-----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, NQhtDI4qxmxVTS+725vDyxbz0RSQvU49Bo17um9BJG1d1JRu3jPRYY/ZgYI2FYlz hapUbu8or2YWiOuv2Peqng== 0001171520-03-000062.txt : 20030317 0001171520-03-000062.hdr.sgml : 20030317 20030314193831 ACCESSION NUMBER: 0001171520-03-000062 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20030131 FILED AS OF DATE: 20030317 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED NATURAL FOODS INC CENTRAL INDEX KEY: 0001020859 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-GROCERIES & GENERAL LINE [5141] IRS NUMBER: 050376157 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-15723 FILM NUMBER: 03604946 BUSINESS ADDRESS: STREET 1: PO BOX 999 STREET 2: 260 LAKE RD CITY: DAYVILLE STATE: CT ZIP: 06241 BUSINESS PHONE: 8607792800 MAIL ADDRESS: STREET 1: PO BOX 999 STREET 2: 260 LAKE RD CITY: DAYVILLE STATE: CT ZIP: 06241 10-Q 1 d1148.txt UNITED NATURAL FOODS, INC. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended January 31, 2003 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 000-21531 UNITED NATURAL FOODS, INC. (Exact name of Registrant as Specified in Its Charter) Delaware 05-0376157 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 260 Lake Road, Dayville, CT 06241 (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code: 860-779-2800 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes |X| No |_| Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes |X| No |_| As of March 6, 2003 there were 19,151,441 shares of the Registrant's Common Stock, $0.01 par value per share, outstanding. UNITED NATURAL FOODS, INC. FORM 10-Q FOR THE QUARTER ENDED JANUARY 31, 2003 TABLE OF CONTENTS Part I. Financial Information Item 1. Financial Statements Consolidated Balance Sheets as of January 31, 2003 and July 31, 2002 3 Consolidated Statements of Operations for the three and six months ended January 31, 2003 and 2002 4 Consolidated Statements of Cash Flows for the six months ended January 31, 2003 and 2002 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3. Quantitative and Qualitative Disclosure About Market Risk 21 Item 4. Controls and Procedures 21 Part II. Other Information Item 4. Submission of Matters to a Vote of Security Holders 21 Item 6. Exhibits and Reports on Form 8-K 22 Signatures 23 Certifications 24 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements UNITED NATURAL FOODS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
January July (In thousands, except per share amounts) 31, 2003 31, 2002 ASSETS Current assets: Cash $ 11,827 $ 11,184 Accounts receivable, net 84,785 84,303 Notes receivable, trade 448 513 Inventories 151,696 131,932 Prepaid expenses 7,790 4,493 Deferred income taxes 4,612 4,612 Refundable income taxes 303 58 ---------- ---------- Total current assets 261,461 237,095 Property & equipment, net 97,956 82,702 Other assets: Notes receivable, trade, net 2,954 956 Goodwill 60,564 31,399 Intangibles, net 1,286 248 Other, net 2,184 2,057 ---------- ---------- Total assets $ 426,405 $ 354,457 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable - line of credit $ 137,501 $ 106,109 Current installments of long-term debt 1,595 1,658 Current installment of obligations under capital leases 923 1,037 Accounts payable 70,342 52,789 Accrued expenses 26,715 18,185 Financial instruments 7,099 5,620 ---------- ---------- Total current liabilities 244,175 185,398 Long-term debt, excluding current installments 10,481 7,677 Obligations under capital leases, excluding current installments 1,365 995 ---------- ---------- Total liabilities 256,021 194,070 ---------- ---------- Stockholders' equity: Preferred stock, $.01 par value, authorized 5,000 shares, none issued and outstanding -- -- Common stock, $.01 par value, authorized 50,000 shares, issued and outstanding 19,135 at January 31, 2003; issued and outstanding 19,106 at July 31, 2002 191 191 Additional paid-in capital 80,135 79,711 Unallocated shares of ESOP (2,013) (2,094) Retained earnings 92,071 82,579 ---------- ---------- Total stockholders' equity 170,384 160,387 ---------- ---------- Total liabilities and stockholders' equity $ 426,405 $ 354,457 ========== ==========
See notes to consolidated financial statements. 3 UNITED NATURAL FOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Quarter Ended Six Months Ended January 31, January 31, (In thousands, except per share data) 2003 2002 2003 2002 --------- --------- --------- --------- Net sales $ 338,447 $ 285,461 $ 649,440 $ 565,776 Cost of sales 272,360 228,949 522,518 454,263 --------- --------- --------- --------- Gross profit 66,087 56,512 126,922 111,513 Operating expenses 55,178 47,258 106,020 92,282 Restructuring and asset impairment charges -- 424 -- 424 Amortization of intangibles 66 13 104 77 --------- --------- --------- --------- Total Operating expenses 55,244 47,695 106,124 92,783 --------- --------- --------- --------- Operating income 10,843 8,817 20,798 18,730 --------- --------- --------- --------- Other expense (income): Interest expense 2,072 1,643 3,919 3,389 Change in fair value of financial instruments (226) (1,358) 1,479 2,429 Other, net (183) (158) (420) (114) --------- --------- --------- --------- Total other expense 1,663 127 4,978 5,704 --------- --------- --------- --------- Income before income taxes 9,180 8,690 15,820 13,026 Income taxes 3,672 3,476 6,328 5,210 --------- --------- --------- --------- Net income $ 5,508 $ 5,214 $ 9,492 $ 7,816 ========= ========= ========= ========= Per share data (basic): Basic earnings per share $ 0.29 $ 0.28 $ 0.50 $ 0.42 ========= ========= ========= ========= Weighted average shares of common stock 19,119 18,915 19,113 18,790 ========= ========= ========= ========= Per share data (diluted): Diluted earnings per share $ 0.28 $ 0.27 $ 0.49 $ 0.41 ========= ========= ========= ========= Weighted average shares of common stock 19,526 19,371 19,471 19,217 ========= ========= ======== =========
See notes to consolidated financial statements. 4 UNITED NATURAL FOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Six Months Ended January 31, ---------------- (In thousands) 2003 2002 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 9,492 $ 7,816 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 5,051 3,783 Change in fair value of financial instruments 1,479 2,429 (Gain) Loss on disposals of property and equipment (6) 296 Deferred income tax benefit -- (605) Provision for doubtful accounts 1,699 1,045 Changes in assets and liabilities, net of effects of acquired companies: Accounts receivable 5,242 (10,280) Inventory 2,934 (15,864) Prepaid expenses (1,328) (307) Refundable income taxes (246) (426) Other assets (1,603) (1,348) Notes receivable, trade (1,467) (182) Accounts payable 2,658 14,083 Accrued expenses 1,331 5,842 -------------------- Net cash provided by operating activities 25,236 6,282 -------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of acquired businesses, net of cash acquired (43,724) 65 Proceeds from sale of property and equipment 47 21 Capital expenditures (11,221) (20,437) -------------------- Net cash used in investing activities (54,898) (20,351) -------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings under note payable 31,392 31,961 Repayments of long-term debt (854) (20,411) Principal payments of capital lease obligations (657) (543) Proceeds from exercise of stock options 424 1,448 -------------------- Net cash provided by financing activities 30,305 12,455 -------------------- NET INCREASE (DECREASE) IN CASH 643 (1,614) Cash at beginning of period 11,184 6,393 -------------------- Cash at end of period $ 11,827 $ 4,779 ==================== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 3,798 $ 3,299 ==================== Income taxes $ 3,911 $ 7,095 ==================== In the six months ended January 31, 2003 and 2002, the Company incurred $0 and $628, respectively, of capital lease obligations. In the six months ended January 31, 2002 the fair value of common stock issued for the acquisition of subsidiary was $4,250. See notes to consolidated financial statements. 5 UNITED NATURAL FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 2003 (UNAUDITED) 1. BASIS OF PRESENTATION The accompanying consolidated financial statements include the accounts of United Natural Foods, Inc. (the "Company") and its wholly owned subsidiaries. The Company is a distributor and retailer of natural and organic foods and related products and sells its products throughout the United States. The financial statements have been prepared pursuant to rules and regulations of the Securities and Exchange Commission for interim financial information, including the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally required in complete financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. In our opinion, these financial statements include all adjustments necessary for a fair presentation of the results of operations for the interim periods presented. The results of operations for interim periods, however, may not be indicative of the results that may be expected for a full year. 2. INTEREST RATE SWAP AGREEMENTS In October 1998, the Company entered into an interest rate swap agreement that provides for it to pay interest for a five-year period at a fixed rate of 5% on a notional principal amount of $60 million while receiving interest for the same period at the LIBOR rate on the same notional principal amount. This swap has been entered into as a hedge against LIBOR interest rate movements on current variable rate indebtedness totaling $60 million at LIBOR plus 1.50%, thereby fixing its effective rate at 6.50%. The five-year term of the swap agreement may be extended to seven years at the option of the counter party, which prohibits accounting for the swap as an effective hedge under Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging Activities." The Company entered into an additional interest rate swap agreement effective August 1, 2001. The additional agreement provides for it to pay interest for a four-year period at a fixed rate of 4.81% on a notional principal amount of $30 million while receiving interest for the same period at the LIBOR rate on the same notional principal amount. The swap has been entered into as a hedge against LIBOR interest rate movements on current variable rate indebtedness totaling $30 million at LIBOR plus 1.50%, thereby fixing its effective rate on the notional amount at 6.31%. If LIBOR exceeds 6.0% in a given period, the agreement is suspended for that period. LIBOR was 1.35% as of January 31, 2003. The four-year term of the swap agreement may be extended to six years at the option of the counter party, which prohibits accounting for the swap as an effective hedge under SFAS No. 133. The Company recorded $0.2 million of income for the quarter ended January 31, 2003 on its interest rate swap agreements and related option agreements to reflect the change in fair value of the financial instruments. For the six months ended January 31, 2003 and 2002, the company recorded $1.5 million and $2.4 million, respectively, of expense on its interest rate swap agreements and related option agreements. 3. STOCK OPTION PLANS At January 31, 2003, the Company had two stock option plans. As permitted by Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"), as amended by Statement of Financial Accounting Standards No. 148 ("SFAS No. 148"), "Accounting for Stock-Based Compensation," the Company accounts for those plans under the recognition and measurement principles of Accounting Principles Board No. 25, "Accounting for Stock Issued to Employees" and related Interpretations. No stock-based employee compensation costs has been reflected in net income, as all options granted had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provision of SFAS No. 123 and SFAS No. 148 to stock-based employee compensation: 6
(in thousands, except per Quarter ended January 31, Six months ended January 31, share data) 2003 2002 2003 2002 Net income - as reported $5,508 $5,214 $9,492 $7,816 ------ ------ ------ ------ Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects 917 745 1,687 1,336 ------ ------ ------ ------ Net income - pro forma $4,591 $4,469 $7,805 $6,480 ------ ------ ------ ------ Basic earnings per share As reported $0.29 $0.28 $0.50 $0.42 ------ ------ ------ ------ Pro forma $0.24 $0.24 $0.41 $0.34 ------ ------ ------ ------ Diluted earnings per share As reported $0.28 $0.27 $0.49 $0.41 ------ ------ ------ ------ Pro forma $0.24 $0.23 $0.40 $0.34 ------ ------ ------ ------
The effects of applying SFAS No. 123 and SFAS No. 148 in this pro forma disclosure are not necessarily indicative of future amounts. The Company estimates the fair value of each option as of the date of grant using the Black-Scholes pricing model with the following weighted average assumptions used for grants in 2003 and 2002: Quarter ended January 31, Six months ended January 31, 2003 2002 2003 2002 ---- ---- ---- ---- Expected volatility 62.0% 64.0% 62.0% 64.0% Dividend yield 0.0% 0.0% 0.0% 0.0% Risk-free interest rate 3.3% 4.7% 3.3% 4.7% Expected life 5 years 5 years 5 years 5 years The Board of Directors adopted and the stockholders approved the 2002 Stock Incentive Plan of the Company, which provides for grants of stock options to employees, officers, directors and others, on October 2, 2002 and December 3, 2002, respectively. These options are intended to either qualify as incentive stock options within the meaning of Section 422 of the Internal Revenue Code or be "non-statutory stock options". In the quarter ended January 31, 2003, the Company granted approximately 34,000 shares under the 1996 Stock Option Plan and approximately 457,496 under the 2002 Stock Incentive Plan. The following table summarizes the stock option activity of the 1996 Stock Option Plan since its inception through January 31, 2003: Shares - ----------------------------------------- Authorized 2,500,000 Granted 3,076,100 Cancelled 576,100 ---------- Remaining authorized -- - ----------------------------------------- The following table summarizes the stock option activity of the 2002 Stock Incentive Plan since its inception through January 31, 2003: Shares - ----------------------------------------- Authorized 1,400,000 Granted 457,496 Cancelled 0 ---------- Remaining authorized 942,504 - ----------------------------------------- 7 4. EARNINGS PER SHARE Following is a reconciliation of the basic and diluted number of shares used in computing earnings per share: Quarter Ended Six Months Ended January 31, January 31, (In thousands) 2003 2002 2003 2002 ---- ---- ---- ---- Basic weighted average shares outstanding 19,119 18,915 19,113 18,790 Net effect of dilutive stock options based upon the treasury stock method 407 456 358 427 ------ ------ ------ ------ Diluted weighted average shares outstanding 19,526 19,371 19,471 19,217 ====== ====== ====== ====== Employee stock options to purchase approximately 0.3 million and 0.4 million shares in the quarters ended January 31, 2003 and January 31, 2002, respectively, and 0.7 million shares and 0.2 million shares in the six months ended January 31, 2003 and January 31, 2002, respectively, were outstanding, but were not included in the computation of diluted earnings per share because the exercise price of the stock options was greater than the average share price of the common shares and, therefore, the effect would have been antidilutive. 5. ACQUISITIONS On October 11, 2002, the Company acquired substantially all of the assets and assumed substantially all of the liabilities of Blooming Prairie Cooperative ("Blooming Prairie"), a distributor of natural foods and related products in the Midwest region of the United States, for cash consideration of $29.6 million. The acquisition was financed by proceeds from the Company's line of credit. The operating results of Blooming Prairie have been included in the accompanying condensed consolidated financial statements of the Company beginning with the acquisition date. The Company has recorded goodwill of $13.5 million related to this acquisition. Blooming Prairie Cooperative carries and distributes approximately 15,000 products to more than 2,700 customers primarily in the Midwest region of the United States. Blooming Prairie serves a wide variety of retail formats including conventional supermarket chains, natural product superstores, independent retail operators, cooperatives and buying clubs. The acquisition of Blooming Prairie will help the Company to achieve its stated goal of broadening its presence and increasing its penetration in the growing Midwest market. Blooming Prairie's two strategically located distribution facilities in Iowa and Minnesota will enable the company to broaden its market share in this region cost effectively. On December 31, 2002, the Company acquired by merger privately held Northeast Cooperatives, a natural food distributor, headquartered in Brattleboro, Vermont, which services customers in the Northeast and Midwest regions of the United States, for cash consideration of $14.1 million. The acquisition was financed by proceeds from the Company's line of credit. The operating results of Northeast Cooperatives have been included in the accompanying condensed consolidated financial statements of the Company beginning with the acquisition date. Based on a preliminary purchase price allocation, the Company has recorded goodwill of $15.7 million related to this acquisition, reflecting the cost of the acquisition and additional liabilities recorded. Northeast Cooperatives carries and distributes over 14,000 products to approximately 2,800 customers primarily in the Northeast region of the United States. Northeast Cooperatives serves a wide variety of retail formats including conventional supermarket chains, natural product superstores, independent retail operators, cooperatives, institutions and buying clubs. The addition of Northeast Cooperatives will provide the Company with an expanded customer base, new channels of distribution and significant synergies as it consolidates the Northeast Cooperatives operation into its expanded Chesterfield, New Hampshire distribution facility during the summer of 2003. The following presents the unaudited pro forma results assuming that the acquisitions discussed above had occurred as of the beginning of fiscal 2002. These pro forma results are not necessarily indicative of the results that will occur in future periods. 8 (In thousands except per Quarter ended Six months ended share data) January 31, January 31, 2003 2002 2003 2002 -------- -------- -------- -------- Pro forma Pro forma Pro forma Pro forma Net sales $360,383 $346,556 $729,734 $684,849 Income before income taxes 8,373 8,594 15,091 12,183 -------- -------- -------- -------- Net income 5,024 5,156 9,055 7,310 ======== ======== ======== ======== Basic earnings per common share: Net income $ 0.26 $ 0.27 $ 0.47 $ 0.39 ======== ======== ======== ======== Diluted earnings per share: Net income $ 0.26 $ 0.27 $ 0.47 $ 0.38 ======== ======== ======== ======== 6. BUSINESS SEGMENTS The Company has several operating segments aggregated under the distribution segment, which is the Company's only reportable segment. These operating segments have similar products and services, customer types, distribution methods and historical margins. The distribution segment is engaged in national distribution of natural foods, produce and related products in the United States. Other operating segments include the retail segment, which engages in the sale of natural foods and related products to the general public through retail storefronts on the east coast of the United States, and a segment engaged in importing, roasting and packaging of nuts, seeds, dried fruit and snack items. These other operating segments do not meet the quantitative thresholds for reportable segments and are therefore included in the "Other" caption in the segment information. The "Other" caption also includes corporate expenses that are not allocated to operating segments. Following is business segment information for the periods indicated:
Distribution Other Eliminations Consolidated ------------ ----- ------------ ------------ Six Months Ended January 31, 2003 Net sales $626,243 $ 33,209 $ (10,012) $649,440 Operating income (loss) $ 23,916 $ (3,079) $ (39) $ 20,798 Depreciation and amortization $ 4,399 $ 652 $ -- $ 5,051 Capital expenditures $ 10,654 $ 567 $ -- $ 11,221 Total assets $572,769 $ 46,160 $(192,524) $426,405 Six Months Ended January 31, 2002 Net sales $544,451 $ 31,838 $ (10,513) $565,776 Operating income (loss) $ 19,971 $ (1,266) $ 25 $ 18,730 Depreciation and amortization $ 3,280 $ 503 -- $ 3,783 Capital expenditures $ 19,952 $ 485 $ -- $ 20,437 Total assets $456,601 $ 37,484 $(144,858) $349,227
7. RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS Emerging Issues Task Force issue No. 02-16 (EITF 0-2-16) "Accounting by a Reseller for Cash Consideration Received," becomes effective for the Company during the third quarter of fiscal 2003. This issue addresses the appropriate accounting for cash consideration received from a vendor. The consensus reached on this issue was that cash consideration received from a vendor is presumed to be a reduction of the cost of sales and should be recorded as a reduction of cost of goods sold unless the consideration is for either (1) payment for assets or services and therefore revenue, or (2) a reimbursement of costs incurred to sell the vendor's products and therefore, a reduction of advertising expense. The Company's current accounting for funds received from vendors is consistent with that proposed under EITF 02-16; therefore, this issue will not have a material effect on the Company's consolidated financial statements. In November 2002, the Financial Accounting Standards Board issued FASB Interpretation No. 45 (FIN 45), "Guarantor's Accounting and Disclosure Requirements for Guarantee, Including Guarantees of Indebtedness of Others." Disclosures related to this interpretation are effective and the accounting requirements are effective January 1, 2003. FIN 45 requires all guarantees and indemnifications within its scope to be recorded at fair value as liabilities and the disclosure of the maximum possible loss to the Company under these guarantees and indemnifications. Management is still evaluating the impact of the 9 recognition requirements of FIN 45, but does not believe that its adoption will have a material impact on the Company's consolidated financial statements. In December 2002, the Financial Accounting Standards Board issued SFAS No. 148 (SFAS 148), "Accounting for Stock-Based Compensation Costs--Transition and Disclosure." This statement amends SFAS No. 123 (SFAS 123), "Accounting for Stock-Based Compensation," and provides alternative methods of transition for an entity that voluntarily changes to the fair value-based method of accounting for stock-based compensation. It also requires additional disclosures about the effects on reported net income of an entity's accounting policy with respect to stock-based employee compensation. As discussed under the accounting for stock options in Item 1, note 3 to the consolidated financial statements, the Company accounts for stock-based compensation in accordance with Accounting Principles Board No. 25, "Accounting for Stock Issued to Employees," and has adopted the disclosure-only alternative of SFAS 123. The Company adopted the disclosure provisions of SFAS 148 for fiscal 2003. On January 17, 2003, the Financial Accounting Standards Board issued FASB Interpretation No. 46 (FIN 46), "Consolidation of Variable Interest Entities, an interpretation of ARB 51." The primary objectives of FIN 46 are to provide guidance on the identification and consolidate of variable interest entities, or VIEs, which are entities for which control is achieved through means other than through voting rights. The Company has completed an analysis of FIN 46 and has determined that it does not have any VIEs. In June 2002, the Financial Accounting Standards Board issued SFAS No 146, "Accounting for Costs Associated with Exit or Disposal Activities." This Statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." The provisions of this Statement are effective for exit or disposal activities that were initiated after December 31, 2002. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview We are the leading national distributor of natural and organic foods and related products in the United States. In recent years, our sales to existing and new customers have increased through the acquisition of or merger with natural and organic products distributors, the expansion of existing distribution centers and the continued growth of the natural and organic products industry in general. Through these efforts, we believe that we have been able to broaden our geographic penetration, expand our customer base, enhance and diversify our product selections and increase our market share. Our distribution operations are divided into three principal units: United Natural Foods, Inc. in the Eastern Region, Mountain People's Warehouse, Inc., Rainbow Natural Foods, Inc. and Blooming Prairie in the Western Region, and Albert's Organics in various markets in the United States. Through our subsidiary, the Natural Retail Group, we also own and operate 12 natural and organic products retail stores located in Florida, Maryland and Massachusetts. We believe our retail business serves as a natural complement to our distribution business, enabling us to develop new marketing programs and improve customer service. In addition, our Hershey Import subsidiary is a business that specializes in the international trading, roasting and packaging of nuts, seeds, dried fruits and snack items. We are continually integrating certain operating functions in order to improve operating efficiencies, including: (i) expanding marketing and customer service programs across the three regions; (ii) expanding national purchasing opportunities; (iii) consolidating systems applications among physical locations and regions; (iv) integrating administrative and accounting functions; and (v) reducing geographic overlap between regions. In addition, our continued growth has created the need for expansion and relocation of existing facilities to achieve maximum operating efficiencies and to assure adequate space for future needs. We have made considerable capital expenditures and incurred considerable expenses in connection with the completed expansions of our facilities located in Auburn, California, New Oxford, Pennsylvania, Los Angeles, California, and the relocation of our Atlanta, Georgia facility. We are in the process of expanding our Chesterfield, New Hampshire distribution facility from its existing 117,000 square feet to 289,000 square feet. Upon completion of the expansion of our Chesterfield, New Hampshire facility in the summer of 2003, the increased capacity of our distribution centers will be approximately 1,400,000 square feet greater than it was five years ago. We continue to increase our leading market share of the growing natural and organic products industry by expanding our customer base, increasing our share of existing customers' business and continuing to expand and further penetrate new distribution territories, particularly in the Midwest and Texas markets. To this end, on October 11, 2002, we acquired substantially all the assets of Blooming Prairie, the largest volume distributor of natural foods and products in the Midwest region of the United States. The acquisition of Blooming Prairie's Iowa City, Iowa and Mounds View, Minnesota distribution 10 facilities has provided us with an immediate physical base and growth platform with which to broaden our presence in the fast growing Midwest market. On December 31, 2002, we acquired by merger Northeast Cooperatives, a distributor of natural foods and products in the Eastern United States, headquartered in Brattleboro, Vermont, and in business since 1973. The expansion of our Chesterfield, New Hampshire distribution facility will enable us to service existing and new customers, integrate our recent acquisition of Northeast Cooperatives into existing facilities, provide more product diversity, and enable us to better balance products among our distribution centers in our Eastern Region. While operating margins may be affected in periods in which these expansion expenses are incurred, over the long term we expect to benefit from the increased absorption of our expenses over a larger sales base. Our net sales consist primarily of sales of natural and organic products to retailers adjusted for customer incentives, returns and allowances. The principal components of our cost of sales include the amount paid to manufacturers and growers for product sold, plus the cost of transportation necessary to bring the product to our distribution facilities. Operating expenses include salaries and wages, employee benefits (including payments under our Employee Stock Ownership Plan), warehousing and delivery, selling, occupancy, insurance, administrative, depreciation and amortization expense. Other expenses (income) include interest on outstanding indebtedness, interest income, the change in fair value of financial instruments and miscellaneous income and expenses. Critical Accounting Policies The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The U.S. Securities and Exchange Commission has defined critical accounting policies as those that are both most important to the portrayal of our financial condition and results, and require our most difficult, complex or subjective judgments or estimates. Based on this definition, we believe our critical accounting policies include the policies of insurance reserves, accounts receivable valuation and the valuation of goodwill and intangible assets. For all financial statement periods presented, there have been no material modifications to the application of these critical accounting policies. Allowance for doubtful accounts We analyze customer creditworthiness, accounts receivable and notes receivable balances, payment history, payment terms and historical bad debt levels when evaluating the adequacy of our allowance for doubtful accounts. Our accounts receivable balance was $84.8 million, net of allowance for doubtful accounts of $6.8 million, and $84.3 million, net of allowance for doubtful accounts of $5.8 million, as of January 31, 2003 and July 31, 2002, respectively. Our notes receivable balance was $3.4 million, net of allowance for doubtful accounts of $0.7 million, and $1.5 million, net of allowance for doubtful accounts of $0.2 million, as of January 31, 2003 and July 31, 2002, respectively. Valuation of goodwill and intangible assets Intangible assets consist principally of goodwill, covenants not to compete and customer supply agreements. Goodwill represents the excess purchase price over fair value of net assets acquired in connection with purchase business combinations. Covenants not to compete and customer supply agreements are initially recorded at fair value, and are amortized using the straight-line method over the lives of the respective agreements, generally three to five years. We adopted the Financial Accounting Standards Board Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" on August 1, 2001. Goodwill is no longer amortized and is tested annually for impairment. There can be no assurance that upon performance of our annual review a material impairment charge will not be recorded. Insurance reserves It is the Company's policy to record the self-insured portion of its workers' compensation and automobile liabilities based upon actuarial estimates of the future cost of claims and related expenses that have been reported but not settled, and that have been incurred but not yet reported. Any projection of losses concerning workers' compensation and automobile liability is subject to a considerable degree of variability. Among the causes of this variability are unpredictable external factors affecting litigation trends, benefit level changes and claim settlement patterns. If actual claims incurred are greater than those anticipated, the Company's reserves may be insufficient and additional costs could be recorded in the consolidated financial statements. 11 Results of Operations The following table presents, for the periods indicated, certain income and expense items expressed as a percentage of net sales:
Quarter Ended Six Months Ended January 31, January 31, ---------------- ---------------- 2003 2002 2003 2002 ---------------- ---------------- Net sales 100.0% 100.0% 100.0% 100.0% Cost of sales 80.5% 80.2% 80.5% 80.3% ------ ------ ------ ------ Gross profit 19.5% 19.8% 19.5% 19.7% ------ ------ ------ ------ Operating expenses 16.3% 16.6% 16.3% 16.3% Restructuring and asset impairment charges -- .1% -- .1% ------ ------ ------ ------ Total operating expenses 16.3% 16.7% 16.3% 16.4% ------ ------ ------ ------ Operating income 3.2% 3.1% 3.2% 3.3% ------ ------ ------ ------ Other expense (income): Interest expense 0.6% 0.6% 0.6% 0.6% Change in fair value of financial instruments -0.1% -0.5% 0.2% 0.4% Other, net -0.1% -0.1% -0.1% 0.0% ------ ------ ------ ------ ------ ------ ------ ------ Total other expense 0.5% 0.0% 0.8% 1.0% ------ ------ ------ ------ Income before income taxes 2.7% 3.0% 2.4% 2.3% Income taxes 1.1% 1.2% 1.0% 0.9% ------ ------ ------ ------ Net income 1.6% 1.8% 1.5% 1.4% ====== ====== ====== ======
12 The following tables present, for the periods indicated, a reconciliation of income and per share items excluding special items to income and per share items including special items:
- --------------------------------------------------------------------------------------------------- (In thousands, except per Quarter Ended January 31, 2003 Six Months Ended January 31, 2003 share data) Per Per Pretax Net of diluted Pretax Net of diluted Income Tax share Income Tax share Income, excluding special items: $ 9,023 $ 5,414 $0.28 $17,943 $10,766 $0.55 Less: special items (income)/expense Interest rate swap agreements (change in value of financial instruments) (226) (136) (0.01) 1,480 887 0.04 Costs related to loss of major customer (included in operating expenses) -- -- -- 574 345 0.02 Costs related to the expansion of Chesterfield, New Hampshire (included in operating expenses) 69 42 0.00 69 42 0.00 - --------------------------------------------------------------------------------------------------- Income, including special items: $ 9,180 $ 5,508 $0.28* $15,820 $ 9,492 $0.49 ===================================================================================================
- --------------------------------------------------------------------------------------------------- (In thousands, except per Quarter Ended January 31, 2002 Six Months Ended January 31, 2002 share data) Per Per Pretax Net of diluted Pretax Net of diluted Income Tax share Income Tax share Income, excluding special items: $ 8,667 $ 5,200 $0.27 $16,847 $10,108 $0.53 Less: special items (income)/expense Interest rate swap agreement (change in value of financial instruments) (1,358) (815) (0.04) 2,429 1,457 0.08 Costs related to relocating Atlanta, Georgia distribution center (included in operating expenses) 1,335 801 0.04 1,392 835 0.04 - --------------------------------------------------------------------------------------------------- Income, including special items: $ 8,690 $ 5,214 $0.27 $13,026 $ 7,816 $0.41 ===================================================================================================
* Total reflects rounding 13 Quarter Ended January 31, 2003 Compared To Quarter Ended January 31, 2002 Net Sales. Our net sales increased approximately 18.6%, or $52.9 million, to $338.4 million for the quarter ended January 31, 2003 from $285.5 million for the quarter ended January 31, 2002. This included growth in the independent and mass market distribution channels of approximately 28% and 30%, respectively. Sales in the supernatural distribution channel were unchanged compared to the same period last year due primarily to the previously announced transition of the Company's former second-largest customer, Wild Oats, Inc., to a new primary distributor. Included in these increases was a full quarter of net sales from our Blooming Prairie division, acquired on October 11, 2002, and one month of net sales from Northeast Cooperatives, acquired on December 31, 2002. Sales growth for the quarter, excluding the effect of acquisitions, was 2.3%. Sales growth was also impacted by the transition of the Company's former second-largest customer, Wild Oats, Inc., to a new primary distributor. Sales growth excluding the effect of acquisitions and sales in each period to the Company's former second largest customer, Wild Oats, Inc., was 17.4%. We believe sales growth for the quarter ending April 30, 2003 will be in the 18% to 22% range. Sales to our largest customer, Whole Foods Market, Inc. represented approximately 25.5% of net sales for the quarter ended January 31, 2003. Whole Foods Market, Inc. represented approximately 19.2% and Wild Oats, Inc. represented approximately 14.4% of net sales for the quarter ended January 31, 2002. Whole Foods Market, Inc. has extended its current distribution arrangement through August 31, 2004. Our contract as primary distributor to Wild Oats, Inc. was not renewed past its expiration date of August 31, 2002. However, we continue to distribute to Wild Oats, Inc. and expect revenue of approximately $25 million to $30 million in fiscal 2003. Gross Profit. Our gross profit increased approximately 16.9%, or $9.6 million, to $66.1 million for the quarter ended January 31, 2003 from $56.5 million for the quarter ended January 31, 2002. Our gross profit as a percentage of net sales decreased to 19.5% from 19.8% for the quarter ended January 31, 2002. Our increase in gross profit as a result of losing the Wild Oats, Inc. business, which as a large customer received volume discounts, was more than offset by lower gross profit margins in our acquired businesses and a lower than expected gross profit at our Hershey Import division. We expect our gross margin as a percentage of sales to be in the mid- to high 19% range for the remainder of fiscal 2003. Operating Expenses. Our total operating expenses, excluding special charges, increased approximately 19.0%, or $8.8 million, to $55.2 million for the quarter ended January 31, 2003 from $46.4 million for the quarter ended January 31, 2002. As a percentage of net sales, operating expenses, excluding special charges, increased to 16.3% for the quarter ended January 31, 2003 from 16.2% for the quarter ended January 31, 2002. Operating expenses, including special charges, increased approximately 15.8%, or 7.5 million, to $55.2 million from $47.7 million for the quarter ended January 31, 2002. As a percentage of sales, operating expenses, including special charges, decreased to 16.3% for the quarter ended January 31, 2003 from 16.7% for the quarter ended January 31, 2002.The increase in operating expenses was due to lower productivity caused by the transition of the Wild Oats, Inc. business and higher operating expense levels at our recent acquisitions, Blooming Prairie and Northeast Cooperatives. We believe we will be able to decrease operating expenses as a percentage of sales as we focus on increasing market share to replace Wild Oats, Inc. sales and integrating Blooming Prairie and Northeast Cooperatives into our Western and Eastern regions, respectively, resulting in more efficient routing and warehouse operations. Transportation, warehouse labor, fuel, and utilities costs continued to track at levels consistent with past quarters as a percentage of sales, with total expenses as a percentage of sales showing slight improvement over past quarters. Operating expenses for the quarter ended January 31, 2003 included special charges of $0.1 million related to the expansion of our Chesterfield, New Hampshire facility. Operating expenses for the quarter ended January 31, 2002 included special charges of $0.4 million in restructuring and asset impairment expense and $0.9 million in other moving costs related to the relocation of our Atlanta, Georgia distribution facility. We believe operating expenses as a percentage of sales to be in the low to mid-16% range for the fiscal year 2003 due to absorption of fixed costs over a lower sales base resulting from the reduction of our Wild Oats, Inc. business and as we continue to integrate our Blooming Prairie and Northeast Cooperatives acquisitions. We expect to incur additional special charges as we increase our warehouse capacity. 14 Operating Income. Operating income, excluding the special charges discussed above, increased $0.7 million to $10.9 million for the quarter ended January 31, 2003 from $10.2 million for the quarter ended January 31, 2002. As a percentage of sales, operating income, excluding special charges, decreased to 3.2% for the quarter ended January 31, 2003 compared to 3.6% for the quarter ended January 31, 2002. Operating income, including special charges, increased $2.0 million to $10.8 million or 3.2% of sales for the quarter ended January 31, 2003 compared to $8.8 million or 3.1% of sales for the quarter January 31, 2002. Other Expense (Income). Other expense, excluding the change in fair value of financial instruments, increased $0.4 million to $1.9 million for the quarter ended January 31, 2003 from $1.5 million for the quarter ended January 31, 2002. Interest expense for the quarter ended January 31, 2003 was $2.1 million compared to $1.6 million for the quarter ended January 31, 2002. This increase in interest expense was attributable to higher debt levels due to the acquisitions of Blooming Prairie and Northeast Cooperatives. Other expense, including the change in fair value of financial instruments, increased $1.6 million to $1.7 million for the quarter ended January 31, 2003 from $0.1 million for the quarter ended January 31, 2002. This increase was primarily due to the decrease in non-cash income from our interest rate swap agreements and related option agreements. The non-cash income due to the change in fair value of financial instruments for the quarter ended January 31, 2003 was $0.2 million compared to $1.4 million for the quarter ended January 31, 2002. We will continue to recognize either income or expense quarterly for the duration of the swap agreements until either October 2003 or 2005 for the swap agreement entered into in October 1998, and either August 2005 or 2007 for the swap agreement entered into in August 2001, depending on whether the agreements are extended by the counter party. The recognition of income or expense in any given quarter, and the magnitude of that item, is dependent on yield curves and the remaining term of the contracts. Upon expiration of any such contract, the cumulative earnings impact from the changes in fair value of the instruments will be zero. Since our interest rate swap agreements fix our effective rates at 6.5% and 6.3%, we have paid higher interest expense than had we not entered into these agreements. Income Taxes. Our effective income tax rate was 40.0% for the quarters ended January 31, 2003 and 2002. The effective rates were higher than the federal statutory rate primarily due to state and local income taxes. Net Income. As a result of the foregoing, net income, excluding special items, increased $0.2 million to $5.4 million, or $0.28 per diluted share, for the quarter ended January 31, 2003, compared to $5.2 million, or $0.27 per diluted share, for the quarter ended January 31, 2002. Net income, including special items, increased $0.3 million to $5.5 million, or $0.28 per diluted share, for the quarter ended January 31, 2003, compared to $5.2 million, or $0.27 per diluted share, for the quarter ended January 31, 2002. We believe earnings per diluted share, excluding any special items, to be in the range of $0.30 to $0.32 for the third quarter of fiscal 2003, and to be in the range of $1.18 to $1.20 for all of fiscal 2003. Six Months Ended January 31, 2003 compared to Six Months Ended January 31, 2002 Net Sales. Our net sales increased approximately 14.8%, or $83.6 million, to $649.4 million for the six months ended January 31, 2003 from $565.8 million for the six months ended January 31, 2002. This increase was due primarily to 16 weeks of net sales from Blooming Prairie, acquired on October 11, 2002 and one month of net sales from Northeast Cooperatives, acquired on December 31, 2002. Sales to mass market and independent customers increased approximately 26% and 20%, respectively. Sales to the supernatural distribution channel grew approximately 2.8% compared to the six months ended January 31, 2002. The lower growth rate for the supernatural channel was due primarily to the previously announced transition of the Company's former second-largest customer, Wild Oats, Inc., to a new primary distributor. Sales to the supernatural distribution channel, excluding acquisitions and sales to Wild Oats, Inc. in both periods, increased approximately 30.3%. Sales to our largest customer, Whole Foods Market, Inc. represented approximately 24.2% and 18.5%, respectively, of net sales for the six months ended January 31, 2003 and January 31, 2002. The current contract with Whole Foods Market, Inc., extends through August 31, 2004. Sales to our former second-largest customer, Wild Oats, Inc., represented approximately 14.3% of net sales for the six months ended January 31, 2002. 