court having jurisdiction in the premises in respect of the Account Debtor in an involuntary case under the federal bankruptcy laws, as now constituted or hereafter amended, or any other petition or other application for relief under the federal bankruptcy laws has been filed against the Account Debtor, or if the Account Debtor has failed, suspended business, ceased to be Solvent, or consented to or suffered a receiver, trustee, liquidator or custodian to be appointed for it or for all or a significant portion of its assets or affairs; or (viii) it arises from a sale to an Account Debtor outside the United States, unless the sale is on letter of credit, guaranty or acceptance terms, in each case acceptable to Lender in its sole discretion; or (ix) it arises from a sale to the Account Debtor on a bill-and- hold, guaranteed sale, sale-or-return, sale-on-approval, consignment or any other repurchase or return basis; or -6- (x) the Account Debtor is the United States of America or any department, agency or instrumentality thereof, unless a Borrower assigns its right to payment of such Account to Lender, in a manner satisfactory to Lender, so as to comply with the Assignment of Claims Act of 1940 (31 U.S.C. (S)203 et seq., as amended); or -- --- (xi) the Account is subject to a Lien other than a Permitted Lien; or (xii) the goods giving rise to such Account have not been delivered to and accepted by the Account Debtor or the services giving rise to such Account have not been performed by Borrower and accepted by the Account Debtor or the Account otherwise does not represent a final sale; or (xiii) the Account is evidenced by chattel paper or an instrument of any kind, or has been reduced to judgment; or (xiv) a Borrower has made any agreement with the Account Debtor for any deduction therefrom, except for discounts or allowances which are made in the ordinary course of business for prompt payment and which discounts or allowances are reflected in the calculation of the face value of each invoice related to such Account; or (xv) a Borrower has made an agreement with the Account Debtor to extend the time of payment thereof. Eligible Inventory - such Inventory of Borrowers held for sale (other than ------------------ packaging materials and supplies) which Lender, in its reasonable credit judgment, deems to be Eligible Inventory. Without limiting the generality of the foregoing, no Inventory shall be Eligible Inventory if: (i) it is not finished goods that is, in Lender's reasonable opinion, readily marketable in its current form; or (ii) it is not in good, new and saleable condition; or (iii) it is slow-moving, obsolete or unmerchantable; or (iv) it does not meet all standards imposed by any governmental agency or authority; or (v) it does not conform in all respects to the warranties and representations set forth in the Agreement, -7- (vi) it is not at all times subject to Lender's duly perfected, first priority security interest and no other Lien except a Permitted Lien; or (vii) it is not situated at a location in compliance with the Agreement or is in transit. Environmental Laws - all federal, state and local laws, rules, regulations, ------------------ ordinances, programs, permits, guidances, orders and consent decrees relating to health, safety and environmental matters. Equipment - all machinery, apparatus, equipment, fittings, furniture, --------- fixtures, motor vehicles and other tangible personal Property (other than Inventory) of every kind and description used in a Borrower's operations or owned by a Borrower or in which a Borrower has an interest, whether now owned or hereafter acquired by a Borrower and wherever located, and all parts, accessories and special tools and all increases and accessions thereto and substitutions and replacements therefor. ERISA - the Employee Retirement Income Security Act of 1974, as amended, ----- and all rules and regulations from time to time promulgated thereunder. Euro-Dollar Rate - with respect to any Euro-Dollar Interest Period, the ---------------- rate per annum determined by Lender on the basis of the offered rate for deposits in United States dollars in the London Interbank Euro-Dollar market of amount equal to or comparable to the amount of the Euro-Dollar Loan to which such Euro-Dollar Interest Period relates offered for a term comparable to such Euro-Dollar Interest Period as of 1:00 p.m. Hartford, Connecticut time two (2) Business Days prior to the first day of such Euro-Dollar Interest Period. The Euro-Dollar Rate shall be adjusted to the next higher 1/8th of 1 percent equal to the quotient of (a) the rate set forth in the previous sentence, divided by (b) a number equal to 1.00 minus the aggregate of the rates (expressed as a ----- decimal) of the reserve requirements current on the day that it is two Business Days prior to the beginning of the Euro-Dollar Interest Period under any regulation promulgated by the Board of Governor of the Federal Reserve System (or any other governmental authority having jurisdiction over Lender) as in effect from time to time, dealing with reserve requirements prescribed for Euro- Dollar funding including any reserve requirements with respect to "Eurocurrency" liabilities having a term approximately equal to or comparable with the Euro- Dollar Interest Period under Regulation D of the Board of Governors of the Federal Reserve System. Euro-Dollar Loans - any portion of the Revolving Credit Loans, the Term Loan or Real Estate Term Loan on which Borrower elects pursuant to Section 3.1.1 of this Agreement or the Term Note, respectively, to pay interest during the Euro-Dollar Interest Period at a fixed rate of interest based on the Euro- Dollar Rate. -8- Euro-Dollar Interest Period - with respect to each Euro-Dollar Loan, the --------------------------- period commencing on (and including) the date that such Euro-Dollar Loan is made and ending on (but excluding) the numerically corresponding date in the first, third, sixth or twelfth month thereafter, as Borrower may elect in the applicable request for such Euro-Dollar Loan, provided that: (i) any Euro-Dollar Interest Period (other than a Euro-Dollar Interest period determined pursuant to paragraph (iii) below) which would otherwise end on a day which is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Euro-Dollar Interest period shall end on the next preceding Business Day; (ii) any Euro-Dollar Interest Period which begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall, subject to paragraph (iii) below, end on the last Business Day of the appropriate subsequent calendar month, and (iii) any Euro-Dollar Interest Period which begins before the last day of the Original Term or any Renewal Term, as applicable, and would otherwise end after the last day of the Original Term or such Renewal Term shall end on the last day of the Original Term or such Renewal Term. ESOP Notes - those certain promissory notes executed by the Trustees of UNF ---------- Employee Stock Ownership Plan in favor of UNF's shareholders in the original principal amount of $4,080,000, each dated November 8, 1988, together with any amendment, extension, replacement or renewal thereof. Event of Default - as defined in Section 10.1 of the Agreement. ---------------- GAAP - generally accepted account principles in the United States of ---- America in effect from time to time. General Intangibles - all personal property of a Borrower (including things ------------------- in action) other than goods, Accounts, chattel paper, documents, instruments and money, whether now owned or hereafter created or acquired by a Borrower. Guarantors - Food for Thought Natural Foods Market, Inc., Cheese & Stuff, ---------- Inc., Health Hut, Inc., and Natureworks, Inc. and any other Person who may hereafter guarantee payment or performance of the whole or any part of the Obligations. Guaranty Agreement[s] - the Continuing Guaranty Agreements which are to be --------------------- executed by each Guarantor in form and substance satisfactory to Lender. -9- Indebtedness - as applied to a Person means, without duplication ------------ (i) all items which in accordance with GAAP would be included in determining total liabilities as shown on the liability side of a balance sheet of such Person as at the date as of which Indebtedness is to be determined, including, without limitation, Capitalized Lease Obligations, (ii) all obligations of other Persons which such Person has guaranteed, (iii) all reimbursement obligations in connection with letters of credit or letter of credit guaranties issued for the account of such Person, and (iv) in the case of the Borrowers (without duplication), the Obligations. Inventory - all of Borrowers' inventory, whether now owned or --------- hereafter acquired including, but not limited to, all goods intended for sale or lease by Borrowers, or for display or demonstration; all work in process; all raw materials and other materials and supplies of every nature and description used or which might be used in connection with the manufacture, printing, packing, shipping, advertising, selling, leasing or furnishing of such goods or otherwise used or consumed in Borrowers' businesses; and all documents evidencing and General Intangibles relating to any of the foregoing, whether now owned or hereafter acquired by the Borrowers. LC Amount- at any time, the aggregate undrawn face amount of all Letters of --------- Credit and LC Guaranties then outstanding. LC Guaranty - any guaranty pursuant to which Lender or any Affiliate of ----------- Lender shall guaranty the payment or performance by a Borrower of its reimbursement obligation under any letter of credit. Letter of Credit - any letter of credit issued by Lender or any of Lender's ---------------- Affiliates for the account of any Borrower. Lien - any interest in Property securing an obligation owed to, or a claim ---- by, a Person other than the owner of the Property, whether such interest is based on common law, statute or contract. The term "Lien" shall also include reservations, exceptions, encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases and other title exceptions and encumbrances affecting Property. For the purpose of the Agreement, a Borrower shall be deemed to be the owner of any Property which it has acquired or holds subject to a conditional sale agreement or other arrangement pursuant to which title to the Property has been retained by or vested in some other Person for security purposes. -10- Loan Account - the loan account established on the books of Lender pursuant ------------ to Section 3.6 of the Agreement. Loan Documents - the Agreement, the Other Agreements and the Security -------------- Documents. Loans - all loans and advances of any kind made by Lender pursuant to the ----- Agreement. Merger - shall mean the merger of MPW Acquisition Corporation, a Delaware ------ corporation, with and into MPW with MPW as the surviving corporation pursuant to the terms of the Merger Agreements. Merger Agreements - shall mean, collectively, the Stock Acquisition ----------------- Agreement and Plan of Merger, dated as of December 8, 1995, by and between UNF, MPW Acquisition Corporation a Delaware corporation, Michael S. Funk, Judith A. Funk, individually and as trustees of the Funk Family 1992 Revocable Living Trust and MPW, the Certificate of Merger of MPW Acquisition Corporation and MPW and all related agreements, documents and instruments, as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. Money Borrowed - means (i) Indebtedness arising from the lending of money -------------- by any Person to a Borrower; (ii) Indebtedness, whether or not in any such case arising from the lending by any Person of money to a Borrower, (A) which is represented by notes payable or drafts accepted that evidence extensions of credit, (B) which constitutes obligations evidenced by bonds, debentures, notes or similar instruments, or (C) upon which interest charges are customarily paid (other than accounts payable) or that was issued or assumed as full or partial payment for Property; (iii) Indebtedness that constitutes a Capitalized Lease Obligation; (iv) reimbursement obligations with respect to letters of credit or guaranties of letters of credit and (v) Indebtedness of Borrower under any guaranty of obligations that would constitute Indebtedness for Money Borrowed under clauses (i) through (iii) hereof, if owed directly by a Borrower. Multiemplover Plan - has the meaning set forth in Section 4001 (a)(3) of ------------------ ERISA. New Subsidiary - a Subsidiary of UNF which is any of NRG, The Health Hut, -------------- Inc., Food for Thought Natural Foods Market, Inc., Cheese & Stuff, Inc., and any other Person which is a retail seller of food products and the assets or business of which NRG or its subsidiaries propose to acquire, whether by stock purchase, asset purchase, merger or otherwise. -11- Note Purchase Agreement - that certain Note and Warrant Purchase Agreement ----------------------- by and between Borrower and TCLP dated as of November 17, 1993. Obligations - all Loans and all other advances, debts, liabilities, ----------- obligations, covenants and duties, together with all interest, fees and other charges thereon, owing, arising, due or payable from any Borrower to Lender of any kind or nature, present or future, whether or not evidenced by any note, guaranty or other instrument, whether arising under the Agreement or any of the other Loan Documents or otherwise whether direct or indirect (including those acquired by assignment), absolute or contingent, primary or secondary, due or to become due, now existing or hereafter arising and however acquired. Original Term - as defined in Section 4.1 of the Agreement. ------------- Other Agreements - any and all agreements, instruments and documents (other ---------------- than the Agreement and the Security Documents), heretofore, now