<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 9, 1996
REGISTRATION NO. 333-11349
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
UNITED NATURAL FOODS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
DELAWARE 5141 05-0376157
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
---------------
260 LAKE ROAD, DAYVILLE, CONNECTICUT 06241
(860) 779-2800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
NORMAN A. CLOUTIER
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
UNITED NATURAL FOODS, INC.
260 LAKE ROAD
DAYVILLE, CONNECTICUT 06241
(860) 779-2800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
---------------
COPIES TO:
PAUL V. ROGERS, ESQ. LAURA C. HODGES TAYLOR, P.C.
HALE AND DORR GOODWIN, PROCTER & HOAR LLP
60 STATE STREET EXCHANGE PLACE
BOSTON, MASSACHUSETTS 02109 BOSTON, MASSACHUSETTS 02109
(617) 526-6000 (617) 570-1000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date hereof.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE(2)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $0.01 par value per share............ $50,025,000 $17,083
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act.
(2) A registration fee of $15,863, which represented 1/29th of one percent of
the original aggregate maximum offering price of $46,000,000, was paid
with the filing of the original registration statement. An additional
registration fee of $1,220, which represents 1/33rd of one percent of the
additional $4,025,000 being registered hereby, is being paid with this
Amendment No. 1.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
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<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 9, 1996
PROSPECTUS
2,900,000 SHARES
LOGO
COMMON STOCK
--------
All of the shares of Common Stock offered hereby (the "Offering") are being
sold by United Natural Foods, Inc. ("United Natural" or the "Company").
Prior to the Offering, there has not been a public market for the Common
Stock of the Company. It is currently estimated that the initial public
offering price will be between $13.00 and $15.00 per share. See "Underwriting"
for information relating to the factors to be considered in determining the
initial public offering price. The Common Stock has been approved for quotation
on The Nasdaq Stock Market's National Market under the symbol "UNFI."
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK
OFFERED HEREBY.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- ----------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
- ----------------------------------------------
Total(3) $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) For information regarding indemnification of the Underwriters, see
"Underwriting."
(2) Before deducting expenses estimated at $758,000, all of which are payable
by the Company.
(3) The Selling Stockholders (as defined herein) have granted the Underwriters
a 30-day option to purchase up to 435,000 additional shares of Common Stock
solely to cover over-allotments, if any. See "Underwriting." If such option
is exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Selling Stockholders will be $ , $ and
$ , respectively.
--------
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or about ,
1996, at the office of Smith Barney Inc., 333 West 34th Street, New York, New
York 10001.
--------
SMITH BARNEY INC.
OPPENHEIMER & CO., INC.
ROBERTSON, STEPHENS & COMPANY
, 1996
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
<PAGE>
[Graphic consists of one photograph of a woman at a computer terminal and three
photographs of various marketing materials, including catalogs, flyers and
retail store shopping bags.]
Cape Cod Natural Foods, Cascade Baking Company, Guardian, Natural Food
Systems, Natural Sea, NATUREWORKS!, Railway Market, SunSplash Market and
Village Market Natural Grocer are trademarks of the Company. This Prospectus
also contains trademarks and registered trademarks of other companies.
----------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN
THE OVER-THE-COUNTER MARKET, OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
----------------
<PAGE>
[Graphic consists of a map of the United States and one photograph of the
Company's headquarters and distribution facility in Dayville, Connecticut, three
photographs of trucks bearing the logos of the Company's three operating regions
and three photographs of warehouse operations.]
<PAGE>
[ARTWORK APPEARS HERE]
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Company's Consolidated Financial Statements and Notes
thereto appearing elsewhere in this Prospectus. Unless otherwise indicated,
such information assumes (i) the exercise in full immediately prior to the
commencement of the Offering of a warrant (the "Triumph Warrant") to purchase
1,166,660 shares of Common Stock, at an exercise price of $0.01 per share, by
Triumph-Connecticut Limited Partnership ("Triumph"), (ii) the exercise, upon
the repayment in full at the closing of the Offering of the outstanding
indebtedness under the Company's Senior Note (the "Triumph Note") issued to
Triumph in the principal amount of $6,500,000, of the Company's right to
purchase from Triumph 380,930 shares of Common Stock issuable upon the exercise
of the Triumph Warrant, and (iii) no exercise of the Underwriters' over-
allotment option. Unless the context otherwise requires, references herein to
the Company refer to United Natural Foods, Inc. and its wholly owned
subsidiaries. Prior to July 31, 1996, the Company's fiscal year ended on
October 31 of each year. The Company has changed its fiscal year end to July
31. References herein to "fiscal 1992," "fiscal 1993," "fiscal 1994" and
"fiscal 1995" refer to the Company's fiscal years ended October 31, 1992, 1993,
1994 and 1995, respectively.
THE COMPANY
United Natural Foods, Inc. ("United Natural" or "the Company") is one of only
two national distributors of natural foods and related products in the United
States. The Company currently serves more than 5,500 customers located in 43
states, including independent natural products stores, natural products
supermarket chains and conventional supermarkets. The Company distributes more
than 25,000 high-quality, national, regional and private label natural products
in six categories consisting of groceries and general merchandise, nutritional
supplements, bulk and foodservice products, personal care items, perishables
and frozen foods. United Natural's distribution operations are divided into
three principal regions: Cornucopia Natural Foods ("Cornucopia") in the eastern
United States, Mountain People's Warehouse Incorporated ("Mountain People's")
in the western United States and Rainbow Natural Foods, Inc. ("Rainbow") in the
Rocky Mountains and Plains regions. The Company operates five strategically
located distribution centers and two satellite staging facilities within these
regions to better serve its customers and realize operating efficiencies. The
Company also owns and operates eight retail natural products stores located in
the eastern United States that management believes complement its distribution
business.
BUSINESS STRATEGY
The Company's objective is to better meet the changing needs of both
suppliers and retailers and to be the leading national distributor of natural
products. Key elements of the Company's business strategy include:
. National Presence. With five distribution centers strategically located
in California, Colorado, Connecticut, Georgia and Washington and two
satellite staging facilities in Florida and Pennsylvania, the Company is
well positioned to provide distribution services to natural products
retailers and suppliers located across the United States.
. Integration of Recent Acquisitions. United Natural recently made three
strategic acquisitions and is currently in the process of integrating
these operations to increase the Company's overall efficiency by: (i)
eliminating geographic overlaps in distribution, (ii) integrating
administrative, finance and accounting functions, (iii) expanding
marketing and customer service programs and (iv) upgrading information
systems.
. Purchasing Power and Supplier Relationships. As a result of its size of
operations, national presence and access to retailers within the highly
fragmented natural products sector, the Company is able to supply a
superior selection of natural products at more competitive prices and on
better terms, including supplier-sponsored marketing dollars, than many
of its competitors.
. Diverse, High-Quality Product Line. The Company distributes a mix of
more than 25,000 national, regional and private label natural products,
which products are continually evaluated, updated and expanded to
satisfy the needs of its diverse customer base.
3
<PAGE>
. Regional Responsiveness. By decentralizing the majority of its
purchasing, pricing, sales and marketing decisions at the regional
level, the Company is able to respond to regional and local customer
preferences, while taking advantage of the economies of scale associated
with its national operations.
. Customer Service and Marketing Programs. In addition to providing its
customers with delivery services which include next-day and more
frequent deliveries and an order fill rate in excess of 95% (excluding
products unavailable from the supplier), the Company offers its
customers a selection of inventory management, merchandising, marketing,
promotional and event management services to increase customer sales and
enhance customer satisfaction.
. Infrastructure. The Company recently made a significant investment in
designing its proprietary information systems and expanding its
distribution capacity to facilitate future growth and enhance operating
efficiency. The Company will continue to upgrade and expand its
infrastructure, as required.
GROWTH STRATEGY
. Expand customer base by continually cultivating relationships with new
customers for natural products, including traditional natural products
stores and natural products supermarkets, as well as conventional
supermarkets, mass market outlets, institutional foodservice providers,
hotels and gourmet stores.
. Increase sales to existing customers by (i) expanding the Company's role
as the primary supplier to the majority of its customers, (ii) expanding
the number of products and product categories offered and (iii)
providing pricing incentives and marketing support to generate higher
sales levels by its customers.
. Expand market penetration of existing and new markets by increasing the
distribution capacity of its existing facilities and by building new
distribution facilities. In addition, while the Company has no
agreements or understanding with regard to acquisitions at this time, it
will continue to selectively evaluate opportunities to acquire local
distributors to fill in existing markets and regional distributors to
expand into new markets.
Over the last four years, the Company's net sales grew at a compound annual
growth rate of 31.6% to $283.3 million in fiscal 1995. For the nine months
ended July 31, 1996, the Company's net sales increased by 51.9% over the
comparable prior year period to $286.4 million. This growth in net sales and
corresponding increase in market share resulted primarily from the Company's
acquisitions of large, regional natural products distributors, the development
of new and the expansion of existing distribution capacity and an increase in
product sales to existing and new customers, as well as continuing growth in
the natural products industry sector generally. According to The Natural Foods
Merchandiser, the natural products industry growth rate of 20.2% compounded
annually over the last four years, including 22.6% in 1995, is attributable to
consumer trends toward healthier eating habits, concern for food purity and
safety and greater environmental awareness. In addition to growth in net sales,
during the same period, the Company's operating income increased at a compound
annual growth rate of 46.6% to $10.4 million in fiscal 1995 (excluding a non-
recurring expense of $1.6 million relating to intangible assets in fiscal
1995). For the nine months ended July 31, 1996, the Company's operating income
grew by 62.5% over the comparable prior year period to $12.1 million (excluding
non-recurring expenses of $1.5 million incurred in connection with the merger
of the Company with Mountain People's and the grant of options under the
Company's 1996 Stock Option Plan). See "Management's Discussion and Analysis of
Financial Condition and Results of Operation" and Notes 1 and 3 of Notes to the
Company's Consolidated Financial Statements. The Company's growth in operating
income is attributable to increased efficiencies created by its higher net
sales levels, greater purchasing power, improved information and warehouse
management systems and expanded distribution capacity.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock being offered by the
Company........................... 2,900,000 shares
Common Stock to be outstanding
after the Offering................ 12,378,425 shares(1)(2)
Use of Proceeds................... To repay certain indebtedness, for working
capital and for general corporate purposes,
including the expansion of the Company's
distribution facilities.
Proposed Nasdaq National Market
symbol............................ UNFI
</TABLE>
- --------
(1) Includes 2,179,595 shares of Common Stock held in trust by the Company's
Employee Stock Ownership Trust as of July 31, 1996. See "Management--
Executive Compensation--Employee Stock Ownership Plan."
(2) Excludes 638,000 shares of Common Stock issuable upon exercise of options
outstanding under the Company's 1996 Stock Option Plan as of July 31, 1996
at a weighted average exercise price of $8.11 per share. See "Management--
Executive Compensation--Stock Option Plan."
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED OCTOBER 31, JULY 31,
-------------------------------------- ------------------
1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Net sales............... $124,366 $153,636 $200,616 $283,323 $188,502 $286,448
Gross profit............ 24,942 32,488 44,118 59,841 40,796 59,966
Operating income........ 3,299 5,113 7,385 8,762(1) 7,453 10,609(2)
Net income.............. $ 1,488 $ 2,319 $ 3,017 $ 2,603 $ 3,232 $ 4,025
======== ======== ======== ======== ======== ========
Net income per
share(3)............... $ 0.17 $ 0.26 $ 0.30 $ 0.26 $ 0.32 $ 0.40
======== ======== ======== ======== ======== ========
Weighted average shares
of common stock and
common stock
equivalents(3)......... 8,982 8,982 10,094 10,148 10,148 10,144
======== ======== ======== ======== ======== ========
OPERATING DATA:
Operating income as a
percentage of net
sales.................. 2.7% 3.3% 3.7% 3.1%(1) 3.9% 3.7%(2)
======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
JULY 31, 1996
--------------------------------------
ACTUAL AS ADJUSTED(4)
------- --------------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital........................ $10,087 $35,465
Total assets........................... 98,744 99,399
Long-term debt and capital leases,
excluding current installments........ 23,019 12,496
Total stockholders' equity............. 18,182 54,182
</TABLE>
- --------
(1) Operating income for fiscal 1995 includes a non-recurring expense of $1.6
million related to the write-off of intangible assets. Excluding the $1.6
million non-recurring expense, operating income would have been $10.4
million, or 3.7% of net sales, in fiscal 1995.
(2) Operating income for the nine months ended July 31, 1996 includes a non-
recurring expense of $1,056,100 related to the grant of options under the
Company's 1996 Stock Option Plan and a non-recurring expense of $458,000
representing costs associated with the Mountain People's merger. Excluding
the $1,514,100 of non-recurring expenses, operating income would have been
$12.1 million, or 4.2% of net sales, in the nine months ended July 31,
1996.
(3) Does not reflect the intended repurchase by the Company, upon the repayment
of the outstanding indebtedness under the Triumph Note, of 380,930 shares
of Common Stock issuable upon the exercise of the Triumph Warrant.
(4) As adjusted to give effect to the sale by the Company of 2,900,000 shares
of Common Stock offered hereby (at an assumed public offering price of
$14.00 per share and after deducting the underwriting discounts and
commissions and estimated offering expenses) and the application of the net
proceeds therefrom. See "Use of Proceeds" and "Capitalization."
5
<PAGE>
RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree of
risk. In addition to the other information in this Prospectus, the following
risk factors should be considered carefully in evaluating an investment in the
Common Stock offered hereby. This Prospectus contains forward-looking
statements which involve risks and uncertainties. The Company's actual results
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth in the
following risk factors and elsewhere in this Prospectus.
Integration of Recent Acquisitions. A significant portion of the Company's
historical growth has been achieved through acquisitions of or mergers with
other distributors of natural products. The Company recently acquired or
merged with three large regional distributors of natural products:
Nutrasource, Inc. ("Nutrasource") in May 1995, Rainbow in July 1995 and
Mountain People's in February 1996. The successful and timely integration of
these acquisitions and merger is critical to the future operating and
financial performance of the Company. While the integration of these
acquisitions and merger with the Company's existing operations has begun, the
Company believes that the integration will not be substantially completed
until the end of calendar 1997. The integration will require, among other
things, coordination of administrative, sales and marketing, distribution, and
accounting and finance functions and expansion of information and warehouse
management systems among the Company's regional operations. The integration
process could divert the attention of management, and any difficulties or
problems encountered in the transition process could have a material adverse
effect on the Company's business, financial condition or results of
operations. In addition, the process of combining the companies could cause
the interruption of, or a loss of momentum in, the activities of the
respective businesses, which could have an adverse effect on their combined
operations. The difficulty of combining the businesses may be increased by the
need to integrate personnel and the geographic distance separating the
organizations. There can be no assurance that the Company will retain key
employees or that the Company will realize any of the other anticipated
benefits of the acquisitions or merger. See "The Company--Recent Acquisitions"
and "Business--Systems."
Management of Growth. The Company is currently experiencing a period of
growth that could place a significant strain on its management and other
resources. The Company's business has grown significantly in size and
complexity over the past several years. Net sales increased from $124.4
million in fiscal 1992 to $283.3 million in fiscal 1995 and $286.4 million in
the nine months ended July 31, 1996. During this same period, the number of
the Company's employees increased from approximately 370 to approximately
1,190. The growth in the size of the Company's business and operations has
placed and is expected to continue to place a significant strain on the
Company's management. The Company's future growth is limited in part by the
size and location of its distribution centers. There can be no assurance that
the Company will be able to successfully expand its existing distribution
facilities or open new distribution facilities in new or existing markets to
facilitate growth. In addition, the Company's growth strategy to expand its
market presence includes possible additional acquisitions. To the extent the
Company's future growth includes acquisitions, there can be no assurance that
the Company will successfully identify suitable acquisition candidates,
consummate and integrate such potential acquisitions or expand into new
markets. The Company's ability to compete effectively and to manage future
growth, if any, will depend on its ability to continue to implement and
improve operational, financial and management information systems on a timely
basis and to expand, train, motivate and manage its work force. There can be
no assurance that the Company's personnel, systems, procedures and controls
will be adequate to support the Company's operations. The Company's inability
to manage its growth effectively could have a material adverse effect on its
business, financial condition or results of operations.
Competition. The Company operates in highly competitive markets, and its
future success will be largely dependent on its ability to provide quality
products and services at competitive prices. The Company's competition comes
from a variety of sources, including other distributors of natural products as
well as specialty grocery and mass market grocery distributors. There can be
no assurance that mass market grocery distributors will not increase their
emphasis on natural products and more directly compete with the Company or
that new
6
<PAGE>
competitors will not enter the market. These distributors may have been in
business longer than the Company, may have substantially greater financial and
other resources than the Company and may be better established in their
markets. There can be no assurance that the Company's current or potential
competitors will not provide services comparable or superior to those provided
by the Company or adapt more quickly than the Company to evolving industry
trends or changing market requirements. It is also possible that alliances
among competitors may develop and rapidly acquire significant market share.
Increased competition may result in price reductions, reduced gross margins
and loss of market share, any of which could materially adversely affect the
Company's business, financial condition or results of operations. There can be
no assurance that the Company will be able to compete effectively against
current and future competitors. See "Business--Competition."
Low Margin Business; Economic Sensitivity. The grocery distribution industry
generally is characterized by relatively high volume with relatively low
profit margins. The continuing consolidation of retailers in the natural
products industry and the emergence of natural products supermarket chains may
have an adverse effect on the Company's profit margins in the future as more
customers qualify for greater volume discounts offered by the Company. The
grocery industry is also sensitive to national and regional economic
conditions, and the demand for products supplied by the Company may be
adversely affected from time to time by economic downturns. In addition, the
Company's operating results are particularly sensitive to, and may be
materially adversely affected by, difficulties with the collectibility of
accounts receivable, inventory control, competitive pricing pressures and
unexpected increases in fuel or other transportation-related costs. There can
be no assurance that one or more of such factors will not materially adversely
affect the Company's business, financial condition or results of operations.
Dependence on Key Personnel. Management of the Company's business is
substantially dependent on the services of Norman A. Cloutier, the Company's
Chairman of the Board and Chief Executive Officer, Michael S. Funk, the
Company's Vice Chairman of the Board and President, Steven H. Townsend, the
Company's Chief Financial Officer, and other key management employees. Loss of
the services of such officers or any other key management employee could have
a material adverse effect on the Company's business, financial condition or
results of operations. The Company has entered into an employment agreement
with Mr. Funk, which includes a noncompetition covenant, and a noncompetition
agreement with Mr. Cloutier. The Company does not maintain a key man life
insurance policy on any of its executive officers other than Mr. Funk. See
"Management--Employment Agreements."
Fluctuations in Operating Results. The Company's net sales and operating
results may vary significantly from period to period due to factors such as
changes in the Company's operating expenses, management's ability to execute
the Company's business and growth strategies, personnel changes, demand for
natural products, supply shortages and general economic conditions. Both the
Company's distribution and retail businesses are dependent upon consumer
preferences and demands for natural products, including levels of enthusiasm
for health and fitness and environmental issues. Furthermore, the future
operating performance of the Company is directly influenced by natural product
prices, which can be volatile and fluctuate according to competitive
pressures. A lack of an adequate supply of high-quality agricultural products
or volatility in prices resulting from poor growing conditions, natural
disasters or otherwise, could have a material adverse effect on the Company's
business, financial condition or results of operations. In addition, there can
be no assurance that any future acquisitions by the Company will not have an
adverse effect upon the Company's business, financial condition or results of
operations, particularly in periods immediately following the consummation of
such transactions, while the operations of the acquired businesses are being
integrated into the Company's operations. Due to the foregoing factors, the
Company believes that period to period comparisons of its operating results
are not necessarily meaningful and that such comparisons cannot be relied upon
as indicators of future performance. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
Governmental Regulation. The Company's business is highly regulated at the
federal, state and local levels and its products and distribution operations
require various licenses, permits and approvals. In particular, the Company's
products are subject to inspection by the U.S. Food and Drug Administration,
its warehouse and
7
<PAGE>
distribution facilities are subject to inspection by the U.S. Department of
Agriculture and state health authorities, and its trucking operations are
regulated by the U.S. Department of Transportation and the U.S. Federal
Highway Administration. The loss or revocation of any existing licenses,
permits or approvals or the failure to obtain any additional licenses, permits
or approvals in new jurisdictions where the Company intends to do business
could have a material adverse effect on the Company's business, financial
condition or results of operations. See "Business--Regulation."
Control by Officers, Directors and ESOT. Upon completion of the Offering,
the Company's officers and directors, and their affiliates, and the Company's
Employee Stock Ownership Trust will beneficially own in the aggregate
approximately 77% of the Company's outstanding Common Stock. Accordingly,
these stockholders, if acting together, would have the ability to elect the
Company's directors and may have the ability to determine the outcome of
corporate actions requiring stockholder approval, irrespective of how other
stockholders of the Company may vote. This concentration of ownership may have
the effect of delaying, deferring or preventing a change in control of the
Company. See "Management" and "Principal and Selling Stockholders."
Labor Relations. At July 31, 1996, approximately 75 employees, representing
approximately 6.3% of the Company's full-time employees and approximately
11.4% of the employees employed in the Company's warehouse and distribution
operations, were union members. The Company has in the past been the focus of
union-organizing efforts. As the Company increases its employee base and
broadens its distribution operations to new geographic markets, its increased
visibility could result in increased or expanded union-organizing efforts.
Although the Company has not experienced a work stoppage to date, if
additional employees of the Company were to unionize, the Company could be
subject to work stoppages and increases in labor costs, either of which could
materially adversely affect the Company's business, financial condition or
results of operations. See "Business--Employees."
Pledge of Assets. The Company has pledged all of its assets as collateral
for its obligations under its $50 million revolving line of credit agreement.
As of July 31, 1996, the Company's outstanding borrowings under the credit
agreement totalled $34.8 million. If the Company is unable to meet its
obligations to its bank under the credit agreement, the bank could foreclose
on all of the assets of the Company, which would have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
No Prior Public Market; Possible Volatility of Stock Price; No
Dividends. Prior to the Offering, there has been no public market for the
Common Stock, and there can be no assurance that an active trading market will
develop or be sustained after the Offering or that the market price of the
Common Stock will not decline below the initial public offering price. The
initial public offering price will be determined by negotiations between the
Company and the Representatives of the Underwriters. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. The market performance of the Common Stock could also be
subject to significant fluctuation in response to variations in results of
operations and various other factors. In addition, the stock market in recent
years has experienced extreme price and volume fluctuations that often have
been unrelated or disproportionate to the operating performance of companies.
These fluctuations, as well as general economic and market conditions, may
adversely affect the market price of the Common Stock. The Company has never
paid any cash dividends and does not anticipate paying cash dividends in the
foreseeable future. The Company's existing revolving line of credit agreement
prohibits the declaration or payment of cash dividends to the Company's
stockholders without the written consent of the bank during the term of the
credit agreement and until all obligations of the Company under the credit
agreement have been met. See "Dividend Policy."
Dilution. Purchasers of shares of Common Stock in the Offering will suffer
an immediate and substantial dilution in the net tangible book value per share
of the Common Stock from the initial public offering price. See "Dilution."
Shares Eligible for Future Sale; Registration Rights. Sales of substantial
amounts of shares of Common Stock in the public market following the Offering
could adversely affect the market price of the Common Stock. Upon completion
of the Offering, the 2,900,000 shares sold in the Offering will be freely
tradeable without
8
<PAGE>
restriction or further registration under the Securities Act of 1933, as
amended (the "Securities Act"), except that any shares purchased by
"affiliates" of the Company, as that term is defined in Rule 144 ("Rule 144")
under the Securities Act ("Affiliates"), may generally only be sold in
compliance with the limitations of Rule 144 and the Lock-Up Agreements
described below. Holders of all of the remaining 9,478,425 shares of Common
Stock (as well as 434,500 shares of Common Stock that may be acquired pursuant
to the exercise of vested options held by them as of 180 days after the date
of this Prospectus) have agreed, pursuant to 180-day lock-up agreements (the
"Lock-Up Agreements"), not to offer, sell, contract to sell or otherwise
dispose of such shares for 180 days after the date of this Prospectus. Upon
expiration of the Lock-Up Agreements 180 days after the date of this
Prospectus, approximately 4,085,730 additional shares of Common Stock will be
available for sale in the public market, subject to the provisions of Rule 144
under the Securities Act. Promptly after the date of this Prospectus, the
Company intends to file one or more registration statements registering
approximately 3,654,595 shares of Common Stock issuable under its 1996 Stock
Option Plan, 1996 Employee Stock Purchase Plan and Employee Stock Ownership
Plan, which shares are, or when issued will be, freely tradeable without
restriction, subject to Rule 144 limitations applicable to Affiliates and the
Lock-Up Agreements. The Company is unable to predict the effect that sales
made under such registration statements, Rule 144 or otherwise may have on the
then prevailing market price of the Common Stock. Triumph is entitled to
certain piggyback and demand registration rights with respect to 785,730
shares of Common Stock. By exercising its registration rights, Triumph could
cause these shares to be registered and sold in the public market. All of such
shares are subject to a Lock-Up Agreement. Sales pursuant to Rule 144 or other
exemptions from registration, or pursuant to registration rights, may have an
adverse effect on the market price for the Common Stock and could impair the
Company's ability to raise capital through an offering of its equity
securities. See "Certain Transactions," "Description of Capital Stock,"
"Shares Eligible for Future Sale" and "Underwriting."
Antitakeover Provisions. The Company's Amended and Restated Certificate of
Incorporation (the "Restated Certificate of Incorporation") requires that any
action required or permitted to be taken by stockholders of the Company must
be effected at a duly called annual or special meeting of stockholders and may
not be effected by any consent in writing, and requires reasonable advance
notice by a stockholder of a proposal or director nomination which such
stockholder desires to present at any annual or special meeting of
stockholders. Special meetings of stockholders may be called only by the
Chairman of the Board, the Chief Executive Officer or, if none, the President
of the Company or by the Board of Directors. The Restated Certificate of
Incorporation provides for a classified Board of Directors, and members of the
Board of Directors may be removed only for cause upon the affirmative vote of
holders of at least two-thirds of the shares of capital stock of the Company
entitled to vote. In addition, shares of the Company's Preferred Stock may be
issued in the future without further stockholder approval and upon such terms
and conditions, and having such rights, privileges and preferences, as the
Board of Directors may determine. The rights of the holders of Common Stock
will be subject to, and may be adversely affected by, the rights of any
holders of Preferred Stock that may be issued in the future. The Company has
no present plans to issue any shares of Preferred Stock. These provisions, and
other provisions of the Restated Certificate of Incorporation, may have the
effect of deterring hostile takeovers or delaying or preventing changes in
control or management of the Company, including transactions in which
stockholders might otherwise receive a premium for their shares over then
current market prices. In addition, these provisions may limit the ability of
stockholders to approve transactions that they may deem to be in their best
interests. See "Description of Capital Stock--Delaware Law and Certain Charter
and By-Law Provisions."
9
<PAGE>
THE COMPANY
HISTORY
The Company's predecessor entity, Cornucopia Natural Foods, Inc., was
incorporated as a Rhode Island corporation in 1978 as a natural products
retailer. In 1979, the Company changed its focus from retailing to the
distribution of natural products. In 1985, the Company purchased two
distributors, Harvest Provisions, Inc. (Boston, Massachusetts) and Earthly
Organics, Inc. (Philadelphia, Pennsylvania), to strengthen its position in the
New England market and to begin distribution to the Mid-Atlantic states. The
Company opened its distribution center in Georgia in 1991 to begin
distribution to the southeastern United States.
The Company has also acquired two specialty suppliers of natural products.
In 1988, the Company acquired substantially all of the assets of Natural Food
Systems, Inc., a distributor of seafood. In 1990, the Company acquired certain
assets of BGS Distributing Company, Inc., a regional distributor and
manufacturer of vitamins which also held distribution rights to several
additional product lines.
In 1993, the Company formed its Natural Retail Group, Inc. ("NRG") to
acquire, own and operate retail natural products stores. NRG currently owns
and operates eight natural products stores located in Connecticut, Florida,
Maryland, Massachusetts and New York ranging in size from approximately 4,000
square feet to approximately 12,000 square feet.
RECENT ACQUISITIONS
In February 1996, the Company merged with Mountain People's, the largest
distributor of natural products in the Western portion of the United States.
The merger was accounted for as a pooling of interests and, accordingly, all
financial information included in this Prospectus is reported as though the
companies had been combined for all periods reported. In May 1995, prior to
its merger with United Natural, Mountain People's acquired Nutrasource, a
distributor of natural products in the Pacific Northwest region. In July 1995,
the Company acquired Rainbow, the largest distributor of natural products in
the Rocky Mountains and Plains regions. The acquisitions of Nutrasource and
Rainbow were accounted for under the purchase method of accounting and,
accordingly, all of the financial information for Nutrasource and Rainbow has
been included in this Prospectus since their respective dates of acquisition.
The excess of the purchase price over the net assets acquired in each of these
acquisitions has been recorded as goodwill and will be amortized by the
Company over 30 years.
The Company currently serves more than 5,500 customers located in 43 states,
through its three principal regions: Cornucopia, which covers the eastern
United States; Mountain People's, which covers the western United States; and
Rainbow, which covers the Rocky Mountains and Plains regions.
ESOP
In November 1988, the Company adopted an Employee Stock Ownership Plan (the
"ESOP") for the benefit of eligible employees. In connection with the
formation of the ESOP, the Employee Stock Ownership Trust (the "ESOT")
acquired an aggregate of 2,200,000 shares of Common Stock from Norman A.
Cloutier, Steven H. Townsend, Daniel V. Atwood and Theodore Cloutier
(collectively, the "Initial Stockholders") in exchange for a promissory note
(the "ESOT Note") in the aggregate principal amount of $4,080,000, of which
$3,073,600 was outstanding as of July 31, 1996, exclusive of interest. The
ESOT Note bears interest at a rate of 10% per annum. As the ESOT Note is
repaid, shares held in the ESOT are released from a pledge to the Initial
Stockholders in proportion to the principal paid down on the ESOT Note during
the year. The released shares are allocated among the ESOP accounts of
eligible employees. As of July 31, 1996, approximately 550,000 shares have
been allocated or released for allocation to employees and allocations are
projected to continue at the rate of 88,000 shares per year. The shares in an
employee's ESOP account generally vest after five years of qualified
employment or upon death or disability. Vested ESOP benefits are distributable
following the death or termination of employment of a participating employee.
10
<PAGE>
Participating employees can elect to receive their ESOP benefits in the form
of Common Stock. The Company has normally purchased from the ESOT the shares
allocated to former employees' ESOP accounts at their fair market value, and
then distributed cash to the employees. Common Stock distributed to former
employees from the ESOT is subject to a limited put option which allows the
holder to require the Company to repurchase the shares for a period of sixty
days at their appraised fair market value at the date of distribution, and for
another sixty days beginning after the appraised fair market value of the
Common Stock has been established for the Company's taxable year following the
year in which the distribution occurred. The put option ceases when Common
Stock distributed under the ESOP is (i) listed on a national securities
exchange or traded in the over-the-counter market and (ii) is freely
tradeable. Common Stock held in the ESOT is voted by the Trustee as directed
by the Company, except that ESOP participants are entitled to direct the
Trustee as to how to vote shares allocated to their ESOP accounts on any
matter which involves a corporate merger, consolidation, recapitalization,
reclassification, liquidation, sale of substantially all of the Company's
assets or other similar major corporate transactions.
The Company intends to amend the ESOP so that upon completion of the
Offering it will (i) provide that ESOP benefits may be paid only in the form
of Common Stock, (ii) eliminate the limited put option, (iii) provide for
participants to direct the Trustee as to how to vote shares of Common Stock
allocated to their accounts, (iv) direct the Trustee to vote unallocated
shares of Common Stock, and allocated shares for which no voting direction has
been received, in the same proportion as participants have directed the
Trustee to vote their allocated shares of Common Stock, (v) provide for
transfers to the Company's 401(k) plan not more frequently than once each five
years of up to 50% of the vested account balance of a non-highly compensated
participant with 10 or more years of service with the Company, (vi) provide
for hardship distributions not more frequently than once every five years of
up to 50% of the vested account balance of a participant with 10 or more years
of service with the Company to meet certain extraordinary expenses, and (vii)
incorporate the ESOP and ESOT into a single integrated document. See
"Management -- Executive Compensation -- Employee Stock Ownership Plan."
CORPORATE INFORMATION
The Company was incorporated in Rhode Island in 1978 and reincorporated in
Delaware in 1994. The Company's executive offices are located at 260 Lake
Road, Dayville, Connecticut 06241, and its telephone number is (860) 779-2800.
11
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the Offering, assuming
an initial public offering price of $14.00 per share, are estimated to be $37
million after deducting underwriting discounts and commissions and estimated
offering expenses. The Company intends to use such proceeds to repay certain
indebtedness, for working capital and for general corporate purposes,
including the expansion of the Company's distribution facilities. The
indebtedness to be repaid consists of (i) $22,012,210 due to Fleet Capital
Corporation under a revolving line of credit that matures on July 31, 1998 and
bears interest at a rate of 0.25% over New York Prime or 2.25% over LIBOR, or
8.0% at July 31, 1996; (ii) $6,500,000 due to Triumph under a Senior Note that
matures on October 31, 1998 and currently bears interest at a rate of 10.0%;
(iii) $4,702,381 due to Fleet Capital Corporation under a term loan that
matures on July 31, 1998 and bears interest at a rate of 0.25% over New York
Prime, or 8.5% at July 31, 1996; (iv) $2,785,409 due to Prem Mark, Inc. under
a term note issued in connection with the Rainbow acquisition that matures
July 1998 and bears interest at a rate of 10.0%; and (v) approximately
$1,000,000 due under certain notes maturing between 1998 and 2002 and bearing
interest at rates ranging from 0.5% to 1.0% over New York Prime issued by NRG
in connection with the acquisition of certain retail natural products stores.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and "Certain Transactions."
The Company will not receive any proceeds from the sale of Common Stock by
the Selling Stockholders in the event that the over-allotment option granted
to the Underwriters is exercised. See "Principal and Selling Stockholders."
The Company intends to seek acquisitions of businesses and products that are
complementary to those of the Company, and a portion of the net proceeds may
also be used for such acquisitions. While the Company engages from time to
time in discussions with respect to potential acquisitions, the Company has no
plans, commitments or agreements with respect to any such acquisitions as of
the date of this Prospectus, and there can be no assurance that any such
acquisitions will be made.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock. The Company anticipates that all of its earnings in the foreseeable
future will be retained to finance the continued growth and development of its
business and has no current intention to pay cash dividends. The Company's
future dividend policy will depend on the Company's earnings, capital
requirements and financial condition, requirements of the financing agreements
to which the Company is then a party and other factors considered relevant by
the Board of Directors. The Company's existing revolving line of credit
agreement prohibits the declaration or payment of cash dividends to the
Company's stockholders without the written consent of the bank during the term
of the credit agreement and until all obligations of the Company under the
credit agreement have been met.
12
<PAGE>
CAPITALIZATION
The following table sets forth the Company's capitalization at July 31, 1996
(i) on an actual basis; (ii) on a pro forma basis to reflect the issuance of
1,166,660 shares of Common Stock upon the exercise of the Triumph Warrant, the
repurchase by the Company from Triumph of 380,930 such shares upon the
repayment of the outstanding indebtedness under the Triumph Note, which
includes a related extraordinary loss on repayment resulting from the
accelerated payment of the remaining original issue discount, and the
assumption that such repayment is being financed by another long-term debt
instrument; and (iii) as adjusted to reflect the issuance and sale by the
Company of 2,900,000 shares of Common Stock offered hereby at an assumed
initial public offering price of $14.00 per share and application of the net
proceeds therefrom, after deducting the underwriting discounts and commissions
and estimated offering expenses. See "Use of Proceeds." The information set
forth below should be read in conjunction with the Company's Consolidated
Financial Statements and the Notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
JULY 31, 1996 (1)
-------------------------------
PRO PRO FORMA
ACTUAL FORMA AS ADJUSTED
------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt and current portion of capital
leases........................................ $34,557 $34,557 $ 9,835
------- ------- -------
Long-term debt and capital leases, excluding
current installments(2)....................... 23,019 24,774 12,496
------- ------- -------
Preferred stock, $.01 par value; 5,000,000
shares authorized; no shares issued or
outstanding (as adjusted)..................... -- -- --
Common stock, $.01 par value; 25,000,000 shares
authorized; 8,713,100 shares issued and
8,692,695 shares outstanding (actual);
9,879,760 shares issued and 9,478,425 shares
outstanding (pro forma); 12,779,760 shares
issued and 12,378,425 shares outstanding (pro
forma as adjusted)............................ 87 95 124
Additional paid-in-capital..................... 1,384 4,576 41,547
Stock warrants................................. 3,200 -- --
Unallocated shares of employee stock ownership
plan.......................................... (3,074) (3,074) (3,074)
Retained earnings.............................. 16,629 15,629(2) 15,629
Treasury stock, 20,405 shares at cost.......... (44) (44) (44)
------- ------- -------
Total stockholders' equity................... 18,182 17,182 54,182
------- ------- -------
Total capitalization (including short-term
debt)....................................... $75,758 $76,513 $76,513
======= ======= =======
</TABLE>
- --------
(1) The table gives effect to the filing of the Company's Amended and Restated
Certificate of Incorporation upon the closing of the Offering. The Amended
and Restated Certificate of Incorporation provides, among other things,
for an authorized capital stock of 25,000,000 shares of Common Stock and
5,000,000 shares of Preferred Stock. See "Description of Capital Stock."
(2) Long-term debt includes a note payable to Triumph with a balance of $4.7
million at July 31, 1996 and a face value of $6.5 million due in October
1998. The Company intends to prepay the note with a portion of the
proceeds of the Offering. In connection with the prepayment, the Company
will record an extraordinary expense of approximately $1.8 million ($1.0
million, net of taxes) reflecting the difference between the face amount
and the carrying value thereof on the Company's balance sheet on the date
of prepayment, as well as the write-off of related debt issuance costs.
13
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of July 31, 1996 was
$7,543,925, or approximately $0.80 per outstanding share of Common Stock. Pro
forma net tangible book value per outstanding share is equal to the Company's
total tangible assets less total liabilities, divided by the number of shares
of Common Stock outstanding, assuming the issuance of 1,166,660 shares of
Common Stock upon the exercise of the Triumph Warrant and the repurchase by
the Company from Triumph of 380,930 such shares upon the repayment of the
outstanding indebtedness under the Triumph Note. After giving effect to the
sale by the Company of 2,900,000 shares of Common Stock offered hereby
(assuming an initial public offering price of $14.00 per share) and receipt
and application of the net proceeds therefrom, the pro forma net tangible book
value of the Company at July 31, 1996 would have been $44,543,925, or
approximately $3.60 per share. This represents an immediate increase in pro
forma net tangible book value of $2.80 per share to existing stockholders and
an immediate dilution of $10.40 per share to new investors purchasing shares
in the Offering. Dilution is determined by subtracting pro forma net tangible
book value per share after the Offering from the amount paid by a new investor
for a share of Common Stock. The following table illustrates the per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................ $14.00
Pro forma net tangible book value as of July 31, 1996........ $0.80
Increase attributable to new investors....................... 2.80
-----
Pro forma net tangible book value after the Offering........... 3.60
------
Dilution to new investors...................................... $10.40
======
</TABLE>
The following table summarizes, on a pro forma basis as of July 31, 1996,
the differences between existing stockholders and new investors with respect
to the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average consideration paid per share
by the existing stockholders and by the new investors:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ ------------------- AVERAGE
NUMBER PERCENT AMOUNT PERCENT PRICE PER SHARE
---------- ------- ----------- ------- ---------------
<S> <C> <C> <C> <C> <C>
Existing stockhold-
ers(1)................. 9,478,425 76.6% $ 3,614,542 8.2% $ 0.38
New investors........... 2,900,000 23.4 40,600,000 91.8 $14.00
---------- ----- ----------- -----
Total................. 12,378,425 100.0% $44,214,542 100.0%
========== ===== =========== =====
</TABLE>
The foregoing table and calculations assume no exercise of outstanding
options. As of July 31, 1996, options to purchase 638,000 shares of Common
Stock were outstanding with a weighted average exercise price of $8.11 per
share. To the extent these options are exercised, there will be further
dilution to the new investors.
- --------
(1) If the Underwriters' over-allotment option is exercised in full, sales by
the Selling Stockholders in the Offering will reduce the number of shares
held by existing stockholders to 9,043,425, or approximately 73.1% of the
total number of shares of Common Stock outstanding after the Offering, and
will increase the number of shares held by new investors to 3,335,000, or
approximately 26.9% of the total number of shares of Common Stock
outstanding after the Offering.