15 Gross Profit. Our gross profit increased approximately 13.8%, or $15.4 million, to $126.9 million for the six months ended January 31, 2003 from $111.5 million for the six months ended January 31, 2002. Our gross profit as a percentage of net sales decreased to 19.5% for the six months ended January 31, 2003 from 19.7% for the same period last year. Our increase in gross profit as a result of losing the Wild Oats, Inc. business was more than offset by lower gross profit margins in our acquired businesses and a lower than planned gross profit at our Hershey Import division. Operating Expenses. Our total operating expenses, excluding special items, increased approximately 15.4%, or $14.1 million, to $105.5 million for the six months ended January 31, 2003 from $91.4 million for the six months ended January 31, 2002. As a percentage of net sales, operating expenses, excluding special items, remained unchanged at 16.2% for the six months ended January 31, 2003 and January 31, 2002, respectively. The increase in operating expenses was due to lower productivity caused by the transition of the Wild Oats, Inc. business and higher operating expense levels at our recent acquisitions, Blooming Prairie and Northeast Cooperatives. Special charges are discussed in the following paragraph. Operating expenses, including special items, increased approximately 14.4% or $13.3 million to $106.1 million for the six months ended January 31, 2003 from $92.8 million for the six months ended January 31, 2002. As a percentage of sales operating expenses, including special charges, decreased to 16.3% for the six months ended January 31, 2003 from 16.4% for the six months ended January 31, 2002. Operating expenses for the six months ended January 31, 2003 included special items of approximately $0.1 million of labor costs related to the expansion of our Chesterfield, New Hampshire distribution facility. While we anticipate short-term incremental costs of approximately $1.0 million, we expect to realize transportation and warehouse savings once we are operational in the fourth quarter of our fiscal year 2003. Special items for the six months ended January 31, 2002 included $1.4 million related to the relocation of our Atlanta, Georgia facility. Approximately $0.4 million was related to asset impairment and restructuring costs and $1.0 million of other transition costs. Operating Income. Operating income, excluding special items, increased $1.3 million to $21.4 million for the six months ended January 31, 2003 from $20.1 million for the six months ended January 31, 2002. Operating income, including special items, increased $2.1 million to $20.8 million for the six months ended January 31, 2003 from $18.7 million for the same period last year. Other Expense (Income). Other expense, excluding the change in fair value of financial instruments, increased $0.2 million to $3.5 million for the six months ended January 31, 2003 from $3.3 million for the six months ended January 31, 2002. Interest expense for the six months ended January 31, 2003 was $3.9 million compared to $3.4 million for the six months ended January 31, 2002. This increase in interest expense was attributable to higher debt levels due to the acquisitions of Blooming Prairie and Northeast Cooperatives. Other expense, including the change in fair value of financial instruments, decreased $0.7 million to $5.0 million for the six months ended January 31, 2003 from $5.7 million for the six months ended January 31, 2002. This decrease was primarily due to the decrease in non-cash expense from our interest rate swap agreements and related option agreements compared. The non-cash expense due to the change in fair value of financial instruments for the six months ended January 31, 2003 was $1.5 million compared to $2.4 million for the six months ended January 31, 2002. Income Taxes. Our effective income tax rate was 40.0% for the six months ended January 31, 2003 and 2002. The effective rates were higher than the federal statutory rate primarily due to state and local income taxes. Net Income. As a result of the foregoing, net income, excluding special items, increased $0.7 million to $10.8 million, or $0.55 per diluted share, for the six months ended January 31, 2003, compared to $10.1 million, or $0.53 per diluted share, in the six months ended January 31, 2002. Net income, including special items, increased $1.7 million to $9.5 million, or $0.49 per diluted share, for the six months ended January 31, 2003, compared to $7.8 million, or $0.41 per diluted share, for the six months ended January 31, 2002. 16 Liquidity and Capital Resources We finance operations and growth primarily with cash flows from operations, borrowings under our credit facility, seller financing of acquisitions, operating and capital leases, trade payables, bank indebtedness and the sale of equity and debt securities. Our secured revolving credit facility is $150 million. Interest accrues, at the Company's option, at the New York Prime Rate or 1.50% above the banks' London Interbank Offered Rate. As of January 31, 2003, we had an unused availability of $6.1 million. On February 14, 2003 we executed the fifth amendment to our loan and security agreement, which added to our borrowing base the accounts receivable and inventory balances of our Hershey Import subsidiary. This amendment eliminated the use of the temporary borrowing base increase of $15.0 million, secured by real estate, provided by the fourth amendment to our loan and security agreement. Additionally, we expect to procure $30.0 million in additional long-term financing secured by our real estate during the third quarter of our fiscal year 2003 which will increase availability on our credit facility. Net cash provided by operations was $25.2 million for the six months ended January 31, 2003 and was the result of cash collected from customers net of cash paid to vendors. Net cash provided by operations was $6.3 million for the six months ended January 31, 2002 and was the result of cash collected from customers net of cash paid to vendors. Days in inventory remained unchanged at 51 days for January 31, 2003 and January 31, 2002. Days sales outstanding at January 31, 2003 was 25 days compared to 29 days at January 31, 2002. Net cash used in investing activities was $55.0 million for the six months ended January 31, 2003, and was due primarily to the purchase of substantially all the assets of Blooming Prairie, the merger with privately held Northeast Cooperatives, and the expansion of our Chesterfield, New Hampshire facility. Net cash used in investing activities was $20.4 million for the same period last year, and was due primarily to the development of our new Atlanta, Georgia and Fontana, California facilities. Net cash provided by financing activities was $30.3 million for the six months ended January 31, 2003, due to increased borrowings on our line of credit and our equipment financing lines, offset by repayment of long-term debt. Net cash provided by financing activities was $12.5 million for the six months ended January 31, 2002, due to increased borrowings on our line of credit offset by repayment of long-term debt as a result of the establishment of our $150 million secured revolving credit facility. In October 1998, we entered into an interest rate swap agreement. The agreement provides for us to pay interest for a five-year period at a fixed rate of 5% on a notional principal amount of $60 million, while receiving interest for the same period at the LIBOR rate on the same notional principal amount. The swap has been entered into as a hedge against LIBOR interest rate movements on current variable rate indebtedness totaling $60 million at LIBOR plus 1.50%, thereby fixing the Company's effective rate at 6.50%. The five-year term of the swap agreement may be extended to seven years at the option of the counter party, which prohibits accounting for the swap as an effective hedge under SFAS No.133, "Accounting for Derivative Instruments and Hedging Activities." We entered into an additional interest rate swap agreement effective August 1, 2001. The additional agreement provides for us to pay interest for a four-year period at a fixed rate of 4.81% on a notional principal amount of $30 million, while receiving interest for the same period at the LIBOR rate on the same notional principal amount. The swap has been entered into as a hedge against LIBOR interest rate movements on current variable rate indebtedness totaling $30 million at LIBOR plus 1.50%, thereby fixing our effective rate on the notional amount at 6.31%. If LIBOR exceeds 6.0% in a given period, the agreement is suspended for that period. LIBOR was 1.35% as of January 31, 2003. The four-year term of the swap agreement may be extended to six years at the option of the counter party, which prohibits accounting for the swap as an effective hedge under SFAS No. 133. IMPACT OF INFLATION Historically, we have been able to pass along inflation-related increases. Consequently, inflation has not had a material impact upon the results of our operations or profitability. SEASONALITY Generally, we do not experience any material seasonality. However, our sales and operating results may vary significantly from quarter to quarter due to factors such as changes in our operating expenses, management's ability to execute our operating and growth strategies, personnel changes, demand for natural and organic products, supply shortages and general economic conditions. 17 Certain Factors That May Affect Future Results This Form 10-Q and the documents incorporated by reference in this Form 10-Q contain forward-looking statements that involve substantial risks and uncertainties. In some cases you can identify these statements by forward-looking words such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "should," "will," and "would," or similar words. You should read statements that contain these words carefully because they discuss future expectations contain projections of future results of operations or of financial position or state other "forward-looking" information. The important factors listed below as well as any cautionary language in this Form 10-Q, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations described in these forward-looking statements. You should be aware that the occurrence of the events described in the risk factors below and elsewhere in this Form 10-Q could have an adverse effect on our business, results of operations and financial position. Any forward-looking statements in this Form 10-Q and the documents incorporated by reference in this Form 10-Q are not guarantees of future performance, and actual results, developments and business decisions may differ from those envisaged by such forward-looking statements, possibly materially. We disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statement in this section. Our business could be adversely affected if we are unable to integrate our acquisitions and mergers A significant portion of our historical growth has been achieved through acquisitions of or mergers with other distributors of natural and organic products, including our acquisition of substantially all of the assets of Blooming Prairie Cooperative Warehouse on October 11, 2002 and the merger with Northeast Cooperatives on December 31, 2002. Successful integration of mergers is critical to our future operating and financial performance. Integration requires, among other things: maintaining the customer base, the optimization of delivery routes, coordination of administrative, distribution and finance functions, and the integration of management information systems and personnel. 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 our business, financial condition or results of operations. In addition, the process of combining 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. We may also lose key employees of the acquired company. There can be no assurance that we will realize any of the anticipated benefits of mergers. Access to capital and the cost of that capital We finance operations and growth primarily with cash flows from operations, borrowings under our credit facility, seller financing of acquisitions, operating and capital leases, trade payables, bank indebtedness and the sale of equity and debt securities. As of January 31, 2003, we had an unused availability of $6.1 million under our secured credit facility of $150.0 million. Additionally, we expect to procure $30.0 million in additional long-term financing secured by our real estate during the third quarter of our fiscal year 2003 which will increase availability on our credit facility. Future low cash availability levels could restrict our ability to expand our business. In order to maintain our profit margins, we rely on strategic investment buying initiatives, such as discounted bulk purchases, which require spending significant amounts of working capital. In the event that capital market turmoil significantly increases our cost of capital or limits our ability to borrow funds or raise equity capital, we could suffer reduced profit margins and be unable to grow our business organically or through acquisitions, which could have a material adverse effect on our business, financial condition or results of operations. We may have difficulty in managing our growth The growth in the size of our business and operations has placed, and is expected to continue to place, a significant strain on our management. Our future growth is limited in part by the size and location of our distribution centers. There can be no assurance that we will be able to successfully expand our existing distribution facilities or open distribution facilities in new or existing markets to facilitate growth. In addition, our growth strategy to expand our market presence includes possible additional acquisitions. To the extent our future growth includes acquisitions, there can be no assurance that we will successfully identify suitable acquisition candidates, consummate and integrate such potential acquisitions or expand into new 18 markets. Our ability to compete effectively and to manage future growth, if any, will depend on our ability to continue to implement and improve operational, financial and management information systems on a timely basis and to expand, train, motivate and manage our work force. There can be no assurance that our personnel, systems, procedures and controls will be adequate to support our operations. Our inability to manage our growth effectively could have a material adverse effect on our business, financial condition or results of operations. We have significant competition from a variety of sources We operate in competitive markets, and our future success will be largely dependent on our ability to provide quality products and services at competitive prices. Our competition comes from a variety of sources, including other distributors of natural and organic 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 and organic products and more directly compete with us or that new competitors will not enter the market. These mass-market grocery distributors may have been in business longer than we have, may have substantially greater financial and other resources than we do and may be better established in their markets than we are. There can be no assurance that our current or potential competitors will not provide services comparable or superior to those provided by us or adapt more quickly than us, to evolving industry trends or changing market conditions. It is also possible that alliances among competitors may develop or that certain of our customers will increase distribution to their own retail facilities. Increased competition may result in price reductions, reduced gross margins and loss of market share, any of which could materially adversely affect our business, financial condition or results of operations. There can be no assurance that we will be able to compete effectively against current and future competitors. We depend heavily on our principal customers Our current distribution arrangement with our top customer, Whole Foods Market, Inc., is effective through August 31, 2004. Whole Foods Market, Inc. accounted for approximately 25.5% and 19.2%, of our net sales during the quarters ended January 31, 2003 and January 31, 2002, respectively, and approximately 24.2% and 18.5% for the six months ended January 31, 2003 and January 31, 2002, respectively. As a result of this concentration of our customer base, the loss or cancellation of business from Whole Foods Market, Inc. could materially and adversely affect our business, financial condition or results of operations. We sell products under purchase orders, and we generally have no agreements with or commitments from our customers for the purchase of products. No assurance can be given that our customers will maintain or increase their sales volumes or orders for the products supplied by us or that we will be able to maintain or add to our existing customer base. Our profit margins may decrease due to consolidation in the grocery industry The grocery distribution industry generally is characterized by relatively high volume with relatively low profit margins. The continuing consolidation of retailers in the natural and organic products industry, and the growth of supernatural chains, may reduce our profit margins in the future as more customers qualify for greater volume discounts. Our industry is sensitive to economic downturns The grocery industry is sensitive to national and regional economic conditions, and the demand for our products may be adversely affected from time to time by economic downturns. In addition, our operating results are particularly sensitive to, and may be materially adversely affected by: difficulties with the collection of accounts receivable, difficulties with inventory control, competitive pricing pressures, and unplanned 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 our business, financial condition or results of operations. We are dependent on a number of key executives Management of our business is substantially dependent upon the services of Michael S. Funk, Chair of the Board of Directors, Steven H. Townsend, Chief Executive Officer, Rick D. Puckett, Chief Financial Officer, Kevin Michel, President of the 19 Western Region, Daniel V. Atwood, Senior Vice President and Secretary, Richard Antonelli, President of the Eastern Region, and other key management employees. Loss of the services of any additional officers or any other key management employee could have a material adverse affect on our business, financial condition or results of operations. Our operating results are subject to significant fluctuations Our net sales and operating results may vary significantly from period to period as a result of: changes in our operating expenses, management's ability to execute our business and growth strategies, personnel changes, demand for natural and organic products, supply shortages, general economic conditions, changes in customer preferences and demands for natural and organic products, including levels of enthusiasm for health, fitness and environmental issues, fluctuation of natural product prices due to competitive pressures, lack of an adequate supply of high quality agricultural products due to poor growing conditions, natural disasters or otherwise, volatility in prices of high quality agricultural products resulting from poor growing conditions, natural disasters or otherwise, and future acquisitions, particularly in periods immediately following the consummation of such acquisition transactions, while the operations of the acquired businesses are being integrated into our operations. Due to the foregoing factors, we believe that period-to-period comparisons of our operating results may not necessarily be meaningful, and that such comparisons cannot be relied upon as indicators of future performance. We are subject to significant governmental regulation Our business is highly regulated at the federal, state and local levels and our products and distribution operations require various licenses, permits and approvals. In particular: our products are subject to inspection by the U.S. Food and Drug Administration, our warehouse and distribution facilities are subject to inspection by the U.S. Department of Agriculture and state health authorities, and the U.S. Department of Transportation and the U.S. Federal Highway Administration regulate our trucking operations. 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 we intend to do business could have a material adverse effect on our business, financial condition or results of operations. 20 Union-organizing activities could cause labor relations difficulties As of January 31, 2003, approximately 353 employees, representing approximately 10% of our approximately 3,500 employees, were union members. We have in the past been the focus of union organizing efforts. As we increase our employee base and broaden our distribution operations to new geographic markets, our increased visibility could result in increased or expanded union organizing efforts. Although we have not experienced a work stoppage to date, if additional employees were to unionize, we could be subject to work stoppages and increases in labor costs, either of which could materially adversely affect our business, financial condition or results of operations. Item 3. Quantitative and Qualitative Disclosure About Market Risk We do not believe that there is any material market risk exposure with respect to derivative or other financial instruments that would require disclosure under this item. Item 4. Controls and Procedures (a) Evaluation of Disclosure Controls and Procedures. We carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934, as amended) as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in timely reporting material information required to be included in our periodic reports filed with the Securities and Exchange Commission. (b) Changes in Internal Controls. Since the Evaluation Date, there have not been any significant changes to our internal controls or in other factors that could significantly affect those internal controls. PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders At the Annual Meeting of Stockholders of the Company (the "Annual Meeting") held on December 3, 2002, the stockholders of the Company considered and voted on three proposals: 1. Election of Directors. The stockholders elected Michael S. Funk and James P. Heffernan as Class III directors for the ensuing three years. The terms of office as directors of Gordon D. Barker, Joseph M. Cianciolo, Gail A. Graham, Kevin T. Michel, Steven H. Townsend and Thomas B. Simone continued after the Annual Meeting. The stockholders voted in the following manner: Name Votes "FOR" Votes "WITHHELD" ------------------------------------------------------------------- Michael S. Funk 15,704,885 495,849 James P. Heffernan 15,704,885 495,849 2. Stock Option Plan. The stockholders approved the Company's 2002 Stock Incentive Plan. The stockholders voted in the following manner: (i) 10,792,801 votes were cast "FOR" the proposal; (ii) 3,211,441 votes were cast "AGAINST" the proposal; and (iii) 139,056 votes abstained. 3. Independent Auditor. The stockholders ratified the appointment of KPMG LLP as the Company's independent auditor for the year ended July 31, 2003. The stockholders voted in the following manner: (i) 15,798,958 votes were cast "FOR" the proposal; (ii) 331,514 votes were cast "AGAINST" the proposal; and (iii) 70,262 votes abstained. 21 Item 6. Exhibits and Reports on Form 8-K Exhibits
- -------------------------------------------------------------------------------------------- Exhibit No. Description Page - -------------------------------------------------------------------------------------------- 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant 28 to Section 906 of the Sarbanes-Oxley Act of 2002 - CEO - -------------------------------------------------------------------------------------------- Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant 99.2 to Section 906 of the Sarbanes-Oxley Act of 2002 - CFO 29 - -------------------------------------------------------------------------------------------- Asset Purchase Agreement between United Natural Foods, Inc. and Blooming Prairie Cooperative Warehouse. The exhibits and schedules to the Asset Purchase Agreement have been omitted in accordance with the applicable rules of the Commission. The registrant agrees to furnish to the Commission, upon request, a copy of each such exhibit and 99.3 schedule. 30 - -------------------------------------------------------------------------------------------- Amended and Restated Agreement and Plan of Merger among United Natural Foods, Inc., NEC Acquisition Corp., Northeast Cooperatives, and Northeast Cooperative, Inc. The exhibits and schedules to the Amended and Restated Agreement and Plan of Merger have been omitted in accordance with the applicable rules of the Commission. The registrant agrees to furnish to the Commission, upon request, a copy 99.4 of each such exhibit and schedule. 67 - -------------------------------------------------------------------------------------------- Fifth Amendment to Loan and Security with Fleet Capital Corporation 99.5 dated February 14, 2003. 106 - -------------------------------------------------------------------------------------------- 99.6 Joinder agreement between United Natural Trading Co., and United Natural Foods, Inc., Mountain People's Warehouse Incorporated, Nutrasource, Inc., Rainbow Natural Foods, Inc., Stow Mills, Inc., United Northeast LLC and United Natural Foods Pennsylvania, Inc. dated February 14, 2003. 112 - --------------------------------------------------------------------------------------------
Reports on Form 8-K Current Report on Form 8-K, filed with the Commission on December 3, 2002. Current Report on Form 8-K, filed with the Commission on December 6, 2002. Current Report on Form 8-K, filed with the Commission on January 3, 2003. 22 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. UNITED NATURAL FOODS, INC. /s/ Rick D. Puckett ----------------------------- Rick D. Puckett Chief Financial Officer (Principal Financial and Accounting Officer) Dated: March 14, 2003 23 CERTIFICATION Each of the undersigned, in his capacity as the Chief Executive Officer and Chief Financial Officer of United Natural Foods, Inc., as the case may be, provides the following certifications required by 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Certification of Chief Executive Officer I, Steven H. Townsend, hereby certify that: 1. I have reviewed this quarterly report on Form 10-Q of United Natural Foods, Inc., a Delaware corporation (the "Company"). 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report. 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this quarterly report. 4. The Company's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934, as amended) for the Company and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the Company's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date. 5. The Company's other certifying officer and I have disclosed, based on our most recent evaluation, to the Company's auditors and the audit committee of the Company's board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Company's ability to record, process, summarize and report financial data and have identified for the Company's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal controls. 6. The Company's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ Steven H. Townsend ---------------------- Steven H. Townsend Chief Executive Officer March 14, 2003 24 Certification of Chief Financial Officer I, Rick D. Puckett, hereby certify that: 1. I have reviewed this quarterly report on Form 10-Q of United Natural Foods, Inc., a Delaware corporation (the "Company"). 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report. 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this quarterly report. 4. The Company's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934, as amended) for the Company and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the Company's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date. 5. The Company's other certifying officer and I have disclosed, based on our most recent evaluation, to the Company's auditors and the audit committee of the Company's board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Company's ability to record, process, summarize and report financial data and have identified for the Company's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal controls. 6. The Company's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ Rick D. Puckett ------------------- Rick D. Puckett Chief Financial Officer March 14, 2003 25 EX-99.1 3 ex99-1.txt EXHIBIT 99.1 Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Quarterly Report of United Natural Foods, Inc., a Delaware corporation (the "Company"), on Form 10-Q for the period ended January 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Steven H. Townsend, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge and based on my review of the Report: 1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Steven H. Townsend ---------------------- Steven H. Townsend Chief Executive Officer March 14, 2003 EX-99.2 4 ex99-2.txt EXHIBIT 99.2 Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Quarterly Report of United Natural Foods, Inc., a Delaware corporation (the "Company"), on Form 10-Q for the period ended January 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Rick D. Puckett, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge and based on my review of the Report: 3. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 4. the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Rick D. Puckett ------------------- Rick D. Puckett Chief Financial Officer March 14, 2003 EX-99.3 5 ex99-3.txt EXHIBIT 99.3 ASSET PURCHASE AGREEMENT by and between UNITED NATURAL FOODS, INC. and BLOOMING PRAIRIE COOPERATIVE WAREHOUSE Dated as of September 4, 2002 ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT ("this Agreement") is entered into as of September 4, 2002, by and between BLOOMING PRAIRIE COOPERATIVE WAREHOUSE, an Ohio cooperative ("Seller"), and UNITED NATURAL FOODS, INC., a Delaware corporation ("Buyer"). RECITALS Seller owns certain assets used in the conduct of its Business (as defined below). Buyer desires to purchase and assume from the Seller, and the Seller desires to sell and assign to the Buyer, substantially all of the assets and certain of the liabilities of the Business, on the terms and subject to the conditions of this Agreement. NOW, THEREFORE, the parties, for the mutual promises set forth herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound, hereby agree as follows: ARTICLE I DEFINITIONS Certain Defined Terms. As used in this Agreement, the terms below will have the following meanings. Any of such terms, unless the context otherwise requires, may be used in the singular or plural, depending upon the reference. "Accounting Firm" means McGladrey & Pullen, LLP, or its successors or assigns. "Affiliate" will have the meaning set forth in the Securities Exchange Act of 1934, as amended, and the rules and regulations under that Act. "Assets" means all of Seller's right, title and interest in and to the properties, assets and rights of any kind, whether tangible or intangible, real or personal, and constituting, or used or usable in connection with, or related to, the Business, wherever located, including without limitation, all of Seller's right, title and interest in and to the following: (a) all rights under all Contracts (including rights to any customer deposits relating to Contracts) and Leases; (b) all Real Estate and all leasehold improvements relating to the Business; (c) all Fixtures and Equipment; (d) all Inventory; (e) all accounts receivable of Seller with respect to the Business which remain unpaid as of the Closing Date (the "Receivables") and all prepaid expenses; (f) all Books and Records; (g) all Intellectual Property relating to the Business, including, without limitation, the right to use the name "Blooming Prairie Warehouse" and "Blooming Prairie Natural Foods"; (h) all computer hardware and software relating to the Business; (i) all supplies, sales literature, promotional literature, customer, supplier and distributor lists, art work, display units, purchasing records and all telephone and fax numbers related to the Business; (j) all transferable rights under or pursuant to all warranties, representations and guarantees made by suppliers (including all contractual or other rights of Seller to return inventory) in connection with the Assets or services furnished to Seller pertaining to the Business or affecting the Assets; (k) all obligations payable to Seller's subsidiary, Blooming Prairie Warehouse Development Fund, Inc. (the "Subsidiary") as of the open of business on the Closing Date, and all liens securing such obligations; (l) the Co-op Private Label Distribution Rights; (m) all cash and cash equivalents on hand or on deposit as of the open of business on Closing Date; (n) all claims, causes of action, choses in action, rights of recovery and rights of set-off of any kind, against any Person, including without limitation, any liens, security interests, pledges or other rights to payment or to enforce payment in connection with products or services delivered by Seller in connection with the Business on or prior to the Closing Date; (o) all rights in connection with Seller's insurance policies, including without limitation worker's compensation insurance policies, and all rights in connection with Seller's Employee Benefit Plans (as hereinafter defined); and (p) all goodwill as a going concern; but excluding from all of the foregoing the Excluded Assets and Nontransferable Assets. "Books and Records" means (a) all records and lists of Seller pertaining to the Assets, (b) all records and lists pertaining to the Business or to past, present or prospective customers or suppliers or personnel of the Business, (c) all past, present or prospective product, business and marketing plans relating to the Business, and (d) all books, ledgers, files, reports, plans, drawings and operating records of every kind maintained by Seller in connection with the Business, but excluding the Excluded Assets. -3- "Business" means Seller's food warehousing and distribution business. "Closing Date" means October 10, 2002 or such other date as the parties may mutually determine. "Code" means the Internal Revenue Code of 1986, as amended, and the rules and regulations under the Code. "Deed" shall mean that certain warranty deed from Seller to Buyer conveying the Real Estate, in the form attached as Exhibit A. "Contract" means any agreement, contract, note, loan, evidence of indebtedness, guaranty, purchase order, customer order, letter of credit, franchise agreement, undertaking, covenant-not-to-compete, employment agreement, license, instrument, obligation or commitment (a) to which Seller is a party, or (b) by which it or any of the Assets is bound, and which relates to the Business or the Assets, whether oral or written, but excluding Leases. "Co-op Private Label" means the trademarks "CO OP", "CO-OP" and "THE CO-OP ADVANTAGE" and the related designs, including the United States trademark registrations and applications for registration with respect thereto. "Co-op Private Label Distribution Rights" means the rights of the Seller to distribute grocery store products bearing the Co-op Private Label as provided for in Section 1.01(d) of that certain Agreement dated as of July 10, 2001, by and between National Cooperative Grocers Association and the Seller. "Disclosure Schedule" means the schedules attached to this Agreement that set forth the exceptions to the representations and warranties contained in Article IV of this Agreement, and certain other information called for by this Agreement. Unless otherwise specified, each reference in this Agreement to any schedule designated by a letter or number is a reference to the schedule designated by such letter or number that is included in the Disclosure Schedule. All documents, instruments and agreements referred to in the Disclosure Schedule are hereby incorporated into the Disclosure Schedule by this reference. Capitalized terms used but not defined in the schedules shall have the same meaning given to such terms in this Agreement. "Encumbrance" means any claim, lien, pledge, option, charge, easement, security interest, deed of trust, mortgage, right-of-way, encroachment, building or use restriction, conditional sales agreement, encumbrance or other right of third parties, respectively, whether voluntarily incurred or arising by operation of law, and includes, without limitation, any agreement to give any of the foregoing in the future, and any contingent sale or other title retention agreement. -4- "Excluded Assets" means, notwithstanding any other provision of this Agreement to the contrary, the following assets of Seller that are not to be acquired by Buyer under this Agreement: (a) this Agreement and the documents, instruments and agreements to be executed and/or delivered pursuant to this Agreement and all rights of Seller under this Agreement and such documents, instruments and agreements; (b) Seller's corporate charter, original minute books, stock books, tax records and returns and other documents relating to the organization, maintenance and existence of Seller as a cooperative as well as comparable documents with respect to Seller's predecessors; (c) the Co-op Private Label (provided however, that the Assets shall include the Co-op Private Label Distribution Rights); (d) all personnel records and other records that Seller is required by law to retain in its possession; (e) all claims for refund of Taxes and other governmental charges of whatever nature; (f) the shares of stock in the Subsidiary; (g) the Seller's security interest in and right to offset against its Member Capital Accounts with respect to amounts owed by its members to the Seller; and (h) the properties, assets and rights described on Exhibit C hereto. "Financial Statements" means the audited consolidated balance sheets and related statements of operations, members' equity and cash flows of Seller and its Subsidiary for the twelve-month periods ended June 26, 2001 and June 25, 2002, together with any related notes. "Fixtures and Equipment" means all of the furniture, fixtures, furnishings, machinery, automobiles, trucks, spare parts, supplies, equipment and other tangible personal property owned by Seller and used or usable in connection with the Business, including without limitation the property listed on Schedule 4.3. "GAAP" means United States generally accepted accounting principles, consistently applied. "Iowa City Assets" means the Real Estate and all furniture, fixtures and other personal property located therein and all leasehold and other improvements thereto. -5- "Intellectual Property" means all intellectual, industrial, and proprietary rights, whether domestic or foreign (including any associated goodwill) of Seller, including: (a) all trade secrets, confidential information, and know-how, including all technical, manufacturing, and engineering information, software, source code, data, new developments, designs, inventions, or ideas, and all related documentation, whether in hard copy or electronic format; (b) all words, symbols, icons, logos, or other indicia of origin adopted or used in connection with any product made or service provided in the Business, whether registered or unregistered, and all rights necessary to prevent unfair trading; (c) all applications and registrations related to, and all licenses and sub-licenses granted to or by third parties to use, any of the foregoing; (d) all telephone and telecopier numbers; and (e) all Internet addresses, domain names, web sites, and other Business addresses. "Inventory" means all raw materials, supplies, work in process and finished goods inventory of Seller with respect to the Business, and all of Seller's wrapping, supply and packaging items and similar items with respect to the Business, in each case whether on hand or in transit and wherever the same may be located. "Leases" means all leases, occupancy agreements, licenses and other agreements pursuant to which Seller occupies or has the right to use any real or personal property. "Material Adverse Effect" or "Material Adverse Change" means any effect or change in the condition (financial or otherwise), business, results of operations, prospects, assets, liabilities or operations of the business and/or the assets of a Person that is materially adverse to the condition (financial or otherwise), business, results of operations, prospects, assets, liabilities or operations of the business and/or the assets of such Person taken as a whole, or to the ability of such Person to consummate the transactions contemplated by this Agreement, or any event or condition that would, with the passage of time, constitute such an effect or change. "Member Capital Accounts" means the Seller's liability to its members with respect to membership deposits and allocated deferred patronage. "Nontransferable Assets" means those properties and assets of Seller or Seller's right, title and interest in and to properties and assets which are described on Exhibit D hereto and which, by their terms, are not transferable by the Seller to the Buyer. "Permitted Encumbrances" means (a) materialmen's, mechanics', carriers', workmen's, repairmen's or other like liens arising in the ordinary course of the Business for amounts not yet due or that are being contested in good faith by appropriate proceedings and as to which appropriate reserves have been established that are reflected on the Financial Statements or will be established and reflected on the Closing Date Balance Sheet, (b) liens for current taxes not yet due or any taxes being contested in good faith by appropriate proceedings and as to which appropriate reserves have been established that are reflected on the Financial Statements or will be established and reflected in the Closing Date Balance Sheet, (c) with respect to the Real Estate, any Encumbrance which does not materially impair the marketability of the Seller's title thereto, including, but not limited to, building and zoning laws, reservation of any minerals or mineral rights to the applicable State, and utility and drainage easements, and (d) the Encumbrances set forth on Schedule 4.3 hereto. -6- "Permits" means all licenses, permits, franchises, approvals, authorizations, consents or orders of, or filings with, any governmental authority, whether foreign, federal, state or local, or any other Person, necessary for the conduct of, or relating to the operation of, the Business. "Person" means any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, unincorporated association, corporation, entity or government (whether federal, foreign, state, county, city or otherwise, including any instrumentality, division, agency or department thereof). "Representative" means any officer, director, principal, agent, employee or other authorized representative of a specified Person. "Real Estate" means the real property and improvements located at 2340 Heinz Road, Iowa City, Iowa, more completely described in Exhibit A-1. "Tax" means any federal, state, local, foreign or other tax, levy, impost, fee, assessment or other government charge, including without limitation income, estimated income, business, occupation, franchise, property, payroll, personal property, sales, transfer, use, employment, commercial rent, occupancy, franchise or withholding taxes, and any premium, including related interest, penalties and additions. ARTICLE II PURCHASE AND SALE OF ASSETS Section 2.1. Transfer of Assets. Upon the terms and subject to the conditions contained in this Agreement, at the Closing, Seller will sell, convey, transfer, assign and deliver to Buyer, and Buyer will purchase and acquire from Seller, the Assets, free and clear of all Encumbrances other than Permitted Encumbrances. Section 2.2. Assumption of Liabilities; Exclusions. Upon the terms and subject to the conditions contained in this Agreement, at the Closing, Buyer will execute and deliver to Seller an Assumption Agreement in substantially the form of Exhibit G hereto (the "Assumption Agreement") pursuant to which it will assume and agree to pay, perform and discharge in accordance with their terms the following, and only the following, debts, obligations and liabilities of Seller (the "Assumed Liabilities"): (a) all debts, liabilities and obligations of the Seller which are reflected in the Financial Statements to the extent the same remain unpaid at the Closing Date; (b) all debts, liabilities and obligations of the Seller arising or incurred in the ordinary course of business of the Seller between the date of the Financial Statements and the Closing Date; -7- (c) all debts, liabilities and obligations of the Seller which are to be reflected on the Closing Date Balance Sheet; (d) all debts, liabilities and obligations of the Seller arising under the Contracts and Leases; (e) all debts, liabilities and obligations of the Seller arising under the collective bargaining Agreement dated October 3, 2001, by and between the Seller and the Chauffeurs Teamsters and Helpers Local Union No. 238; (f) all debts, liabilities and obligations of the Seller arising under the Operating/Funding Agreement dated December 1, 2001, by and among, the Seller, the Subsidiary and NCB Development Corporation and all Participation Agreements entered into between the Subsidiary and NCB Development Corporation in connection therewith; (g) all debts, liabilities and obligations of the Seller to its employees with respect to vacation and sick leave, wellness benefits and paid time off accrued as of the Closing Date; (h) all debts, liabilities and obligations of the Seller arising under the Employee Benefit Plans and related policies and procedures identified on Schedule 4.16 hereto; and (i) all debts, liabilities and obligations of the Seller described on Schedule 2.2 hereto. Except for the Assumed Liabilities, Buyer will neither assume nor have any responsibility for any other obligations or any liabilities or indebtedness of Seller of any kind, whether fixed, contingent, ascertainable or unascertainable, including without limitation: (a) litigation, (b) liabilities of Seller for warranty claims or quality related claims or product liability claims relating to products sold by Seller prior to the Closing Date, except to the extent of the reserve for product returns accrued as a liability on the Closing Date Balance Sheet (which reserve shall be determined in a manner consistent with the reserve for product returns contained in the Financial Statements), (c) the Member Capital Accounts, or (d) liabilities of the Seller arising under the Severance Agreement dated January 16, 1988, as amended (the "Singerman Severance Agreement"), by and between the Seller and K. Jesse Singerman (individually a "Excluded Liability" and collectively, the "Excluded Liabilities"). Section 2.3. Transfer of Real Estate. Upon the terms and subject to the conditions contained in this Agreement, at the Closing Seller will convey, transfer, assign and deliver the Real Estate to Buyer by the Deed. Said Deed shall convey marketable title, subject only to: (a) such taxes as are not due and payable on the date of the delivery of such Deed; (b) non-monetary easements, restrictions and reservations of record as of the date hereof; -8- (c) Encumbrances and other exceptions to title as to which the Buyer waives its objections as provided for in Section 8.8; and (d) other Permitted Encumbrances. Section 2.4. Purchase Price; Payment. (a) For the sale, assignment, transfer and delivery to Buyer of the Assets, Buyer will provide consideration to the