or hereafter executed by the Borrowers, any Subsidiary of a Borrower or any other third party and delivered to Lender in respect of the transactions contemplated by the Agreement. Overadvance - the amount, if any, by which the outstanding principal amount ----------- of Revolving Credit Loans plus the LC Amount exceeds the Borrowing Base. ---- Participating Lender - each Person who shall be granted the right by Lender -------------------- to participate in any of the Loans described in the Agreement and who shall have entered into a participation agreement in form and substance satisfactory to Lender. Permitted Liens - any Lien of a kind specified in subsection 8.2.5 of the --------------- Agreement. Permitted Purchase Money Indebtedness - Purchase Money Indebtedness of ------------------------------------- Borrowers incurred after the date hereof which is secured by a Purchase Money Lien and which, when aggregated with the principal amount of all other such Indebtedness and Capitalized Lease Obligations of Borrowers at the time outstanding, does not exceed $2,250,000.00. For the purposes of this definition, the principal amount of any Purchase Money Indebtedness consisting of capitalized leases shall be computed as a Capitalized Lease Obligation. Person - an individual, partnership, corporation, limited liability ------ company, joint stock company, land trust, business trust, or unincorporated organization, or a government or agency or political subdivision thereof. Plan - an employee benefit plan now or hereafter maintained for employees ---- of Borrower that is covered by Title IV of ERISA. -12- Projections - Borrowers' forecasted Consolidated and consolidating (a) ----------- balance sheets, (b) profit and loss statements, (c) cash flow statements, and (d) capitalization statements, all prepared on a consistent basis with Borrowers' historical financial statements, together with appropriate supporting details and a statement of underlying assumptions. Property - any interest in any kind of property or asset, whether real, -------- personal or mixed, or tangible or intangible. Purchase Money Indebtedness - means and includes (i) Indebtedness (other --------------------------- than the Obligations) for the payment of all or any part of the purchase price of any fixed assets, (ii) any Indebtedness (other than the Obligations) incurred at the time of or within 10 days prior to or after the acquisition of any fixed assets for the purpose of financing all or any part of the purchase price thereof, and (iii) any renewals, extensions or refinancings thereof, but not any increases in the principal amounts thereof outstanding at the time. Purchase Money Lien - a Lien upon fixed assets which secures Purchase Money ------------------- Indebtedness, but only if such Lien shall at all times be confined solely to the fixed assets the purchase price of which was financed through the incurrence of the Purchase Money Indebtedness secured by such Lien. Real Estate Loan - the term loan made to UNF and referred to in Section ---------------- 1.2.2 hereof. Real Estate Term Note - the Real Estate Term Note of UNF dated September 8, --------------------- 1995 in the original principal amount of $6,000,000. Rentals - as defined in subsection 8.2.12 of the Agreement. ------- Renewal Terms - as defined in Section 4.1 of the Agreement. ------------- Reportable Event - any of the events set forth in Section 4043(b) of ERISA. ---------------- Restricted Investment - any investment made in cash or by delivery of --------------------- Property to any Person, whether by acquisition of stock, Indebtedness or other obligation or Security, or by loan, advance or capital contribution, or otherwise, or in any Property except the following: (i) investment in one or more Subsidiaries of the Borrowers to the extent existing on the Closing Date or as permitted under Section 8.2.18 hereof; (ii) Property to be used in the ordinary course of business; -13- (iii) Current Assets arising from the sale of goods and services in the ordinary course of business of the Borrowers and their Subsidiaries; (iv) investments in direct obligations of the United States of America, or any agency thereof or obligations guaranteed by the United States of America, provided that such obligations mature within one year from the date of acquisition thereof; (v) investments in certificates of deposit maturing within one year from the date of acquisition issued by a bank or trust company organized under the laws of the United States or any state thereof having capital surplus and undivided profits aggregating at least $100,000,000; and (vi) investments in commercial paper given the highest rating by a national credit rating agency and maturing not more than 270 days from the date of creation thereof. Revolving Credit Loan - a Loan made by Lender as provided in Section 1.1 of --------------------- the Agreement. Schedule of Accounts - as defined in subsection 6.2.1 of the Agreement. --------------------- Security - shall have the same meaning as in Section 2(1) of the Securities -------- Act of 1933, as amended. Security Documents - the Guaranty Agreement, and all other instruments and ------------------ agreements now or at any time hereafter securing the whole or any part of the Obligations. Solvent - as to any Person, such Person (i) owns Property whose fair ------- saleable value is greater than the amount required to pay all of such Person's Indebtedness (including contingent debts), (ii) is able to pay all of its Indebtedness as such Indebtedness matures and (iii) has capital sufficient to carry on its business and transactions and all business and transactions in which it is about to engage. Subordinated Debt - Indebtedness of Borrower that is subordinated to the ----------------- Obligations in a manner satisfactory to Lender. Subordination Agreements - the following Agreements: the Note Purchase ------------------------ Agreement, the Subordination Agreement dated July 29, 1995 with Prem Mark, Inc. and the Subordination Agreements assigned to Lender by Union Bank with Alaska Ventures, Inc., Associated Corporations, Inc., Charles Lefevre, Twin Pines Cooperative Foundation and Wholesale Foods Co-op. -14- Subsidiary - any corporation of which a Person owns, directly or indirectly ---------- through one or more intermediaries, more than 50% of the Voting Stock at the time of determination. TCLP- Triumph - Connecticut Limited Partnership, a Connecticut limited ---- partnership having an office at City Place I, 35th Floor, Hartford, Connecticut 06103-3499. TCLP Note - That certain promissory note made by Cornucopia Natural Foods, --------- Inc. payable to TCLP dated November 17, 1993. Term Loan - the Loan described in subsection 1.2.1 of the Agreement. --------- Term Note - the Secured Promissory Note to be executed by Borrowers on or --------- about the Closing Date in favor of Lender to evidence the Term Loan, which shall be in the form of Exhibit A to the Agreement. --------- Total Credit Facility - $50,000,000.00. --------------------- Voting Stock - Securities of any class or classes of a corporation the ------------ holders of which are ordinarily, in the absence of contingencies, entitled to elect a majority of the corporate directors (or Persons performing similar functions). Working Capital - at any date means Current Assets minus Current --------------- Liabilities. Other Terms. All other terms contained in the Agreement shall have, ----------- when the context so indicates, the meanings provided for by the Code to the extent the same are used or defined therein. Certain Matters of Construction. The terms "herein", "hereof" and ------------------------------- "hereunder" and other words of similar import refer to the Agreement as a whole and not to any particular section, paragraph or subdivision. Any pronoun used shall be deemed to cover all genders. The section titles, table of contents and list of exhibits appear as a matter of convenience only and shall not affect the interpretation of the Agreement. All references to statutes and related regulations shall include any amendments of same and any successor statutes and regulations. All references to any of the Loan Documents shall include any and all modifications thereto and any and all extensions or renewals thereof. -15- LIST OF EXHIBITS ---------------- Exhibit A Term Note Exhibit B Borrowers' and each Subsidiary's Business Locations Exhibit C Jurisdictions in which each Borrower and each Subsidiary is Authorized to do Business Exhibit D Capital Structure of Borrowers Exhibit E Corporate Names Exhibit F Tax Identification Numbers of Borrowers and Subsidiaries Exhibit G Patents, Trademarks, Copyrights and Licenses Exhibit H Contracts Restricting Borrowers' Right to Incur Debts Exhibit I Litigation Exhibit J Capitalized Leases Exhibit K Operating Leases Exhibit L Pension Plans Exhibit M Labor Contracts Exhibit N Compliance Certificate Exhibit 0 Permitted Liens Exhibit P Real Property Locations Exhibit Q Surety and Guaranty Obligations Exhibit R Affiliate Transaction -16- Exhibit A SECURED PROMISSORY NOTE $5,000,000.00 February 20, 1996 Glastonbury, Connecticut FOR VALUE RECEIVED, the undersigned (hereinafter, jointly and severally, the "Borrowers'), hereby promise to pay to the order of FLEET CAPITAL CORPORATION, a Connecticut corporation (hereinafter "Lender"), in such coin or currency of the United States which shall be legal tender in payment of all debts and dues, public and private, at the time of payment, the principal sum of $5,000,000.00 together with interest from and after the date hereof on the unpaid principal balance outstanding as set forth herein. This Secured Promissory Note (the "Note") is the Term Note referred to in, and is issued pursuant to, that certain Amended and Restated Loan and Security Agreement between Borrowers and Lender dated the date hereof (hereinafter, as amended from time to time, the "Loan Agreement"), and is entitled to all of the benefits and security of the Loan Agreement. All of the terms, covenants and conditions of the Loan Agreement and the Security Documents are hereby made a part of this Note and are deemed incorporated herein in full. All capitalized terms used herein, unless otherwise specifically defined in this Note, shall have the meanings ascribed to them in the Loan Agreement. The unpaid principal (not at the time overdue) under this Note shall bear interest, at the Borrowers' election subject to the terms and conditions of the Loan Agreement, at either a variable rate per annum equal to .25% above the Base Rate, or the Euro-Dollar Rate plus 2.25% for the applicable Euro-Dollar Interest Period selected in accordance with the Loan Agreement. Accrued interest on the unpaid principal under this Note shall be payable as provided below. The rate of interest in effect hereunder for Loans bearing interest based upon the Base Rate shall increase or decrease by an amount equal to any increase or decrease in the Base Rate, effective as of the opening of business on the date that any such change in the Base Rate occurs. Interest shall be computed in the manner provided in subsection 2.2 of the Loan Agreement. For so long as no Event of Default shall have occurred the principal amount and accrued interest of this Note shall be due and payable on the dates and in the manner hereinafter set forth: (a) Interest shall be due and payable monthly, in arrears, on the first day of each month, commencing on March 1, 1996, and continuing until such time as the full principal balance, together with all other amounts owing hereunder, shall have been paid in full; (b) Principal shall be due and payable monthly commencing on March 1, 1996, and continuing on the first day of each month thereafter to and including the first day of July, 1998, in installments of $59,523.80 each; and (c) The entire remaining principal amount then outstanding, together with any and all other amounts due hereunder, shall be due and payable on July 31, 1998. Notwithstanding the foregoing, the entire unpaid balance and accrued interest on this Note shall be due and payable immediately upon any termination of the Loan Agreement pursuant to Section 4 thereof. This Note shall be subject to mandatory prepayment in accordance with the provisions of Section 3.2.5 of the Loan Agreement. Borrower may also terminate the Loan Agreement and, in connection with such termination, prepay this Note in the manner provided in Section 4 of the Loan Agreement. All computations of interest payable under this Note shall be made by the Lender on the basis of the actual number of days elapsed divided by 360. Upon the occurrence of an Event of Default, Lender shall have all of the rights and remedies set forth in Section 10 of the Loan Agreement and the unpaid principal outstanding hereunder shall bear interest, payable on demand, at the rate set forth in 2.1.2 of the Loan Agreement. Borrower shall pay a late payment fee equal to 5% of the amount of any installment of principal or interest, or both, required hereunder which is received by Lender more than 10 days after the due date thereof. Time is of the essence of this Note. To the fullest extent permitted by applicable law, Borrower, for itself and its legal representatives, successors and assigns, expressly waives presentment, demand, protest, notice of dishonor, notice of non-payment, notice of maturity, notice of protest, presentment for the purpose of accelerating maturity, diligence in collection, and the benefit of any exemption or insolvency laws. Wherever possible, each provision of this Note shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Note shall be prohibited or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or remaining provisions of this Note. No delay or failure on the part of Lender in the exercise of any right or remedy hereunder shall operate as a waiver thereof, nor as an