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below under the caption
Consolidated Statement of Income Data with respect to the fiscal years ended
October 31, 1994 and 1995 and the nine months ended July 31, 1996, and under
the caption Consolidated Balance Sheet Data at October 31, 1994 and 1995 and
July 31, 1996, are derived from the consolidated financial statements of the
Company, which financial statements have been audited by KPMG Peat Marwick
LLP, independent certified public accountants. The selected consolidated
financial data presented below under the caption Consolidated Statement of
Income Data with respect to the fiscal years ended October 31, 1992 and 1993
and the nine months ended July 31, 1995, and under the caption Consolidated
Balance Sheet Data at October 31, 1992 and 1993, are derived from the
unaudited consolidated financial statements of the Company that have been
prepared on the same basis as the audited financial statements and, in the
opinion of management, contain all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results for
such periods. The historical results are not necessarily indicative of results
to be expected for any future period. The following selected consolidated
financial data should be read in conjunction with and are qualified by
reference to "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Company's Consolidated Financial Statements and
Notes thereto included elsewhere in this Prospectus.
The merger with Mountain People's has been accounted for as a pooling of
interests and therefore the financial data below are presented as if Mountain
People's and the Company had been combined for all periods presented.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED OCTOBER 31, JULY 31,
------------------------------------- ------------------
1992 1993 1994 1995 1995 1996
------------------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF INCOME DATA:
Net sales............... $ 124,366 $153,636 $200,616 $283,323 $188,502 $286,448
Cost of sales........... 99,424 121,148 156,498 223,482 147,706 226,482
--------- -------- -------- -------- -------- --------
Gross profit............ 24,942 32,488 44,118 59,841 40,796 59,966
Operating expenses...... 21,642 27,176 36,195 48,653 32,740 48,565(2)
Amortization of
intangibles............ 1 199 538 2,426(1) 603 792
--------- -------- -------- -------- -------- --------
Total operating
expenses............... 21,643 27,375 36,733 51,079 33,343 49,357
--------- -------- -------- -------- -------- --------
Operating income........ 3,299 5,113 7,385 8,762 7,453 10,609
--------- -------- -------- -------- -------- --------
Interest expense........ 983 1,078 2,275 3,403 2,184 3,943
Other, net.............. (154) 137 122 (173) (124) (137)
--------- -------- -------- -------- -------- --------
Total other expense..... 829 1,215 2,397 3,230 2,060 3,806
--------- -------- -------- -------- -------- --------
Income before income
taxes.................. 2,470 3,898 4,988 5,532 5,393 6,803
Income taxes............ 982 1,579 1,971 2,929 2,161 2,778
--------- -------- -------- -------- -------- --------
Net income.............. $ 1,488 $ 2,319 $ 3,017 $ 2,603 $ 3,232 $ 4,025
========= ======== ======== ======== ======== ========
Net income per share.... $ 0.17 $ 0.26 $ 0.30 $ 0.26 $ 0.32 $ 0.40
========= ======== ======== ======== ======== ========
Weighted average shares
of common stock and
common stock
equivalents(3)......... 8,982 8,982 10,094 10,148 10,148 10,144
========= ======== ======== ======== ======== ========
Pro forma net income per
share.................. $ 0.37(4)
========
<CAPTION>
OCTOBER 31,
-------------------------------------- JULY 31,
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital................... $ 3,498 $ 3,895 $ 10,180 $ 8,583 $ 10,087
Total assets...................... 26,124 37,006 48,476 88,822 98,744
Long-term debt, excluding current
installments..................... 4,731 7,495 10,209 21,312 22,171
Stockholders' equity.............. 1,790 4,258 10,257 13,022 18,182
</TABLE>
- -------
(1) Operating income for fiscal 1995 includes a non-recurring expense of $1.6
million related to the write-off of intangible assets. Excluding the $1.6
million non-recurring expense, operating income would have been $10.4
million in fiscal 1995.
(2) Operating income for the nine months ended July 31, 1996 includes a non-
recurring expense of $1,056,100 related to the grant of options under the
Company's 1996 Stock Option Plan and a non-recurring expense of $458,000
representing costs associated with the Mountain People's merger. Excluding
the $1,514,100 of non-recurring expenses, operating income would have been
$12.1 million in the nine months ended July 31, 1996.
(3) Does not reflect the intended repurchase by the Company, upon the
repayment of the outstanding indebtedness under the Triumph Note, of
380,930 shares of Common Stock issuable upon the exercise of the Triumph
Warrant.
(4) The Company intends to use the estimated net proceeds from the Offering to
repay indebtedness. The pro forma net income of $4.7 million reflects the
reduction in interest expense (at an effective annual interest rate of
approximately 8%) resulting from the application of the estimated net
proceeds and the $1.0 million extraordinary loss (net of tax) which would
occur upon the repayment of the Triumph indebtedness as a result of the
accelerated payment of the remaining original issue discount. Such pro
forma net income was divided by 12.7 million pro forma weighted average
shares of Common Stock outstanding, which reflects the issuance of
2,900,000 shares of Common Stock offered hereby and the repurchase by the
Company of 380,930 shares of Common Stock upon repayment of the
outstanding indebtedness under the Triumph Note.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
United Natural is one of only two national distributors of natural foods and
related products in the United States. The Company currently distributes more
than 25,000 natural products to more than 5,500 customers located in 43
states. United Natural's distribution operations are divided into three
principal regions: Cornucopia in the eastern United States; Mountain People's
in the western United States; and Rainbow in the Rocky Mountains and Plains
regions. Through its Natural Retail Group, the Company also owns and operates
eight retail natural products stores located in the eastern United States.
In recent years, the Company has increased sales to existing and new
customers through the acquisition of or merger with existing natural products
distributors, the opening of distribution centers in new geographic areas and
the expansion of existing distribution centers, as well as continuing growth
in the natural products industry generally. Management believes that through
these actions the Company has been able to broaden its geographical
penetration, increase its market share, expand its customer base and enhance
and diversify its product offerings.
The Company is currently in the process of integrating many of the operating
functions of its recent acquisitions to achieve operating efficiencies by
(i) eliminating geographic overlaps in distribution, (ii) integrating
administrative, finance and accounting functions of its three regions, (iii)
expanding marketing and customer service programs and (iv) expanding its
information and warehouse management systems to all of its facilities. In
addition, the Company's continuing growth has created the need for expansion
of existing facilities to achieve maximum operating efficiencies and to assure
adequate space for future needs. While operating margins may be affected in
periods in which expenses are incurred to support the Company's continued
growth, over the long term, the Company expects to benefit from increased
absorption of its expenses over a larger sales base. In recent years, the
Company has incurred significant expenditures in connection with the expansion
of its facilities, including the expansion of its distribution center and
headquarters in Connecticut and the expansion of refrigerated space in its
Georgia facility. The Company intends to build a new facility in Colorado,
which is expected to be operational during the second half of calendar 1997,
and to replace its auxiliary storage facility in Sacramento, California with a
larger facility adjacent to its Auburn, California distribution center, which
is expected to be substantially complete by late calendar 1997. The Company
depreciates its facilities over 40 years and its equipment over three to ten
years.
The Company has also made a significant investment in designing and
installing proprietary information and warehouse management systems in its
Connecticut and Georgia facilities. The Company intends to install its
information and warehouse management systems in other regions in stages, with
installation commencing in Colorado in early calendar 1997 and in California
and Washington in late calendar 1997.
The Company's retail strategy for NRG is to selectively acquire existing
natural products stores that meet the Company's strict criteria in categories
such as sales and profitability, growth potential, merchandising and
management. Management believes the Company's retail business serves as a
natural complement to its distribution business.
The Company's net sales consist primarily of sales of natural products to
retailers, after customer volume discounts, returns and allowances, and, to a
lesser extent, sales from its natural products retail stores. The principal
components of the Company's cost of sales include the amount paid to
manufacturers and growers for products sold plus the cost of transportation of
the product to the Company's distribution facilities. Generally, the Company
is able to pass along price increases and decreases to its customers. As a
result, the Company's net sales and profit levels may be negatively affected
during periods of food price deflation, even though the Company's gross profit
as a percentage of net sales may remain relatively constant. Operating
expenses include primarily labor-related expenses, employee benefits
(including payments under the Company's ESOP), selling, warehousing, delivery
and occupancy expenses, depreciation and other distribution and administrative
costs. Other expenses include interest payments on outstanding indebtedness,
miscellaneous expenses and other non-recurring expenses.
16
<PAGE>
RECENT ACQUISITIONS
On February 20, 1996, a subsidiary of the Company merged with and into
Mountain People's, whereupon Mountain People's became a wholly owned
subsidiary of the Company. The merger with Mountain People's was accounted for
as a pooling of interests and, accordingly, all financial information included
in this Prospectus is reported as though the companies had been combined in
all periods reported. The Company acquired all of the outstanding capital
stock of Mountain People's in exchange for approximately 37% of the stock of
the Company after the merger. The consideration paid by the Company for
Mountain People's was established by the parties through arms-length
negotiations and was based on an estimate of the relative fair value of
Mountain People's as a going concern. See Note 2 of Notes to the Company's
Consolidated Financial Statements.
On May 22, 1995, prior to its merger with United Natural, Mountain People's
acquired Nutrasource, a distributor of natural products in the Pacific
Northwest region. The total cash and debt issued to acquire Nutrasource was
approximately $2.8 million, which exceeded the fair value of the net assets
acquired by approximately $1.3 million. In addition, the Company paid $1.0
million to a stockholder of Nutrasource in consideration for a covenant not to
compete. On July 29, 1995, the Company acquired Rainbow, a distributor of
natural products in the Rocky Mountains and Plains regions. The total cash and
debt issued to acquire Rainbow was approximately $8.5 million, which exceeded
the fair value of the net assets acquired by approximately $4.5 million. The
acquisitions of Nutrasource and Rainbow were accounted for under the purchase
method of accounting, and, accordingly, all of the financial information for
Rainbow and Nutrasource have been included in this Prospectus since their
respective dates of acquisition. The excess of the purchase price over the net
assets acquired in each of these acquisitions has been recorded as goodwill
and will be amortized by the Company over 30 years.
The Company's fiscal years ended October 31, 1994 and 1995 are referred to
herein as "fiscal 1994" and "fiscal 1995," respectively. The Company has
changed its fiscal year end to July 31.
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, certain income and
expense items expressed as a percentage of net sales:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS
OCTOBER 31, ENDED JULY 31,
------------------ ----------------
1994 1995 1995 1996
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Net sales................................ 100.0% 100.0 % 100.0% 100.0%
Cost of sales............................ 78.0 78.9 78.4 79.1
-------- -------- ------- -------
Gross profit........................... 22.0 21.1 21.6 20.9
-------- -------- ------- -------
Operating expenses....................... 18.0 17.1 17.4 17.0
Amortization of intangibles.............. 0.3 0.9 0.3 0.2
-------- -------- ------- -------
Total operating expenses................. 18.3 18.0 17.7 17.2
-------- -------- ------- -------
Operating income ...................... 3.7 3.1 3.9 3.7
-------- -------- ------- -------
Interest expense ...................... 1.1 1.2 1.2 1.3
Other, net ............................ 0.1 (0.1) (0.1) 0.0
-------- -------- ------- -------
Other expense, net .................... 1.2 1.1 1.1 1.3
-------- -------- ------- -------
Income before income taxes .............. 2.5 2.0 2.8 2.4
Income taxes .......................... 1.0 1.0 1.1 1.0
-------- -------- ------- -------
Net income............................... 1.5% 0.9% 1.7% 1.4%
======== ======== ======= =======
</TABLE>
17
<PAGE>
NINE MONTHS ENDED JULY 31, 1996 COMPARED TO NINE MONTHS ENDED JULY 31, 1995
Net Sales. The Company's net sales increased 51.9%, or $97.9 million, to
$286.4 million in the nine months ended July 31, 1996 from $188.5 million in
the nine months ended July 31, 1995. The increase in net sales was primarily
due to additional sales of $74.5 million attributable to Nutrasource and
Rainbow, whose operations were included for the entire nine-month period in
1996. Sales of $6.5 million were attributable to two months of operations of
Nutrasource during the comparable 1995 period. The increase was also
attributable to increased sales by the Company to existing customers,
including net sales attributable to new products offered by the Company and
net sales to new customers in existing geographic distribution areas as well
as new geographic areas not formerly served by the Company.
Gross Profit. The Company's gross profit increased 47.0%, or $19.2 million,
to $60.0 million in the nine months ended July 31, 1996 from $40.8 million in
the nine months ended July 31, 1995. The Company's gross profit as a
percentage of net sales decreased to 20.9% for the nine months ended July 31,
1996 from 21.6% in the nine months ended July 31, 1995. The decrease in the
gross profit as a percentage of net sales was primarily due to the lower-
margin business of the Company's recently acquired distributors and to the
increase in net sales during fiscal 1996 attributable to natural products
supermarket chains, which tend to buy in larger quantities and to qualify for
greater volume discounts.
Operating Expenses. The Company's total operating expenses increased 48.3%,
or $16.1 million, to $49.4 million in the nine months ended July 31, 1996 from
$33.3 million in the nine months ended July 31, 1995. As a percentage of net
sales, operating expenses decreased to 17.2% in the nine months ended July 31,
1996 from 17.7% in the nine months ended July 31, 1995. Total operating
expenses in the nine months ended July 31, 1996 included a non-cash expense of
$1,056,100 related to the grant of options under the Company's 1996 Stock
Option Plan and a non-recurring expense of $458,000 representing costs
associated with the Mountain People's merger. Excluding the $1.5 million of
non-recurring expenses, the Company's total operating expenses would have been
$47.8 million, or 16.7% of net sales, for the nine months ended July 31, 1996.
The decrease in total operating expenses as a percentage of net sales was
primarily attributable to the Company's increased absorption of overhead and
fixed expenses over a larger sales base. In addition, the Company achieved
increased operating efficiencies through the implementation of new information
and warehouse management systems in its Connecticut and Georgia facilities.
Depreciation expense increased 91.7%, or $1.1 million, to $2.3 million in
the nine months ended July 31, 1996 from $1.2 million in the nine months ended
July 31, 1995, primarily due to the Company's purchase of its distribution
center and headquarters in Connecticut in August 1995 and the inclusion of a
full period of depreciation for Nutrasource and Rainbow in the nine months
ended July 31, 1996. The Company's amortization of intangible assets increased
31.5%, or $189,943, to $792,615 in the nine months ended July 31, 1996 from
$602,672 in the nine months ended July 31, 1995. This increase was primarily
attributable to the inclusion of amortization expense for Nutrasource and
Rainbow for the entire nine months ended July 31, 1996, compared with two
months of amortization expense for Nutrasource for the nine months ended July
31, 1995.
Operating Income. Operating income increased $3.1 million, or 42.3%, to
$10.6 million in the nine months ended July 31, 1996 from $7.5 million in the
nine months ended July 31, 1995. As a percentage of net sales, operating
income declined to 3.7% at the nine months ended July 31, 1996 from 3.9% in
the nine months ended July 31, 1995. Excluding the $1.5 million of non-
recurring expenses discussed above, operating income would have been $12.1
million, or 4.2% of net sales, in the nine months ended July 31, 1996.
Other Income (Expense). The $1.8 million increase in interest expense in the
nine months ended July 31, 1996 compared to the nine months ended July 31,
1995 was primarily attributable to the indebtedness incurred in connection
with the purchase of the Company's Connecticut facility in August 1995 and the
acquisitions of Nutrasource and Rainbow, along with an increase in borrowings
under the Company's revolving line of credit to fund increasing inventory and
accounts receivable balances related to the Company's increased sales.
18
<PAGE>
Income Taxes. The Company's effective income tax rates were 40.8% and 40.1%
for the nine months ended July 31, 1996 and 1995, respectively. The effective
rates were higher than the federal statutory rate due to nondeductible costs
associated with the merger with Mountain People's and state and local income
taxes.
Net Income. As a result of the foregoing, the Company's net income increased
by 24.5%, or $0.8 million, to $4.0 million in the nine months ended July 31,
1996 from $3.2 million in the nine months ended July 31, 1995. Excluding the
$1.5 million ($0.9 million net of taxes) non-recurring expenses related to the
granting of options under the 1996 Stock Option Plan and the costs associated
with the Mountain People's merger, net income would have been $4.9 million, or
1.7% of net sales, in the nine months ended July 31, 1996.
FISCAL 1995 TO FISCAL 1994
Net Sales. The Company's net sales increased 41.2%, or $82.7 million, to
$283.3 million in fiscal 1995 from $200.6 million in fiscal 1994. The increase
in net sales was primarily due to additional sales of $33.5 million
attributable to Nutrasource and Rainbow, whose operations were included in the
fiscal 1995 results for five months and three months, respectively. No
financial results of Nutrasource or Rainbow were included in the comparable
1994 period. The increase in net sales was also attributable to increased
sales by the Company to existing customers, the introduction of new products
not formerly carried by the Company and the inclusion of sales to new accounts
within existing geographic distribution areas.
Gross Profit. The Company's gross profit increased 35.6%, or $15.7 million,
to $59.8 million in fiscal 1995 from $44.1 million in fiscal 1994. The
Company's gross profit as a percentage of net sales decreased to 21.1% in
fiscal 1995 from 22.0% in fiscal 1994. The decrease in gross profit as a
percentage of net sales was primarily attributable to the lower-margin
business of the Company's recently acquired distributors and to the increase
in net sales during fiscal 1995 attributable to natural products supermarket
chains, which tend to buy in larger quantities and to qualify for greater
volume discounts. In addition, the Company's gross profit as a percentage of
net sales declined due to a smaller percentage of net sales represented by
sales from the Company's higher-margin NRG stores.
Operating Expenses. The Company's total operating expenses increased 39.1%,
or $14.4 million, to $51.1 million in fiscal 1995 from $36.7 million in fiscal
1994. As a percentage of net sales, total operating expenses decreased to
18.0% in fiscal 1995 from 18.3% in fiscal 1994. Total operating expenses in
fiscal 1995 included a non-recurring expense of $1.6 million related to the
write-off of intangible assets. Excluding the non-recurring expense of $1.6
million, total operating expenses would have been $49.5 million, or 17.5% of
net sales, in fiscal 1995. The decrease in total operating expenses as a
percentage of net sales was primarily attributable to the Company's increased
absorption of overhead and fixed expenses over a larger sales base.
Depreciation expense increased 61.5%, or $0.8 million, to $2.1 million in
fiscal 1995 from $1.3 million in fiscal 1994, primarily due to the Company's
purchase of its distribution center and headquarters in Connecticut in August
1995 and the inclusion of a partial year of depreciation for each of
Nutrasource and Rainbow in fiscal 1995 and no depreciation resulting from such
acquisitions in fiscal 1994. The Company's amortization of intangible assets
increased 450.9%, or $1.9 million, to $2.4 million, in fiscal 1995 from $0.5
million in fiscal 1994. This increase was attributable to higher goodwill
costs associated with the acquisitions of Nutrasource and Rainbow. In
connection with its on-going evaluation of intangible assets and in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of," the Company wrote off $1.6 million in intangible assets upon
evaluating the value of the underlying businesses of certain of its retail
operations. The impairment was indicated by projected cash flow losses caused
by increased competition at one location and a change in demographics for the
other affected location.
Operating Income. Operating income increased $1.4 million, or 18.7%, to $8.8
million in fiscal 1995 from $7.4 million in fiscal 1994. As a percentage of
net sales, operating income decreased to 3.1% in fiscal 1995 from 3.7% in
fiscal 1994. Excluding the $1.6 million non-recurring expense related to the
write-off of intangible assets, operating income would have been $10.4
million, or 3.7% of net sales, in fiscal 1995.
19
<PAGE>
Other Income (Expense). The $1.1 million increase in interest expense in
fiscal 1995 compared to fiscal 1994 was primarily attributable to the
indebtedness incurred in connection with the purchase of the Company's
Connecticut facility in August 1995 and the recent acquisitions of Nutrasource
and Rainbow. In addition, the Company experienced increased costs under its
revolving line of credit due to the higher borrowings required to fund the
increasing inventory and accounts receivable balances related to the Company's
increased sales.
Income Taxes. The Company's effective income tax rates were 52.9% and 39.5%
for fiscal 1995 and 1994, respectively. The effective rates were higher than
the federal statutory rate due to nondeductible goodwill amortization,
especially the write-off of the intangible assets in fiscal 1995, as well as
state and local income taxes.
Net Income. As a result of the foregoing, the Company's net income decreased
by 13.7%, or $0.4 million, to $2.6 million in fiscal 1995 from $3.0 million in
fiscal 1994. Excluding the $1.6 million non-recurring expense related to
write-off of intangible assets ($1.0 million net of taxes), net income would
have been $4.3 million, or 1.5% of net sales, in fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company historically has financed its operations and growth primarily
with cash flows generated from operations, borrowings under its credit
facility, seller financing of acquisitions, operating and capital leases and
normal trade credit terms. The Company finances its investment in inventory
and accounts receivable principally with its credit facility and trade
accounts payable.
The Company's cash provided (used) by operations was $1.5 million, $(0.9)
million and $(1.3) million in the nine months ended July 31, 1996, fiscal 1995
and fiscal 1994, respectively. The increase in cash generated from operations
in the nine months ended July 31, 1996 was primarily attributable to the
increase in net income. The decreases in cash generated from operations in
both fiscal 1995 and 1994 were primarily attributable to increases in accounts
receivable and inventory which resulted from the expansion of product lines
and growth of the business. The Company's working capital at July 31, 1996 was
$10.1 million.
Investing activities, consisting primarily of capital expenditures and the
purchase of subsidiaries, used cash of $7.0 million, $18.5 million and $3.7
million in the nine months ended July 31, 1996, fiscal 1995 and fiscal 1994,
respectively. The Company spent $7.1 million and $9.9 million in capital
expenditures in the nine months ended July 31, 1996 and fiscal 1995,
respectively, primarily to fund the acquisition and expansion of its
Connecticut distribution facility, the related purchase of material handling
equipment, tractors and trailers and the development and installation of new
management information systems. The capital expenditures were primarily funded
from senior bank indebtedness which is described below, capital and operating
leases, term loans and cash provided from operating activities.
The Company's cash flows generated from financing activities were $5.3
million, $19.4 million and $5.0 million in the nine months ended July 31,
1996, fiscal 1995 and fiscal 1994, respectively. During the nine months ended
July 31, 1996, net cash provided by financing activities included proceeds
from the re-financing of the Company's senior bank facility. During fiscal
1996, approximately $5.3 million in long-term debt was repaid with cash
proceeds from the re-financing and from cash provided from operating
activities.
On February 20, 1996, the Company entered into a credit agreement with its
bank to provide a $50 million facility for working capital, term loans and a
mortgage for its Connecticut facility. Interest under the credit agreement
accrues at the Company's option, at 0.25% above the New York Prime Rate or
2.25% above the bank's London Interbank Offered Rate, and the Company has the
option to fix the rate for all or a portion of the debt for a period of up to
180 days. The credit agreement imposes limitations on the incurrence of
additional indebtedness and requires the Company to satisfy certain financial
tests, including capital expenditures, a minimum working capital ratio, a
minimum adjusted tangible net worth, current ratio and cash flow tests. The
Company has pledged all of its assets as collateral for its obligations under
the credit agreement. As of July 31,
1996, the Company's outstanding borrowings under the credit agreement totalled
$34.8 million. The credit
20
<PAGE>
agreement expires on July 31, 1998 and there can be no assurance that, upon
such expiration, the Company will be able to refinance the credit agreement on
terms satisfactory to the Company.
The Company currently expects to make aggregate capital expenditures of
approximately $13.0 million in fiscal 1997 and fiscal 1998 to fund the
expansion of its existing facilities, to continue to upgrade its information
systems and to update its material handling equipment.
Management believes that, following the consummation of the Offering, the
Company will have adequate capital resources and liquidity to meet its
borrowing obligations, fund all required capital expenditures and pursue its
business strategy, with the exception of any significant acquisitions which
may be made by the Company, through fiscal 1998. The Company's capital
resources and liquidity are expected to be provided by the net proceeds of the
Offering, as well as cash flow from operations and borrowings under the credit
facility and capital and operating leases. Substantially all of the net
proceeds of the Offering will be used to repay certain of the Company's
outstanding indebtedness. See "Use of Proceeds."
QUARTERLY RESULTS AND SEASONALITY
Generally, the Company's operating results have not reflected any material
seasonal variations, although the Company's sales and operating results may
vary significantly from quarter to quarter due to factors such as changes in
the Company's operating expenses, management's ability to execute the
Company's operating and growth strategies, personnel changes, demand for
natural products, supply shortages and general economic conditions.
The table below presents selected unaudited quarterly financial data for the
quarters indicated. The quarterly financial data reflect, in the opinion of
management, all adjustments (which include only normal or recurring
adjustments) necessary to present the selected financial results for such
periods. Results of any one or more quarters are not necessarily indicative of
annual results or continuing trends.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------
OCTOBER 31, 1995 JANUARY 31, 1996 APRIL 30, 1996 JULY 31, 1996
---------------- ---------------- -------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales............... $94,821 $92,283 $96,432 $97,733
Gross profit............ 19,045 19,344 20,219 20,404
Gross margin.......... 20.1% 21.0% 21.0% 20.9%
Operating income........ $ 1,308(1) $ 3,100 $ 4,015(2) $ 3,494(3)
Operating margin...... 1.4%(1) 3.4% 4.2%(2) 3.6%(3)
Net income (loss)....... $ (631) $ 1,109 $ 1,552 $ 1,364
</TABLE>
- --------
(1) Operating income for the quarter ended October 31, 1995 includes a non-
recurring expense of $1.6 million related to the write-off of intangible
assets. Excluding the $1.6 million non-recurring expense, operating income
would have been $2.9 million, or 3.1% of net sales, for the quarter ended
October 31, 1995.
(2) Operating income for the quarter ended April 30, 1996 includes a non-
recurring expense of $458,000 representing costs associated with the
Mountain People's merger. Excluding the $458,000 non-recurring expense,
operating income would have been $4.5 million, or 4.6% of net sales, for
the quarter ended April 30, 1996.
(3) Operating income for the quarter ended July 31, 1996 includes a non-
recurring expense of $1,056,100 related to the grant of options under the
Company's 1996 Stock Option Plan. Excluding the $1,056,100 non-recurring
expense, operating income would have been $4.6 million, or 4.7% of net
sales, for the quarter ended July 31, 1996.
IMPACT OF INFLATION
Generally, the Company has been able to pass on inflation-related cost
increases; consequently, inflation has not had a material impact on the
Company's operations or profitability.
21
<PAGE>
RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board recently issued SFAS No. 123,
"Accounting for Stock-Based Compensation." This statement introduces a fair
value-based method of accounting for stock-based compensation. Under SFAS 123,
the Company may either adopt the new fair value based method or provide pro
forma disclosure of net income (loss) as if the accounting provisions of SFAS
123 had been adopted. The Company intends to retain the intrinsic method of
accounting for stock-based employee compensation plans under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
and provide the required pro forma disclosure in fiscal 1997. SFAS No. 123 is
not expected to have any effect on the Company's financial position or results
of operations.
The Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants issued Statement of Position 93-6, "Employers'
Accounting for Employee Stock Ownership Plans" in November 1993. This statement
provides guidance on employers' accounting for employee stock ownership plans
and is required to be applied to shares purchased by such plans after December
31, 1992 that have not been committed to be released as of the beginning of the
year of adoption. SOP 93-6 requires, among other things, that employers
recognize compensation cost equal to the fair value of the shares committed to
be released rather than its original cost and that ESOP shares that have not
been committed to be released should not be considered outstanding for purposes
of computing earnings per share. As the Company's ESOP was adopted in 1988, the
Company will continue to adhere to the guidance of SOP 76-3, "Accounting
Practices for Certain Employee Stock Ownership Plans," until such time as
additional shares are purchased. Management does not expect any such purchases
to occur in the foreseeable future.
EXTRAORDINARY LOSS
The Company intends to use a portion of the net proceeds of the Offering to
prepay the $6.5 million due to Triumph under a senior note due October 31,
1998. In connection with the prepayment, the Company will record an
extraordinary expense of approximately $1.8 million ($1.0 million, net of
taxes) reflecting the difference between the face amount of $6.5 million and
the carrying value thereof on the Company's balance sheet on the date of
prepayment, as well as the write-off of related debt issuance costs.
22
<PAGE>
BUSINESS
United Natural Foods, Inc. is one of only two national distributors of
natural foods and related products in the United States. The Company currently
serves more than 5,500 customers located in 43 states, including independent
natural products stores, natural products supermarket chains and conventional
supermarkets. The Company distributes more than 25,000 high-quality, national,
regional and private label natural products in six categories consisting of
groceries and general merchandise, nutritional supplements, bulk and
foodservice products, personal care items, perishables and frozen foods.
United Natural's distribution operations are divided into three principal
regions: Cornucopia in the eastern United States, Mountain People's in the
western United States and Rainbow in the Rocky Mountains and Plains regions.
The Company operates five strategically located distribution centers and two
satellite staging facilities within these regions to better serve its
customers and realize operating efficiencies. The Company also owns and
operates eight retail natural products stores located in the eastern United
States that management believes complement its distribution business.
Over the last four years, the Company's net sales increased at a compound
annual growth rate of 31.6% to $283.3 million in fiscal 1995. For the nine
months ended July 31, 1996, the Company's net sales increased by 51.9% over
the comparable prior year period to $286.4 million. This growth in net sales
and corresponding increase in market share resulted primarily from the
Company's acquisitions of large, regional natural products distributors, the
development of new and the expansion of existing distribution capacity and an
increase in product sales to existing and new customers, as well as continuing
growth in the natural products industry sector generally. In addition to
growth in net sales, during the same period, the Company's operating income
increased at a compound annual growth rate of 46.6% to $10.4 million in fiscal
1995 (excluding a non-recurring expense of $1.6 million relating to intangible
assets in fiscal 1995). For the nine months ended July 31, 1996, the Company's
operating income increased by 62.5% over the comparable prior year period to
$12.1 million (excluding non-recurring expenses of $1.5 million incurred in
connection with the merger of the Company with Mountain People's and the grant
of options under the Company's 1996 Stock Option Plan). See "Management's
Discussion and Analysis of Financial Condition and Results of Operation" and
Notes 1 and 3 of Notes to the Company's Consolidated Financial Statements. The
Company's growth in operating income is attributable to increased efficiencies
created by its higher net sales levels, greater purchasing power, improved
information and warehouse management systems and expanded distribution
capacity.
NATURAL PRODUCTS INDUSTRY
Natural foods and related products are minimally processed, environmentally
friendly, largely or completely free from artificial ingredients,
preservatives and other non-naturally occurring chemicals and in general as
close to their natural state as possible. Although most natural products are
food products, including organic foods, the natural products industry
encompasses a number of other categories, including nutritional and herbal
supplements, toiletries and personal care items, naturally based cosmetics,
natural/homeopathic medicines and naturally based cleaning agents.
Although sales growth in the grocery products industry has been relatively
flat in recent years, according to The Natural Foods Merchandiser, a leading
industry publication, sales in the natural products industry have grown at a
20.2% compound annual growth rate in the last four years accelerating from a
13.8% increase in 1992 to a 22.6% increase in 1995, when total domestic sales
of natural products reached approximately $9.2 billion. This growth is being
propelled by several factors, including an increasing awareness of the link
between diet and health, consumer trends toward healthier eating habits,
concern regarding food purity and safety and greater environmental awareness.
Total sales of natural products represented less than 3.0% of the total
grocery industry sales in 1995, which management believes allows for
significant potential future sales growth.
According to The Natural Foods Merchandiser, the natural products retailing
sector is highly fragmented, with over 6,600 independent natural products
retailers in operation in 1995 and continuing to grow annually. Although the
natural products industry sector remains fragmented, natural products
supermarkets continue to increase their market share of total natural products
sales as they expand into additional geographic markets and acquire smaller
independent competitors. In addition, conventional supermarkets and mass
market outlets
23
<PAGE>
have also begun to increase their emphasis on the sale of natural products as
the sector gains appeal. Moreover, as consumer demand for natural products has
grown, an increasing number of national, regional and local natural products
have become available as more suppliers and producers have entered the market.
The natural products distribution business involves the sourcing,
purchasing, warehousing, marketing and transportation of natural products from
suppliers to retailers. As the number of suppliers of and retail outlets for
natural products has continued to increase, the role of the distributor has
become increasingly important. Suppliers of natural products rely on
distributors to reach a fragmented customer base and to provide information on
consumer preferences at the retail level. At the same time, retailers are
placing increasing pressure on distributors for more frequent deliveries,
greater product selection, higher fill rates, more information on product
movement and additional specialized programs such as financing, merchandising
assistance, marketing support and assistance in consumer education. The
Company believes that in order to be successful in this market a distributor
must have access to capital to invest in systems, technology and warehouse
enhancements, broad product knowledge and the ability to provide value added
services designed to enable customers to become more efficient and profitable.
Management believes that the Company is well-positioned to meet the increasing
needs of both its suppliers and customers.
BUSINESS STRATEGY
The Company's objective is to better meet the changing needs of both
suppliers and retailers and to be the leading national distributor of natural
products. The key elements of the Company's business strategy include:
NATIONAL PRESENCE. With five distribution centers strategically located in
California, Colorado, Connecticut, Georgia and Washington and two satellite
staging facilities in Florida and Pennsylvania, the Company is well
positioned to provide distribution services to natural products retailers
and suppliers located across the United States. As a result, the Company is
able to (i) provide next-day delivery service to a majority of its active
customers, (ii) make multiple deliveries each week to its largest
customers, (iii) coordinate its inventory management with regional
purchasing patterns and (iv) achieve significant operating efficiencies.
INTEGRATION OF RECENT ACQUISITIONS. United Natural recently made three
strategic acquisitions and is currently in the process of integrating these
operations to increase the Company's overall efficiency by: (i) eliminating
geographic overlaps in distribution, (ii) integrating administrative,
finance and accounting functions, (iii) expanding marketing and customer
service programs and (iv) upgrading information systems. To preserve its
regional focus, the Company intends to keep the majority of the purchasing,
pricing, sales and marketing decisions at the regional level.
PURCHASING POWER AND SUPPLIER RELATIONSHIPS. As a result of its size of
operations, national presence and access to retailers within the highly
fragmented natural products sector, the Company is able to supply a
superior selection of natural products at more competitive prices and on
better terms, including supplier- sponsored marketing dollars, than many of
its smaller, regional competitors. These prices and marketing support are
then passed on to the Company's retail customers, thereby enhancing the
Company's reputation as a low-cost supplier that offers extensive marketing
programs. In addition, in order to increase its appeal to a number of
suppliers and to receive better pricing, the Company has recently
centralized the purchasing of specific products. For example, the Company
has positioned itself as the largest purchaser of bulk products in the
natural products industry by centralizing its purchase of nuts, seeds,
grains, flours and dried foods.
DIVERSE, HIGH-QUALITY PRODUCT LINE. The Company distributes a mix of more
than 25,000 national, regional and private label natural products, which
products are continually evaluated, updated and expanded to satisfy the
needs of its diverse customer base. The Company believes that its product
selections meet or exceed its regional competitors' selection in every
market that it serves. The Company continually updates its product mix by
evaluating more than 10,000 potential new products each year
and offering approximately 300 new products each month, while discontinuing
approximately 150 less
24
<PAGE>
successful products each month. In addition, the Company offers a selection
of private label products chosen to address customer preferences that are
not otherwise being met by other suppliers.
REGIONAL RESPONSIVENESS. By decentralizing the majority of its purchasing,
pricing, sales and marketing decisions at the regional level, the Company
is able to respond to regional and local customer preferences, while taking
advantage of the economies of scale associated with the Company's national
operations. Each of the Company's three regional operations (Cornucopia,
Rainbow and Mountain People's) has extensive knowledge of the local and
regional taste preferences in a particular marketplace and has the ability
to provide products to accommodate local trends. In addition, the Company
is able to customize services, respond quickly with pricing decisions to
meet local competition and rapidly accommodate customer requirements, as
necessary.
CUSTOMER SERVICE AND MARKETING PROGRAMS. In addition to providing its
customers with delivery services which include next-day and more frequent
deliveries and an order fill rate in excess of 95% (excluding products
unavailable from the supplier), the Company offers its customers a
selection of inventory management, merchandising, marketing, promotional
and event management services to increase customer sales and enhance
customer satisfaction. The Company attributes its high fill rates and
timely deliveries to its experienced purchasing department and
sophisticated warehousing, inventory control and distribution systems. The
Company offers its customers a broad range of marketing services, many of
which are supplier-sponsored, including monthly and seasonal flier
programs, in-store signage and assistance in product display, all in order
to assist its customers in increasing sales.
INFRASTRUCTURE AND MANAGEMENT. The Company recently made a significant
investment in designing its proprietary, sophisticated information and
warehouse management systems and recently expanded its Connecticut
distribution facility from 165,000 to 245,000 square feet to achieve
additional operating efficiencies and cost reductions. The Company's
warehouse management systems incorporate an efficient method of storing,
locating and rotating incoming and outgoing merchandise. The Company is
planning on installing its information systems and expanding its
distribution capacity in its Colorado and California facilities. The
Company continually evaluates and upgrades its management information
systems based on the best practices at its regional operations in order to
make the systems more efficient, cost effective and responsive to customer
needs. Overseeing the Company's operations are eight senior managers with
an average of over 15 years of experience in the natural products industry.
More than 85 of the Company's employees have over ten years of experience
in the industry.
GROWTH STRATEGY
Key elements of the Company's growth strategy include:
EXPAND CUSTOMER BASE. While continuing to focus on maintaining
relationships with its existing natural products retail customers, the
Company's goal is to expand its customer base to keep up with increasing
demand for natural products. The Company is continually cultivating
relationships with new customers for natural products, such as natural
products supermarket chains, as well as conventional supermarkets, other
mass market outlets, institutional foodservice providers, hotels and
gourmet stores which are increasing their natural product offerings.
INCREASE SALES TO EXISTING CUSTOMERS. The Company believes that a
significant opportunity exists to increase its sales penetration of its
existing retail customer base by (i) expanding the Company's role as the
primary supplier to the majority of its customers, (ii) expanding the
number of products and product categories offered and (iii) providing
pricing incentives and marketing support to generate higher sales levels by
its customers.
EXPAND MARKET PRESENCE. The Company intends to expand its market
penetration of existing and new markets by increasing the distribution
capacity of its existing facilities and by building new distribution
facilities. In addition, while the Company has no agreements or
understandings with regard to acquisitions
25
<PAGE>
at this time, it will continue to selectively evaluate opportunities to
acquire local distributors to fill in existing markets and regional
distributors to expand into new markets.
PRODUCTS
CURRENT PRODUCTS
The Company's extensive selection of high-quality natural products enables
it to provide a primary source of supply to a diverse base of customers whose
product needs vary significantly. The Company distributes over 25,000
products, consisting of national brand, regional brand, private label and
master distribution products in six product categories consisting of grocery
and general merchandise, nutritional supplements, bulk and foodservice
products, personal care items, perishables and frozen foods.
The approximate percentage of the Company's sales represented by each of the
six major product categories during fiscal 1995 are as follows:
<TABLE>
<CAPTION>
PERCENTAGE
CATEGORY OF SALES
-------- ----------
<S> <C>
Grocery and General Merchandise........ 46.1%
Nutritional Supplements................ 13.4
Bulk and Foodservice Products.......... 12.9
Personal Care Items.................... 11.1
Perishables............................ 9.4
Frozen Foods........................... 7.1
-----
100.0%
</TABLE>
NATIONAL BRANDS. National brand products are recognized and distributed
throughout the United States and typically possess features, including taste
and packaging, that are recognizable and appeal to a large and diverse
customer base. With five distribution centers and two satellite staging
facilities, the Company is well positioned to distribute national brand
products across the United States. The Company has secured the distribution
rights to more than 1,000 brands of nationally known products, including:
-- Arrowhead Mills cereals and mixes
-- Celestial Seasoning teas
-- Hain rice cakes
-- Imagine Foods Rice Dream non-dairy beverages
-- Knudsen and After the Fall juices
-- Stonyfield Farm yogurts
-- Tom's of Maine toothpaste
-- Twin Lab vitamins
-- Wholesome and Hearty Gardenburger frozen patties
REGIONAL BRANDS. Regional brand products are recognized by and distributed
in selected areas of the country to satisfy the demands of consumers in
specific geographic regions. In addition, the short shelf life of many
regional brands makes national distribution impracticable. The Company's
decentralized purchasing practices enable regional buyers familiar with
consumer demand to offer products that have a particular appeal to consumers
in that region. The Company distributes over 800 regional brands to its
customers, including:
--Guisto's products (West Coast)
--Montana Moon (Rocky Mountains)
--Mountain High yogurt (Rocky Mountains)
--Nancy's Creamery products (West Coast)
--New England Natural Bakers (East Coast)
--Seven Stars Dairy (East Coast)
26
<PAGE>
PRIVATE LABEL PRODUCTS. The Company also offers private label products to
address certain preferences of customers that are not otherwise being met by
other suppliers. The Company's private label program is designed to take
advantage of market opportunities created by a lack of supply of a type of
product. The Company currently offers the following private label products:
--Clear Spring waters
--Farmer's Pride eggs
--Guardian vitamins and supplements
--Natural Sea fish products
The Company believes that, through private label brands, it is able further
to differentiate itself from its competitors and earn higher margins compared
to its branded product offerings. The Company has achieved significant
geographic distribution of its private label products due to its immediate
access to its national customer base and the effectiveness of its marketing
programs. As a result, the Company intends to broaden its private label
offerings and has recently hired a senior executive to direct its private
label product operations. In the future, the Company expects to continue to
outsource the manufacturing, packing and labeling of its private label
products and believes that the success of its private label program will
depend on widespread distribution of its products along with effective
marketing programs that ensure continued shelf placement. Sales of private
label products represented less than 1% of the Company's total net sales in
fiscal 1995. Over time, the Company intends to increase the proportion these
higher margin products represent of its overall sales.