Seller in the form of (i) the assumption of the Assumed Liabilities, plus (ii) the payment of twenty-three million seventy thousand dollars ($23,070,000) (the "Cash Portion"), plus (iii) the "earn-out" provided for in Section 2.5, plus (iv) an amount equal to the Net Appraised Value (as hereinafter defined) of the Iowa City Assets. Within ten (10) days of the execution and delivery of this Agreement, the Buyer and the Seller shall each appoint their own expert appraiser who shall each have at least ten (10) years of experience in appraising the fair market value of commercial real estate in and around Iowa City, Iowa (individually, a "Qualified Appraiser"). The Qualified Appraisers so appointed shall each give his, her or its opinion in writing as to the fair market value of the Iowa City Assets as of the date of this Agreement, which opinion shall be delivered to the parties within twenty (20) days of their respective appointment. If the higher of the two appraisals does not exceed the lower appraisal by more than five percent (5%), then the amount of the two appraisals shall be averaged together to determine the fair market value of the Iowa City Assets. However, if the higher appraisal exceeds the lower appraisal by more than five percent (5%), then the two Qualified Appraisers shall, within ten (10) days of the receipt of the last appraisal, select a third Qualified Appraiser who shall be instructed to give his, her or its opinion in writing as to the fair market value of the Iowa City Assets as of the date of this Agreement, which opinion shall be delivered to the parties within twenty (20) days of his, her or its appointment. The fair market value of the Iowa City Assets determined by the two initial Qualified Appraisers which is closest to the fair market value of the Iowa City Assets as determined by the third Qualified Appraiser shall be averaged with the fair market value of the Iowa City Assets as determined by the third Qualified Appraiser to determine the fair market value of the Iowa City Assets. For purposes of this Agreement, the "Net Appraised Value" of the Iowa City Assets shall be the fair market value of the Iowa City Assets as determined through the foregoing process of appraisal (provided, however that such fair market value shall not be less than four million five hundred thousand and No/100 Dollars ($4,500,000.00) nor more than five million three hundred thousand and No/100 Dollars ($5,300,000.00)) reduced by the unpaid principal balance and accrued interest due and payable on the mortgages encumbering the Real Estate as of the Closing Date). (b) The purchase price provided for in Section 2.4(a) hereof shall be paid as follows: (i) the Cash Portion shall be paid by Buyer to Seller at the Closing by wire transfer of immediately available funds before 12:00 o'clock noon central standard time on the Closing Date to an account designated in writing by Seller; -9- (ii) the "Earn-Out" provided for in Section 2.5 hereof shall be paid as provided for therein; (iii) the Net Appraised Value of the Iowa City Assets shall be paid pursuant to the Seller's Promissory Note in the form attached hereto as Exhibit H (the "Promissory Note") which shall be executed by Buyer and delivered to Seller at the Closing; and (iv) the Escrow Deposit as provided for in Section 6.17. (c) At the Closing, Buyer shall prepay in full the entire unpaid principal balance and accrued interest due and payable on the mortgages encumbering the Real Estate. Section 2.5. Earn-out. (a) Buyer shall pay Seller an "earn-out" amount based upon operating margins attributable to the operation of the Business for the period commencing on the Closing Date and ending on the last day of the month closest to the first anniversary of the Closing Date (the "Earn-Out Period"), as follows: (b) Within ninety (90) days of the end of the Earn-Out Period, Buyer shall provide Seller (with appropriate supporting documentation) with its calculation of the "net sales" attributable to the Business for such period, as well as a calculation of the "operating margin" for the Business for such period. (c) For purposes of this Agreement, the "operating margin" for the Business with respect to the Earn-Out Period shall be calculated by dividing the earnings of the Business (calculated in accordance with GAAP) before interest, taxes, extraordinary items and any depreciation and/or amortization associated with the consummation of the transactions contemplated hereby for such period by the "net sales" attributable to the Business for such fiscal year. (d) The Buyer shall cause its auditors to calculate the "net sales" attributable to the Business for the Earn-Out Period in accordance with GAAP in a manner consistent with the calculation of the Seller's "net sales" as reflected on the Seller's audited financial statements at June 25, 2002. (e) The amount of the "earn-out" payable by Buyer to Seller shall be calculated by multiplying the sum of five hundred thousand and No/100 Dollars ($500,000.00) by the Percentage of Earn-Out set out below opposite the "Operating Margin" for the Business for the Earn-Out Period: Operating Margin Percentage of Earn-Out - ---------------- ---------------------- 3.00% or more but less than 3.50% 50% 3.50% or more but less than 3.75% 67% 3.75% or more but less than 4% 84% 4% or more 100% -10- (f) Such earn-out amount will be paid by Buyer to Seller in immediate available funds within thirty (30) days of the final determination of the amount of the "earn-out" payable by Buyer to Seller hereunder. In the event any such "earn-out" is not paid by such date, the "earn-out" shall accrue interest at the rate of eight percent (8%) per annum from such date, until the amount of such "earn-out" is paid in full. (g) In calculating "net sales" and the "operating margin" for the Business, in order to make a fair comparison, Buyer shall not include sales which may be reported as part of the Business but which were actually made by Buyer's other operating units or locations, nor shall Buyer exclude any sales which could have been included as part of the Business but for Buyer's decision to report them as sales of Buyer's other operating units or locations. (h) The determination of Buyer's auditors with respect to "net sales" and "operating margin" for the Business for the Earn-Out Period shall be subject to review and audit by the Seller and its Representatives. To facilitate such review and audit the Buyer and its Representatives shall make their books and records, including work papers, available for review and inspection by the Seller and its Representatives. All calculations of "net sales" and "operating margin" for the Business shall be made in good faith and shall include any sales which the Buyer has diverted from the Business to another operating unit or location of the Buyer or any of its Affiliates. Without limiting the generality of the foregoing, expenses incurred during the Earn-Out Period which could not reasonably be expected to proportionately increase the "net sales" of the Business prior to the end of the Earn-Out Period, shall be excluded from the calculation of the "operating margin" of the Business. (i) Upon determining the "net sales" and "operating margin" for the Business for the Earn-Out Period, the Buyer's auditors shall promptly deliver its determination thereof together with all necessary supporting documentation to the Seller. Within twenty (20) days after the Seller receives such items, the Seller shall notify Buyer in writing of its acceptance of such determination of the "net sales" and "operating margin" or its good faith claim that such items are not accurate, setting forth in reasonable detail the basis for such claim. If notice of disagreement is not given within such twenty (20) day period, then the "net sales" and "operating margin" as determined by the Buyer's auditors shall be final and binding on all parties and shall be used for determining the amount of the "earn-out" payable hereunder. If Buyer makes a claim of disagreement within such twenty (20) day period, Seller and Buyer shall use commercially reasonable efforts to resolve their dispute and agree upon the "net sales", "Operating Margin" and the amount of the "earn-out" payable hereunder. If agreement cannot be reached within fifteen (15) days of Buyer making its claim, Buyer and Seller shall jointly retain Deloitte & Touche (or, if Deloitte & Touche is unable to perform, an independent certified public accounting firm mutually acceptable to the Buyer and Seller) to resolve the dispute. Such accounting firm shall resolve such dispute within thirty (30) days of its appointment and its decision shall be final and binding on all parties. The fees and charges of such accounting firm shall be paid one-half by Buyer and one-half by Seller. -11- Section 2.6. Other Purchase Price Adjustments. (a) Following the Closing, Seller and Buyer shall give appropriate written notice to Seller's account debtors that payment of the Receivables is to be remitted to Buyer. Seller authorizes Buyer to endorse checks payable to Seller for purpose of collection of Receivables. Following the Closing, the Seller shall promptly deliver to Buyer any checks it receives in payment of the Receivables. Notwithstanding any provision of this Agreement to the contrary, the Seller agrees to purchase from the Buyer at the face amount thereof those Receivables which remain uncollected ninety (90) days after the Closing Date and which are payable by the current or former members of the Seller; provided, however, in no event shall the Seller be required to pay to the Buyer with respect to any account receivable from a current or former member of the Seller which exceeds the amount of the Cash Portion which the Seller estimates in good faith that it will distribute to such member following the consummation of the transactions contemplated hereby. It is the intent of the parties hereto that in accordance with the Seller's Bylaws, the Seller will offset such repurchased Receivables owed by the current or former members of Seller against the amounts payable by the Seller to each such members as a result of the consummation of the transactions contemplated hereby or otherwise. To facilitate the implementation of the provisions contained in this section, the Buyer agrees that as funds are received on or after the Closing Date by the Buyer from the current or former members of the Seller, such funds shall be applied to the oldest Receivables first unless otherwise designated by the members paying the same. (b) As soon as reasonably practicable following the Closing Date, the Seller shall prepare and cause the Accounting Firm to compile a consolidated balance sheet of the Seller and the Subsidiary as of the close of business on the day prior to the Closing Date (the "Closing Date Balance Sheet"). Such Closing Date Balance Sheet shall be prepared in accordance with GAAP and the assets and liabilities will be presented as though the transaction contemplated herein had not yet occurred. In connection with the preparation of the Closing Date Balance Sheet, the Seller's inventory shall be valued in a manner consistent with the valuation of the Seller's inventory in connection with the preparation of the Financial Statements. Buyer agrees to cooperate fully with Seller and the Accounting Firm and to provide Seller and the Accounting Firm with access to all the Books and Records of Seller for purposes of compiling the Closing Date Balance Sheet. The Buyer and its accountants may review the work papers used in the preparation of the Closing Date Balance Sheet and the Seller will make available to the Buyer's accountants all work papers or other documents and information as may be reasonably requested. As soon as possible after the Closing, but in no event later than one hundred twenty (120) days after the Closing Date, the Accounting Firm shall deliver the Closing Date Balance Sheet to the Buyer and the Seller. Within twenty (20) days after the Accounting Firm delivers the Closing Date Balance Sheet to the parties, the Buyer shall notify Seller in writing of its acceptance of the Closing Date Balance Sheet and the items set forth therein or its good faith claim that one or more items set forth on the Closing Date Balance Sheet are not accurate, -12- setting forth in reasonable the detail the basis for such claim. If notice of disagreement is not given within such twenty (20) day period, then the Closing Date Balance Sheet and the items set forth therein shall be final and binding on all parties and shall be used for determining the liabilities assumed by the Buyer and the adjustment in the Purchase Price hereinafter provided for. If Buyer makes a claim of disagreement within such twenty (20) day period, Seller and Buyer shall use commercially reasonable efforts to resolve their dispute and agree upon the content of the Closing Date Balance Sheet. If agreement cannot be reached within fifteen (15) days of Buyer making its claim, Buyer and Seller shall jointly retain Deloitte & Touche (or, if Deloitte & Touche is unable to perform, an independent certified public accounting firm mutually acceptable to the Buyer and Seller) to resolve the dispute. Such accounting firm shall resolve such dispute within thirty (30) days of its appointment and its decision shall be final and binding on all parties. The fees and charges of such accounting firm shall be paid one-half by Buyer and one-half by Seller. In the event the indebtedness of the Seller for borrowed money, including capitalized leases, reflected on the Closing Date Balance Sheet as finally accepted hereunder exceed Five Million Two Hundred Thirty-Two Thousand Dollars ($5,232,000), the Seller shall promptly pay to the Buyer in immediately available funds an amount equal to the excess. To ensure that the Seller has sufficient funds on hand to repay any such excess amount, the Seller agrees that it shall retain in its possession and not distribute to its members out of the Cash Portion at least Two Hundred Fifty Thousand Dollars ($250,000) for one hundred twenty (120) days after the Closing Date or, if earlier, the date the Closing Date Balance Sheet has been finalized as provided for herein. (c) With respect to the Real Estate, water and sewer use charges and real estate taxes which are not paid prior to the Closing Date shall be accrued as liabilities on the Closing Date Balance Sheet and assumed and paid by the Buyer as part of the Assumed Liabilities. Section 2.7. Closing Costs; Transfer Taxes and Fees. All costs and expenses of the preparation of the Closing Date Balance Sheet shall be split equally between the Buyer and the Seller. With respect to the Real Estate, documentary stamps and/or transfer stamps are to be paid by Seller. The fees and costs of recording or filing the Deed and all applicable conveyancing instruments shall be borne by Buyer. Any further documentary and transfer taxes and any sales, use or other taxes imposed by reason of the transfers of Assets provided by this Agreement and any related deficiency, interest or penalty will be borne solely by Buyer. Except as otherwise specified in this Agreement, each party to this Agreement will pay its own legal, accounting, out-of-pocket and other expenses incident to this Agreement and to any action taken by such party in preparation for carrying this Agreement into effect. Without limiting the generality of the foregoing, Seller shall be responsible for all fees and expenses of The Food Partners. Each party shall bear the expense of its own Qualified Appraisal appointed pursuant to Section 2.4(a) and the parties shall evenly split the cost of the third Qualified Appraiser provided for therein. Section 2.8. Purchase Price Allocation. The purchase price will be allocated among the Assets as set forth on Exhibit B, which allocation shall be within classes or categories as provided in Section 1060 of the Code. Each of 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 it 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. -13- ARTICLE III CLOSING Section 3.1. Closing. The closing of the transactions contemplated by this Agreement (the "Closing") will be at 10:00 a.m. local time on the Closing Date at the offices of Moss & Barnett, a Professional Association, 4800 Wells Fargo Center, 90 South Seventh Street, Minneapolis, Minnesota 55402, or such other time or place as the parties may mutually determine, and will be effective as of the opening of business on the Closing Date. Section 3.2. Deliveries and Actions Taken at Closing. (a) Deliveries by Seller. Seller will, at Closing, deliver to Buyer: (i) good and sufficient bills of sale, assignments and other instruments of transfer to convey to Buyer good and merchantable title to the Assets, free and clear of all Encumbrances of any kind, except the Permitted Encumbrances; (ii) the Deed and a Declaration of Value and Groundwater Hazard Statement form appropriately signed; (iii) instruments evidencing the release of all Encumbrances on the Assets, other than Permitted Encumbrances; (iv) any third party consents listed on Schedules 4.7 and/or 4.22 hereto which the Seller may have obtained on or before the Closing Date; (v) a copy of Seller's Articles of Incorporation certified by the Secretary of State of the State of Ohio and dated within 20 days prior to the Closing Date; (vi) certificates of good standing of Seller issued by the Secretary of State of the States of Ohio, Iowa and Minnesota and of each other jurisdiction in which Seller is authorized to do business, in each case, dated within 20 days prior to the Closing Date; (vii) a copy of Seller's Bylaws certified by the Secretary of Seller and dated as of the Closing Date; (viii) copies of the resolutions and other requisite cooperative actions of Seller authorizing the execution and delivery of this Agreement and the other documents and instruments to be executed and delivered by Seller pursuant to this Agreement, and the consummation by Seller of the transactions contemplated such agreements, which copies shall have been certified by the Secretary of Seller and dated as of the Closing Date; -14- (ix) an affidavit substantially in the form customarily required by title insurance companies operating in the State of Iowa concerning parties in possession and mechanic's liens (excluding liens arising from work performed by Buyer or its contractors) for the purpose of permitting such title insurance company to issue an owner's title policy without the standard exceptions for parties in possession and mechanic's liens; (x) a certificate confirming that the Seller is not a "foreign person" for purposes of Section 1445 of the Code; and (xi) with respect to the Subsidiary: (1) good and sufficient bills of sale, assignments and other instruments of transfer to convey to Buyer good and merchantable title to Subsidiary's assets, free and clear of all Encumbrances of any kind, except the Permitted Encumbrances; (2) a copy of Subsidiary's Articles of Incorporation certified by the Secretary of State of the State of Iowa and dated within 20 days prior to the Closing Date; (3) certificates of good standing of Subsidiary issued by the Secretary of State of the State of Iowa and of each jurisdiction in which Subsidiary is authorized to do business, in each case, dated within 20 days prior to the Closing Date; (4) a copy of Subsidiary's Bylaws certified by the Secretary of the Subsidiary and dated as of the Closing Date; and (5) copies of the resolutions and other requisite corporate actions of Subsidiary authorizing the execution and delivery of the documents and instruments to be executed and delivered pursuant to this Agreement, and the consummation by Subsidiary of the transactions contemplated such agreements, which copies shall have been certified by the Secretary of Subsidiary and dated as of the Closing Date; and (xii) such other documents and instruments, including the certificate referred to in Section 8.2, as Buyer or its counsel reasonably deems necessary to consummate the transactions contemplated by this Agreement. (b) Deliveries by Buyer. Buyer will, at Closing, deliver to Seller: (i) a wire transfer of immediately available funds in the amount of the Cash Portion; (ii) a copy of Buyer's Certificate of Incorporation certified by the Secretary of State of the State of Delaware and dated within 20 days prior to the Closing Date; (iii) certificates of good standing of Buyer issued by the Secretary of State of the State of Delaware and each other jurisdiction in which Buyer is authorized to do business, in each case, dated within 20 days prior to the Closing Date; (iv) a copy of Buyer's Bylaws, certified by the Secretary of Buyer and dated the Closing Date; (v) an executed copy of the Assumption Agreement; -15- (vi) an executed copy of the Promissory Note; (vii) copies of the resolutions and other requisite corporate actions of Buyer authorizing the execution and delivery of this Agreement and the other documents and instruments to be executed and delivered by Buyer pursuant to this Agreement, and the consummation by Buyer of the transactions contemplated such agreements, which copies shall have been certified by the Secretary of Buyer and dated as of the Closing Date; and (viii) such other documents and instruments, including the certificate referred to in Section 7.1, as Seller or its counsel reasonably deems necessary to consummate the transactions contemplated hereby. (c) Form of Instruments. To the extent that a form of any document to be delivered under this Agreement is not attached as an Exhibit, such documents will be in form and substance, and will be executed and delivered in a manner, reasonably satisfactory to Buyer and Seller. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER Seller represents and warrants to Buyer as follows: Section 4.1. Organization and Qualification of Seller. Seller is a cooperative duly organized, validly existing and in good standing under the laws of the State of Ohio. Seller has full power and authority to conduct the Business as it is presently being conducted by Seller and to own and lease its properties and assets. Seller is duly qualified as a cooperative to do business, and is in good standing in each jurisdiction in which the character or location of the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification necessary, except where the failure to be so duly qualified or licensed would not have a Material Adverse Effect on Seller. Set forth on Schedule 4.1 is each jurisdiction in which Seller is qualified or licensed to do business as a foreign cooperative. True and complete copies of the Articles of Incorporation and Bylaws of Seller, and all amendments to those Articles of Incorporation and Bylaws have previously been provided to counsel for Buyer. Section 4.2. Authorization. Seller has all requisite cooperative power and authority, and has taken or will take on or before the Closing Date all cooperative action necessary, to execute and deliver this Agreement, to consummate the transactions contemplated hereby and to perform its obligations under this Agreement. The execution and delivery of this Agreement by Seller and the consummation by Seller of the transactions contemplated by this Agreement have been duly approved by the board of directors of Seller and, on or before the Closing Date, will be duly approved by the members of Seller. Except for the approval by the Seller's members of the execution and delivery of this Agreement and consummation of the transactions contemplated hereby, no other cooperative proceedings on the part of Seller are necessary to authorize this Agreement, or the other agreements, instruments, certificates and documents to be delivered by -16- Seller under this Agreement or the transactions contemplated by this Agreement. Subject to the Seller's members approving the execution and delivery of this Agreement and the other agreements, instruments, certificates and documents to be delivered by Seller, this Agreement and the other agreements, instruments, certificates and documents to be delivered by Seller have been (or, if to be executed or delivered after the date of this Agreement, will be) duly executed and delivered by Seller and are (or, when executed will be) legal, valid and binding obligations of Seller enforceable against Seller in accordance with their terms. Section 4.3. Assets. (a) Schedule 4.3 contains a complete list of all Fixtures and Equipment which have an individual net book value as of June 25, 2002, in excess of One Thousand and No/100 Dollars ($1,000.00). (b) Except as set forth in Schedule 4.3, Seller has, and upon the consummation of the transactions contemplated by this Agreement, Buyer will acquire from Seller, good and marketable title to or a valid leasehold interest in all of the Assets, subject to no Encumbrance except for Permitted Encumbrances. (c) Except as set forth in Schedule 4.3, the Assets are in good working order, repair and condition (ordinary wear and tear excepted), have in all material respects been maintained in accordance with normal industry practice, are suitable for the purposes for which they are presently used. (d) The Assets together with the real and personal property leased by the Seller pursuant to the Leases, the Excluded Assets and Nontransferable Assets include all the assets necessary to operate the Business as currently conducted. Section 4.4. Facilities; Leases. Schedule 4.4 contains a complete list of all Leases which, by their terms, require aggregate payment by any party thereto in excess of $25,000 or which are expected to expire automatically or with notice more than one (1) year after the Closing Date (the "Material Leases"), true and correct copies of which have previously been delivered or made available to Buyer. All such Material Leases are valid, binding and enforceable in accordance with their terms and are in full force and effect. No event of default has occurred which (whether with or without notice, lapse of time or both or the happening or occurrence of any other event) would constitute a default under any such Material Lease on the part of Seller. Seller has no knowledge of the occurrence of any event of default which (whether with or without notice, lapse of time or both or the happening or occurrence of any other event) would constitute a default under any such Material Lease by any other party. Seller enjoys peaceful and undisturbed possession of all the leased real property covered by such Material Leases, and Seller has in all material respects performed all the obligations with respect thereto required through the date of this Agreement to be performed by it. -17- Section 4.5. Contracts and Commitments. (a) Schedule 4.5 sets forth a true and correct list of each Contract and a summary of any oral Contract in each case which, by their terms, require aggregate payments by any party thereto in excess of $25,000 or which are expected to expire automatically or with notice more than one (1) year after the Closing Date (collectively the "Material Contracts"). True and complete copies of each Material Contract, including all related amendments, waivers and modifications, or where they are oral, true and complete written summaries, have been delivered or made available to Buyer by Seller. All such Material Contracts are valid, binding and enforceable in accordance with their terms and are in full force and effect. (b) Except as set forth on Schedule 4.5, Seller has fulfilled all obligations required pursuant to each Material Contract to have been performed by Seller on or before the date hereof, except where such non-fulfillment, individually or in the aggregate, would not have a Material Adverse Effect on the Seller, and Seller will be able to fulfill, when due, all of its obligations under the Material Contracts that are required to be performed after the date of this Agreement and prior to the Closing Date. (c) Except as set forth on Schedule 4.5, there has not occurred any default under any of the Material Contracts on the part of Seller or, to the knowledge of Seller, any other party to the Material Contracts, except such defaults which, individually or in the aggregate, would not have a Material Adverse Effect on the Seller, nor has Seller received notice of default under any of the Material Contracts from any other party to the Material Contracts or sent notice of default under any of the Material Contracts to any other party to the Material Contracts. No event has occurred that, with the giving of notice or the lapse of time, or both, would constitute a default on the part of Seller under any of the Material Contracts, nor to Seller's knowledge has any event occurred which with the giving of notice or the lapse of time, or both, would constitute a default on the part of any other party to any of the Material Contracts. Section 4.6. Permits. Seller has all Permits necessary for the conduct of, or relating to the operation of, the Business as now being conducted and all such Permits are listed on Schedule 4.6.. All Permits of Seller are valid and in full force and effect, except as disclosed on Schedule 4.6 or for such Permits, the absence of which, individually or in the aggregate, would not have a Material Adverse Effect on the Seller. There is no action now pending nor, to the knowledge of Seller threatened, by or before any governmental or regulatory authority to revoke, cancel, rescind, modify, or refuse to renew in the ordinary course of business any of such Permits. No notice to, declaration, filing or registration with, or Permit from, any domestic or foreign governmental or regulatory body or authority, or any other Person, is required to be made or obtained by Seller in connection with the execution, delivery or performance of this Agreement by Seller and the consummation of the transactions contemplated by this Agreement, except as set forth on Schedules 4.6, 4.7 or 4.22 and except for such notices, declarations, filings and registrations the absence of which, individually or in the aggregate, would not have a Material Adverse Effect on the Seller. -18- Section 4.7. No Conflict or Violation. Except as set forth on Schedule 4.7, none of the execution, delivery or performance of this Agreement, the consummation of the transactions contemplated by this Agreement, or compliance by Seller with any of the provisions of this Agreement, will: (a) violate or conflict with any provision of the Articles of Incorporation or Bylaws of Seller; (b) violate, conflict with, or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, or result in the creation of any Encumbrance upon any of the Assets under, any of the terms, conditions or provisions of any Material Contract (including, any indebtedness, note, bond, indenture, security or pledge agreement, commitment or license), Material Lease, or other instrument or obligation (i) to which Seller is a party or (ii) by which the Assets are bound; (c) violate any statute, rule, regulation, ordinance, code, order, judgment, ruling, writ, injunction, decree or award; or (d) impose any Encumbrance on the Assets or the Business; except in each case where such violation, conflict, breach or default would not have a Material Adverse Effect on Seller. Section 4.8. Financial Statements. Seller has previously delivered to Buyer the Financial Statements. Except as disclosed on Schedule 4.8, the Financial Statements (a) are in all respects in accordance with the Books and Records of Seller, (b) have been prepared in accordance with GAAP consistently applied throughout the periods covered thereby, except for the absence of footnote disclosure for any interim statements, and (c) fairly and accurately present the assets, liabilities (including all reserves) and financial position of the Business as of their respective dates and the results of operations for the periods covered thereby, except in the case of the interim financial statements for normal year end adjustments. Except as disclosed on Schedule 4.8, at the date of the Financial Statements, there were no material liabilities of Seller which, in accordance with GAAP, should have been shown or reflected in the Financial Statements or the related notes, which are not shown or reflected in the Financial Statements or the related notes. Section 4.9. Absence of Certain Changes. Except as disclosed in Schedule 4.9, since June 25, 2002, Seller has conducted the Business only in the ordinary course consistent with past practice and there has not occurred: (a) any Material Adverse Change with respect to Seller; (b) any damage to, destruction or loss of any asset of Seller (whether or not covered by insurance) that would in the aggregate require expenditures in excess of $10,000 to repair or replace; (c) any change by Seller in its accounting methods, principles or practices except as required by any change in GAAP; (d) any revaluation by Seller of any of its assets, including any writing down the value of any inventory or writing off any notes or accounts receivable, in any case other than in the ordinary course of business; -19- (e) any new Material Contracts or Material Leases executed by Seller; (f) any sale, disposition of or Encumbrance upon any assets of Seller, except: (i) sales of Inventory in the ordinary course of business and in a manner consistent with past practice, which Inventory has been replaced, (ii) dispositions of obsolete or worthless assets; which, in the case of Fixtures and Equipment, have been replaced by new Fixtures and Equipment, (iii) the collection of accounts receivable, and the use and utilization of the cash proceeds thereof in the ordinary course of business; (g) any cancellation of any debts owed to or held by Seller or agreement to guaranty any obligations of any third party, in any case other than in the ordinary course of business; (h) any execution or implementation of any employment, bonus, deferred compensation, severance or similar arrangement or agreement (or amendment of any such agreement), or any increase in employee welfare or retirement benefits or salary of any employee, in each case other than in the ordinary course of business; (i) any labor dispute or any activity or proceeding by a labor union or labor representative to organize any employees of Seller, or any lockouts, strikes, slowdowns, picketing, work stoppages or threats thereof by or with respect to such employees; (j) any termination or notice of termination of any Material Contract or Material Lease; (k) any failure to replenish Seller's inventories and supplies in the normal and customary manner, any failure to pay any uncontested obligations to Seller's creditors or to collect any material debt or obligations owed to Seller, or any change in Seller's selling, pricing or advertising practices, in each case other than in the ordinary course of business; (l) any commitment for capital expenditures in excess of $10,000; (m) any material adverse change in the amount, aging or collectibility of Seller's accounts receivable or other debts due to Seller or the allowances with respect thereto or in Seller's accounts payable from that reflected on the Financial Statements; (n) the incurrence of any indebtedness for borrowed money other than for working capital purposes and for purposes of building out, equipping and moving into the Seller's new facilities in Mounds View, Minnesota; -20- (o) any material increase in accounts payable other than such increases resulting from (i) normal seasonal increases in the purchases of inventory, and (ii) purchases of substantial inventory in connection with the move into the Seller's new facilities in Mounds View, Minnesota; or (p) any commitment or agreement to undertake any of the foregoing. Section 4.10. Books and Records. Seller has made and kept (and given Buyer access to) books and records and accounts, which, in reasonable detail, accurately and fairly reflect the activities of the Business in all material respects. The minute books of Seller previously made available to Buyer accurately and adequately reflect in all material respects all actions previously taken at meetings or by written consent by the members, board of directors and committees of the board of directors, in their capacities as such, of Seller. Section 4.11. Litigation. Except as disclosed in Schedule 4.11, there is no action, order, writ, injunction, judgment or decree outstanding or any claim, suit, litigation, proceeding, labor dispute, arbitration action, governmental audit or investigation (collectively, "Actions") pending, or to the Seller's knowledge, threatened or anticipated (a) against, related to or affecting (i) Seller, the Business, the Assets, or (ii) any officers, directors or members of Seller, as such, (b) seeking to delay, limit or enjoin the transactions contemplated by this Agreement, (c) that involves the risk of criminal liability, or (d) in which Seller is a plaintiff, including any derivative suits brought by or on behalf of Seller. Seller is not in default with respect to, or subject to, any judgment, order, writ, injunction or decree of any court or governmental agency, and there are no unsatisfied judgments against Seller, the Business or the Assets. Schedule 4.11 contains a brief summary of all Actions involving, or related to, the Seller or the Business in the past 18 months including, asbestos claims or discrimination claims (including sex, age, race, national origin, handicap or veteran status discrimination claims), but excluding routine worker's compensation claims and routine union grievances. Section 4.12. Undisclosed Liabilities. Except as is disclosed in Schedule 4.12, Seller has no liabilities (absolute, accrued, contingent or otherwise), except liabilities (a) reflected on the face of the Financial Statements (rather than in the notes), (b) incurred since the date of the Financial Statements, in the ordinary course of business consistent with past practice (other than any liabilities resulting from, arising out of, relating to, in the nature of, or caused by any breach of contract, breach of warranty, tort, infringement or violation of law), (c) incurred in connection with this Agreement, (d) arising under the Contracts and Leases, and (e) arising under the Employee Benefit Plans of Seller. Section 4.13. Compliance with Law. Except as is disclosed in Schedule 4.13, Seller, in the conduct of the Business, has not violated in any material respect and is in material compliance with all laws, statutes, ordinances, regulations, rules and orders of any foreign, federal, state or local government and any other governmental department or agency, and any judgment, decision, decree or order of any court or governmental agency, department or authority, including without limitation, Environmental and Safety Regulations (defined below), relating to the Assets, the Real Estate, or the Business and all Federal, state and local laws, rules and ordinances applicable to the packaging, labeling, storage and sale of food and beverage products (collectively, "Laws"), except in each case where such violation would not have a Material Adverse Effect on Seller. Seller has not received any notice to the effect that, or otherwise been advised that, it is not in compliance with any Laws, and Seller has no reason to anticipate that any existing circumstances are likely to result in violations of any Laws. -21- Section 4.14. Proprietary Rights. Schedule 4.14 lists (a) each patent, trademark, service mark, trade name, assumed name, brand names, fictitious names, registered copyright, and any other material intellectual property right owned by Seller, (b) all licenses to or from third Persons with respect to any of the foregoing, and (c) any applications to register or registrations of any of the foregoing (collectively, the "Proprietary Rights"); provided, however, that Schedule 4.14 need not contain a listing of software licenses held by the Seller or information with respect to the Co-op Private Label. Seller has provided or made available to Buyer correct and complete copies of all registrations, licenses, agreements, and other written documentation related to, or evidencing Seller's ownership or right to use, the Proprietary Rights. Except as set forth in Schedule 4.14: (i) to the best of its knowledge, Seller possesses all right, title, and interest in and to, or a valid and enforceable license to manufacture, use, and sell, as the case may be, the Intellectual Property, free and clear of any Encumbrance other than the Permitted Encumbrances; (ii) the legality, validity, enforceability, ownership, or use of the Intellectual Property by Seller has not been, nor to Seller's knowledge is currently being challenged, interfered with, or infringed upon, and to Seller's knowledge, it is not subject to any such challenge; (iii) Seller has taken all reasonably necessary action to maintain and protect its rights in the Intellectual Property and will continue to maintain those rights prior to the Closing so as not to adversely affect the validity or enforcement of the Seller's rights relating to the Intellectual Property; (iv) to the best of Seller's knowledge, Seller's rights in the Intellectual Property have not, and Seller has not, interfered with, infringed upon, misappropriated or otherwise violated any intellectual property rights of any third party; and (v) assuming the consents identified in Schedules 4.6, 4.7 and 4.22 and Section 8.6 are obtained, the Seller's rights in the Intellectual Property will be owned or available for use by Buyer from and after the Closing on identical terms and conditions as are applicable to Seller prior to the Closing, and the transactions contemplated by this Agreement will not give rise to any Encumbrance on Buyer's rights, title and interest in and to, or the valid and enforceable license to use, as the case may be, the Intellectual Property transferred at the Closing. Section 4.15. Employees. Schedule 4.15 attached to this Agreement lists, as of the date of such schedule, which is not more than thirty (30) days prior to the date hereof, all Persons employed by Seller, all Persons employed by others who are assigned to perform services for Seller on a full-time or part-time basis, and all leased drivers providing services to Seller as independent contractors, in each case as of the date hereof. Schedule 4.15 states, with respect to such Persons as of the date of such Schedule, which is not more than thirty (30) days prior to the date hereof, their current hourly rates of compensation, base salaries or other basis for and amount of compensation, their 2001 compensation, their accrued vacation and sick days and the commencement date of their employment. Except as set forth on Schedule 4.15, to Seller's knowledge, no key employee or group of employees (or independent contractors) have any plans to terminate employment with Seller, except in connection with the acceptance of employment with Buyer. Except as set forth on Schedule 4.15, Seller knows of no current employees of Seller who do not intend to accept an offer of employment from Buyer. There are no employment or severance or termination agreements, whether written or oral, accruing to the benefit of any director, officer, employee or independent contractor of Seller, except for the Singerman Severance Agreement and the agreements with independent contractors and others disclosed on Schedule 4.15 to this Agreement. -22- Section 4.16. Employee Benefit Plans. (a) Except as set forth on Schedule 4.16, Seller does not, directly or through any trade or business which together with Seller would be treated as a "single employer" within the meaning of Code Section 414(b), (c), (m) or (o) ("Controlled Group Member"), maintain or contribute (or have an obligation to contribute) to (i) any "employee benefit plan" (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended, and the regulations thereunder ("ERISA"), whether a single employer, a multiple employer or a multiemployer plan, for the benefit of employees or former employees, or (ii) any other plan, policy, program, practice or arrangement providing compensation or benefits under which Seller or a Controlled Group Member has any obligation or liability to any employee or former employee (or any dependent or other beneficiary thereof) including, without limitation, incentive, bonus, deferred compensation, vacation, holiday, medical, severance, disability, death, stock purchase or other similar benefit, whether written or unwritten (individually, an "Employee Benefit Plan" and collectively, the "Employee Benefit Plans"). True and complete copies of all written Employee Benefit Plans have been delivered or made available to Buyer or its counsel. (b) Each Employee Benefit Plan maintained by Seller or any Controlled Group Member (and each related trust, custodial account or insurance contract) complies in all material respects in form and in operation with all applicable governmental requirements, including ERISA and the Code, and all contributions due under each such plan have been or will be made by the date such contribution is or was required to be made under the terms of the plan or applicable law. (c) No charge, complaint, Action, claim or demand with respect to the administration or investment of the assets of any Employee Benefit Plan of Seller or any Controlled Group Member (other than routine claims for benefits) is pending or, to Seller's knowledge, threatened, and to the knowledge of Seller, no facts exist that could form the basis for any such charge, complaint, action, suit, proceeding, hearing, investigation, claim or demand. (d) Except as set forth on Schedule 4.16, Seller and its Controlled Group Members (i) have never contributed to, or been under any obligation to contribute to, any multiemployer plan (as defined in Section 3(37) of ERISA) and (ii) are not liable, directly or indirectly, with respect to any such plan for a complete or partial withdrawal (within the meaning of Title IV of ERISA) or due to the termination or reorganization of such a plan. -23- (e) Except as set forth on Schedule 4.16, Seller and its Controlled Group Members have never maintained or contributed, or had an obligation to contribute, to a defined benefit plan subject to Title IV of ERISA. (f) Except as set forth on Schedule 4.16, all employee benefits required to be paid or provided pursuant to any Employee Benefit Plan now or formerly in effect with respect to employees or former employees of Seller have been paid or provided (or adequate provision has been made to pay or provide the same, and the same will be paid or provided in full when due). (g) Except for K. Jesse Singerman and as set forth on Schedule 4.16, no employee of Seller is entitled to claim or receive severance pay or benefits from Seller. Section 4.17. Labor Relations. (a) Seller has complied in all material