acquiescence in any default, nor shall any -2- single or partial exercise by Lender of any right or remedy preclude any other right or remedy. Lender, at its option, may enforce its rights against any collateral securing this Note without enforcing its rights against Borrowers, any guarantor of the indebtedness evidenced hereby or any other property or indebtedness due or to become due to any Borrower. Each Borrower agrees that, without releasing or impairing Borrowers' liability hereunder, Lender may at any time release, surrender, substitute or exchange any collateral securing this Note and may at any time release any party primarily or secondarily liable for the indebtedness evidenced by this Note. EACH BORROWER HEREBY WAIVES SUCH RIGHTS AS IT MAY HAVE TO NOTICE AND/OR HEARING UNDER ANY APPLICABLE FEDERAL OR STATE LAWS INCLUDING, WITHOUT LIMITATION, CONNECTICUT GENERAL STATUTES SECTIONS 52-278A, ET SEQ., AS AMENDED, ------- PERTAINING TO THE EXERCISE BY LENDER OF SUCH RIGHTS AS THE LENDER MAY HAVE INCLUDING, BUT NOT LIMITED TO, THE RIGHT TO SEEK PREJUDGMENT REMEDIES AND/OR DEPRIVE BORROWERS OF OR AFFECT THE USE OF OR POSSESSION OR ENJOYMENT OF BORROWERS' PROPERTY PRIOR TO THE RENDITION OF A FINAL JUDGMENT AGAINST A BORROWER. EACH BORROWER FURTHER WAIVES ANY RIGHT IT MAY HAVE TO REQUIRE LENDER TO PROVIDE A BOND OR OTHER SECURITY AS A PRECONDITION TO OR IN CONNECTION WITH ANY PREJUDGMENT REMEDY SOUGHT BY LENDER. This Note shall be governed by, and construed and enforced in accordance with, the laws of the State of Connecticut. IN WITNESS WHEREOF, each Borrower, jointly and severally, has caused this Note to be duly executed and delivered in Glastonbury, Connecticut, on the date first above written. ATTEST: UNITED NATURAL FOODS, INC. /s/ Steven Townsend By: /s/ Norman A. Cloutier - --------------------------------------- ----------------------------------- Secretary Name: Norman A. Cloutier --------------------------------- [CORPORATE SEAL] Title: President -------------------------------- -3- ATTEST: MOUNTAIN PEOPLE'S WAREHOUSE INCORPORATED /s/ Michael S. Funk By: /s/ Michael S. Funk - --------------------------------------- ----------------------------------- Secretary Name: Michael S. Funk --------------------------------- [CORPORATE SEAL] Title: President -------------------------------- ATTEST: NATURAL RETAIL GROUP, INC. /s/ Steven Townsend By: /s/ Norman A. Cloutier - --------------------------------------- ----------------------------------- Secretary Name: Norman A. Cloutier --------------------------------- [CORPORATE SEAL] Title: Chairman -------------------------------- ATTEST: NUTRASOURCE, INC. /s/ Michael S. Funk By: /s/ Michael S. Funk - --------------------------------------- ----------------------------------- Secretary Name: Michael S. Funk --------------------------------- [CORPORATE SEAL] Title: President -------------------------------- ATTEST: RAINBOW NATURAL FOODS, INC. /s/ Steven Townsend By: /s/ Norman A. Cloutier - --------------------------------------- ----------------------------------- Secretary Name: Norman A. Cloutier --------------------------------- [CORPORATE SEAL] Title: President -------------------------------- -4- EX-10.17 19 PURCHASE & SALE AGREEMENT W/ O.M. KILLINGLY Exhibit 10.17 ------------- PURCHASE AND SALE AGREEMENT --------------------------- AGREEMENT made as of the 31st day of March, 1995 between O.M. KILLINGLY INVESTMENT COMPANY (f/k/a CC&F Killingly Investment Company), a Connecticut general partnership ("Seller"), and CORNUCOPIA NATURAL FOODS, INC., a Delaware corporation ("Buyer"). W I T N E S S E T H: ------------------- For and in consideration of the amounts to be paid by Buyer to Seller as set forth herein, and in consideration of the agreements of Seller and Buyer contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller and Buyer agree as follows: 1. PURCHASE AND SALE. Seller agrees to sell and convey to Buyer or its ----------------- assignee or nominee, and Buyer agrees to purchase from Seller, upon and subject to the terms and conditions contained in this Agreement the following real and personal property (the "Property"): 1.1 The land and all buildings and other improvements (the "Improvements") located thereon, all as more specifically described in the legal description attached hereto as Exhibit A, together with all easements, rights of way, permits and other rights in any way appurtenant thereto; and 1.2 All fixtures, equipment and other tangible personal Property located in the Property that are associated with or useful in its operation ("Personal Property"), whether owned by Seller or any party related to Seller. 2. TITLE. Seller shall convey good and marketable title to the ----- Property by a quitclaim deed containing a warranty against Seller's acts (the "Deed") substantially in the form attached hereto as Exhibit B, insurable (at Buyer's expense) by a recognized national title insurance company acceptable to Buyer (the "Title Company"), free from all liens, claims and encumbrances, except the following (the "Permitted Encumbrances"): 2.1 Provisions of existing building and zoning laws, restrictions and regulations of all governmental authorities having jurisdiction and all zoning variances and special exceptions, if any; 2.2 Taxes of the Town of Killingly (a) payable by Buyer under the Lease (as defined below) and (b) due and payable after the Closing (as defined below); 2.3 The matters set forth in Exhibit C attached hereto and made a part hereof; and 2.4 Easements, encumbrances and liens created by Buyer. 3. PURCHASE PRICE AND PAYMENT. -------------------------- The purchase price for the Property shall be Six Million Dollars ($6,000,000) (the "Purchase Price"), payable by wire transfer to Seller of immediately available funds. -2- 4. CLOSING. The closing of the transactions contemplated hereby (the ------- "Closing") shall take place at ten o'clock on the thirtieth (30th) day after the Approvals Date (as defined below), or if such day is not a day on which the Town Offices of the Town of Killingly are open for business (a "Business Day"), then the Closing shall take place on the next Business Day (the "Closing Date") at the offices of Boland, St. Onge & Brouillard, 211 Kennedy Drive, Putnam, Connecticut or at such other time and/or location as Seller and Buyer may agree. If the Approvals Date has not occurred on or before December 31, 1995, or such later date as may result from extensions made pursuant to the provisions of the next sentence (the "Outside Date"), then this Agreement shall be terminated and of no further force or effect. Buyer may elect, by written notice given to Seller on or before any Outside Date then in effect, to extend the Outside Date for successive periods of 180 calendar days each, provided that in no event shall the Outside Date be extended beyond December 31, 1997. 5. CONDITION OF PREMISES AT CLOSING. -------------------------------- 5.1 Full possession of the Property, free of all tenants and occupants claiming by, through or under Seller, except Buyer, shall be delivered at the time of the Closing. 5.2 Buyer has inspected the Property, is fully familiar with the physical condition and state of repair thereof and shall accept the Property "as is" and in its present condition on the Closing Date, subject to normal wear and tear, without claim against Seller for any defects therein of any kind, structural, latent or otherwise. -3- Buyer acknowledges that Seller has made no warranty or representation, express or implied, as to the condition of the Property or any portion thereof or as to its permitted uses. Buyer specifically acknowledges that it has made its decision to buy based on its own information and is not relying on Seller to furnish Buyer with any information about the Property. 6. EXTENSION OF TIME. If Seller shall be unable to give title or to ----------------- make conveyance or to deliver possession of the Property in accordance with this Agreement, then Seller shall use its reasonable best efforts to (a) remove any defects in title or (b) deliver possession as provided herein, as the case may be, in which event the Closing Date shall be extended for a period of at least forty-five (45) days to be designated by Buyer in writing, but not more than sixty (60) days; provided, however, that any liens or other defects in title -------- ------- arising in connection with or out of the Appeal shall not be governed by this Section 6 and Buyer's and Seller's obligations with respect to such defects shall be governed solely by Section 21 hereof; provided further that with -------- respect to any liens or other defects in title which were not created by Seller, Seller shall not be obligated to expend more than $100,000 in fulfillment of its obligations under this Section 6. 7. FAILURE OF TITLE OR CONDITION. If Seller shall have failed to remove ----------------------------- any defects in title or deliver possession to the extent required by Section 6 hereof within the time permitted hereunder, or if any condition set forth herein has not been satisfied -4- or waived in writing within the time provided therein, Buyer, by written notice to Seller, may elect (a) to terminate and cancel this Agreement, (b) to close this transaction, paying for the Property the full Purchase Price or (c) if such failure is the result of Seller's default hereunder, to exercise any and all of its remedies under the provisions of Section 12 hereof. Buyer shall have the election, at the Closing Date or any extension thereof, to accept such title to the Property in its then condition as Seller can deliver and to pay thereof or the Purchase Price without deduction, in which case Seller shall convey such title, but without warranties against such defects. Acceptance of a deed and possession by Buyer shall be a full and complete discharge of all obligations of Seller hereunder except such as (a) are, by the terms hereof, to be performed after the delivery of the Deed and (b) expressly survive the delivery of the Deed as provided herein. 8. USE OF PURCHASE PRICE TO CLEAR TITLE. To enable Seller to make ------------------------------------ conveyance as herein provided, Seller may, and if necessary shall (subject to the limitations on Seller's obligations set forth in Section 6 hereof), at the Closing use the Purchase Price, or any part thereof, to clear title of any or all encumbrances or interests which are to be discharged, removed or eliminated by Seller pursuant to the terms hereof, and all instruments discharging the same shall be recorded concurrently with the recording of the Deed. 9. RISK OF LOSS AND CONDEMNATION. ----------------------------- -5- 9.1 If any substantial damage to the Improvements shall occur on or before the Closing Date by reason of fire or other casualty (a "Casualty"), Buyer will give Seller notice (a "Casualty Notice") of such event promptly following such Casualty. If the time required to repair and restore the Improvements exceeds six (6) months from the date of damage (as reasonably estimated by an independent and disinterested architect or registered professional engineer competent to make such estimate and selected by Buyer), then Buyer shall have the right to terminate this Agreement by giving Seller notice to such effect within ten days after Buyer has received the independent estimate. If Buyer does not elect to terminate this Agreement or if Buyer is obligated to close because the time required to repair or restore the Casualty does not exceed said period (as reasonably estimated by an independent and disinterested architect or registered professional engineer as described above), then the Closing shall take place as herein provided without abatement of the Purchase Price, and Seller shall, at the Closing, pay or assign to Buyer (by written instrument in the case of any assignment) the proceeds from all fire and other casualty insurance paid or payable with respect to the Casualty (less sums theretofore expended, if any, by Seller for temporary repairs or barricades). Seller shall have no right to contest the amount of any insurance settlement as it affects the Property in the event Buyer shall choose to have Seller assign such insurance to it, and Seller shall cooperate with any efforts by Buyer to contest the same. Seller shall -6- have no liability or obligation with respect to the condition of the Property as the result of such Casualty, except as provided in Section 9.3 hereof. 9.2 In the event that Seller has knowledge of the actual or threatened taking of all or any part of the Property by exercise of right of eminent domain, Seller will give Buyer prompt written notice of such event. If, on or before the Closing Date, all of the Property shall be taken or threatened to be taken by exercise of right of eminent domain, or there shall be taken or threatened to be taken so material a part thereof that, in the reasonable opinion of Buyer, the taking does or would materially interfere with the current or proposed economic operation or use of the Property, then Buyer may elect to terminate this Agreement by giving Seller notice to such effect on or before the Closing Date. If Buyer does not elect to terminate this Agreement, then the Closing shall take place as herein provided without abatement of the Purchase Price, and Seller shall, at the Closing, assign to Buyer, by written instrument, all of Seller's right, title and interest in and to any condemnation award which may be payable to Seller on account of such condemnation. If, prior to the Closing Date, one or more portions of the Property shall be taken by exercise of right of eminent domain in a manner which does not give Buyer the right to terminate this Agreement, the transaction contemplated hereby shall take place as provided in the preceding sentence. 