MASTER DISTRIBUTION PRODUCTS. Master distribution products are products that
are available exclusively through the Company as master distributor which
enables smaller manufacturers to more efficiently access the market. All
competing distributors must purchase such products from the Company. The
Company has the master distribution rights for the following brands:
--Cornucopia pet foods
--Dal Raccolto imported Italian oils and vinegars
--Living Foods nutritional supplements
--Purdey's nutritionally enhanced beverages
--Rudi's Bakery specialty breads
--Wolfgang Puck frozen pizzas and entrees
NEW PRODUCTS
The Company evaluates more than 10,000 potential new products each year
based on existing and anticipated trends in consumer preferences and buying
patterns. Since 1992, the Company has introduced an average of 300 new
products each month, while discontinuing approximately 150 less successful
products. The Company's buyers regularly attend regional natural, organic,
specialty, ethnic and gourmet products shows to review the latest product
introductions that are likely to be of interest to retailers and consumers.
The Company also actively solicits suggestions for new products from its
customers. For example, each month the Company distributes postage-paid
postcards to its customers to encourage them to provide suggestions. The
Company makes the majority of its new product decisions at the regional level.
The Company believes that its decentralized purchasing practices allow its
regional purchasers to react quickly to changing consumer preferences and to
evaluate new products and new product categories regionally. In addition, many
of the new products offered by the Company are marketed on a regional basis or
in the Company's own retail stores prior to being offered nationally, which
enables the Company to evaluate local consumer reaction to the products
without incurring significant inventory risk.
27
<PAGE>
CUSTOMERS
The Company markets its products to more than 5,500 customers located in 43
states. The Company maintains long-standing customer relationships with
independent natural products stores and has continued to emphasize its
relationships with new customers, including natural products supermarket
chains, as well as conventional supermarkets and other mass market outlets,
institutional foodservice providers, hotels and gourmet stores, all of which
are continually increasing their natural product offerings. Management
believes that the Company is the primary supplier to the majority of its
customers. No customer accounted for more than 9% of the Company's net sales
in fiscal 1995. Among the Company's wholesale customers are leading natural
products supermarket operators doing business as Alfalfa's, Fresh Fields
Markets, Nature's Fresh, Northwest!, Whole Foods Market and Wild Oats Markets,
and conventional supermarket chains such as Carr's, City Market, Genuardis,
Harris Teeter, King Soopers, Kroger, Quality Food Centers (QFC) and Tops
Markets.
The following table sets forth the types of customers served by the Company
and the approximate percentage of its net sales generated by each category in
fiscal 1995 and for the nine months ended July 31, 1996:
<TABLE>
<CAPTION>
PERCENTAGE OF
NET SALES
--------------
TYPE OF CUSTOMER 1995 1996
---------------- ------ ------
<S> <C> <C>
Independent Natural Products Stores...................... 61.3% 60.5%
Natural Products Supermarket Chains...................... 22.7 24.3
Conventional Supermarkets................................ 8.5 8.6
Miscellaneous/Other...................................... 7.5 6.6
------ ------
100.0% 100.0%
</TABLE>
CUSTOMER SERVICE
The Company believes that customer loyalty is dependent upon outstanding
customer service to ensure accurate fulfillment of orders, timely product
delivery, low prices and a high level of product marketing support.
SALES
The Company maintains an order fill rate that exceeds 95% (excluding
products unavailable from the supplier), which the Company believes is one of
the highest order fill rates in the natural products distribution industry.
The Company believes that its high fill rates can be attributed to its
experienced purchasing department and sophisticated warehousing, inventory
control and distribution systems. The Company offers next-day delivery service
to a majority of its active customers and offers multiple deliveries each week
to its largest customers.
The Company's staff of approximately 35 account representatives cultivates
partnership relationships with the Company's customers by emphasizing
communication and responsiveness. The primary function of the account
representatives is to help customers grow their businesses, thereby increasing
the Company's own sales. Each account representative is assigned stores in a
designated geographic area and is responsible for assisting the retailer in
inventory management, merchandising, marketing, promotional and event
management and store openings. The Company's staff of approximately 81
customer service representatives regularly contacts customers by telephone to
ensure that customer needs are met quickly and efficiently. In addition to
processing orders, the customer service representatives respond to customer
inquiries concerning the Company's services and product availability. While
the customer service representatives contact all customers, approximately 80%
of the Company's sales volume is ordered electronically. The Company
distributes shelf identification tags which can be scanned to facilitate this
electronic ordering by the customer. The Company's account representatives and
customer service representatives regularly exchange information to facilitate
better knowledge of, and more effective response to, customer needs.
To assist customers in making purchasing decisions, each of the Company's
regions produces a quarterly catalog containing a description of all products
that are currently in stock. Each product description includes the
28
<PAGE>
vendor's name, product number, price per unit, price per case, suggested
retail price and UPC bar code. The quarterly catalog also contains a variety
of information on product ordering, delivery options and vendor advertising.
In addition, each region produces a monthly specials catalog with its latest
pricing promotions and new products. Approximately 20% of the Company's
products are offered to its retail customers on special at any given time.
In addition, the Company's senior executives attend major specialty food
trade shows and personally meet with numerous retailers each year to solicit
their comments. The Company's commitment to service is further reflected in
the focus groups conducted annually by the Company's senior executives with a
representative sampling of the Company's customers which allows customers to
evaluate the Company's services, products and programs.
MARKETING
The Company has developed a variety of marketing services, many of which are
supplier-sponsored, that cater to a broad range of retail formats in which
retailers may participate for a nominal fee. These programs are designed to
increase sales and are attractive to retailers who often do not have the
resources necessary to conduct such marketing programs independently. Most of
these programs are now being offered in the Company's eastern United States
and Rocky Mountains and Plains regions and are expected to begin being offered
in the western United States region in late calendar 1996.
The Company offers a monthly flier program featuring the logo and address of
the participating retailer imprinted on a flier advertising approximately 200
sale items which is distributed by the retailer to its customers. The color
fliers are designed by the Company's in-house marketing department utilizing
modern digital photography and contain detailed product descriptions and
pricing information. In addition, each flier generally includes detailed
information on selected vendors, recipes, product features and a comparison of
the characteristics of a natural product with a similar mass market product.
The monthly flier program is structured to pass through to the retailer the
benefit of lower costs on certain products, allowing stores to earn an
improved profit margin on sale items as a result of the Company's ability to
negotiate favorable terms with the suppliers of these items. The program also
provides retailers with posters and window banners to coincide with each
month's promotions.
In addition to its monthly flier program, the Company offers six thematic
and seasonal consumer fliers that are used to promote items associated with a
particular cause or season, such as environmentally sensitive products for
Earth Day or foods and gifts particularly popular during the holiday season.
The Company also (i) offers in-store signage and promotional materials,
including shopping bags and end-cap displays, (ii) provides assistance with
planning and setting up product displays and (iii) advises on pricing
decisions to enable its customers to respond to local competition.
In 1995, the Company received two prestigious ADMark advertising awards
given annually by the North American Wholesale Grocers Association in
recognition of excellence in retail advertising. The Company was chosen "best"
out of over 200 entries for its paper bags in the category of non-price print
advertising, and the Company's Natural Retail Group was awarded a first place
for its store-wide introductory brochure.
SUPPLIERS
The Company purchases its products from approximately 1,500 active
suppliers, many of which have had relationships with the Company for more than
ten years. Management believes that natural products suppliers seek
distribution of their products through the Company because it distributes the
majority of the supplier's products, provides access to a large and growing
customer base and supports the supplier's marketing programs. Substantially
all product categories distributed by the Company are available from a number
of suppliers and the Company is not dependent on any single source of supply
for any product category. The Company's largest supplier accounted for
approximately 4.5% of total purchases in fiscal 1995.
29
<PAGE>
The Company has positioned itself to respond to regional and local customer
preferences for natural products by decentralizing the majority of its
purchasing decisions for all products except bulk commodities. The Company
believes that regional buyers are best suited to identify and to respond to
local demands and preferences. Although each of the Company's regions is
responsible for placing its own orders and can select the products that it
believes will most appeal to its customers, each region is required to
participate in Company-wide purchasing programs that enable it to take
advantage of the Company's consolidated purchasing power. For example, the
Company has positioned itself as the largest purchaser of bulk products in the
natural products industry by centralizing its purchase of nuts, seeds, grains,
flours and dried foods.
The Company's purchasing staff of approximately 44 employees cooperates
closely with suppliers to provide new and existing products. The suppliers
assist in training the Company's account and customer service representatives
in marketing new products, identifying industry trends and coordinating
advertising and other promotions.
The Company maintains a comprehensive quality control assurance program. All
products sold by the Company and represented as "organic" are required to be
certified as such by an independent third-party agency. The Company maintains
current certification affidavits on all organic commodities and produce in
order to verify the authenticity of the product. All potential vendors of
organic products are required to provide such third-party certification before
they are approved as a supplier to the Company. In addition, the Company has
secured the services of FDA counsel to audit all labels, packaging, ingredient
lists and product claims relating to products offered by the Company to ensure
that all products meet current FDA requirements. The Company believes that it
is the only natural products distributor which has performed such an audit to
date.
DISTRIBUTION
The Company maintains five distribution centers located in Auburn,
California; Denver, Colorado; Dayville, Connecticut; Atlanta, Georgia; and
Seattle, Washington. The Company has recently expanded its Connecticut
headquarters from 165,000 to 245,000 square feet and significantly expanded
its capacity to store frozen foods. The Company is planning to build a new
facility in Colorado which, at 200,000 square feet, will be twice the size of
its current facility and which is expected to be operational during the second
half of calendar 1997. The Company intends to replace its 40,000 square foot
auxiliary storage facility in Sacramento, California with an 80,000 square
foot storage facility located adjacent to its Auburn, California distribution
center, which is expected to be substantially complete by late calendar 1997.
In addition, the Company operates satellite staging facilities in the
Philadelphia, Pennsylvania and greater Jacksonville, Florida areas. These
satellite facilities serve as transfer points for products, trucks and drivers
and ensure faster service to markets located more than five hours driving
distance from the Georgia and Connecticut distribution centers.
30
<PAGE>
[Graphic consists of a map of the United States which indicates the geographic
areas served by Cornucopia, Dayville; Cornucopia, Atlanta; Rainbow, Denver;
Mountain People's, Seattle; and Mountain People's, Auburn.]
The five distribution centers, two satellite staging facilities and one
auxiliary storage facility have a total of approximately 805,000 square feet
of space. Each distribution center contains dry, refrigerated and frozen
storage areas as well as office space. In total, the Company's facilities
encompass approximately 652,200 square feet of dry storage space, 40,700
square feet of refrigerated space and 44,700 square feet of frozen storage
space, with the remainder used as office space for the Company's regional
purchasing, sales and administrative operations. The Company believes that it
will be able to expand or replace its facilities as and when needed to
accommodate the Company's growth. The Company has a staff of approximately 662
persons engaged in operations.
The Company has carefully chosen the sites for its distribution centers to
provide direct access to its regional markets. This proximity allows the
Company to reduce its transportation costs compared to competitors that seek
to service their customers from locations that are often hundreds of miles
away. The Company believes that it incurs lower inbound freight expense than
its regional competitors because its national presence allows it to buy full
and partial truckloads of products which, if necessary, it can backhaul using
the Company's own trucks between its distribution centers and satellite
staging facilities. Many of the Company's competitors must employ outside
consolidation services and pay higher carrier transportation fees to move
products from other regions. In addition, overstocks and inventory inbalances
at one distribution center may be redistributed by the Company to another
distribution center where products may be sold prior to their expiration date.
Products are delivered to the Company's distribution centers primarily by
its leased fleet of trucks, contract carriers and the suppliers themselves.
The Company leases most of its trucks from Ryder Truck Leasing, which
maintains facilities on some of the Company's premises for the maintenance and
service of these vehicles, and a lesser number of its trucks from regional
firms that offer competitive services.
The Company ships orders for supplements or for items that are destined for
areas outside regular delivery routes through the United Parcel Service and
other independent carriers. Deliveries to areas outside the continental United
States are shipped by ocean-going containers on a weekly basis.
31
<PAGE>
SYSTEMS
The Company has made a significant investment in designing its proprietary
information and warehouse management systems. The Company continually
evaluates and upgrades its management information systems based on the best
practices at its regional operations in order to make the systems more
efficient, cost effective and responsive to customer needs. The Company has
installed its warehouse management systems at its Connecticut and Georgia
facilities. These systems include radio frequency-based inventory control,
paperless receiving, engineered labor standards, computer-assisted order
processing and slot locator/retrieval assignment systems. At the receiving
docks, warehouse workers attach computer-generated, preprinted locator tags to
all inbound products. These tags contain the expiration date, location,
quantity, lot number and other information in bar code format. To process
customer orders, warehouse workers use hand-held radio frequency devices to
scan the UPC bar code as a product is removed from its assigned slot.
Similarly, customer returns are processed by scanning the UPC bar codes. The
Company also employs a management information system that enables it to lower
its inbound transportation costs by making optimum use of its own fleet of
trucks or by consolidating deliveries into full truckloads. Orders from
multiple suppliers and multiple distribution centers are consolidated into
single truckloads for efficient use of available vehicle capacity and return-
haul trips.
The Company is presently reviewing the warehouse management systems in
operation in its Colorado, California and Washington facilities in a
continuing effort to improve its operations. The Company intends to install
its information and warehouse management system in stages, with installation
commencing at its Colorado facility in early calendar 1997 and at its
California and Washington facilities in late calendar 1997.
RETAIL OPERATIONS
The Company's Natural Retail Group ("NRG") currently owns and operates eight
retail natural food stores located in Connecticut, Florida, Maryland,
Massachusetts and New York. The Company's retail strategy is to selectively
acquire existing stores that meet the Company's strict criteria in categories
such as sales and profitability, growth potential, merchandising and
management. Generally, the Company will not purchase stores that directly
compete with primary retail customers of its distribution business. The
Company believes its retail stores have a number of advantages over their
competitors, including the financial strength and marketing expertise provided
by the Company, the purchasing power resulting from group purchasing by stores
within NRG and the breadth of their product selection. The Company's strategy
for future retail growth is to identify and acquire additional retail stores
as opportunities arise and to focus on increased sales of higher margin
nutritional supplements while maintaining emphasis on the sale of organic
produce and delicatessen and bakery products and consumer education.
The Company's retail stores offer products in each of the six categories
offered by the Company's distribution business as well as produce, meat,
poultry, fresh seafoods, baked goods and other prepared foods. These
additional product offerings range between 20% to 40% of the total sales of a
typical NRG store. NRG focuses its marketing efforts on consumer education and
store promotion. NRG provides consumer education through informational
brochures, promotional flyers, seminars, workshops, cooking classes and
product samplings. In its image advertising, NRG emphasizes its knowledgeable
and courteous staff, broad selection of natural products, environmental
stewardship and frequent price promotions.
32
<PAGE>
The name and location of each of NRG's stores and their approximate square
feet and lease expiration dates are as follows:
<TABLE>
<CAPTION>
STORE/LOCATION DATE OF ACQUISITION SQUARE FEET LEASE EXPIRATION
-------------- ------------------- ----------- ----------------
<S> <C> <C> <C>
Health Hut..................... April 1993 4,100 May 2000
Valley Stream, NY
Cheese and Stuff............... May 1993 10,000 March 2005
Hartford, CT
Food for Thought............... July 1993 12,000 November 2005
Norwalk, CT
Village Market................. November 1993 5,875 May 2001
Pikesville, MD
Natureworks.................... January 1994 8,500 December 2001
Melbourne, FL
Railway Market................. April 1994 5,000 March 1999
Easton, MD
Cape Cod Natural Foods......... July 1994 4,500 December 2002
Centerville, MA
SunSplash Market............... April 1995 5,750 July 1999
Naples, FL
</TABLE>
As both a distributor to its retail stores and a retailer, a number of
advantages are made available to the Company, including the ability to: (i)
control the purchases made by these stores; (ii) expand the distribution of
and marketing for its private label products within these stores; (iii) expand
the number of high-growth, high-margin product categories such as produce and
prepared foods within these stores; and (iv) keep current with the retail
marketplace which allows it to better serve its distribution customers. In
addition, as the primary natural products distributor to its retail locations,
the Company expects to realize significant economies of scale and operating
and buying efficiencies. As an operator of retail stores, the Company also has
the ability to test market select products prior to offering them nationally,
which allows the Company to evaluate consumer reaction to the product without
incurring significant inventory risk. The Company is able to test new
marketing and promotional programs within its stores prior to offering them to
a broader customer base.
COMPETITION
The natural products distribution industry is highly competitive. The
industry has been characterized in recent years by significant consolidation
and the emergence of large competitors. The Company's major national
competitor is Tree of Life Distribution, Inc. (a subsidiary of Koninklijke
Bolswessanen N.V.) and its major regional competitors are Stow Mills, Inc. in
the eastern United States and Nature's Best, Inc. in the western United
States. The Company also competes with numerous smaller regional, local and
specialty distributors of natural products. In addition, the Company competes
with national, regional and local distributors of conventional groceries and,
to a lesser extent, companies which distribute to their own retail facilities.
There can be no assurance that distributors of conventional groceries will not
increase their emphasis on natural products and more directly compete with the
Company or that new competitors will not enter the market. Many of these
distributors may have been in business longer, may have substantially greater
financial and other resources than the Company and may be better established
in their markets. There can be no assurance that the Company's current or
potential competitors will not provide services comparable or superior to
those provided by the Company or adapt more quickly than the Company to
evolving industry trends or changing market requirements. It is also possible
that alliances among competitors may emerge and rapidly acquire significant
market share. Increased competition may result in price reductions, reduced
gross margins and loss of market share, any of which could materially
adversely affect the Company's business, financial condition or results of
operations.
33
<PAGE>
The Company believes that distributors in the natural products industry
compete principally on product quality and depth of inventory selection, price
and quality of customer service. Although the Company believes it currently
competes effectively with respect to each of these factors, there can be no
assurance that the Company will be able to maintain its competitive position
against current and potential competitors.
The Company's retail stores compete against other natural products outlets,
conventional supermarkets and specialty stores. The Company believes that
retailers of natural products compete principally on product quality and
selection, price, knowledge of personnel and convenience of location.
REGULATION
The Company's operations and products are subject to regulation by state and
local health departments, the U.S. Department of Agriculture and the Food and
Drug Administration, which generally impose standards for product quality and
sanitation. The Company's facilities generally are inspected at least once a
year by state or federal authorities. The Company's trucking operations are
also subject to regulation by the U.S. Department of Transportation and the
U.S. Federal Highway Administration.
Federal, state and local provisions which have been enacted or adopted
regulating the discharge of materials into the environment, or otherwise
relating to the protection of the environment, generally are not directly
applicable to the Company. Certain of the Company's distribution facilities
have above-ground storage tanks for diesel fuel and other petroleum products,
which are subject to laws regulating such storage tanks.
The Company believes that it is in compliance in all material respects with
all applicable government regulations.
PROPERTIES AND EQUIPMENT
The Company owns its corporate offices and distribution center in Dayville,
Connecticut which was recently expanded from 165,000 to 245,000 square feet.
The Company leases its remaining distribution centers, two satellite staging
areas and one auxiliary storage facility. Each distribution center contains
dry, refrigerated and frozen storage areas and office space for the
purchasing, sales and administrative operations of the facility. The following
chart provides information on the approximate square footage of each of the
Company's distribution centers and staging facilities and the expiration date
of the lease for the facility (other than Dayville, Connecticut, which is
owned by the Company):
<TABLE>
<CAPTION>
SIZE (IN LEASE
LOCATION SQUARE FEET) EXPIRATION
-------- ------------ --------------
<S> <C> <C>
Atlanta, Georgia.................................. 175,000 March 1999
Auburn, California................................ 150,000 May 2008
Dayville, Connecticut............................. 245,000 Not Applicable
Denver, Colorado.................................. 91,000 July 2000
Seattle, Washington............................... 100,000 February 2001
Jacksonville, Florida............................. 3,000 December 1996
Philadelphia, Pennsylvania........................ 2,800 December 1996
Sacramento, California............................ 40,000 October 1996
</TABLE>
The Company plans to build a new facility in Denver which, at 200,000 square
feet, will be twice the size of its current facility. The new Denver facility
is expected to be operational in the second half of calendar 1997. The Company
intends to replace its 40,000 square foot auxiliary storage facility in
Sacramento, California with an 80,000 square foot storage facility located
adjacent to its Auburn, California distribution center. Construction of the
new leased space is expected to be substantially complete by late calendar
1997. The Company believes that it will be able to continue to expand or
replace its facilities as and when needed to accommodate the Company's future
growth.
34
<PAGE>
Equipment and machinery owned by the Company and used in its operations
consist primarily of electronic data processing and material handling
equipment, racking, coolers and freezers. The Company leases a majority of its
trucks and trailers under master lease agreements with Ryder Truck Leasing.
Ryder is responsible for all truck maintenance costs.
EMPLOYEES
As of July 31, 1996, the Company had approximately 1,188 full-time
employees, including approximately 80 in finance and administration, 102 in
sales and marketing, 81 in customer service, 263 in the retail stores and 662
in operations. Approximately 75 of these employees are covered by a collective
bargaining agreement with Teamsters Local 117, Seattle, Washington which will
expire in July 1997. The Company has never experienced a work stoppage by its
unionized employees. The Company believes that its relationships with its
employees are good.
LEGAL PROCEEDINGS
From time to time, the Company is involved in routine litigation which
arises in the ordinary course of its business. There are no pending material
legal proceedings to which the Company is a party or to which the property of
the Company is subject.
35
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages as of
July 31, 1996 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
42 Chairman of the Board and Chief Executive
Norman A. Cloutier(1)(2).... Officer
Michael S. Funk(2).......... 42 Vice Chairman of the Board and President
Chief Financial Officer, Director, Treasurer
Steven H. Townsend.......... 43 and Secretary
Daniel V. Atwood............ 38 President of NRG, Vice President, Assistant
Treasurer, Assistant Secretary and Director
of the Company
Andrea R. Hendricks......... 36 Director of Purchasing of Mountain People's
and Director of the Company
Kevin T. Michel............. 38 Chief Financial Officer of Mountain People's
and Director of the Company
Richard J. Williams(1)(3)... 35 Director
Thomas B. Simone(1)(3)...... 54 Director
</TABLE>
- --------
(1) Member of the Audit Committee.
(2) Member of the Nominating Committee.
(3) Member of the Compensation Committee.
NORMAN A. CLOUTIER founded the Company in 1978. Mr. Cloutier has been
Chairman of the Board and Chief Executive Officer of the Company since its
inception. Mr. Cloutier served as President of the Company from its inception
until October 1996. Mr. Cloutier previously operated a natural products retail
store in Coventry, Rhode Island from 1977 to 1978.
MICHAEL S. FUNK has been Vice Chairman of the Board of the Company since
February 1996 and President of the Company since October 1996. Mr. Funk served
as Executive Vice President of the Company from February 1996 until October
1996. Since its inception in July 1976, Mr. Funk has been President of
Mountain People's. Mr. Funk has served on the Board of Directors since
February 1996.
STEVEN H. TOWNSEND has been Vice President-Finance and Administration of the
Company since 1983 and Chief Financial Officer of the Company since August
1988. From 1980 to 1983, Mr. Townsend was Director of Finance for the Town of
Mansfield, Connecticut. From 1976 to 1980, Mr. Townsend was an Accounting
Supervisor at Harris Corporation, a manufacturer of printing presses and
related products. Mr. Townsend has served on the Board of Directors since
August 1988.
DANIEL V. ATWOOD has been President of NRG and Vice President of the Company
since August 1995. Mr. Atwood was Vice President-Marketing of the Company from
January 1984 to August 1995. From 1979 to 1982, Mr. Atwood was a Store Manager
at Bread & Circus Supermarkets, a chain of independent natural products
stores. Mr. Atwood has served on the Board of Directors since August 1988.
ANDREA R. HENDRICKS has been Director of Purchasing for Mountain People's
since January 1990. Ms. Hendricks oversees the purchasing, pricing and
promotional departments for the Company's western region. Ms. Hendricks has
served on the Board of Directors since February 1996.
KEVIN T. MICHEL has been the Chief Financial Officer of Mountain People's
since January 1995. From January 1992 until January 1995, Mr. Michel held
several different accounting and finance positions at Mountain People's. From
March 1991 until December 1991, Mr. Michel was the sole proprietor of a
restaurant. Mr. Michel has served on the Board of Directors since February
1996.
36
<PAGE>
RICHARD J. WILLIAMS has been a Managing Director of Triumph Capital Group,
Inc. since March 1990. Mr. Williams has served on the Board of Directors since
November 1993.
THOMAS B. SIMONE has served on the Board of Directors since October 1996.
Since April 1994, Mr. Simone has served as President and Chief Executive
Officer of Simone & Associates, a healthcare and natural products investment
and consulting company. From February 1991 to April 1994, Mr. Simone was
President of McKesson Drug Company. Mr. Simone also serves on the Board of
Directors of ECO-DENT International, Inc. and IBV Technologies, Inc.
The Board of Directors is divided into three classes, each of whose members
serves for a staggered three-year term. The Board consists of three Class I
Directors (Daniel V. Atwood, Kevin T. Michel and Thomas B. Simone), two Class
II Directors (Steven H. Townsend and Andrea R. Hendricks) and three Class III
Directors (Norman A. Cloutier, Michael S. Funk and Richard J. Williams). At
each annual meeting of stockholders, a class of directors is elected for a
three-year term to succeed the directors or director of the same class whose
terms are then expiring. The terms of the Class I Directors, Class II
Directors and Class III Directors will expire upon the election and
qualification of successor directors at the annual meeting of stockholders to
be held during the calendar years 1997, 1998 and 1999, respectively.
Under a Note and Warrant Purchase Agreement, dated November 17, 1993 (the
"Warrant Agreement"), between the Company and Triumph, Triumph loaned
$6,500,000 to the Company and received a warrant to purchase 1,166,660 shares
of the Company's Common Stock at an exercise price of $0.01 per share, subject
to certain repurchase rights held by the Company. Mr. Williams, a Managing
Director of Triumph, was elected to the Company's Board of Directors pursuant
to the Warrant Agreement. The provisions of the Warrant Agreement relating to
the election of a director nominated by Triumph will terminate upon the
closing of the Offering. See "Certain Transactions."
Michael S. Funk, Andrea R. Hendricks and Kevin T. Michel were elected to the
Company's Board of Directors in connection with the Company's merger with
Mountain People's in February 1996.
Each officer serves at the discretion of the Board of Directors. There are
no family relationships among any of the directors and executive officers of
the Company.
BOARD COMMITTEES
The Board of Directors has a Compensation Committee, which consists of
Thomas B. Simone and Richard J. Williams, which makes recommendations
concerning salaries and incentive compensation for employees of and
consultants to the Company and administers and grants stock options pursuant
to the Company's 1996 Stock Option Plan, and, an Audit Committee, which
consists of Norman A. Cloutier, Thomas B. Simone and Richard J. Williams,
which reviews the results and scope of the audit and other services provided
by the Company's independent public accountant. The Board of Directors also
has a Nominating Committee, consisting of Norman A. Cloutier and Michael S.
Funk, which nominates candidates for election to the Board of Directors. Until
the earlier to occur of (i) the day after the first annual meeting of
stockholders of the Company held after the Offering or (ii) the date on which
either Mr. Cloutier or Mr. Funk beneficially owns less than fifteen percent
(15%) of the Company's outstanding Common Stock, each member of the Nominating
Committee will have the power to nominate three persons, one of whom may be
himself, for election as directors. Thereafter, the members of the Nominating
Committee will jointly nominate persons who are acceptable to both members.
37
<PAGE>
DIRECTOR COMPENSATION
The directors are reimbursed for expenses incurred in connection with their
attendance at Board and committee meetings but do not receive any other cash
compensation in connection with their services on the Board.
In July 1996, the Board of Directors awarded a non-statutory stock option
under the Company's 1996 Stock Option Plan to Richard J. Williams to purchase
16,500 shares of Common Stock in consideration for his services on the
Company's Board of Directors. The option has an exercise price of $9.64 per
share and vests fully three years from the date of grant.
EXECUTIVE COMPENSATION
The following table sets forth the compensation for the twelve months ended
July 31, 1996 of the Company's Chief Executive Officer and its next three most
highly compensated executive officers during the twelve months ended July 31,
1996 (the Chief Executive Officer and such other executive officers are
hereinafter referred to as the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------- ------------
AWARDS
------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS COMPENSATION(1)
- --------------------------- ---------- --------- ------------ ---------------
<S> <C> <C> <C> <C>
Norman A. Cloutier........... $ 135,460 $ 28,750 178,750 $26,616
Chairman of the Board and
Chief Executive Officer
Michael S. Funk.............. 98,750 0 115,500 1,013
President
Steven H. Townsend........... 91,175 19,170 96,250 17,574
Chief Financial Officer,
Treasurer and Secretary
Daniel V. Atwood............. 93,040 17,300 66,000 15,106
President of NRG, Vice
President, Assistant
Treasurer and Assistant
Secretary
</TABLE>
- --------
(1) Includes the value of Company contributions to the 401(k) accounts of the
Named Executive Officers ($1,995 for Mr. Cloutier, $1,013 for Mr. Funk and
$1,340 for Mr. Townsend) as well as the value of the shares allocated to
the accounts of the Named Executive Officers under the Company's Employee
Stock Ownership Plan at a fair market value per share of $9.64 on July 31,
1996 (approximately 2,554 shares for Mr. Cloutier, 1,684 shares for Mr.
Townsend and 1,567 shares for Mr. Atwood).
EMPLOYMENT AGREEMENTS
The Company is a party to an employment agreement with Mr. Funk covering the
period commencing February 20, 1996 and ending December 31, 2000, subject to
extension for another five-year term at the election of Mr. Funk. The
agreement provides for Mr. Funk to serve as President of Mountain People's,
Executive Vice President of the Company and Vice Chairman of the Company's
Board of Directors. In October 1996, the Board of Directors elected Mr. Funk
to serve as President of the Company. Under the employment agreement, Mr. Funk
is entitled to base compensation at least equal to that paid to the Chief
Executive Officer of the Company and other compensation in an amount such that
Mr. Funk's total annual compensation is at least equal to 90% of the Chief
Executive Officer's total annual compensation. In addition, in no event can
Mr. Funk's annual compensation be less than $130,000.
38
<PAGE>
Mr. Funk may terminate the agreement upon 90 days' written notice to the
Company. The Company may terminate the agreement only for cause or in the
event of Mr. Funk's death or disability. The agreement includes a non-
competition clause under which Mr. Funk agreed that during the term of the
agreement and for three years thereafter he will not, directly or indirectly,
participate in (i) a wholesale distribution business in competition with the
Company or Mountain People's or (ii) a retail business in competition with the
Company or any of its subsidiaries which is located within 15 miles of a
retail store owned by the Company or one of its subsidiaries; provided,
however, that Mr. Funk's management and ownership of an equity interest in
Mountain People's Wine Distributing, Inc. ("MPWD") will not be deemed a breach
of this covenant unless MPWD distributes products east of the Mississippi
River or engages in a business other than the distribution and sale of wine
and alcoholic beverages.
The Company is also a party to a non-competition agreement with Mr.
Cloutier. The non-competition agreement is effective until the earliest to
occur of: (i) November 16, 1998, (ii) the termination of Mr. Cloutier's
employment by the Company without cause or (iii) the first anniversary of (A)
Mr. Cloutier's voluntary termination of employment with the Company or (B) the
termination of Mr. Cloutier's employment by the Company for cause. During the
effective period of this agreement, Mr. Cloutier may not: (i) within 25 miles
of any location in which the Company, or one of its affiliates, is doing
business, operate or participate in any business involving the retail or
wholesale distribution of natural food items or (ii) induce any employee of
the Company to terminate employment with the Company or to engage in a
business which competes with the Company.
EMPLOYEE STOCK OWNERSHIP PLAN
In November 1988, the Company adopted an ESOP for the benefit of eligible
employees. Employees who have attained the age of 21 and have completed 1,000
hours of service within one year are eligible to participate in the ESOP. In
connection with the formation of the ESOP, the ESOT acquired an aggregate of
2,200,000 shares of Common Stock from the Initial Stockholders in exchange for
the ESOT Note in the aggregate principal amount of $4,080,000, of which
$3,073,600 was outstanding as of July 31, 1996, exclusive of interest. The
ESOT Note bears interest at a rate of 10% per annum. Under the ESOT Note, the
ESOT is required to pay interest and repay principal to the Initial
Stockholders on a monthly basis through May 2015, the maturity date of the
ESOT Note. The Company makes monthly contributions to the ESOT in amounts
determined by the Board, and such contributions are used to repay the
principal and interest due under the ESOT Note. The ESOT Note is secured by a
pledge of the shares held by the ESOT and guaranteed by the Company. Each year
shares held in the ESOT are released from the pledge in proportion to the
principal paid down on the ESOT Note during the year. The released shares are
allocated among the ESOP accounts of eligible employees, including employees
of the Company's subsidiaries which have adopted the ESOP, in proportion to
their covered compensation. To date, approximately 550,000 shares have been
allocated or released for allocation to employees, and allocations are
projected to continue at the rate of 88,000 shares per year. The shares in an
employee's account generally vest after five years of qualified employment or
upon death or disability. Vested ESOP benefits are distributable following the
death or termination of employment of a participating employee.
Participating employees can elect to receive their ESOP benefits in the form
of Common Stock. The Company has normally purchased from the ESOT the shares
allocated to former employees' ESOP accounts at their fair market value, and
then distributed cash to the employees. Common Stock distributed to former
employees from the ESOT is subject to a limited put option which allows the
holder to require the Company to repurchase the shares for a period of sixty
days at their appraised fair market value at the date of distribution, and for
another sixty days beginning after the appraised fair market value of the
Common Stock has been established for the Company's taxable year following the
year in which the distribution occurred. The put option ceases when Common
Stock distributed under the ESOP is (i) listed on a national securities
exchange or traded in the over-the-counter market and (ii) is freely
tradeable. Common Stock held in the ESOT is voted by the Trustee as directed
by the Company, except that ESOP participants are entitled to direct the
Trustee as to how to vote shares allocated to their ESOP accounts on any
matter which involves a corporate merger, consolidation, recapitalization,
reclassification, liquidation, sale of substantially all of the Company's
assets or other similar major corporate transactions. Since November 1993, the
Trustee of the ESOT has been Robert G. Huckins, an independent trustee and
financial consultant with Smith Barney Inc., one of the underwriters
participating in the Offering.
39
<PAGE>
The Company intends to amend the ESOP so that upon completion of the
Offering it will (i) provide that ESOP benefits may be paid only in the form
of Common Stock, (ii) eliminate the limited put option, (iii) provide for
participants to direct the Trustee as to how to vote shares of Common Stock
allocated to their accounts, (iv) direct the trustee to vote unallocated
shares of Common Stock, and allocated shares for which no voting direction has
been received, in the same proportion as participants have directed the
Trustee to vote their allocated shares of Common Stock, (v) provide for
transfers to the Company's 401(k) plan not more frequently than once each five
years of up to 50% of the vested account balance of a non-highly compensated
participant with 10 or more years of service with the Company, (vi) provide
for hardship distributions not more frequently than once every five years of
up to 50% of the vested account balance of a participant with 10 or more years
of service with the Company to meet certain extraordinary expenses, and (vii)
incorporate the ESOP and ESOT into a single integrated document.
1996 STOCK OPTION PLAN
The Company's 1996 Stock Option Plan (the "1996 Option Plan") was adopted by
the Board of Directors on July 29, 1996 and approved by the stockholders of
the Company on July 31, 1996. The 1996 Option Plan provides for the grant of
stock options to employees, officers and directors of, and consultants or
advisers to, the Company and its subsidiaries. Under the 1996 Option Plan, the
Company may grant options that are intended to qualify as incentive stock
options within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code") ("incentive stock options"), or options not
intended to qualify as incentive stock options ("non-statutory options").
Incentive stock options may only be granted to employees of the Company. A
total of 1,375,000 shares of Common Stock may be issued upon the exercise of
options granted under the 1996 Option Plan. The maximum number of shares with
respect to which options may be granted to any participant under the 1996
Option Plan may not exceed 500,000 shares of Common Stock during any calendar
year.
The 1996 Option Plan is administered by the Compensation Committee of the
Board of Directors. Subject to the provisions of the 1996 Option Plan, the
Compensation Committee has the authority to select the employees to whom
options are granted and determine the terms of each option, including (i) the
number of shares of Common Stock subject to the option, (ii) when the option
becomes exercisable, (iii) the option exercise price, which, in the case of
incentive stock options, must be at least 100% (110% in the case of incentive
stock options granted to a stockholder owning in excess of 10% of the
Company's Common Stock) of the fair market value of the Common Stock as of the
date of grant, and (iv) the duration of the option (which, in the case of
incentive stock options, may not exceed ten years).
Payment of the option exercise price may be made in cash, shares of Common
Stock, a combination of cash or stock or by any other method (including
delivery of a promissory note payable on terms specified by the Compensation
Committee) approved by the Compensation Committee consistent, as applicable,
with Section 422 of the Code and Rule 16b-3 ("Rule 16b-3") under the
Securities Exchange Act of 1934, as amended. Incentive stock options are not
assignable or transferable except by will or the laws of descent and
distribution.
The Compensation Committee may, in its sole discretion, include additional
provisions in any option or award granted or made under the 1996 Option Plan,
including without limitation restrictions on transfer, repurchase rights,
commitments to pay cash bonuses, to make, arrange for or guaranty loans or to
transfer other property to optionees upon exercise of options, or such other
provisions as shall be determined by the Compensation Committee, so long as
not inconsistent with the 1996 Option Plan or applicable law. The Compensation
Committee may also, in its sole discretion, accelerate or extend the date or
dates on which all or any particular option or options granted under the 1996
Option Plan may be exercised.
1996 EMPLOYEE STOCK PURCHASE PLAN
The Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board of Directors and approved by the stockholders of the
Company in October 1996 and becomes effective upon the closing of the
Offering. The Purchase Plan authorizes the issuance of up to a total of
100,000 shares of Common Stock to participating employees.
40
<PAGE>
All employees of the Company, including directors of the Company who are
employees, and all employees of any participating subsidiaries whose customary
employment is more than 20 hours per week and for more than five months in any
calendar year, and who have been employed by the Company or a participating
subsidiary for at least three months prior to enrolling in the Purchase Plan,
are eligible to participate in the Purchase Plan. Employees who would
immediately after the grant own 5% or more of the total combined voting power
or value of the stock of the Company or any subsidiary are not eligible to
participate.
On the first day of a designated payroll deduction period (the "Offering
Period"), the Company will grant to each eligible employee who has elected to
participate in the Purchase Plan an option to purchase shares of Common Stock
as follows: the employee may authorize an amount (a percentage from 1% to 10%
of such employee's regular pay) to be deducted by the Company from such pay
during the Offering Period. On the last day of the Offering Period, the
employee is deemed to have exercised the option, at the option exercise price,
to the extent of accumulated payroll deductions. Under the terms of the
Purchase Plan, the option price is an amount equal to 85% of the fair market
value per share of the Common Stock on either the first day or the last day of
the Offering Period, whichever is lower. In no event may an employee purchase
in any one Offering Period a number of shares which is more than 15% of the
employee's base pay for the Offering Period divided by 85% of the market value
of a share of Common Stock on the commencement date of the Offering Period.
The Compensation Committee may, in its discretion, choose an Offering Period
of 12 months or less for each of the Offerings and choose a different Offering
Period for each Offering.
If an employee is not a participant on the last day of the Offering Period,
such employee is not entitled to exercise any option, and the amount of such
employee's accumulated payroll deductions will be refunded. An employee's
rights under the Purchase Plan terminate upon voluntary withdrawal from the
Purchase Plan at any time, or when such employee ceases employment for any
reason, except that upon termination of employment because of death, the
employee's beneficiary has certain rights to elect to exercise the option to
purchase the shares which the accumulated payroll deductions in the
participant's account would purchase at the date of death.
Because participation in the Purchase Plan is voluntary, the Company cannot
now determine the number of shares of Common Stock to be purchased by any
particular current executive officer, by all current executive officers as a
group or by non-executive employees as a group.