respects with all applicable governmental requirements pertaining to the employment of labor, including those relating to wages, hours, collective bargaining, employment discrimination, sexual harassment, worker's compensation, and the payment of or withholding of taxes and there are no actions, suits, charges, complaints, proceedings, investigations or audits pending or to the knowledge of Seller threatened against Seller in connection therewith. Except as set forth on Schedule 4.17, there are no collective bargaining agreements relating to Seller's relationship with any employee. Except as set forth on Schedule 4.17, Seller has not recognized any labor organization, nor has any such organization been certified, as the exclusive bargaining agent of any employees of Seller. Except as set forth on Schedule 4.17, there has been no demand on behalf of any labor organization to represent any employees of Seller and Seller has no knowledge of any present efforts of any labor organization for authorization to represent any employees of Seller. Except for periodic grievances filed by the Seller's union employees in the ordinary course of business, Seller currently has good relations with its employees and there are no strikes, work stoppages or labor disputes pending or to Seller's knowledge threatened against Seller. (b) To Seller's knowledge, no officer or 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 information or which restricts such officer or employee from engaging in competitive activities or solicitation of customers. Section 4.18. Environmental, Health, and Safety. (a) Except as is disclosed in Schedule 4.18, at all times prior to the Closing, Seller has complied and at Closing will be in compliance, in all material respects, with all Environmental and Safety Requirements, and Seller has not received any notice, report, or information (including information that litigation, investigation or administrative or Action of any kind are pending or threatened) regarding any liabilities (whether accrued, absolute, contingent, unliquidated, or otherwise), or any corrective, investigatory, or remedial obligations, arising under Environmental and Safety Requirements relating to the Business or the use of any of the Assets. For purposes of this Agreement, -24- "Environmental and Safety Requirements" means all present governmental requirements and all contractual obligations of Seller relating to the discharge of air pollutants, water pollutants, or process waste water or petroleum products or otherwise relating to health, safety, the environmental or hazardous substances, including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, the Occupational Safety and Health Act of 1970, as amended, the Federal Water Pollution Control Act, as amended, the Federal Resource Conservation and Recovery Act, as amended, the Federal Clean Water Act, as amended, the Toxic Substances Control Act, as amended, the Federal Clean Air Act, as amended, the Superfund Amendments and Reauthorization Act, as amended, and any and all other comparable state or local laws relating to public health and safety or work health and safety. (b) To the Seller's knowledge, no Hazardous Substances have been or are currently located at, in, or under or about either the Assets or any other property currently or previously owned or operated by Seller in a manner which: (i) violates any applicable Environmental and Safety Requirements, or (ii) requires response, remedial, corrective action or cleanup of any kind under any applicable Environmental and Safety Requirements. For purposes of this Agreement, "Hazardous Substances" has the meaning set forth in Section 101 (14) of the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, and will also expressly include petroleum, crude oil and any fraction thereof. Section 4.19. Tax Matters. (a) Filing of Tax Returns. Except as disclosed on Schedule 4.19, Seller (and any affiliated group of which Seller is now or has been a member, if any) has timely filed with the appropriate taxing authorities all returns (including without limitation information returns and other material information) in respect of Taxes required to be filed through the date hereof (or timely extensions to file such returns) and will timely file any such returns (or extensions) required to be filed on or prior to the Closing Date. The returns and other information filed are complete and accurate in all material respects. (b) Payment of Taxes. Except as disclosed on Schedule 4.19, all Taxes payable by Seller, in respect of periods beginning before the Closing Date, have been timely paid, or will be timely paid, or an adequate reserve has been established for such, as set forth in the Seller's Books and Records, and as of the date hereof, Seller has no material liability for Taxes in excess of the amounts so paid or reserves so established. Buyer shall have a dollar-for-dollar offset against the principal balance of the Promissory Note for that part of the liability disclosed in Schedule 4.19 paid by Buyer which exceeds $32,000. (c) Audits, Investigations or Claims. Except as disclosed on Schedule 4.19, There are no pending or, to Seller's knowledge, threatened, audits, investigations, claims or other Actions for or relating to any material additional liability of Seller in respect of Taxes, and there are no matters under discussion between Seller and any governmental authorities with respect to Taxes. There are no tax liens on any of the Assets, except for liens for current taxes not yet due and payable. -25- Section 4.20. Insurance. Schedule 4.20 contains a complete and accurate list of all policies or binders of fire, liability, worker's compensation, product liability and other forms of insurance maintained by Seller on the Business or the Assets. Such insurance provides, and during such period provided, coverage to the extent and in the manner as may be required by law and by any and all Contracts and Leases to which Seller is a party. Seller is not in default under any of such policies or binders. All such policies and binders are in full force and effect on the date of this Agreement. Section 4.21. Inventory. (a) Seller provided Buyer with access to a list of Inventory which is true and complete as of the date of such list. There have been no changes in the Inventory from that disclosed in such list between the date thereof and the date hereof except (i) normal amounts of Inventory which have become unmerchantable due to approaching or passing guaranty date(s), normal amounts of Inventory damaged while in Seller's possession or in transit, normal amounts of Inventory containing hidden damage, normal amounts of Inventory which have spoiled and normal amounts of Inventory otherwise salable which have been discontinued, (ii) changes resulting from purchases in normal amounts in the ordinary course of business, (iii) sales of products in the ordinary course of business, (iv) sales of products in bulk which have been fully disclosed to Buyer in writing prior to the execution hereof, (v) substantial increases in the level of Inventory in connection with the initial stocking of the Seller's new facility in Mounds View, Minnesota, (vi) other inventory adjustments in the ordinary course of business; and (vii) as set forth in Schedule 4.21. (b) No product liability claims are pending or, to Seller's knowledge, threatened against Seller or in respect of goods sold by it. (c) The Inventory reflected on Seller's balance sheet as of June 25, 2002 consists only of items of quality and quantity fully usable and salable in the ordinary course of the Business, except for any normal amounts of Inventory which have become unmerchantable due to approaching or passing guaranty date(s), normal amounts of Inventory damaged while in Seller's possession or in transit, normal amounts of Inventory containing hidden damage, normal amounts of Inventory which have spoiled, normal amounts of Inventory otherwise salable which have been discontinued, or as set forth on Schedule 4.21 (collectively, the "Unmerchantable Inventory"). To the best of Seller's knowledge, the Seller has included an adequate reserve in its balance sheet as of June 25, 2002, for such Unmerchantable Inventory. Except as set forth in Schedule 4.21, the present quantities of all Inventory are reasonable in the present circumstances of the Business. (d) For purposes of this Section 4.21, all references to "normal amounts of Inventory" shall mean amounts which are consistent with Seller's historical experience. -26- Section 4.22. Governmental and Other Third-Party Consents. Except as set forth on Schedules 4.6, 4.7 and/or 4.22: (a) no consent or approval of, notice to, or filing with any governmental authority is required to be made by Seller to permit Seller to sell the Assets to Buyer except such consents, the absence of which, individually or in the aggregate, would not have a Material Adverse Effect on the Seller; and (b) no consent of or notice to any Person is required for the assignment of any Material Contract or Material Lease or transfer of any other Asset to Buyer. Section 4.23. Brokers. Except as set forth on Schedule 4.23, no Person will be entitled to any brokerage commissions, finder's fees or similar compensation arising out of or due to any act of Seller in connection with the transactions contemplated by this Agreement. Section 4.24. Affiliate Transactions. Except (i) as set forth on Schedule 4.24, (ii) for the sale of goods by the Seller to its members and employees in the ordinary course of business, and (iii) or one or more of the Seller's directors being Representatives of one or more members of the Seller, (a) there are no contracts, agreements, arrangements or transaction between Seller and any Affiliate of Seller, and (b) no director, officer, shareholder or, to Seller's knowledge, employee of Seller is (or is a director, officer, employee, Representative or stockholder (excluding a less than 1% shareholder of a publicly held corporation) of) a competitor, supplier, customer or lessor or lessee of Seller. Section 4.25. Customer Goods. Seller is not in possession or control of any goods or property owned by any of its customers for use in connection with the Business. Section 4.26. Certain Indebtedness. Except as is disclosed in Schedule 4.26, Seller is not indebted to any officer, director, stockholder or employee of Seller, except for amounts due as normal salaries, wages, benefits or reimbursement of ordinary business expenses. No officer, director, stockholder or employee of Seller is now, or on the Closing Date will be, indebted to Seller, except for (i) ordinary business expense advances due from employees of Seller, and (ii) amounts owed to the Seller by its employees for inventory purchased by such employees in the ordinary course of business. Section 4.27. Customers and Suppliers. Except as is disclosed in Schedule 4.27, to Seller's knowledge, no customer, supplier or other Person with a material business relationship with Seller has any intention to cease or substantially reduce the use or supply of products, goods or services of or to the Business or return any products or goods of the Business, whether as a result of the Closing or otherwise. Section 4.28. Service Contracts and Warranties. Seller has provided or made available to Buyer complete and correct copies of all service Contracts pursuant to which services are provided by Seller to a third Person, including copies of the standard terms and conditions of all product warranties and material service or maintenance Contracts granted or entered into by Seller. To the knowledge of Seller, each product produced, sold, leased or delivered by Seller has been in conformity with all material contractual commitments and in all material respects with all express warranties given by Seller, and to -27- Seller's knowledge, Seller has no liability (and to the knowledge of Seller, there is no basis for any Action for breach of warranty or for replacement or return of Seller's products) or other damages to Persons or property in connection therewith. No product manufactured, sold, leased, or delivered by Seller is subject to any guaranty, warranty, or other indemnity given by Seller beyond the (i) applicable standard terms and conditions of sale or lease provided or made available to Buyer, and (ii) such warranties as may be implied by law. Except as set forth on Schedule 4.28, no customer, distributor or other third Person has a right to return any products or goods of the Business. Section 4.29. Reports. Seller has timely filed all reports, registrations and statements required to be filed by it since January 1, 1999 with any governmental authority, and has paid all related fees and assessments due and payable by Seller. Section 4.30. Bank Accounts and Powers of Attorney. Schedule 4.30 is a list of all accounts and deposit boxes maintained by Seller at any bank or other financial institution and the names of the individuals authorized to effect transactions in such accounts and with access to such boxes. Except as set forth in the Contracts and Leases and for the power of attorney granted by the Seller to the Accounting Firm in connection with the Private Letter Ruling (as hereinafter defined), there are no outstanding powers of attorney executed on behalf of Seller. Section 4.31. Receivables. Except as disclosed on Schedule 4.31, the Receivables (a) are or will be valid and genuine; (b) have arisen or will arise solely out of bona fide sales and deliveries of goods, performance of services and other business transactions in the ordinary course of business consistent with past practice; (c) are not and will not be subject to valid defenses, set-offs or counterclaims known to Seller; and (d) to Seller's knowledge, are or will be fully collectible and payable at their face amounts, except to the extent of any reserves for doubtful accounts on the Financial Statements or Closing Date Balance Sheet. Section 4.32. Products. There are 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 citations or decisions by any governmental or regulatory body that any product marketed or distributed by Seller ("Product") within the last three years is defective or fails to meet in any material respect any standards promulgated by any such governmental or regulatory body, excluding from the foregoing all federal, state and local laws, rules and ordinances applicable on an industry-wide basis. Except for voluntary recalls by the vendors thereof, there have been no recalls ordered by any such governmental or regulatory body with respect to any Product. Section 4.33. Real Estate. (a) The Seller has marketable title to the Real Estate, insurable by the Iowa Finance Authority, Title Guaranty Division, or a recognized national title insurance company, at standard rates, free and clear of any Encumbrances except as set forth in Section 2.3, and such Encumbrances do not impair the current use and occupancy of the Real Estate as a food warehousing and distribution facility (the "Intended Uses"); -28- (b) there are no (i) pending or, to the knowledge of Seller, threatened condemnation proceedings relating to the Real Estate or any portion thereof, (ii) pending or, to the knowledge of Seller, threatened Actions relating to the Real Estate or any portion thereof, or (iii) to the knowledge of Seller other matters which may have a Material Adverse Effect on the Intended Uses and occupancy of the Real Estate or any portion thereof; (c) the buildings and improvements may be used as of right under applicable zoning and land use laws for the Intended Uses, and are not in violation of zoning laws; (d) there are no leases, subleases, licenses or agreements, written or oral, granting to any party or parties (other than the Seller) the right of use or occupancy of any portion of the Real Estate; (e) there are no outstanding options or rights of first refusal to purchase the Real Estate, or any portion thereof or interest therein; (f) all facilities located on the Real Estate are supplied with utilities and other services necessary for the current operation of such facilities, including gas, electricity, water, telephone, sanitary sewer and storm sewer, all of which services are adequate for the Intended Uses and in accordance with all applicable laws, ordinances, rules and regulations; (g) Seller has not received notice of, and to the best of the Seller's knowledge, there is no proposed or pending proceeding to change or redefine the zoning classification of all or any portion of the Real Estate; (h) the improvements constructed on the Real Estate are in all material respects in good condition, free of insect infestation, and material construction defects, and all mechanical and utility systems servicing such improvements are in all material respects in good condition and proper working order, free of material defects, in each case ordinary wear and tear excepted; provided, however, the Buyer acknowledges that the roof of the Real Estate leaks; and (i) Seller has received no notice of any requirement of any insurance carrier requiring any modifications or work to be performed on the Real Estate or any facility subject to a Lease as a condition to the maintenance or renewal of any policies or insurance in respect of the Real Estate or such facilities. Section 4.34. Subsidiary. (a) Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of the State of Iowa. Subsidiary has full corporate power and authority to conduct its business as it is presently being conducted by Subsidiary and to own and lease its properties and assets. Subsidiary is duly qualified as a corporation to do business, and is in good standing in each jurisdiction in which the character or location of the property owned, leased or operated by it or the nature of the business conducted by it makes such -29- qualification necessary, except where the failure to be so duly qualified or licensed would not have a Material Adverse Effect on Subsidiary. Set forth on Schedule 4.1 is each jurisdiction in which Subsidiary is qualified or licensed to do business as a foreign corporation. True and complete copies of the Articles of Incorporation and Bylaws of Subsidiary, and all amendments to those Articles of Incorporation and Bylaws have previously been provided to counsel for Buyer. (b) Subsidiary has all requisite corporate power and authority, and has taken all corporate action necessary, to consummate the transactions set forth in this Agreement. The consummation by Subsidiary of the transactions contemplated by this Agreement have been duly approved by the board of directors and stockholder of Subsidiary. No other corporate proceedings on the part of Subsidiary are necessary to authorize the agreements, instruments, certificates and documents to be delivered by Subsidiary under this Agreement or the transactions contemplated by this Agreement. The agreements, instruments, certificates and documents to be delivered by Subsidiary have been (or, if to be executed or delivered after the date of this Agreement, will be) duly executed and delivered by Subsidiary and are (or, when executed, will be) legal, valid and binding obligations of Subsidiary enforceable against Subsidiary in accordance with their terms. (c) Except as set forth on Schedule 4.7, the consummation of the transactions contemplated by this Agreement, or compliance by Subsidiary with any of the provisions of this Agreement, will not: (a) violate or conflict with any provision of the Articles of Incorporation or Bylaws of Subsidiary; (b) violate, conflict with, or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, or result in the creation of any Encumbrance upon any of the Assets under, any of the terms, conditions or provisions of any contract (including, any indebtedness, note, bond, indenture, security or pledge agreement, commitment or license), lease, permit or other instrument or obligation (i) to which Subsidiary is a party or (ii) by which the Assets are bound; (c) violate any statute, rule, regulation, ordinance, code, order, judgment, ruling, writ, injunction, decree or award; or (d) impose any Encumbrance on the Assets or the Business; except in each case where such violation, conflict, breach or default would not have a Material Adverse Effect on Subsidiary. Section 4.35. Accuracy of Warranties. No representation or warranty by Seller in this Agreement, and no Exhibit, certificate, Schedule, instrument or document prepared or delivered, or to be delivered, by Seller pursuant to this Agreement, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements contained herein and therein, in light of the circumstances under which they were made, not misleading. -30- ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER Buyer hereby represents and warrants to Seller as follows: Section 5.1. Organization. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Buyer has full corporate power and authority to conduct its business as it is presently being conducted by Buyer and to own and lease its properties and assets. Buyer is duly qualified as a corporation to do business, and is in good standing in each jurisdiction in which the character or location of the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification necessary, except where the failure to be so duly qualified or licensed could not reasonably be expected to have a Material Adverse Effect on Buyer. True and complete copies of the Articles of Incorporation and Bylaws of Buyer, and all amendments to those Articles of Incorporation and Bylaws have previously been provided to counsel for Seller. Section 5.2. Authorization. Buyer has all requisite corporate power and authority, and has taken all corporate action necessary, to execute and deliver this Agreement, to consummate the transactions contemplated hereby and to perform its obligations under this Agreement. The execution and delivery of this Agreement by Buyer and the consummation by Buyer of the transactions contemplated by this Agreement have been duly approved by the board of directors of Buyer. No other corporate proceedings on the part of Buyer are necessary to authorize this Agreement or the other agreements, instruments, certificates and documents to be delivered by Buyer under this Agreement or the transactions contemplated hereby or thereby. This Agreement and the other agreements, instruments, certificates and documents to be delivered by Buyer under this Agreement have been (or, if to be executed or delivered after the date hereof, will be) duly executed and delivered by Buyer and are (or, when executed, will be) legal, valid and binding obligations of Buyer, enforceable against Buyer in accordance with their terms. Section 5.3. No Conflict or Violation. None of the execution, delivery or performance of this Agreement, the consummation of the transactions contemplated by this Agreement, or compliance by Buyer with any of the provisions of this Agreement, will (i) violate or conflict with any provision of the Certificate of Incorporation or Bylaws of Buyer, (ii) violate, conflict with, or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, or result in the creation of any Encumbrance upon any of the assets of Buyer under, any of the terms, conditions or provisions of any material contract, indebtedness, note, bond, indenture, security or pledge agreement, commitment, license, lease, franchise, permit, agreement, or other instrument or obligation (A) to which Buyer is a party or (B) by which Buyer's assets are bound, (iii) violate any statute, rule, regulation, ordinance, code, order, judgment, ruling, writ, injunction, decree or award, or (iv) impose any encumbrance, restriction or charge on the assets or the business of Buyer; except in each case where such violation, conflict, breach or default could not reasonably be expected to have a Material Adverse Effect on Buyer. -31- Section 5.4. Commission Reports. Since the date of the last 10-K or 10-Q filed by the Buyer with the Securities and Exchange Commission, there has not been any change in the financial condition or in the nature of the business or operations of Buyer which has had, or which would have, a Material Adverse Effect on Buyer. Section 5.5. Brokers. No Person will be entitled to any brokerage commission, finder's fees or similar compensation arising out of or due to any act of Buyer in connection with the transactions contemplated by this Agreement. Section 5.6. Accuracy of Warranties. No representation or warranty by Buyer in this Agreement, and no Exhibit, certificate, Schedule, instrument or document prepared or delivered, or to be delivered by Buyer pursuant to this Agreement, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements contained herein and therein, in light of the circumstances under which they were made, not misleading. ARTICLE VI COVENANTS Seller and Buyer hereby covenant as follows: Section 6.1. Conduct of Business. From the date of this Agreement through the Closing, Seller shall operate the Business in the ordinary course of business consistent with past practice and Seller will not take any action inconsistent with this Agreement or with the consummation of the Closing, except as specifically contemplated by this Agreement or consented to in writing by Buyer, which consent shall not be unreasonably withheld, delayed or conditioned. Notwithstanding the foregoing, the Buyer hereby consents to the prospective items set forth on Schedule 4.9 hereto. Neither party will take any action that is intended or may reasonably be expected to result in (a) any of the representations and warranties set forth in this Agreement being or becoming untrue in any material respect, or (b) any of the conditions to the Closing set forth in Articles VII or VIII not being satisfied or (c) any violation of any provision of this Agreement, except, in each case, as may be required by applicable law. Section 6.2. Access. Seller has afforded and will afford to Buyer, and to its officers, employees and authorized Representatives, full access, during normal business hours, to all properties, books, records and corporate documents pertaining to the Business and, to the extent permitted by law, to its employees and their employment records and personnel files (including performance evaluations), as may be reasonably requested. Buyer and Seller will hold all non-published and confidential information obtained from the other in strict confidence and will not disclose any such information to others or make any commercial use of it whatsoever, except upon and after the consummation of the transactions provided for in this Agreement. If this Agreement is terminated prior to Closing for any reason, all such information and copies will be returned to the disclosing party or destroyed within 30 days. -32- Section 6.3. Transfer of Permits. To the extent that any Permits are transferable by Seller to Buyer, Seller, as transferor, and Buyer, as transferee, will as soon as practicable after the Closing execute and file with the appropriate governmental agencies, application for approval of the transfer of each of such Permits to the reasonable satisfaction of Buyer. Seller agrees to use commercially reasonable efforts as soon as practicable after the Closing to assist Buyer, at Buyer's expense, in obtaining all Permits necessary for the operation of the Business by Buyer following the Closing Date, including without limitation, taking all reasonably necessary steps to relinquish the Permits. All fees and other costs payable in connection with any such applications or transfers will be the obligation of and will be timely paid by Buyer. Section 6.4. Notices and Consents. Seller will give the notices to third parties, and up to and after the Closing (to the extent not obtained at Closing) will use commercially reasonable efforts to obtain the third party consents described on Schedule 4.22. Each of the parties will give the notices to, make the filings with, and use commercially reasonable efforts to obtain the authorizations, consents, and approvals of governmental authorities described on Schedule 4.22. To the extent Seller is unable prior to Closing to obtain a consent described on Schedule 4.22 necessary to transfer any Asset, and Buyer waives in writing such condition precedent to Closing, such Asset will not be transferred at Closing (each a "Non-Assignable Asset"), and Seller will subcontract its interest in such Non-Assignable Asset to Buyer and take all such other actions as will be necessary to provide to Buyer the economic benefit of such Non-Assignable Asset, including, without limitation, at the request and expense of Buyer, enforcement of any rights of Seller on behalf and for the account of Buyer. Seller further agrees to execute and deliver to Buyer at such time as any such consent to the transfer of any such Non-Assignable Asset is obtained by Seller after the Closing an assignment and assumption agreement satisfactory to Buyer and Seller and any such other documents or instruments as may be reasonably necessary or advisable to transfer to Buyer all of Seller's interest in and title to such Non-Assignable Asset. Section 6.5. Bulk Transfer Laws. The parties agree to waive the requirements of any applicable bulk sales law provisions in states in which the Assets are situated or which may otherwise be applicable to the transactions contemplated by this Agreement, but such waiver shall not diminish the effect of any representation or warranty by Seller under this Agreement. Section 6.6. Further Assurances. Upon the terms and subject to the conditions contained in this Agreement, each of the parties agrees (a) to use all reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement (except waiving any conditions precedent to Closing), (b) to execute any further documents, instruments or conveyances of any kind which may be reasonably necessary or advisable to carry out any of the transactions contemplated under this Agreement, and (c) to cooperate with each other in connection with the foregoing. -33- Section 6.7. Employment Matters. (a) Buyer shall extend offers of employment to substantially all employees of Seller on terms and conditions substantially identical to the terms and conditions of their prior employment by Seller; provided, however, the Seller acknowledges that the Buyer shall not be required to enter into an agreement with K. Jesse Singerman which is substantially identical to the Singerman Severance Agreement. All of the employees who accept employment with Buyer on or before Closing are referred to as "Hired Employees". Seller will terminate all Hired Employees immediately prior to the Closing and any cost, expense or liability resulting from, or incurred in connection with, such terminations will be the sole responsibility of Seller; provided, however, the Buyer shall assume all vacation and sick leave, wellness benefits and paid time off accrued as of the Closing Date with respect to such employees. Seller will cooperate with and use commercially reasonable efforts to assist Buyer in its efforts to secure satisfactory employment arrangements with those employees to whom Buyer will make offers of employment consistent with the foregoing. Nothing contained in this Agreement will confer upon any employee of Seller (whether or not such employee becomes a Hired Employee) any right with respect to continuance of employment by Buyer, nor will anything in this Agreement interfere with the right of Buyer to terminate the employment of any of the Hired Employees at any time, with or without cause, or restrict Buyer in the exercise of its independent business judgment in modifying any of the terms and conditions of the employment of the Hired Employees; provided, however, that the Buyer may not modify the terms of the Employee Retention Incentives provided for in Section 6.17 hereof without the prior written consent of the Seller. (b) In addition to the Employee Retention Incentives provided for Section 6.17 hereof, Buyer shall assume and adopt all of the Employee Benefit Plans and related policies and procedures of Seller set forth on Schedule 4.16 hereto so that Hired Employees will initially receive the same benefits from the Buyer as they are currently receiving from the Seller; provided, however, that nothing contained herein shall prevent the Buyer from modifying any of such benefits following the Closing. (c) In light of the agreement of the Buyer contained in Section 6.7(a) to extend offers to employ substantially all of Seller's employees on terms and conditions substantially identical to the terms and conditions of their prior employment by Seller, the parties have agreed that no notification is required under the Worker Adjustment and Retraining Notification Act or under the comparable provisions of applicable state law (collectively the "Plant Closing Laws") in connection with the consummation of the transactions contemplated hereby. However, the Buyer shall provide any and all notices which may be required by and shall otherwise comply with the requirements of the Plant Closing Laws following the Closing in connection with the termination of employment by Buyer of any Hired Employees. Section 6.8. Notice of Developments. Each party will give prompt (but in any event within 5 days) written notice to the other party of any material adverse development causing a breach of any of its representations and warranties. No disclosure by any party pursuant to this Section 6.8, however, will be deemed to amend or supplement the Disclosure Schedule or cure any misrepresentation, breach of representation or warranty or breach of covenant. -34- Section 6.9. General. In case at any time after the Closing any further action is necessary to carry out the purposes of this Agreement, each of the parties will take such further action (including the execution and delivery of such further instruments and documents) as the other party reasonably may request, all at the sole cost and expense of the requesting party (unless the requesting party is entitled to indemnification for such under Article IX). Section 6.10. Litigation Support. In the event and for so long as any party actively is contesting or defending against any action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand in connection with (a) any transaction contemplated under this Agreement or (b) any fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction on or prior to the Closing Date involving the Business, the other party will cooperate with the contesting or defending party and its counsel in the contest or defense, make available its personnel at reasonable times and upon reasonable notice, and provide such testimony and access to its books and records as will be necessary in connection with the contest or defense, all at the sole cost and expense of the contesting or defending party (unless the contesting or defending party is entitled to indemnification for such under Article IX). Section 6.11. Tax Matters. (a) Seller will be responsible for the preparation and filing of all Tax returns for all activities of the Business for all periods ending before the Closing Date (including the consolidated, unitary, and combined Tax returns for Seller which include the operations of the Business for any period ending before the Closing Date). Buyer will make all payments required with respect to any such Tax return to the extent the liability for such Taxes is accrued on the Closing Date Balance Sheet; provided, however, that Buyer shall not be required to pay any income Taxes incurred by Seller by reason of the consummation of the transactions contemplated hereby. (b) Buyer will be responsible for the preparation and filing of all Tax returns for all activities of the Business for all periods beginning on or after the Closing Date. Buyer will make all payments required with respect to any such Tax return; provided, however, that Seller will reimburse Buyer concurrently therewith to the extent any payment Buyer is making relates to the operations of the Business for any period ending before the Closing Date and where such payment is not accrued as a liability on the Closing Date Balance Sheet. (c) In the case of any personal property or other ad valorem Tax imposed on the Assets for a Tax period that includes, but does not end on, the day prior to the Closing Date, the portion of such Tax related to the portion of such Tax period ending on the day prior to the Closing Date will be deemed to be the amount of such Tax for the entire Tax period multiplied by a fraction, the numerator of which is the number of days in the Tax period ending on the day prior to the Closing Date and the denominator of which is the number of days in the entire Tax period. Seller will be responsible for any such Tax relating to the portion of such Tax period ending on the day prior to the Closing Date to the extent such tax is not accrued as a liability on the Closing Date Balance Sheet, and Buyer will be responsible for any such tax relating to the portion of such Tax period beginning on the Closing Date. -35- Section 6.12. Insurance; Property. From the date of this Agreement to the Closing Date, Seller will maintain its existing insurance or obtain substantially similar coverage on presently insured property (real, personal and mixed) owned or leased by Seller; and all such property will be used, operated, maintained and repaired in a manner consistent with past practice. Since the Seller is assigning its insurance policies to the Buyer and claims may be asserted against the Seller after the Closing Date with respect to occurrences prior to the Closing Date, the Buyer shall name the Seller as an additional insured under all of the insurance policies so assigned after the Closing Date. Section 6.13. Intellectual Property Rights. From the date of this Agreement to the Closing Date, Seller will take all reasonable action to maintain its contractual or statutory rights to all Intellectual Property necessary to the conduct of its Business as now conducted or as presently proposed to be conducted. Section 6.14. Sale of Business; Negotiations. Seller shall not, directly or indirectly, (a) solicit or consider any inquiries, proposals or offers, or enter into agreements, relating to the disposition of the Assets, the merger or consolidation of Seller with any Person, the sale or exchange of any securities of Seller or other business combination resulting in the sale of Seller or the Assets, or (b) divulge or otherwise disclose of any confidential information concerning the Business, its properties or assets to any third Person (other than in the ordinary course of business) or any details regarding the terms of this Agreement. Seller shall promptly (but in any event within 5 days) notify Buyer orally, and confirm in writing, all relevant details relating to inquiries, proposals, offers or agreements that Seller may receive relating to any of the matters referred to in this Section 6.14. Section 6.15. Directorship. Seller shall nominate one or more candidates for a seat on Buyer's Board of Directors, and Buyer's Nominating Committee shall choose one of such candidates, who in the committee's opinion is qualified to act as an independent outside director, to serve an initial term ending December, 2004. Buyer shall cause such candidate to be elected as a director of Buyer for such term. Thereafter, such director is subject to re-election by Buyer's shareholders in accordance with Buyer's Certificates of Incorporation, Bylaws and the General Corporate Law of the State of Delaware. Section 6.16. Preservations of Books and Records. All Books and Records of Seller conveyed to Buyer hereunder shall be preserved by Buyer for a period of six (6) years after the Closing Date; provided, however, Buyer may destroy any part or parts of such records upon obtaining written consent of Seller for such destruction, which consent shall not be unreasonably withheld. Such Books and Records shall be made available to Seller and its Representatives at all reasonable times during normal business hours of Buyer during said six year period with the right at their expense to make abstracts from and copies thereof. In addition, notwithstanding any provision of this Agreement to the contrary, at all reasonable times upon notice to Buyer during an eighteen-month transitional period employees of Buyer who were former employees of Seller who -36- have been allowed to assist Seller pursuant to Section 9.4(b) hereof may use the computer hardware and software and office equipment included in the Assets purchased and sold hereunder in connection with the winding up and dissolution by the Seller. After such eighteen-month period, if further access is needed it shall be provided upon reasonable request. If such employees are no longer employees of Buyer, they may grant such access to agents of Seller reasonably acceptable to Buyer. Without limiting the generality of the foregoing, the Seller and its Representatives shall be allowed to use such Books and Records, computer hardware and software and office equipment in connection with (i) preparing and filing appropriate tax returns, (ii) preparing and issuing appropriate IRS forms, including Forms W-2, 1099, 1099 PATR and 1099 Misc, (iii) preparing and mailing checks to employees, members and creditors, (iv) calculating member patronage, (v) preparing mailings to members, (vi) maintaining a current mailing list for the current and former members of the Seller; and (vii) preparing the Closing Date Balance Sheet. Such use shall not interfere with Buyer's use thereof, and shall be subject to Buyer's approval, which shall not be unreasonably withheld, delayed or conditioned. Section 6.17. Employee Retention Incentives. On the Closing Date, the Buyer shall deposit the sum of two million nine hundred thirty thousand dollars ($2,930,000.00) in immediately available funds into an interest bearing escrow account established for the exclusive benefit of the employees of the Seller (together with the interest and income thereon, the "Escrow Deposit"). The Escrow Deposit shall be paid by the Buyer to the Seller's employees in accordance with the Employee Retention Incentives Program provided for in Exhibit I hereto. The Employee Retention Incentives Program shall not be amended by Buyer without the consent of Seller, which shall not be unreasonably withheld, delayed or conditioned. Section 6.18. Marketing Programs. From and after the Closing Date, the Buyer shall cause the Business to continue to participate in and support the Co-op Advantage Program and to continue the distribution of grocery store products containing the Co-op Private Label. ARTICLE VII CONDITIONS TO SELLER'S OBLIGATIONS The obligations of Seller to consummate the transactions provided for by this Agreement are subject to the satisfaction, on or prior to the Closing Date, of each of the following conditions, any of which may be waived by Seller in writing: Section 7.1. Representations, Warranties and Covenants. All representations and warranties of Buyer contained in this Agreement will be true and correct in all material respects (except those representations and warranties that are qualified by materiality, which will be true and correct in all respects) at and as of the date of this Agreement and at and as of the Closing Date, and Buyer will have performed and satisfied in all material respects all agreements and covenants required by this Agreement to be performed by it prior to or on the Closing Date. Buyer will have delivered to Seller a certificate of an officer of Buyer dated the Closing Date to such effect. -37- Section 7.2. No Proceedings or Litigation. No Action by any governmental authority or other Person will have been instituted or threatened which questions the validity or legality of the transactions contemplated by this Agreement and which could reasonably be expected to have a Material Adverse Effect upon Seller if the transactions contemplated under this Agreement are consummated. Section 7.3. Closing Deliveries. Buyer will have made the deliveries to Seller described in Section 3.2 (b). Section 7.4. Opinion. Seller shall have received the opinion of Cameron & Mittleman LLP, counsel to Buyer, dated the Closing Date, substantially in the form of Exhibit E. Section 7.5. Member Approval. This Agreement and the consummation of the transactions contemplated hereby shall have been approved by the members of the Seller. Section 7.6. Consents. All federal, state and local government and regulatory and third party consents, approval and waivers necessary to the consummation of the transactions contemplated by this Agreement and for the operation of the Business by Buyer (including all required third party assignments, and consents to assignments, of the Material Leases and Material Contracts to be assumed by Buyer) will have been obtained; provided, however, that the Seller may not refuse to consummate the transactions provided for in this Agreement as a result of its inability to obtain one or more of such consents, approvals or waivers if the Buyer agrees (in form and content reasonably acceptable to Seller) to indemnify the Seller with respect to all Damages (as hereinafter defined) which the Seller may suffer, sustain or incur following the consummation of the transactions provided for in this Agreement as a result of the failure to obtain such consent, approval or waiver. Section 7.7. Private Letter Ruling. Seller shall have obtained a private letter ruling from the Internal Revenue Service to the effect that the amount realized by the Seller from the sale of the Assets pursuant to this Agreement constitutes "patronage-sourced" income which may be excluded from income when allocated to the Seller's members as a dividend under Section 1388 of the Code, the form and content of which shall be acceptable to the Seller in its sole discretion (the "Private Letter Ruling"). Section 7.8. No Adverse Change. Between the date hereof and the Closing Date, there will not have been any Material Adverse Change or Material Adverse Effect with respect to the Buyer. -38- Section 7.9. Approval by Counsel. All actions, proceedings, instruments and documents required of Buyer to carry out the transactions contemplated by this Agreement or incidental thereto and all other related legal matters shall have been reasonably satisfactory to and approved by counsel for Seller, and such counsel shall have been furnished with such certified copies of actions and proceedings and such other instruments and documents as they shall have reasonable requested. Section 7.10. Determination of Appraised Value. The Net Appraised Value of the Iowa City Assets shall have been determined as provided for in Section 2.4(a) hereof. ARTICLE VIII CONDITIONS TO BUYER'S OBLIGATIONS The obligations of each of Buyer to consummate the transactions provided