9.3 Notwithstanding anything to the contrary contained in Article K of a certain Build to Suit Lease dated as of January 9, 1990 between Seller and Buyer (the -7- "Lease"), Seller shall not be obligated to repair the Property until Buyer makes its election under Section 9.1 or 9.2 herein. If Buyer so elects to terminate this Agreement, then the rights and obligations of the parties with respect to repair of the Property shall be determined under Article K of the Lease. 10. CLOSING COSTS. Buyer shall pay all Connecticut state and local ------------- conveyance taxes. Seller shall pay all recording costs in connection with the discharge or removal of matters affecting title required to be removed by Seller. Buyer shall pay the cost of recording the Deed. 11. Lease. ----- 11.1 Concurrently with the Closing, at the request of Buyer, Seller shall either (a) execute and deliver such documents as Buyer may reasonably request terminating, and releasing Buyer from all liability under, the Lease to the extent required by Section 15.5 hereof or (b) transfer and assign all of Seller's right, title and interest in, to and under the Lease accruing after the Closing (except for Seller's rights pursuant to Article F-4 of the Lease accrued under the Lease prior to the closing) to such party as Buyer may direct. Any such transfer and assignment shall be without representation or warranty by Seller except that Seller shall warrant (x) its ownership of all of the right, title and interest of the Landlord under the Lease, free and clear of all liens, claims and encumbrances, (y) its authority to execute and deliver such assignment and (z) the absence of actual knowledge of default by Seller or Buyer under the Lease. -8- 11.2 The termination of this Agreement shall not affect the rights and obligations of Seller and Buyer under the Lease. 11.3 Upon the Closing, Buyer shall immediately deliver to Seller a withdrawal, with prejudice and without an award of costs to either party, of the action commenced by Buyer against Seller in the Superior Court of the State of Connecticut, Judicial District of Windham at Putnam, Case No. CV 940048461 (the "Action"). Until the earlier of the Closing or termination of this Agreement, Buyer and Seller shall cooperate in postponing further prosecution of the Action. 11.4 At the Closing, Buyer shall pay to Seller any portion of the Fixed Rent (as defined in the Lease) and any other amount payable by Buyer to Seller as Additional Rent (as defined in the Lease) which is unpaid for the period ending the day immediately preceding the Closing Date. In the event as of the Closing Date Buyer has paid any Fixed Rent or Additional Rent for periods on or after the Closing Date, the amount thereof shall be deducted from the Purchase Price. In addition, Buyer shall also pay to Seller all amounts agreed to be paid by Buyer pursuant to the letters dated October 6, 1994, November 9, 1994, February 7, 1995 and February 14, 1995 (the "Payment Letters") that are attached hereto as Exhibit D, which have not yet been paid. 12. DEFAULT; DAMAGES; ETC. --------------------- 12.1 If Buyer shall default in the payment or performance of any of its obligations under this Agreement, or if there is a breach of any representation or -9- warranty of Buyer which is uncured as of the Closing Date, Seller may pursue any and all remedies available to it hereunder and at law or in equity, including but not limited to a suit for specific performance, arising from or in connection with such default. 12.2 If Seller shall default in the payment or performance of any of its obligations under this Agreement, or if there is a breach of any representation or warranty of Seller which is uncured as of the Closing Date, Buyer may pursue any and all remedies available to it hereunder and at law or in equity, including but not limited to a suit for specific performance, arising from or in connection with such default. 13. REPRESENTATIONS OF SELLER. Seller agrees and represents and warrants ------------------------- to Buyer that: 13.1 This Agreement and its execution, delivery and performance by Seller have been duly authorized by all necessary action on behalf of Seller; this Agreement is a valid and binding obligation of Seller; and the sale of the Property, and the consummation of the transactions contemplated hereby, will not result in any violation or breach of any indenture or agreement to which Seller is a party or by which Seller or the Property is affected or bound; and 13.2 Seller has received no notice of any condemnation proceeding or declaration of taking or other similar instrument filed against the Property, and there is no litigation or proceeding pending or to Seller's actual knowledge, threatened -10- which affects Seller or the Property or the use thereof, except for the Action and the Appeal (as defined in Section 21). 14. REPRESENTATIONS OF BUYER. Buyer represents and warrants to Seller ------------------------ that: 14.1 This Agreement, and the execution and delivery and performance thereof by Buyer, have been duly authorized by all necessary action on behalf of Buyer and is a valid and binding obligation of Buyer; 14.2 The performance by Buyer of this Agreement will not result in any violation or breach of any indenture or agreement to which Buyer is a party or by which Buyer is bound; and 14.3 Buyer has received no notice of any condemnation proceeding or declaration of taking or other similar instrument filed against the Property, and there is no litigation or proceeding pending or threatened which affect Buyer or the Property of the use thereof, except the Action and the Appeal. 15. DOCUMENTS TO BE DELIVERED BY SELLER AT CLOSING. At the Closing, ---------------------------------------------- Seller shall deliver the following documents to Buyer: 15.1 The Deed; 15.2 A certified copy of a vote or resolution of the Board of Directors of Seller's managing general partner authorizing the transactions contemplated by this Agreement; -11- 15.3 Such affidavits and other documents as Buyer may request in order to confirm that Seller is not a "foreign person" for purposes of Section 1445 of the Internal Revenue Code of 1986, as amended; 15.4 Such good standing certificates and tax lien waivers or releases with respect to Seller and its partners and other certificates, affidavits and documents reasonably requested by the Title Company; 15.5 A general release running to Buyer, except for Buyer's obligations pursuant to Article F-4 of the Lease and its obligations accrued under the Lease prior to the effective date of termination thereof; and 15.6 To the extent they are assignable, an assignment of Seller's right, title and interest, if any, in and to the Approvals as they relate solely to the Property, such assignment to be without representation or warranty by Seller except that Seller shall represent that there is no currently effective assignment by Seller of any interest in such assigned Approvals to any other party. 16. PLANS, ETC. At the Closing and prior thereto as requested by Buyer, ---------- Seller shall deliver to Buyer all plans, surveys, engineering reports, environmental reports and similar materials relating to the Property in the possession of Seller or its agents. 17. DOCUMENTS TO BE DELIVERED BY BUYER AT CLOSING. At the Closing Buyer --------------------------------------------- shall deliver the following documents to Seller; -12- (a) the Purchase Price; (b) a certified copy of a vote or resolution of the Board of Directors of Buyer authorizing the transactions contemplated by the Agreement; (c) a withdrawal of the Action with prejudice and without an award of costs to either party; (d) a general release running to Seller; and (e) all other instruments and documents to which Seller may be entitled under any provision of this Agreement. 18. CONDITIONS TO CLOSING. The obligation of Buyer to consummate the --------------------- transactions contemplated herein is subject to the satisfaction or waiver in writing by Buyer of each of the following conditions at or prior to the Closing: 18.1 Buyer shall have obtained at Buyer's expense, at regular rates, a standard ALTA's owner's title insurance policy issued by the Title Company, insuring title to the Property in the amount of the Purchase Price, without exception except as set forth in Section 2. Buyer agrees to apply promptly for such title insurance policy. If such is unavailable, Buyer shall so notify Seller, and Seller shall have a period of thirty (30) days within which to obtain a policy for Buyer on the foregoing basis issued by a company reasonably satisfactory to Buyer, but at the expense of Buyer; 18.2 Seller shall have performed all covenants, promises, and agreements to be performed by it; and -13- 18.3 Each of the Approvals shall be in full force and effect and not subject to any pending or threatened appeal or other proceeding. 19. BROKER. Each of Seller and Buyer represents to the other than it ------ has not dealt with any real estate agent, broker or finder or other party which is or may be entitled to a commission or similar payment as a result of the sale of the Property by Seller to Buyer. Each of Seller and Buyer shall indemnify and hold harmless the other party against and from all loss, cost and expense, including reasonable attorneys fees, arising out of any misrepresentation contained in this Section. The provisions of this Section shall survive the Closing. 20. NOTICES. All notices required or permitted to be given hereunder ------- shall be in writing and shall be deemed to have been properly given when delivered, by overnight courier, by facsimile transmission (provided that a written confirmation of such transmission is sent on the immediately succeeding day in the manner required hereunder), or when mailed in any United States Post Office enclosed in a registered or certified return receipt requested postpaid envelope addressed to the address of the respective parties stated below, or to such other address as such party may have fixed by notice. If to Seller: O.M. Killingly Investment Company c/o The Old Mountain Company, Inc. 551 Fifth Avenue, Suite 1916 New York, New York 10176 -14- Facsimile: 212-370-0469 With a copy by the same method of service to: J.Charles Carlson, Esq. Cabot, Cabot & Forbes 99 Summer Street Boston, Massachusetts 02110 Facsimile: 617-737-4975 If to Buyer: Cornucopia Natural Foods, Inc. 260 Lake Road Dayville, Connecticut 06241 Attention: Mr. Steven Townsend Facsimile: 203-779-2811 With a copy by the same method of service to: E. Colby Cameron, Esq. Cameron & Mittleman 56 Exchange Terrace Providence, Rhode Island 02903 Facsimile: 401-331-5787 21. APPROVALS. As of the date hereof, Buyer has obtained certain --------- governmental approvals (the "Approvals") listed on Exhibit E hereto relating to the construction and use of an addition or additions to the Improvements (the "Proposed Addition"), including the approval of the Killingly Inland Wetlands & Watercourses Commission (the "Commission") dated January 3, 1995 relating to construction and stormwater drainage activities relating to the Proposed Addition (the "Inlands Wetlands Approval"). Pursuant to an action commenced in the Superior Court, Judicial District -15- of Windham at Putnam (the "Appeal"), Kathleen Berk and Maureen Lannon (the "Appellants") have appealed the decision of the Commission granting the Inlands Wetlands Approval. Seller and Buyer agree to cooperate in taking action reasonably required to dismiss the Appeal and to affirm the Inlands Wetlands Approval. In furtherance of such agreement, Buyer and Seller reaffirm their agreement with respect to sharing of legal expenses as set forth in the Payment Letters dated February 7, 1995 and February 14, 1995. Buyer and Seller further agree, however, that neither of them shall be obligated to contribute any funds or undertake any commitments to the Appellants to settle the Appeal or otherwise cause the Appeal to be dismissed. For purposes of this Agreement, the term "Approvals Date" shall mean the date on which the Inlands Wetlands Approval shall has become final, with no further right of appeal, and the Appeal shall have been dismissed. 22. RENT ADJUSTMENT. Seller agrees that notwithstanding the provisions --------------- of the Lease to the contrary, Fixed Rent (as defined in the Lease) shall not be increased pursuant to Article D-2 of the Lease, and such increase shall not be effective, until the date on which this Agreement is terminated in accordance with the terms hereof. 23. MISCELLANEOUS. ------------- 23.1 This Agreement may be executed in counterparts, each of which shall be deemed an original. The captions are for convenience of reference only and shall not affect the construction to be given any of the provisions hereof. -16- 23.2 This Agreement shall be governed by, interpreted under, and construed and enforced in accordance with, the laws of the State of Connecticut. 23.3 This Agreement (including all exhibits attached hereto) contains the entire agreement between the parties with respect to the sale of the Property and supersedes all prior understandings, if any, with respect thereto, except as provided in the Lease. This Agreement may not be modified, changed, supplemented or terminated, and no obligation hereunder may be waived, except by written instrument signed by the party to be charged. 23.4 No waiver of any breach of any agreement or provision contained herein shall be deemed a waiver of any preceding or succeeding breach thereof or of any other agreement or provision herein contained. No extension of time for performance of any obligation or act shall be deemed an extension of the time for performance of any other obligation or act. Time is of the essence in the performance of this Agreement. 23.5 This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Seller expressly acknowledges and agrees that Buyer shall have the right to assign its rights hereunder, but Buyer shall not be released from its obligations hereunder upon such assignment. 