OPTION GRANTS IN THE TWELVE MONTHS ENDED JULY 31, 1996 AND PERIOD OPTION
VALUES
The following table sets forth for the Named Executive Officers certain
information concerning stock options granted during the twelve months ended
July 31, 1996. The Company has never granted any stock appreciation rights
("SARs").
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
--------------------------------------------- POTENTIAL REALIZABLE
ANNUAL RATES OF VALUE AT ASSUMED
NUMBER OF PERCENT OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(3)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ------------------------------
NAME GRANTED(1) FISCAL YEAR SHARE(2) DATE 0% 5% 10%
---- ---------- ------------- --------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Norman A. Cloutier...... 137,500 21.6% $ 6.38 7/31/2006 $448,250 $1,283,315 $2,555,795
41,250 6.5 10.60 7/31/2006 0 210,788 592,763
Michael S. Funk......... 74,250 11.6 6.38 7/31/2006 242,055 692,753 1,380,308
41,250 6.5 10.60 7/31/2006 0 210,788 592,763
Steven H. Townsend...... 68,750 10.8 6.38 7/31/2006 224,125 641,438 1,278,063
27,500 4.3 9.64 7/31/2006 0 166,925 421,575
Daniel V. Atwood........ 44,000 6.9 6.38 7/31/2006 143,440 410,520 817,960
22,000 3.5 9.64 7/31/2006 0 133,540 337,260
</TABLE>
- --------
(1) All options vested in full upon the date of grant except for the grant of
an option for 22,000 shares to Mr. Atwood which vests 60% on July 31, 1999
and an additional 20% on each of July 31, 2000 and July 31, 2001.
41
<PAGE>
(2) The Board of Directors of the Company determined that the fair market value
of the Common Stock was $9.64 per share on the date of grant. The Board of
Directors determined the fair market value based on various factors,
including the illiquid nature of an investment in the Company's Common
Stock, the Company's historical financial performance, the Company's future
prospects and the price paid for securities of the Company in arms-length
transactions with third parties. The Company currently has no plans to
grant additional options at less than 85% of the fair value of the Common
Stock.
(3) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 0%, 5% and 10%
compounded annually from the date the respective options were granted to
their expiration date. These assumptions are not intended to forecast
future appreciation of the Company's stock price. The potential realizable
value computation does not take into account federal or state income tax
consequences of option exercises or sales of appreciated stock.
The following table sets forth certain information concerning the number and
value of unexercised options held by each of the Named Executive Officers on
July 31, 1996. No options or SARs were exercised during the twelve months ended
July 31, 1996 by any of the Named Executive Officers.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR-END AT FISCAL YEAR-END(1)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ------------------------- -------------------------
<S> <C> <C>
Norman A. Cloutier......... 178,750/0 $448,250/$0
Michael S. Funk............ 115,500/0 242,055/ 0
Steven H. Townsend......... 96,250/0 224,125/ 0
Daniel V. Atwood........... 44,000/22,000 143,440/ 0
</TABLE>
- --------
(1) Based on the fair market value of the Common Stock as of July 31, 1996
($9.64 per share), as determined by the Board of Directors, less the option
exercise price.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Company's Compensation Committee are Richard J. Williams
and Thomas B. Simone. No executive officer of the Company has served as a
director or member of the Compensation Committee (or other committee serving an
equivalent function) of any other entity, whose executive officers served as a
director of, or a member of, the Compensation Committee of the Company. Prior
to the formation of the Compensation Committee in October 1996, decisions
relating to executive compensation were made by the Company's Board of
Directors.
42
<PAGE>
CERTAIN TRANSACTIONS
In connection with the establishment of the ESOP in November 1988, Norman A.
Cloutier, Steven H. Townsend, Daniel V. Atwood and Theodore Cloutier
contributed an aggregate of 2,200,000 shares of the Company's Common Stock to
the ESOT in exchange for a note (the "ESOT Note") from the ESOT in the
original amount of $4,080,000, the largest amount of indebtedness outstanding
under the ESOT Note. The ESOT Note is secured by a pledge of the shares. The
Company guarantees payment by the ESOT of the ESOT Note. The ESOT Note is
payable in equal monthly installments of principal and interest from December
1988 to May 2015. Interest is charged on the ESOT Note at a rate of 10% per
annum. The amount outstanding on the ESOT Note as of July 31, 1996 was
$3,073,600.
Under a Note and Warrant Purchase Agreement, dated November 17, 1993 (the
"Warrant Agreement"), Triumph loaned $6,500,000, evidenced by the Triumph
Note, to the Company. The aggregate indebtedness under the Triumph Note was
$6,500,000 on July 31, 1996, which is the largest outstanding indebtedness
ever on the Triumph Note. The Triumph Note matures on October 31, 1998. The
current interest rate on the Triumph Note is 10% and will increase 1% on each
November 1 through the maturity date of the note. Under the Warrant Agreement,
Triumph has the option, which it has exercised, to have a portion of the
proceeds of the Offering designated to repay the Triumph Note. The Company's
obligations under the Triumph Note are guaranteed by NRG. In connection with
this financing, Triumph received a warrant to purchase 1,166,660 shares, as
adjusted for stock splits, distributions and other dilutive actions taken by
the Company, of the Company's Common Stock at an exercise price of $0.01 per
share. The warrant may be exercised until the later of (i) repayment of the
Triumph Note or (ii) October 31, 2000. Triumph currently intends to exercise
the warrant in full prior to the commencement of the Offering. If the Company
completes the Offering and repays the Triumph Note before November 17, 1996,
the Company has the right to repurchase from Triumph an aggregate of 380,930
shares of Common Stock at a purchase price of $0.01 per share. If the Offering
is completed after November 17, 1996 but before November 17, 1997, this right
of repurchase will cover 196,075 shares of Common Stock. The Company currently
intends to exercise this repurchase right upon the closing of the Offering.
Mr. Williams, a Managing Director of Triumph, was elected to the Company's
Board of Directors pursuant to the Warrant Agreement. The provisions of the
Warrant Agreement relating to the election of a director nominated by Triumph
will terminate upon the closing of the Offering. The Company intends to use a
portion of the net proceeds of the Offering to repay in full the outstanding
indebtedness underlying the Triumph Note. See "Use of Proceeds" and "Shares
Eligible for Future Sale--Registration Rights."
Under a Distribution Agreement, dated August 23, 1994, between Mountain
People's and Mountain People's Wine Distributing, Inc. ("MPWD"), of which
Michael S. Funk is a 55% stockholder, Mountain People's distributes wine and
beer for MPWD. Since the effective date of this agreement, MPWD has paid
Mountain People's approximately $45,000 per year under the agreement.
In connection with the organization of MPWD, Mountain People's loaned
$46,000 to MPWD in October 1994. The loan bears interest at a rate of 8% per
annum and the outstanding indebtedness under this loan as of July 31, 1996 was
$46,000, the largest amount of indebtedness outstanding under this loan. This
loan was repaid in full on October 7, 1996.
In July 1995, the Company paid Triumph $100,000 for financial advisory
services rendered by Triumph in connection with the Company's acquisition of
Rainbow.
In November 1995, Mountain People's loaned $150,000 to Michael S. Funk. The
loan was not made in connection with a particular transaction. The loan is
payable in 130 equal monthly installments of principal and interest beginning
in February 1996. The largest amount of indebtedness outstanding under the
loan was $150,000 and as of July 31, 1996 the indebtedness outstanding under
the loan was $140,330. This loan is evidenced by a promissory note and bears
interest at the rate of 7% per annum.
43
<PAGE>
On February 20, 1996, the Company acquired Mountain People's through the
merger of a wholly owned subsidiary of the Company with and into Mountain
People's, whereupon Mountain People's became a wholly owned subsidiary of the
Company. In connection with the merger with Mountain People's, the Company
issued 3,213,100 shares of its Common Stock to the Funk Family 1992 Revocable
Living Trust, dated August 17, 1992, in exchange for all of the outstanding
stock of Mountain People's. Michael S. Funk, President and a director of the
Company, and his wife, Judith A. Funk, are the trustees of the Funk Family
1992 Revocable Living Trust. The consideration paid by the Company for
Mountain People's was established by the parties through arms-length
negotiations and was based on an estimate of the relative fair value of
Mountain People's as a going concern.
Steven H. Townsend is a stockholder in three natural products retail stores
Food Farmacy, Ltd. (45% stockholder), Food Farmacy, Inc. (75% stockholder),
and The Farmacy, Inc. (50% stockholder) which, in the aggregate, purchased
approximately $350,000 of natural products from the Company in each of the
past three years at published catalog prices.
The Company has adopted a policy providing that all material transactions
between the Company and its officers, directors and other affiliates must (i)
be approved by a majority of the members of the Company's Board of Directors
and by a majority of the disinterested members of the Company's Board of
Directors and (ii) be on terms no less favorable to the Company than could be
obtained from unaffiliated third parties. In addition, this policy will
require that any loans by the Company to its officers, directors or other
affiliates be for bona fide business purposes only.
44
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of July 31, 1996, and as
adjusted to reflect the sale of the shares of Common Stock offered hereby, by
(i) each person or entity known to the Company to own beneficially more than 5%
of the Company's Common Stock, (ii) each of the Company's directors, (iii) each
of the Named Executive Officers and (iv) all directors and executive officers
as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
SHARES BENEFICIALLY OWNED (1)(2)
BENEFICIALLY ------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED BEFORE OFFERING AFTER OFFERING
- ------------------------------------ ------------ --------------- --------------
<S> <C> <C> <C>
5% STOCKHOLDERS
Norman A. Cloutier(3).............. 3,391,850 35.1% 27.0%
c/o United Natural Foods, Inc.
260 Lake Road
Dayville, CT 06241
Michael S. Funk(2)(4).............. 3,328,600 34.7% 26.6%
c/o Mountain People's Warehouse
Incorporated
12745 Earhart Avenue
Auburn, CA 95602
Funk Family 1992 Revocable Living 3,213,100 33.9% 26.0%
Trust(2)(5)........................
c/o Michael S. Funk
Mountain People's Warehouse
Incorporated
12745 Earhart Avenue
Auburn, CA 95602
Employee Stock Ownership Trust(6).. 2,179,595 23.0% 17.6%
Robert G. Huckins, Trustee
c/o Smith Barney Inc.
700 Fleet Center
50 Kennedy Plaza
Providence, RI 02903-2396
Triumph-Connecticut Limited 785,730 8.3% 6.3%
Partnership(7).....................
60 State Street
21st Floor
Boston, MA 02109
Richard J. Williams(8)............. 785,730 8.3% 6.3%
c/o Triumph-Connecticut Limited
Partnership
60 State Street
21st Floor
Boston, MA 02109
OTHER NAMED EXECUTIVE OFFICERS AND
OTHER DIRECTORS
Steven H. Townsend(9).............. 151,250 1.6% 1.2%
Daniel V. Atwood(10)............... 75,900 * *
Andrea R. Hendricks................ 0 0 0
Kevin T. Michel.................... 0 0 0
Thomas B. Simone................... 0 0 0
All executive officers and
directors, as a group
(8 persons)(11)................... 7,733,330 78.0% 60.4%
</TABLE>
45
<PAGE>
- --------
* Less than 1%
(1) The number of shares beneficially owned by each stockholder is determined
under rules promulgated by the Securities and Exchange Commission, and
the information is not necessarily indicative of beneficial ownership for
any other purpose. Under such rules, beneficial ownership includes any
shares as to which the individual has sole or shared voting power or
investment power and also any shares which the individual has the right
to acquire within 60 days after July 31, 1996 through the exercise of any
stock option or other right. The inclusion herein of such shares,
however, does not constitute an admission that the named stockholder is a
direct or indirect beneficial owner of such shares. Unless otherwise
indicated, each person or entity named in the table has sole voting power
and investment power (or shares such power with his or her spouse) with
respect to all shares of capital stock listed as owned by such person or
entity.
(2) Assumes no exercise of the Underwriters' over-allotment option to
purchase up to an aggregate of 435,000 shares of Common Stock from
Triumph (375,000 shares) and the Funk Family 1992 Revocable Living Trust
(60,000 shares) ("Selling Stockholders") which are to be offered for the
account of each such Selling Stockholder. If the Underwriters' over-
allotment is exercised in full, Triumph and the Funk Family 1992
Revocable Living Trust will beneficially hold 410,730 and 3,153,100
shares, or approximately 3.3% and 25.5% of the shares outstanding after
the Offering, respectively. If the Underwriters' over-allotment option is
exercised only in part, it shall be exercised first with respect to
shares held by Triumph and then with respect to shares held by the Funk
Family 1992 Revocable Living Trust.
(3) Includes 178,750 shares issuable within the 60-day period following July
31, 1996 pursuant to the exercise of stock options. Does not include
30,085 shares held by the ESOT and allocated to Mr. Cloutier under the
ESOP.
(4) Includes 3,213,100 shares held by the Funk Family 1992 Revocable Living
Trust, of which Michael and Judith Funk are the Co-Trustees. Includes
115,500 shares issuable within the 60-day period following July 31, 1996
pursuant to the exercise of stock options.
(5) Michael S. Funk and his wife Judith A. Funk are Co-Trustees of the Funk
Family 1992 Revocable Living Trust and share investment and voting
control of the shares held by the trust.
(6) Common Stock held by the ESOT is voted by the Trustee of the ESOT (the
"Trustee"), except that participants in the ESOP are entitled to direct
the Trustee as to how to vote shares allocated to their ESOP accounts on
any matter which involves a corporate merger, consolidation, liquidation,
sale of substantially all of the Company's assets or other similar major
corporate transactions.
(7) The sole general partner of Triumph is Triumph-Connecticut Capital
Advisors, L.P. ("Capital Advisors"). The six general partners of Capital
Advisors, who share voting and investment control with respect to the
stockholdings of Triumph, are Frederick W. McCarthy, Frederick S.
Moseley, E. Mark Noonan, Thomas W. James, John M. Chapman and Richard J.
Williams. The general partners of Capital Advisors disclaim beneficial
ownership of all the shares, except to the extent of their proportionate
pecuniary interests therein.
(8) Consists of the 785,730 shares held by Triumph, of which Mr. Williams is
a general partner of its general partner. Mr. Williams disclaims
beneficial ownership of these shares except to the extent of his
proportionate pecuniary interest therein.
(9) Includes 96,250 shares issuable within the 60-day period following July
31, 1996 pursuant to the exercise of stock options. Does not include
20,955 shares held by the ESOT and allocated to Mr. Townsend under the
ESOP.
(10) Includes 44,000 shares issuable within the 60-day period following July
31, 1996 pursuant to the exercise of stock options. Does not include
20,350 shares held by the ESOT and allocated to Mr. Atwood under the
ESOP.
(11) Includes 434,500 shares issuable within the 60-day period following July
31, 1996 pursuant to the exercise of stock options.
46
<PAGE>
DESCRIPTION OF CAPITAL STOCK
After giving effect to the amendment and restatement of the Company's
Certificate of Incorporation (the "Restated Certificate of Incorporation") to
be effected upon the closing of the Offering, the authorized capital stock of
the Company will consist of 25,000,000 shares of Common Stock, $.01 par value
per share, and 5,000,000 shares of Preferred Stock, $.01 par value per share.
As of July 31, 1996, there were outstanding (i) 9,478,425 shares of Common
Stock held by six stockholders of record and (ii) stock options for the
purchase of a total of 638,000 shares of Common Stock.
The following summary of certain provisions of the Company's Common Stock,
Preferred Stock, Restated Certificate of Incorporation and Amended and
Restated By-laws (the "Restated By-laws") is not intended to be complete and
is qualified by reference to the provisions of applicable law and to the
Company's Restated Certificate of Incorporation and Restated By-laws included
as exhibits to the Registration Statement of which this Prospectus is a part.
See "Additional Information."
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefor, subject to any preferential dividend rights
of outstanding Preferred Stock. Upon the liquidation, dissolution or winding
up of the Company, the holders of Common Stock are entitled to receive ratably
the net assets of the Company available after the payment of all debts and
other liabilities and subject to the prior rights of any outstanding Preferred
Stock. Holders of Common Stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of Common Stock are, and the shares
offered by the Company in the Offering will be, when issued and paid for,
fully paid and nonassessable. The rights, preferences and privileges of
holders of Common Stock are subject to, and may be adversely affected by, the
rights of the holders of shares of any series of Preferred Stock which the
Company may designate and issue in the future. Certain holders of Common Stock
have the right to require the Company to effect the registration of their
shares of Common Stock in certain circumstances. See "Shares Eligible for
Future Sale."
PREFERRED STOCK
Under the terms of the Restated Certificate of Incorporation to be filed
upon the closing of the Offering, the Board of Directors will be authorized,
subject to any limitations prescribed by law, without stockholder approval, to
issue such shares of Preferred Stock in one or more series at any time or from
time to time. Each such series of Preferred Stock shall have such rights,
preferences, privileges and restrictions, including voting rights, dividend
rights, conversion rights, redemption privileges and liquidation preferences,
as shall be determined by the Board of Directors.
47
<PAGE>
The purpose of authorizing the Board of Directors to issue Preferred Stock
and determine its rights and preferences is to eliminate delays associated
with a stockholder vote on specific issuances. The issuance of Preferred
Stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from acquiring, a majority of the outstanding voting stock of the Company. The
Company has no present plans to issue any shares of Preferred Stock.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
The Company is subject to the provisions of Section 203 of the General
Corporation Law of Delaware. Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the interested stockholder. Subject to certain exceptions, an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of the
corporation's voting stock.
The Restated Certificate of Incorporation provides for the division of the
Board of Directors into three classes as nearly equal in size as possible with
staggered three-year terms. See "Management." In addition, the Restated
Certificate of Incorporation provides that directors may be removed only for
cause by the affirmative vote of the holders of two-thirds of the shares of
capital stock of the corporation entitled to vote. Under the Restated
Certificate of Incorporation, any vacancy on the Board of Directors, however
occurring, including a vacancy resulting from an enlargement of the Board, may
only be filled by vote of a majority of the directors then in office. The
classification of the Board of Directors and the limitations on the removal of
directors and filling of vacancies could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
acquiring, control of the Company.
The Restated Certification of Incorporation also provides that after the
closing of the Offering, any action required or permitted to be taken by the
stockholders of the Company at an annual meeting or special meeting of
stockholders may only be taken if it is properly brought before such meeting
and may not be taken by written action in lieu of a meeting. The Restated
Certificate of Incorporation further provides that special meetings of the
stockholders may only be called by the Chairman of the Board of Directors, the
Chief Executive Officer or, if none, the President of the Company, or by the
Board of Directors. Under the Restated By-Laws, in order for any matter to be
considered "properly brought" before a meeting, a stockholder must comply with
certain requirements regarding advance notice to the Company. The foregoing
provisions could have the effect of delaying until the next stockholders
meeting stockholder actions which are favored by the holders of a majority of
the outstanding voting securities of the Company. These provisions may also
discourage another person or entity from making a tender offer for the
Company's Common Stock, because such person or entity, even if it acquired a
majority of the outstanding voting securities of the Company, would be able to
take action as a stockholder (such as electing new directors or approving a
merger) only at a duly called stockholders meeting, and not by written
consent.
The General Corporation Law of Delaware provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or by-laws,
unless a corporation's certificate of incorporation or by-laws, as the case
may be, requires a greater percentage. The Restated Certificate of
Incorporation and the By-Laws require the affirmative vote of the holders of
at least two-thirds of the shares of capital stock of the Company issued and
outstanding and entitled to vote to amend or repeal any of the provisions
described in the prior two paragraphs.
The Restated Certificate of Incorporation contains certain provisions
permitted under the General Corporation Law of Delaware relating to the
liability of directors. The provisions eliminate a director's liability for
monetary damages for a breach of fiduciary duty, except in certain
circumstances involving wrongful acts, such as the breach of a director's duty
of loyalty or acts or omissions which involve intentional misconduct or a
48
<PAGE>
knowing violation of law. Further, the Restated Certificate of Incorporation
contains provisions to indemnify the Company's directors and officers to the
fullest extent permitted by the General Corporation Law of Delaware. The
Company believes that these provisions will assist the Company in attracting
and retaining qualified individuals to serve as directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Continental Stock
Transfer & Trust Company.
49
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, based upon the number of shares outstanding
at July 31, 1996, there will be 12,378,425 shares of Common Stock of the
Company outstanding (exclusive of 638,000 shares covered by options
outstanding at July 31, 1996). Of these shares, the 2,900,000 shares sold in
the Offering will be freely tradeable without restriction or further
registration under the Securities Act of 1933, as amended (the "Securities
Act"), except that any shares purchased by "affiliates" of the Company, as
that term is defined in Rule 144 ("Rule 144") under the Securities Act
("Affiliates"), may generally only be sold in compliance with the limitations
of Rule 144 described below.
SALES OF RESTRICTED SHARES
The remaining 9,478,425 shares of outstanding Common Stock are deemed
"restricted securities" under Rule 144. All of these restricted securities are
subject to the 180-day lock-up agreements (the "Lock-Up Agreements") with the
Representatives of the Underwriters. Upon expiration of the Lock-Up
Agreements, excluding the 2,179,595 shares held by the ESOT, approximately
4,085,730 of these shares of Common Stock will be available for sale in the
public market, subject to the provisions of Rule 144 under the Securities Act.
The remaining 3,213,100 shares of Common Stock will be eligible for resale
under Rule 144 in February 1998.
Upon expiration of the Lock-Up Agreements, the 1,629,595 unreleased and
unallocated shares held by the ESOT may be sold by the Trustee of the ESOT,
subject to the provisions of Rule 144 under the Securities Act, and the
550,000 shares held by the ESOT and allocated to the accounts of employees to
be distributed upon the employee's death or termination of employment with the
Company will be eligible for resale in the public market without restriction,
subject only to Rule 144 limitations applicable to employees who are
Affiliates of the Company.
The executive officers and directors of the Company, and certain
securityholders, which executive officers, directors and securityholders in
the aggregate hold all of the aforementioned 9,478,425 shares of Common Stock
on the date of this Prospectus (as well as 434,500 shares of Common Stock that
may be acquired pursuant to the exercise of vested options held by them as of
180 days after the date of this Prospectus), have agreed that, for a period of
180 days after the date of this Prospectus, they will not sell, offer to sell,
solicit an offer to buy, contract to sell, grant any option to purchase,
pledge or otherwise transfer or dispose of, any shares of Common Stock, or any
securities convertible into or exercisable or exchangeable for shares of
Common Stock, without the prior written consent of Smith Barney Inc.
In general, under Rule 144 as currently in effect, beginning 90 days after
the effective date of the Registration Statement of which this Prospectus is a
part, a stockholder, including an Affiliate, who has beneficially owned his or
her restricted securities (as that term is defined in Rule 144) for at least
two years from the later of the date such securities were acquired from the
Company or, if applicable, the date they were acquired from an Affiliate, is
entitled to sell, within any three-month period, a number of such shares that
does not exceed the greater of 1% of the then outstanding shares of Common
Stock (approximately 123,784 shares immediately after the Offering) or the
average weekly trading volume in the Common Stock during the four calendar
weeks preceding the date on which notice of such sale was filed under Rule
144, provided certain requirements concerning availability of public
information, manner of sale and notice of sale are satisfied. In addition,
under Rule 144(k), if a period of at least three years has elapsed between the
later of the date restricted securities were acquired from the Company or, if
applicable, the date they were acquired from an Affiliate of the Company, a
stockholder who is not an Affiliate of the Company at the time of sale and has
not been an Affiliate of the Company for at least three months prior to the
sale is entitled to sell the shares immediately without compliance with the
foregoing requirements under Rule 144.
The Securities and Exchange Commission has proposed an amendment to Rule 144
which would reduce the holding period for shares subject to Rule 144 to become
eligible for resale in the public market. If this proposal is adopted, an
additional 3,213,100 shares will become eligible for resale under Rule 144 180
days after the date of this Prospectus.
50
<PAGE>
REGISTRATION STATEMENTS ON FORM S-8
The Company intends to file one or more registration statements on Form S-8
under the Securities Act to register approximately 3,654,595 shares of Common
Stock issuable under the Company's ESOP, 1996 Option Plan and Purchase Plan.
The registration statements are expected to be filed shortly after the
effective date of the Registration Statement of which this Prospectus is a
part and will be effective upon filing.
Shares issued under the ESOP or the Purchase Plan, or upon the exercise of
stock options granted under the 1996 Option Plan after the effective date of
the Form S-8 registration statement will be eligible for resale in the public
market without restriction, subject to Rule 144 limitations applicable to
Affiliates and the Lock-Up Agreements noted above. See "Management--Board
Compensation" and "--Executive Compensation."
REGISTRATION RIGHTS
Triumph is entitled to certain rights, under an agreement between Triumph
and the Company (the "Registration Rights Agreement"), with respect to the
registration under the Securities Act of 785,730 shares of the Company's
Common Stock (the "Registrable Shares"). All of these shares are subject to a
Lock-Up Agreement. Triumph has the right under the Registration Rights
Agreement, at any time after 180 days from the date of this Prospectus, to
require the Company to prepare and file from time to time registration
statements under the Securities Act with respect to its Registrable Shares (a
"Demand Registration"); provided, however, that (i) such demand requests the
registration of Registrable Shares representing at least a majority of the
outstanding Registrable Shares and (ii) the Company need only effect two
Demand Registrations. The Registration Rights Agreement also provides that in
the event the Company proposes to file a registration statement under the
Securities Act with respect to an offering by the Company for its own account
or the account of another person, or both, Triumph shall be entitled to
include Registrable Shares in such registration, subject to the right of the
managing underwriter of any such offering to exclude some of such Registrable
Shares from such registration if and to the extent that inclusion of such
Shares would adversely affect the marketing of the shares to be sold by the
Company. In such event, the amount of Registrable Shares to be offered for the
account of Triumph shall be reduced pro rata among Triumph and any other
requesting rightsholders based upon the number of shares requested to be
included in such registration by all requesting rightsholders. The Company is
generally required to bear the expenses of all registrations, except
underwriting discounts and commissions. All of the obligations of the Company
to register the Registrable Shares terminate on the earlier of November 17,
2000 or the date on which the Registrable Shares are no longer restricted
under the Securities Act.
EFFECT OF SALES OF SHARES
Prior to the Offering, there has been no public market for the Common Stock
of the Company, and no prediction can be made as to the effect, if any, that
market sales of shares of Common Stock or the availability of shares for sale
will have on the market price of the Common Stock prevailing from time to
time. Nevertheless, sales of significant numbers of shares of the Common Stock
in the public market could adversely affect the market price of the Common
Stock and could impair the Company's future ability to raise capital through
an offering of its equity securities.
51
<PAGE>
UNDERWRITING
Upon the terms and subject to the conditions stated in the Underwriting
Agreement dated the date hereof, each Underwriter named below has severally
agreed to purchase, and the Company has agreed to sell to such Underwriter,
the number of shares of Common Stock set forth opposite the name of such
Underwriter below.
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
---- ----------------
<S> <C>
Smith Barney Inc. ......................................
Oppenheimer & Co., Inc. ................................
Robertson, Stephens & Company LLC.......................
---------
Total................................................. 2,900,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares are subject to
approval of certain legal matters by counsel and to certain other conditions.
The Underwriters are obligated to take and pay for all shares of Common Stock
offered hereby (other than those covered by the over-allotment option
described below) if any such shares are taken.
The Underwriters, for whom Smith Barney Inc., Oppenheimer & Co., Inc. and
Robertson, Stephens & Company LLC are acting as Representatives, propose to
offer part of the shares directly to the public at the initial public offering
price set forth on the cover page of this Prospectus and part of the shares to
certain dealers at a price that represents a concession not in excess of $
per share under the public offering price. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of $ per share to
certain other dealers. After the initial offering of the shares to the public,
the public offering price and such concessions may be changed by the
Representatives. The Representatives of the Underwriters have advised the
Company that the Underwriters do not intend to confirm any Shares to any
accounts over which they exercise discretionary authority.
The Selling Stockholders have granted the Underwriters an option,
exercisable for thirty days from the date of this Prospectus, to purchase up
to 435,000 additional shares of Common Stock at the price to the public set
forth on the cover page of this Prospectus minus the underwriting discounts
and commissions. See Note 2 of "Principal and Selling Stockholders." The
Underwriters may exercise such option solely for the purpose of covering over-
allotments, if any, in connection with the offering of the shares offered
hereby. To the extent such option is exercised, each Underwriter will be
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number of shares set forth
opposite each Underwriter's name in the preceding table bears to the total
number of shares listed in such table.
The Company, its executive officers and directors and certain stockholders
of the Company designated by the Representatives have agreed that, for a
period of 180 days from the date of this Prospectus, they will not, without
the prior consent of Smith Barney Inc., sell, offer to sell, solicit an offer
to buy, contract to sell, grant any option to purchase, pledge or otherwise
transfer or dispose of, any shares of Common Stock of the Company or any
securities convertible into, or exercisable or exchangeable for Common Stock
of the Company.
Prior to the Offering, there has not been any public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
shares of Common Stock included in the Offering will be determined by
negotiations between the Company and the Representatives. Among the factors to
be considered in determining such price are the history of, and prospects for,
the Company's business and the industry in which it competes, an assessment of
the Company's management and the present state of the Company's development,
the past and present revenues and earnings of the Company, the prospects for
growth of the Company's revenues and earnings, the current state of the
economy in the United States and the current level of economic activity in the
industry in which the Company competes and in related or comparable
industries, and currently prevailing conditions in the securities markets,
including current market valuations of publicly traded companies which are
comparable to the Company.
52
<PAGE>
Since November 1993, the Trustee of the ESOT has been Robert G. Huckins, a
financial consultant with Smith Barney Inc.
The Company, the Selling Stockholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
LEGAL MATTERS
The validity of the shares of Common Stock being offered hereby will be
passed upon for the Company by Hale and Dorr, Boston, Massachusetts. Certain
legal matters in connection with the Offering will be passed upon for the
Underwriters by Goodwin, Procter & Hoar llp, Boston, Massachusetts.
EXPERTS
The consolidated financial statements of the Company as of October 31, 1995
and July 31, 1996 and for each of the two years in the period ended October
31, 1995 and the nine months ended July 31, 1996 and the related financial
statement schedule have been included herein and in the Registration Statement
in reliance upon the reports of KPMG Peat Marwick LLP, independent certified
public accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing.
The financial statements of Prem Mark, Inc. (the predecessor of Rainbow) as
of December 31, 1994 and for the fifty-three weeks then ended included herein
and in the Registration Statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm
as experts in giving said report.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (which term shall include all
amendments, exhibits, schedules and supplements thereto) on Form S-1 under the
Securities Act with respect to the shares of Common Stock offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and
regulations of the Commission, to which Registration Statement reference is
hereby made. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily
complete. With respect to each such contract, agreement or other document
filed as an exhibit to the Registration Statement, reference is made to the
exhibit for a more complete description of the matter involved, and each such
statement shall be deemed qualified in its entirety by such reference. The
Registration Statement and the exhibits thereto may be inspected and copied at
prescribed rates at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the regional offices of the Commission located at Seven
World Trade Center, 13th Floor, New York, New York 10048 and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. In addition, the Company is
required to file electronic versions of these documents with the Commission
through the Commission's Electronic Data Gathering, Analysis and Retrieval
(EDGAR) system. The Commission maintains a World Wide Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
The Company intends to distribute to its stockholders annual reports
containing audited consolidated financial statements and will make available
copies of quarterly reports for the first three quarters of each fiscal year
containing unaudited consolidated financial information.
53
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES:
Independent Auditors' Report............................................. F-2
Consolidated Balance Sheets.............................................. F-3
Consolidated Statements of Income........................................ F-4
Consolidated Statements of Stockholders' Equity.......................... F-5
Consolidated Statements of Cash Flows.................................... F-6
Notes to Consolidated Financial Statements............................... F-8
PREM MARK, INC.*:
Report of Independent Public Accountants................................. F-18
Balance Sheet............................................................ F-19
Statement of Income...................................................... F-20
Statement of Stockholder's Investment.................................... F-21
Statement of Cash Flows.................................................. F-22
Notes to Financial Statements............................................ F-23
Unaudited Statement of Income for the Period from January 1, 1995 to July
29, 1995................................................................ F-27
</TABLE>
- --------
* These financial statements reflect the predecessor of Rainbow Natural Foods,
Inc. and are included in this Prospectus to comply with Rule 3-05 of
Regulation S-X.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
United Natural Foods, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of United
Natural Foods, Inc. and subsidiaries as of October 31, 1995 and July 31, 1996
and the related consolidated statements of income, stockholders' equity and
cash flows for the years ended October 31, 1994 and 1995, and for the nine
months ended July 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of United
Natural Foods, Inc. and subsidiaries as of October 31, 1995 and July 31, 1996
and the results of their operations and their cash flows for the years ended
October 31, 1994 and 1995, and for the nine months ended July 31, 1996, in
conformity with generally accepted accounting principles.
Providence, Rhode Island KPMG Peat Marwick LLP
August 30, 1996
F-2
<PAGE>
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31, JULY 31,
1995 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash................................................ $ 228,791 $ 51,255
Accounts receivable, net of allowance for doubtful
accounts of $1,274,602 in 1995 and
$1,277,755 in 1996................................. 24,306,540 25,657,156
Notes receivable, trade............................. 679,362 360,137
Inventories......................................... 35,464,371 38,667,548
Prepaid expenses.................................... 983,009 1,691,548
Deferred income taxes (note 10)..................... 480,754 796,216
----------- -----------
Total current assets................................ 62,142,827 67,223,860
----------- -----------
Property and equipment, net (note 6)................. 15,348,686 20,603,663
----------- -----------
Other assets:
Notes receivable, trade............................. 544,842 1,067,697
Goodwill, net of accumulated amortization of
$395,214 in 1995 and $556,345 in 1996 (note 2)..... 8,284,365 8,096,395
Covenants not to compete, net of accumulated
amortization of $263,672 in 1995 and
$711,737 in 1996 (note 2).......................... 1,565,299 1,117,234
Other, net.......................................... 935,543 635,290
----------- -----------
11,330,049 10,916,616
----------- -----------
Total assets........................................ $88,821,562 $98,744,139
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable (note 4).............................. $25,190,408 $30,112,868
Current installments of long-term debt (note 5)..... 3,774,198 4,086,795
Current installments of obligations under capital
leases (note 7).................................... 420,677 357,404
Accounts payable.................................... 20,010,640 17,139,406
Accrued expenses.................................... 3,482,447 4,978,331
Income taxes payable................................ 108,181 303,513
Other............................................... 573,142 158,149
----------- -----------
Total current liabilities........................... 53,559,693 57,136,466
Long-term debt, excluding current installments (note
5).................................................. 21,312,113 22,170,855
Deferred income taxes (note 10)...................... 362,138 407,346
Obligations under capital leases, excluding current
installments (note 7)............................... 565,407 847,918
----------- -----------
Total liabilities................................... 75,799,351 80,562,585
----------- -----------
Stockholders' equity (note 13):
Common stock, $.01 par value, authorized 25,000,000
shares;
issued 8,713,100 shares and outstanding 8,713,100
shares in 1995 and 8,692,695 shares in 1996........ 87,131 87,131
Additional paid-in capital.......................... 327,411 1,383,511
Stock warrants (note 5)............................. 3,200,000 3,200,000
Unallocated shares of employee stock ownership plan
(note 11).......................................... (3,196,000) (3,073,600)
Retained earnings................................... 12,603,669 16,628,966
Treasury stock, 20,405 shares at cost............... -- (44,454)
----------- -----------
Total stockholders' equity.......................... 13,022,211 18,181,554
----------- -----------
Commitments (notes 8, 9 and 12)
Total liabilities and stockholders' equity.......... $88,821,562 $98,744,139
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE
YEARS ENDED OCTOBER 31, MONTHS ENDED
------------------------- JULY 31,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net sales............................ $200,616,451 $283,323,435 $286,448,399
Cost of sales........................ 156,498,812 223,482,549 226,481,766
------------ ------------ ------------
Gross profit..................... 44,117,639 59,840,886 59,966,633
------------ ------------ ------------
Operating expenses................... 36,195,056 48,653,214 48,564,649
Amortization of intangibles (note
1(f))............................... 538,040 2,425,618 792,615
------------ ------------ ------------
Total operating expenses......... 36,733,096 51,078,832 49,357,264
------------ ------------ ------------
Operating income................. 7,384,543 8,762,054 10,609,369
------------ ------------ ------------
Other expense (income):
Interest expense................... 2,275,100 3,403,009 3,942,820
Other, net......................... 121,655 (173,312) (136,869)
------------ ------------ ------------
Total other expense.............. 2,396,755 3,229,697 3,805,951
------------ ------------ ------------
Income before income taxes....... 4,987,788 5,532,357 6,803,418
Income taxes (note 10)............... 1,970,584 2,929,856 2,778,121
------------ ------------ ------------
Net income....................... $ 3,017,204 $ 2,602,501 $ 4,025,297
============ ============ ============
Net income per share of common
stock............................... $ 0.30 $ 0.26 $ 0.40
============ ============ ============
Weighted average shares of common
stock............................... 10,094,036 10,148,374 10,143,809
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNALLOCATED
OUTSTANDING ADDITIONAL SHARES OF TOTAL
NUMBER COMMON PAID-IN STOCK EMPLOYEE STOCK RETAINED TREASURY STOCKHOLDERS'
OF SHARES STOCK CAPITAL WARRANTS OWNERSHIP PLAN EARNINGS STOCK EQUITY
----------- ------- ---------- ---------- -------------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances November 1,
1993................... 8,713,100 $87,131 $ 327,411 -- $(3,522,400) $ 6,983,964 -- $ 3,876,106
Issuance of stock
warrants (note 5)..... -- -- -- $3,200,000 -- -- -- 3,200,000
Allocation of shares to
ESOP.................. -- -- -- -- 163,200 -- -- 163,200
Net income............. -- -- -- -- -- 3,017,204 -- 3,017,204
--------- ------- ---------- ---------- ----------- ----------- -------- -----------
Balances October 31,
1994................... 8,713,100 87,131 327,411 3,200,000 (3,359,200) 10,001,168 -- 10,256,510
Allocation of shares of
ESOP.................. -- -- -- -- 163,200 -- -- 163,200
Net income............. -- -- -- -- -- 2,602,501 -- 2,602,501
--------- ------- ---------- ---------- ----------- ----------- -------- -----------
Balances October 31,
1995................... 8,713,100 87,131 327,411 3,200,000 (3,196,000) 12,603,669 -- 13,022,211
Allocation of shares to
ESOP.................. -- -- -- -- 122,400 -- -- 122,400
Purchase of treasury
stock................. (20,405) -- -- -- -- -- $(44,454) (44,454)
Stock options (note
3).................... -- -- 1,056,100 -- -- -- -- 1,056,100
Net income............. -- -- -- -- -- 4,025,297 -- 4,025,297
--------- ------- ---------- ---------- ----------- ----------- -------- -----------
Balances July 31, 1996.. 8,692,695 $87,131 $1,383,511 $3,200,000 $(3,073,600) $16,628,966 $(44,454) $18,181,554
========= ======= ========== ========== =========== =========== ======== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31, NINE MONTHS
------------------------- ENDED JULY 31,
1994 1995 1996
----------- ------------ --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.......................... $ 3,017,204 $ 2,602,501 $ 4,025,297
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation, amortization and
write-off of intangibles.......... 1,920,474 4,273,244 3,012,061
Loss (gain) on disposals of
property and equipment............ 239,842 (123,583) 24,441
Accretion of original issue
discount.......................... 456,000 530,004 458,541
Compensation expense related to
stock options..................... -- -- 1,056,100
Deferred income taxes.............. 162,125 330,158 (270,254)
Provision for doubtful accounts.... 148,724 762,764 646,828
Increase in accounts receivable.... (4,371,301) (5,544,515) (1,997,444)
Increase in inventory.............. (4,356,554) (9,989,327) (3,203,177)
Decrease (increase) in prepaid
expenses.......................... 544,396 (228,391) (708,539)
Decrease (increase) in refundable
income taxes...................... 451,191 -- --
Decrease (increase) in other
assets............................ (46,468) 2,025,426 300,253
Decrease (increase) in notes
receivable, trade................. (562,513) (265,113) (203,630)
Increase (decrease) in accounts
payable........................... 1,602,631 4,488,652 (2,871,234)
Increase in accrued expenses....... 195,600 503,467 1,080,891
Increase (decrease) in income taxes
payable........................... (742,287) (220,989) 195,332
----------- ------------ -----------
Net cash provided by (used in)
operating activities............ (1,340,936) (855,702) 1,545,466
----------- ------------ -----------
Cash flows from investing activities:
Proceeds from disposals of property
and equipment...................... 210,574 147,666 43,021
Capital expenditures................ (2,678,696) (9,934,590) (7,091,280)
Payments for purchases of
subsidiaries, net of cash
acquired........................... (1,267,841) (8,672,834) --
----------- ------------ -----------
Net cash used in investing
activities...................... (3,735,963) (18,459,758) (7,048,259)
----------- ------------ -----------
Cash flows from financing activities:
Net borrowings under note payable... 783,478 12,388,997 4,922,460
Repayments of long-term debt........ (3,319,793) (2,046,824) (5,349,788)
Proceeds from long-term debt........ 4,651,884 9,604,443 6,184,986
Principal payments of capital lease
obligations........................ (269,294) (251,632) (387,947)
Payment of financing costs.......... -- (321,044) --
Issuance of stock warrants.......... 3,200,000 -- --
Purchase of treasury stock.......... -- -- (44,454)
----------- ------------ -----------
Net cash provided by financing
activities...................... 5,046,275 19,373,940 5,325,257
----------- ------------ -----------
Net increase (decrease) in cash...... (30,624) 58,480 (177,536)
Cash at beginning of year............ 200,935 170,311 228,791
----------- ------------ -----------
Cash at end of year.................. $ 170,311 $ 228,791 $ 51,255
=========== ============ ===========
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest........................... $ 1,588,000 $ 2,638,000 $ 2,120,000
=========== ============ ===========
Income taxes....................... $ 1,962,000 $ 2,838,000 $ 2,467,000
=========== ============ ===========
</TABLE>
F-6
<PAGE>
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
Supplemental schedule of non-cash investing and financing activities:
In 1994, the Company purchased all of the capital stock of one retail
store and substantially all of the assets of three additional stores for
$1,374,000. In conjunction with the acquisitions, liabilities were assumed
as follows:
<TABLE>
<S> <C>
Fair value of assets acquired.................................. $2,974,000
Cash paid...................................................... 1,374,000
----------
Liabilities assumed and debt issued.......................... $1,600,000
==========
</TABLE>
In 1995, the Company purchased substantially all of the assets of one
retail store, substantially all of the assets of one wholesale distributor
and the capital stock of another wholesale distributor for $6,725,000. In
conjunction with the acquisitions, liabilities were assumed as follows:
<TABLE>
<S> <C>
Fair value of assets acquired................................. $21,315,000
Cash paid..................................................... 6,725,000
-----------
Liabilities assumed and debt issued......................... $14,590,000
===========
</TABLE>
In 1995 and 1996, the Company incurred capital lease obligations of
approximately $580,000 and $582,000, respectively for equipment.