for in this Agreement are subject to the satisfaction, on or prior to the Closing Date, of each of the following conditions, any of which may be waived by Buyer: Section 8.1. Representations, Warranties and Covenants. All representations and warranties of Seller contained in this Agreement will be true and correct in all material respects (except those representations and warranties that are qualified by materiality, which will be true and correct in all respects) at and as of the date of this Agreement and at and as of the Closing Date, and Seller will each have performed and satisfied all agreements and covenants required by this Agreement to be performed by it prior to or on the Closing Date. Seller will have delivered to Buyer a certificate of an Officer of Seller dated the Closing Date to such effect. Section 8.2. No Proceedings or Litigation. No Action by any governmental authority or other Person will have been instituted or threatened which questions the validity or legality of the transactions contemplated hereby and which could reasonably be expected to have a material adverse effect upon Buyer, or a Material Adverse Effect upon the Assets or the Business if the transactions contemplated under this Agreement are consummated. Section 8.3. No Adverse Change. Between the date hereof and the Closing Date, there will not have been any Material Adverse Change or Material Adverse Effect with respect to Seller. Section 8.4. Closing Deliveries. Seller will have made the deliveries to Buyer described in Section 3.2(a). Section 8.5. Consents. All federal, state and local government and regulatory and third party consents, approvals, waivers and Permits necessary to the consummation of the transactions contemplated by this Agreement and for the operation of the Business by Buyer (including all required third party assignments, and consents to assignments, of the Material Leases and Material Contracts to be assumed by Buyer) will have been obtained. Section 8.6. Opinion. Buyer shall have received the opinion of Moss & Barnett, counsel to Seller dated the Closing Date substantially in the form of Exhibit F. -39- Section 8.7. Supply Agreements. Buyer shall have entered into supply agreements with those members of the Seller which participate in the Co-op Advantage Program which provide for a three (3) year term and contain such terms and conditions as are reasonably acceptable to the Buyer. Section 8.8. Special Conditions With Respect to Real Estate; Right to Extend Closing Date. (a) Buyer will order a commitment to issue a standard ALTA title insurance policy with respect to the Real Estate from the Iowa Finance Authority, Title Guaranty Division, or a non-Iowa title company or companies satisfactory to Buyer and its legal counsel within five (5) days of the date of this Agreement. Buyer shall notify Seller in writing within ten (10) days after the receipt of the title commitment of exceptions to the marketability of title to the Real Estate which Buyer reasonably deems unsatisfactory, and within ten (10) days from receipt of such notice, Seller will notify Buyer of its proposed remedies, if any, to cure any such exception(s). In no event may the Buyer object to any of the matters set forth in Section 2.3. The Seller may, but shall not be obligated to cure at its own expense all defects in title which Buyer has found so long as such defect can be cured within thirty (30) days. In the event that Seller does not notify Buyer of its intention to provide a satisfactory remedy or cure of any title exception within the above ten (10) days, the Buyer may, at its exclusive remedy, either terminate this Agreement or waive the title exception and proceed to Closing. (b) If Seller does not have a survey which, when updated by a surveyor's certificate at Buyer's expense, will be sufficient to remove the survey exception from the Buyer's title policy, Buyer may order a survey of the Real Estate at its expense within five (5) days of the date of this Agreement by a registered land surveyor or registered professional engineer, licensed by the State of Iowa and satisfactory to Buyer. Within ten (10) days from Buyer's receipt of the completed or updated survey, Buyer will notify Seller of any conditions reflected on such survey which adversely affect the marketability of the title to the Real Estate, and, within ten (10) days from the receipt of such notice, Seller may, but shall not be obligated to, notify Buyer of the proposed remedies to cure any such conditions. In the event the Seller does not notify the Buyer of a satisfactory remedy within such time or does not cure such defect within thirty (30) days of the notification, Buyer may, as it exclusive remedy, either terminate this Agreement or waive the survey exception and proceed to Closing. (c) Buyer will have received from the Seller copies of any current hazardous waste and petroleum product inspection report or certificate in the possession of Seller. Buyer will have the opportunity, but not the obligation, to retain a registered professional engineer or other qualified professional testing firm to conduct an on-site inspection of the Real Estate within twenty (20) days of the date of this Agreement as may be generally required for a thorough analysis of the conditions to determine whether the Real Estate contains any Hazardous Substances and/or is in violation of any Environmental and Safety Requirements. In the event that such inspection is not fully satisfactory to Buyer, or all answers to the required Groundwater Hazard Statement Form are not in the negative, Buyer will notify Seller immediately after receiving such inspection report and/or form of the condition and Buyer may terminate this Agreement. -40- (d) Buyer will have the opportunity, but not the obligation, to retain a registered professional engineer or other qualified professional testing firm to conduct a physical and mechanical inspection of the Real Estate within twenty (20) days of the date of this Agreement. In the event that such inspection is not fully satisfactory to Buyer, Buyer will notify Seller immediately after receiving such inspection report and Buyer may terminate this Agreement. (e) Anything herein to the contrary notwithstanding, Seller may not terminate this Agreement if the Closing cannot take place by November 7, 2002 as a result of the inability to fulfill the conditions set forth in this Section 8.8 by such date, and the Closing Date shall be extended until all such surveys, inspections and/or reports have been obtained and any time periods set forth above have expired; provided, however, if the Closing has not taken place by November 22, 2002, as a result of the inability to fulfill the conditions set forth in this Section 8.8 by such date, the Seller may, at its option, terminate this Agreement at any time thereafter as provided for in Article X hereof. (f) Buyer shall pay all costs and expenses incurred by Buyer in connection with the title insurance commitment, survey, and on-site environmental, physical and mechanical inspections of the Real Property, and shall hold Seller and the Real Estate harmless from and against any and all claims by any third parties for damages, personal injuries, property damage or other losses caused by such inspections performed on or about the Real Estate by Buyer or any other Person at Buyer's request, and shall within twenty (20) days after Buyer receives notice of the filing thereof, remove any mechanic's liens filed against the Real Estate resulting from Buyer's activities on the Real Estate. In connection with its on-site inspections, the Buyer will use commercially reasonable efforts to avoid unreasonable interference with the Seller in the operation of the Business. Section 8.9. Determination of Appraised Value. The Net Appraised Value of the Iowa City Assets shall have been determined as provided for in Section 2.4(a) hereof. ARTICLE IX OTHER AGREEMENTS OF THE PARTIES Section 9.1. Survival of Representations, Etc. The representations and warranties of Seller and Buyer contained in this Agreement will survive the consummation of the transactions contemplated by this Agreement for the period of two (2) years; provided, however that (a) the representations and warranties set forth in Sections 4.16 (Employee Benefit Plans), 4.19 (Tax Matters), and 4.23 and 5.5 (Brokers) will survive until 30 days after the expiration of the applicable statute of limitations (with extensions; the "Tax Matters" representation shall also survive while any audit is pending); and (b) the representations and warranties set forth in Sections 4.2 and 5.2 (Authorization), and Section 4.18 (Environmental Matters) shall survive indefinitely. After the expiration of such periods, no claim for an incorrect statement or representation, or for the breach of any warranty under this Agreement or any certificate or other closing documents delivered under this Agreement may be brought, and no litigation with respect thereto may be commenced, and no party shall have any liability or obligation with respect thereto, unless the indemnified party gave written notice to the indemnifying party specifying with particularity the incorrect statement or representation or breach of warranty claimed on or before the expiration of the applicable period. -41- Section 9.2. Indemnifications. (a) By Seller. Seller will indemnify, save and hold harmless Buyer, its stockholders and Representatives, and any of its or their successors and/or assigns, from and against any and all costs, losses (including without limitation diminution in value), Taxes, liabilities, obligations, damages, lawsuits, deficiencies, claims, demands, and expenses (whether or not arising out of third-party claims), including, without limitation interest, penalties, costs of mitigation, losses in connection with any environmental law (including without limitation any clean-up or remedial action), lost profits and reasonable attorneys' fees and all amounts paid in investigation, defense or settlement of any of the foregoing ("Damages"), asserted, incurred in connection with, arising out of, resulting from or incident to (i) any breach of any representation or warranty made by Seller in this Agreement or in any certificate or other closing document delivered pursuant to this Agreement; (ii) any breach of any covenant or agreement made by Seller in or pursuant to this Agreement or in any certificate or other closing document delivered pursuant to this Agreement; or (iii) any Excluded Liability. (b) Limitations. (i) Seller will have no liability under Section 9.2(a) unless and until the aggregate amount of all claims for Damages under Section 9.2(a) exceeds $300,000, at which time, except as provided in Section 9.2(b)(ii), Seller will be liable for all claims for Damages under Section 9.2(a) in excess of such amount provided; however, that the foregoing provisions of this Section 9.2(b)(i) shall not apply to the breach by the Seller of the representation or warranty contained in Section 4.9, the breach by the Seller of the covenant contained in Section 6.1 or the amount of liability referenced in the last sentence of Section 4.19(b); and (ii) Seller shall not be liable for Damages in excess of the greater of (i) $2,000,000 or (ii) the then unpaid principal balance of the Promissory Note; provided, however, that such limitations shall not be applicable to claims of fraud or intentional misrepresentation against Seller. (iii) All Damages shall be calculated net of insurance proceeds received by or available to the Buyer, its stockholders and Representatives, and any of its or their successors and/or assigns and shall be calculated net of any Tax benefits resulting from such Damages. -42- (c) By Buyer. Buyer will indemnify and save and hold harmless Seller, its members and Representatives, and any of its or their successor and/or assigns, from and against any and all Damages asserted, incurred in connection with, arising out of, resulting from or incident to (i) any breach of any representation or warranty made by Buyer in this Agreement or in any certificate or other closing document delivered under this Agreement; (ii) any breach of any covenant or agreement made by Buyer in or pursuant to this Agreement or in any certificate or other closing documents delivered under this Agreement; or (iii) from and after the Closing Date, any Assumed Liability. (d) Defense of Claims. If a claim for Damages (a "Claim") is to be made by a party entitled to indemnification hereunder against the indemnifying party, the party claiming such indemnification will give written notice (a "Claim Notice") to the indemnifying party as soon as practicable after the party entitled to indemnification becomes aware of any fact, condition or event which may give rise to Damages for which indemnification may be sought under this Section 9.2. If any lawsuit or enforcement action is filed against any party entitled to the benefit of indemnity under this Agreement, written notice of such will be given to the indemnifying party as promptly as practicable (and in any event within five (5) days after the service of the citation or summons) . The failure of any indemnified party to give timely notice under this Agreement will not affect rights to indemnification under this Agreement, except to the extent that the indemnifying party demonstrates actual damage or prejudice caused by such failure. After such notice, the indemnifying party will be entitled, if it so elects, (i) to take control of the defense and investigation of such lawsuit or action, (ii) to employ and engage attorneys of its own choice reasonably acceptable to the indemnified party to handle and defend the same (unless the named parties to such action or proceeding include both the indemnifying party and the indemnified party and the indemnified party has been advised in writing by counsel that there may be one or more legal defenses available to such indemnified party that are different from or additional to those available to the indemnifying party, in which event the indemnified party will be entitled at the indemnifying party's cost, risk and expense, to separate counsel of its own choosing) and (iii) to compromise or settle such claim, which compromise or settlement will be made only with the written consent of the indemnified party, such consent not to be unreasonably withheld, delayed or conditioned. If the indemnifying party fails to assume the defense of such claim within 30 days after receipt of the Claim Notice, the indemnified party against which such claim has been asserted will (upon delivering notice to such effect to the indemnifying party) have the right to undertake, at the indemnifying party's cost and expense, the defense, compromise or settlement of such claim on behalf of and for the account and risk of the indemnifying party; provided, however, that such Claim will not be compromised or settled without the written consent of the indemnifying party, which consent will not be unreasonably withheld, delayed or conditioned. In the event the indemnified party assumes the defense of the claim, the indemnified party will keep the indemnifying party reasonably informed of the progress of any such defense, compromise or settlement. Section 9.3. Payment. Any payment required to be made pursuant to Article IX shall be paid within ten (10) days after determination of the amount thereof and the obligation to pay the same. In the event that an indemnified party is not paid in full for any such claim pursuant to the foregoing provisions promptly after the other party's obligation to indemnify has been determined, it shall have the right, notwithstanding any other rights that it may have against any other Person, to setoff the unpaid amount of any such claim against any amounts owed by it under any instrument or agreement entered into pursuant to this Agreement or otherwise, including the Earn-Out amount set forth in Section 2.5. -43- Section 9.4. Covenant-Not-to-Compete. In consideration of Buyer's consummation of the transactions contemplated by this Agreement, and as a material inducement to Buyer to enter into this Agreement, Seller covenants and agree as follows: (a) During the period beginning on the Closing Date and ending on the fifth anniversary of the Closing Date (the "Noncompete Period"), Seller will not engage in the United States (the "Geographic Area") in the same or similar engaged business to the Business, whether as a stockholder (either record or beneficial) or in any other capacity, directly or indirectly; provided, however, that the provisions of this Section shall not prevent the Seller and its members from holding shares of stock in any publicly traded corporation. (b) During the Noncompete Period, Seller shall not at any time in any capacity, directly or indirectly, (i) induce or attempt to induce any employee of Buyer or any of its Affiliates to leave their employ, or otherwise solicit the employment of any such employee of Buyer or any of its Affiliates, hire any such employee or in any way interfere with the relationship between Buyer or any of its Affiliates and any of such employees; (ii) induce or attempt to induce any supplier, licensee, licensor, franchisee, or other business relation of either Buyer or any of its Affiliates to cease doing business with them or in any way interfere with the relationship between either Buyer or any of its Affiliates and any of their respective customers or business relations, or (iii) solicit the business of any then existing customer of Buyer or any of its Affiliates if such solicitation is in competition with the Business. Notwithstanding the foregoing, the Buyer acknowledges and agrees that James Mostek, K. Jesse Singerman, Cathy Hirsch and their respective assistants may assist the Seller with the winding-up of its business so long as such assistance shall not unreasonably interfere with their obligations to Buyer. (c) If, at the time of enforcement of any of the provisions of this Section 9.4, a court of competent jurisdiction holds that the restrictions stated in Section 9.4 are unreasonable under the circumstances then existing or are otherwise illegal, invalid or unenforceable in any respect by reason of its duration, definition of Geographic Area or scope of activity, or any other reason, the parties agree that the maximum period, scope or geographical area reasonable or otherwise enforceable under such circumstances will be substituted for the stated period, scope or area. (d) Without limiting any of Buyer's rights under this Agreement, the parties hereto acknowledge that Buyer will be entitled to enforce its rights under this Section 9.4 specifically, to recover damages and costs (including reasonable attorneys' fees) caused by any breach of any provisions of this Section 9.4 and to exercise all other rights existing in its favor. The parties acknowledge and agree that the breach of any term or provision of this Section 9.4 by Seller will materially and irreparably harm Buyer, that money damages will accordingly not be an adequate remedy for any breach of the provisions of this Section 9.4 by Seller and that Buyer in its sole discretion and in addition to any other remedies it may have at law or in equity may apply to any court of law or equity of competent jurisdiction (without posting any bond or deposit) for specific performance and/or other injunctive relief in order to enforce or prevent any violations of the provisions of this Section 9.4. -44- ARTICLE X TERMINATION; REMEDIES Section 10.1. Termination. At any time before the Closing, this Agreement may be terminated (a) by mutual written consent of the parties; (b) by either Buyer or Seller if there has been a material misrepresentation, a material breach of warranty, any breach of any representation or warranty qualified as to materiality, or a material breach of covenant by the other; or (c) subject to Section 8.8, by either Buyer or Seller if the Closing does not occur on or before November 7, 2002 (or such later date set forth in Section 8.8 or as the parties will mutually agree) , unless the failure of the Closing to occur by such date will be due to the action or failure to act of the party seeking to terminate this Agreement, which action or failure to act constitutes a breach of this Agreement. Section 10.2. Effect of Termination. In the event of the termination of this Agreement pursuant to Sections 8.8 or 10.1, written notice of such will promptly (but in any event within 5 days) be given to the other party specifying the provision pursuant to which such termination is made, and this Agreement will, upon the effective date of such notice, become null and void and of no further force or effect, and no party (or any of its Affiliates, directors, officers, agents or Representatives) will have any liability or obligation under this Agreement (except for any liability of any party then in breach); provided, however, that the provisions of Sections 6.2 (Access) and 2.7 (Closing Costs; Transfer Taxes and Fees) will survive any such termination. Section 10.3. Specific Performance. Each of the parties acknowledges and agrees that the other parties would be damaged irreparably in the event any of the provisions of this Agreement are not performed in accordance with their specific terms or otherwise are breached. Accordingly, each of the parties agrees that the other parties will be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically this Agreement and the terms and provisions of this Agreement in addition to any other remedy to which they may be entitled, at law or in equity. ARTICLE XI MISCELLANEOUS Section 11.1. Assignment. Neither this Agreement nor any of the rights or obligations under this Agreement may be assigned by any party without the prior written consent of the other parties; provided, however, that (i) Buyer may assign all of its rights and obligations under this Agreement, in whole or in part, including, without limitation, the right to purchase the Real Estate, to an Affiliate, upon notice to Seller, (ii) Seller may assign all or part of its rights with respect to the Promissory Note and/or Earn-Out to one or more of its employees or members and/or to a charitable foundation established by Seller upon notice to Buyer. Such assignment shall not affect Buyer's rights of set-off. This Agreement will be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns, and no other Person will have any right, benefit or obligation under this Agreement as a third party beneficiary or otherwise. -45- Section 11.2. Notices. All notices, requests, demands and other communications which are required or may be given under this Agreement will be in writing and will be deemed to have been duly given when received if personally delivered; when transmitted if transmitted by confirmed facsimile, electronic or digital transmission method; the day after it is sent, if sent for next day delivery to a domestic address by recognized overnight delivery service (e.g. , Federal Express); and upon receipt, if sent by certified or registered mail, return receipt requested. In each case notice will be sent to: If to Seller, addressed to: 2340 Heinz Road Iowa City, Iowa 52240 Attention: K. Jesse Singerman President and Chief Executive Officer With a copy to: Mitchell H. Cox, Esq. Moss & Barnett 4800 Wells Fargo Center 90 South Seventh Street Minneapolis, Minnesota 55402-4129 If to Buyer, addressed to: 260 Lake Road Dayville, Connecticut 06241-0999 Attention: Steven H. Townsend, President With a copy to: E. Colby Cameron, Esq. Cameron & Mittleman, LLP 56 Exchange Terrace Providence, RI 02903 or to such other place and with such other copies as either party may designate as to itself by written notice to the others. Section 11.3. Choice of Law. This Agreement will be construed, interpreted and the rights of the parties determined in accordance with the laws of the State of Iowa (without reference to the choice of law provisions of Iowa law), except with respect to matters of law concerning the internal corporate affairs of any corporate entity which is a party to or the subject of this Agreement, and as to those matters the law of the jurisdiction under which the respective entity derives its powers will govern. The parties agree that the courts of the State of Iowa, and the Federal Courts located therein, shall have exclusive jurisdiction over all matters arising from this Agreement. The parties hereby acknowledge that service of process by certified mail, return receipt requested, shall be deemed to be proper services of process. -46- Section 11.4. Entire Agreement; Amendments and Waivers. This Agreement and the other agreements to be entered into by the parties in accordance with this Agreement, together with all exhibits and schedules hereto and thereto (including the Disclosure Schedule), constitute the entire agreement among the parties pertaining to the subject matter of such agreements and supersede all prior agreements, understandings, negotiations and discussions, whether oral or written, of the parties. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties. No amendment, supplement, modification or waiver of this Agreement will be binding unless executed in writing by the party to be bound thereby. No waiver of any of the provisions of this Agreement will be deemed or will constitute a waiver of any other provision hereof (whether or not similar), nor will such waiver constitute a continuing waiver unless otherwise expressly provided. Section 11.5. Counterparts; Facsimile. This Agreement may be executed in one or more counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. This Agreement may be executed and delivered by facsimile transmission, and a facsimile of this Agreement or of a signature of a party will be effective as an original. Section 11.6. Invalidity. In the event that any one or more of the provisions contained in this Agreement or in any other instrument referred to in this Agreement, will, for any reason, be held to be invalid, illegal or unenforceable in any respect, then to the maximum extent permitted by law, such invalidity, illegality or unenforceability will not affect any other provision of this Agreement or any other such instrument. Section 11.7. Cumulative Remedies. All rights and remedies of either party hereto are cumulative of each other and of every other right or remedy such party may otherwise have at law or in equity, and the exercise of one or more rights or remedies will not prejudice or impair the concurrent or subsequent exercise of other rights or remedies. Section 11.8. Publicity. No party will issue any press release or make any other public statement relating to the transactions contemplated hereby unless (i) mutually agreed to by the parties, or (ii) required by law, regulation, court order or applicable rules of any stock exchange or of any applicable regulatory authority; provided, however, the Buyer acknowledges and agrees that the Seller may disclose the terms and conditions of this Agreement and make statements regarding the transactions contemplated hereby to its members in connection with the meeting or meetings to be held by the Seller and its members for purposes of obtaining approval of the same. Section 11.9. Knowledge; Construction. The phrase "to the Seller's knowledge", or words of comparable import, means facts or circumstances within the actual personal knowledge, without inquiry or investigation, of K. Jesse Singerman, James Mostek, Cathy Hirsch, Sue Futrell, Dave Konrath, Don Tyler, Jerry Herman, Nick Knuth and Steve Lumsden. All references to sections, schedules or exhibits in this Agreement refer to this Agreement's sections, schedules or exhibits, unless otherwise indicated. The headings contained in this Agreement are for reference purposes. -47- Section 11.10. Joint Drafting. The parties have participated jointly in the negotiation and drafting of this Agreement and the other agreements and documents to be executed by the parties in connection herewith. In the event an ambiguity or question of intent or interpretation arises, this Agreement and the other agreements and documents to be executed by the parties in connection herewith will be construed as if drafted jointly by the parties and no presumption or burden of proof will arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement and the other agreements and documents to be executed by the parties in connection herewith. [SIGNATURE PAGE FOLLOWS] -48- IN WITNESS WHEREOF, the parties have caused this Asset Purchase Agreement to be duly executed and delivered as of the day and year first above written. SELLER: BLOOMING PRAIRIE COOPERATIVE WAREHOUSE By: /s/ Jesse Singerman --------------------------------- Its: President & CEO --------------------------------- BUYER: UNITED NATURAL FOODS, INC. By: /s/ Steven Townsend --------------------------------- Its: President --------------------------------- -49- List of Exhibits and Schedules: Exhibit A - Deed Exhibit A-1 - Description of Real Estate Exhibit B - Allocation of Purchase Price Exhibit C - Excluded Assets Exhibit D - Nontransferable Assets Exhibit E - Opinion of Cameron & Mittleman LLP Exhibit F - Opinion of Moss & Barnett Exhibit G - Assumption Agreement Exhibit H - Promissory Note Exhibit I - Employee Retention Incentives Program Schedule 2.2 - Assumed Liabilities Schedule 4.1 - Organization and Qualification Schedule 4.3 - Assets Schedule 4.4 - Leases Schedule 4.5 - Contracts and Commitments Schedule 4.6 - Permits Schedule 4.7 - Conflicts or Violations Schedule 4.8 - Financial Statements Schedule 4.9 - Certain Changes Schedule 4.11 - Litigation Schedule 4.12 - Certain Liabilities Schedule 4.13 - Compliance with Law Schedule 4.14 - Proprietary Rights Schedule 4.15 - Employees Schedule 4.16 - Employee Benefit Plans Schedule 4.17 - Labor Relations Schedule 4.18 - Environmental, Health and Safety Schedule 4.19 - Tax Matters Schedule 4.20 - Insurance Schedule 4.21 Inventory Schedule 4.22 - Governmental and Other Third Party Consents Schedule 4.23 - Brokers Schedule 4.24 - Affiliate Transactions Schedule 4.26 - Certain Indebtedness Schedule 4.27 - Customers and supplies Schedule 4.28 - Product Returns Schedule 4.30 - Bank Accounts and Powers of Attorney Schedule 4.31 Receivables EX-99.4 6 ex99-4.txt EXHIBIT 99.4 AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, dated as of October 23, 2002, among United Natural Foods, Inc., a Delaware corporation (the "Parent"), NEC Acquisition Corp., a Delaware corporation (the "Merger Subsidiary"), Northeast Cooperatives, a Vermont association ("NEC VT"), and Northeast Cooperative, Inc., an Ohio association (the "Company"). WITNESSETH: WHEREAS, the parties have entered into a certain Agreement and Plan of Merger of even date (the "Original Agreement") providing for the following transactions: (i) a transaction in which NEC VT merges into the Company, the purpose of which is to bring NEC VT under the OCL by reincorporation, with the Company being the surviving entity (the "Ohio Merger"); and (ii) a transaction in which the Company then merges into the Merger Subsidiary, with the Merger Subsidiary being the surviving entity; and WHEREAS, the parties wish to amend and restate the Original Agreement in its entirety. NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth in this Agreement, the parties hereto, intending to be legally bound, agree that the Original Agreement is hereby amended and restated in its entirety and agree as follows: ARTICLE 1 THE CLOSING SECTION 1. 1 Closing. Unless this Agreement shall have been terminated pursuant to Article 8 hereof, and subject to the satisfaction or, if permissible, waiver of the conditions set forth in Article 7, the closing of the Acquisition Merger (the "Closing") will take place on the Closing Date at the offices of Cameron & Mittleman LLP, 56 Exchange Terrace, Providence, Rhode Island 02903, unless another date, time or place is agreed to in writing by the Parties. SECTION 1.2 Deliveries at Closing. Subject to the provisions of Articles 7 and 8, at the Closing there shall be delivered by the Parent and the Company the opinions, certificates and other documents and instruments required then to be delivered pursuant to Articles 2 and 7 hereof. ARTICLE 2 THE ACQUISITION MERGER SECTION 2.1 Surviving Corporation. In accordance with the provisions of this Article 2, Section 252 of the DGCL and Section 1729.36 of the OCL, at the Effective Time, the Company shall be merged with and into the Merger Subsidiary (the two merging corporations being sometimes collectively referred to herein as the "Constituent Corporations") and the separate corporate existence of the Company shall cease (such transaction being hereinafter referred to as the "Acquisition Merger"). The Merger Subsidiary shall be the surviving corporation in the Acquisition Merger (hereinafter sometimes referred to as the "Surviving Corporation") and shall continue its corporate existence under the laws of the State of Delaware. The name of the Surviving Corporation shall be United Northeast, Inc. or other name selected by the Parent. SECTION 2.2 Effective Time: Conditions. If all of the conditions precedent set forth in Article 8 hereof have been satisfied or waived (to the extent permitted by law), and this Agreement has not otherwise been terminated under Article 8 hereof, the appropriate forms of certificates of merger with respect to the Acquisition Merger shall be prepared by the Parent and the Company and filed and recorded (a) pursuant to Section 251 of the DGCL with the Delaware Secretary of State and (b) pursuant to Section 1729.38 of the OCL with the Ohio Secretary of State (as so filed and recorded, the "Certificates of Merger"). The Acquisition Merger shall become effective at, and the Effective Time shall be, the time specified in the Certificates of Merger. SECTION 2.3 Certificate of Incorporation and By-Laws. The Certificate of Incorporation and the By-Laws of the Merger Subsidiary as in effect on the Closing Date shall be the Certificate of Incorporation and the By-Laws of the Surviving Corporation and shall thereafter continue to be the Surviving Corporation's Certificate of Incorporation and By-Laws until amended as provided therein or by applicable law. SECTION 2.4 Directors and Officers. The directors and officers of the Surviving Corporation shall be the directors and officers of the Merger Subsidiary immediately prior to the Effective Time and each such director and officer shall hold office in accordance with the Certificate of Incorporation and By-Laws of the Surviving Corporation. SECTION 2.5 Effect on Outstanding Shares. A. Company Membership Interests. By virtue of the Acquisition Merger, automatically and without any action on the part of the holder or owner thereof, each share of class A common stock issued and outstanding immediately prior to the Effective Time shall be canceled and converted into the right to receive the cash payment specified by Schedule 2.5(A) (the "Cash Payment"). The Cash Payment shall be made in accordance with Section 2.6. Each share of class B common stock in the Company shall be extinguished. B. Merger Subsidiary Common Stock. Each share of the Merger Subsidiary Common Stock issued and outstanding immediately prior to the Effective Time shall remain issued and outstanding and owned by the Parent ("Surviving Corporation Common Stock"). SECTION 2.6 Payment for Membership Interests. A. After the Effective Time and subject to the terms of this Agreement, each holder of a certificate (including a certificate issued by NEC VT prior to the Ohio Merger) representing a share of class A common stock in the Company which has been canceled and extinguished at the Effective Time pursuant to Section 2.5(A) shall surrender such certificate to Parent in exchange for a check representing the Cash Payment to which such holder is entitled pursuant to Schedule 2.5A together with the transmittal letter substantially in the form of Exhibit A-1 hereto. Until so surrendered and exchanged, each outstanding certificate which, prior to the Effective Time, represented a share of class A common stock in the Company shall be deemed to represent and evidence only the right to receive the Cash Payment and until such surrender and exchange, no cash shall be paid to the Members on account of their shares of class A common stock in the Company. B. Parent shall not be required to make any Cash Payment to any Member not surrendering a certificate representing its share of class A common stock in the Company unless and until such Member provides the Parent with an affidavit stating that the Member's certificate was lost or destroyed, substantially in the form of Exhibit A-2 hereto (the "Affidavit"). Upon receipt of the Affidavit, Parent shall distribute to the relevant Member a check representing the Cash Payment to which such Member is entitled. C. Any Member who has not received a certificate evidencing its share of class A common stock in the Company shall provide the Parent with a membership interest certification, substantially in the form of Exhibit A-3 hereto (the "Membership Interest Certification"). Upon receipt of a Membership Interest Certification, the Parent shall distribute to the relevant Member a check representing the Cash Payment to which such Member is entitled. 2 D. No interest shall accrue or be payable with respect to any amounts which any Member shall be entitled to receive pursuant to Section 2.5(A) and this Section 2.6. E. After the Effective Time, there shall be no transfers on the stock transfer books of the Surviving Corporation of the Membership Interests which were outstanding immediately prior to the Effective Time. If, after the Effective Time, certificates representing such shares of class A common stock in the Company are presented to the Surviving Corporation, they shall be canceled and exchanged for the Cash Payment as provided in this Section 2.6. F. Promptly after the Effective Time, the Surviving Corporation shall give written notice thereof to the Members of the Company. SECTION 2.7 Effect of the Acquisition Merger. The effect of the Acquisition Merger shall be as set forth in Sections 259, 260 and 261 of the DGCL and the Merger Subsidiary shall succeed to and possess all the properties, rights, privileges, immunities, powers, franchises and purposes, and shall be subject to all the duties, liabilities, debts, obligations, restrictions and disabilities, of the Company, all without further act or deed. SECTION 2.8 Additional Actions. If, at any time after the Effective Time, the Surviving Corporation shall consider or be advised that any deeds, bills of sale, assignments, assurances or any other actions or things are necessary or desirable to vest, perfect or confirm of record or otherwise in the Surviving Corporation its right, title or interest in, to or under any of the rights, properties or assets of either of the Constituent Corporations acquired or to be acquired by the Surviving Corporation as a result of, or in connection with, the Acquisition Merger or to otherwise carry out this Agreement, the officers and directors of the Surviving Corporation shall and will be authorized to execute and deliver, in the name and on behalf of the Constituent Corporations, all such deeds, bills of sale, assignments and assurances and to take and do, in the name and on behalf of the Constituent Corporations, all such other actions and things as may be necessary or desirable to vest, perfect or confirm any and all right, title and interest in, to and under such rights, properties or assets in the Surviving Corporation or to otherwise carry out the purposes and intent of this Agreement. ARTICLE 3 ADDITIONAL AGREEMENTS AND BRIDGE LOAN SECTION 3.1 At Closing, the Merger Subsidiary shall, and the Parent shall cause the Merger Subsidiary to, pay $1,285,000 on account of the categories of expenses of the Company listed on Exhibit B. SECTION 3.2 Bridge Loan. Contemporaneously with the execution of this Agreement, and subject to the conditions set forth herein, the Parent shall make a bridge loan facility (the "Bridge Loan") in the amount of Ten Million Dollars ($10,000,000) available to NEC VT, pursuant to and on conditions set forth in loan agreements, promissory notes and security agreements satisfactory to the Parent (the "Loan Documents"). Pursuant to the Ohio Merger, the Company shall succeed to all rights and obligations of NEC VT under the Bridge Loan. Proceeds of the Bridge Loan shall be used to repay or acquire bank indebtedness of approximately $5,300,000 (the "Bank Payment"), to pay approximately $3,200,000 of trade accounts payable and the balance to purchase inventory in the ordinary course of business. The Bridge Loan shall be secured by substantially all of the assets of NEC VT, excluding the Vermont Facilities and the name "Twin Pines" and its related logo and goodwill. Following the Ohio Merger, the Company shall succeed to all of the obligations of NEC VT under the Bridge Loan. In no event shall the Parent be obligated to advance any funds pursuant to the Bridge Loan unless and until the Parent shall have received, in form and substance reasonably acceptable to the Parent (i) such certificates, opinions (with respect to validity, enforceability and perfection of security interests and validity and enforceability of the Loan Documents, subject to creditors' rights and similar exceptions) and other documents satisfactory to it that concurrently with the Bank Payment and the filing of necessary termination statements or similar documents, all assets of NEC VT securing the Bridge Loan will be free and clear of Liens and (ii) the written agreement of NCSC to enter into the transactions described in Sections 7.1(E) and (F), which agreement shall be in form and substance reasonably acceptable to the Parent. 3 ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE COMPANY Each of NEC VT and the Company, jointly and severally, represents and warrants to the Parent and the Merger Subsidiary as set forth in this Article 4, and each agrees that references to the Company contained in this Article 4 shall include NEC VT, unless the context otherwise expressly requires: SECTION 4.1 Organization and Business: Power and Authority, Effect of Transaction. A. The Company and NEC VT: (i) are cooperatives duly organized, validly existing and in good standing under the laws of the States of Ohio and Vermont, respectively; (ii) each has all requisite corporate power and authority to own or hold under lease its properties and to conduct its business as now conducted and has in full force and effect all Governmental Authorizations and Private Authorizations and has made all Governmental Filings, to the extent required for such ownership and lease of its property and conduct of its business, except to the extent that the failure to have obtained any such Governmental Authorization or Private Authorization or to have made any such Governmental Filing would not have an Adverse Effect; and (iii) each has duly qualified and is authorized to do business and is in good standing as a foreign corporation in each jurisdiction set forth in Section 4. 1(A)(iii) of the Company Disclosure Schedule and, except as otherwise set forth in Section 4.1(A)(iii) of the Company Disclosure Schedule, in each jurisdiction in which the character of its property or the nature of its business or operations requires such qualification or authorization, except to the extent the failure so to qualify or to maintain such authorizations would not have an Adverse Effect. B. The Company has all requisite power and authority (cooperative and other) and has in full force and effect all Governmental Authorizations and Private Authorizations in order to enable it to execute and deliver, and to perform its obligations under, this Agreement and each Collateral Document executed or required to be executed by it pursuant hereto or thereto and to consummate the Acquisition Merger and the Transactions, and the execution, delivery and performance of this Agreement and each Collateral Document executed or required to be executed pursuant hereto or thereto have been duly authorized by all requisite corporate or other action other than the approval of the Ohio Merger by the Members of NEC VT and the Members of the Company, and the approval of the Acquisition Merger by the Members of the Company, which are the only approvals by the Members of NEC VT required in connection with the Transactions under Applicable Law and the Company's and NEC VT's Organic Documents. This Agreement has been duly executed and delivered by the Company and constitutes, and each Collateral Document executed or required to be executed pursuant hereto or thereto or to consummate the Acquisition Merger and the Transactions, when executed and delivered by the Company will constitute, legal, valid and binding obligations of the Company, enforceable in accordance with their respective terms, except as such enforceability may be subject to bankruptcy, moratorium, insolvency, reorganization, arrangement, voidable preference, fraudulent conveyance or other similar laws relating to or affecting the rights of creditors, and except as the same may be subject to the effect of general principles of equity. 