23.6 All pronouns or any variation thereof shall be deemed to refer to the masculine, feminine or neuter nouns, and to have singular or plural nouns, as the identity or nature of the person or persons referred to may require. -17- 23.7 Each of the parties agrees to execute, acknowledge and deliver such additional documents and instruments and to take such further action as may be reasonably requested by the other in order to carry out the terms and conditions of this Agreement and the transactions contemplated hereby. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. WITNESS: O.M. KILLINGLY INVESTMENT COMPANY By: Old Mountain Killingly, Inc. General Partner /s/ Juli A. Smith By: /s/ John A Pirouano - -------------------------------- --------------------- Its: President WITNESS: CORNUCOPIA NATURAL FOODS, INC. /s/ Jane D. Knox By: /s/ Steven Townsend - -------------------------------- --------------------- Its: Vice President/CFO EXHIBIT A --------- All that certain piece or parcel of land, together with the improvements thereon, shown as Lot No. 2 on a map entitled "Easement Plan Prepared For O.M. Killingly I Investment Company and O.M. Killingly Investment Company, Lake Road and Forbes Road, Killingly, Connecticut" dated October 31, 1994, as revised March 15, 1995, prepared by KWP Associates and on file in the Killingly land Records as Map No. H.F. 215B. EXHIBIT B --------- CONNECTICUT QUITCLAIM DEED WITH GRANTOR'S COVENANT -------------------------------------------------- TO ALL PEOPLE TO WHOM THESE PRESENTS SHALL COME, GREETING: KNOW YE THAT O.M. KILLINGLY INVESTMENT COMPANY, a Connecticut general partnership with an office c/o The Old Mountain Co., Inc., 551 Fifth Avenue, New York, NY 10176 ("Grantor"), for the consideration of $1.00 and other value ------- received to its full satisfaction of CORNUCOPIA NATURAL FOODS, INC., a Delaware corporation with an office at 260 Lake Road, Dayville, CT 06241 ("Grantee"), ------- does remise, release and forever quit claim unto Grantee, its successors and assigns, all that certain real property more particularly described on Exhibit A --------- attached hereto (the "Premises"). 1. This conveyance is made together with the following: (a) The right, in common with Grantor and others, to install, operate, maintain, renew and replace electric, telephone and cable television lines and facilities, as described in a paragraph commencing on the bottom of page 2 and ending in the middle of page 3 of a Limited Warranty Deed from Acadia Eastern, Inc. to CC&F Killingly Investment Company dated February 16, 1989 and recorded in the Killingly Land Records in Volume 451 at Page 7, upon the terms and conditions set forth in said deed, starting at the bottom of page 3 thereof and continuing in subparagraphs (a) through (i) on pages 4 and 5 thereof. (b) Certain rights and agreements, in common with Grantor and others, as set forth in a Declaration of Restrictions, Covenants and Agreements by and between Acadia Eastern, Inc. and CC&F Killingly Investment Company dated February 15, 1989 and recorded in said Land Records in Volume 451, Page 14, as amended; provided however that Grantee shall not have any rights under Paragraph 10 of said Declaration. -19- (c) Certain rights as an Owner of a Lot, as set forth in a Declaration of Covenants and Restrictions for Killingly Oaks Business Park by CC&F Killingly Investment Company dated May 25, 1989 and recorded in said Land Records in Volume 470 at Page 270. (d) The right to use, in common with others, Forbes Road, so-called, for all purposes for which a public highway is ordinarily used. (e) Rights to water usage under the Water Main Agreement, as said term is defined and the rights described in Paragraph 5 below. ----------- (f) Rights to storm water drainage under a Storm Drainage Easement and Agreement with the Town of Killingly dated April 20, 1995 and recorded in the Killingly Land Records in Volume 628 at Page 100. (g) Rights as the owner of the Premises under the Water Line Easement and Agreement among Grantor and Corcap Eastern, Inc. dated June 2, 1995 and recorded on June ____, 1995 in the Killingly Land Records. 2. TO HAVE AND TO HOLD the Premises, with the privileges and appurtenances thereof, unto Grantee, its successors and assigns forever, to its and their own proper use and behoof. 3. RESERVING unto Grantor, for the benefit of Lots 3 and 4 shown on said Map No. H.F. 2l5B, the perpetual right and privilege to drain surface water and storm drainage onto Drainage Easements 1, 2, 3, 4 and 5 located on the Premises, as shown on said Map, on the following terms and conditions, which shall be binding upon and inure to the benefit of the parties and their respective successors and assigns: -20- (a) Any damage to the property of Grantee which shall be caused in the exercise of the rights reserved by the above easements shall be corrected by Grantor to a condition substantially equal to that which exists at the time of the damage. (b) Grantee shall have the right to continue to use the land within which the aforesaid easements have been reserved for any uses and purposes which shall not unreasonably interfere with the use thereof by Grantor, its successors and assigns, in fulfilling the purposes for which the foregoing easements have been reserved. (c) During all periods of construction, replacement and repair of the facilities to be placed in the Easement Areas, Grantor shall protect the Grantee's land adjacent to the Easement Areas by all means which would reasonably be required. (d) Grantor shall have the obligation to keep all improvements in the Easement Areas in good repair at all times. Under no circumstances shall Grantor have the right to expand or enlarge the Easement Areas. (e) In the event Grantor does not fulfill its obligations under these easements, Grantee shall have the right to perform these obligations on behalf of Grantor and shall have the right to obtain reimbursement for the cost of this work from Grantor within ten (10) days from receipt of a statement setting forth this cost. Any money advanced by Grantee pursuant to the provisions of this paragraph shall bear interest at the rate of 3% over the prime or base rate (or a similar index if this index is no longer utilized) announced by Fleet Bank or its successors, as of the date of the demand for payment. (f) Grantor shall indemnify and hold Grantee harmless from and against any and all claims, suits, damages, costs, losses and expenses, including reasonable attorneys' fees, which Grantee may incur, pay or suffer in connection with the use by Grantor of the easements hereby reserved and not due to any wrongful act or negligence of Grantee, or its agents, servants or employees, or if Grantor fails to comply with the covenants, restrictions and agreements contained herein. (g) The easements and agreements set forth above shall run with the land and be binding on Grantee, its successors and assigns, and Grantor and its successors and assigns. 4. AND ALSO, Grantor, for itself, its successors and assigns, covenants with Grantee and its successors and assigns, that Grantor and its successors and assigns shall warrant and defend the Premises to Grantee and its successors and assigns forever against the lawful claims and demands of all persons claiming by, through, or under Grantor, except with respect to encumbrances set forth on Exhibit B hereto. This conveyance is made subject to the obligations under the - --------- instruments described in Paragraph 1 above, in addition to the obligations under the other encumbrances specified on Exhibit B hereto. --------- 5. Grantor is the owner of Lots 3 and 4, and its affiliate, O.M. Killingly I Investment Company ("Killingly I"), is the owner of Lot 5 shown on -------------- Map No. H.F. 215B referred to on Exhibit A hereto, all of which, together with --------- the Premises, is commonly known as the Killingly Oaks Business Park. Grantor and Killingly I have entered into a Water Main Agreement dated April 20, 1995 with the Town of Killingly (the "Water Main Agreement"), which Agreement was recorded ---------------------- in Volume 626 at Page 162, Killingly Land Records. By acceptance of this deed, Grantee covenants that the average daily usage of water (excluding emergency fire protection requirements) for the Premises from the Water Line (as defined in the Water Main Agreement) shall not exceed seven (7) gallons per minute. Without limiting the remedy for violation of such covenant, Grantee -22- shall be liable for charges imposed pursuant to subsection 4(d) of the Water Main Agreement. Grantor, for itself and its successors and assigns, covenants that the average daily usage of water (excluding emergency fire protection requirements) from the Water Line for said Lots 3, 4 and 5, shall not exceed an amount per minute which would prevent the maximum use allowed Grantee under this Paragraph. Such covenants shall run with the land and be binding upon and inure to the benefit of the successors and assigns of Grantor and Grantee. 6. The State Highway Commission, Department of Transportation, State of Connecticut has issued Grantor for Killingly Oaks Business Park Certificate No. 1027-A on November 23, 1994 (the "Certificate"), recorded on December 16, ------------- 1994 in said Land Records in Volume 619, Page 283, restricting the maximum number of square feet of development within Killingly Oaks Business Park. Grantor, for itself and its successors and assigns, covenants that no improvements will be constructed on said Lots 3, 4 and 5 shown on said Map which, under the provisions of the Certificate (as same may be amended or replaced), would prevent the construction by Grantee of additional improvements on the Premises of up to 10,000 square feet of office space and up to 175,000 square feet of warehouse space. IN WITNESS WHEREOF, Grantor has hereunto caused its name to be set, this ___ day of ______________, 199__. WITNESSES: O.M. KILLINGLY INVESTMENT COMPANY, a Connecticut general partnership By: Old Mountain Killingly, Inc. ________________________________ managing general partner By: ________________________________ ________________________________ John A. Pirovano, President STATE OF NEW YORK : : ss. New York COUNTY OF NEW YORK : The foregoing instrument was acknowledged before me this ____ day of _________ 199__, by John A. Pirovano, President of Old Mountain Killingly, Inc., a Delaware corporation and the managing general partner of O.M. Killingly Investment Company, a Connecticut general partnership, on behalf of the partnership. ____________________________________ Notary Public My Commission Expires: The Latest Address of Grantee: 260 Lake Road Dayville, CT 06241 EXHIBIT C --------- A. Encumbrances of Record As Of the Date of This Agreement: 1. (a) Taxes to the Town of Killingly due and payable after the closing. (b) Dayville Fire District Taxes due and payable after the closing. (c) Charges to the Water Pollution Control Authority due and payable after the closing. 2. Notice of special permit from the Killingly Planning & Zoning Commission recorded September 27, 1988 in Volume 439 at Page 233 of the Killingly Land Records. 3. Certain easements and agreements as set forth in a limited warranty deed from Acadia Eastern, Inc. to CC&F Killingly Investment Company, dated February 16, 1989 and recorded in Volume 451 at Page 7, Killingly Land Records. 4. Declaration of Restrictions, Covenants and Agreements by and between Acadia Eastern, Inc. and CC&F Killingly Investment Company, dated February 16, 1989 and recorded in Volume 451 at Page 14, as amended by Amendment No. 1 to Declaration of Covenants, Restrictions and Agreements by and between Acadia Eastern, Inc. and CC&F Killingly Investment Company, dated November 5, 1990 and recorded in Volume 506 at Page 347, Killingly Land Records. 5. Declaration of Covenants and Restrictions for Killingly Oaks Business Park by CC&F Killingly Investment Company, dated May 25, 1989 and recorded in Volume 459 at Page 159, as rerecorded in Volume 470 at Page 270, Killingly Land Records. 6. Drainage rights in favor of Lot No. 5, as set forth in a quit claim deed from CC&F Killingly Investment Company to CC&F Killingly I Investment Company, dated May 24, 1989 and recorded in Volume 459 at Page 233, Killingly Land Records. 7. Notice of special permit from the Killingly Planning & Zoning Commission recorded July 19, 1989 in Volume 467 at Page 13, Killingly Land Records. 8. An Easement and Agreement between CC&F Killingly Investment Company and CC&F Killingly I Investment Company, dated September 7, 1989 and recorded on September 8, 1989 in Volume 472 at Page 29, Killingly Land Records. 9. Drainage rights of the Town of Killingly in and to drainage easements 1, 2, 3, 4 and 5, as shown on the map referred to in Exhibit A to this Agreement. 10. Drainage easement as set forth in a warranty deed from CC&F Killingly Investment Company to Town of Killingly dated April 9, 1990 and recorded in Volume 499 at Page 76, Killingly Land Records. 11. Rights of the owners of Lot No. I as shown on the map referred to in Exhibit A to this Agreement, in and to the 20' water easement and to the proposed 20' wide water easement as shown on said map. 12. Certificate No. 1027-A issued November 23, 1994 to O.M. Killingly Investment Company by the State Traffic Commission recorded on December 16, 1994 in Volume 619 at Page 283, Killingly Land Records. 13. Notice of Lis Pendens in favor of Grantee dated April 7, 1994 and recorded in Volume 599 at Page 288, Killingly Land Records. 14. Water Main Agreement with the Town of Killingly, dated April 20, 1995, and recorded in the Killingly Land Records on April 28, 1995 in Volume 626 at Page 162. 15. Miscellaneous easements and agreements with the Town of Killingly, all of which are dated April 20, 1995 and were recorded in the Killingly Land Records on May 5, 1995, in the Volume and Page indicated below.