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1994, 1995 AND JULY 31, 1996
(1) SIGNIFICANT ACCOUNTING POLICIES
(a) Nature of Business
United Natural Foods, Inc. and Subsidiaries (the Company) is a distributor
and retailer of natural products. The Company sells its products throughout
the United States. For purposes of segment reporting, the Company considers
its operations to be within a single industry.
(b) Basis of Consolidation
The accompanying financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany transactions
and balances have been eliminated in consolidation. Certain prior period
balances have been reclassified to conform to the 1996 presentation.
(c) Inventories
Inventories are stated at the lower of cost or market, with cost being
determined using the first-in, first-out (FIFO) method.
(d) Property and Equipment
Property and equipment are stated at cost. Equipment under capital leases is
stated at the present value of minimum lease payments at the inception of the
lease. Depreciation and amortization are principally provided under the
straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Building.......................................................... 40 years
Leasehold improvements............................................ 10 years
Warehouse equipment............................................... 5-10 years
Office equipment.................................................. 3-5 years
Motor vehicles.................................................... 3 years
Equipment under capital lease..................................... 5 years
</TABLE>
(e) Income Taxes
The Company accounts for income taxes under the asset and liability method.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
(f) Intangible Assets
Intangible assets consist principally of goodwill and covenants not to
compete. Goodwill represents the excess purchase price over fair value of net
assets acquired in connection with purchase business combinations and is being
amortized on the straight line method over thirty years. Covenants not to
compete are stated at cost and are amortized using the straight-line method
over the lives of the respective agreements, generally five years.
The Company adopted Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of, during fiscal 1995.
F-8
<PAGE>
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company evaluates impairment of intangible assets on an annual basis, or
more frequently if events or changes in circumstances indicate that carrying
amounts may no longer be recoverable. Impairment losses are determined based
upon the excess of carrying amounts over expected future cash flows
(undiscounted) of the underlying business. The assessment of the
recoverability of intangible assets will be impacted if estimated future cash
flows are not achieved.
In fiscal 1995, the Company wrote off approximately $1,564,000 in intangible
assets, primarily goodwill, upon evaluating impairment of the underlying
business of certain of its retail operations. The impairment was indicated by
projected cash flow losses caused by increased competition at one location and
a change in demographics for the other affected location. This amount is
included in "Amortization of Intangibles" in the 1995 Consolidated Statement
of Income.
(g) Revenue Recognition
The Company records revenue upon shipment of products. Revenues are recorded
net of applicable sales discounts.
(h) Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments including cash,
accounts receivable, accounts payable, and accrued expenses approximate fair
value due to the short term nature of these instruments. The carrying value of
notes receivable, long term debt and capital lease obligations approximate
fair value based on the instruments' interest rate, terms, maturity date, and
collateral, if any, in comparison to the Company's incremental borrowing rate
for similar financial instruments.
(i) Change in Fiscal Year
The Company elected to change its fiscal year end from October 31 to July
31. The consolidated results of operations and cash flows for the nine months
ended July 31, 1996 are not necessarily indicative of results that would be
expected for a full year.
(j) Accounting Changes
Effective November 1, 1995, the Company changed its method of accounting for
certain inventories from the last-in, first-out (LIFO) method to the first-in,
first-out (FIFO) method. Due to a number of recent acquisitions, the Company's
subsidiaries were accounting for inventories on varying methods (LIFO, FIFO)
and using different calculation methodologies for LIFO. In order to conform
all the Company's inventories to the same valuation method and to enhance the
comparability of the Company's financial results with other publicly traded
entities, the conforming change to FIFO was made, which was deemed preferable
for these reasons. In accordance with provisions of Accounting Principles
Board Opinion No. 20, concerning an initial public offering of securities,
this change has been applied retroactively and financial statements of prior
periods have been restated.
(k) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(l) Notes Receivable, trade
The Company issues notes receivable, trade to certain customers under two
basic circumstances, inventory purchases for initial store openings and
overdue accounts receivable. Initial store opening notes are generally
receivable over a period not to exceed twelve months. The overdue accounts
receivable notes may extend for periods greater than one year. All notes are
issued at a market interest rate and contain certain guarantees and collateral
assignments in favor of the Company.
F-9
<PAGE>
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(m) Net Income Per Share
Net income per share is computed by dividing net income by the weighted
average number of shares of Common Stock and dilutive common stock
equivalents. For purposes of this calculation, outstanding stock options and
stock warrants are considered common stock equivalents and totaled
approximately 1.8 million shares for all periods presented (approximately 1.4
million incremental shares under the treasury stock method). Pursuant to
Securities and Exchange Commission Staff Accounting Bulletin No. 83, common
and common equivalent shares issued during the twelve month period prior to
the date of the initial filing of the Company's Registration Statement have
been included in the calculation, using the treasury stock method, as if they
were outstanding for all periods presented. Fair market value for the purpose
of this calculation was assumed to be approximately $14.00 per share, the
assumed initial public offering price. The number of shares used in all
calculations has been adjusted to reflect a fifty-five-for-one stock split
(see note 13).
(2) ACQUISITIONS
In February 1996, Cornucopia Natural Foods, Inc. (CNF) and Mountain People's
Warehouse, Inc. (MPW) merged in a business combination accounted for as a
pooling of interests. CNF issued 3,213,100 shares, which represented
approximately 37% of the common stock of CNF after the merger, in exchange for
all of the outstanding common stock of MPW. The combined entity changed its
name to United Natural Foods, Inc. The financial statements for all periods
presented reflect the merger. Net sales for fiscal 1994, fiscal 1995 and the
quarter ended January 31, 1996 for CNF were $113.2 million, $145.6 million and
$48.7 million (unaudited), respectively. Net income for fiscal 1994, fiscal
1995 and the quarter ended January 31, 1996 for CNF was $1.8 million, $0.9
million and $1.0 million (unaudited), respectively. Net sales for fiscal 1994,
fiscal 1995 and the quarter ended January 31, 1996 for MPW were $87.4 million,
$137.7 million and $43.6 million (unaudited), respectively. Net income for
fiscal 1994, fiscal 1995 and the quarter ended January 31, 1996 for MPW was
$1.3 million, $1.7 million and $0.1 million (unaudited), respectively.
During fiscal 1995, the Company acquired substantially all of the assets of
one natural products retailer, SunSplash Market, Inc. (in April 1995), one
wholesale distributor, Prem Mark, Inc. (the predecessor business to Rainbow
Natural Foods, Inc.) (in July 1995) and the capital stock of another wholesale
distributor, Nutrasource, Inc. (in May 1995) in business combinations
accounted for as purchases. The results of operations of these acquisitions
have been included in the accompanying financial statements since the dates of
the acquisitions. The total cash paid and debt issued for these acquisitions
was approximately $12,470,000, which exceeded the fair value of the net assets
acquired by approximately $6,329,000. This excess for purchase price over the
net assets acquired has been recorded as goodwill, and is being amortized over
thirty years.
During fiscal 1994, the Company acquired 100% of the common stock of one
natural products retailer, Natureworks, Inc., and substantially all of the
assets of three additional retailers, Village Natural Grocers, Inc., Down Home
Natural Foods, Inc., and Railway Market, Inc., in business combinations
accounted for as purchases. The results of operations of these retailers were
included in the accompanying financial statements since the dates of the
acquisitions. The total cash paid and debt issued for these acquisitions was
approximately $2,974,000 which exceeded the fair value of the net assets
acquired by approximately $1,437,000. The excess has been recorded as goodwill
and is being amortized on the straight-line method over thirty years.
In connection with these acquisitions, the Company executed covenants not to
compete and consulting agreements totaling $505,000 to be amortized using the
straight-line method over the lives of the respective agreements, generally
five years.
F-10
<PAGE>
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Pro Forma Results (Unaudited)
The following represents the unaudited pro forma results of operations for
fiscal 1995 as if the acquisitions of Nutrasource, Inc. and Prem Mark, Inc.
had occurred as of November 1, 1994:
<TABLE>
<S> <C>
Net sales.................................................... $345,381,000
Income before income taxes................................... 5,217,000
Net income................................................... 2,410,000
Net income per share of common stock......................... $ 0.24
</TABLE>
The pro forma operating results include results of operations for the
periods prior to the acquisitions and include additional amortization of
intangible assets and interest expense on acquisition borrowings as if the
acquisitions occurred on November 1, 1994.
The pro forma information given above does not purport to be indicative of
the results that actually would have been obtained if the operations were
combined during the period presented and is not intended to be a projection of
future results or trends.
(3) STOCK OPTION PLAN
On July 29, 1996, the Board of Directors adopted, and on July 31, 1996 the
stockholders approved, the 1996 Stock Option Plan which provides for grants of
stock options to employees, officers, directors and others. These options are
intended to qualify as incentive stock options within the meaning of Section
422 of the Internal Revenue Code or options not intended to qualify as
incentive stock options ("non-statutory options"). A total of 1,375,000 shares
of common stock may be issued upon the exercise of options granted under the
1996 Stock Option Plan.
In consideration for their services on the Company's Board of Directors,
four employee-directors were awarded a total of 324,500 non-statutory stock
options under the Company's 1996 Stock Option Plan at an exercise price of
$6.38 per share which vested immediately. In addition, one non-employee
director was awarded a total of 16,500 non-statutory stock options under the
1996 Stock Option Plan at an exercise price of $9.64 per share which vest
after three years. Incentive stock options to purchase an aggregate of 297,000
shares of common stock were also granted to several employees at not less than
the fair value at the date of grant, with vesting at various rates generally
over the next five years. Compensation expense of $1,056,100 was charged to
operations in fiscal 1996 related to the employee-director stock options. In
accordance with SEC regulations, all options have been included in earnings
per share calculations for all periods presented.
(4) NOTES PAYABLE
The Company entered into a line of credit and term loan agreement (see note
5) with a bank effective February 1996. The line of credit agreement permits
the Company to borrow up to a maximum of $50,000,000. The amount of borrowing
is based upon the sum of 90% of eligible accounts receivable and 55% of
eligible inventory. Interest on the loans is at 0.25% above the New York prime
interest rate or 2.25% above the LIBOR rate. The bank's prime rate was 8.75%
and 8.25% at October 31, 1995 and July 31, 1996, respectively. The line of
credit agreement, which terminates July 1998, is secured by all assets of the
Company and contains certain restrictive covenants. The Company was in
compliance with its restrictive covenants at July 31, 1996.
F-11
<PAGE>
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(5) LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
OCTOBER 31, JULY 31,
1995 1996
----------- -----------
<S> <C> <C>
Note payable to limited partnership, secured, with
interest ranging from 8% to 12% per annum payable
quarterly, maturing October 1998.................. $ 4,286,004 $ 4,744,545
Term loan for employee stock ownership plan,
secured by stock of the corporation, due $13,600
monthly plus interest at 10%, balance due May 1,
2015.............................................. 3,196,000 3,073,600
Real estate term loan payable to bank, secured by
land and building, with principal repayments of
$25,000 monthly through July 1998 plus interest at
7.5%, all remaining principal due August 1998..... 6,000,000 5,775,000
Term loan payable to former owners of acquired
business, secured by substantially all assets of
subsidiary with principal repayments of $695,353
semi-annually through July 1998, with interest
ranging from 8-10% through maturity............... 4,178,114 2,785,409
Term loan payable to bank, secured by substantially
all assets of a subsidiary, refinanced in February
1996.............................................. 976,190 --
Term loan payable to bank, secured by substantially
all assets of the Company, refinanced in February
1996.............................................. 425,080 --
Term loan payable to bank, secured by substantially
all assets of the Company, with monthly principal
payments of $59,524 through July 1998 and the re-
maining principal due on July 31, 1998, interest
at prime plus 0.25% above the bank's prime rate or
at 2.25% above the LIBOR rate..................... -- 4,702,381
Installment notes secured by equipment, payable in
monthly installments through 2002 at interest
rates ranging from 7.43% to 11.82%................ 2,061,640 1,958,257
Other notes payable to former owners of acquired
businesses and former stockholders of
subsidiaries, maturing at various dates through
February 2002 at interest rates ranging from 6 to
10%............................................... 3,878,355 3,164,835
Notes payable to bank, secured by automobiles,
including interest ranging from 6.25% to 7.25%,
primarily due over three years.................... 84,928 53,623
----------- -----------
Total long-term debt............................. 25,086,311 26,257,650
Less: current installments......................... 3,774,198 4,086,795
----------- -----------
Long-term debt, excluding current installments..... $21,312,113 $22,170,855
=========== ===========
</TABLE>
The Company entered into a Note and Warrant Purchase Agreement (the
Agreement) with a limited partnership (the Purchaser) on November 17, 1993.
Under the Agreement, the Company issued to the Purchaser a Senior Note in the
principal amount of $6,500,000 and a Common Stock Purchase Warrant for
1,166,660 shares of the common stock of the Company. Interest on the Senior
Note ranges from 8% to 12% per annum and is payable quarterly. The Senior Note
matures October 31, 1998. The Common Stock Purchase Warrant is exercisable
from November 17, 1993 through October 31, 2000, at a price of $0.01 per
share.
F-12
<PAGE>
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The $6,500,000 proceeds were recorded as $3,300,000 in long-term debt with
the remaining $3,200,000 recorded as issuance of stock warrants representing
the estimated fair value of the warrants issued. The original issue discount
on the debt will accrete over the life of the loan so that the principal
balance will be $6,500,000 at maturity. The total effective interest rate
including the accretion of the original issue discount is approximately 28%.
The Agreement, as amended, also contains certain restrictive covenants. The
Company was in compliance with these covenants at July 31, 1996.
Aggregate maturities of long-term debt for the next five years and
thereafter are as follows at July 31, 1996:
<TABLE>
<S> <C>
1997............................. $ 4,086,795
1998............................. 14,385,413
1999............................. 4,370,979
2000............................. 728,390
2001............................. 398,510
Thereafter....................... 2,287,563
-----------
$26,257,650
===========
</TABLE>
(6) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at:
<TABLE>
<CAPTION>
OCTOBER 31, JULY 31,
1995 1996
----------- -----------
<S> <C> <C>
Land................................................ $ 266,870 $ 266,870
Building............................................ 5,990,939 11,043,261
Leasehold improvements.............................. 2,180,127 1,814,142
Warehouse equipment................................. 3,627,330 5,454,745
Office equipment.................................... 3,217,656 4,075,772
Motor vehicles...................................... 3,985,097 4,669,065
Equipment under capital leases...................... 1,091,979 1,769,139
Construction in progress............................ 874,603 337,507
----------- -----------
21,234,601 29,430,501
Less accumulated depreciation and amortization...... 5,885,915 8,826,838
----------- -----------
Net property and equipment........................ $15,348,686 $20,603,663
=========== ===========
</TABLE>
(7) CAPITAL LEASES
The Company leases computer, office and warehouse equipment under capital
leases expiring in various years through 2001. The assets and liabilities
under capital leases are recorded at the lower of the present value of the
minimum lease payments or the fair value of the assets. The assets are
depreciated over the lower of their related lease terms or their estimated
productive lives.
F-13
<PAGE>
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Minimum future lease payments under capital leases as of July 31, 1996 for
each of the next five fiscal years and in the aggregate are:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31 AMOUNT
------------------ ----------
<S> <C>
1997............................................................. $ 454,217
1998............................................................. 380,220
1999............................................................. 251,894
2000............................................................. 215,915
2001............................................................. 141,116
----------
Total minimum lease payments................................... 1,443,362
Less: Amount representing interest............................... 238,040
----------
Present value of net minimum lease payments.................... 1,205,322
Less: current installments....................................... 357,404
----------
Capital lease obligations, excluding current installments...... $ 847,918
==========
</TABLE>
(8) OPERATING LEASES
The Company leases various facilities under operating lease agreements with
varying terms. Most of the leases contain renewal options and purchase options
at several specific dates throughout the terms of the leases.
The Company also leases equipment under master lease agreements. Payment
under these agreements will continue for a period of four years. The equipment
lease agreements contain covenants concerning the maintenance of certain
financial ratios. The Company was in compliance with its covenants at July 31,
1996.
Future minimum annual fixed payments required under non-cancelable operating
leases having an original term of more than one year as of July 31, 1996 are
as follows:
<TABLE>
<S> <C>
1997............................. $ 4,352,000
1998............................. 3,980,000
1999............................. 3,648,000
2000............................. 3,020,000
2001............................. 1,764,000
Thereafter....................... 7,313,000
-----------
$24,077,000
===========
</TABLE>
Rent and other lease expense for the years ended October 31, 1994 and 1995
totaled approximately $5,207,000 and $5,441,000, respectively. Rent and other
lease expense for the nine months ended July 31, 1996 totaled approximately
$4,667,000.
(9) SALARY REDUCTION/PROFIT SHARING PLANS
The Company has several salary reduction/profit sharing plans, generally
called "401(k) Plans" (the Plan), covering various employee groups. Under this
type of Plan the employees may choose to reduce their compensation and have
these amounts contributed to the Plan on their behalf. In order to become a
participant in the Plan, the employee must meet certain eligibility
requirements as described in the plan document. In addition to amounts
contributed to the Plan by employees, the Company makes contributions to the
Plan on behalf of the employees. The Company contributions to the Plan were
not material for the years ended October 31, 1994 and 1995, and for the nine
months ended July 31, 1996.
F-14
<PAGE>
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(10) INCOME TAXES
Total Federal and state income tax expense consists of the following:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
---------- --------- ----------
<S> <C> <C> <C>
Fiscal year ended October 31, 1994:
U.S. Federal............................. $1,452,429 $ 138,000 $1,590,429
State and local.......................... 356,030 24,125 380,155
---------- --------- ----------
$1,808,459 $ 162,125 $1,970,584
========== ========= ==========
Fiscal year ended October 31, 1995:
U.S. Federal............................. $2,079,758 $ 302,052 $2,381,810
State and local.......................... 519,940 28,106 548,046
---------- --------- ----------
$2,599,698 $ 330,158 $2,929,856
========== ========= ==========
Nine months ended July 31, 1996:
U.S. Federal............................. $2,427,429 $(254,587) $2,172,842
State and local.......................... 620,946 (15,667) 605,279
---------- --------- ----------
$3,048,375 $(270,254) $2,778,121
========== ========= ==========
</TABLE>
Total income tax expense was different than the amounts computed using the
United States statutory income tax rate applied to income before income taxes
as a result of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
---------------------- JULY 31,
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Computed "expected" tax expense......... $1,695,848 $1,881,001 $2,313,162
State and local income tax net of
Federal income tax benefit............. 250,902 361,710 399,484
Merger related expenses................. -- -- 155,743
Non-deductible expenses................. 14,275 20,240 69,871
Non-deductible amortization............. 20,912 478,623 4,714
Other, net.............................. (11,353) 188,282 (164,853)
---------- ---------- ----------
$1,970,584 $2,929,856 $2,778,121
========== ========== ==========
</TABLE>
F-15
<PAGE>
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the net deferred tax assets and deferred tax liabilities at
October 31, 1995 and July 31, 1996 are presented below:
<TABLE>
<CAPTION>
OCTOBER 31, JULY 31,
1995 1996
----------- ---------
<S> <C> <C>
Deferred tax assets:
Inventories, principally due to additional costs
inventoried for tax purposes..................... $ 402,168 $ 421,099
Rents deducted for book purposes in excess of
tax.............................................. 28,586 27,732
Financing costs................................... 33,244 24,662
Intangible assets................................. 258,905 221,242
Deferred compensation............................. -- 400,896
Accrued vacation.................................. 50,000 59,048
Accounts receivable, principally due to allowances
for uncollectible accounts....................... 280,000 280,693
Other............................................. 125,545 165,141
--------- ---------
Total gross deferred tax assets................. 1,178,448 1,600,513
Less valuation allowance............................ -- --
--------- ---------
Net deferred tax assets......................... 1,178,448 1,600,513
--------- ---------
Deferred tax liability:
Plant and equipment, principally due to
differences in depreciation...................... 491,889 536,295
Reserve for LIFO inventory method................. 507,018 675,348
Other............................................. 60,925 --
--------- ---------
Total deferred tax liabilities.................. 1,059,832 1,211,643
--------- ---------
Net deferred tax assets............................. $118,616 $388,870
========= =========
Current deferred income tax assets.................. $ 480,754 $ 796,216
Non-current deferred income tax liability........... (362,138) (407,346)
--------- ---------
$ 118,616 $ 388,870
========= =========
</TABLE>
In assessing the recoverability of deferred tax assets, the Company
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Due to the fact that the Company has
sufficient taxable income in the federal carryback period and anticipates
sufficient future taxable income over the periods which the deferred tax
assets are deductible, the ultimate realization of deferred tax assets for
federal and state tax purposes appears more likely than not.
(11) EMPLOYEE STOCK OWNERSHIP PLAN
The Company adopted the Cornucopia Natural Foods, Inc. (predecessor company)
Employee Stock Ownership Plan (the Plan) for the purpose of acquiring
outstanding shares of the Company for the benefit of eligible employees. The
Plan was effective as of November 1, 1988 and has received notice of
qualification by the Internal Revenue Service.
In connection with the adoption of the Plan, a Trust was established to hold
the shares acquired. On November 1, 1988, the Trust purchased 40% of the
outstanding Common Stock of the Company at a price of $4,080,000. The trustees
funded this purchase by issuing promissory notes to the initial stockholders,
with the ESOT shares pledged as collateral. These notes bear interest at 10%
and are payable through May 2015. As the debt is repaid, shares are released
from collateral and allocated to active employees, based on the proportion of
debt service paid in the year.
F-16
<PAGE>
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants issued Statement of Position 93-6, "Employers'
Accounting for Employee Stock Ownership Plans," in November 1993. The
statement provides guidance on employers' accounting for ESOPs and is required
to be applied to shares purchased by ESOPs after December 31, 1992, that have
not been committed to be released as of the beginning of the year of adoption.
In accordance with SOP 93-6, the Company elected not to adopt the guidance in
SOP 93-6 for the shares held by the ESOP, all of which were purchased prior to
December 31, 1992. The debt of the ESOP is recorded as debt and the shares
pledged as collateral are reported as unearned ESOP shares in the Consolidated
Balance Sheets. During 1994, 1995 and 1996, contributions totaling
approximately $509,000, $492,000 and $358,000, respectively, were made to the
Trust. Of these contributions, approximately $346,000, $328,000 and $235,000,
respectively, represented interest.
The ESOP shares were classified as follows:
<TABLE>
<CAPTION>
OCTOBER 31, JULY 31,
1995 1996
----------- ---------
<S> <C> <C>
Allocated shares...................................... 396,000 484,000
Shares released for allocation........................ 88,000 66,000
Shares distributed to employees....................... -- (20,405)
Unreleased shares..................................... 1,716,000 1,650,000
--------- ---------
Total ESOP shares................................... 2,200,000 2,179,595
========= =========
</TABLE>
The fair value of unreleased shares was approximately $15,900,000 at July
31, 1996. Employees have the option of putting their shares back to the
Company upon leaving employment.
(12) LITIGATION
The Company may from time to time be involved in various claims and legal
actions arising in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will not have a material
adverse effect on the Company's consolidated financial position or results of
operations.
(13) INITIAL PUBLIC OFFERING
In connection with a proposed initial public offering of shares of Common
Stock, on August 30, 1996, the Board of Directors adopted, and the
stockholders approved, an amendment to the Company's certificate of
incorporation increasing the number of authorized shares of Common Stock from
200,000 to 25,000,000 and stating the par value of such shares as $0.01, and
the Company effected a fifty-five-for-one split of its issued and outstanding
Common Stock. All share, option and warrant and per share data presented in
the accompanying consolidated financial statements have been restated to
reflect the increased number of authorized and outstanding shares of Common
Stock.
F-17
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Prem Mark, Inc.:
We have audited the accompanying balance sheet of Prem Mark, Inc. as of
December 31, 1994 and the related statements of income, stockholder's
investment and cash flows for the fifty-three weeks then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Prem Mark, Inc. as of
December 31, 1994 and the results of its operations and its cash flows for the
fifty-three weeks then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Denver, Colorado
March 9, 1995
F-18
<PAGE>
PREM MARK, INC.
BALANCE SHEET
DECEMBER 31, 1994
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash............................................................ $ 850
Accounts receivable, net of allowance for uncollectible accounts
of approximately $58,000....................................... 2,415,608
Inventories..................................................... 4,002,266
Prepaid expenses and other current assets....................... 109,542
Current portion of notes receivable (note 3).................... 54,620
-----------
Total current assets.......................................... 6,582,886
-----------
Property and equipment:
Land............................................................ 361,425
Buildings....................................................... 1,600,939
Equipment, furniture and fixtures............................... 1,501,022
Equipment and vehicles under capital leases (note 4)............ 100,069
Motor vehicles.................................................. 109,376
-----------
3,672,831
Less--accumulated depreciation and amortization................. (1,067,265)
-----------
2,605,566
-----------
Notes receivable (note 3)......................................... 52,870
Other assets...................................................... 8,844
-----------
$ 9,250,166
===========
LIABILITIES AND STOCKHOLDER'S INVESTMENT
Current liabilities:
Accounts payable and accrued expenses........................... $ 3,110,193
Current portion of obligations under capital leases (note 4).... 23,934
Current portion of related party notes payable (note 5)......... 247,906
Current portion of line of credit and other (note 5)............ 867,053
-----------
Total current liabilities..................................... 4,249,086
Obligations under capital leases (note 4)......................... 18,029
Related party notes payable (note 5).............................. 2,342,317
Line of credit and other (note)................................... 62,017
-----------
Total liabilities............................................. 6,671,449
-----------
Stockholder's investment (note 6):
Common stock, $1 par value; 5,000 shares authorized; 1,000
shares issued; 264 shares outstanding.......................... 1,000
Additional paid-in capital...................................... 270,693
Retained earnings............................................... 3,689,278
-----------
3,960,971
Less--Treasury stock, 736 shares, at cost......................... (1,382,254)
-----------
Total stockholder's investment................................ 2,578,717
-----------
$ 9,250,166
===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-19
<PAGE>
PREM MARK, INC.
STATEMENT OF INCOME
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
<TABLE>
<S> <C>
Net sales (note 8)................................................. $47,068,475
Cost of sales...................................................... 38,564,949
-----------
Gross profit................................................... 8,503,526
-----------
Operating expenses:
Salaries and benefits............................................ 4,709,735
Occupancy........................................................ 262,141
Vehicle.......................................................... 840,976
Legal and professional........................................... 61,875
Advertising and promotion........................................ 119,414
Depreciation and amortization.................................... 319,907
Maintenance and repairs.......................................... 122,930
Postage and supplies............................................. 147,465
Travel........................................................... 80,685
Equipment rental................................................. 7,974
Other............................................................ 219,599
-----------
Total operating expenses....................................... 6,892,701
-----------
Operating income............................................... 1,610,825
-----------
Nonoperating income (expense):
Interest expense, net............................................ (280,723)
Other............................................................ 162,764
-----------
Total nonoperating expense..................................... (117,959)
-----------
Net income..................................................... $ 1,492,866
===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-20
<PAGE>
PREM MARK, INC.
STATEMENT OF STOCKHOLDER'S INVESTMENT
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK
------------- PAID-IN RETAINED ------------------
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT TOTAL
------ ------ ---------- ----------- ------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 25,
1993................... 1,000 $1,000 $270,693 $ 3,196,412 (736) $(1,382,254) $ 2,085,851
Net income............. -- -- -- 1,492,866 -- -- 1,492,866
Distributions to
stockholder........... -- -- -- (1,000,000) -- -- (1,000,000)
----- ------ -------- ----------- ---- ----------- -----------
Balances, December 31,
1994................... 1,000 $1,000 $270,693 $ 3,689,278 (736) $(1,382,254) $ 2,578,717
===== ====== ======== =========== ==== =========== ===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-21
<PAGE>
PREM MARK, INC.
STATEMENT OF CASH FLOWS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
<TABLE>
<S> <C>
Cash flows from operating activities:
Cash received from customers.................................... $ 46,902,709
Cash paid to suppliers and employees............................ (45,957,900)
Interest received............................................... 14,566
Interest paid................................................... (295,289)
------------
Net cash provided by operating activities.................... 664,086
------------
Cash flows from investing activities:
Capital expenditures............................................ (300,980)
Proceeds from sales of assets................................... 2,274
Collection of notes receivable.................................. 88,674
------------
Net cash used in investing activities........................ (210,032)
------------
Cash flows from financing activities:
Borrowing from line of credit................................... 939,171
Principal payments on line of credit............................ (200,000)
Principal payments on notes payable, primarily related party.... (224,941)
Principal payments on capital lease obligations................. (21,941)
Distributions to stockholder.................................... (1,000,000)
------------
Net cash used in financing activities........................ (507,711)
------------
Net decrease in cash and cash equivalents........................ (53,657)
Cash and cash equivalents, at beginning of year.................. 54,507
------------
Cash and cash equivalents, at end of year........................ $ 850
============
Reconciliation of net income to net cash provided by operating
activities:
Net income...................................................... $ 1,492,866
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.................................. 319,907
Loss on sales of assets........................................ 1,464
Change in operating assets and liabilities:
Increase in accounts receivable, net.......................... (480,703)
Increase in inventories....................................... (561,358)
Increase in prepaid expenses and other current assets......... (36,092)
Decrease in other assets...................................... 11,000
Decrease in accounts payable and accrued expenses............. (82,998)
------------
Net cash provided by operating activities.................... $ 664,086
============
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-22
<PAGE>
PREM MARK, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
(1) CORPORATION ORGANIZATION
Prem Mark, Inc. (the "Company"), is wholly owned by The Onae Trust (a
Qualified Subchapter S Trust). The Company operates as a distributor of health
foods and related products.
The Company's fiscal year end is the last Saturday of each calendar year.
Fiscal 1994 is fifty-three weeks in duration.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Cash and Cash Equivalents
The Company considers all highly liquid instruments with original maturities
of three months or less to be cash equivalents.
(b) Inventories
Inventories consist primarily of food inventory held by the Company for
resale in the normal course of business and are valued at the lower of cost
(first-in, first-out basis) or market.
(c) Property and Equipment
Land, buildings and equipment are stated at cost or, in the case of assets
under capital leases, at the lower of the present value of future minimum
lease payments or fair market value. Depreciation is provided using the
straight-line method. All equipment, furniture, fixtures and vehicles are
depreciated over a useful life of two to ten years except for buildings which
are depreciated over thirty years.
(d) Income Taxes
The Company has elected to be taxed under Subchapter S of the Internal
Revenue Code. Taxable income is the responsibility of the Company's
stockholder. Accordingly, no provision has been made for federal or state
income taxes in the accompanying financial statements. Additionally, the book
and tax bases of the assets are not substantially different at December 31,
1994.
(e) Risk Concentration
The accounts receivable potentially subject the Company to concentrations of
credit risk. The Company's customers include major natural food grocery stores
and other large food chain stores as well as smaller, local natural food
stores. The Company continuously evaluates the credit worthiness of its
customers' financial condition.
(f) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
F-23
<PAGE>
PREM MARK, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(3) NOTES RECEIVABLE
Notes receivable consist of the following at December 31, 1994:
<TABLE>
<S> <C>
Note receivable from sale of retail store, at 9%, receivable in
monthly installments, maturing February 1, 1997, secured by
substantially all operating assets related to
the store........................................................ $ 93,988
Note receivable from sale of retail store, at 9%, receivable in
monthly installments, maturing March 1, 1995, secured by
substantially all operating assets related to the store.......... 13,502
--------
107,490
Less current maturities........................................... (54,620)
--------
$ 52,870
========
</TABLE>
The following is a schedule of maturities for fiscal years ending after
December 31, 1994:
<TABLE>
<S> <C>
1995................................ $ 54,620
1996................................ 44,975
1997................................ 7,895
--------
$107,490
========
</TABLE>
(4) LEASES
(a) Capital Leases
The Company has leased certain equipment and vehicles under capital leases.
The leases provide for payment of fixed monthly rentals over various lease
terms. The Company's obligations under these leases are secured by the related
assets.
The December 31, 1994, future minimum payments under capital lease
obligations were as follows:
<TABLE>
<CAPTION>
FUTURE
MINIMUM
LEASE
PRINCIPAL INTEREST PAYMENTS
--------- -------- --------
<S> <C> <C> <C>
1995............................................. $23,934 $3,285 $27,219
1996............................................. 18,029 621 18,650
------- ------ -------
$41,963 $3,906 $45,869
======= ====== =======
</TABLE>
(b) Operating Leases
The Company leases significantly all its distribution fleet vehicles under
operating leases. The leases expire at various times between 1995 and 2003.
Total lease expense was $555,590 in fiscal year 1994.
At December 31, 1994, future minimum lease payments under operating leases
were as follows:
<TABLE>
<S> <C>
1995.............................. $ 281,736
1996.............................. 213,126
1997.............................. 183,888
1998.............................. 176,352
1999.............................. 138,672
Thereafter........................ 376,504
----------
$1,370,278
==========
</TABLE>
F-24
<PAGE>
PREM MARK, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(5) RELATED PARTY NOTES PAYABLE, LINE OF CREDIT AND OTHER
On March 14, 1994 and May 9, 1994, the Company borrowed $13,342 and $10,880,
respectively, from a commercial lender for the purpose of purchasing two
Company vehicles. The notes payable, which are secured by the vehicles
purchased, each require monthly payments of principal and interest at a rate
of 7.5% and 8.25% per annum, respectively. The amount borrowed must be paid in
full five and four years, respectively, from the date of borrowing.
On September 30, 1994, the Company entered into a $1,000,000 revolving line
of credit and a $500,000 term facility loan with a bank to fund working
capital and purchase equipment, respectively. Draws under the line of credit
are limited to the lesser of $1,000,000 or the amount of eligible accounts
receivable, as defined. The line of credit accrues interest on the principal
amount outstanding at the bank's prime rate (8.5% at December 31, 1994) plus
1% and is payable monthly. The line of credit facility expires on September
30, 1995, and amounts drawn must be repaid on that date. The line of credit is
secured by accounts receivable. The term facility loan accrues interest at the
same rate as the line of credit. The Company may borrow under this loan until
September 30, 1995. As of December 31, 1994, $908,305 was outstanding on the
line of credit and term facility loan.
At December 31, 1994, notes payable and line of credit consisted of the
following:
<TABLE>
<S> <C>
Stock redemption notes payable (note 6):
Notes payable to a related trust dated April 30, 1986,
interest at 10%, monthly payments applied first to interest
and then to principal, maturity May 1, 2006.................. $ 276,079
Notes payable to the trustee of a trust related to The Onae
Trust dated April 30, 1986, interest at 10%, monthly payments
applied first to interest and then to principal, maturity May
1, 2006...................................................... 333,612
-----------
609,691
-----------
Building and equipment notes payable:
Note payable to the chairman of the board dated September 30,
1991, interest at 9% (after April 1, 1997, note holder may
increase the interest rate up to 10%), payable in monthly
installments, maturity at December 1, 2008, collateralized by
deed of trust on the warehouse facility...................... 1,436,736
Note payable to the chairman of the board dated March 31,
1992, interest at 9% (after April 1, 1997, note holder may
increase the interest rate up to 10%), payable in monthly
installments, maturity at March 30, 1999, collateralized by
related warehouse equipment financed......................... 543,796
-----------
1,980,532
-----------
Vehicle loans.................................................. 20,765
Line of credit................................................. 908,305
-----------
Total notes payable and line of credit....................... 3,519,293
Less current maturities...................................... (1,114,959)
-----------
$ 2,404,334
===========
</TABLE>
F-25
<PAGE>
PREM MARK, INC.
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
The following is a schedule of maturities of long-term debt for fiscal years
ending after December 31, 1994:
<TABLE>
<S> <C>
1995.............................. $1,114,959
1996.............................. 306,094
1997.............................. 328,231
1998.............................. 353,030
1999.............................. 250,713
Thereafter........................ 1,166,266
----------
$3,519,293
==========
</TABLE>
(6) RELATED PARTY TRANSACTIONS
In connection with a stock redemption agreement entered into effective April
30, 1986, the Company acquired 736 shares of its outstanding common stock in
exchange for the notes payable discussed above. The reacquired common stock is
reflected in the accompanying balance sheets as treasury stock and is stated
at its cost of $1,382,254. Interest paid to these former shareholders totaled
$62,995 in fiscal 1994.
In fiscal years 1992 and 1991, the Company borrowed certain amounts from the
chairman of the Company's board of directors to finance the acquisition of a
warehouse and related equipment and for working capital purposes. Interest
paid by the Company to this individual totaled $187,088 in fiscal year 1994.
(7) 401(K) PLAN
Beginning January 1, 1992, the Company adopted a 401(k) retirement and
savings plan (the "Plan"). The Plan is a defined contribution plan covering
all employees with over 1,000 hours of annual service with the Company. The
Company is not required to contribute to the Plan. In fiscal 1994, the Company
expensed an estimated contribution of $57,826. In order to share in the
Company's contribution, an employee need not make any cash or deferred
contributions.
(8) MAJOR CUSTOMERS
The Company has two major retail customers which comprised more than 10% of
sales each. Sales to these two customers were $11,705,806 and $9,119,177 in
fiscal 1994. Related accounts receivable to these two customers were $637,321
and $672,993 at December 31, 1994.
F-26
<PAGE>
PREM MARK, INC.
STATEMENT OF INCOME
FOR THE PERIOD FROM JANUARY 1, 1995 TO JULY 29, 1995
UNAUDITED
<TABLE>
<CAPTION>
<S> <C>
Net sales............................................................... $29,253,287
Cost of sales........................................................... 24,121,108
----------
Gross Profit....................................................... 5,132,179
----------
Operating expenses:
Salaries and benefits.................................................. 3,017,778
Occupancy.............................................................. 152,426
Vehicle................................................................ 532,383
Legal and professional................................................. 369,713
Advertising and promotion.............................................. 81,743
Depreciation........................................................... 202,324
Maintenance and repairs................................................ 75,021
Postage and supplies................................................... 116,105
Travel................................................................. 50,515
Equipment rental....................................................... 13,662
Other.................................................................. 96,607
----------
Total operating expenses........................................... 4,708,277
----------
Operating income................................................... 423,902
----------
Nonoperating income (expense):
Interest expense, net.................................................. (173,058)
Other, net............................................................. 8,107
----------
Total nonoperating expense......................................... (164,951)
----------
Net income.............................................................. $ 258,951
----------
</TABLE>
F-27
<PAGE>
[Graphic consists of six photographs depicting a sampling of the more than
25,000 products offered by United Natural Foods, including grocery and general
merchandise, personal care, frozen foods, beverages, perishables and nutritional
supplements.]