4 C. Except as set forth in Section 4.1(C) of the Company Disclosure Schedule, neither the execution and delivery of this Agreement or any Collateral Document executed or required to be executed pursuant hereto or thereto, nor the consummation of the Acquisition Merger or the Transactions, nor compliance with the terms, conditions and provisions hereof or thereof by the Company or any of the other parties hereto or thereto which is Affiliated with the Company: (1) will materially conflict with, or result in a material breach or violation of, or constitute a material default under, any Applicable Law on the part of the Company or will materially conflict with, or result in a material breach or violation of, or constitute a material default under, or permit the acceleration of any obligation or liability in, or but for any requirement of giving of notice or passage of time or both would constitute such a material conflict with, material breach or violation of, or material default under, or permit any such acceleration in, any Contractual Obligation of the Company or any Subsidiary, (2) will result in or permit the creation or imposition of any Lien (except to the extent set forth in Section 4.1(C) of the Company Disclosure Schedule) upon any property now owned or leased by the Company or any such other party, or (3) will require any Governmental Authorization or Governmental Filing or Private Authorization on behalf of the Company or NEC VT, except for approvals of the Members of NEC VT and the Members of the Company and filing requirements under Applicable Law in connection with the Ohio Merger, the Acquisition Merger and the Transactions and except for such Private Authorizations which the failure to obtain will not have an Adverse Effect. SECTION 4.2 Financial and Other Information. A. The Company has heretofore furnished to the Parent copies of the audited and unaudited financial statements of the Company listed in Section 4.2(A) of the Company Disclosure Schedule (the "Company Financial Statements"). The Company Financial Statements, including in each case the notes thereto, have been prepared in accordance with GAAP (except that the unaudited financial statements may not contain all notes and may not contain prior period comparative data that are required by GAAP) applied on a consistent basis with the Company's past practice throughout the periods covered thereby, are true and correct in all material respects and, fairly and completely present the financial condition and results of operations of the Company on the bases therein stated, as of the respective dates thereof, and for the respective periods covered thereby subject, in the case of unaudited Company Financial Statements to normal nonmaterial year-end audit adjustments and accruals. B. Except as set forth in Section 4.2(B) of the Company Disclosure Schedule, the Company does not own any capital stock or equity or proprietary interest in any Entity or enterprise, however organized and however such interest may be denominated or evidenced. SECTION 4.3 Outstanding Membership Interests. All of the issued and outstanding Membership Interests of the Members are as set forth in Section 4.3 of the Company Disclosure Schedule. All of such interests have been duly authorized and validly issued, are (except as set forth in Section 4.3 of the Company Disclosure Schedule) fully paid and nonassessable and are not subject to any preemptive or similar rights. Except as contemplated by this Agreement, there is neither outstanding nor has the Company agreed to grant or issue any additional equity securities or any Option Security or Convertible Security. Other than this Agreement as it relates to the Ohio Merger, the Company is not a party to or is bound by any agreement, put or commitment pursuant to which it is obligated to purchase, redeem or otherwise acquire any equity securities or any Option Security or Convertible Security. All of the issued and outstanding interests of Members have been issued in compliance with applicable Federal and state securities laws. 5 SECTION 4.4 Changes in Condition. Since June 30, 2002, except to the extent specifically described in Section 4.4 of the Company Disclosure Schedule, there has been no Adverse Change in the Company. There is no Event known to the Company which Adversely Affects or may Adversely Affect the Company, or the ability of the Company to perform any of the obligations set forth in this Agreement or any Collateral Document execution or required to be executed pursuant hereto or thereto to the extent set forth in Section 4.4 of the Company Disclosure Schedule. SECTION 4.5 Liabilities. Except as set forth in Section 4.5 of the Company Disclosure Schedule, on the date of the Company Financial Statements the Company had no obligations or liabilities, present or deferred, accrued or unaccrued, fixed, absolute, contingent or other, except as disclosed or otherwise provided for in the Company Financial Statements, and since such date the Company has not incurred any such obligations or liabilities, other than obligations and liabilities incurred in the ordinary course of business consistent with past practice which do not, in the aggregate, Adversely Affect the Company. The Company has not Guaranteed and is not otherwise primarily or secondarily liable in respect of any obligation or liability of any other Person that is material to the Company, except for endorsements of negotiable instruments for deposit in the ordinary course of business, consistent with prior practice, or as disclosed in the most recent balance sheet, or the notes thereto, forming part of the Company Financial Statements or in Section 4.5 of the Company Disclosure Schedule. SECTION 4.6 Title to Properties: Leases. A. Except as set forth in Section 4.6 of the Company Disclosure Schedule, the Company has good legal and insurable title, with respect to all real property owned or leased (in fee simple if owned and leasehold if leased) and marketable title if owned (in fee simple), if any, reflected as an asset on the Company Financial Statements, or held by the Company for use in its business if not so reflected, and good and clear title of all other assets, tangible and intangible, reflected in the Company Financial Statements, or held by the Company for use in its business if not so reflected, or purported to have been acquired by the Company since such date, except inventory sold or depleted, or property, plant and other equipment used up or retired, since such date, in each case in the ordinary course of business consistent with past practice of the Company, free and clear of all Liens, except (x) such as are reflected in the Company Financial Statements, (y) Liens securing taxes, assessments, governmental charges or levies, or the claims of materialmen, carriers, landlords and like persons, which are not yet due or payable or which are being contested in good faith by appropriate proceedings and for which adequate reserves are set forth in the most recent Company Financial Statements. Each Lease or other occupancy or other agreement under which the Company holds real or personal property has been duly authorized, executed and delivered by the Company. Each such Lease is a legal and valid obligation of the Company and, to the Company's knowledge, each other party thereto. The Company has a valid leasehold interest in and enjoys peaceful and undisturbed possession under all Leases pursuant to which it holds any real property or tangible personal property. All of such Leases are valid and subsisting and in full force and effect; and neither the Company, nor to the knowledge of the Company any other party thereto, is in default in the performance, observance or fulfillment of any obligation, covenant or condition contained in any such Lease. B. Section 4.6(B) of the Company Disclosure Schedule contains a true, correct and complete description of all real estate owned or leased by the Company and all Leases and an identification of all material items of fixed assets and machinery and equipment. The real property (other than land), fixtures, fixed assets and machinery and equipment of the Company are in a state of good repair and maintenance and are in good operating condition, reasonable wear and tear excepted. The Company owns, rents or leases all tangible assets necessary for the conduct of its business as presently conducted and as presently proposed to be conducted until the Closing. C. With respect to each parcel of such real property owned by the Company, except as set forth in Section 4.6(C) of the Company Disclosure Schedule: (i) there are no pending or, to the knowledge of the Company, threatened condemnation proceedings relating to such parcel, and there are no pending or, to the knowledge of the Company, threatened litigation or administrative actions relating to such parcel or other matters that Adversely Affect the use, occupancy or value thereof, 6 (ii) the buildings and improvements may be used as of right under applicable zoning and land use laws for the operation of the business of the Company as now conducted (the "Current Uses") and such buildings and improvements are located within the boundary lines of the described parcels of land, are not in violation of Applicable Laws and do not encroach on any easement which may burden the land; the land does not serve any adjoining property for any purpose inconsistent with the use of the land; and such parcel is not located within any flood plain or subject to any similar type restriction for which any permits or licenses necessary to the use thereof have not been obtained; (iii) there are no outstanding options or rights of first refusal to purchase such parcel, or any portion thereof or interest therein; (iv) all facilities located on such parcel are supplied with utilities and other services necessary for the Current Uses of such facilities, including gas, electricity, water, telephone, sanitary sewer and storm sewer, all of which services are adequate for the Current Uses and in accordance with all Applicable Laws, and are provided via public roads or via permanent, irrevocable, appurtenant easements benefiting such parcel; (v) such parcel abuts on and has direct vehicular access to a public road or access to a public road via a permanent, irrevocable, appurtenant easement benefiting such parcel; (vi) the Company has received no written notice of any proposed or pending proceeding to change or redefine the zoning classification of all or any portion of the parcels; and (vii) each parcel is an independent unit which does not rely on any facilities (other than the facilities of public utility and water companies) located on any other property (a) to fulfill any zoning, building code or other municipal or governmental requirement, (b) for structural support or the furnishing of any essential building systems or utilities, including, but not limited to electric, plumbing, mechanical, heating, ventilating, and air conditioning systems, or (c) to fulfill the requirements of any lease. No building or other improvement not included in the parcels relies on any part of the parcels to fulfill any requirement of Applicable Laws or for structural support or the furnishing of any essential building systems or utilities. Each of the parcels is assessed by local property assessors as a tax parcel or parcels separate from all other tax parcels. D. With respect to each Lease, except as set forth in Section 4.6(D) of the Company Disclosure Schedule: (1) there are no disputes, oral agreements or forbearance programs in effect as to any Lease; (2) all facilities occupied under each Lease are supplied with utilities and other services necessary for the Current Uses of said facilities; and (3) no Event has occurred which, with notice or lapse of time, would constitute a breach or default by the Company, or to the Company's knowledge, any other party or permit termination, modification or acceleration of any Lease. 7 SECTION 4.7 Inventory. The inventory of the Company is in good and merchantable condition, and in reasonably 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 the Company. Except as set forth in Section 4.7 of the Company Disclosure Schedule, the present quantities of all inventory are reasonable in the present circumstances of the business of the Company. Except as set forth in Section 4.7 of the Company Disclosure Schedule, there is no condition which currently Adversely Affects the supply of materials or inventory available to the Company. SECTION 4.8 Accounts and Notes Receivable. All accounts and notes receivable reflected on the Company Financial Statements and all accounts and notes receivable arising subsequent to the issuance of the Company Financial Statements have arisen in the ordinary course of business, represent valid obligations to the Company, and have been collected or will be collected in the aggregate amounts thereof recorded on the books of the Company, in each case net of the reserve for bad debts reflected on the Company Financial Statements, assuming that such accounts and notes receivable are collected in a manner consistent with past practice. SECTION 4.9 Compliance with Private Authorizations. Section 4.9 of the Company Disclosure Schedule sets forth a true, correct and complete list and description of each Private Authorization which individually is material to the Company, all of which are in full force and effect. The Company has obtained all Private Authorizations which are necessary for the ownership by the Company of its properties and the conduct of its business as now conducted. The Company is not in breach or violation of, or is not in default in the performance, observance or fulfillment of, any Private Authorization. No Private Authorization is the subject of any pending or, to the Company's knowledge, threatened attack, revocation or termination. SECTION 4.10 Compliance With Governmental Authorizations and Applicable Law. A. Section 4.10(A) of the Company Disclosure Schedule contains a description of: (1) all Legal Actions which are pending or, to the Company's knowledge, threatened or contemplated, against or relating to, the Company or the business, operations or properties, or officers or directors of the Company in connection therewith; and (2) each Governmental Authorization to which the Company is subject and which relates to the business, operations, properties, prospects, condition (financial or other), or results of operations of the Company, all of which are in full force and effect. B. The Company has obtained all Governmental Authorizations which are necessary for the ownership or Current Uses of its properties and the conduct of its business as now conducted or as presently proposed to be conducted or which, if not obtained and maintained , could singly or in the aggregate, have an Adverse Effect on the Company, except as otherwise described in Section 4.10(B) of the Company Disclosure Schedule. No Governmental Authorization is the subject of any pending or, to the Company's knowledge, threatened attack, revocation or termination. The Company is not or at any time since January 1, 1998 has been, or is or has during such time been charged with, or to the Company's knowledge, is threatened or under investigation with respect to any material breach or violation of, or default in the performance, observance or fulfillment of any Governmental Authorization or any Applicable Law, except for such breaches, violations or defaults as do not have in the aggregate an Adverse Effect on the Company or the ability of the Company to perform any of the obligations set forth in this Agreement or any Collateral Document executed or required to be executed pursuant hereto or thereto, or to consummate the Acquisition Merger and the Transaction. 8 C. Except as set forth in Section 4.10(C) of the Company Disclosure Schedule, the Company, and the conduct and operations of its businesses, are in compliance with all Applicable Laws which (i) affect or relate to this Agreement or the Transactions or (ii) are applicable to the Company or its business, except for any violation of, or default under, any Applicable Law which would not have an Adverse Effect on the assets, business, financial condition, results of operations or future prospects of the Company. The Company has not violated in any material respect and is in material compliance with all Applicable Law relating to packaging, labeling, storage and sale of food and beverage products. SECTION 4.11 Intangible Assets. Section 4.11 of the Company Disclosure Schedule sets forth a true, correct and complete description of all Intangible Assets or rights with respect thereto, that are necessary for the present conduct of the Company's business. The Company owns or possesses or, has the right under all necessary Governmental Authorizations to use all Intangible Assets necessary for the conduct of its business as currently conducted, free and clear of all Liens and without any conflict with the rights of others. Except as otherwise described in Section 4.11 of the Company Disclosure Schedule, no Intangible Asset necessary for the conduct of its business as presently conducted has been or is now involved in any opposition, invalidation, or cancellation, and the Company has received no notice of any claim that, or has reason to believe that there exists any claim that, any Intangible Asset which is a trademark, trade name or service mark infringes any trade name, copyright, trademark or service mark of any third party. SECTION 4.12 Related Transactions. Section 4.12 of the Company Disclosure Schedule sets forth a true, correct and complete description of any Contractual Obligation or transaction which is in effect as of the date hereof or which arose or occurred since July 1, 2000 between the Company and any of its members, officers, directors, employees, stockholders or any Affiliate of any thereof, including without limitation any providing for the furnishing of services to or by, providing for rental of property, real, personal or mixed, to or from, or providing for the lending or borrowing of money to or from or otherwise requiring payments to or from, any Member, officer, director, employee or stockholder, or any Affiliate of any thereof, excluding Contractual Obligations and transactions arising in the ordinary course of business consistent with past practices. SECTION 4.13 Insurance. Section 4.13 of the Company Disclosure Schedule lists all insurance policies maintained by the Company and includes the insurers' names, policy numbers, expiration dates, risks insured against, amounts of coverage, annual premiums, exclusions, deductibles and self-insured retention and describes in reasonable detail any retrospective rating plan, fronting arrangement or any other self-insurance or risk assumption agreed to by the Company or imposed upon the Company by any such insurers, as well as any self-insurance program that is in effect. The Company is not in breach or violation of or in default under any such policy, and all premiums due thereon have been paid. The Company has not received any written notice from the insurer disclaiming coverage or reserving rights with respect to a particular pending claim or such policy in general. The Company has not incurred any loss, damage, expense or liability covered by any such insurance policy for which it has not properly asserted a claim under such policy. SECTION 4.14 Tax Matters. A. The Company has in accordance with all Applicable Laws filed all Tax Returns which are required to be filed, and has paid, or made adequate provision for the payment of, all Taxes which have or may become due and payable pursuant to said Returns and all other governmental charges and assessments received to date. All Taxes which the Company is required by law to withhold and collect have been duly withheld and collected, and have been paid over, in a timely manner, to the proper Authorities to the extent due and payable. The Company has not executed any waiver to extend, or otherwise taken or failed to take any action that would have the effect of extending, the applicable statute of limitations in respect of any Tax liabilities of the Company for the fiscal years prior to and including the most recent fiscal year. Except as set forth in Section 4.14 (A) of the Company Disclosure Schedule, adequate provision has been made on the most recent balance sheet forming part of the Company Financial Statements for all Taxes of any kind, including interest and penalties in respect thereof, whether disputed or not, and whether past, current or deferred, accrued or unaccrued, fixed, contingent, absolute or other. 9 B. Except as set forth in Section 4.14(B) of the Company Disclosure Schedule, since June 30, 2002, the Company has not made any payment on account of any Taxes except regular payments required in the ordinary course of business, consistent with prior practice, with respect to current operations or property presently owned. C. The information shown on the Federal Income Tax Returns of the Company (true, correct and complete copies of which have been furnished by the Company to the Parent) is true, correct and complete and fairly and accurately reflects the information purported to be shown thereon. No Federal and state income Tax Returns of the Company have been examined by the IRS or applicable state Authority through the taxable periods set forth in Section 4.14(C) of the Company Disclosure Schedule, and the Company has not been notified regarding any pending examination, except as shown in Section 4.14(C) of the Company Disclosure Schedule. D. Except as set forth in Section 4.14(D) of the Company Disclosure Schedule, there is no material dispute or claim concerning any Tax liability of the Company or NEC VT either (i) claimed or raised by any Taxing Authority in writing, including the IRS, or (ii) as to which any of the Company or NEC VT or its respective directors and officers has knowledge based upon personal contact with any agent of such Taxing Authority. E. NEC VT is and the Company will be qualified to be taxed as a corporation operating on a cooperative basis under Section 1381(a)(2) of the Code. F. Neither the Company nor NEC VT has undergone an ownership change that would limit its net operating losses under Section 382 of the Code. G. Neither the Company nor NEC VT is a party to any agreement, contract arrangement or plan or could reasonably be expected to result, individually or in the aggregate, in the payment of excess parachute payments within the meaning of Section 280G of the Code. H. Any patronage dividends have been paid in cash or by means of qualified written notices of allocation, as defined in Section 1388 of the Code. I. Neither the Company nor NEC VT has allocated any patronage losses to its Members. SECTION 4.15 Employee Retirement Income Security Act of 1974. A. The Company does not contribute to any Plan or sponsor any Plan or Benefit Arrangement and has not contributed to or sponsored any Plan or Benefit Arrangement, except as set forth in Section 4.15(A) of the Company Disclosure Schedule. As to all Plans and Benefit Arrangements listed in Section 4.15(A) of the Company Disclosure Schedule, and except as disclosed in such Section 4.15(A) of the Company Disclosure Schedule: (1) all Plans and Benefit. Arrangements comply and have been administered in all material respects in form and in operation with all Applicable Laws, and the Company has not received any outstanding notice from any Authority questioning or challenging such compliance; (2) all Plans maintained or previously maintained by the Company that are or were intended to comply with Section 401 of the Code comply and complied in form and in operation with all applicable requirements of such Section, and no event has occurred which will or could reasonably be expected to give rise to disqualification of any such Plan under such Section; (3) none of the assets of any Plan are invested in employer securities or employer real property; 10 (4) there are no "prohibited transactions" (as described in Section 406 of ERISA or Section 4975 of the Code) with respect to any Plan for which the Company has any liability; (5) there are no Claims (other than routine claims for benefits) pending or threatened involving Plans or the assets of Plans; (6) the Company has not maintained any Plan that is subject to Title IV of ERISA; (7) to the extent that the most recent balance sheet forming part of the Company Financial Statements does not include a pro rata amount of the contributions which would otherwise have been made in accordance with past practices for the Plan years which include the Closing Date, such amounts are set forth in Section 4.15(A) of the Company Disclosure Schedule; (8) neither the Company nor any of its respective Members, directors, officers, employees or any other fiduciary has committed any breach of fiduciary responsibility imposed by ERISA that would, directly or indirectly, subject the Company to any material liability under ERISA; and (9) except as set forth in Section 4.15(A) of the Company Disclosure Schedule and pursuant to the provisions of COBRA, the Company does not maintain any Plan that provides benefits described in Section 3(1) of ERISA to any former employees or retirees of the Company; B. The Company is not nor has ever been a party to any Multiemployer Plan or made contributions to any such plan. SECTION 4.16 Employment Arrangements. A. The Company has no obligation or liability, contingent or other, under any Employment Arrangement (whether or not listed in Section 4.15(A) of the Company Disclosure Schedule), other than those listed or described in Section 4.16(A) of the Company Disclosure Schedule. The Company is not now nor during the past three (3) years has been subject to or involved in or, to the Company's knowledge, threatened with any union elections, petitions therefor or other organizational activities, except as described in Section 4.16(A) of the Company Disclosure Schedule. None of the employees of the Company is represented by any labor union or other employee collective bargaining organization and there are no pending grievances, disputes or controversies with any union or any other employee collective bargaining organization of such employees. B. Except as set forth in Section 4.16(B) of the Company Disclosure Schedule, no employee shall accrue or receive additional benefits, service or accelerated rights to payments of benefits under any Employment Arrangement, including the right to receive any parachute payment, as defined in Section 280G of the Code, or become entitled to severance, termination allowance or similar payments as a direct result of this Agreement, the Acquisition Merger or the Transactions. SECTION 4.17 Material Agreements. Listed on Section 4.17 of the Company Disclosure Schedule are all Material Agreements or to which the Company is a party or to which it or any of its property is subject or bound. True, complete and correct copies of each of the Material Agreements have been furnished by the Company to the Parent (or, if oral, true, complete and correct descriptions thereof have been set forth in Section 4.17 of the Company Disclosure Schedule). All of the Material Agreements are valid and binding and obligations enforceable against the Company and, to the Company's knowledge are valid and binding obligations enforceable against, the other parties thereto (except, in each case, as such enforceability may be subject to bankruptcy, moratorium, insolvency, reorganization, arrangement, voidable preference, fraudulent conveyance and other similar laws relating to or affecting the rights of 11 creditors and except as the same may be subject to the effect of general principles of equity). Except as disclosed in Section 4.17 of the Company Disclosure Schedule: (i) the Company is not in default in the payment or performance of any of its obligations under any Material Agreement; (ii) no Event which, with the giving of notice or the passage of time, or both would constitute an event of default by the Company under any Material Agreement has occurred and is continuing; and (iii) to the knowledge of the Company, no other party to any Material Agreement is in default in any material respect in the payment or performance of its obligations thereunder and no Event which, with the giving of notice or the passage of time, or both would constitute a material event of default by such other party under any Material Agreement has occurred and is continuing. SECTION 4.18 Ordinary Course of Business. A. Since June 30, 2002, except as may be described on Section 4.18(A) of the Company Disclosure Schedule or as may expressly be required or permitted by the terms of this Agreement, NEC VT, prior to the Ohio Merger, and the Company, subsequent to the Ohio Merger, has operated, its business in the normal, usual and customary manner in the ordinary course of business, consistent with prior practice, and in connection therewith, except in the ordinary course of business consistent with prior practices has not: (1) sold or otherwise disposed of, or contracted to sell or otherwise dispose of, any of its properties or assets; (2) incurred any obligations or liabilities (fixed, contingent or other); (3) entered into any Material Commitment; (4) canceled any debts or claims; (5) made or committed to make any additions to its property or any purchases of machinery or equipment; (6) discharged or satisfied any Lien (other than discharges or mortgages with respect to the Vermont Facilities) and has not paid any obligation or liability (absolute or contingent) other than current liabilities or obligations under contracts then existing or thereafter entered into, and commitments under Leases existing on that date or incurred since that date; or created or permitted to be created, any Lien on any of its tangible property; (7) transferred any Intangible Assets or created, or permitted to be created, any Lien on any Intangible Assets; (8) increased the compensation payable or to become payable to any of its directors, officers, employees, advisers, consultants, salesmen or agents or otherwise altered, modified or changed the terms of their employment or engagement; (9) suffered any material damage, destruction or loss (whether or not covered by insurance) or any acquisition or taking of property by any Authority; (10) waived any rights of material value without fair and adequate consideration; (11) experienced any work stoppage; (12) entered into, amended or terminated any Lease, Governmental Authorization, Private Authorization, Material Agreement or Employment Arrangement or any Contractual Obligation or transaction with any Affiliate; 12 (13) amended or terminated and has kept in full force and effect including without limitation renewing to the extent the same would otherwise expire or terminate, all insurance policies and coverage; (14) entered into any other transaction or series of related transactions which individually or in the aggregate is material to the Company; (15) incurred any Indebtedness owing to any Member and has not made and will not make any loans or advances to any Member; (16) split, combined or reclassified any of the Company's equity or issued or authorized the issuance of any securities in respect of, in lieu of or in substitution of any of the Company's equity or made any Distribution with respect thereto; (17) amended any of its Organic Documents; or (18) changed any method of accounting or accounting practice or policy, except as required by Applicable Law or by GAAP. B. Since June 30, 2002, NEC VT has exercised its best commercially reasonable efforts to continue to service its Buying Club and Retail Members in a manner consistent with past practices. SECTION 4.19 Broker or Finder. Other than Nature's Equity, Inc., which acted as the financial adviser to the Company, no Person assisted in or brought about the negotiation of this Agreement, the Acquisition Merger or the subject matter of the Transactions in the capacity of broker, agent or finder or in any similar capacity on behalf of the Company. SECTION 4.20 Environmental Matters. Except as set forth in Section 4.20 of the Company Disclosure Schedule: A. The Company has not installed or constructed any, and to the Company's knowledge there are no, underground storage tanks installed or constructed by any other Person, under any property that the Company or any predecessor Entity has at any time within the last ten (10) years owned, occupied or leased. As of the date hereof, except for Permitted Materials stored, used and disposed of in accordance with Applicable Laws, 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, PCB's, 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 Resource Conservation Recovery Act of 1976, as amended, and the regulations promulgated pursuant to said laws, (a "Hazardous Material"), are present, as a result of the actions of the Company or to the knowledge of the Company 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 the Company or any predecessor Entity has within the last ten (10) years owned, operated, occupied or. leased. The Company is not aware of the occurrence of any Event which could involve the Company in any environmental litigation or impose upon the Company any environmental liabilities which would have an Adverse Effect on the Company. B. At no time has the Company or any predecessor Entity transported, stored, used, manufactured, disposed of, released or exposed its employees or others to Hazardous Materials in violation of any Applicable Law, nor has the Company or any predecessor Entity disposed of, transported, sold, or manufactured any product containing a Hazardous Material (collectively, "Hazardous Materials Activities") in violation of any Applicable Law, which such violation would have an Adverse Effect on the Company. 13 C. The Company currently holds all environmental approvals, permits, licenses, clearances and consents (the "Environmental Permits") necessary for the conduct of its Hazardous Material Activities and other businesses as such activities and business are currently being conducted, the absence of which would have an Adverse Effect on the Company. D. No action, proceeding, revocation proceeding, amendment procedure, writ injunction or claim is pending or, to the knowledge of the Company, threatened concerning any Environmental Permit or any Hazardous Materials Activity of the Company. E. No environmental site assessment has been conducted by or on behalf of the Company at any property owned or leased by the Company. SECTION 4.21 Powers of Attorney. Except as set forth in Section 4.21 of the Company Disclosure Schedule, there are no outstanding powers of attorney executed on behalf of the Company. SECTION 4.22 Books and Records. The minute books and other similar records of the Company contain true and complete records of all actions taken at any meetings of the Company's Members, board of directors, and any committee thereof and of all written consents executed in lieu of the holding of any such meeting. SECTION 4.23 Customers and Suppliers. Sections 4.23 of the Company Disclosure Schedule sets forth a list of (a) each customer that accounted for more than 1% of the consolidated revenues of the Company during the fiscal year ended June 30, 2002 and the amount of revenues accounted for by such customer during such period, (b) the 50 largest suppliers of the Company, taken as a whole, based on dollar values of purchases during the fiscal year ended June 30, 2002 and (c) any material changes to such lists. SECTION 4.24 Officers and Directors. Section 4.24 of the Company Disclosure Schedule sets forth a true and complete list of all officers and directors of the Company. SECTION 4.25 Bank Accounts. Section 4.25 of the Company Disclosure Schedule sets forth all checking accounts, savings accounts, custodial accounts, certificates of deposit, safe deposit boxes or other similar accounts maintained by the Company, together with the name of each person with signature authority for each such account. SECTION 4.26 Appraisal, etc. Rights. No Member or other holder of any shares of capital stock of NEC VT or the Company will be entitled to exercise any statutory appraisal, dissenter's or similar rights to have the value of such shares determined by judicial or similar proceeding or to receive any payment on account of such shares except as expressly provided in this Agreement, in connection with either the Ohio Merger or the Acquisition Merger. SECTION 4.27 Disclosure. The representations, warranties and statements by the Company contained in this Agreement, the Exhibits hereto and, the Company Disclosure Schedule, taken as a whole, do not contain any untrue statement of a material fact or omit to state any material fact necessary, in light of the circumstances under which they were made, in order to make the statements herein or therein not misleading. ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF PARENT AND THE MERGER SUBSIDIARY Each of the Parent and the Merger Subsidiary jointly and severally, represents and warrants, to the Company and NEC VT as follows: SECTION 5.1 Organization and Business: Power and Authority: Effect of Transaction. 14 A. Each of the Parent and the Merger Subsidiary: (i) is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware; and (ii) has all requisite corporate power and authority to own or hold under lease Its properties and to conduct its business as now conducted and has in full force and effect all Governmental Authorizations and Private Authorizations and has made all Governmental Filings, to the extent required for such ownership and lease of its property and conduct of its business, except to the extent that the failure to have obtained any such Governmental Authorization or Private Authorization or to have made any such Governmental Filing would not have an Adverse Effect. B. Each of the Parent and the Merger Subsidiary has all requisite corporate power and authority and has in full force and effect all Governmental Authorizations and Private Authorizations in order to enable it to execute and deliver, and to perform its obligations under, this Agreement and each Collateral Document executed or required to be executed by it pursuant hereto or thereto and to consummate the Acquisition Merger and the Transactions, and the execution, delivery and performance of this Agreement and each Collateral Document executed or required to be executed pursuant hereto or thereto have been duly authorized by all requisite corporate or other action. This Agreement has been duly executed and delivered by the Parent and the Merger Subsidiary and constitutes, and each Collateral Document executed or required to be executed pursuant hereto or thereto or to consummate the Acquisition Merger and the Transactions, when executed and delivered by the Company will constitute, legal, valid and binding obligations of the Parent and the Subsidiary, enforceable in accordance with their respective terms, except as such enforceability may be subject to bankruptcy, moratorium, insolvency, reorganization, arrangement, voidable preference, fraudulent conveyance or other similar laws relating to or affecting the rights of creditors, and except as the same may be subject to the effect of general principles of equity. C. Except as set forth in Section 5.1(C) of the Parent Disclosure Schedule, neither the execution and delivery of this Agreement or any Collateral Document executed or required to be executed pursuant hereto or thereto, nor the consummation of the Acquisition Merger or the Transactions, nor compliance with the terms, conditions and provisions hereof or thereof by the Parent, the Merger Subsidiary or any of the other parties hereto or thereto which is Affiliated with the Parent or the Merger Subsidiary: (i) subject to necessary approvals by the Parent's lenders, will materially conflict with, or result in a material breach or violation of, or constitute a material default under, any Applicable Law on the part of the Parent or any Subsidiary or will materially conflict with, or result in a material breach or violation of, or constitute a material default under, or permit the acceleration of any obligation or liability in, or but for any requirement of giving of notice or passage of time or both would constitute such a material conflict with, material breach or violation of, or material default under, or permit any such acceleration in, any Contractual Obligation of the Parent or any Subsidiary, (ii) will result in or permit the creation or imposition of any Lien upon any property now owned or leased by the Parent or any such other party, or (iii) will require any Governmental Authorization or Governmental Filing or Private Authorization on behalf of the Parent or the Merger Subsidiary except for filing requirements under Applicable Law in connection with the Acquisition Merger and the Transactions and except for such Private Authorizations which the failure to obtain will not have an Adverse Effect. 15 SECTION 5.2 Merger Subsidiary. All of the outstanding capital stock of Merger Subsidiary is owned by Parent free and clear of any Lien, claim or encumbrance or any agreement with respect thereto, except Liens in favor of the Parent's lenders. Since the date of its incorporation, Merger Subsidiary has not engaged in any activity of any nature except in connection with or as contemplated by this Agreement and the Transactions. SECTION 5.3 SEC Filings; Financial Statement. A. The Parent has filed all forms, reports, schedules, statements and other documents required to be filed by it during the twelve months immediately preceding the date of this Agreement (collectively, as supplemented and amended since the time of filing, the "Parent SEC Reports") with the SEC. The Parent SEC Reports (i) were prepared in all material respects in accordance with all applicable requirements of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, as applicable, and (ii) did not, at the time they were filed, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The representation in clause (ii) of the preceding sentence does not apply to any misstatement or omission in any Parent SEC Report which was superseded by subsequent Parent SEC Reports. B. The audited consolidated financial statements and unaudited consolidated interim financial statements of the Parent and its consolidated Subsidiaries included or incorporated by reference in the Parent SEC Reports have been prepared in accordance with GAAP consistently applied during the periods indicated (except as may otherwise be indicated in the notes), are true and correct in all material respects, and fairly and completely present the financial position, results of operations and cash flows of the Parent and its consolidated Subsidiaries on a consolidated basis at the respective dates and for the respective periods indicated (except interim financial statements may not contain all notes and are subject to year-end adjustments). SECTION 5.4 Disclosure. This Agreement, the exhibits hereto, and the Parent SEC Reports, taken as a whole, do not contain any untrue statement of a material fact or omit to state any material fact necessary, in light of the circumstances under which they were made, in order to make the statements herein or therein not misleading. ARTICLE 6 ADDITIONAL COVENANTS SECTION 6.1 Confidentiality; Access to Information. A. All information, including formulas, patterns, compilations, programs, devices, methods, techniques or processes, know-how, trade secrets, proprietary information, financial information, employment information or other information furnished by the Parent or the Merger Subsidiary to NEC VT or the Company or by NEC VT or the Company to the Parent or the Merger Subsidiary or by or to their respective Representatives pursuant to or in connection with this Agreement shall be treated as the sole property of the party providing the same. The party disclosing Confidential Information and its Representatives are referred to as the "Disclosing Party" and the party receiving Confidential Information and its Representatives are referred to as the "Recipient". If this Agreement is terminated for any reason, the Recipient shall, or shall cause its Representatives to, return to the Disclosing Party all documents or other materials contained Confidential Information furnished by the Disclosing Party within ten days of the Termination Date. The Recipient shall, and shall cause its Representatives to, keep confidential all of such information, and shall not directly or indirectly use such information for any competitive or other commercial purpose. The obligation to keep such information confidential shall continue for two (2) years from the signing of this Agreement. The Recipient shall not have any obligation to treat as confidential (or cause its Representatives to treat as confidential) information which the Recipient can demonstrate was already properly in its or any of its employees' possession prior to the disclosure of such information by the Disclosing Party or its 16 Representatives, was then generally known or available to the public, or thereafter becomes known or available to the public through no intentional wrongdoing on the part of the Recipient or its Representatives or was disclosed to the Recipient by a third party bound by no obligation of confidentiality to the Disclosing Party. B. In the event that the Recipient becomes legally compelled to disclose all or any portion of the Confidential Information, the Recipient will, or shall cause its Representative to, provide the Disclosing Party with prompt notice thereof, so that the Disclosing Party may seek a protective order or other appropriate remedy. In the event that such protective order or other remedy is not obtained, the Recipient or its Representatives will furnish only that portion of the Confidential Information that is legally required and the Recipient will, or shall cause its Representative to, exercise commercially reasonable efforts to obtain reliable assurance that confidential treatment will be afforded such portion of the Confidential Information. C. The Company will afford to the Parent and the Parent's Representatives full access during normal business hours throughout the period prior to the Closing Date to all of its properties, books, contracts, commitments and records (including without limitation Tax Returns) and, during such period shall furnish promptly upon request all information relating to the Company, that the Parent or any Representatives reasonably requires. D. No investigation pursuant to this Section 6.1 shall affect any representation or warranty in which Agreement of any Party hereto or any condition to the obligations of the Parties hereto. SECTION 6.2 Notification of Certain Matters. The Company shall give prompt notice to the Parent, and the Parent shall give prompt notice to the Company, of the occurrence or non-occurrence of any Event the occurrence or non-occurrence of which would be likely to cause (i) any representation or warranty of the Company or the Parent, as the case may be, contained in this Agreement to be untrue or inaccurate in any material respect,(ii) in the case of the Company, any material change to be made in the Company Disclosure Schedule and or (iii) any failure of the Company or the Parent, as the case may be, to comply with or satisfy, or be able to comply with or satisfy, any material covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that the deliver of any notice pursuant to this Section 6.2 shall not limit or otherwise affect the liability of any Party giving such notice or the remedies available hereunder to the Party receiving such notice. SECTION 6.3 Public Announcements. Until the Closing, or in the event of termination of this Agreement, neither the Company on the one hand, nor the Parent on the other hand, shall, without the consent of the other, issue any press release or otherwise make any public statement with respect to this Agreement, the Acquisition Merger or any Transaction (including the termination of this Agreement in such event). The Company acknowledges and agrees that the Parent may, without its prior consent, issue such press release or make such public statement as may be required by Applicable Law or any listing agreement or arrangement to which the Parent is a party with a national securities exchange or the National Association of Securities Dealers, Inc. Automated Quotation System, or as advised by outside counsel. Each party will furnish the other with a copy of any press release or other public disclosure prior to its publication and will furnish a copy of any press release or other public disclosure so issued as soon as practicable after its publication. Notwithstanding the foregoing, NEC VT may send appropriate disclosure materials to its members in connection with the Ohio Merger. SECTION 6.4 No Solicitation. Neither the Company nor any director or officer of the Company shall, without the written consent of the Parent during the period commencing on the date hereof and ending with the earlier to occur of the Closing or the termination of this Agreement in accordance with its terms, directly or indirectly invite any inquiries of or solicit proposals from, or enter into or continue any discussions or negotiations with, or accept or incur commitments relating to any merger, consolidation or other business combination of the Company with, or relating to the acquisition of any of its voting 17 securities by, or relating to the direct or indirect disposition of any operating assets of the Company (other than dispositions of assets in the ordinary course of business of the Company) to, any Person except the Parent and the Merger Subsidiary. In addition, during the period encompassed by the preceding sentence, the Company shall not furnish or cause to be furnished any information concerning its business, properties or operations to any Person, other than the Parent, the Merger Subsidiary or the Company's lending institutions, known to management to have any interest in any such combination, acquisition or disposition. SECTION 6.5 Environmental Inspections. A. Prior to the Closing, the Parent, at its expense, shall have the right to conduct environmental and other tests, audits, studies and assessments of the real property owned by the Company and the buildings and improvements thereon, and to review such records and documents as may be required by the Parent to enable it to evaluate the condition of and potential liabilities affecting such property. B. If, in the course of the Parent's tests, audits, studies, assessments and review pursuant to subsection (A) above, the parent shall determine that any of the Company's representations and warranties set forth in Section 4.20 are untrue and such misrepresentations, individually or in the aggregate, could reasonably be expected to have an Adverse Effect, the Parent may, in its sole discretion, by written notice to the Company made as soon as practicable following the Parent's discovery of such misrepresentations and in any event not later than thirty (30) days prior to the Termination Date, request that Company irrevocably commit either (i) to take (at its sole cost and expense), all action necessary in accordance with Applicable Law to cure such misrepresentations or (ii) to indemnify and hold harmless all Parent Indemnified Parties from all Claims incurred by any Parent Indemnified Party in connection with any action taken by the Parent or the Surviving Corporation or their respective agents, representatives, contractors, consultants or employees that is necessary under Applicable Law in order to cause the Event giving rise to such misrepresentations to be promptly satisfied, discharged or terminated. SECTION 6.6 Outstanding Membership Interests. Except as contemplated by this Agreement, between the date hereof and the Closing, the Company will not issue, sell or purchase or agree to issue, sell or purchase any equity securities or any Option Security or Convertible Security of the Company other than pursuant to the Ohio Merger. SECTION 6.7 Ordinary Course of Business. A. From the date hereof until the Closing Date, without the Parent's prior written consent or as may be required or permitted by the terms of this Agreement, NEC TV (prior to the Ohio Merger) and the Company (after the Ohio Merger) will operate its business in the normal, usual and customary manner in the ordinary course of business, consistent with prior practice, and in connection therewith, except in the ordinary course of business consistent with prior practices, will not: 18 (1) sell or otherwise dispose of or contract to sell any of its properties or assets, except for (a) the transactions contemplated by Section 7.1(E) and (b) the disposition of the name "Twin Pines" and its related logo and goodwill; (2) incur any obligations or liabilities (fixed, contingent or other); (3) enter into any Material Commitments; (4) cancel any debts or claims; (5) make or commit to make any additions to its property or any purchases of machinery or equipment; (6) discharge or satisfy any Lien (other than discharges of mortgages with respect to the Vermont Facilities) or pay any obligation or liability (absolute or contingent) other than current liabilities or obligations (other than in connection with the transactions contemplated by Section 7.1(E)) under contracts now existing or hereafter entered into and commitments under Leases existing on the date hereof or incurred after that date; or create or permit to be created any Lien on any of its tangible property; (7) transfer or create, or permit to be created, any Lien on any Intangible Assets; (8) except with the prior agreement of the Parent in the case of directors and officers, increase the compensation payable or to become payable to any of its directors, officers, employees, advisers, consultants, salesmen or agents or otherwise alter, modify or change the terms of their employment or engagement; (9) waive any rights of material value without fair and adequate consideration; (10) enter into, amend or terminate any Lease, Governmental Authorization, Private Authorization, Material Agreement or Employment Arrangement or any Contractual Obligation (other than in connection with the transactions contemplated by Section 7.1(E)); (11) amend or terminate, and will keep in full force and effect including without limitation renewing to the extent the same would otherwise expire or terminate, all insurance policies and coverage; (12) enter into any other transaction or series of related transactions which individually or in the aggregate is material to the Company; (13) incur any Indebtedness owning to any Member or make any loans or advances to any Member; (14) split, combine or reclassify any of the Company's equity or issue or authorize the issuance of any securities in respect of, in lieu of or in substitution of any of the Company's equity; (15) amend any of its Organic Documents; (16) change any method of accounting or accounting practice or policy, except as required by Applicable Law or by GAAP; or (17) take or refrain from taking any action which would cause any representation or warranty set forth in this Agreement to be false or inaccurate. 