Document Recorded -------- --------- Berm Agreement V. 627, P. 71 Emergency Access, Utilities and V. 627, P. 82 Buffer Easement Water Line Easement V. 627, P. 92
16. Storm Drainage Easement and Agreement with Town of Killingly, dated April 20, 1995 and recorded in the Killingly Land Records in Volume 628 at Page 100. The Mitication Plan is contained in full on the Survey Plan filed as Map No. HF-216 A, Killingly Land Records. B. The following encumbrances, copies of which have been delivered in draft form to counsel for Buyer, are expected to be recorded at or prior to closing in substantially the form of the drafts indicated below, inserting a reference therein as appropriate to the map described in Exhibit A to this Agreement: 1. Amendment to Declaration of Covenants and Restrictions described in A5 above, draft of February 14, 1995. There will also be a separate amendment to said Declaration, not yet drafted, making reference to a map to be recorded and showing the Common Facilities of the Killingly Oaks Business Park. 2. Water Line Basement and Agreement between Grantor and Corcap Eastern, Inc., dated June 2, 1995. EXHIBIT D --------- October 6, 1994 BY TELECOPY & REGULAR MAIL - -------------------------- 617-727-4975 J. Charles Carlson, Esq. Cabot, Cabot & Forbes 99 Summer Street Boston, Massachusetts 02110 Dear Charlie: I am writing to confirm that Steve Townsend has agreed that Cornucopia will pay one-half the cost of services of Rizzo Associates, Inc., up to a maximum payment of $5,500, in connection with the traffic study proposal dated September 30, 1994 of Rizzo to Cabot, Cabot & Forbes, assuming that the Cornucopia total expansion to 350,000 square feet is included in the traffic impact report. Sincerely, /s/ Joseph F. Whinery, Jr. Joseph F. Whinery, Jr. JFW/ kat cc: Mr. Steven Townsend November 9, 1994 Terence Chambers Vice President - Engineering KWF Associates 250 Killingly Road Pomfret Center, CT 06259-0106 Dear Terry: I am writing to confirm my understanding with you that Cornucopia and CC&F will split the costs of the Hydrological Study and other park wide drainage design costs on a 50/50 basis. I further understand that you will only bill CC&F for our 50% share and that you will bill Cornucopia directly for their 50% share. I have received one invoice from you thus far for $1,611 which I understand is our 50% share of the work completed on drainage and the hydrological study from 8/16/94- 10/15/94 Finally, I understand that you will bill Cornucopia directly for all costs for their site plan and expansion, and for all work performed by your firm relating to Cornucopia's drainage which predated the Town's decision to require a park wide solution to the drainage issue. Sincerely, /s/ Juan M. Prieto Juan M. Prieto JMP:kmm cc: Charles Carlson John Pirovano Steve Townsend BY FAX February 7, 1995 ------ Steven Townsend Chief Financial Officer Cornucopia Natural Foods, Inc. 260 Lake Road P.0. Box 999 Dayville, CT 06241 Dear Steve: This letter will confirm our oral agreement that Cornucopia and O.M. Killingly Investment Company will share equally the cost of legal services provided by Updike, Kelly & Spellacy ("Updike") in connection with the appeal of the Inland Wetlands Permits granted to Cornucopia. I will forward copies of Updike's bills to you as I receive them, and I understand that Cornucopia will promptly reimburse O.M. Killingly Investment Company for the 50% share of these bills that is payable by Cornucopia. We are also agreed that I will try to obtain a contribution from the Town of Killingly to the cost of Updike's services, particularly the cost associated with preparing the record of the permit process for the court. If the Town is agreeable, any contributions by the Town will reduce equally the respective obligations of Cornucopia and O.M. Killingly Investment Company. Naturally, as the appeal progresses, I will make sure you are involved in the discussions and legal filings concerning this litigation. However, I understand from our telephone conversation that you do not wish to attend the first meeting with plaintiffs counsel, Michael Zizka. I will call you after the meeting to report on the results of our discussions. With respect to costs that may be incurred to settle the plaintiffs' claims, I understand from our telephone conversation that Cornucopia is prepared to join in the funding of a settlement. We agreed, however, that the full scope of Cornucopia's financial commitment will have to be resolved in the context of a real settlement opportunity. -32- Turning to the "Mitigation Plan" that the Town has required as a condition of Cornucopia's Inland Wetlands permit, I will send to you the draft plan as soon as I receive it from the Town's attorney. As I said during our telephone conversation, this plan will require members of the Killingly Oaks Business Park Property Owners Association, Inc. to share (in accordance with the cost sharing provisions of the Declaration of Covenants and Restrictions) an $11,000 annual charge by the Town for wellwater monitoring and a one-time $30,000 charge by the Town to create a fund to pay part of the cost of any required town water hookups for the abutting residents as well as any necessary erosion control costs. As you know, Cornucopia will become a member of the Association after it purchases its lot and will be responsible for its stated share of these costs. (Per your request, I will endeavor, through further discussions with the Town, to spread the $30,000 charge over several years, although I cannot say that I am confident about my prospects for success.) Finally, I believe we are agreed that we should proceed now to document Cornucopia's commitment to purchase the property promptly after resolution of the appeal. I will start working with Joe Whinery on this matter immediately. Please confirm that I have correctly expressed the substance of our agreements by signing and returning to me the enclosed copy of this letter. If you have any questions concerning this matter, please do not hesitate to call me. Best regards, /s/ J. Charles Carlson J. Charles Carlson -33- Accepted and Agreed To: Cornucopia Natural Foods, Inc. By:___________________________ Its:__________________________ JCC:mas -34- February 14, 1995 J. Charles Carlson, Esq. Cabot, Cabot & Forbes 99 Summer St. Boston, MA 02110 Dear Charlie: In writing in response to your letter of February 7, 1995. We agree with the sharing of costs indicated in your letter except as to settlement costs referred to in the fourth paragraph. Cornucopia is not agreeing to contribute to those costs. Rather, we will consider a request from you when there is better information. I have asked Joe Whinery to review the issues relating to the purchase agreement and will plan to call you in the next day or so. Finally, I am interested in how the meeting went last week with the attorney for Mrs. Lannon and Mrs. Burk. Please give me a call at your earliest convenience. Sincerely, /s/ Steven Townsend Steven Townsend ST:jk -35- EXHIBIT E --------- 1. Town of Killingly Planning and Special Zoning permit #94- 607 - January 31, 1995 2. Inland Wetland and Watercourse Application #94-889 - January 3, 1995 3 Storm Drainage Easement and Agreement - January 25, 1995 4. Connecticut State Traffic Commission Certificate #1027-A - November 23, 1994 EX-10.18 20 REAL ESTATE TERM NOTE W/ FLEET CAPITAL CORP. Exhibit 10.18 ------------- REAL ESTATE TERM NOTE --------------------- $6,000,000.00 September 8, 1995 Dayville, CT FOR VALUE RECEIVED, the undersigned (hereinafter, the "Borrower"), by this promissory note (hereinafter, called this "Note"), absolutely and unconditionally promises to pay to the order of SHAWMUT CAPITAL CORPORATION, a Connecticut corporation (hereinafter, together with its successors in title and assigns, called the "Lender"), in such coin or currency of the United States as shall be legal tender in payment of all debts and dues, public and private, at the time of payment, the principal sum of SIX MILLION AND NO/100 DOLLARS ($6,000,000.00), in installments as hereinafter provided, together with interest on the principal sum outstanding hereunder from time to time from the date hereof until the said principal sum or unpaid portion thereof shall have become due and payable as hereinafter provided. This Note is the Real Estate Term Note referred to in, and issued pursuant to, that certain Loan and Security Agreement between the Borrower and the Lender dated January 21, 1993 (hereinafter, as originally executed and amended from time to time since such date and by a Third Amendment thereto dated August 9, 1995, or, if varied or supplemented or amended and restated from time to time, as so varied or supplemented or amended and restated, called the "Loan Agreement"), and is entitled to all of the benefits and security of the Loan Agreement. All of the terms, covenants and conditions of the Loan Agreement and all other instruments evidencing or securing the indebtedness hereunder (including, without limitation, the "Security Documents" as defined in the Loan Agreement) are hereby made a part of this Note and are deemed incorporated herein in full. All capitalized terms used herein, unless otherwise specifically defined in this Note, shall have the respective meaning ascribed to them in the Loan Agreement. The unpaid principal (not at the time overdue) under this Note shall bear interest, at the Borrower's election subject to the terms and conditions of the Loan Agreement, at either a variable rate per annum equal to one-half of one percent (1/2%) above the Base Rate, or the Euro-Dollar Rate plus two and one- half percent (2-1/2%). Accrued interest on the unpaid principal under this Note shall be payable as specified below. The Borrower acknowledges and understands that the Base Rate merely serves as a basis upon which effective rates of interest are calculated for loans making reference to the par annum rate of interest publicly announced by the Shawmut Bank Connecticut, N.A. from time to time as its base rate and that such rate may not be the lowest or best rate at which such bank calculates interest or extends credit. After the date hereof, the rate of interest in effect hereunder shall be increased and decreased, as the case may be, by an amount equal to any increase or decrease in the Base Rate, with such adjustments to be effective as of the opening of business on the date that any such change in the Base Rate becomes effective. The Base Rate in effect on the date hereof shall be the Base Rate effective as of the opening of business on the date hereof, but if this Note is executed on a day that is not a Business Day, the Base Rate in effect on the date hereof shall be the Base Rate effective as of the opening of business on the last Business Day immediately preceding the date hereof. In no contingency or event whatsoever, whether by reason of advancement of the proceeds hereof or otherwise, shall the amount paid or agreed to be paid to the Lender for the use, forbearance or detention of money advanced hereunder exceed the highest lawful rate permissible under any law which a court of competent jurisdiction may deem applicable hereto. In the event that such a court determines that the Lender has charged or received interest hereunder in excess of the highest applicable rate, such rate shall automatically be reduced to the maximum rate permitted by applicable law and the Lender shall promptly refund to the Borrower any interest received by the Lender in excess of the maximum lawful rate or, if so requested by the Borrower, shall apply such excess to the principal balance of this Note. It is the intent hereof that the Borrower not pay or contract to pay, and that the Lender not receive or contract to receive, directly or indirectly in any manner whatsoever, interest in excess of that which may be paid by the Borrower under applicable law. For so long as no Event of Default shall have occurred under the Loan Agreement, the principal amount and accrued interest of this Note shall be due and payable on the dates and in the manner hereinafter set forth: (a) Interest shall be due and payable monthly, in arrears, on the first day of each month, commencing on September 1, 1995, and continuing until such time as the full principal balance, together with all other amounts owing hereunder, shall have been paid in full; (b) Commencing on September 1, 1995, and continuing on the first day of each month thereafter to and including the first day of July, 1998, principal