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT
RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THOSE TO
WHICH IT RELATES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE
SUCH OFFER IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT
IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
The Company.............................................................. 10
Use of Proceeds.......................................................... 12
Dividend Policy.......................................................... 12
Capitalization........................................................... 13
Dilution................................................................. 14
Selected Consolidated Financial Data..................................... 15
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 16
Business................................................................. 23
Management............................................................... 36
Certain Transactions..................................................... 43
Principal and Selling Stockholders....................................... 45
Description of Capital Stock............................................. 47
Shares Eligible for Future Sale.......................................... 50
Underwriting............................................................. 52
Legal Matters............................................................ 53
Experts.................................................................. 53
Additional Information................................................... 53
Index to Financial Statements............................................ F-1
</TABLE>
UNTIL , 1996 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL DEAL-
ERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN AD-
DITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UN-
DERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,900,000 SHARES
LOGO
COMMON STOCK
-------
P R O S P E C T U S
, 1996
-------
SMITH BARNEY INC.
OPPENHEIMER & CO., INC.
ROBERTSON, STEPHENS & COMPANY
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses, all of which will be
borne by the Registrant, in connection with the sale and distribution of the
securities being registered, other than the underwriting discounts and
commissions. All amounts shown are estimates except for the Securities and
Exchange Commission registration fee, the NASD filing fee and the Nasdaq
National Market listing fee.
<TABLE>
<S> <C>
SEC Registration Fee............................................... $ 17,083
NASD Filing Fee.................................................... 5,503
Nasdaq National Market Listing Fee................................. 50,000
Blue Sky Fees and Expenses......................................... 20,000
Transfer Agent and Registrar Fees.................................. 10,000
Accounting Fees and Expenses....................................... 140,000
Legal Fees and Expenses............................................ 275,000
Printing and Mailing Expenses...................................... 100,000
Director and Officer Liability Insurance........................... 140,000
Miscellaneous...................................................... 414
--------
Total............................................................ $758,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article EIGHTH of the Registrant's Amended and Restated Certificate of
Incorporation (the "Restated Certificate of Incorporation") provides that no
director of the Registrant shall be personally liable for any monetary damages
for any breach of fiduciary duty as a director, except to the extent that the
Delaware General Corporation Law prohibits the elimination or limitation of
liability of directors for breach of fiduciary duty.
Article NINTH of the Registrant's Restated Certificate of Incorporation
provides that a director or officer of the Registrant (a) shall be indemnified
by the Registrant against all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement incurred in connection with any
litigation or other legal proceeding (other than an action by or in the right
of the Registrant) brought against him by virtue of his position as a director
or officer of the Registrant if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Registrant, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful and (b) shall be
indemnified by the Registrant against all expenses (including attorneys' fees)
and amounts paid in settlement incurred in connection with any action by or in
the right of the Registrant brought against him by virtue of his position as a
director or officer of the Registrant if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests
of the Registrant, except that no indemnification shall be made with respect
to any matter as to which such person shall have been adjudged to be liable to
the Registrant, unless a court determines that, despite such adjudication but
in view of all of the circumstances, he is entitled to indemnification of such
expenses. Notwithstanding the foregoing, to the extent that a director or
officer has been successful, on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, he is required to be
indemnified by the Registrant against all expenses (including attorneys' fees)
incurred in connection therewith. Expenses shall be advanced to a director or
officer at his request, provided that he undertakes to repay the amount
advanced if it is ultimately determined that he is not entitled to
indemnification for such expenses.
Indemnification is required to be made unless the Registrant determines that
the applicable standard of conduct required for indemnification has not been
met. In the event of a determination by the Registrant that the director or
officer did not meet the applicable standard of conduct required for
indemnification, or if the Registrant fails to make an indemnification payment
within 60 days after such payment is claimed by such person, such person is
permitted to petition the court to make an independent determination as to
whether such
II-1
<PAGE>
person is entitled to indemnification. As a condition precedent to the right
of indemnification, the director or officer must give the Registrant notice of
the action for which indemnity is sought and the Registrant has the right to
participate in such action or assume the defense thereof.
Article NINTH of the Registrant's Restated Certificate of Incorporation
further provides that the indemnification provided therein is not exclusive,
and provides that in the event that the Delaware General Corporation Law is
amended to expand the indemnification permitted to directors or officers the
Registrant must indemnify those persons to the fullest extent permitted by
such law as so amended.
Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee or agent
of the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred
in connection with an action or proceeding to which he is or is threatened to
be made a party by reason of such position, if such person shall have acted in
good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, in any criminal proceeding, if
such person had no reasonable cause to believe his conduct was unlawful;
provided that, in the case of actions brought by or in the right of the
corporation, no indemnification shall be made with respect to any matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the adjudicating court determines that such
indemnification is proper under the circumstances.
Under Section 9 of the Underwriting Agreement, the Underwriters are
obligated, under certain circumstances, to indemnify directors and officers of
the Registrant against certain liabilities, including liabilities under the
Securities Act. Reference is made to the form of Underwriting Agreement filed
as Exhibit 1 hereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In connection with a financing in November 1993, the Registrant issued a
warrant to Triumph-Connecticut Limited Partnership ("Triumph") giving Triumph
the right to purchase 1,166,660 shares of the Registrant's Common Stock,
subject to certain repurchase rights held by the Registrant, at an exercise
price of $0.01 per share.
In connection with the merger with Mountain People's in February 1996, the
Registrant issued 3,213,100 shares of its Common Stock to the Funk Family 1992
Revocable Living Trust in exchange for all of the outstanding stock of
Mountain People's.
In July 1996, the Registrant issued stock options for an aggregate of
638,000 shares of its Common Stock under the 1996 Option Plan. Options for an
aggregate of 324,500 shares are exercisable at a price of $6.38 per share,
options for 82,500 shares are exercisable at a price of $10.60 per share and
the remaining options are exercisable at a price of $9.64 per share.
No underwriters were engaged in connection with any of the foregoing
issuances of securities. The securities issued in the above transactions were
offered and sold in reliance upon the exemptions from registration under
Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"),
or Rule 701 promulgated under the Securities Act, relative to sales by an
issuer not involving any public offering. The Registrant has not issued any
other securities within the past three years.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1* Form of Underwriting Agreement.
3.1* Certificate of Incorporation of the Registrant, as amended.
3.2 Amended and Restated Certificate of Incorporation of the Registrant,
to be filed upon closing of this offering.
3.3* By-Laws of the Registrant.
3.4** Amended and Restated By-Laws of the Registrant, to be effective upon
the closing of this offering.
4 Specimen Certificate for shares of Common Stock, $.01 par value, of
the Registrant.
5** Opinion of Hale and Dorr with respect to the validity of the
securities being offered.
10.1* Employee Stock Ownership Plan, as amended.
10.2* Employee Stock Ownership Trust, as amended.
10.3* ESOT Loan Agreement among Norman A. Cloutier, Steven H. Townsend,
Daniel V. Atwood, Theodore Cloutier and the Employee Stock Ownership
Plan and Trust, dated November 1, 1988, as amended.
10.4* Stock Pledge Agreement between the Employee Stock Ownership Trust and
Steven H. Townsend, Trustee for Norman A. Cloutier, Steven H.
Townsend, Daniel V. Atwood and Theodore Cloutier, dated November 1,
1988, as amended.
10.5* Trust Agreement between Norman A. Cloutier, Steven H. Townsend, Daniel
V. Atwood, Theodore Cloutier and Steven H. Townsend as Trustee, dated
November 1, 1988.
10.6* Guaranty Agreement between the Registrant and Steven H. Townsend as
Trustee for Norman A. Cloutier, Steven H. Townsend, Daniel V. Atwood
and Theodore Cloutier, dated November 1, 1988.
10.7 1996 Stock Option Plan.
10.8* Stock Acquisition Agreement and Plan of Merger among the Registrant,
MPW Acquisition Corporation, Michael S. Funk and Judith A. Funk,
individually and as trustees of the Funk Family 1992 Revocable Living
Trust, and Mountain People's Warehouse Incorporated ("Mountain
People's"), dated December 8, 1995.
10.9* Asset Purchase Agreement between the Registrant and PREM MARK, Inc.,
d/b/a Rainbow Natural Foods Distributing ("Rainbow"), dated July 27,
1995.
10.10 Stock Purchase Agreement, dated May 22, 1995, between Mountain
People's and Nutrasource, Inc. ("Nutrasource")
10.11* Note and Warrant Purchase Agreement between the Registrant and
Triumph--Connecticut Limited Partnership ("Triumph"), dated November
17, 1993.
10.12* Senior Note, dated November 17, 1993, between the Registrant and
Triumph.
10.13* Registration Rights Agreement between the Registrant and Triumph,
dated November 17, 1993.
10.14* Employment Agreement between the Registrant, Mountain People's and
Michael S. Funk, dated February 20, 1996.
10.15* Non-competition Agreement between the Registrant and Norman A.
Cloutier, dated November 16, 1993.
10.16* Amended and Restated Loan and Security Agreement among the Registrant,
Mountain People's, Natural Retail Group, Inc., Rainbow, Nutrasource,
Inc. and Fleet Capital Corporation, dated February 20, 1996.
10.17* Purchase and Sale Agreement between the Registrant and O.M. Killingly
Investment Company, dated March 31, 1995.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.18* Real Estate Term Note between the Registrant and Shawmut Capital
Corporation (now Fleet Capital Corporation), dated September 8, 1995.
10.19* Distribution Agreement between Mountain People's Wine Distributing,
Inc., and Mountain People's, dated August 23, 1994.
10.20* Secured Promissory Note between Michael S. Funk and Mountain People's,
dated November 28, 1995.
10.21 Lease, dated January 21, 1992, between Panattoni-Catlin Joint Venture
and Souza Revocable Trust and Mountain People's, as amended.
10.22 Lease, dated July 29, 1995, between Prem Mark, Inc. and the
Registrant.
10.23 Lease, dated July 12, 1990, between the Registrant and Sylvan and
Stanford Makover Joint Venture, as amended.
10.24 Lease, dated August 23, 1989, between the Registrant and Bradley Spear
and Seattle First National Bank, co-executors of the estate of A.H.
Spear.
10.25 1996 Employee Stock Purchase Plan.
11 Computation of Earnings Per Share.
21* Subsidiaries of the Registrant.
23.1 Consent of Hale and Dorr (included in Exhibit 5).
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Arthur Andersen LLP.
24* Power of Attorney (included on page II-6).
27* Financial Data Schedule.
99* Consent of Thomas B. Simone.
</TABLE>
- --------
* Previously filed.
** To be filed by amendment.
(B) FINANCIAL STATEMENT SCHEDULES
Schedule II--Valuation and Qualifying Accounts
All other schedules have been omitted because they are not required or
because the required information is given in the Consolidated Financial
Statements or Notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions contained in the Amended and Restated
Certificate of Incorporation and Amended and Restated By-laws of the
Registrant and the laws of the State of Delaware, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
II-4
<PAGE>
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 1 to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Dayville, State of Connecticut, on this 9th day of October, 1996.
UNITED NATURAL FOODS, INC.
By
/s/ Norman A. Cloutier
-----------------------------------
NORMAN A. CLOUTIER
CHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Norman A. Cloutier Chairman of the October 9, 1996
- ------------------------------------- Board and Chief
NORMAN A. CLOUTIER Executive Officer
(Principal
Executive Officer)
* Vice Chairman of the October 9, 1996
- ------------------------------------- Board and President
MICHAEL S. FUNK
* Chief Financial
- ------------------------------------- Officer, Treasurer October 9, 1996
STEVEN H. TOWNSEND and Director
(Principal
Financial and
Accounting Officer)
* Director October 9, 1996
- -------------------------------------
DANIEL V. ATWOOD
* Director October 9, 1996
- -------------------------------------
ANDREA R. HENDRICKS
* Director October 9, 1996
- -------------------------------------
KEVIN T. MICHEL
* Director October 9, 1996
- -------------------------------------
RICHARD J. WILLIAMS
*By: /s/ Norman A. Cloutier
----------------------------------
NORMAN A. CLOUTIER
ATTORNEY-IN-FACT
II-6
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
----------------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COST AND OTHER END
Bad Debt Allowance OF PERIOD EXPENSES ACCOUNTS (1) DEDUCTIONS OF PERIOD
DESCRIPTION ---------- ---------- ------------ ---------- ----------
-----------
<S> <C> <C> <C> <C> <C>
Nine months ended July 31, 1996.... $1,274,602 $646,828 -- $643,675 $1,277,755
Year ended October 31, 1995........ 574,664 762,764 $83,010 145,836 1,274,602
Year ended October 31, 1994........ 830,049 148,724 -- 404,109 574,664
</TABLE>
(1) Represents the beginning bad debt allowance for Nutrasource, Inc. and Prem
Mark, Inc.
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
1* Form of Underwriting Agreement.
3.1* Certificate of Incorporation of the Registrant, as amended.
3.2 Amended and Restated Certificate of Incorporation of the
Registrant, to be filed upon closing of this offering.
3.3* By-Laws of the Registrant.
3.4** Amended and Restated By-Laws of the Registrant, to be effective
upon the closing of this offering.
4 Specimen Certificate for shares of Common Stock, $.01 par
value, of the Registrant.
5** Opinion of Hale and Dorr with respect to the validity of the
securities being offered.
10.1* Employee Stock Ownership Plan, as amended.
10.2* Employee Stock Ownership Trust, as amended.
10.3* ESOT Loan Agreement among Norman A. Cloutier, Steven H.
Townsend, Daniel V. Atwood, Theodore Cloutier and the Employee
Stock Ownership Plan and Trust, dated November 1, 1988, as
amended.
10.4* Stock Pledge Agreement between the Employee Stock Ownership
Trust and Steven H. Townsend, Trustee for Norman A. Cloutier,
Steven H. Townsend, Daniel V. Atwood and Theodore Cloutier,
dated November 1, 1988, as amended.
10.5* Trust Agreement between Norman A. Cloutier, Steven H. Townsend,
Daniel V. Atwood, Theodore Cloutier and Steven H. Townsend as
Trustee, dated November 1, 1988.
10.6* Guaranty Agreement between the Registrant and Steven H.
Townsend as Trustee for Norman A. Cloutier, Steven H. Townsend,
Daniel V. Atwood and Theodore Cloutier, dated November 1, 1988.
10.7 1996 Stock Option Plan.
10.8* Stock Acquisition Agreement and Plan of Merger among the
Registrant, MPW Acquisition Corporation, Michael S. Funk and
Judith A. Funk, individually and as trustees of the Funk Family
1992 Revocable Living Trust, and Mountain People's Warehouse
Incorporated ("Mountain People's"), dated December 8, 1995.
10.9* Asset Purchase Agreement between the Registrant and PREM MARK,
Inc., d/b/a Rainbow Natural Foods Distributing ("Rainbow"),
dated July 27, 1995.
10.10 Stock Purchase Agreement, dated May 22, 1995, between Mountain
People's and Nutrasource, Inc. ("Nutrasource")
10.11* Note and Warrant Purchase Agreement between the Registrant and
Triumph--Connecticut Limited Partnership ("Triumph"), dated
November 17, 1993.
10.12* Senior Note, dated November 17, 1993, between the Registrant
and Triumph.
10.13* Registration Rights Agreement between the Registrant and
Triumph, dated November 17, 1993.
10.14* Employment Agreement between the Registrant, Mountain People's
and Michael S. Funk, dated February 20, 1996.
10.15* Non-competition Agreement between the Registrant and Norman A.
Cloutier, dated November 16, 1993.
10.16* Amended and Restated Loan and Security Agreement among the
Registrant, Mountain People's, Natural Retail Group, Inc.,
Rainbow, Nutrasource, Inc. and Fleet Capital Corporation, dated
February 20, 1996.
10.17* Purchase and Sale Agreement between the Registrant and O.M.
Killingly Investment Company, dated March 31, 1995.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
10.18* Real Estate Term Note between the Registrant and Shawmut
Capital Corporation (now Fleet Capital Corporation), dated
September 8, 1995.
10.19* Distribution Agreement between Mountain People's Wine
Distributing, Inc., and Mountain People's, dated August 23,
1994.
10.20* Secured Promissory Note between Michael S. Funk and Mountain
People's, dated November 28, 1995.
10.21 Lease, dated January 21, 1992, between Panattoni-Catlin Joint
Venture and Souza Revocable Trust and Mountain People's, as
amended.
10.22 Lease, dated July 29, 1995, between Prem Mark, Inc. and the
Registrant.
10.23 Lease, dated July 12, 1990, between the Registrant and Sylvan
and Stanford Makover Joint Venture, as amended.
10.24 Lease, dated August 23, 1989, between the Registrant and
Bradley Spear and Seattle First National Bank, co-executors of
the estate of A.H. Spear.
10.25 1996 Employee Stock Purchase Plan.
11 Computation of Earnings Per Share.
21* Subsidiaries of the Registrant.
23.1 Consent of Hale and Dorr (included in Exhibit 5).
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Arthur Andersen LLP.
24* Power of Attorney (included on page II-6).
27* Financial Data Schedule.
99* Consent of Thomas B. Simone.
</TABLE>
- --------
* Previously filed.
** To be filed by amendment.
<PAGE>
Exhibit 3.2
------- ---
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
UNITED NATURAL FOODS, INC.
United Natural Foods, Inc., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify as follows:
1. The Corporation filed its original Certificate of Incorporation under
the name "Cornucopia Natural Foods, Inc." with the Secretary of State of
Delaware on February 11, 1994, which Certificate of Incorporation was amended by
a Certificate of Merger filed on November 1, 1994, a Certificate of Amendment of
Certificate of Incorporation filed on February 20, 1996, and a Second
Certificate of Amendment of Certificate of Incorporation filed on September 3,
1996.
2. The Board of Directors of the Corporation, at a meeting of the Board
of Directors held on October __, 1996, duly adopted resolutions, pursuant to
Sections 242 and 245 of the General Corporation Law of the State of Delaware,
setting forth an Amended and Restated Certificate of Incorporation of the
Corporation and declaring said Amended and Restated Certificate of Incorporation
advisable. The stockholders of the Corporation duly approved said proposed
Amended and Restated Certificate of Incorporation by written consent in
accordance with Sections 228, 242 and 245 of the General Corporation Law of the
State of Delaware, and written notice of such consent has been given to all
stockholders who have not consented in writing
<PAGE>
of such consent has been given to all stockholders who have not consented in
writing to said amendment and restatement. The resolution setting forth the
Amended and Restated Certificate of Incorporation is as follows:
RESOLVED: That the Certificate of Incorporation of the Corporation, as
- --------
amended, be and hereby is amended and restated in its entirety so that the same
shall read as follows:
FIRST. The name of the Corporation is:
United Natural Foods, Inc.
SECOND. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD. The nature of the business or purposes to be conducted or
promoted by the Corporation is as follows:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is (i) Twenty-Five Million
(25,000,000) shares of Common Stock, $.01 par value per share ("Common Stock"),
and (ii) Five Million (5,000,000) shares of Preferred Stock, $.01 par value per
share ("Preferred Stock"), which may be issued from time to time in one or more
series as set forth in Part B of this Article FOURTH.
The following is a statement of the designations and the powers, privileges
and rights, and the qualifications, limitations or restrictions thereof in
respect of each class of capital stock of the Corporation.
A. COMMON STOCK.
------------
1. General. The voting, dividend and liquidation rights of the holders
-------
of the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
2. Voting. The holders of the Common Stock are entitled to one vote for
------
each share held at all meetings of stockholders. There shall be no cumulative
voting.
-2-
<PAGE>
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of Delaware.
3. Dividends. Dividends may be declared and paid on the Common Stock
---------
from funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. Liquidation. Upon the dissolution or liquidation of the Corporation,
-----------
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
B. PREFERRED STOCK.
---------------
Preferred Stock may be issued from time to time in one or more series, each
of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the Corporation as hereinafter provided. Any shares of
Preferred Stock which may be redeemed, purchased or acquired by the Corporation
may be reissued except as otherwise provided by law. Different series of
Preferred Stock shall not be construed to constitute different classes of shares
for the purposes of voting by classes unless expressly provided.
Authority is hereby expressly granted to the Board of Directors from time
to time to issue the Preferred Stock in one or more series, and in connection
with the creation of any such series, by resolution or resolutions providing for
the issue of the shares thereof, to determine and fix such voting powers, full
or limited, or no voting powers, and such designations, preferences and relative
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, including without limitation thereof, dividend rights,
conversion rights, redemption privileges and liquidation preferences, as shall
be stated and expressed in such resolutions, all to the full extent now or
hereafter permitted by the General Corporation Law of Delaware. Without limiting
the generality of the foregoing, the resolutions providing for issuance of any
series of Preferred Stock may provide that such series shall be superior or rank
equally or be junior to the Preferred Stock of any other series to the extent
permitted by law. Except as otherwise specifically provided in this Certificate
of Incorporation, no vote of the holders of the Preferred Stock or Common Stock
shall be a prerequisite to the issuance of any shares of any series of the
Preferred Stock authorized by and complying with the conditions of the
Certificate of Incorporation, the right to have such vote being expressly waived
by all present and future holders
-3-
<PAGE>
of the capital stock of the Corporation.
FIFTH. The Corporation shall have a perpetual existence.
SIXTH. In furtherance of and not in limitation of powers conferred by
statute, it is further provided that the Board of Directors is expressly
authorized to adopt, amend or repeal the By-Laws of the Corporation.
SEVENTH. Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any promise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of this corporation, as the case
may be, and also on this corporation.
EIGHTH. Except to the extent that the General Corporation Law of the
State of Delaware prohibits the elimination or limitation of liability of
directors for breaches of fiduciary duty, no director of the Corporation shall
be personally liable to the Corporation or its stockholders for monetary damages
for any breach of fiduciary duty as a director, notwithstanding any provision of
law imposing such liability. No amendment to or repeal of this provision shall
apply to or have any effect on the liability or alleged liability of any
director of the Corporation for or with respect to any acts or omissions of such
director occurring prior to such amendment.
NINTH. 1. Action, Suits and Proceedings Other than by or in the Right
-----------------------------------------------------------
of the Corporation. The Corporation shall indemnify each person who was or is a
- ------------------
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation), by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint
-4-
<PAGE>
venture, trust or other enterprise (including any employee benefit plan) (all
such persons being referred to hereafter as an "Indemnitee"), or by reason of
any action alleged to have been taken or omitted in such capacity, against all
expenses (including attorneys' fees) judgment, fines and amounts paid in
settlement actually and reasonably incurred by him or on his behalf in
connection with such action, suit or proceeding and any appeal therefrom, if he
acted in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction or upon a plea of nolo contendere or its
---------------
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in, or not
opposed to, the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful. Notwithstanding anything to the contrary in this Article, except
as set forth in Section 7 below, the Corporation shall not indemnify an
Indemnitee seeking indemnification in connection with a proceeding (or part
thereof) initiated by the Indemnitee unless the initiation thereof was approved
by the Board of Directors of the Corporation. Notwithstanding anything to the
contrary in this Article, the Corporation shall not indemnify an Indemnitee to
the extent such Indemnitee is reimbursed from the proceeds of insurance, and in
the event the Corporation makes any indemnification payments to an Indemnitee
and such Indemnitee is subsequently reimbursed from the proceeds of insurance,
such Indemnitee shall promptly refund such indemnification payments to the
Corporation to the extent of such insurance reimbursement.
2. Actions or Suits by or in the Right of the Corporation. The
------------------------------------------------------
Corporation shall indemnify any Indemnitee who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan), or by reason of any
action alleged to have been taken or omitted in such capacity, against all
expenses (including attorneys' fees) and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such action, suit
or proceeding and any appeal therefrom, if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the Corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery of Delaware shall determine upon application that, despite the
adjudication of such liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
(including attorneys' fees) which the Court of Chancery of
-5-
<PAGE>
Delaware shall deem proper.
3. Indemnification for Expenses of Successful Party. Notwithstanding the
------------------------------------------------
other provisions of this Article, to the extent that an Indemnitee has been
successful, on the merits or otherwise, in defense of any action, suit or
proceeding referred to in Sections 1 and 2 of this Article, or in defense of any
claim, issue or matter therein, or on appeal from any such action, suit or
proceeding, he shall be indemnified against all expenses (including attorneys'
fees) actually and reasonably incurred by him or on his behalf in connection
therewith. Without limiting the foregoing, if any action, suit or proceeding is
disposed of, on the merits or otherwise (including a disposition without
prejudice), without (i) the disposition being adverse to the Indemnitee, (ii) an
adjudication that the Indemnitee was liable to the Corporation, (iii) a plea of
guilty or nolo contendere by the Indemnitee, (iv) an adjudication that the
---------------
Indemnitee did not act in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and (v) with
respect to any criminal proceeding, an adjudication that the Indemnitee had
reasonable cause to believe his conduct was unlawful, the Indemnitee shall be
considered for the purposes hereof to have been wholly successful with respect
thereto.
4. Notification and Defense of Claim. As a condition precedent to his
---------------------------------
right to be indemnified, the Indemnitee must notify the Corporation in writing
as soon as practicable of any action, suit, proceeding or investigation
involving him for which indemnity will or could be sought. With respect to any
action, suit, proceeding or investigation of which the Corporation is so
notified, the Corporation will be entitled to participate therein at its own
expense and/or to assume the defense thereof at its own expense, with legal
counsel reasonably acceptable to the Indemnitee. After notice from the
Corporation to the Indemnitee of its election so to assume such defense, the
Corporation shall not be liable to the Indemnitee for any legal or other
expenses subsequently incurred by the Indemnitee in connection with such claim,
other than as provided below in this Section 4. The Indemnitee shall have the
right to employ his own counsel in connection with such claim, but the fees and
expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of the Indemnitee
unless (i) the employment of counsel by the Indemnitee has been authorized by
the Corporation, (ii) counsel to the Indemnitee shall have reasonably concluded
that there may be a conflict of interest or position on any significant issue
between the Corporation and the Indemnitee in the conduct of the defense of such
action or (iii) the Corporation shall not in fact have employed counsel to
assume the defense of such action, in each of which cases the fees and expenses
of counsel for the Indemnitee shall be at the expense of the Corporation, except
as otherwise expressly provided by this Article. The Corporation shall not be
entitled, without the consent of the Indemnitee, to assume the defense of any
claim brought by or in the right of the Corporation or as to which counsel for
the Indemnitee shall have reasonably made the conclusion provided for in clause
(ii) above.
-6-
<PAGE>
5. Advance of Expenses. Subject to the provisions of Section 6 below, in
-------------------
the event that the Corporation does not assume the defense pursuant to Section 4
of this Article of any action, suit, proceeding or investigation of which the
Corporation receives notice under this Article, any reasonable expenses
(including reasonable attorneys' fees) incurred by an Indemnitee in defending a
civil or criminal action, suit, proceeding or investigation or any appeal
therefrom shall be paid by the Corporation in advance of the final disposition
of such matter; provided, however, that the payment of such expense incurred by
-------- -------
an Indemnitee in advance of the final disposition of such matter shall be made
only upon receipt of an undertaking by or on behalf of the Indemnitee to repay
all amounts so advanced in the event that it shall ultimately be determined that
the Indemnitee is not entitled to be indemnified by the Corporation as
authorized in this Article. Such undertaking shall be accepted without
reference to the financial ability of the Indemnitee to make such repayment.
6. Procedure for Indemnification. In order to obtain indemnification or
-----------------------------
advancement of expenses pursuant to Section 1, 2, 3 or 5 of this Article, the
Indemnitee shall submit to the Corporation a written request, including in such
request such documentation and information as is reasonably available to the
Indemnitee and is reasonably necessary to determine whether and to what extent
the Indemnitee is entitled to indemnification or advancement of expenses. Any
such indemnification or advancement of expenses shall be made promptly, and in
any event within 60 days after receipt by the Corporation of the written request
of the Indemnitee, unless with respect to requests under Section 1, 2 or 5 the
Corporation determines within such 60-day period that the Indemnitee did not
meet the applicable standard of conduct set forth in Section 1 or 2, as the case
may be. Such determination shall be made in each instance by (a) a majority
vote of the directors of the Corporation consisting of persons who are not at
that time parties to the action, suit or proceeding in question ("disinterested
directors"), even though less than a quorum, (b) a majority vote of a quorum of
the outstanding shares of stock of all classes entitled to vote for directors,
voting as a single class, which quorum shall consist of stockholders who are not
at that time parties to the action, suit or proceeding in question, (c)
independent legal counsel (who may be regular legal counsel to the Corporation),
or (d) a court of competent jurisdiction.
7. Remedies. The right to indemnification or advances as granted by this
--------
Article shall be enforceable by the Indemnitee in any court of competent
jurisdiction if the Corporation denies such request, in whole or in part, or if
no disposition thereof is made within the 60-day period referred to above in
Section 6. Unless otherwise provided by law, the burden of proving that the
Indemnitee is not entitled to indemnification or advancement of expenses under
this Article shall be on the Corporation. Neither the failure of the
Corporation to have made a determination prior to the commencement of such
action that indemnification is proper in the circumstances because the
Indemnitee has met the applicable standard of conduct, nor an actual
determination by the Corporation pursuant to Section 6 that the Indemnitee has
not met such applicable standard of conduct, shall be a defense to the
-7-
<PAGE>
action or create a presumption that the Indemnitee has not met the applicable
standard of conduct. The Indemnitee's reasonable expenses (including reasonable
attorneys' fees) incurred in connection with successfully establishing his right
to indemnification, in whole or in part, in any such proceeding shall also be
indemnified by the Corporation.
8. Subsequent Amendment. No amendment, termination or repeal of this
--------------------
Article or of the relevant provisions of the General Corporation Law of Delaware
or any other applicable laws shall affect or diminish in any way the rights of
any Indemnitee to indemnification under the provisions hereof with respect to
any action, suit, proceeding or investigation arising out of or relating to any
actions, transactions or facts occurring prior to the final adoption of such
amendment, termination or repeal.
9. Other Rights. The indemnification and advancement of expenses
------------
provided by this Article shall not be deemed exclusive of any other rights to
which an Indemnitee seeking indemnification or advancement of expenses may be
entitled under any law (common or statutory), agreement or vote of stockholders
or disinterested directors or otherwise, both as to action in his official
capacity and as to action in any other capacity while holding office for the
Corporation, and shall continue as to an Indemnitee who has ceased to be a
director or officer, and shall inure to the benefit of the estate, heirs,
executors and administrators of the Indemnitee. Nothing contained in this
Article shall be deemed to prohibit, and the Corporation is specifically
authorized to enter into, agreements with officers and directors providing
indemnification rights and procedures different from those set forth in this
Article. In addition, the Corporation may, to the extent authorized from time
to time by its Board of Directors, grant indemnification rights to other
employees or agents of the Corporation or other persons serving the Corporation
and such rights may be equivalent to, or greater or less than, those set forth
in this Article.
10. Partial Indemnification. If an Indemnitee is entitled under any
-----------------------
provision of this Article to indemnification by the Corporation for some or a
portion of the expenses (including attorneys' fees), judgments, fines or amounts
paid in settlement actually and reasonably incurred by him or on his behalf in
connection with any action, suit, proceeding or investigation and any appeal,
therefrom but not, however, for the total amount thereof, the Corporation shall
nevertheless indemnify the Indemnitee for the portion of such expenses
(including attorneys' fees), judgments, fines or amounts paid in settlement to
which the Indemnitee is entitled.
11. Insurance. The Corporation may purchase and maintain insurance, at
---------
its expense, to protect itself and any director, officer, employee or agent of
the Corporation or another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan) against any expense,
liability or loss incurred by him in any such capacity, or arising out of his
status as such, whether or
-8-
<PAGE>
not the Corporation would have the power to indemnify such person against such
expense, liability or loss under the General Corporation law of Delaware.
12. Merger or Consolidation. If the Corporation is merged into or
-----------------------
consolidated with another corporation and the Corporation is not the surviving
corporation, the surviving corporation shall assume the obligations of the
Corporation under this Article with respect to any action, suit, proceeding or
investigation arising out of or relating to any actions, transactions or facts
occurring prior to the date of such merger or consolidation.
13. Savings Clause. If this Article or any portion hereof shall be
--------------
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Indemnitee as to any expenses
(including attorneys' fees) judgments, fines and amounts paid in settlement in
connection with any action, suit, proceeding or investigation, whether civil,
criminal or administrative, including an action by or in the right of the
Corporation, to the fullest extent permitted by any applicable portion of this
Article that shall not have been invalidated and to the fullest extent permitted
by applicable law.
14. Definitions. Terms used herein and defined in Section 145(h) and
-----------
Section 145(i) of the General Corporation Law of Delaware shall have the
respective meanings assigned to such terms in such Section 145(h) and Section
145(i).
15. Subsequent Legislation. If the General Corporation Law of Delaware is
----------------------
amended after adoption of this Article to expand further the indemnification
permitted to Indemnitees, then the Corporation shall indemnify such persons to
the fullest extent permitted by the General Corporation Law of Delaware, as so
amended.
TENTH. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute and this Certificate of
Incorporation, and all rights conferred upon stockholders herein are granted
subject to this reservation.
ELEVENTH. This Article is inserted for the management of the business and
for the conduct of the affairs of the Corporation.
1. Number of Directors. The number of directors of the Corporation shall
-------------------
not be less than three. The exact number of directors within the limitations
specified in the preceding sentence shall be fixed from time to time by, or in
the manner provided in, the Corporation's By-Laws.
2. Classes of Directors. The Board of Directors shall be and is divided
--------------------
into three classes: Class I, Class II and Class III. No one class shall have
more than one director more than any other class. If a fraction is contained in
the quotient arrived at by dividing the designated number of directors by three,
then, if such fraction is
-9-
<PAGE>
one-third, the extra director shall be a member of Class I, and if such fraction
is two-thirds, one of the extra directors shall be a member of Class I and one
of the extra directors shall be a member of Class II, unless otherwise provided
from time to time by resolution adopted by the Board of Directors.
3. Election of Directors. Elections of directors need not be by written
---------------------
ballot except as and to the extent provided in the By-Laws of the Corporation.
4. Terms of Office. Each director shall serve for a term ending on the
---------------
date of the third annual meeting following the annual meeting at which such
director was elected; provided, that each initial director in Class I shall
--------
serve for a term ending on the date of the annual meeting in 1997; each initial
director in Class II shall serve for a term ending on the date of the annual
meeting in 1998; and each initial director in Class III shall serve for a term
ending on the date of the annual meeting in 1999; and provided further, that the
----------------
term of each director shall be subject to the election and qualification of his
successor and to his earlier death, resignation or removal.
5. Allocation of Directors Among Classes in the Event of Increases or
------------------------------------------------------------------
Decreases in the Number of Directors. In the event of any increase or decrease
- ------------------------------------
in the authorized number of directors, (i) each director then serving as such
shall nevertheless continue as a director of the class of which he is a member
and (ii) the newly created or eliminated directorships resulting from such
increase or decrease shall be apportioned by the Board of Directors among the
three classes of directors so as to ensure that no one class has more than one
director more than any other class. To the extent possible, consistent with the
foregoing rule, any newly created directorships shall be added to those classes
whose terms of office are to expire at the latest dates following such
allocation, and any newly eliminated directorships shall be subtracted from
those classes whose terms of offices are to expire at the earliest dates
following such allocation, unless otherwise provided from time to time by
resolution adopted by the Board of Directors.
6. Quorum; Action at Meeting. A majority of the directors at any time in
-------------------------
office shall constitute a quorum for the transaction of business. In the event
one or more of the directors shall be disqualified to vote at any meeting, then
the required quorum shall be reduced by one for each director so disqualified,
provided that in no case shall less than one-third of the number of directors
fixed pursuant to Section 1 above constitute a quorum. If at any meeting of the
Board of Directors there shall be less than such a quorum, a majority of those
present may adjourn the meeting from time to time. Every act or decision done
or made by a majority of the directors present at a meeting duly held at which a
quorum is present shall be regarded as the act of the Board of Directors unless
a greater number is required by law, by the By-Laws of the Corporation or by
this Certificate of Incorporation.
7. Removal. Directors of the Corporation may be removed only for cause
-------
by the affirmative vote of the holders of at least two-thirds of the shares of
the capital
-10-
<PAGE>
stock of the Corporation issued and outstanding and entitled to vote.
8. Vacancies. Any vacancy in the Board of Directors, however occurring,
---------
including a vacancy resulting from an enlargement of the board, shall be filled
only by a vote of a majority of the directors then in office, although less than
a quorum, or by a sole remaining director. A director elected to fill a vacancy
shall be elected to hold office until the next election of the class for which
such director shall have been chosen, subject to the election and qualification
of his successor and to his earlier death, resignation or removal.
9. Stockholder Nominations and Introduction of Business, Etc. Advance
----------------------------------------------------------
notice of stockholder nominations for election of directors and other business
to be brought by stockholders before a meeting of stockholders shall be given in
the manner provided by the By-Laws of the Corporation.
10. Amendments to Article. Notwithstanding any other provisions of law,
---------------------
this Amended and Restated Certificate of Incorporation or the By-Laws of the
Corporation, and notwithstanding the fact that a lesser percentage may be
specified by law, the affirmative vote of the holders of at least two-thirds of
the shares of capital stock of the Corporation issued and outstanding and
entitled to vote shall be required to amend or repeal, or to adopt any provision
inconsistent with, this Article ELEVENTH.
TWELFTH. Stockholders of the Corporation may not take any action by
written consent in lieu of a meeting. Notwithstanding any other provisions of
law, this Amended and Restated Certificate of Incorporation or the By-Laws of
the Corporation, and notwithstanding the fact that a lesser percentage may be
specified by law, the affirmative vote of the holders of at least two-thirds of
the shares of capital stock of the Corporation issued and outstanding and
entitled to vote shall be required to amend or repeal, or to adopt any provision
inconsistent with, this Article TWELFTH.
THIRTEENTH. Special meetings of stockholders may be called at any time
by only the Chairman of the Board of Directors, the Chief Executive Officer (or
if there is no Chief Executive Officer, the President) or the Board of
Directors. Business transacted at any special meeting of stockholders shall be
limited to matters relating to the purpose or purposes stated in the notice of
meeting. Notwithstanding any other provisions of law, this Amended and Restated
Certificate of Incorporation or the By-Laws of the Corporation, and
notwithstanding the fact that a lesser percentage may be specified by law, the
affirmative vote of the holders of at least two-thirds of the shares of capital
stock of the Corporation issued and outstanding and entitled to vote shall be
required to amend or repeal, or to adopt any provision inconsistent with, this
Article THIRTEENTH.
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<PAGE>
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Amended and Restated Certificate of Incorporation to be
signed by its Chairman of the Board this ____ day of ___________, 1996.
UNITED NATURAL FOODS, INC.
By:________________________
Norman A. Cloutier
Chairman of the Board
-12-
<PAGE>
Exhibit 4
[LOGO APPEARS HERE]
UNITED NATURAL FOODS, INC.
NUMBER SHARES
COMMON STOCK
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CUSIP 911163 10 3
SEE REVERSE FOR CERTAIN
DEFINITIONS
This Certifies that
SPECIMEN
is the owner of
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, PAR VALUE $.01 PER
SHARE, OF UNITED NATURAL FOODS, INC. transferable only on the books of the
Corporation by the holder hereof in person or by Attorney upon surrender of this
Certificate properly endorsed. This Certificate and the shares represented
hereby are subject to the laws of the State of Delaware and to the Certificate
of Incorporation and the Bylaws of the Corporation as from time to time amended
(copies of which are on file with the Transfer Agent) to all of which the holder
by acceptance hereof assents. This Certificate is not valid unless countersigned
and registered by the Transfer Agent and Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated
/s/ Steven Townsend /s/Norman Cloutier
Chief Financial Officer Chief Executive Officer
UNITED NATURAL FOODS, INC.
Corporate Seal
Delaware 1994
COUNTERSIGNED AND REGISTERED:
TRANSFER AGENT AND REGISTRAR
CONTINENTAL STOCK TRANSFER &
TRUST COMPANY
BY /s/
AUTHORIZED SIGNATURE
<PAGE>
UNITED NATURAL FOODS, INC.
The Corporation has more than one class or series of stock authorized to be
issued. The Corporation will furnish without charge to each stockholder upon
written request a copy of the full text of the preferences, voting powers,
qualifications and special and relative rights of the shares of each class or
series of stock authorized to be issued by the Corporation as set forth in the
Certificate of Incorporation of the Corporation and amendments thereto filed
with the Secretary of State of Delaware.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of survivorship and not as tenants in
common
UNIF GIFT MIN ACT -- ______________________ Custodian ______________________
(Cust) (Minor)
under Uniform Gifts to Minors
Act ____________________________________________________
(State)
Additional abbreviations may be used though not in the above list.
FOR VALUE RECEIVED, ______________________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_________________________________________________
_________________________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________
Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________ Attorney to transfer the said
stock on the books of the within-named Corporation with full power of
substitution in the premises.
Dated ___________________________________
-2-
<PAGE>
__________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON
THE FACE OF THE CERTIFICATE, IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
By ______________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP
IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
-3-
<PAGE>
Exhibit 10.7
------------
UNITED NATURAL FOODS, INC.