19 B. From the date hereof through the Closing Date NEC VT, prior to the Ohio Merger, and the Company, subsequent to the Ohio Merger, will exercise reasonable efforts to continue to service the Buying Club and Retail Members in a manner consistent with past practices. C. The Company and NEC VT shall cause the Ohio Merger to be carried out in accordance and compliance with all Applicable Laws, and the Company shall cause the Acquisition Merger to be carried out in accordance and compliance with all Applicable Laws applicable to the Company. SECTION 6.8 Tax Matters. A. [RESERVED] B. The Company and the Parent will treat the transaction as a taxable asset acquisition for federal and state Tax purposes. The Company and the Parent shall allocate the sales proceeds in accordance with the allocation rules set forth in Section 1060 of the Code and applicable regulations thereunder. C. The Company shall prepare or caused to be prepared and file or caused to be filed all Tax Returns for the Company which are required to be filed prior to the Closing Date. The Company shall permit the Parent and its Representatives to review and comment on each such Tax Return described in the preceding sentence prior to filing and shall make such revisions to such Tax Returns as are reasonably requested by the Parent. The Parties shall cooperate fully, as and to the extent reasonably requested by the other Party, in connection with the filing of Tax Returns pursuant to this section and any audit, litigation or other proceeding with respect to Taxes. D. All transfer, documentary, sales, use, stamp, registration and other such Taxes, and all conveyance fees, recording charges and other fees and charges (including any penalties and interest) incurred prior to the closing (but excluding any income taxes) in connection with the consummation of the transactions contemplated by this Agreement shall be paid by the Company. SECTION 6.9 Expenses. In no event shall the Company and NEC VT incur expenses of the kinds set forth in Exhibit B in excess of $1,285,000, without the prior written consent of the Parent. ARTICLE 7 CLOSING CONDITIONS SECTION 7.1 Conditions to Each Party's Obligations Under this Agreement. The respective obligations of each Party under this Agreement shall be subject to the fulfillment at or prior to the Effective Time of the following conditions, the performance of which may be waived by the mutual written consent of the parties: A. Parent and Bank Approval. This Agreement, the Acquisition Merger and the Transactions shall have been approved by the requisite vote of the Board of Directors of the Parent and shall have been approved by the Parent's principal lenders. B. Governmental Consents. All authorizations, consents, orders or approvals of, or declarations or filings with, and all expirations of waiting periods imposed by, any governmental or regulatory authority or agency which are necessary for the consummation of the transactions contemplated by this Agreement, including without limitation the Acquisition Merger, shall have been filed, occurred or been obtained (all such authorizations, orders, declarations, approvals, filings and consents and the lapse or all such waiting periods being referred to as the "Requisite Regulatory Approvals") and all such Requisite Regulatory Approvals shall be in full force and effect. 20 C. No Injunctions or Restraints. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition (an "Injunction") preventing the consummation of the transactions contemplated by this Agreement shall be in effect. D. [RESERVED] E. Vermont Facilities. Prior to the Ohio Merger and the Closing and subject to the consent of CDI Development Fund, Inc. ("CDI"), NEC VT shall convey to National Cooperative Services Corporation ("NCSC") or a wholly-owned subsidiary (the "Lessor"), NEC VT's distribution facilities, land, buildings and improvements, at 90 Technology Drive (the "Tech Drive Facility") and at 49 Bennett Drive, Brattleboro, Vermont (collectively, the "Vermont Facilities") in complete satisfaction of all indebtedness and other obligations of the Company and/or NEC VT to NCSC, CDI and their Affiliates, including those secured in whole or in part by the Vermont Facilities, and the Parent shall have received such title opinions or other written evidence reasonably satisfactory to the Parent that (i) the Vermont Facilities are then owned by the Lessor in fee simple, subject to no Liens (except the Lien of current taxes not yet due and payable) and (ii) all mortgages of record as to the Vermont Facilities and all security interests of CDI and NCSC have been discharged or terminated. F. Lease for Tech Drive Facility. The Merger Subsidiary shall have entered into a new two (2) year lease with the Lessor for the Tech Drive Facility, substantially in the form of Exhibit C hereto. A condition to entering into such lease shall be that the Parent at its expense shall have received such contractor, engineer and other reports concerning the mechanical, structural, environmental and other condition of the Tech Drive Facility as the Parent in its reasonable discretion shall determine, which reports shall in all respects be reasonably satisfactory to the Parent. G. List of Accounts Payable. At Closing, the Company shall deliver to the Parent the most recent complete list of all of its accounts payable prepared in the ordinary course of business. H. CGANE Agreement. The Merger Subsidiary, CGANE, and the CGANE members shall have executed a supply agreement substantially in the form of Exhibit D (the "CGANE Agreement"). I. Bridge Loan Documents. The Company and the Parent shall have closed the Bridge Loan and delivered all documents required under Section 3.2, and the Company shall not be in default under any of the Loan Documents. J. Ohio Merger. The Ohio Merger shall have been completed. K. Southworth Agreement. The Surviving Corporation and George Southworth shall have entered into an Agreement substantially in the form of Exhibit E. SECTION 7.2 Conditions to the Obligations of Parent and the Merger Subsidiary Under This Agreement. The obligations of the Parent and the Merger Subsidiary under this Agreement shall be further subject to the satisfaction or waiver by the Parent and the Merger Subsidiary of the following conditions at or prior to the Effective Time: A. Absence of Adverse Changes. Other than transactions contemplated by this Agreement and except as set forth herein or in the Exhibits or Schedules hereto, there shall not have occurred any change since June 30, 2002 in the assets, liabilities, business, operations, result of operations or condition of the Company which has had, individually or in the aggregate, an Adverse Effect on the Company. B. Representations and Warranties; Performance of Obligations. The obligations of the Company and NEC VT required to be performed by them at or prior to the Effective Time pursuant to the terms of this Agreement shall have been duly performed and complied with and the representations and warranties of the Company and NEC VT contained in this Agreement shall be true and correct as of the date of this Agreement and as of the Effective Time after giving effect 21 to the Ohio Merger as though made at and as of the Effective Time (except as otherwise specifically contemplated by this Agreement and except as to any representation or warranty which specifically relates to an earlier date) and the Parent shall have received certificates to that effect signed by the chairman or president and the chief financial officer or chief accounting officer of the Company. C. Third-Party Approvals. Any and all permits, consents, waivers, clearances, approvals and authorizations of or notices to all non-governmental and non-regulatory third parties which are necessary in connection with the consummation of the transactions contemplated by this Agreement and are required to be received, made or obtained by the Company, shall have been so received, made or obtained by the Company, as applicable, other than permits, consents, waivers, clearances, approvals, authorizations and notices the failure of which to have received, made or obtained would neither make it impossible to consummate the transactions contemplated by this Agreement nor result in any Adverse Effect on the Parent after the Effective Time. D. Burdensome Condition. None of the Requisite Regulatory Approvals shall impose any term, condition or restriction upon Parent that Parent in good faith reasonably determines would so materially adversely impact the economic or business benefits of the transactions contemplated by this Agreement as to render inadvisable in the reasonable judgment of Parent the consummation of the Acquisition Merger. E. Legal Opinion. The Parent shall have received the opinions of Merritt & Merritt, as to Vermont law, and Shumaker, Loop & Kendrick, LLP as to Ohio law, each dated the Closing Date, with respect to such matters as the Parent may reasonably request. F. Additional Documents. In addition to the foregoing, the Company will furnish the Parent with such additional certificates, instruments or other documents in the name or on behalf of the company executed by appropriate officers or others, including without limitations certificates or correspondence of governmental agencies or authorities or non-governmental third parties, to evidence fulfillment of the conditions set forth in this Section 7.2 as the Parent may reasonably request. SECTION 7.3 Condition to the Obligations of the Company Under This Agreement. The obligations of the Company under this Agreement shall be further subject to the satisfaction or waiver by the Company of the following conditions at or prior to the Effective Time: A. Representations and Warranties; Performance of Obligations. The obligations of the Parent and the Merger Subsidiary required to be performed by them at or prior to the Effective Time pursuant to the terms of this Agreement shall have been duly performed and complied with and the representations and warranties of the Parent and the Merger Subsidiary contained in this Agreement shall be true and correct as of the date of this Agreement and as of the Effective Time as though made at and as of the Effective Time (except as otherwise specifically contemplated by this Agreement and except as to any representation or warranty which specifically relates to an earlier date) and the Company shall have received a certificate to that effect signed by the executive vice president and chief financial officer (or other authorized officer(s)) of the Parent. B. Third-Party Approvals. Any and all permits, consents, waivers, clearances, approvals and authorization of or notices to all non-governmental and non-regulatory third parties which are necessary in connection with the consummation of the transactions contemplated by this Agreement and are required to be received, made or obtained by the Parent, or the Merger Subsidiary, shall have been so received, made or obtained by the Parent, or the Merger Subsidiary, other than permits, consents, waivers, clearances, approvals, authorization and notices the failure of which to obtain would neither make it impossible to consummate the transactions contemplated by this Agreement nor result in an Adverse Effect on the Parent, or the Merger Subsidiary after the Effective Time. C. Parent Deliveries. The Parent shall make the payments required by Section 3.1 and, to the extent then due, the payments under Section 10.3. 22 D. Legal Opinion. The Company shall have received the opinion of Cameron & Mittleman LLP, counsel to the Parent and the Merger Subsidiary, dated the Closing Date with respect to such matters as the Company may reasonably request, but limited to assumptions as to applicable laws. E. Additional Documents. In addition to the foregoing, the Parent and the Merger Subsidiary will furnish the Company with such additional certificates, instruments or other documents in the name or on behalf of the Parent, or the Merger Subsidiary executed by appropriate officers or others, including without limitation certificates or correspondence of governmental agencies or authorities or non-governmental third parties, to evidence fulfillment of the conditions set forth in this Section 7.3 as the Company may reasonably request. ARTICLE 8 TERMINATION, AMENDMENT AND WAIVER SECTION 8.1 Termination. This Agreement may be terminated at any time prior to the Closing Date: A. by either of the Parent and the Company if; (1) any permanent injunction, decree or judgment by any Authority preventing the consummation of the Acquisition Merger shall have become final and nonappealable; or (2) the Closing shall not occur on or before the Termination Date; B. by the Company, in the event of a material breach of this Agreement by the Parent or the Merger Subsidiary that has not been cured, or if any representation or warranty of the Parent or the Merger Subsidiary shall have become untrue in any material respect, in either case such that such breach or untruth is incapable of being cured by the Closing Date or will prevent or delay consummation of the Acquisition Merger by or beyond the Termination Date; or C. by the Parent in the event of a material breach of this Agreement or the Loan Documents by the Company or NEC VT that has not been cured, or if any representation or warranty of the Company shall have become untrue in any material respect, in either case such that such breach or untruth is incapable of being cured by the Closing Date or will prevent or delay consummation of the Acquisition Merger by or beyond the Termination Date. SECTION 8.2 Effect of Termination. In the event of the termination of this Agreement pursuant to Section 8.1, this Agreement shall terminate, and there shall be no liability on the part of any Party, or any of their respective stockholders, Members, officers or directors, to the other and all continuing rights and obligations of any Party shall cease; other than the rights and obligations of the Parties under Section 6.1 (Confidentiality, Access to Information), this Section 8.2, Section 8.5 (Fees, Expenses and Other Payments), Section 11.7 (Governing Law) and Section 11.8 (Enforcement); provided, however, that such termination shall not relieve any Party from liability for the willful breach of any of its representations, warranties, covenants or agreements set forth in this Agreement. SECTION 8.3 Amendment. This Agreement may be amended by the Parties by action taken by or on behalf of the respective Boards of Directors thereof at any time prior to the Closing Date. This Agreement may not be amended except by an agreement in writing signed by all of the Parties. SECTION 8.4 Waiver. At any time prior to the Closing Date, except to the extent Applicable Law does not permit, either the Parent (on behalf of itself and the Merger Subsidiary) and the Company may extend the time for the performance of any of the obligations or other acts of the other, waive any inaccuracies in the representations and warranties of the other contained herein or in any document delivered pursuant hereto, and waive compliance by the other with any of the agreements, covenants or conditions contained herein. Any such extension or waiver shall be valid only if set forth in an agreement in writing signed by the Party or Parties to be bound thereby. 23 SECTION 8.5 Fees, Expenses and other Payments. In the event of termination of this Agreement, all costs and expenses, incurred in connection with this Agreement, the Acquisition Merger and the Transactions, and compliance with Applicable Law and Contractual Obligations as a consequence hereof and thereof, including, without limitation, fees and disbursements of counsel, financial advisors and accountants, incurred by the Parties shall be borne solely and entirely by the Party which has incurred such costs and expenses (with respect to such Party, its "Expenses"). SECTION 8.6 Effect of Investigation. The right of any Party to terminate this Agreement pursuant to Section 8.1 shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any Party, any Person controlling any such party or any of their Representatives whether prior to or after the execution of this Agreement. ARTICLE 9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION SECTION 9.1 Effectiveness of Representations, etc. Regardless of any investigation made by or on behalf of any other Party hereto, any Person controlling such Party or any of their respective Representatives whether prior to or after the execution and consummation of this Agreement, the representations and warranties set forth in Article 4 and Article 5 hereof shall survive the Acquisition Merger and remain operative and in full force and effect until the date that is two (2) years after the Closing Date, except for those representations and warranties set forth in Section 4.1 and Section 5.1 which shall remain operative and in full force and effect indefinitely. SECTION 9.2 Indemnification. A. The Company and NEC VT, jointly and severally, prior to the Effective Time, and the Members, after the Effective Time, agree to make whole, indemnify and hold the Parent and its Affiliates, agents, successors and assigns (collectively, the "Parent Indemnified Parties") harmless as a result of, from or against any loss, liability, deficiency, damage, expense or cost ("Loss") that a Parent Indemnified Party may suffer, sustain or become subject to as a result of: (1) any and all Claims of the Parent Indemnified Parties or other Persons based upon, attributable to or resulting from any inaccuracy in or breach of any representation or warranty on the part of the Company or NEC VT under this Agreement or any Collateral Document; (2) any and all Claims of the Parent Indemnified Parties or other Persons based upon, attributable to or resulting from the material breach of any covenant or other agreement on the part of the Company or NEC VT under this Agreement or any Collateral Document; and (3) any and all Claims of the Parent Indemnified Parties or other Persons incident to the foregoing or to the enforcement of this Section 9.2. B. The Company or the Members, as the case may be, will be liable to the Parent Indemnified Parties only if the aggregate amount of the Parent Indemnified Parties' Losses exceeds $250,000, in which case the Company or the Members, as the case may be, will be liable only for the amount of such Losses in excess of $250,000. 24 C. The Company and the Members will not be required to pay the Parent Indemnified Parties for Losses in excess of $1,100,000 (which amount shall include the $250,000 amount specified in paragraph B above). D. Notwithstanding anything in this Agreement to the contrary, the obligations of the Company and the Members under Section 9.2(A) shall terminate with respect to all claims made after the date that is two (2) years after the Closing Date (the "Section 9.2 Date") and all initial notices of claims for indemnification shall have been given no later than the Section 9.2 Date. SECTION 9.3 Indemnification by the Parent and Merger Subsidiary. A. The Parent and the Merger Subsidiary, jointly and severally, hereby agree to make whole, indemnify and hold the Company, NEC VT, the Members and their respective Affiliates, agents, heirs, successors and assigns (collectively, the "Company Indemnified Parties") harmless as a result of, from or against any Loss that a Company Indemnified Party may suffer, sustain or become subject to as a result of: (1) any and all Claims of the Company Indemnified Parties or other Persons based upon, attributable to or resulting from any inaccuracy in or breach of any representation or warranty on the part of the Parent or the Merger Subsidiary under this Agreement or any Collateral Document; (2) any and all Claims of the Company Indemnified Parties or other Persons based upon, attributable to or resulting from the material breach of any covenant or other agreement on the part of the Parent or the Merger Subsidiary under this Agreement or any Collateral Document; and (3) any and all Claims of the Company Indemnified Parties or other Persons incident to the foregoing or to the enforcement of this Section 9.3. SECTION 9.4 Procedures. A. In the event that any Legal Action shall be instituted or asserted by any Person other than such indemnified party in respect of which payment may be sought hereunder, the indemnified party shall reasonably and promptly cause written notice of the assertion of any Legal Action of which it has knowledge which is covered by the indemnities under Section 9.2 or Section 9.3 to be forwarded to the indemnifying party. In such event, the indemnifying party shall have the right, at its sole option and expense, to be represented by counsel of its choice, which must be reasonably satisfactory to the indemnified party, and to defend against, negotiate, settle or otherwise deal with any Legal Action which relates to any Claims instituted or asserted by any Person other than such indemnified party and indemnified against hereunder; provided, however, that no settlement thereof shall be made without the prior written consent of the indemnified party, which consent shall not be unreasonably withheld, conditioned or delayed. If the indemnifying party elects to defend against, negotiate, settle or otherwise deal with any Legal Action which relates to any such Claims, it shall within thirty (30) days (or sooner, if the nature of the Legal Action so requires) notify the indemnified party of its intent to do so. If the indemnifying party elects not to defend against, negotiate, settle or otherwise deal with any Legal Action which relates to any such Claims, fails to notify the indemnified party of its election as herein provided or contests its obligation to indemnify the indemnified party for such Claims under this Agreement, the indemnified party may defend against, negotiate, settle or otherwise deal with such Legal Action. If the indemnified party defends any Legal Action, then the indemnifying party shall reimburse the indemnified party for Claims incurred in defending such Legal Action upon submission of periodic bills. Neither the indemnified party nor the indemnifying party may settle any Legal Action without the prior written consent of the other, which consent shall not be unreasonably withheld, conditioned or delayed. If the indemnifying party shall assume the defense of any Legal Action instituted or asserted by any Person other than an indemnified party, the indemnified party may participate, at such party's own expense, in the defense of such Legal Action. 25 B. After any final judgment or award shall have been rendered by a court, arbitration board (which may be engaged as required by law or contract or upon the consent of each of the indemnifying party and the indemnified parties) or administrative agency of competent jurisdiction and the expiration of the time in which to appeal therefrom, or a settlement shall have been consummated, or the indemnified party and the indemnifying party shall have arrived at a mutually binding agreement with respect to a Legal Action hereunder, the indemnifying party shall pay the indemnified party a cash payment, such payment shall be made by wire transfer of immediately available funds within five business days after the date of notice of such judgment or award. C. An indemnified party shall notify the indemnifying party within a reasonable period of time after becoming aware of potential Losses for which it may seek indemnification under this Article 10 (other than those potential Losses covered by Section 9.4(A) and Section 9.4(B) above, which potential Losses shall be subject to the provisions of those Sections). Such notice shall include an estimate of the Losses that the indemnified party has determined may be incurred. As soon as practicable after the date of such notice, the indemnified party shall give the indemnifying party all information and documentation necessary to support and verify the Losses specified in such notice and the indemnifying party and its agents shall be given access to all books and records in the possession or control of the indemnified party which the indemnifying party reasonably determines to be related to such potential Losses. If the indemnifying party notifies the indemnified party that it does not dispute such potential Losses or the estimated amount of such potential Losses, or fails to notify the indemnified party within 45 days after delivery of such notice by the indemnified party whether the indemnifying party disputes such potential Losses or the estimated amount of such potential Losses, the estimated Losses in the amount specified in such notice shall be conclusively deemed a liability of the indemnifying party and the indemnifying party shall pay such amount to the indemnified party. If the indemnifying party has timely disputed its liability with respect to such potential Losses or the estimated amount of such potential Losses, the indemnifying party and the indemnified party will proceed in good faith to negotiate a resolution of such dispute, and if not resolved through such negotiations within 60 days after the delivery of the notice from the indemnified party, such dispute shall be resolved fully and finally in Boston, Massachusetts by an arbitrator selected pursuant to, and an arbitration governed by, the Commercial Arbitration Rules of the American Arbitration Association. The arbitrator shall resolve the dispute within 30 days after selection and judgment upon the award rendered by such arbitrator may be entered in any court of competent jurisdiction. SECTION 9.5 Exclusive Remedy. After the Closing, the indemnification provisions as set forth in this Article 9 shall be the exclusive remedy for any breaches or alleged breaches of any representation, warranty or covenant contained in this Agreement or any Collateral Document, except for (i) breaches arising from intentional fraud or intentional misconduct, (ii) failure to pay amounts due pursuant to Section 2.6, (iii) breaches of Sections 10.1, 10.2, 10.3 and 10.4 and (iv) breaches arising under the CGANE Agreement. In the event any action is brought as provided in this Section 9.5 or in connection with any of the matters described in clauses (i) through (iv) of the preceding sentence, the prevailing party's reasonable attorneys' fees and costs will be paid by the nonprevailing party, as may be awarded by the arbitrator or court, as the case may be. SECTION 9.6 Recoveries. A. After the Closing, the Parent Indemnified Parties' sole method for collecting amounts due pursuant to Section 9.2(A) will be to withhold amounts that would otherwise be payable on December 31, 2004 pursuant to (i) Section 10.1(B) and (ii) the CGANE Agreement (the "Section 9.6 Amounts"). Any such withholding shall be made pro rata among all such payments. B. The amount to which a Parent Indemnified Party or a Company Indemnified Party may become entitled under this Article 9 shall be net of any recovery (whether by way of payment, discount, credit, set-off, tax benefit, counterclaim or otherwise) received from a third party (including any insurer or Taxing Authority) in respect of such Claim. The amount of any such recovery, less all reasonable costs, charges and expenses incurred by the relevant Parent Indemnified Party or Company Indemnified Party, as the case may be, in obtaining such recovery from the third party, shall be repaid by the relevant Parent Indemnified Party or Company Indemnified Party, as the case may be, to the relevant indemnifying Party promptly upon the receipt thereof from the third party. Any such payment shall, to the extent permitted by Applicable Law, be an adjustment to the purchase price for Tax purposes. 26 SECTION 9.7 Member Representative. A. If the Members approve the Ohio Merger and the Acquisition Merger is consummated then, effective upon such consummation and without any further act of any Members, a Person to be named by the Company and reasonably acceptable to the Parent shall be appointed as the Members' representative, agent and attorney-in-fact to take all actions on behalf of the Members as indemnifying parties under this Article 9, including giving and receiving notices and communications; defending Legal Actions; objecting to, negotiating and entering into settlements of and compromises with respect to notices asserting rights to indemnification from the Parent Indemnified Parties; and authorizing delivery to the Parent Indemnified Parties of any amounts due pursuant to this Article 9 (the "Members' Representative"). B. Until the Section 9.2 Date (or, if there is on the Section 9.2 Date any unresolved claim for indemnification pursuant to Section 9.2, such later date as all such unresolved claims are settled), the Members who are entitled to receive 50% or more of the Section 9.6 Amounts may, from time to time upon written notice to the Members' Representative and Parent, remove the Members' Representative or appoint a new Members' Representative upon the death, incapacity, resignation or removal of the Members' Representative. Upon receipt of such notice, the Parent may rely on the actions of such new Members' Representative without further inquiry. C. If the Members approve the Ohio Merger and the Acquisition Merger is consummated then, effective upon such consummation and without any further act of any Member, each Member shall be deemed to have agreed that (i) the authority of the Members' Representative under this Section 9.7 shall include the right to hire or retain such counsel, investment bankers, accountants, representatives and other professional advisors as the Members' Representative determines in the Members' Representative's sole discretion to be necessary, appropriate or advisable, (ii) no bond shall be required of the Members' Representative and the Members' Representative shall receive no compensation for service in such capacity and (iii) the Members' Representative shall not be liable to any Member for any act done or omitted as Members' Representative while acting in good faith and in the exercise of reasonable judgment. Nothing in this Section 9.7(C) or elsewhere in this Agreement shall be deemed to impose any indemnification or other similar obligation to the Members' Representative in its capacity as Members' Representative on any of the Company, the Parent, the Merger Subsidiary or the Surviving Corporation. ARTICLE 10 OTHER AGREEMENTS SECTION 10.1 Servicing the Members. A. For a period of five (5) years following the Effective Time, the Surviving Corporation will, and the Parent will cause the Surviving Corporation to, use its commercially reasonable efforts to continue to service the Buying Club and Retail Members in a manner consistent with either (i) NEC VT's past practices, or (ii) with respect to Retail Members (but not Buying Clubs) the Parent's past practice in NEC VT's entire geographic area with respect to Retail Members; provided, that nothing contained in this Section 10.1 (a) shall obligate the Parent or the Surviving Corporation to continue to service any Buying Club or Retail Member in a manner which would be less profitable than that applicable to the conduct of the Parent's business generally or (b) to provide products to such Members on terms and conditions more favorable than those provided by the Parent to other like customers purchasing like quantities of like products. 27 B. The Parent and the Surviving Corporation covenant and agree that any Member listed on Schedule 10.1 that continues to purchase products from the Parent or the Surviving Corporation as its primary supplier shall be entitled to receive the incentive payments specified on Schedule 10.1 on December 31, 2002, December 31, 2003 and December 31, 2004. Nothing in this Section 10.1(B) shall limit the right of the Parent or the Surviving Corporation to cease doing business with any such Member on account of such Member's failure to pay or perform any material obligations. In such event, such Member shall be entitled to no further payments. The payments due December 31, 2004 are expressly subject to offset in accordance with Section 9.6. NEC VT represents that the Members shown on Schedule 10.1 represent all organizational Members which have purchased products from NEC VT since July 1, 2001 other than the Members named in the CGANE Agreement. Schedule 10.1 may be updated by NEC VT prior to the Closing to reflect changes in membership; provided, however, that the aggregate amount of payments listed on such Schedule shall not be increased. SECTION 10.2 Employees. The Parent will cause the Surviving Corporation to provide any of the Company's employees retained by the Surviving Corporation (the "Employees") with compensation and benefits substantially consistent with those paid to the Parent's other employees in similar positions performing similar work. SECTION 10.3 Severance. After the Closing, the Parent and the Merger Subsidiary, jointly and severally, agree to provide severance payments not exceeding $1,500,000 in the aggregate under (i) the severance policy attached hereto as Exhibit F-1 to those persons who are employees of the Company on the Closing Date and whose jobs are eliminated by reason of the closing of any of NEC VT's current locations or whose employment by the Surviving Corporation is terminated within twelve (12) months after the Closing Date, except for cause, and (ii) the severance agreements described in Exhibit F-2, true and correct copies of which have been delivered to the Parent. SECTION 10.4 Regulatory Filings. Each of the Company, NEC VT, the Parent and the Merger Subsidiary shall, as promptly as practicable after the execution of the Agreement, make or cause to be made all filings and submissions under Applicable Laws appropriate to each such Party for the consummation of the transactions contemplated by this Agreement. Parent and Merger Subsidiary will coordinate and cooperate with the Company and the Company will coordinate and cooperate with the Parent and Merger Subsidiary in exchanging such information, and will provide such reasonable assistance as any other Party may request in connection with all of the foregoing. SECTION 10.5 Conditions. Each of the Company, NEC VT, the Parent and Merger Subsidiary shall take all commercially reasonable actions necessary to cause the conditions precedent set forth in Article 8 to be satisfied and to consummate the Transactions contemplated herein as soon as reasonably possible and in any event prior to the Closing Date. ARTICLE 11 GENERAL PROVISIONS SECTION 11.1 Notices. All notices and other communications relating to this Agreement will be in writing and (except as otherwise provided) will be deemed to have been given when personally delivered, three days following mailing by certified or registered mail, return receipt requested, and one business day following delivery to a reliable overnight courier or following transmission by facsimile or other electronic means with electronic confirmation of transmission received. All notices to the Parent, Merger Subsidiary, NEC VT or the Company shall be sent to the following addresses or facsimile numbers: A. If to the Parent or the Merger Subsidiary: c/o United Natural Foods, Inc. 260 Lake Road Dayville, CT 06241 Attn: Steven H. Townsend, President Facsimile No.: 860-779-0746 28 With a copy to: Cameron & Mittleman LLP 56 Exchange Terrace Providence, RI 02903 Attn: E. Colby Cameron, Esq. Facsimile No.: 401-331-5787 B. If to NEC VT, the Company or the Members: George Southworth, CEO Northeast Cooperatives 90 Technology Drive P.O. Box 8188 Brattleboro, VT 05304 With a copy to: Dorsey & Whitney LLP 1001 Pennsylvania Avenue, N.W. Suite 400 South Washington, DC 20004 Attn: J. Gary McDavid, Esq. Facsimile No.: 202-442-3199 SECTION 11.2 Headings. The headings contained in this Agreement are for purposes of reference only and shall not affect in any way the meaning or interpretation of this Agreement. SECTION 11.3 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the Transactions is not affected in any manner Adverse to any party. Upon determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parent and the Company shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible to the fullest extent permitted by Applicable Law in an acceptable manner to the end that the Transactions are fulfilled to the extent possible. SECTION 11.4 Entire Agreement. This Agreement (together with the Company Disclosure Schedule, and the other Collateral Documents delivered in connection herewith), constitutes the entire agreement of the Parties and supersedes all prior agreements and undertakings, both written and oral, between the Parties, or any of them, with respect to the subject matter hereof. SECTION 11.5 Assignment. This Agreement shall not be assigned by operation of law or otherwise and any purported assignment shall be null and void, except that the Merger Subsidiary may assign its rights and obligations hereunder to a Delaware limited liability company which (i) is wholly-owned by the Parent and (ii) assumes all of the obligations of the Merger Subsidiary hereunder. SECTION 11.6 Parties in Interest. This Agreement shall be binding upon and inure solely to the benefit of each Party, and nothing in this Agreement, express or implied, is intended to or shall confer upon any Person any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement; except that (i) the Members' Representative shall have the rights and powers provided in Section 9.7, (ii) each Parent Indemnified Party and Company Indemnified Party shall have the indemnification rights provided by Article 9, (iii) each Member shall be entitled to enforce its rights to receive the payments provided for in Section 2.6 and its rights under Section 10.1 and (iv) each of the Employees shall be entitled to enforce his or her rights under Section 10.2 and 10.3. 