payments in the amount $25,000 each; and (c) On July 31, 1998, a final principal payment equal to the entire unpaid principal balance hereof, together with any and all other amounts due hereunder. -2- Notwithstanding the foregoing, the entire unpaid principal balance, all interest accrued thereon and all (if any) other amounts payable on or in respect of this Note or the indebtedness evidenced hereby shall be due and payable immediately upon any termination of the Loan Agreement pursuant to Section 3.4 thereof. This Note shall be subject to mandatory prepayment in accordance with the provisions of the Loan Agreement. The Borrower may prepay the unpaid principal of this Note in whole at any time or in part from time to time without premium or penalty. All partial prepayments, whether mandatory or voluntary, shall be applied to installments of principal in the inverse order of their maturities. Any prepaid principal of this Note may not be reborrowed. The occurrence of an Event of Default under the Loan Agreement, including, without limitation, the failure to pay any installment of principal or interest on this Note in full on or within ten (10) days after the due date thereof in accordance with the terms of this Note, shall constitute an event of default under this Note and shall entitle the Lender, at its option, upon or at any time after the occurrence of any such Event of Default, to declare the then outstanding principal balance and accrued interest hereof to be, and the same shall thereupon become, immediately due and payable without notice to or demand upon the Borrower, all of which the Borrower hereby expressly waives. If this Note is collected by or through an attorney at law, then the Borrower shall be obligated to pay, in addition to the principal balance, interest accrued thereon and all (if any) other amounts payable on or in respect of this Note or the indebtedness evidenced hereby, all court costs and attorneys' fees and all other collection charges and expenses reasonably incurred by the Lender. All computations of interest payable as provided in this Note shall be made by the Lender on the basis of the actual number of days elapsed divided by 360. Time is of the essence of this Note. To the fullest extent permitted by applicable law, the Borrower, for itself and its legal representatives, successors and assigns, irrevocably and expressly waives presentment, demand, protest, notice of dishonor, notice of non-payment, notice of maturity, notice of protest, presentment for the purpose of accelerating maturity, diligence in collection, and the benefit of any exemption or insolvency laws. Whenever possible, each provision of this Note shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Note shall be prohibited or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or remaining provisions of this Note. No delay or failure on the part of the Lender in the exercise of any right or remedy hereunder -3- shall operate as a waiver thereof, nor as an acquiescence in any default, nor shall any single or partial exercise by the Lender of any right or remedy preclude any other right or remedy. The Lender, at its option, may enforce its rights against any collateral securing this Note without enforcing its rights against the Borrower, any guarantor of the indebtedness evidenced hereby or any other property or indebtedness due or to become due to the Borrower. The Borrower agrees that, without releasing or impairing the Borrower's liability hereunder, the Lender may at any time release, surrender, substitute or exchange any collateral securing this Note and may at any time release any party primarily or secondarily liable for the indebtedness evidenced by this Note. This Note shall be governed by, and construed and enforced in accordance with, the internal laws of the State of Connecticut, and is intended to take effect as an instrument under seal. IN WITNESS WHEREOF, the Borrower has caused this Note to be duly executed, sealed and delivered in Glastonbury, Connecticut, on the date first above written. ATTEST: CORNUCOPIA NATURAL FOODS, INC. /s/ Norman Cloutier By: /s/ Steven Townsend - ------------------------------- ------------------------- Name: Steven Townsend Title: CFO -4- EX-10.19 21 DISTRIBUTION AGREEMENT W/ MOUNTAIN PEOPLE'S EXHIBIT 10.19 ------------- [Logo - Mountain Peoples Warehouse] To Boldly Go Where No Distributor Has Gone Before ____________________________________________________________________ 12745 Earhart Avenue - Auburn, CA 95602 (800) 679-8735 - FAX (916) 889-9544 August 23, 1994 Distribution Agreement Mountain People's Warehouse, Inc. (MPWI), agrees to enter into a three year distribution agreement with Mountain People's Wine Distribution, Inc. (MPWD). MPWI agrees to distribute cases of wine for $6.00 per case. Beer will be charged $1.50 per case or $1.00 per case by the pallet. MPWI agrees to warehouse, truck and make available sales representatives and other resources needed to help sell wine and beer. This agreement is valid with any transfer of ownership. It shall be renegotiated September 1, 1997. MPWI reserves the right to adjust charges should price of fuel increase 20% or more over August 1994 rates (approx. $1.20 per gallon). Sincerely, /s/ Michael S. Funk - -------------------------- Michael S. Funk President Mountain People's Warehouse EX-10.20 22 SECURED PROMISSORY Exhibit 10.20 ------------- Secured Promissory Installment Note With Interest Added (Uniform Commercial code Art. 3 et. seq., Civil Code Sects., 1671 et. seq., Civil Code Sect. 2954.4(a) et. seq.) PLACE OF DELIVERY Auburn, County of Placer, State of California, $150,000.00 Dollars, November 28, 1995 AGREEMENT FOR VALUE RECEIVED, I (we), the undersigned Borrower(s), (jointly and severally), promise to PAY TO THE ORDER OF Mountain People's Warehouse, payee/lender(s), ("Lender") at its office at 12745 Earhart Ave., Auburn, CA 95602, at the times specified below, the sum of $150,000.00 dollars, (the "Principal"), together with interest thereon at the rate of 7.00 percent per annum (computed on the basis of a 360-day year). THE PRINCIPAL AND THE AGGREGATE OF THE INTEREST thereon shall each be payable in 130 equal successive installments in the aggregate amount of $1,389.72 Dollars ($_________) each. The first such installment shall be paid on the 28th day of February, 1996, and subsequent installments shall be paid via payroll deductions, until all such payments have been made. LATE CHARGES BORROWER AGREES that in the event that any of the installment payments provided for herein is unpaid for at least 90 days, it would be impracticable or extremely difficult to fix the actual damages resulting to the Lender. therefore, Borrower agrees to pay to the Lender the sum of $10 upon any such default, as liquidated damages and not as a penalty, to compensate the Lender for the expenses of administering the default. Only one such late charge shall be collected on any installment regardless of the period during which it remains in default. The aggregate of the late charges collected in connection with this loan, or any renewal thereof, shall not exceed one percent (1%) of the balance owed. ACCELERATION THE HOLDER of this Note may, at its option, accelerate the maturity of all installments to become due hereunder upon the occurrence of any of the following events affecting any of the parties to this Note, either make, endorser, surety, or guarantor, by making an entry to that effect on its records, in which event the unpaid balance of this Note (being the total of the monthly installments unpaid at the time together with any fines which have been charged and remain unpaid) shall become immediately due and payable without demand or notice: a. Failure to make any installment payment as it falls due; b. Insolvency or commission of any act of insolvency; c. Filing of a petition in bankruptcy, either voluntary or involuntary; d. Institution of any proceeding under any bankruptcy or insolvency laws relating to the relief of debtors; e. Entry of judgement; f. Appointment of a receiver; g. Issuance of writ of attachment, order of garnishment, order or subpoena in supplementary proceedings, execution or other similar process; h. Death of Michael Funk, (Borrower or any party); or, i. Assignment, mortgage, or pledge of accounts receivable or other property without the written consent of the holder thereof. THE HOLDER of this Note may, at its option, accelerate the maturity of all installments to become due hereunder at any time it considers the security for the loan underlying this Note to be unsatisfactory or insufficient and the Borrower does not, on demand, furnish such further collateral or make such payment on account as is satisfactory to the holder. THE HOLDER of this Note may, at its option, accelerate the maturity of all installments to become due hereunder if at any time in the sole opinion of the holder, the financial responsibility of the Borrower(s) becomes impaired or unsatisfactory to the holder. DISPOSITION OF COLLATERAL ON DEFAULT THE COLLATERAL now or hereafter delivered to the Lender shall be deemed to be security for the payment of this Note (and any other liabilities of the undersigned to the Lender) and in case of default in payment of this Note, (or any other notes of the undersigned, either as maker, co-maker or endorser, held by the Lender), or in case that collateral should experience a decline in value or for any reason become unsatisfactory to the Lender, full power and authority is hereby given to the Lender, -2- in addition to other rights, to SELL, ASSIGN, AND DELIVER the whole or any part of that collateral security property at public or private sale, WITHOUT DEMAND, ADVERTISEMENT OR NOTE TO THE UNDERSIGNED, which are hereby expressly waived and released. At any such sale, the Lender may purchase any or all of the property sold free from any claim or right of redemption of the undersigned, which are hereby WAIVED AND RELEASED except as provided by law. COLLECTION COSTS AND ATTORNEYS' FEES BORROWER AGREES to pay the actual expenditures in any attempt to collect the amount due, including the cost of retaking, keeping, and storing any collateral security property or any articles specified in any agreements, chattel mortgages, or conditional sale agreements given as collateral security or otherwise for this Note. BORROWER AGREES that if any legal action is necessary to enforce or collect this Note or any other obligations for non-payment at maturity, the prevailing party shall be entitled to reasonable attorneys' fees in addition to any other relief to which that party may be entitled. This provision shall be applicable to the entire Note. GRACE PERIOD FOR PAYMENT NO EXTENSION of time for payment of all or any part of the amount owing hereon at any time or times shall affect the liability of any of the Borrower, or any surety, guarantor, or endorser of this Note. The Borrower and all sureties, guarantors, endorsers, hereby severally waive demand and presentment for payment, notice of non-payment, notice of protest, and protest of this Note. WAIVER OF TRIAL BY JURY EACH PARTY hereto, including the Borrower and any endorser, surety, or guarantor, waives and will waive all right to trial by jury in any action or proceeding instituted in respect to this Note. -3- SECURITY OR COLLATERAL This Note is secured by the following: 1. Personal Guaranty Signed on this 28th day of November, 1995. /s/ Michael S. Funk/Judith A. Funk - ------------------------------------ ___________________________________ (Signature of Borrower) (Typed Name of Borrower) /s/ Michael S. Funk - ------------------------------------ ___________________________________ (Signature of Lender) (Typed Name of Lender) Disclaimer This document is only a general form which may be proper for use in simple transactions and in no way acts, or is intended to act, as a substitute for the advice of an attorney. The printer does not make any warranty, either express or implied, as to the merchantability or fitness for a particular purpose, or as to the legal validity of any provision of the suitability of these forms in any specific transaction. GUARANTY Mountain People's Warehouse, Inc. ("Company) has loaned $150,000.00 to Michael S. Funk. As an inducement to Company to grant credit, the undersigned certify that they are financially solvent and capable of paying their debts when due. In consideration of credit given or to be given, advances made or to be made, or other financial accommodations afforded or to be afforded by Company, its successors and assigns, the undersigned jointly and severally guarantee the full and prompt payment at maturity and at all times thereafter of any and all indebtedness, obligations and liability arising out of the account, including interest, late charges, and costs accrued thereon. Further, if the account, or this Guaranty becomes delinquent and goes to any attorney or collection agency for collection, the undersigned guarantee and agree to pay all reasonable legal fees and costs incurred. DATED this 28 day of November, 1995. /s/ Michael S. Funk - ------------------------------- Michael S. Funk Guarantor /s/ Judith Funk - ------------------------------- Judith Funk Co-Guarantor -4- 02/12/1996 Page 1 - -------------------------------------------------------------------------------- FUNK - -------------------------------------------------------------------------------- Compound Period...................: Biweekly Nominal Annual Rate...............: 7.000 % Effective Annual Rate.............: 7.241 % Periodic Rate.....................: 0.2692 % Daily Rate........................: 0.01918% CASH FLOW DATA