1996 STOCK OPTION PLAN
AMENDED AND RESTATED
July 29, 1996
As Amended and Restated on October ___, 1996
1. Purpose.
-------
The purpose of this plan (the "Plan") is to secure for United Natural
Foods, Inc. (the "Company") and its shareholders the benefits arising from
capital stock ownership by employees, officers and directors of, and consultants
or advisors to, the Company and its parent and subsidiary corporations who are
expected to contribute to the Company's future growth and success. Except where
the context otherwise requires, the term "Company" shall include the parent and
all present and future subsidiaries of the Company as defined in Sections 424(e)
and 424(f) of the Internal Revenue Code of 1986, as amended or replaced from
time to time (the "Code"). Those provisions of the Plan which make express
reference to Section 422 shall apply only to Incentive Stock Options (as that
term is defined in the Plan).
2. Type of Options and Administration.
----------------------------------
(a) Types of Options. Options granted pursuant to the Plan may be
----------------
either incentive stock options ("Incentive Stock Options") meeting the
requirements of Section 422 of the Code or Non-Statutory Options which are not
intended to meet the requirements of Section 422 of the Code ("Non-Statutory
Options").
(b) Administration.
--------------
(i) The Plan will be administered by the Board of Directors of the
Company, whose construction and interpretation of the terms and provisions of
the Plan shall be final and conclusive. The Board of Directors may in its sole
discretion grant options to purchase shares of the Company's Common Stock
("Common Stock") and issue shares upon exercise of such options as provided in
the Plan. The Board shall have authority, subject to the express provisions of
the Plan, to construe the respective option agreements and the Plan, to
prescribe, amend and rescind rules and regulations relating to the Plan, to
determine the terms and provisions of the respective option agreements, which
need not be identical, and to make all other determinations which are, in the
judgment of the Board of Directors, necessary or
<PAGE>
desirable for the administration of the Plan. The Board of Directors may correct
any defect, supply any omission or reconcile any inconsistency in the Plan or in
any option agreement in the manner and to the extent it shall deem expedient to
carry the Plan into effect and it shall be the sole and final judge of such
expediency. No director or person acting pursuant to authority delegated by the
Board of Directors shall be liable for any action or determination under the
Plan made in good faith.
(ii) The Board of Directors may, to the full extent permitted by
or consistent with applicable laws or regulations and Section 3(b) of this Plan
delegate any or all of its powers under the Plan to a committee (the
"Committee") appointed by the Board of Directors, and if the Committee is so
appointed all references to the Board of Directors in the Plan shall mean and
relate to such Committee.
(c) Applicability of Rule 16b-3. Those provisions of the Plan which
---------------------------
make express reference to Rule 16b-3 promulgated under the Securities Exchange
Act of 1934 (the "Exchange Act"), or any successor rule ("Rule 16b-3"), or which
are required in order for certain option transactions to qualify for exemption
under Rule 16b-3, shall apply only to such persons as are required to file
reports under Section 16(a) of the Exchange Act (a "Reporting Person").
3. Eligibility. Options may be granted to persons who are, at the time of
-----------
grant, employees, officers or directors of, or consultants or advisors to, the
Company; provided, that the class of employees to whom Incentive Stock Options
--------
may be granted shall be limited to all employees of the Company. A person who
has been granted an option may, if he or she is otherwise eligible, be granted
additional options if the Board of Directors shall so determine.
4. Stock Subject to Plan.
---------------------
(a) Number of Shares. Subject to adjustment as provided in Section 15
----------------
below, the maximum number of shares of Common Stock which may be issued and sold
under the Plan is 1,375,000 shares (after giving effect to the Company's 55-for-
1 stock split, in the form of a stock dividend, effective as of September 3,
1996 (the "Split")). If an option granted under the Plan shall expire or
terminate for any reason without having been exercised in full, the unpurchased
shares subject to such option shall again be available for subsequent option
grants under the Plan. If shares issued upon exercise of an option under the
Plan are tendered to the Company in payment of the exercise price of an option
granted under the Plan, such tendered shares shall again be available for
subsequent option grants under the Plan; provided, that in no event shall such
shares be made available for issuance to Reporting Persons or pursuant to
exercise of Incentive Stock Options.
(b) Per-Person Limit. Subject to an adjustment as provided in Section
----------------
15 below, for options granted after the Common Stock is registered under the
Exchange
-2-
<PAGE>
Act, the maximum number of shares with respect to which an option may be granted
to any person under the Plan shall be 500,000 (after giving effect to the Split)
per calendar year. The per-person limit described in this Section 4(b) shall be
construed and applied consistent with Section 162(m) of the Code.
5. Forms of Option Agreements.
--------------------------
As a condition to the grant of an option under the Plan, each recipient of
an option shall execute an option agreement in such form not inconsistent with
the Plan as may be approved by the Board of Directors. Such option agreements
may differ among recipients.
6. Purchase Price.
--------------
(a) General. Subject to Section 3(b), the purchase price per share
-------
of stock deliverable upon the exercise of an option shall be determined by the
Board of Directors, provided, however, that in the case of an Incentive Stock
-------- -------
Option, the exercise price shall not be less than 100% of the fair market value
of such stock, as determined by the Board of Directors, at the time of grant of
such option, or less than 110% of such fair market value in the case of options
described in Section 11(b).
(b) Payment of Purchase Price. Options granted under the Plan may
-------------------------
provide for the payment of the exercise price by delivery of cash or a check to
the order of the Company in an amount equal to the exercise price of such
options, or, to the extent provided in the applicable option agreement, (i) by
delivery to the Company of shares of Common Stock of the Company already owned
by the optionee having a fair market value equal in amount to the exercise price
of the options being exercised or (ii) by any other means (including, without
limitation, by delivery of a promissory note of the optionee payable on such
terms as are specified by the Board of Directors) which the Board of Directors
determines are consistent with the purpose of the Plan and with applicable laws
and regulations (including, without limitation, the provisions of Regulation T
promulgated by the Federal Reserve Board). The fair market value of any shares
of the Company's Common Stock or other non-cash consideration which may be
delivered upon exercise of an option shall be determined by the Board of
Directors.
7. Option Period.
-------------
Each option and all rights thereunder shall expire on such date as shall be
set forth in the applicable option agreement, except that, in the case of an
Incentive Stock Option, such date shall not be later than ten years after the
date on which the option is granted and, in all cases, options shall be subject
to earlier termination as provided in the Plan.
-3-
<PAGE>
8. Exercise of Options.
-------------------
Each option granted under the Plan shall be exercisable either in full or
in installments at such time or times and during such period as shall be set
forth in the agreement evidencing such option, subject to the provisions of the
Plan.
9. Nontransferability of Options.
-----------------------------
Except as the Board of Directors may otherwise determine or provide in an
option grant, options shall not be assignable or transferable by the person to
whom they are granted, either voluntarily or by operation of law, except by will
or the laws of descent and distribution, and, during the life of the optionee,
shall be exercisable only by the optionee.
10. Effect of Termination of Employment or Other Relationship.
---------------------------------------------------------
Except as provided in Section 11(d) with respect to Incentive Stock
Options, and subject to the provisions of the Plan, the Board of Directors shall
determine the period of time during which an optionee may exercise an option
following (i) the termination of the optionee's employment or other relationship
with the Company or (ii) the death or disability of the optionee. Such periods
shall be set forth in the agreement evidencing such option.
11. Incentive Stock Options.
-----------------------
Options granted under the Plan which are intended to be Incentive Stock
Options shall be subject to the following additional terms and conditions:
(a) Express Designation. All Incentive Stock Options granted under
-------------------
the Plan shall, at the time of grant, be specifically designated as such in the
option agreement covering such Incentive Stock Options.
(b) 10% Shareholder. If any employee to whom an Incentive Stock
---------------
Option is to be granted under the Plan is, at the time of the grant of such
option, the owner of stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company (after taking into account the
attribution of stock ownership rules of Section 424(d) of the Code), then the
following special provisions shall be applicable to the Incentive Stock Option
granted to such individual:
(i) The purchase price per share of the Common Stock subject to such
Incentive Stock Option shall not be less than 110% of the fair market value
of one share of Common Stock at the time of grant; and
-4-
<PAGE>
(ii) the option exercise period shall not exceed five years from the
date of grant.
(c) Dollar Limitation. For so long as the Code shall so provide, options
-----------------
granted to any employee under the Plan (and any other incentive stock option
plans of the Company) which are intended to constitute Incentive Stock Options
shall not constitute Incentive Stock Options to the extent that such options, in
the aggregate, become exercisable for the first time in any one calendar year
for shares of Common Stock with an aggregate fair market value (determined as of
the respective date or dates of grant) of more than $100,000.
(d) Termination of Employment, Death or Disability. No Incentive
----------------------------------------------
Stock O may be exercised unless, at the time of such exercise, the optionee is,
and has been continuously since the date of grant of his or her option, employed
by the Company, except that:
(i) an Incentive Stock Option may be exercised within the period of
three months after the date the optionee ceases to be an employee of the
Company (or within such lesser period as may be specified in the applicable
option agreement), provided, that the agreement with respect to such option
--------
may designate a longer exercise period and that the exercise after such
three-month period shall be treated as the exercise of a non-statutory
option under the Plan;
(ii) if the optionee dies while in the employ of the Company, or within
three months after the optionee ceases to be such an employee, the
Incentive Stock Option may be exercised by the person to whom it is
transferred by will or the laws of descent and distribution within the
period of one year after the date of death (or within such lesser period as
may be specified in the applicable option agreement); and
(iii) if the optionee becomes disabled (within the meaning of Section
22(e)(3) of the Code or any successor provision thereto) while in the
employ of the Company, the Incentive Stock Option may be exercised within
the period of one year after the date the optionee ceases to be such an
employee because of such disability (or within such lesser period as may be
specified in the applicable option agreement).
For all purposes of the Plan and any option granted hereunder, "employment"
shall be defined in accordance with the provisions of Section 1.421-7(h) of the
Income Tax Regulations (or any successor regulations). Notwithstanding the
foregoing provisions, no Incentive Stock Option may be exercised after its
expiration date.
-5-
<PAGE>
12. Additional Provisions.
---------------------
(a) Additional Option Provisions. The Board of Directors may, in its sole
----------------------------
discretion, include additional provisions in option agreements covering options
granted under the Plan, including without limitation restrictions on transfer,
repurchase rights, commitments to pay cash bonuses, to make, arrange for or
guaranty loans or to transfer other property to optionees upon exercise of
options, or such other provisions as shall be determined by the Board of
Directors; provided that such additional provisions shall not be inconsistent
-------- ----
with any other term or condition of the Plan and such additional provisions
shall not cause any Incentive Stock Option granted under the Plan to fail to
qualify as an Incentive Stock Option within the meaning of Section 422 of the
Code.
(b) Acceleration, Extension, Etc. The Board of Directors may, in its sole
----------------------------
discretion, (i) accelerate the date or dates on which all or any particular
option or options granted under the Plan may be exercised or (ii) extend the
dates during which all, or any particular, option or options granted under the
Plan may be exercised.
13. General Restrictions.
--------------------
(a) Investment Representations. The Company may require any person to whom
--------------------------
an option is granted, as a condition of exercising such option, to give written
assurances in substance and form satisfactory to the Company to the effect that
such person is acquiring the Common Stock subject to the option for his or her
own account for investment and not with any present intention of selling or
otherwise distributing the same, and to such other effects as the Company deems
necessary or appropriate in order to comply with federal and applicable state
securities laws, or with covenants or representations made by the Company in
connection with any public offering of its Common Stock.
(b) Compliance With Securities Laws. Each option shall be subject to the
-------------------------------
requirement that if, at any time, counsel to the Company shall determine that
the listing, registration or qualification of the shares subject to such option
upon any securities exchange or under any state or federal law, or the consent
or approval of any governmental or regulatory body, or that the disclosure of
non-public information or the satisfaction of any other condition is necessary
as a condition of, or in connection with, the issuance or purchase of shares
thereunder, such option may not be exercised, in whole or in part, unless such
listing, registration, qualification, consent or approval, or satisfaction of
such condition shall have been effected or obtained on conditions acceptable to
the Board of Directors. Nothing herein shall be deemed to require the Company to
apply for or to obtain such listing, registration or qualification, or to
satisfy such condition.
-6-
<PAGE>
14. Rights as a Shareholder.
-----------------------
The holder of an option shall have no rights as a shareholder with respect
to any shares covered by the option (including, without limitation, any rights
to receive dividends or non-cash distributions with respect to such shares)
until the date of issue of a stock certificate to him or her for such shares. No
adjustment shall be made for dividends or other rights for which the record date
is prior to the date such stock certificate is issued.
15. Adjustment Provisions for Recapitalizations and Related Transactions.
--------------------------------------------------------------------
(a) General. If, through or as a result of any merger, consolidation, sale
-------
of all or substantially all of the assets of the Company, reorganization,
recapitalization, reclassification, stock dividend (other than the Split), stock
split, reverse stock split or other similar transaction, (i) the outstanding
shares of Common Stock are increased, decreased or exchanged for a different
number or kind of shares or other securities of the Company, or (ii) additional
shares or new or different shares or other securities of the Company or other
non-cash assets are distributed with respect to such shares of Common Stock or
other securities, an appropriate and proportionate adjustment may be made in (w)
the maximum number and kind of shares reserved for issuance under the Plan, (x)
the maximum number and kind of shares with respect to which an option may be
granted to any person per calendar year, (y) the number and kind of shares or
other securities subject to any then outstanding options under the Plan, and (z)
the price for each share subject to any then outstanding options under the Plan,
without changing the aggregate purchase price as to which such options remain
exercisable. Notwithstanding the foregoing, no adjustment shall be made pursuant
to this Section 15 if such adjustment would cause the Plan to fail to comply
with Section 422 of the Code.
(b) Board Authority to Make Adjustments. Any adjustments under this Section
-----------------------------------
15 will be made by the Board of Directors, whose determination as to what
adjustments, if any, will be made and the extent thereof will be final, binding
and conclusive. No fractional shares will be issued under the Plan on account of
any such adjustments.
16. Merger, Consolidation, Asset Sale, Liquidation, etc.
---------------------------------------------------
(a) General. Upon the occurrence of an Acquisition Event (as defined
--------
below),all outstanding options shall terminate, provided that at least 10 days
prior to the effective date of such Acquisition Event, the Board of Directors
may, in its sole discretion, either (i) if there is a surviving or acquiring
corporation, arrange, subject to consummation of the Acquisition Event, to have
that corporation or an affiliate of that corporation grant to optionees
replacement options (or assume the options of the Company) which are
proportionately equivalent to such option with respect to the number of shares
and exercise price and in the case of Incentive Stock Options satisfy, in the
determination of the Board of Directors, the requirements of Section 424(a) of
the Code, or (ii) provide that all outstanding options will become exercisable,
realizable or vested in full immediately prior to the effective date of such
Acquisition Event. An "Acquisition Event" shall mean: (a) any merger or
consolidation which results in the voting securities of the Company outstanding
immediately prior thereto representing (either by remaining outstanding or by
being converted into voting securities of the surviving or acquiring entity)
less than fifty percent of the combined voting power of the voting securities of
the Company or such surviving or acquiring entity outstanding immediately after
such merger or consolidation; (b) any sale of all or substantially all of the
assets of the Company in one or a series of related transactions; (c) the
complete liquidation of the Company; or (d) the acquisition of more than 50% of
the outstanding voting securities of the Company by a single person or entity or
group of persons and/or entities acting in concert.
-7-
<PAGE>
(b) Substitute Options. The Company may grant options under the Plan in
------------------
substitution for options held by employees of another corporation who become
employees of the Company, or a subsidiary of the Company, as the result of a
merger or consolidation of the employing corporation with the Company or a
subsidiary of the Company, or as a result of the acquisition by the Company, or
one of its subsidiaries, of property or stock of the employing corporation. The
Company may direct that substitute options be granted on such terms and
conditions as the Board of Directors considers appropriate in the circumstances.
17. No Special Employment Rights.
----------------------------
Nothing contained in the Plan or in any option shall confer upon any
optionee any right with respect to the continuation of his or her employment by
the Company or interfere in any way with the right of the Company at any time to
terminate such employment or to increase or decrease the compensation of the
optionee.
18. Other Employee Benefits.
-----------------------
Except as to plans which by their terms include such amounts as
compensation, the amount of any compensation deemed to be received by an
employee as a result of the exercise of an option or the sale of shares received
upon such exercise will not constitute compensation with respect to which any
other employee benefits of such employee are determined, including, without
limitation, benefits under any bonus, pension, profit-sharing, life insurance or
salary continuation plan, except as otherwise specifically determined by the
Board of Directors.
-8-
<PAGE>
19. Amendment of the Plan.
---------------------
(a) The Board of Directors may at any time, and from time to time, modify
or amend the Plan in any respect, except that if at any time the approval of the
shareholders of the Company is required under Section 422 of the Code or any
successor provision with respect to Incentive Stock Options, or under Rule 16b-
3, the Board of Directors may not effect such modification or amendment without
such approval.
(b) The termination or any modification or amendment of the Plan shall not,
without the consent of an optionee, affect his or her rights under an option
previously granted to him or her. With the consent of the optionee affected, the
Board of Directors may amend outstanding option agreements in a manner not
inconsistent with the Plan. The Board of Directors shall have the right to amend
or modify (i) the terms and provisions of the Plan and of any outstanding
Incentive Stock Options granted under the Plan to the extent necessary to
qualify any or all such options for such favorable federal income tax treatment
(including deferral of taxation upon exercise) as may be afforded incentive
stock options under Section 422 of the Code and (ii) the terms and provisions of
the Plan and of any outstanding option to the extent necessary to ensure the
qualification of the Plan under Rule 16b-3.
20. Withholding.
-----------
(a) The Company shall have the right to deduct from payments of any kind
otherwise due to the optionee any federal, state or local taxes of any kind
required by law to be withheld with respect to any shares issued upon exercise
of options under the Plan. Subject to the prior approval of the Company, which
may be withheld by the Company in its sole discretion, the optionee may elect to
satisfy such obligations, in whole or in part, (i) by causing the Company to
withhold shares of Common Stock otherwise issuable pursuant to the exercise of
an option or (ii) by delivering to the Company shares of Common Stock already
owned by the optionee for at lest six months. The shares so delivered or
withheld shall have a fair market value equal to such withholding obligation.
The fair market value of the shares used to satisfy such withholding obligation
shall be determined by the Company as of the date that the amount of tax to be
withheld is to be determined. An optionee who has made an election pursuant to
this Section 20(a) may only satisfy his or her withholding obligation with
shares of Common Stock which are not subject to any repurchase, forfeiture,
unfulfilled vesting or other similar requirements.
(b) Notwithstanding the foregoing, in the case of a Reporting Person, no
election to use shares for the payment of withholding taxes shall be effective
unless made in compliance
-9-
<PAGE>
with any applicable requirements of Rule 16b-3 (unless it is intended that the
transaction not qualify for exemption under Rule 16b-3).
21. Cancellation and New Grant of Options, Etc.
------------------------------------------
The Board of Directors shall have the authority to effect, at any time and
from time to time, with the consent of the affected optionees, (i) the
cancellation of any or all outstanding options under the Plan and the grant in
substitution therefor of new options under the Plan covering the same or
different numbers of shares of Common Stock and having an option exercise price
per share which may be lower or higher than the exercise price per share of the
cancelled options or (ii) the amendment of the terms of any and all outstanding
options under the Plan to provide an option exercise price per share which is
higher or lower than the then-current exercise price per share of such
outstanding options.
22. Effective Date and Duration of the Plan.
---------------------------------------
(a) Effective Date. The Plan shall become effective when adopted by the
--------------
Board of Directors, but no option granted under the Plan shall become
exercisable unless and until the Plan shall have been approved by the Company's
shareholders. If such shareholder approval is not obtained within twelve months
after the date of the Board's adoption of the Plan, options previously granted
under the Plan shall not vest and shall terminate and no options shall be
granted thereafter. Amendments to the Plan not requiring shareholder approval
shall become effective when adopted by the Board of Directors; amendments
requiring shareholder approval (as provided in Section 19) shall become
effective when adopted by the Board of Directors, but no option granted after
the date of such amendment shall become exercisable (to the extent that such
amendment to the Plan was required to enable the Company to grant such option to
a particular person) unless and until such amendment shall have been approved by
the Company's shareholders. If such shareholder approval is not obtained within
twelve months of the Board's adoption of such amendment, any options granted on
or after the date of such amendment shall terminate to the extent that such
amendment was required to enable the Company to grant such option to a
particular optionee. Subject to this limitation, options may be granted under
the Plan at any time after the effective date and before the date fixed for
termination of the Plan.
(b) Termination. Unless sooner terminated in accordance with Section 16,
-----------
the Plan shall terminate upon the close of business on the day next preceding
the tenth anniversary of the date of its adoption by the Board of Directors.
Options outstanding on such date shall continue to have force and effect in
accordance with the provisions of the instruments evidencing such options.
-10-
<PAGE>
23. Provision for Foreign Participants.
----------------------------------
The Board of Directors may, without amending the Plan, modify awards or
options granted to participants who are foreign nationals or employed outside
the United States to recognize differences in laws, rules, regulations or
customs of such foreign jurisdictions with respect to tax, securities, currency,
employee benefit or other matters.
Adopted by the Board of Directors
on July 29, 1996.
Amended and Restated by the Board of Directors
on October ____, 1996
-11-
<PAGE>
Exhibit 10.10
MOUNTAIN PEOPLES' WAREHOUSE, INC.
NUTRASOURCE, INC.
STOCK PURCHASE AGREEMENT
Dated: April 20, 1995
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
Article 1 Purchase and Sale of Shares........................................................... 1
1.1 Purchase and Sale.................................................................. 1
1.2 Purchase Price..................................................................... 2
1.3 Method of Payment.................................................................. 2
Article 2 Closing Date Financial Statements; Purchase Price Adjustments......................... 3
2.1 Closing Date Financial Statements.................................................. 3
2.2 Purchase Price Adjustment - Net Worth.............................................. 3
2.3 Purchase Price Adjustment - Inventory.............................................. 4
2.4 Physical Inventories and Review.................................................... 7
Article 3 Representations and Warranties of Company and Shareholders............................ 7
3.1 Organization, Standing and Qualification of Company................................ 7
3.2 Capitalization and Stock of Company................................................ 7
3.3 Subsidiaries....................................................................... 8
3.4 Financial Statements............................................................... 8
3.5 Tax Returns, Audits and Liabilities................................................ 10
3.6 Schedules.......................................................................... 11
(a) Real Property................................................................. 11
(b) Agreements and Contracts...................................................... 12
(c) Personal Property and Inventory............................................... 12
(d) Accounts Receivable........................................................... 13
(e) Liabilities and Accounts Payable.............................................. 14
(f) Intangible Property........................................................... 14
(g) Insurance..................................................................... 14
(h) Employment Matters............................................................ 15
(i) Claims, Investigations and Litigation......................................... 16
(j) Bank Accounts................................................................. 17
(k) Directors and Officers........................................................ 17
(l) Changed Conditions............................................................ 17
(m) Shareholder, Officer, Director Agreements..................................... 19
(n) Environmental Matters......................................................... 19
(o) Licenses and Permits.......................................................... 20
(p) Vendors, Customers and Brokers................................................ 21
3.7 Title to Assets and Condition of Assets............................................ 22
3.8 No Violation....................................................................... 22
3.9 Compliance with Law................................................................ 23
3.10 Legal Power and Authority to Enter Transaction..................................... 23
3.11 Real Property Holding Corporation.................................................. 23
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
3.12 Books and Records.................................................................. 24
3.13 Disclosure......................................................................... 24
3.14 Power of Attorney.................................................................. 24
3.15 Net Worth.......................................................................... 24
3.16 Representations and Warranties True At Closing..................................... 24
Article 4 Covenants of Company and Shareholders................................................. 25
4.1 Access and Information............................................................. 25
4.2 Business as Usual.................................................................. 25
4.3 Contract Commitments............................................................... 25
4.4 Indebtedness....................................................................... 25
4.5 Credit............................................................................. 26
4.6 Employee, Supplier, Customer Relations............................................. 26
4.7 Inventories........................................................................ 26
4.8 Condition of Assets................................................................ 26
4.9 Dividends.......................................................................... 26
4.10 Amendment of Articles of Incorporation; By-Laws.................................... 26
4.11 Acquisition, Merger, Consolidation................................................. 26
4.12 Power of Attorney.................................................................. 26
4.13 Violation of Law................................................................... 27
4.14 Advances, Loans.................................................................... 27
4.15 Taxes.............................................................................. 27
(a) Returns and Tax Responsibility.............................................. 27
(b) Indemnification............................................................. 28
(c) Allocation of Benefits...................................................... 28
(d) Audits...................................................................... 29
(e) Cooperation................................................................. 29
(f) Affidavit Regarding Real Property Holding Corporation....................... 29
4.16 Capital Expenditures............................................................... 29
4.17 Capital Dispositions............................................................... 30
4.18 Payment of Liabilities and Waiver of Claims........................................ 30
4.19 Existing Agreements................................................................ 30
4.20 Insurance.......................................................................... 30
4.21 Compensation....................................................................... 30
4.22 Banking............................................................................ 31
4.23 Accounting......................................................................... 31
4.24 Financial Information.............................................................. 31
4.25 Warranties and Representations..................................................... 31
4.26 National Cooperative Bank Line of Credit........................................... 31
4.27 Beneficial Supply Agreement........................................................ 31
4.28 Chuck LeFevre...................................................................... 32
4.29 Stock Appreciation Rights.......................................................... 32
4.30 Incorporation and Shareholders Agreement........................................... 32
4.31 Requirements of Buyer's Bank....................................................... 32
</TABLE>
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<TABLE>
<S> <C> <C>
4.32 Completion of Schedules............................................................ 32
4.33 Maintenance of Inventory........................................................... 33
Article 5 Representations, Warranties and Covenants of Buyer.................................... 33
5.1 Organization, Standing and Qualification of Buyer.................................. 33
5.2 No Violation....................................................................... 33
5.3 Legal Power and Authority to Enter Transaction..................................... 34
5.4 Financing.......................................................................... 34
5.5 Security........................................................................... 34
5.6 Representations and Warranties True At Closing..................................... 34
Article 6 Conditions Precedent to Buyer's Obligation to Close................................... 35
6.1 Accuracy of Representations and Warranties......................................... 35
6.2 Performance by Company and Shareholders............................................ 35
6.3 Documents and Certificates......................................................... 35
6.4 No Adverse Change.................................................................. 35
6.5 Action or Proceeding............................................................... 36
6.6 Company and Shareholder Corporate Approvals........................................ 36
6.7 Approval of Documentation.......................................................... 36
6.8 Shares............................................................................. 36
6.9 Third Party Consents............................................................... 36
6.10 Approval of Due Diligence Review................................................... 36
6.11 Financing.......................................................................... 37
6.12 National Cooperative Bank Line of Credit........................................... 37
6.13 Beneficial Supply Agreement........................................................ 37
6.14 Shareholder Loans.................................................................. 37
6.15 Net Worth.......................................................................... 37
Article 7 Conditions Precedent to Company's and Shareholders' Obligation to
Close.............................................................................. 38
7.1 Accuracy of Representations and Warranties......................................... 38
7.2 Performance by Buyer............................................................... 38
7.3 Documents and Certificates......................................................... 38
7.4 Buyer Corporate Approval........................................................... 38
7.5 Approval of Documentation.......................................................... 39
Article 8 Closing............................................................................... 39
8.1 Date, Time and Place............................................................... 39
8.2 Obligations of Company and Shareholders............................................ 39
8.3 Obligations of Buyer............................................................... 41
8.4 Cooperation After the Closing...................................................... 42
8.5 Extension of Closing Date.......................................................... 42
</TABLE>
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Article 9 Indemnification....................................................................... 42
9.1 Indemnification.................................................................... 43
(a) Shareholder Indemnification................................................... 43
(b) Buyer Indemnification......................................................... 44
9.2 Accounts Receivable................................................................ 46
9.3 Remedies........................................................................... 46
Article 10 Survival of Representations and Warranties........................................... 47
10.1 Survival........................................................................... 47
10.2 Specific Terms..................................................................... 47
Article 11 Confidentiality...................................................................... 47
Article 12 Covenant Not to Compete.............................................................. 47
12.1 Covenants.......................................................................... 47
12.2 Payments........................................................................... 48
12.3 Severability....................................................................... 48
Article 13 Announcements........................................................................ 49
Article 14 Transactional Expenses............................................................... 49
14.1 Expenses........................................................................... 49
14.2 Taxes.............................................................................. 49
14.3 Closing Date Financial Statements.................................................. 49
Article 15 Brokers' Fees and Other Parties' Compensation........................................ 50
15.1 No Broker.......................................................................... 50
15.2 Indemnification by Shareholders.................................................... 50
15.3 Indemnification by Buyer........................................................... 50
Article 16 Governing Law and Value.............................................................. 50
Article 17 Notices.............................................................................. 51
Article 18 Remedies............................................................................. 52
18.1 Set-Off............................................................................ 52
18.2 Specific Performance............................................................... 53
18.3 Recovery of Litigation Costs....................................................... 53
Article 19 Termination.......................................................................... 53
19.1 Company's and Shareholders' Termination Rights..................................... 53
19.2 Buyer's Termination Rights......................................................... 54
19.3 Mutual Agreement................................................................... 55
</TABLE>
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Article 20 Miscellaneous........................................................................ 55
20.1 Entire Agreement................................................................... 55
20.2 Amendment.......................................................................... 55
20.3 Nonwaiver.......................................................................... 55
20.4 Assignment......................................................................... 56
20.5 Counterparts....................................................................... 56
20.6 Affiliated Persons................................................................. 56
20.7 Number............................................................................. 56
20.8 Gender............................................................................. 56
20.9 Headings........................................................................... 56
20.10 Severability of Invalid Provisions................................................. 57
20.11 Definition of "Material"........................................................... 57
20.12 Construction....................................................................... 57
20.13 Glossary of Defined Terms.......................................................... 57
</TABLE>
EXHIBIT A Nonnegotiable Promissory Note
EXHIBIT B Security Agreement
EXHIBIT C Subordination Agreement
EXHIBIT D Affidavit Regarding Real Property Holding Corporation
EXHIBIT E Management Consulting Agreement
EXHIBIT F-1 Opinion of Counsel for Company
EXHIBIT F-2 Opinion of Counsel for Shareholders
EXHIBIT F-3 Opinion of Counsel for Buyer
EXHIBIT G-1 NutraSource Secretary's Certificate
EXHIBIT G-2 Shareholder Secretary's Certificates
EXHIBIT H Bring Down Certificate
EXHIBIT I Estoppel Certificate
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement"), made as of this 20th day
of April, 1995, by and among Mountain Peoples' Warehouse, Inc., a California
corporation ("Buyer"), NutraSource, Inc., a Washington corporation ("Company"),
Wholesale Foods Co-Op, a Washington corporation ("Wholesale Foods"); Alaska
Ventures, Inc., a Washington corporation ("Alaska Ventures"); Associated
Cooperatives, Inc., a California corporation ("Associated Cooperatives"); Twin
Pines Cooperative Foundation, a California corporation ("Twin Pines"); and Chuck
LeFevre, a resident of the State of Washington ("LeFevre"). (Wholesale Foods,
Alaska Ventures, Associated Cooperatives, Twin Pines and LeFevre are referred to
collectively as "Shareholders".)
RECITALS:
A. Buyer, Company and Shareholders have entered into a non-binding letter
of intent dated February 2, 1995 that describes the terms on which Buyer
would purchase and Shareholders would sell all of the issued and
outstanding shares of capital stock of Company (hereinafter referred to as
the "Shares").
B. Buyer is conducting a due diligence review of the finances,
operations, sales and accounts of Company.
C. Buyer desires to acquire the Shares from Shareholders, and
Shareholders desire to sell the Shares to Buyer on the terms and conditions
provided in this Agreement.
D. Buyer's obligation to purchase the Shares is contingent on, among
other things, Buyer's satisfaction with the results of its due diligence
review and Buyer's ability to obtain financing for the purchase of the
Shares on terms and conditions satisfactory to Buyer.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements hereinafter set forth, the parties hereto agree as
follows:
ARTICLE 1 PURCHASE AND SALE OF SHARES
1.1 PURCHASE AND SALE
Subject to the terms and conditions set forth in this Agreement,
Shareholders agree to sell, convey, transfer, assign and deliver to Buyer all of
the Shares owned by each Shareholder (which Shares are reflected on Schedule 3.2
hereto) at the Closing
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(as hereafter defined in Section 8.1) free and clear of all liens, mortgages,
pledges, encumbrances, agreements, claims, security interests, charges, taxes,
equities, covenants, conditions or restrictions of any kind or nature
whatsoever, and Buyer agrees to purchase and accept the Shares from Shareholders
at the Closing.
1.2 PURCHASE PRICE
The aggregate purchase price (hereinafter referred to as the "Purchase
Price") for the Shares shall be Two Million Eight Hundred Eighteen Thousand Two
Hundred Eighty-One Dollars ($ 2,818,281), subject to adjustment pursuant to the
provisions of Section 2 hereof.
1.3 METHOD OF PAYMENT
The Purchase Price shall be payable by Buyer to the Shareholders as
follows:
(a) One Million Nine Hundred Thousand Dollars ($ 1,900,000) of the
Purchase Price shall be paid by wire transfer of immediately available funds at
the Closing;
(b) One Hundred Thousand Dollars ($100,000) of the Purchase Price shall be
paid into an escrow account (the "Adjustment Fund") to be held by an escrow
company mutually satisfactory to Buyer and Company pursuant to escrow
instructions of Buyer, and paid to Shareholders or returned to Buyer as provided
in Section 2.3, and
(c) Eight Hundred Eighteen Thousand Two Hundred Eighty-One Dollars
($818,281), subject to adjustment as provided in Section 2 hereof, shall be paid
by Buyer's nonnegotiable promissory note (hereinafter referred to as the
"Note"), substantially in the form of Exhibit A attached hereto, at the Closing.
---------
The Note shall be secured by a security interest in and lien upon the tangible
assets, inventory, receivables, and fixtures of: (i) Company in third position
and subordinated to the lien of the bank ("Bank") providing financing to Buyer
for the transactions contemplated in this Agreement and to the lien of the
National Cooperative Bank, which secures the obligation of Company to National
Cooperative Bank; and (ii) Buyer in second position and subordinated to the lien
of Bank. The terms of the Note shall be as provided in Exhibit A. The security
---------
interest and lien shall be evidenced by a Security Agreement substantially in
the form of Exhibit B attached hereto (the "Security Agreement") and signed by
---------
Company, Shareholders, and Buyer. The subordination of the Note shall be
evidenced by a Subordination Agreement substantially in the form of Exhibit C
---------
attached hereto (the "Subordination Agreement") and signed by Shareholders.
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ARTICLE 2 CLOSING DATE FINANCIAL STATEMENTS; PURCHASE PRICE ADJUSTMENTS
2.1 CLOSING DATE FINANCIAL STATEMENTS
Within fourteen (14) days after the Closing, Shareholders shall cause to be
prepared unaudited financial statements for Company dated as of May 20th, 1995.
Such financial statements shall be prepared in accordance with the accounting
principles and the policies used by Company for valuing its assets and
liabilities applied on a basis consistent with the past practices of Company for
statements to be used for internal purposes, and shall accurately present the
financial condition of Company as of May 20th 1995. Buyer shall make the books
and records of Company available to Shareholders as necessary for them to
prepare such financial statements. Such financial statements shall be based on
the books and records of Company. Shareholders shall make such financial
statements available for review and comment by KMPG Peat Marwick LLP ("Peat
Marwick"), Buyer's independent certified public accountants, and shall make such
adjustments in such financial statements as are reasonably requested by Peat
Marwick and approved by Deloitte and Touche. Peat Marwick's proposed
adjustments, if any, shall be delivered together with Buyer's statement
described in Section 2.2(b) to Shareholders within the period specified in said
Section. Shareholders shall base the inventory category of such financial
statements on the results of the Physical Inventory (as defined in Section 2.3).
Such financial statements shall hereinafter be referred to as the "Closing Date
Financial Statements."
2.2 PURCHASE PRICE ADJUSTMENT - NET WORTH
(a) In the event that the total shareholders' equity of Company on the
Closing Date Financial Statements, as adjusted pursuant to this Article II, is
less than One Million Seven Hundred Fifty Thousand Dollars ($1,750,000), but is
greater than or equal to One Million Six Hundred Fifty Thousand Dollars
($1,650,000), then the Purchase Price shall be reduced by the difference between
One Million Seven Hundred Fifty Thousand Dollars ($1,750,000) and the amount of
the total shareholder's equity on the Closing Date (the "Net Worth Adjustment").
For example, if the total shareholders' equity of Company on the Closing Date is
One Million Seven Hundred Twenty-Five Thousand Dollars ($1,725,000), the
Purchase Price shall be reduced by the amount of Twenty-Five Thousand Dollars
($25,000). For purposes of this calculation: (i) the National Cooperative Bank
stock held by Company and the capitalized costs of Company's software
development activities shall be valued as presented on the Closing Date
Financial Statements, so long as the valuations do not exceed One Hundred Twenty
One Thousand Dollars ($121,000) and Two Hundred Forty-Three Dollars ($243,000),
respectively; (ii) the equity of the Company on the Closing Date shall not be
reduced by the amount of the Stock Appreciation Rights, in the approximate
amount of Thirty One Thousand Two Hundred Seventy-One Dollars ($31,271) payable
to certain employees of Company, the forgiveness of the LeFevre
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promissory note, or current-year LIFO adjustments to the inventory of Company;
(iii) the equity of the Company on the Closing Date shall not be increased by
the amount of any tax refunds or credits included in the Closing Date Financial
Statements which Buyer is obligated to pay to Shareholders pursuant to the terms
of Section 4.15, and (iv) any Inventory Adjustment (as defined in Section 2.2
below) shall only be included in the calculation to the extent that such
adjustment exceeds the amount of Two Hundred Thousand Dollars ($200,000). The
Net Worth Adjustment shall be made by reducing the principal amount of the Note,
which reduction shall be effective immediately upon written notice to
Shareholders describing the amount of the reduction and signed by Buyer and
LeFevre.
(b) If Buyer believes that the total shareholders' equity of Company on
the Closing Date should have been less that the amount set forth on the Closing
Date Financial Statements, Buyer shall deliver to LeFevre no later than five (5)
days after the end of the Adjustment Period (as defined in Section 2.3 below) a
statement showing the proposed adjustments to the Closing Date Financial
Statements and the reasons for such adjustments. LeFevre shall then have five
(5) days after receipt of the statement to notify Buyer of his approval of the
adjustments, which approval shall not be unreasonably withheld. In the event
that LeFevre does not approve any adjustments, LeFevre and Buyer shall meet and
confer to resolve the disagreement. If LeFevre and Buyer have not reached
agreement as to the amount of the additional Net Worth Adjustment within twenty
(20) days after Buyer delivered the aforementioned statement to LeFevre, then
the amount in dispute shall be submitted to arbitration in accordance with the
provisions of Section 2.3(b) below.
(c) This Section 2.2 shall not restrict or impair in any respect any other
rights or remedies of Buyer for breach of any warranty of the Shareholders
contained in this Agreement, to the extent that the Net Worth Adjustment exceeds
the amount of One Hundred Thousand Dollars ($100,000).
2.3 PURCHASE PRICE ADJUSTMENT - INVENTORY
(a) At the end of the sixty (60) day period following the Closing Date
(the "Adjustment Period"), Buyer shall be entitled to reduce the Purchase Price
by the Inventory Adjustment (as defined immediately below) up to the amount of
Two Hundred Thousand Dollars ($200,000). The reduction shall affect the payment
of the Purchase Price as follows: The amount of the Inventory Adjustment up to
and including One Hundred Thousand Dollars ($100,000) shall be released from the
Adjustment Fund and returned to Buyer. The amount of the Inventory Adjustment in
excess of One Hundred Thousand Dollars ($100,000) up to and including Two
Hundred Thousand Dollars ($200,000) shall reduce the then outstanding principal
amount of the Note. For purposes of this provision, the following definitions
shall apply:
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(i) "Inventory Adjustment" means the sum of the Individual
Inventory Adjustments.
(ii) "Individual Inventory Adjustment" means (A) the cost of any
item of Unsalable Inventory, plus (B) the gross profit which would be realized
by Buyer if such item was salable in the ordinary course of business (i.e., such
item was not Unsalable Inventory), less (C) the sales price of such item, or, if
the item is not sold during the Adjustment Period, Buyer's reasonably
anticipated sales price for such item, plus (D) the actual costs, or the
reasonably anticipated costs, of transporting such item from Company's warehouse
to Buyer's warehouse in Auburn, California, if, in Buyer's reasonable business
judgment, it is necessary or appropriate to transport the item to its Auburn
warehouse for distribution outside of the territory of Company. Any such
transportation costs shall be calculated at the rate of Four Cents ($.04) per
pound of inventory transported.
(iii) "Unsalable Inventory" means any item of inventory of Company
ordered by Company prior to the Closing Date that Buyer has determined is
unsalable in the ordinary course of business or must be discounted in order that
it may be sold, in excess of the amount of Twelve Thousand Dollars ($12,000) of
sales of Unsalable Inventory. Unsalable Inventory includes, without limitation,
Discontinued, Short-Dated, Changed Package, and Excess inventory.