29 SECTION 11.7 Governing Law. This Agreement shall be governed by, and construed in accordance with, the substantive laws of the State of Delaware governing contracts made and to be performed in such jurisdiction, regardless of the laws that might otherwise govern under applicable principles of conflicts of law. SECTION 11.8 Enforcement of the Agreement. Each Party recognizes and agrees that each other Party's remedy at law for any breach of the provisions of this Agreement would be inadequate and agrees that for breach of such provision, such Party shall, in addition to such other remedies as may be available to it at law or in equity or as provided in this Agreement, but subject to the provisions of Section 9.5, be entitled to injunctive relief and to enforce its rights by an action for specific performance to the extent permitted by Applicable Law. Each Party hereby waives any requirement for security or the posting of any bond or other surety in connection withe any temporary or permanent award of injunctive, mandatory or other equitable relief. Nothing contained in this Section 11.8 shall be construed as prohibiting a Party from pursuing any other remedies available to such Party for any breach or threatened breach hereof or failure to take or refrain from any action as required hereunder to consummate the Acquisition Merger and carry out the Transactions. SECTION 11.9 Counterparts. This Agreement may be executed in one or more counterparts, and by the different Parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. SECTION 11.10 Mutual Drafting. This Agreement is the result of the joint efforts of the Parent and the Company, and each provision hereof has been subject to the mutual consultation, negotiation and agreement of the parties and there shall be no construction against any Party based on any presumption of that Party's involvement in the drafting thereof. SECTION 11.11 Disclosure Supplements. From time to time prior to the Closing Date, each Party will promptly supplement or amend its respective Disclosure Schedule delivered in connection herewith with respect to any material matter which, if existing, occurring or known at the date of this Agreement, would have been required to be set forth or described in such Company Disclosure Schedule which has been rendered inaccurate thereby. The making of any such amendment shall not otherwise affect the liability of any Party delivering such Amendment or the rights of any Party receiving such amendment. ARTICLE 12 DEFINITIONS As used herein, unless the context otherwise requires, the following terms (or any variant in the form thereof) have the following respective meanings. Terms defined in the singular shall have a comparable meaning when used in the plural, and vice versa, and the reference to any gender shall be deemed to include all genders. Unless as defined or the context otherwise clearly requires, terms for which meanings are provided herein shall have such meanings when used in the Disclosure Schedules and each Collateral Document, notice, certificate, communication, opinion or other document executed or required to be executed pursuant hereto or thereto or otherwise delivered, from time to time, pursuant hereto or thereto. Acquisition Merger shall have the meaning given to it in Section 2.1. Adverse, Adversely, when used alone or in conjunction with other terms (including without limitation "Affect," "Change" and "Effect") shall mean, with respect to the Company, or to the Parent, or the Merger Subsidiary, as the case may be, any Event which could reasonably be expected to (a) adversely affect the validity or enforceability of this Agreement or any Collateral Document executed or required to be executed pursuant hereto or thereto, or (b) adversely affect the business, operations, management, properties or the condition, (financial or 30 other), or results of the operation of the Company of the Parent and its Subsidiaries, taken as a whole, as the case may be, or (c) impair the ability of the Company or the Parent, or the Merger Subsidiary, as applicable, to fulfill its obligations under the terms of any Collateral Document executed or required to be executed pursuant hereto or thereto, or (d) adversely affect the aggregate rights and remedies of the Parent or the Company, as the case may be, under this Agreement or any Collateral Document executed or required to be executed pursuant hereto or thereto, in all cases (whether under (a), (b), (c) or (d)), unless otherwise specifically set forth, in a material respect or manner or to a material degree. Affiliate, Affiliated shall mean, with respect to any Person, (a) any other Person at the time directly or indirectly controlling, controlled by or under direct or indirect common control with such Person, (b) any other Person of which such Person at the time owns, or has the right to acquire, directly or indirectly, twenty percent (20%) or more of any class of the capital stock or beneficial interest, (c) any other Person which at the time owns, or has the right to acquire, directly or indirectly, twenty percent (20%) or more of any class of the capital stock or beneficial interest of such Person, (d) any executive officer or director of such Person, (e) with respect to any partnership, join venture or similar Entity, any general partner thereof, and (f) when used with respect to an individual, shall include any member of such individual's immediate family or a family trust. Agreement shall mean this Agreement and Plan of Merger as originally in effect, including unless the context otherwise specifically requires, all schedules, including the Disclosure Schedules and exhibits hereto, and as the same from time to time be supplemented, amended, modified or restated in the manner herein or therein provided. Applicable Law shall mean any Law of any Authority, whether domestic or foreign, including without limitations all federal and state securities laws and Environmental Laws, to or by which a Person or it or any of its business or operations is subject or any of its property or assets is bound. Authority shall mean any governmental or quasi-governmental authority, whether administrative, executive, judicial, legislative or other, or any combination thereof, including without limitation any federal, state, territorial, county, municipal or other government or governmental or quasi-governmental agency, arbitrator, authority, board, body, branch, bureau, central bank or comparable agency or Entity, commission, corporation, court, department, instrumentality, master, mediator, panel, referee, system or other political unit or subdivision or other Entity of any of the foregoing, whether domestic or foreign. Bank Payment shall have the meaning given to it in Section 3.2(A). Benefit Arrangement shall mean, with respect to any Person, any material benefit arrangement that is not a Plan, including (i) any employment or consulting agreement, (ii) any arrangement providing for insurance coverage or workers' compensation benefits, (iii) any incentive bonus or deferred bonus arrangement, (iv) any arrangement providing termination allowance, severance or similar benefits, (v) any equity compensation plan, (vi) any deferred compensation plan and (vii) any compensation policy and practice. Bridge Loan shall have the meaning given to it in Section 3.2 (A). Buying Club Members shall mean Persons or consumer groups who organize to purchase products from NEC VT. Cash Payment shall have the meaning given to it in Section 2.5(A). CDI shall have the meaning given to it in Section 7.1(E). Certificates of Merger shall have the meaning given to it in Section 2.2. CGANE shall mean the Cooperative Grocers Association of the Northeast. 31 CGANE Agreement shall have the meaning given to it in Section 7.1(H). CGANE Members shall mean the members of CGANE. Claim shall mean any debt, liability, obligation, loss, damage, deficiency, assessment or penalty, together with any Legal Action, pending or threatened, or any claim or judgment of whatever kind and nature relating thereto, and all fees, costs, expenses and disbursements (including without limitation reasonable attorneys' and other legal fees, costs and expenses) relating to any of the foregoing. Closing shall have the meaning given to it in Section 1.1. Closing Costs shall have the meaning given to it in Section 3.1. Closing Date shall mean the date as soon as reasonably possible following the satisfaction of the conditions set forth in Article 7, or upon the agreement of the Parent and the Company, a date or successive dates subsequent thereto, but in no event later than the Termination Date. COBRA shall mean the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, as set forth in section 4980B of the Code and Part 6 of Title I of ERISA. Code shall mean the Internal Revenue Code of 1986, as amended. Collateral Document shall mean any agreement, instrument, certificate, opinion, memorandum, schedule or other document delivered by a Party pursuant to this Agreement or in connection with the Acquisition Merger and the Transactions. Company shall have the meaning given to it in the recitals of this Agreement. Company Disclosure Schedule shall mean the Company Disclosure Schedule dated as of the date of this Agreement delivered by the Company to the Parent, as the same may be amended, modified or supplemented at the Closing, but no such amendment, modification or supplement shall affect any representation, warranty or agreement as of the date made. Company Financial Statements shall have the meaning given to it in Section 4.2. Company Indemnified Parties shall have the meaning given to it in Section 9.3(A). Constituent Corporations shall have the meaning given to it in Section 2.1. Contract, Contractual Obligation shall mean, with regard to any Person, any term, condition, provision, representation, warranty, agreement, covenant, undertaking, commitment, indemnity or other obligation set forth in the Organic Documents of such Person or which is outstanding or existing under any instrument, contract, lease or other contractual undertaking (including without limitation any instrument relating to or evidencing any Indebtedness) to which such Person is a party or by which it or any of its businesses are subject or properties or assets are bound, to the extent that any of the foregoing is material to such Person. Control (including the terms "controlled", "controlled by" and "under common control with") means the possession, directly or indirectly, or as trustee or executor, of the power to direct or cause the direction of the management or policies of a Person, or the disposition of such Person's assets or properties, whether through the ownership of stock, equity or other ownership, by contract, arrangement or understanding, or as trustee or executor, by contract or credit arrangement or otherwise. Convertible Securities shall mean any evidences of indebtedness, shares of capital stock (other than common stock) or other securities directly or indirectly convertible into or exchangeable for equity securities, whether or not the right to convert or exchange thereunder is immediately exercisable or is conditioned upon the passage of time, the occurrence or non-occurrence or existence or non-existence of some other Event, or both. 32 Current Uses shall have the meaning given to it in Section 4.6(C). DGCL shall mean the Delaware General Corporation Law, as amended. Distribution shall mean, with respect to a Party: (a) the declaration or payment of any dividend (except dividends payable in equity of such Party) on or in respect of any shares of any class of capital stock of such Party or any equity securities of any Subsidiary owned by a Person other than such Party or a Subsidiary, (b) the purchase, redemption or other retirement of any equity of such Party or any equity owned by a Person other than such Party or a Subsidiary, and (c) any other distribution on or in respect of any equity of such Party or any equity of any Subsidiary owned by a Person other than such Party or a Subsidiary. Effective Time shall mean the time specified in the Certificate of Merger and the Articles of Merger. Employee shall have the meaning given it by Section 10.2. Employment Arrangement shall mean, with respect to any Person, any employment, consulting, retainer, severance or similar contract, agreement, plan, arrangement or policy (exclusive of any which is terminable within thirty (30) days without liability, penalty or payment of any kind by such Person or any Affiliate), or providing for severance, termination payments, insurance coverage (including any self-insured arrangements), workers compensation, disability benefits, life, health, medical, dental or hospitalization benefits, supplemental unemployment benefits, vacation or sick leave benefits, pension or retirement benefits or for deferred compensation, profit-sharing, bonuses, stock option, stock purchase or appreciation rights or other forms of incentive compensation or post-retirement insurance, compensation or benefits, or any collective bargaining or other labor agreement, whether or not any of the foregoing is subject to the provisions of ERISA. Entity shall mean any corporation, firm, unincorporated organization, association, partnership, limited liability company, trust (inter vivos or testamentary), estate of a deceased, insane or incompetent individual, business trust, joint stock company, joint venture or other organization, entity or business, whether acting in an individual, fiduciary or other capacity, or any Authority. Environmental Law shall mean any Law relating to or otherwise imposing liability or standards of conduct concerning pollution or protection of the environment. Environmental Permits shall have the meaning given to it in Section 4.20 (C). ERISA shall mean the Employee Retirement Income Security Act of 1974, and the rules and regulations thereunder, all as from time to time in effect, or any successor law, rules or regulations, and any reference to any statutory or regulatory provision shall be deemed to be a reference to any successor statutory or regulatory provision. ERISA Affiliate shall mean any Person that is treated as a single employer under Sections 414(b), (c), (m) or (o) of the Code or Section 4001(b)(1) of ERISA, or any successor provisions thereto. Escrow Agreement shall have the meaning given to it in Section 3.1. Escrow Payment shall have the meaning given to it in Section 3.1. Event shall mean the occurrence or existence of any act, action, activity, circumstance, condition, event, fact, failure to act, omission, incident or practice, or any set or combination of any of the foregoing. 33 Expenses shall have the meaning given to it in Section 8.5. GAAP shall mean generally accepted accounting principles as in effect from time to time in the United States of America. Governmental Authorizations shall mean, with regard to any Person, all approvals, concessions, consents, franchises, licenses, permits, plans, registrations and other necessary authorizations of all Authorities that are material to such Person. Governmental Entity shall have the meaning given to it in Section 4.20(A). Governmental Filings shall mean all filings, including franchise and similar Tax filings, and the payment of all fees, assessments, interest and penalties associated with such filings, with all Authorities. Guaranty or Guaranteed shall mean any agreement, undertaking or arrangement by which a Party guarantees, endorses or otherwise becomes or is liable, directly or indirectly, contingently or otherwise, upon any Indebtedness of any other Person including without limitation the payment of amounts drawn down by beneficiaries of letters of credit (other than by endorsements of negotiable instruments for deposit or collection in the ordinary course of business). The amount of the obligor's obligation under any Guaranty shall be deemed to be the outstanding amount (or maximum permitted amount, if larger) of the Indebtedness directly or indirectly guaranteed thereby (subject to any limitation set forth therein). Hazardous Materials shall have the meaning given to it in Section 4.20(B). Indebtedness shall mean, with respect to a Party, (a) all items, except items of capital stock or of surplus or of general contingency or deferred tax reserves or any minority interest in any Subsidiary to the extent such interest is treated as a liability with indeterminate term on the consolidated balance sheet of such Party, which in accordance with GAAP would be included in determining total liabilities as shown on the liability side of a balance sheet of such Party, (b) all obligations secured by any Lien to which any property or asset owned or held by such Party is subject, whether or not the obligation secured thereby shall have been assumed, and (iii) to the extent not otherwise included, all Contractual Obligations of such Party constituting capitalized leases and all obligations of such Party with respect to Leases constituting part of a sale and leaseback arrangement. Intangible Assets shall mean all assets and property lacking physical properties the evidence of ownership of which must customarily be maintained by independent registration, documentation, certification, recordation or other means, but shall exclude Governmental Authorizations. IRS shall mean the Internal Revenue Service. Law shall mean any (a) administrative, judicial, legislative or other action, code, consent decree, constitution, decree, directive, enactment, finding, guideline, law, injunction, interpretation, judgment, order, ordinance, policy statement, proclamation, promulgation, regulation, requirement, rule, rule of law, rule of public policy, statute, or writ of any Authority, domestic or foreign; (b) the common law, or other legal or quasi-legal precedent; or (c) arbitrator's, mediator's or referee's award, decision, finding or recommendation; including, in each such case or instance, any interpretation, directive, guideline or request, whether or not having the force of law including, in all cases, without limitation any particular section, part or provision thereof. Lease shall mean any lease or sublease of property, whether real, personal or mixed, and all amendments thereto. 34 Legal Action shall mean any litigation or legal or other actions, arbitrations, counterclaims, investigations, proceedings, requests for material information by or pursuant to the order of any Authority, or suits, at law or in arbitration, equity or admiralty commenced by any Person, whether or not purported to be brought on behalf of a Party hereto affecting such Party or any of such Party's business, property or assets. Lessor shall have the meaning given to it in Section 7.1(E). Lien shall mean any of the following: mortgage; lien (statutory or other); preference, priority or other security agreement, arrangement or interest; hypothecation, pledge or other deposit arrangement; assignment; charge; levy; executory seizure; attachment; garnishment; encumbrance (including any easement, exception, variance, reservation or limitation, right of way, zoning restriction, building or use restriction, encroachment, and the like except utility and similar easements which do not interfere in any material respect with the Current Use of the property involved); conditional sale, title retention or other similar agreement, arrangement, device or restriction; preemptive or similar right; any financing lease involving substantially the same economic effect as any of the foregoing; the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction; restriction on sale, transfer, assignment, disposition, Lease or other alienation; or any option, equity, claim or right of or obligation to, any other Person, of whatever kind and character. Loss shall have the meaning given to it in Section 9.2(A). Material or Materiality for the purposes of this Agreement, shall, unless specifically stated to the contrary, be determined without regard to the fact that various provisions of this Agreement set forth specific dollar amounts. Material Agreement or Material Commitment shall mean, with respect to a Party, any Contractual Obligation which (a) was not entered into in the ordinary course of business, (b) was entered into in the ordinary course of business which (i) involves the purchase, sale or lease of goods or materials or performance of services aggregating more than Ten Thousand Dollars ($10,000), (ii) extends for more than three (3) months, or (iii) is not terminable on thirty (30) days or less notice without penalty or other payment, (c) involves Indebtedness for money borrowed in excess of Ten Thousand Dollars ($10,000), (d) is or otherwise constitutes a written agency, dealer, license, distributorship, sales representative or similar written agreement, or (e) would account for more than ten percent (10%) of purchases or sales projected to be made by such Party during its current fiscal year. Members shall mean the Company's or NEC VT's organizational (which includes Buying Club Members and Retail Members), consumer and worker classes of members. Members' Representative shall have the meaning given it in Section 10.7. Membership Interest shall mean, before the Ohio Merger, the shares of class A common stock and class B common stock of NEC VT owned by a Member of NEC VT and, after the Ohio Merger, the shares of class A common stock and class B common stock of the Company owned by a Member of the Company. Membership Interest Certification shall have the meaning given it in Section 2.6(B). Merger Subsidiary shall have the meaning given to it in the recitals of this Agreement. Merger Subsidiary Common Stock shall mean the common stock, par value $1.00 per share, of the Merger Subsidiary. Multiemployer Plan shall mean "a multiemployer plan" within the meaning of Section 400(a)3 of ERISA. NCSC shall have the meaning given to it in Section 7.1(E). NEC VT shall have the meaning given to it in the recitals of this Agreement. 35 OCL shall mean the Ohio Cooperative Law. Ohio Merger shall have the meaning given it in the recitals of this Agreement. Option Securities shall mean all rights, options and warrants, and calls or commitments evidencing the right, to subscribe for, purchase or otherwise acquire shares of capital stock or Convertible Securities, whether or not the right to subscribe for, purchase or otherwise acquire is immediately exercisable or is conditioned upon the passage of time, the occurrence or non-occurrence or the existence or non-existence of some other Event. Organic Document shall mean, (a) with respect to a Person which is a cooperative or a corporation, its charter, its by-laws and all Company agreements, voting trusts and similar arrangements applicable to any of its equity or capital stock, (b) with respect to a Person which is a partnership, its agreement and certificate of partnership, any agreements among partners, and any management and similar agreements between the partnership and any general partners (or any Affiliate thereof), and (c) with respect to a Person which is a limited liability company, its certificate of organization and operating agreement, any agreements among members, and any management and similar agreements between the limited liability company and any members (or any Affiliate thereof). Original Agreement shall have the meaning given it in the Recitals of this Agreement. Other Transaction shall mean a transaction or series of related transactions (other than the Ohio Merger and the Acquisition Merger) resulting in (a) any change in control of the Company, (b) any merger or consolidation of the Company, regardless of whether the Company is the surviving entity, (c) any tender offer or exchange offer for, or any acquisition of, any securities of the Company, or (d) any sale or other disposition of assets of the Company not otherwise permitted under Section 4.16 hereof. Parent shall have the meaning given to it in the recitals of the Agreement. Parent Disclosure Schedule shall mean the disclosure schedule dated as of the date of this Agreement delivered by the Parent to the Company. Matters specifically disclosed in the Parent SEC Reports shall be deemed incorporated in and made a part of the Parent Disclosure Schedule and shall not be required to be separately disclosed in the Parent Disclosure Schedule. Parent Indemnified Parties shall have the meaning given to it in Section 9.2(A). Parent SEC Reports shall have the meaning given it in Section 5.3. Party shall mean a signatory to this Agreement. Permitted Materials shall mean office, janitorial, small repair and maintenance supplies, packaged consumer products and refrigerants commonly used in the warehousing industry (e.g. ammonia). Person shall mean any natural individual or Entity. Plan shall mean, with respect to a Party and at a particular time, any employee benefit plan which is covered by ERISA and in respect of which such Party is an "employer" as defined in Section 3(5) of ERISA, other that a Multiemployer Plan. Private Authorization shall mean all approvals, concessions, consents, franchises, licenses, permits, and other authorizations of all Persons (other than Authorities) including without limitation those with respect to agreements, leases, contracts, patents, trademarks, service marks, trade names, copyrights, computer software programs, technology and know-how. 36 Representatives (of a Party) shall mean the officers, directors, employees, accountants, counsel, financial advisors, consultants and other representatives (of such Party). Retail Members shall mean Entities that conduct their business through retail outlets and purchase products from NEC VT. SEC shall mean the Securities and Exchange Commission. Section 9.2 Date shall have the meaning given to it in Section 9.2(D). Section 9.6 Amounts shall have the meaning given to it in Section 9.6(A). Subsidiary shall mean, with respect to a Person, any Entity a majority of the capital stock ordinarily entitled to vote for the election of directors of which, or if no such voting stock is outstanding, a majority of the equity interests of which, is owned directly or indirectly, legally or beneficially, by such a Person or any other Person controlled by such a Person. Surviving Corporation shall have the meaning given to it in Section 2.1. Surviving Corporation Common Stock shall have the meaning given to it in Section 2.5. Tax, Taxes (and "Taxable", which shall mean subject to Tax), shall mean, with respect to a Party, (a) all taxes (domestic or foreign), including without limitation any income (net, gross or other including recapture of any tax items such as investment tax credits), alternative or add on minimum tax, gross income, gross receipts, gains, sales, use, leasing, lease, user, ad valorem, transfer, recording, franchise, profits, property (real or personal, tangible or intangible), fuel, license, withholding on amounts paid to or by such Party, payroll, employment, unemployment, social security, excise, severance, stamp, occupation, premium, environmental or windfall profit tax, custom, duty or other tax, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest, levies, assessments, charges, penalties, addition to tax or additional amount imposed by any Taxing Authority, (b) any joint or several liability of such Party with any other Person for the payment of any amounts of the type described in (a), and (c) any liability of such Party for the payment of any amounts of the type described in (a) as a result of any express or implied obligation to indemnify any other Person. Tax Return or Returns shall mean all returns, consolidated or otherwise (including without limitation information returns), required to be filed with any Authority with respect to Taxes. Taxing Authority shall mean any Authority responsible for the imposition of any Tax. Tech Drive Facility shall have the meaning given to it in Section 7.1(E). Termination Date shall mean December 31, 2002. Transactions shall mean the other transactions contemplated by this Agreement or the Acquisition Merger or by any Collateral Document executed or required to be executed in connection herewith or therewith. Vermont Facilities shall have the meaning given to it in Section 7.1(E). [SIGNATURE PAGE FOLLOWS] 37 IN WITNESS WHEREOF, the Parent, the Merger Subsidiary, the Company and NEC VT have caused this Agreement to be executed as of the date first written above. UNITED NATURAL FOODS, INC. By: /s/ Steven Townsend ----------------------------- President NEC ACQUISITION CORP. By: /s/ Steven Townsend ----------------------------- President NORTHEAST COOPERATIVE, INC., an Ohio association By: /s/ Diane M. Provost ----------------------------- Clerk NORTHEAST COOPERATIVES, a Vermont association By: /s/ George Southworth ----------------------------- CEO The undersigned accepts appointment as Members' Representative under Section 9.7 and agrees to abide by the provisions of Section 9.7. [NAME OF MEMBERS' REPRESENTATIVE] /s/ David Blackburn --------------------------------- David Blackburn CGANE Executive Director 38 EX-99.5 7 ex99-5.txt EXHIBIT 99.5 February 14, 2003 United Natural Foods, Inc. 260 Lake Road Dayville, CT 06241 Attention: Rick Puckett, Chief Financial Officer RE: Fifth Amendment to Loan and Security Agreement Dear Rick: Reference is made to the Loan and Security Agreement dated as of August 31, 2001 (as amended, the "Loan Agreement") among United Natural Foods, Inc. ("UNF"), Mountain People's Warehouse Incorporated ("MPW"), Nutrasource, Inc. ("Nutrasource"), Rainbow Natural Foods, Inc. ("Rainbow"), Stow Mills, Inc. ("SMI"), United Northeast LLC ("United") and United Natural Foods Pennsylvania, Inc. ("UNFPA" and together with UNF, MPW, Nutrasource, Rainbow, SMI and United, the "Borrowers") each of the Lenders identified under the caption "Lenders" on the signature pages thereto and Fleet Capital Corporation as administrative and collateral agent for the Lenders (the "Agent"), Citizens Bank of Massachusetts (the "Syndication Agent"), U.S. Bank National Association (the "Documentation Agent") and Fleet Securities, Inc. (the "Arranger"), as amended by First Amendment dated April 16, 2002, Second Amendment dated September 26, 2002, Third Amendment dated October 17, 2002 and Fourth Amendment dated October 26, 2002. Capitalized terms not defined herein shall have the meanings ascribed thereto in the Loan Agreement. The Borrowers have requested that United Natural Trading Co., a wholly owned subsidiary of UNF and a Guarantor under the Loan Agreement, become a co-borrower under the Loan Agreement. The Lenders have agreed to consent to United Natural Trading Co. becoming a co-borrower to the Loan Agreement subject to the terms and conditions set forth herein. Accordingly, the parties hereto hereby agree as follows: Amendment to Loan Agreement. The term "Borrowers" as defined in Appendix A General Definitions of the Loan Agreement shall be deemed to include "United Natural Trading Co." wherever such term appears in the Loan Agreement or in any other Loan Document. Representations and Warranties. The Borrowers hereby represent and warrant as follows: Power, Authority, Etc. The Borrowers have the power and authority for the making and performing of this Fifth Amendment. This Fifth Amendment has been duly executed and delivered by or on behalf of the Borrowers pursuant to authority legally adequate therefor, and this Fifth Amendment is in full force and effect and is a legal, valid and binding obligation of the Borrowers enforceable in accordance with its terms subject to applicable bankruptcy, reorganization, insolvency, moratorium or similar laws and equitable principles affecting the enforcement of creditors' rights generally. Incorporation of Representations and Warranties. The representations and warranties of the Borrowers contained in the Loan Agreement, after giving effect to the amendments thereto contemplated hereby, and except for any changes resulting only from the passage of time, are true and correct on and as of the date hereof as though made on and as of the date hereof and such representations and warranties are hereto incorporated in this Fifth Amendment as though fully set forth herein. Conditions Precedent. This Amendment and the Agent's and Lenders' obligations hereunder shall not be effective until each of the following conditions are satisfied (the "Amendment Effective Date"): Borrowers, Agent and the Required Lenders shall have duly executed and delivered this Amendment; The Borrowers shall provide the following items to the Agent, all in form and content satisfactory to the Agent, and duly executed (where applicable) by all parties thereto: a Joinder Agreement pursuant to which United Natural Trading Co. shall become a "Borrower" for all purposes under the Loan Agreement; duly filed UCC financing statements which serve to perfect Agent's first priority security interest in all of United Natural Trading Co.'s personal property assets; a stock pledge agreement pursuant to which UNF pledges 100% of the shares of United Natural Trading Co. to Agent, together with stock powers and stock certificates to perfect such pledge; such other agreements as may be required by Agent (such as trademark security agreements and the like) to ensure that Agent holds a duly perfected security interest in all of United Natural Trading Co.'s assets; a landlord's waiver for each location in which United Natural Trading Co. does business or maintains assets; evidence satisfactory to Agent (including UCC, tax lien and similar search reports) that Agent holds a duly perfected, first priority security interest in the assets of United Natural Trading Co., subject to no other Liens except as permitted under the Loan Agreement; evidence of corporate authorization of the transactions contemplated hereby; updated casualty and liability insurance certificates with respect to United Natural Trading Co. and its assets, consistent with the requirements set forth in the Loan Agreement; and payment of the reasonable fees and expenses of Agent's counsel in connection with any of the transactions contemplated hereby. UNF agrees that Agent may complete a field exam with respect to the assets and liabilities of United Natural Trading Co., including without limitation, inventory and accounts, on or before Agent advances against such assets and liabilities and Agent may, in its discretion, impose reserves or reduce advance rates with respect to United Natural Trading Co.'s inventory and accounts used for purposes of calculating the Borrowing Base, until such a field exam is completed. All requisite corporate action and proceedings of the Borrower in connection with this Amendment shall be satisfactory in form and substance to Agent; and There shall have occurred no Default or Event of Default under the Loan Agreement. Receipt by Agent of all documentation required in connection with the execution of the Second Amendment to Loan and Security Agreement and the Third Amendment to Loan and Security Agreement, as well as satisfaction of all covenants, agreements and conditions precedent contained therein. Miscellaneous Counterparts. This Fifth Amendment may be executed in any number of counterparts, all of which taken together shall constitute one agreement, and any of the parties hereto may execute this Fifth Amendment by signing any such counterpart. Force and Effect. Except as amended or modified by this Fifth Amendment, the Loan Agreement and each of its terms and provisions, shall continue in full force or effect. Loan Document. This Fifth Amendment and all other documents executed in connection herewith are "Loan Documents" as such term is defined in the Loan Agreement. This Fifth Amendment and the other documents executed and delivered in connection herewith set forth the entire agreement of the parties with respect to the subject matter thereof and supersede any prior agreement and contemporaneous oral agreements of the parties concerning their subject matter. Reaffirmation. By executing this Fifth Amendment, the undersigned Guarantors hereby assent to the execution and delivery of this Fifth Amendment and all other instruments and documents required to be executed and delivered pursuant thereto by the Borrowers, and to the performance by the Borrowers of their agreements and obligations hereunder and thereunder. Guarantors further affirm that neither the First Amendment to Loan and Security Agreement dated April 16, 2002, the Second Amendment to Loan and Security Agreement dated September 26, 2002, the Third Amendment to Loan and Security dated October 17, 2002 and the Fourth Amendment to Loan and Security Agreement dated October 26, 2002 nor this Fifth Amendment nor the performance or consummation of any transactions contemplated thereby shall limit, restrict, extinguish or otherwise impair their agreements and obligations under the Guaranty Agreements, and Guarantors hereby acknowledge and reaffirm such obligations. Guarantors acknowledge, affirm and agree that the Guaranty Agreements are hereby ratified and confirmed and benefit the Lenders under the Loan Agreement, as amended. Reaffirmation of Guaranty by United Natural Trading Co. United Natural Trading Co. hereby confirms that the performance or consummation of any transactions contemplated hereby shall not limit, restrict, extinguish or otherwise impair its guaranty of the Obligations under its Guaranty Agreement, and hereby acknowledges and reaffirms such obligations. Guarantor acknowledges, affirms and agrees that its Guaranty Agreement is hereby ratified and confirmed and benefits the Lenders under the Loan Agreement, as amended. [remainder of page intentionally left blank] IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first above written. BORROWERS: UNITED NATURAL FOODS, INC. By: /s/ STEVEN H. TOWNSEND ------------------------------ Name: Steven H. Townsend Title: Chief Executive Officer MOUNTAIN PEOPLE'S WAREHOUSE INCORPORATED By: /s/ STEVEN H. TOWNSEND ------------------------------ Name: Steven H. Townsend Title: Chief Executive Officer NUTRASOURCE, INC. By: /s/ STEVEN H. TOWNSEND ------------------------------ Name: Steven H. Townsend Title: Chief Executive Officer RAINBOW NATURAL FOODS, INC. By: /s/ STEVEN H. TOWNSEND ------------------------------ Name: Steven H. Townsend Title: Chief Executive Officer STOW MILLS, INC. By: /s/ STEVEN H. TOWNSEND ------------------------------ Name: Steven H. Townsend Title: Chief Executive Officer UNITED NORTHEAST LLC By: /s/ STEVEN H. TOWNSEND ------------------------------ Name: Steven H. Townsend Title: Chief Executive Officer UNITED NATURAL FOODS OF PENNSYLVANIA, INC. By: /s/ STEVEN H. TOWNSEND ------------------------------ Name: Steven H. Townsend Title: Chief Executive Officer GUARANTORS: NATURAL RETAIL GROUP, INC. By: /s/ STEVEN H. TOWNSEND ------------------------------ Name: Steven H. Townsend Title: Chief Executive Officer UNITED NATURAL TRADING CO. By: /s/ STEVEN H. TOWNSEND ------------------------------ Name: Steven H. Townsend Title: Chief Executive Officer ALBERT'S ORGANICS, INC. By: /s/ STEVEN H. TOWNSEND ------------------------------ Name: Steven H. Townsend Title: Chief Executive Officer AGENT: FLEET CAPITAL CORPORATION, as Administrative Agent By: /s/ KIM B. BUSHEY ------------------------------ Name: Kim B. Bushey Title: Senior Vice President LENDERS: FLEET CAPITAL CORPORATION, as a Lender By: /s/ KIM B. BUSHEY ------------------------------ Name: Kim B. Bushey Title: Senior Vice President CITIZENS BANK OF MASSACHUSETTS, as a Lender By: /s/ PAUL R. CRIMLISK ------------------------------ Name: Paul R. Crimlisk Title: Vice President U.S. BANK NATIONAL ASSOCIATION, as a Lender By: /s/ JOHN W. BALL ------------------------------ Name: John W. Ball Title: Vice President PNC BANK, NATIONAL ASSOCIATION, a Lender By: /s/ JOHN C. WILLIAMS ------------------------------ Name: John C. Williams Title: Vice President FIRST PIONEER FARM CREDIT, ACA, a Lender By: /s/ CAROL L. SOBSON ------------------------------ Name: Carol L. Sobson Title: Assistant Vice President ISRAEL DISCOUNT BANK OF NEW YORK, a Lender By: /s/ AMIR BARASH ------------------------------ Name: Amir Barash Title: Vice President WEBSTER BANK, a Lender By: /s/ MATTHEW RILEY ------------------------------ Name: Matthew Riley Title: Senior Vice President SOVEREIGN BANK, a Lender By: /s/ CHRISTOPHER T. PHELAN ------------------------------ Name: Christopher T. Phelan Title: Senior Vice President NATIONAL CITY BANK, as a lender By: ------------------------------ Name: ---------------------------- Title: --------------------------- EX-99.6 8 ex99-6.txt EXHIBIT 99.6 JOINDER AGREEMENT United Natural Trading Co., a Delaware corporation, with a place of business located at 700 East Lincoln Avenue, Rahway, New Jersey 07065 ("United") hereby joins with and agrees to be bound by and accepts all obligations whenever incurred with United Natural Foods, Inc., Mountain People's Warehouse Incorporated, Nutrasource, Inc., Rainbow Natural Foods, Inc., Stow Mills, Inc., United Northeast LLC and United Natural Foods Pennsylvania, Inc., (collectively, the "Borrowers") as a co-borrower under that certain Loan and Security Agreement dated August 31, 2001 (the "Loan Agreement") among the Borrowers, the Lenders identified under the caption "Lenders" on the signature pages thereto, Fleet Capital Corporation, administrative and collateral agent for the Lenders (the "Agent"), Citizens Bank of Massachusetts as the syndication agent, U.S. Bank National Association, as documentation agent and Fleet Securities, Inc., as syndication arranger, as amended from time to time, and under each of the Loan Documents (as such term is defined in the Loan Agreement). United hereby agrees that it is a Borrower under the Loan Agreement and other Loan Documents, as if it were an original party thereto, and that it is directly, unconditionally, absolutely and jointly and severally liable to pay and perform each and all of the Obligations of Borrowers under the Loan Agreement whether now existing or hereafter created or existing. To secure the prompt payment and performance of all of the Obligations (as such term is defined in the Loan Agreement), United hereby grants to Agent for the benefit of itself as Agent and for the pro rata benefit of each Lender a continuing lien upon all of United's assets, including, without limitation, all of the property and interests in property of United set forth on Exhibit A attached hereto, whether now owned or existing or hereafter created, acquired or arising and wheresoever located. United hereby confirms that each of the representations and warranties of Borrowers set forth in the Loan Agreement and the other Loan Documents shall be deemed to have been made by United and that all such representations and warranties are accurate and complete in all material respects. Effective as of the 14 day of February, 2003. UNITED NATURAL TRADING CO. By /s/ Steven H. Townsend --------------------------- Name: Steven H. Townsend Title: Chief Executive Officer Exhibit A Accounts; Certificated Securities; Chattel Paper; Accounts; Certificated Securities; Chattel Paper; Commercial Tort Claims; Computer Hardware and Software and all rights with respect thereto, including, any and all licenses, options, warranties, service contracts, program services, test rights, maintenance rights, support rights, improvement rights, renewal rights and indemnifications, and any substitutions, replacements, additions or model conversions of any of the foregoing; Consignments; Contract Rights; Deposit Accounts; Documents; Equipment; Farm Products; Financial Assets; Fixtures; General Intangibles, including Payment Intangibles and Software; Goods (including all of its Equipment, Fixtures and Inventory), and all accessions, additions, attachments, improvements, substitutions and replacements thereto and therefore; Instruments; Intellectual Property; Inventory; Investment Property; money (of every jurisdiction whatsoever); Letter-of-Credit Rights; Letters of Credit; Payment Intangibles; Promissory Notes; Security Entitlements; Software; Supporting Obligations; Uncertificated Securities; Vehicles; and to the extent not included in the foregoing, all other personal property of any kind or description; together with all books, records, writings, data bases, information and other property relating to, used or useful in connection with, or evidencing, embodying, incorporating or referring to any of the foregoing, and all Proceeds, products, offspring, rents, issues, profits and returns of and from any of the foregoing; provided that to the extent that the provisions of any lease or license of Computer Hardware and Software or Intellectual Property expressly prohibit (which prohibition is enforceable under applicable law) any assignment thereof, and the grant of a security interest therein, Agent will not enforce its security interest in United's rights under such lease or license (other than in respect of the Proceeds thereof) for so long as such prohibition continues, it being understood that upon request of Agent, United will in good faith use reasonable efforts to obtain consent for the creation of a security interest in favor of Agent for the account of each Lender (and to Agent's enforcement of such security interest for the account of each Lender) in United's rights under such lease or license. The following terms shall have the following definitions: 1. Computer Hardware and Software - all of United's rights (including rights as licensee and lessee) with respect to (i) computer and other electronic data processing hardware, including all integrated computer systems, central processing units, memory units, display terminals, printers, computer elements, card readers, tape drives, hard and soft disk drives, cables, electrical supply hardware, generators, power equalizers, accessories, peripheral devices and other related computer hardware; (ii) all Software and all software programs designed for use on the computers and electronic data processing hardware described in clause (i) above, including all operating system software, utilities and application programs in any form (source code and object code in magnetic tape, disk or hard copy format or any other listings whatsoever); (iii) any firmware associated with any of the foregoing; and (iv) any documentation for hardware, Software and firmware described in clauses (i), (ii) and (iii) above, including flow charts, logic diagrams, manuals, specifications, training materials, charts and pseudo codes. 2. Contract Right - any right of United to payment under a contract for the sale or lease of goods or the rendering of services, which right is at the time not yet earned by performance. 3. Intellectual Property - all past, present and future: trade secrets, know-how and other proprietary information; trademarks, internet domain names, service marks, trade dress, trade names, business names, designs, logos, slogans (and all translations, adaptations, derivations and combinations of the foregoing) indicia and other source and/or business identifiers, and the goodwill of the business relating thereto and all registrations or applications for registrations which have heretofore been or may hereafter be issued thereon throughout the world; copyrights (including copyrights for computer programs) and copyright registrations or applications for registrations which have heretofore been or may hereafter be issued throughout the world and all tangible property embodying the copyrights, unpatented inventions (whether or not patentable); patent applications and patents; industrial design applications and registered industrial designs; license agreements related to any of the foregoing and income therefrom; books, records, writings, computer tapes or disks, flow diagrams, specification sheets, computer software, source codes, object codes, executable code, data, databases and other physical manifestations, embodiments or incorporations of any of the foregoing; the right to sue for all past, present and future infringements of any of the foregoing; all other intellectual property; and all common law and other rights throughout the world in and to all of the foregoing. Capitalized terms not otherwise defined herein have the meanings given such terms in (a) Article 1 or Article 9 of the Uniform Commercial Code as in effect in the State of Connecticut, and any successor statute, as in effect from time to time (except that terms used herein which are defined in the Uniform Commercial Code as in effect in the State of Connecticut on the date hereof shall continue to have the same meaning notwithstanding any replacement or amendment to such statute as the Agent may otherwise determine), and (b) the Loan and Security Agreement between Agent, United and certain other parties, as amended or modified from time to time. -----END PRIVACY-ENHANCED MESSAGE-----