- ------------------------------------------------------------------------------------------------------- Event Start Date Amount Number Period End Date - ------------------------------------------------------------------------------------------------------- 1 Loan 11/28/1995 150,000.00 1 2 Payment 02/28/1996 1,389.72 130 Biweekly 02/07/2001
AMORTIZATION SCHEDULE - Normal Amortization
Date Payment Interest Principal Balance - ------------------------------------------------------------------------------------------------------- Loan 11/28/1995 150,000.00 1995 Totals 0.00 0.00 0.00 1 02/28/1996 1,389.72 2,673.32 1,283.60- 151,283.60 2 03/13/1996 1,389.72 407.30 982.42 150,301.18 3 03/27/1996 1,389.72 404.66 985.06 149,316.12 4 04/10/1996 1,389.72 402.00 987.72 148,328.40 5 04/24/1996 1,389.72 399.35 990.37 147,338.03 6 05/08/1996 1,389.72 396.68 993.04 146,344.99 7 05/22/1996 1,389.72 394.01 995.71 145,349.28 8 06/05/1996 1,389.72 391.32 998.40 144,350.88 9 06/19/1996 1,389.72 388.64 1,001.08 143,349.80 10 07/03/1996 1,389.72 385.94 1,003.78 142,346.02 11 07/17/1996 1,389.72 383.24 1,006.48 141,339.54 12 07/31/1996 1,389.72 380.53 1,009.19 140,330.35 13 08/14/1996 1,389.72 377.81 1,011.91 139,318.44 14 08/28/1996 1,389.72 375.09 1,014.63 138,303.81 15 09/11/1996 1,389.72 372.36 1,017.36 137,286.45 16 09/25/1996 1,389.72 369.62 1,020.10 136,266.35
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Date Payment Interest Principal Balance - -------------------------------------------------------------------------------- 17 10/09/1996 1,389.72 366.87 1,022.85 135,243.50 18 10/23/1996 1,389.72 364.12 1,025.60 134,217.90 19 11/06/1996 1,389.72 361.36 1,028.36 133,189.54 20 11/20/1996 1,389.72 358.59 1,031.13 132,158.41 21 12/04/1996 1,389.72 355.81 1,033.91 131,124.50 22 12/18/1996 1,389.72 353.03 1,036.69 130,087.81 1996 Totals 30,573.84 10,661.65 19,912.19 23 01/01/1997 1,389.72 350.24 1,039.48 129,048.33 24 01/15/1997 1,389.72 347.44 1,042.28 128,006.05 25 01/29/1997 1,389.72 344.63 1,045.09 126,960.96 26 02/12/1997 1,389.72 341.82 1,047.90 125,913.06 27 02/26/1997 1,389.72 339.00 1,050.72 124,862.34 28 03/12/1997 1,389.72 336.17 1,053.55 123,808.79 29 03/26/1997 1,389.72 333.33 1,056.39 122,752.40 30 04/09/1997 1,389.72 330.49 1,059.32 121,693.17 31 04/23/1997 1,389.72 327.64 1,062.08 120,631.09 32 05/07/1997 1,389.72 324.78 1,064.94 119,566.15 33 05/21/1997 1,389.72 321.91 1,067.81 118,498.34 34 06/04/1997 1,389.72 319.03 1,070.69 117,427.65 35 06/18/1997 1,389.72 316.15 1,073.57 116,354.08 36 07/02/1997 1,389.72 313.26 1,076.46 115,277.62 37 07/16/1997 1,389.72 310.36 1,079.36 114,198.26 38 07/30/1997 1,389.72 307.46 1,082.26 113,116.00 39 08/13/1997 1,389.72 304.54 1,085.18 112,030.82 40 08/27/1997 1,389.72 301.62 1,088.10 110,942.72 41 09/10/1997 1,389.72 298.69 1,091.03 109,851.69 42 09/24/1997 1,389.72 295.75 1,093.97 108,757.72 43 10/08/1997 1,389.72 292.81 1,096.91 107,660.81 44 10/22/1997 1,389.72 289.86 1,099.86 106,560.95 45 11/05/1997 1,389.72 286.89 1,102.83 105,458.12 46 11/19/1997 1,389.72 283.93 1,105.79 104,352.33 47 12/03/1997 1,389.72 280.95 1,108.77 103,243.56 48 12/17/1997 1,389.72 277.96 1,111.76 102,131.80
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Date Payment Interest Principal Balance - ------------------------------------------------------------------------------------------------------- 49 12/31/1997 1,389.72 274.97 1,114.75 101,017.05 1997 Totals 37,522.44 8,451.68 29,070.76 50 01/14/1998 1,389.72 271.97 1,117.75 99,899.30 51 01/28/1998 1,389.72 268.96 1,120.76 98,778.54 52 02/11/1998 1,389.72 265.94 1,123.78 97,654.76 53 02/25/1998 1,389.72 262.92 1,126.80 96,527.96 54 03/11/1998 1,389.72 259.88 1,129.84 95,398.12 55 03/25/1998 1,389.72 256.84 1,132.88 94,265.24 56 04/08/1998 1,389.72 253.79 1,135.93 93,129.31 57 04/22/1998 1,389.72 250.73 1,138.99 91,990.32 58 05/06/1998 1,389.72 247.67 1,142.05 90,848.27 59 05/20/1998 1,389.72 244.59 1,145.13 89,703.14 60 06/03/1998 1,389.72 241.51 1,148.21 88,554.93 61 06/17/1998 1,389.72 238.42 1,151.30 87,403.63 62 07/01/1998 1,389.72 235.32 1,154.40 86,249.23 63 07/15/1998 1,389.72 232.21 1,157.51 85,091.72 64 07/29/1998 1,389.72 229.09 1,160.63 83,931.09 65 08/12/1998 1,389.72 225.97 1,163.75 82,767.34 66 08/26/1998 1,389.72 222.84 1,166.88 81,600.46 67 09/09/1998 1,389.72 219.69 1,170.03 80,430.43 68 09/23/1998 1,389.72 216.54 1,173.18 79,257.25 69 10/07/1998 1,389.72 213.38 1,176.34 78,080.91 70 10/21/1998 1,389.72 210.22 1,179.50 76,901.41 71 11/04/1998 1,389.72 207.40 1,182.68 75,718.73 72 11/18/1998 1,389.72 203.86 1,185.86 74,532.87 73 12/02/1998 1,389.72 200.67 1,189.05 73,343.82 74 12/16/1998 1,389.72 197.46 1,192.26 72,151.56 75 12/30/1998 1,389.72 194.25 1,195.47 70,956.09 1998 Totals 36,132.72 6,071.76 30,060.96 76 01/13/1999 1,389.72 191.04 1,198.68 69,757.41 77 01/27/1999 1,389.72 187.81 1,201.91 68,555.50 78 02/10/1999 1,389.72 184.57 1,205.15 67,350.35 79 02/24/1999 1,389.72 181.33 1,208.39 66,141.96
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Date Payment Interest Principal Balance - ------------------------------------------------------------------------------------------------------- 80 03/10/1999 1,389.72 178.07 1,211.65 64,930.31 81 03/24/1999 1,389.72 174.81 1,214.91 63,715.40 82 04/07/1999 1,389.72 171.54 1,218.18 62,497.22 83 04/21/1999 1,389.72 168.26 1,221.46 61,275.76 84 05/05/1999 1,389.72 164.97 1,224.75 60,051.01 85 05/19/1999 1,389.72 161.68 1,228.04 58,822.97 86 06/02/1999 1,389.72 158.37 1,231.35 57,591.62 87 06/16/1999 1,389.72 155.05 1,234.67 56,356.95 88 06/30/1999 1,389.72 151.73 1,237.99 55,118.96 89 07/14/1999 1,389.72 148.40 1,241.32 53,877.64 90 07/28/1999 1,389.72 145.06 1,244.66 52,632.98 91 08/11/1999 1,389.72 141.70 1,248.02 51,384.96 92 08/25/1999 1,389.72 138.34 1,251.38 50,133.58 93 09/08/1999 1,389.72 134.98 1,254.74 48,878.84 94 09/22/1999 1,389.72 131.60 1,258.12 47,620.72 95 10/06/1999 1,389.72 128.21 1,261.51 46,359.21 96 10/20/1999 1,389.72 124.81 1,264.91 45,094.30 97 11/03/1999 1,389.72 121.41 1,268.31 43,825.99 98 11/17/1999 1,389.72 117.99 1,271.73 42,554.26 99 12/01/1999 1,389.72 114.57 1,275.15 41,279.11 100 12/15/1999 1,389.72 111.14 1,278.58 40,000.53 101 12/29/1999 1,389.72 107.69 1,282.03 38,718.50 1999 Totals 36,132.72 3,895.13 32,237.59 102 01/12/2000 1,389.72 104.24 1,285.48 37,433.02 103 01/26/2000 1,389.72 100.78 1,288.94 36,144.08 104 02/09/2000 1,389.72 97.31 1,292.41 34,851.67 105 02/23/2000 1,389.72 93.83 1,295.89 33,555.78 106 03/08/2000 1,389.72 90.34 1,299.38 32,256.40 107 03/22/2000 1,389.72 86.84 1,302.88 30,953.52 108 04/05/2000 1,389.72 83.34 1,306.38 29,647.14 109 04/19/2000 1,389.72 79.82 1,309.90 28,337.24 110 05/03/2000 1,389.72 76.29 1,313.43 27,023.81 111 05/17/2000 1,389.72 72.76 1,316.96 25,706.85
-8- 02/12/1996 Page 1 - -------------------------------------------------------------------------------- FUNK - --------------------------------------------------------------------------------
Date Payment Interest Principal Balance - ----------------------------------------------------------------------------------------------------- 112 05/31/2000 1,389.72 69.21 1,320.51 24,386.34 113 06/14/2000 1,389.72 65.66 1,324.06 23,062.28 114 06/28/2000 1,389.72 62.09 1,327.63 21,734.65 115 07/12/2000 1,389.72 58.52 1,331.20 20,403.45 116 07/26/2000 1,389.72 54.93 1,334.79 19,068.66 117 08/09/2000 1,389.72 51.34 1,338.38 17,730.28 118 08/23/2000 1,389.72 47.74 1,341.98 16,388.30 119 09/06/2000 1,389.72 44.12 1,345.60 15,042.70 120 09/20/2000 1,389.72 40.50 1,349.22 13,693.48 121 10/04/2000 1,389.72 36.87 1,352.85 12,340.63 122 10/18/2000 1,389.72 33.22 1,356.50 10,984.13 123 11/01/2000 1,389.72 29.57 1,360.15 9,623.98 124 11/15/2000 1,389.72 25.91 1,363.81 8,260.17 125 11/29/2000 1,389.72 22.24 1,367.48 6,892.69 126 12/13/2000 1,389.72 18.56 1,371.16 5,521.53 127 12/27/2000 1,389.72 14.87 1,374.85 4,146.68 2000 Totals 36,132.72 1,560.90 34,571.82 128 01/10/2001 1,389.72 11.16 1,378.56 2,768.12 129 01/24/2001 1,389.72 7.45 1,382.27 1,385.85 130 02/07/2001 1,389.72 3.87 1,385.85 0.00 2001 Totals 4,169.16 22.48 4,146.68 Grand Totals 180,663.60 30,663.60 150,000.00
Last interest amount increased by 0.14 due to rounding. -9- EX-21 23 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT
STATE OF NAME INCORPORATION ---- ------------- Cheese & Stuff, Inc........................................ Connecticut Food For Thought Natural Foods Market, Inc................. Connecticut The Health Hut, Inc........................................ New York Mountain People's Warehouse Incorporated................... California Natural Retail Group, Inc.................................. Delaware NATUREWORKS, Inc........................................... Florida Nutrasource, Inc........................................... Washington Rainbow Natural Foods, Inc................................. Colorado
EX-23.2 24 CONSENT OF KPMG PEAT MARWICK EXHIBIT 23.2 The Board of Directors United Natural Foods, Inc. and Subsidiaries: The audits referred to in our report dated August 30, 1996, included the related financial statement schedule for the years ended October 31, 1994 and 1995, and for the nine months ended July 31, 1996, included in the registration statement. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We consent to the use of our reports included herein and to the reference to our firm under the heading "Experts" and "Selected Consolidated Financial Data" in the prospectus. /s/ KPMG Peat Marwick LLP Providence, Rhode Island September 4, 1996 EX-23.3 25 CONSENT OF ARTHUR ANDERSEN EXHIBIT 23.3 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report (and to all references to our firm) included in or made a part of this registration statement. ARTHUR ANDERSEN LLP Denver, Colorado September 3, 1996 EX-27 26 FINANCIAL DATA SCHEDULE
5 12-MOS 12-MOS 9-MOS OCT-31-1994 OCT-31-1995 JUL-31-1996 NOV-01-1993 NOV-01-1994 NOV-01-1995 OCT-31-1994 OCT-31-1995 JUL-31-1996 0 228,791 51,255 0 0 0 0 24,985,902 26,017,293 0 1,274,602 1,277,755 0 35,464,371 38,667,548 0 62,142,827 67,223,860 0 21,234,601 29,430,501 0 5,885,915 8,826,838 0 88,821,562 98,744,139 0 53,559,693 57,136,466 0 21,877,520 23,018,773 0 0 0 0 0 0 0 87,131 87,131 0 12,935,080 18,094,423 0 88,821,562 98,744,139 200,616,451 283,323,435 286,448,399 200,616,451 283,323,435 286,448,399 156,498,812 223,482,549 226,481,766 156,498,812 223,482,549 226,481,766 36,195,056 48,653,214 48,564,649 0 0 0 2,275,100 3,403,009 3,942,820 4,987,788 5,532,357 6,803,418 1,970,584 2,929,856 2,778,121 3,017,204 2,602,501 4,025,297 0 0 0 0 0 0 0 0 0 3,017,204 2,602,501 4,025,297 .30 .26 .40 .30 .26 .40
EX-99 27 CONSENT OF THOMAS B. SIMONE EXHIBIT 99 August 23, 1996 Board of Directors United Natural Foods, Inc. 260 Lake Road Dayville, CT 06241 I, Thomas B. Simone, hereby consent to being named as a nominee for election to the Board of Directors of United Natural Foods, Inc. (the "Company") in the Registration Statement on Form S-1 to be filed by the Company with the Securities and Exchange Commission on or about August 30, 1996 to register shares of its Common Stock under the Securities Act of 1933 and to the filing of this consent with the Registration Statement pursuant to Rule 438 promulgated under the Securities Act of 1933, and agree to serve as a director if elected. /s/Thomas B. Simone 8/26/96 Thomas B. Simone -----END PRIVACY-ENHANCED MESSAGE-----