(A) "Discontinued" inventory means inventory whose sale, on or
prior to the Closing Date, has been discontinued by the vendor thereof, or the
discontinuance of which by the vendor is pending, or whose sale has been
discontinued by Company.
(B) "Short-dated" inventory means inventory having an
expiration date which is fewer than a set number of days after the Closing Date,
as follows: dry products, frozen products, health and beauty aids, and
supplements that on the Closing Date have 30 days or less remaining before
expiration; and chill products that on the Closing Date have 9 days or less
remaining before expiration.
(C) "Changed Package" inventory means inventory whose label or
packaging has been changed by the vendor prior to the Closing Date.
(D) "Excess" inventory means inventory of which at Closing
there is more than a six-month supply of the particular item based on the sales
of such item during the six most recent four-week accounting periods prior to
Closing. The sixth four-week accounting period ended on May 20th 1995.
(E) The Inventory Adjustment shall also include a reduction of
the Purchase Price by the aggregate amount of any accounts receivables
adjustments, made by Buyer during the Adjustment Period, to the Company's
accounts receivable,
5
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which arise from the Company's shipment prior to the Closing of any non-
conforming, spoiled, outdated, shorted or otherwise unacceptable merchandise, to
the extent that the amount of such adjustments exceeds any amount reserved
therefor on the Closing Date Financial Statements up to the amount of Fifteen
Thousand Dollars ($15,000).
Buyer shall use its commercially reasonable efforts to sell any Unsalable
Inventory, but shall not be obligated to do so if the sale of such products at a
discount would interfere with, adversely affect or diminish the sale of new
products in the ordinary course of Buyer's or Company's business. Buyer shall be
entitled to discount any Excess inventory that is not reasonably likely to be
sold within six (6) months after Closing.
(b) If Buyer wishes to reduce the Purchase Price due to the Inventory
Adjustment, Buyer shall deliver to LeFevre within five (5) days after the end of
the Adjustment Period a statement listing the Unsalable Inventory by item, the
proposed adjustments relating to such inventory, the amount of the proposed
adjustments to the accounts receivable and the reasons for the adjustments to
the accounts receivable. LeFevre shall then have five (5) days after receipt of
the statement to notify Buyer of his approval of the adjustments, which approval
shall not be unreasonably withheld. In the event that LeFevre does not approve
any adjustments, LeFevre and Buyer shall meet and confer to resolve the
disagreement. If LeFevre and Buyer have not reached agreement as to the amount
of the Inventory Adjustment within twenty (20) days after Buyer delivered the
aforementioned statement to LeFevre, then:
(i) Buyer shall direct the escrow agent to disburse the amount of
the Inventory Adjustment which are not in dispute in accordance with Section
2.3(c).
(ii) Buyer and Shareholders shall submit the amount of the Inventory
Adjustment in dispute to arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association in Seattle,
Washington. The determination of the arbitrator shall be based on customary
industry practices in the State of Washington and shall be conclusive and
binding upon the parties. The parties shall use their best efforts to cause the
arbitrator to make such determination within thirty (30) days after the
arbitrator is appointed. Each party, Buyer, on the one hand, and Shareholders,
on the other, shall bear the expense of its own counsel in such proceedings. The
fees and expenses of the arbitrator and the American Arbitration Association
shall be shared equally by Buyer, on the one hand, and Shareholders, on the
other hand.
(c) The amount of the Inventory Adjustment so approved shall be paid from
the Adjustment Fund to Buyer. The balance of the Adjustment Fund shall be paid
to the Shareholders.
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(d) This Section 2.3 shall not restrict or impair in any respect any other
rights or remedies of Buyer for breach of any warranty of the Shareholders
contained in this Agreement, to the extent that the Inventory Adjustment exceeds
the amount of Two Hundred Thousand Dollars ($200,000).
2.4 PHYSICAL INVENTORIES AND REVIEW
(a) For purposes of preparing the Closing Date Financial Statements,
Company shall conduct a physical inventory (the "Physical Inventory") of all
inventory held by Company during May 19 and/or 20, 1995, or, in the event the
Closing occurs subsequent to May 22, 1995, at such other time mutually agreed to
by Company and Buyer. Company shall allow Buyer and its representatives to be
present when the physical inventory is taken and to conduct their own
examination of the inventory. Company shall prepare and deliver to Buyer at the
Closing a schedule of inventory, as described in Schedule 3 .6(c)(ii) reflecting
the results of the physical inventory.
(b) Company and Shareholders shall allow Bank and/or Peat Marwick, during
the week of April 25, 1995, and at any time thereafter, to observe a physical
inventory of all merchandise and real and personal property of Company, and have
access to all books, records, accounts and files of Company (including, without
limitation, accounts receivable and accounts payable) that Bank and/or Peat
Marwick may reasonably require. Company shall cooperate with Bank and Peat
Marwick, and shall make its senior executives available to answer any questions
they ask.
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF COMPANY AND SHAREHOLDERS
Company and Shareholders jointly and severally represent, warrant and covenant
as follows:
3.1 ORGANIZATION, STANDING AND QUALIFICATION OF COMPANY
Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of Washington, and has all necessary
corporate powers, governmental qualifications and authorizations to own its
assets and to operate its business in each jurisdiction in which such assets are
now owned and such business is now operated by it, all of such jurisdictions
being listed on Schedule 3.1. Company has furnished to Buyer a true and complete
copy of Company's Articles of Incorporation, certified by the Secretary of the
Company, and Bylaws as amended to date and a Certificate of Good Standing from
the Secretary of State of Washington, not earlier than ten (10) days prior to
the date hereof.
7
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3.2 CAPITALIZATION AND STOCK OF COMPANY
The authorized capital stock of Company consists of fifteen million
(15,000,000) shares of capital stock, Ten Cents ($.10) par value each, of which
seven million, seven hundred seventy-seven thousand seven hundred and seventy-
eight (7,777,778) shares are currently issued and outstanding. All shares of
issued and outstanding common stock of Company are owned by Shareholders and are
validly issued, fully paid (other than the 777,778 shares held by LeFevre) and
nonassessable. There are no shares of preferred stock issued or outstanding.
Other than the restrictions imposed upon, and the rights granted to, the
Shareholders by the Incorporation and Shareholders' Agreement dated March 4,
1991, Shareholders' shares are owned free and clear of all liens, mortgages,
pledges, encumbrances, agreements, claims, security interests, charges, taxes,
equities, covenants, conditions or restrictions of any kind or nature
whatsoever. There are no existing contracts, subscriptions, calls, options,
warrants, convertible securities, obligations or other agreements or commitments
of Company or Shareholders, directly or indirectly, involving the authorization
or issuance by Company of any additional shares of the capital stock of Company,
or the transfer from treasury of any additional shares of its capital stock, or
any obligation convertible into any such additional shares, or entitling the
holder thereof to subscribe for, purchase or receive any such additional shares.
The holders of all the issued and outstanding stock of Company and the number
and percentage of shares held by each person, corporation, company, partnership,
sole proprietorship, trust or other entity are listed in Schedule 3.2. The
accuracy of the information disclosed on Schedule 3.2 shall be certified by the
President of Company and Shareholders in writing at the Closing. From the date
hereof until the Closing, Company shall not, and Shareholders shall not permit
Company to, issue any additional shares.
3.3 SUBSIDIARIES
Company does not, and from the date hereof until the Closing shall not, own
or control, directly or indirectly, in whole or in part, any other corporation,
association, partnership, joint venture or other business association or entity,
or any stock or ownership interest therein.
3.4 FINANCIAL STATEMENTS
(a) Company and Shareholders have delivered to Buyer copies of the
following financial statements of Company: (i) Statements of Income and Retained
Earnings; (ii) Balance Sheets; and (iii) Statements of Changes in Financial
Position; each as at the end of Company's three fiscal years ending on January
2, 1993 through December 31, 1994, inclusive, each certified by Deloitte &
Touche, Certified Public Accountants, as being accurate without exception or
qualification (the "Audited Statements"). Company and Shareholders have also
delivered to Buyer copies of the following financial statements of Company: (i)
Statements of Income and Retained
8
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Earnings; (ii) Balance Sheets; (iii) Statements of Changes in Financial
Position; each as at November 5, 1994 (collectively, the "November 1994
Statements"); (iv) Statements of Income and Retained Earnings; (v) Balance
Sheets; and (vi) Statements of Changes in Financial Position; each as at May 20,
1995 (collectively, the "May 20, 1995 Statements"). Company and Shareholders
will also deliver to Buyer the Closing Date Financial Statements, as provided in
Section 2.1 above. (The Audited Statements, November 1994 Statements, May 20,
1995 Statements, and Closing Date Financial Statements are referred to
collectively as the "Financial Statements" and individually as a "Financial
Statement.")
(b) The Financial Statements are complete, true and correct, have been
prepared in conformity with generally accepted accounting principles applied on
a basis consistent in all material respects with that of the preceding year or
period, other than the November 1994 and May 20, 1995 statements, which were not
prepared in accordance with generally accepted accounting principles, but were
prepared in a manner consistent with the past practices of Company for
statements to be used for internal purposes, and in all material respects fairly
present the assets, liabilities and financial position of the Company as at the
date of such Financial Statements. Inventory values are stated at cost. The
December statements determine cost by the LIFO method; the November 1994 and May
20, 1995 Statements do not contain a current year LIFO adjustment. The Financial
Statements present fairly the financial condition of Company as at the dates
stated and the operation of Company for the periods stated. The inventory of
Company as reflected in the Financial Statements was owned by it on the date
thereof and was of good and salable quality. Neither Company nor shareholders
have any information or reasonable grounds to believe that such inventory will
not be as salable after the Closing Date as it was on December 31, 1994 and on
the Closing Date. All of the fixed assets reflected in the December 31, 1994
Balance Sheet are, on the date hereof, and all of the fixed assets reflected in
the Closing Date Financial Statements will be, on the Closing Date, in existence
and, except for trucks or automobiles while in use or other items rented or
leased to customers, are and will be in the possession of Company and located at
the Company's warehouse listed on Schedule 3.4.
(c) With the exception of matters disclosed in this Agreement or any
exhibit or schedule delivered pursuant hereto, there is no liability or
obligation of Company whatsoever, liquidated or unliquidated, actual or
contingent, criminal or civil, whether or not covered by insurance, for which
adequate provision has not been made in the Financial Statements. For the
purpose of this Agreement, the obligations or liabilities referred to above
shall include, without limitation, any claim which may be made against Company
for a refund of all or any part of the purchase price or rental or lease fee
paid for products sold, rented or leased by it, or for damages for loss or
injury suffered, which is based on negligence or a breach or an alleged breach
by Company of any express or implied obligation or duty imposed upon it as a
vendor or lessor of products, or any claim which may be made against Company for
9
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any penalties or other relief under the provisions of any federal, state or
local law, statute, regulation, rule, ordinance, code or standard.
3.5 TAX RETURNS, AUDITS AND LIABILITIES
(a) Shareholders and Company have: (i) timely filed in accordance with all
applicable laws, all material returns, statements, reports, estimates,
declarations and forms (hereinafter referred to collectively as the "Returns")
required to be filed by them on or before the Closing Date with respect to any
Taxes (as defined in Section 3.5(b) hereof); (ii) paid all Taxes shown to have
become due pursuant to such Returns; and (iii) paid all Taxes for which a notice
of, or assessment or demand for, payment has been received or which are
otherwise due and payable. All such Returns are true and correct in all material
respects and reflected as of the time of filing the facts regarding the income,
business, assets, operations, activities and status of Company and any other
information required to be shown therein. Correct and complete copies of: (i)
federal income tax returns for Company and (ii) state and local income and other
tax returns of Company for each of the three years ended January 2, 1993,
through December 31, 1994, have heretofore been delivered or made available to
Buyer. Except as set forth in Schedule 3.5, (A) there is no action, suit,
proceeding, investigation, audit, claim or assessment pending or proposed with
respect to Taxes with respect to any Return; (B) all amounts required to be
collected or withheld by Company with respect to Taxes have been duly collected
or withheld and any such amounts that are required to be remitted to any taxing
authority have been duly remitted; (C) no extension of time within which to file
any Return has been requested which Return has not been filed; (D) there are no
security interests for federal or state Taxes upon the assets off Company; (E)
there are no waivers or extensions of any applicable statute of limitations for
the assessment or collection of Taxes with respect to any Return which remains
in effect; (F) there are no tax rulings, requests for rulings, or closing
agreements relating to Company which could affect its liability for Taxes for
any period after the Closing Date; (G) all federal, state and local income tax
returns of Company with respect to taxable periods through the year ended
December 31, 1991 are Returns with respect to which the applicable statute of
limitations has expired without extension or waiver; (H) no power of attorney
has been granted by Shareholders or Company with respect to any matter relating
to Taxes of Company which is currently in force; (I) no property of Company is
property that Company is required to treat as being owned by another person
pursuant to the provisions of Section 168(f)(8) of the Internal Revenue Code of
1954, as amended (hereinafter referred to as the "Code") prior to its amendment
by the Tax Reform Act of 1986 or is "tax exempt use property" within the meaning
of Section 168(h) of the Code; (J) Company has not filed any consent under
Section 341(f) of the Code or any comparable provision of state revenue
statutes; and (K) Company has not participated in or cooperated in any
international boycott, within the meaning of Section 999 of the Code, nor has
Company had operations which are or may hereafter become reportable under
Section 999 of the Code. The accruals for deferred federal
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income taxes reflected in the December 31, 1994 Balance Sheet are adequate to
cover any deferred federal income tax liability of Company determined in
accordance with generally accepted accounting principles through the date
thereof. All Taxes as to which Company may be liable which relate to periods
ending on or before the Closing Date have been, or on the Closing Date will be,
adequately accrued or reserved against on the Closing Date Financial Statements.
(b) For purposes of this Agreement, except as otherwise expressly
provided, unless the context otherwise requires:
(i) "Income Taxes" shall mean any federal, state, local or foreign
income, franchise or similar Tax and in each instance any interest, penalties or
additions to tax attributable to such Tax; and
(ii) "Tax" or "Taxes" shall mean taxes of any kind, levies or other
like assessments, customs, duties, imposts, charges or fees, including, without
limitation, income, gross receipts, ad valorem, value added, excise, real or
personal property, asset, sales, use, license, payroll, transaction, capital,
net worth and franchise taxes, withholding, employment, social security, workers
compensation, utility, severance, production, unemployment compensation,
occupation, premium, windfall profits, transfer and gains taxes or other
government taxes imposed or payable to the United States, or any state, county,
local or foreign government or subdivision or agency thereof, and in each
instance such term shall include any interest, penalties or additions to tax
attributable to any such Tax.
3.6 SCHEDULES
Shareholders and Company have delivered, or will deliver at least ten (10) days
prior to the Closing Date, to Buyer the following schedules, certified to be
true, complete and accurate by Shareholders and the President of Company:
(A) REAL PROPERTY
Schedule 3.6(a) is a complete list showing the location of all land,
easements, rights-of-way, plants, warehouses, office buildings, stores and other
buildings and real property owned, rented, leased or occupied by Company.
Schedule 3.6(a) contains a brief description of such properties and their
locations. As to each property owned by Company, Schedule 3.6(a) lists the date
Company acquired each such property; each mortgage, lien and encumbrance on such
property; the holder of each such mortgage, lien or encumbrance; the amount and
repayment terms of the underlying debt which such mortgage, lien or encumbrance
secures; and each occupant of such property. As to each property rented or
leased by Company, Schedule 3.6(a) lists the location and a brief description of
the property; the name and address of lessor; the date and term of such lease;
renewal and purchase options; and
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the rent payable under the lease. Schedule 3.6(a) also identifies all notices or
claims made by governmental authorities of any violations of any applicable law,
statute, ordinance, code, rule, regulation or standard relating to any building
owned, rented, leased, occupied or used by Company or the operations of Company
conducted therein and received by Company. All buildings, fixtures, mechanical
systems (including electrical, plumbing and heating), and roof and structural
systems of facilities shown in Schedule 3.6(a) are in good condition and repair.
Company has delivered to Buyer a preliminary report of title (dated not earlier
than ten (10) days prior to delivery) on each parcel of real estate listed in
Schedule 3.6(a) which is owned by Company, or by Shareholders or any person or
entity affiliated with Shareholders or Company (as hereafter defined in Section
20.6) and used by Company or in the conduct of its business, made through the
offices of a nationally recognized title insurance company. The information
contained in such report shall be deemed to be incorporated into Schedule
3.6(a). Title to each such parcel shall be subject only to the matters and
exceptions set forth in said title policy and to such other matters as are set
forth in Schedule 3.6(a); provided, however, that: (i) such matters and
exceptions do not render title unmarketable; and (ii) Company and Shareholders
shall be obligated to cure any defects in title requested to be cured by Buyer.
(B) AGREEMENTS AND CONTRACTS
Schedule 3.6(b) is a complete list of all contracts and agreements,
written or oral, including, without limitation, sales agreements, purchase
agreements, mortgages, guarantees, security agreements (including, without
limitation, Uniform Commercial Code financing statements), loan agreements, and
leases of real or personal property to which Company is a party which (i)
involve annual payments of $25,000 or more, (ii) involve total payments of
$100,000 or more, or (iii) extend for more than six months. Schedule 3.6(b)
specifies the type of agreement; a general description of the subject matter;
the term and effective date; the dollar value; and the names and addresses of
the parties to such agreements. The agreements listed in Schedule 3.6(b) are
valid and binding upon the parties thereto and enforceable in accordance with
their terms. Except as indicated in Schedule 3.6(b), each of the parties to each
agreement listed therein has complied with and is complying with all the
provisions thereof and is not in default under any provision thereof, and no
party to any such agreement has given notice to any other party thereto
contending that the latter is in default or has otherwise failed to perform
thereunder. Except as disclosed in Schedule 3.6(b), neither this Agreement nor
consummation of the transactions contemplated hereby shall result in a default
under or breach of, or require the consent or approval of any party to, any
agreement listed in Schedule 3.6(b).
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(C) PERSONAL PROPERTY AND INVENTORY
(i) Schedule 3.6(c)(i) lists each item of material tangible personal
property owned, rented, leased or used by Company; the quantity of each item and
the location of such personal property; and where applicable, the serial number
of each item of personal property. Schedule 3.6(c)(i) also lists separately each
automobile, truck or other automotive equipment owned, rented, leased or used by
Company. As to each item of personal property owned by Company, Schedule
3.6(c)(i) lists the date such property was purchased, the net book value thereof
and whether or not such property is subject to a lien, encumbrance, title
retention or security arrangement. As to each such item of personal property
subject to a lien, encumbrance, title retention or security arrangement,
Schedule 3 .6(c)(i) identifies the holder and nature thereof and the amount and
repayment terms of the underlying debt which such lien, encumbrance, title
retention or security arrangement secures. With regard to each item of personal
property rented or leased by Company, Schedule 3.6(c)(i) identifies the party
from whom such property is rented or leased, the date and term of the lease or
rental agreement, the amount of rent payable and any renewal and purchase
options. Except as set forth in Schedule 3.6(c)(i), no personal property used by
Company in connection with its business is held under any lease, conditional
sale contract, installment sale contract or other lien, encumbrance, title
retention or security arrangement, or is located at a place not in the
possession of Company. Each item of personal property identified in Schedule
3.6(c)(i) is in good working condition and is in a good state of maintenance and
repair. For purposes of this Section 3.6(c)(i) only, "material" shall be deemed
to mean having an original cost of Ten Thousand Dollars ($10,000) or more.
(ii) Schedule 3.6(ii) lists each item of inventory held by Company,
the quantity of each item and the date of delivery of such item to Company's
warehouse. The inventories of merchandise shown on the Financial Statements
consist of items of a quality and quantity usable and saleable in the ordinary
course of business, and obsolete, discontinued, and out-of-date items, all of
which have been written down on the books of Company to net realizable market
value, or have been provided for by adequate reserves. All items included in the
inventories are property of Company, except for sales made in the ordinary
course of business since the date of the applicable Financial Statement. The
inventories shown on the balance sheet included in the Closing Date Financial
Statements are based on quantities determined from the Physical Inventory.
(D) ACCOUNTS RECEIVABLE
Schedule 3.6(d) lists the accounts receivable of Company, including
the name of each account; the account number; the invoice number and date;
payment terms; and the age of each such account on the basis of 30, 45, and 60
days and over, from the due date of the original invoice. Each such account
receivable listed arose
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from valid sales or rentals in the ordinary course of business and is
collectible. Except as reflected in Schedule 3.6(d), no refunds, reimbursements,
discounts or other adjustments are payable by Company with respect to any of its
accounts receivable. Neither Company nor Shareholders know, or have any
reasonable grounds to know, of any defenses, rights of set off, recoupment,
assignments, pledges, liens, encumbrances, claims, equities or conditions
enforceable by third parties with respect to or affecting the accounts
receivable of Company.
(E) LIABILITIES AND ACCOUNTS PAYABLE
Schedule 3.6(e) lists each liability of Company, whether absolute or
contingent. As to each such liability, Schedule 3.6(e) indicates the nature of
the liability; the name and address of each creditor or claimant; the primary
obligor with respect to any contingent liability; the dollar amount of the
liability; the terms of payment; and identification of any assets given as
security for such liability. Schedule 3.6(e) separately lists each account
payable of Company. As to each such account payable, Schedule 3.6(e) indicates
the name and address of each creditor; the invoice number and date; the dollar
amount of the liability; the terms of payment; the nature of the liability;
identification of any assets given as security for such liability; and the age
of each account on the basis of 30, 60, and 90 days and over, from the date of
original invoice and any credits to which Company is entitled. The liabilities
and accounts payable arose from valid purchases or obligations of Company in the
ordinary course of Company's business and, except as set forth on Schedule
3.6(e), none of the accounts payable are owed or payable to Shareholders or any
person or entity affiliated with Company or Shareholders. Neither Company nor
Shareholders know, or have any reasonable grounds to know, of any basis for the
assertion against Company of any liability of any nature not set forth in
Schedule 3.6(e).
(F) INTANGIBLE PROPERTY
Schedule 3.6(f) lists all patents, trademarks, trade names, service
marks, and applications therefor and all copyrights owned by Company and all
patent, trademark and service mark licenses to which Company is a party. Company
owns or possesses adequate licenses or other rights to use all patents,
trademarks, trade names, service marks and copyrights used in the conduct of its
business as now operated. Schedule 3.6(f) lists each registration, application,
license or other agreement to which Company is a party with respect to the use
of any trademark, trade name, service mark, copyright or patent and the
expiration date of such registration or license. Neither Company nor
Shareholders know, or have any reasonable grounds to know, of any claims
asserted by third parties with respect to such rights. Company possesses all
necessary franchises and licenses for the conduct of its business.
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(G) INSURANCE
Schedule 3.6(g) lists all insurance coverage of Company in effect,
including, without limitation, public liability, property damage and product
liability insurance and worker's compensation coverage. As to each type of
insurance coverage, Schedule 3.6(g) lists the nature of such coverage; the
insurer; the policy number; the limits of coverage; all named insureds; the
annual premium thereof; and the expiration date. Each policy of insurance listed
in Schedule 3.6(g) is in full force and effect and no notice of cancellation has
been given to or received by Company or Shareholders with respect to any of said
policies. Neither Company nor Shareholders know, or have any reasonable grounds
to know, of any condition existing in violation of the terms of such policies or
worker's compensation coverage or of any conditions of default existing with
respect to such policies or to said worker's compensation coverage. At least
five (5) days prior to Closing, Company shall make available to Buyer for review
the original of each policy listed in Schedule 3.6(g).
(H) EMPLOYMENT MATTERS
Schedule 3.6(h) sets forth a list of:
(i) the total annual compensation for the previous and current
calendar year of all directors, officers, employees and agents employed by
Company on the basis of wage or salary, indicating each present or former
director, officer, employee or agent who received or who is entitled to, or may
become entitled to, bonuses, deferred compensation, profit-sharing, pension,
retirement, or other compensation benefits pursuant to agreements, arrangements
and practices of Company for the payment thereof, and the amounts thereof;
(ii) all pension, retirement, profit-sharing, savings, bonus,
deferred compensation, incentive compensation, hospitalization, medical, life
and disability insurance, vacation, termination, stock option, stock
appreciation rights and other similar plans in effect which provide benefits to
present and past directors, officers and employees of Company. With respect to
each such plan, Schedule 3.6(h) lists the name and a brief description of the
plan; the administrator of the plan; the directors, officers, and employees
covered by the plan; the eligibility requirements and the benefits provided by
the plan;
(iii) all collective bargaining agreements or other contracts with
labor unions to which Company is a party. With respect to each such collective
bargaining agreement or contract, Schedule 3.6(h) identifies the name of the
union and the local unit; a brief description of the agreement; the employees
covered; and the date and term of the agreement; and
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(iv) all employment/consultant contracts with individuals in effect.
With respect to each such contract, Schedule 3.6(h) identifies the parties to
the agreement; the title of the parties; a brief description of the agreement,
including, without limitation, the duties of the employee/consultant and the
compensation to be paid; the date and term of the agreement; and any options to
renew.
(v) all stock appreciation rights ("SARs") in Company, together with
the names of the individuals to whom such rights have been granted and the
amount owed to each such individual for his SAR. Each SAR may be cancelled and
the individual having an interest therein will have no other rights thereunder
upon payment to such individual of the amount set forth on Schedule 3.6(h).
Company is in compliance with all federal, state and local laws, statutes,
ordinances, rules, regulations, codes and orders relating to conditions of
employment, and neither Company nor Shareholders have any knowledge, nor have
any reasonable grounds to anticipate, any labor dispute. Company has not
incurred any liability for any arrearages of wages or other payments in respect
of employment and has made all contributions to employee benefit plans required
by such plans to be made on or before the date hereof. Except as set forth in
Schedule 3.6(h), Company does not maintain or contribute to any employee benefit
plans within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended, including regulations and published
interpretations thereunder (hereinafter collectively referred to as "ERISA").
Each such plan listed in Schedule 3.6(h) as in compliance with the provisions of
ERISA and each such plan which is intended to be a tax qualified plan under
Section 401(a) of the Code has been determined to be "qualified" within the
meaning of Code Section 401(a). Each Voluntary Employee Benefit Association,
which is intended to implement any Company plan has received a favorable ruling
or determination letter as to its tax status. No reportable event within the
meaning of Title IV of ERISA has occurred or is continuing with respect to any
such plan; and no prohibited transaction within the meaning of Title I of ERISA
has occurred with respect to any such plan. Company has not contributed to or
withdrawn during the last five years from any "Multi-Employer Plan" as defined
in Section 3(37) of ERISA. Any group health plan within the meaning of Code
Section 162(i)(3) has complied in all respects with the continuation coverage
requirements of Code Section 162(k). Company has no contract, agreement, plan or
arrangement covering an employee or former employee individually or collectively
that could result in the payment of an "excess parachute payment" within the
meaning of Code Section 280G. All liabilities and expenses with respect to
benefits applicable to employees of Company accrued prior to the Closing Date
under any plan have or shall have been paid for or provided for in the Closing
Date Financial Statements. Shareholders represent and warrant that, except as
provided in Sections 4.29(b) and 4.31, the transactions contemplated by this
Agreement will not cause Buyer or Company to incur any liability, obligation or
expense whatsoever with respect to
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benefits applicable to employees of Company which accrued prior to the Closing
under any plan.
(I) CLAIMS, INVESTIGATIONS AND LITIGATION
Schedule 3.6(i) lists all material claims, litigation, arbitration,
governmental proceedings, investigations and audits, and any other actions
(collectively, "Actions"), by or against Company arising from transactions and
occurrences after January 1, 1992, and all Actions, whenever arising, which are
still pending, involving Company or any current or former director, officer,
employee or agent of Company or any property of, or product or service sold,
rented, leased or provided by Company. Schedule 3.6(i) lists each judgment,
order, writ, injunction and decree of any federal, state or local court or
governmental authority to which Company is a party or by which it is bound or
which relates to any of the Shares to be delivered by Shareholders hereunder or
any other shares of capital stock of the Company. As to each such Action,
Schedule 3.6(i) lists the date such Action was instituted; the type of
proceeding; the identity of the claimant or investigating agency; a brief
description of the matter; the damages claimed or relief sought; and the outcome
or status of the matter. Except as set forth in Schedule 3.6(i), there are no
material Actions pending to which Company is a party (as plaintiff, defendant or
otherwise) or which relate to any of the Shares to be delivered by the
Shareholders hereunder or any other shares of capital stock of Company. Neither
Company nor Shareholders have reasonable grounds to anticipate the filing or
receipt or assertion of any other claim or the commencement of any other Action
by or against, or investigation of, Company or involving the assets of Company
or the Shares, except as set forth in Schedule 3.6(i).
(J) BANK ACCOUNTS
Schedule 3.6(j) lists the name and location of each bank or other
institution in which Company has a bank account, instrument of deposit or safe
deposit box, indicating the nature of the account and the names of all persons
authorized to draw thereon or who have access thereto.
(K) DIRECTORS AND OFFICERS
Schedule 3.6(k) lists the officers and directors of Company in office
as of the date hereof.
(L) CHANGED CONDITIONS
Except as listed in Schedule 3.6(l), since November 5, 1994, the
business of Company has been conducted in substantially the same manner as
theretofore and there has not been any:
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(i) transaction by company except in the ordinary course of
business as conducted on that date;
(ii) capital expenditure by Company exceeding $10,000;
(iii) material change in the condition (financial or otherwise) of
the liabilities, assets, equity, properties, business, or prospects of Company;
(iv) damage to, or destruction or loss of, any of the properties or
other items carried in the accounts of Company (whether or not covered by
insurance), any claim received by Company and not included in Schedule 3.6(l)
delivered hereunder alleging that any personal injury (including, without
limitation, death) suffered by any third party or any property damage or
economic loss to any third party (whether or not covered by insurance) was
caused by Company or any of its directors, officers, employees or agents, or any
incident which the Company or Shareholders have reasonable grounds to believe
may give rise to such claims;
(v) labor dispute, or other similar event or condition of any
character, materially or adversely affecting the financial condition, business,
assets, or prospects of Company;
(vi) change in business or accounting methods or practices
(including, without limitation, any change in depreciation or amortization
policies or rates) by Company;
(vii) revaluation by Company of any of its assets;
(viii) declaration, setting aside, or payment of a dividend or other
distribution with respect to the capital stock of Company, or any direct or
indirect redemption, purchase, or other acquisition by Company of any of its
shares of capital stock, or any stock split, stock dividend, reclassification,
exchange or recapitalization (or any agreement with respect thereto);
(ix) incurrence of any obligation to make any payment to, or entry
into any transaction of any nature with, any director, officer, employee or
stockholder of Company in any capacity;
(x) increase in the salary or other compensation (including any
bonuses, profit sharing or deferred compensation) paid, payable or to become
payable by Company to any of its officers, directors or employees or to any
class or group of its officers, directors or employees, or declaration, payment,
or commitment or obligation of any kind for the payment, by Company, of a bonus,
profit sharing, deferred compensation or other additional salary or compensation
to any such person, class or group;
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(xi) lease, sale or transfer of any tangible or intangible asset of
Company, except in the ordinary course of business;
(xii) entry into, or amendment or termination of, any contract,
agreement, or license, except in the ordinary course of business;
(xiii) loan by Company to any person or entity, or guaranty by
Company of any loan;
(xiv) mortgage, pledge, or other lien or encumbrance of any asset or
property of Company;
(xv) creation or incurrence of any obligation or liability, except
those incurred: (1) in the ordinary course of business; (2) pursuant to existing
contracts; or (3) as a result of personal injuries or property damage or other
circumstances beyond Company's control;
(xvi) waiver or release of any right or claim of Company, except in
the ordinary course of business;
(xvii) to the best knowledge of Company and Shareholders, other event
or condition of any character that has, or might reasonably have, a material and
adverse effect on the financial condition, business, assets, or prospects of
Company;
(xviii) authorization, issuance, sale or conversion (or any agreement
with respect thereto) of any shares of Company's capital stock of any class, or
of any other of its securities;
(xix) amendment of Company's Articles of Incorporation or By-Laws;
or
(xx) agreement by Company to do any of the things described in the
preceding clauses (i) through (xix).
(M) SHAREHOLDER, OFFICER, DIRECTOR AGREEMENTS
Schedule 3.6(m) is a complete list of all contracts, agreements,
commitments, leases, instruments, debts, or obligations, oral or written,
between Company and any of its shareholders, officers, directors or employees
(or any other person affiliated with such persons or Company). Schedule 3.6(m)
indicates the parties; their relationship to Company; a general description of
the subject matter; the effective date; and the term and dollar value of each
agreement listed.
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(N) ENVIRONMENTAL MATTERS
Schedule 3.6(n) lists any and all claims, suits, actions or
proceedings (including government investigations and audits) now pending
relating to the release, discharge or emission of any Hazardous Substances (as
defined below), or to the generation, treatment, storage or disposal of any
Hazardous Substances, resulting from the operation of Company, or present on or
under any real property owned or leased by Company, or otherwise relating to the
protection of the environment. Schedule 3.6(n) also lists, for the entire period
of operation of Company, any and all claims, suits, actions or proceedings
(including governmental investigations and audits) relating to the release,
discharge or emission of any Hazardous Substances, or to the generation,
treatment, storage or disposal of any Hazardous Substances, resulting from the
operation of Company, or otherwise relating to the protection of the
environment, and the disposition of each such claim, suit, action or proceeding.
With respect to each such pending or prior matter, Schedule 3.6(n) lists the
date of the claim, suit, action or proceeding (including governmental
investigation and audits); the claimant or investigating agency; the nature and
a brief description of the matter; the damages claimed or relief sought; and the
status or outcome of the matter. Except as set forth in Schedule 3.6(n), there
are no claims, lawsuits, actions, or proceedings (including governmental
investigations and audits), asserted or threatened, relating to environmental
matters of the types specified in this Section 3.6(n) or otherwise, to which
Company is a party. Buyer may conduct an on-site inspection and review of the
environmental aspects of the operations of Company. Company shall cooperate
fully with Buyer during any such inspection and review.
Except as listed on Schedule 3.6(n), Company has not used, stored, disposed
of, handled, transported, discharged or generated any Hazardous Substances in
the conduct of its business or in, on, to, under, from or about any properties
owned or leased by Company. As used in this Agreement, the term "Hazardous
Substances" shall mean hazardous wastes, hazardous chemicals, flammable or
explosive materials, radioactive materials, toxic materials or related materials
(whether potentially injurious to persons or property and whether potentially
injurious by themselves or in combination with other materials), including, but
not limited to, any waste, chemical, substance or material now determined by any
federal, state or local governmental agency or authority having jurisdiction to
be hazardous to human health or the environment or which is regulated by such
agency or authority (including, but not limited to, those materials listed in
the United States Department of Transportation Hazardous Materials Table [49 CFR
172.101] as amended from time to time). As used in this Agreement, the term
"Environmental Laws" shall mean any and all present and future federal, state
and local laws (whether under common law, statute, rule, regulation or
otherwise), requirements under permits issued with respect thereto, and other
requirements of governmental authorities relating to the environment or to any
Hazardous Substance (including, without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980 (42
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U.S.C. (9601, et seq.) as heretofore amended from time to time. Company has
-- ---
complied, and is in compliance, with all Environmental Laws.
(O) LICENSES AND PERMITS
Schedule 3.6(o) lists all governmental licenses, permits and
authorizations which are held or used by Company. With respect to each such
license, permit or authorization, Schedule 3.6(o) contains a brief description
of the license, permit or authorization; the identity of the issuing agency or
authority; the license or permit number; and the expiration date of each such
license, permit or authorization. Such licenses, permits and authorizations are
the only governmental licenses, permits and authorizations currently required by
Company for the operation of its business and all such licenses, permits and
authorizations are in effect as of the date hereof. Neither Company nor
Shareholders are aware of any reason why Buyer should not be able to obtain or
renew all of such licenses, permits and authorizations upon proper submission by
Buyer of applications therefor to appropriate governmental bodies, authorities
or agencies, nor are Company or Shareholders aware of any circumstances relating
to Buyer's ownership or use of the assets to be acquired hereunder in the same
manner as Company has owned and used the same which would require Buyer to
obtain any governmental license, permit or authorization in addition to the
licenses, permits and authorizations disclosed on Schedule 3.6(o). Company has
complied with all conditions or requirements imposed by the licenses, permits
and authorizations described on Schedule 3.6(o) and Company has not received any
notice of, nor has it reason to believe, that any appropriate authority intends
to cancel or terminate any of such licenses, permits or authorizations or that
valid grounds for such cancellation or termination currently exist.
(P) VENDORS, CUSTOMERS AND BROKERS
(i) Schedule 3.6(p)(i) hereto lists (the "Customer List") (i) all
customers of the Company for the period beginning January 1, 1993, and ending on
May 20, 1995, such Schedule to be provided five (5) days prior to Closing and
such schedule to be revised as of Closing, (ii) the customer identification
numbers, (iii) the customers addresses and contact names, (iv) the date on which
each customer first started doing business with Company, (v) the amounts of
sales to each such customer for each fiscal year during such period, or portion
thereof, and (vi) the pricing policies and sales plans in respect of products
and/or services sold to each customer. Except as set forth in Schedule 3
.6(p)(i) neither Company nor any person affiliated with Company, directly or
indirectly, has a material financial interest in, or is a director, officer or
employee of, any corporation, firm, association or business organization which
is a customer, lessor, lessee, or competitor of Company.
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(ii) Schedule 3.6(p)(ii) sets forth information, organized by
customer, as to all sales made by Company during the period beginning January 1,
1993, and ending May 20, 1995, for all purchasers to whom sales exceeded five
percent (5%) of Company's aggregate sales for such period, such Schedule to be
provided five (5) days prior to Closing and such schedule to be revised as of
Closing. Said information is true, complete and correct in all material
respects. As of the date of this Agreement, Company has received no written
information indicating that any of such customers intends to cease doing
business with Company or alter the amount of the business that it is presently
doing with Company. On the Closing Date, neither Company nor Shareholders are
aware of any information concerning any such intention on the part of any such
customer.
(iii) Schedule 3.6(p)(iii) hereto lists (the "Vendor List") (i) all
vendors with whom Company did business during the period beginning January 1,
1993, and ending April 22, 1995, such schedule to be revised on or prior to the
Closing to include all vendors through Closing Date, (ii) the vendors' addresses
and contact names, (iii) the date on which each vendor first started doing
business with Company, and (iv) the amounts of purchases by Company from each
vendor for each fiscal year during said period, and portion thereof. Except as
set forth in Schedule 3.6(p)(iii), neither Company nor any of its affiliates,
directly or indirectly, has a material financial interest in or is a director,
officer or employee of any corporation, firm, association or business
organization which is a vendor of Company.
(iv) Schedule 3.6(p)(iv) hereto lists (the "Broker List") (i) all
brokers whom Company used or engaged with respect to Company's business for the
period beginning January 1, 1993, and ending April 22, 1995, such schedule to be
revised on or prior to the Closing to include all brokers of Company through
Closing Date, (ii) the brokers' addresses and contact names, and (iii) the date
on which each broker first started doing business with Company.
3.7 TITLE TO ASSETS AND CONDITION OF ASSETS
Company has good and marketable title to, or holds by valid and enforceable
agreement of lease or license, all of the assets owned, leased, rented,
licensed, used or otherwise held by Company, and such assets are free and clear
of any restrictions or conditions to transfer or assignment and are free and
clear of all liens, mortgages, easements, rights of way, pledges, encumbrances,
agreements, charges, claims, security interests, equities, taxes, conditions
enforceable by any third party, covenants, conditions or restrictions, except:
(i) those listed in Schedule 3.6(a) or (c) to this Agreement; and
(ii) taxes and special assessments not in default and payable without
penalty or interest.
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3.8 NO VIOLATION
Neither this Agreement nor the consummation of the transactions
contemplated hereby violates or will violate any statute, law, regulation, rule,
ordinance, code, standard, order, writ, judgment, injunction, decree,
determination or award, or conflicts with or constitutes a default under
Company's articles, charter, or certificate of incorporation or by-laws or any
indenture, mortgage, lease, lien, instrument or other agreement by which Company
or Shareholders are bound (nor will it result in an event which, whether
immediately or upon the giving of notice or lapse of time or both, will permit
the acceleration of the maturity date of any obligation under any such
indenture, mortgage, lease, lien, instrument or other agreement or the creation
of any lien or encumbrance on any property or asset of Company, nor will it
enable any party to any agreement to which Company or Shareholders are a party
to exercise a right to terminate or otherwise modify the terms thereof).
3.9 COMPLIANCE WITH LAW
Company has complied with, and is not in violation of, any federal, state,
or local statutes, laws, ordinances, rules, regulations, codes or standards
which affect the operation of Company's business. All corporate action required
of Company in connection with the proper conduct of its business, and all
reports and returns required to be filed and permits required to be secured by
Company in connection with the conduct of its business, have been taken, filed,
or secured. Neither Company nor Shareholders have received any notice of any
claimed violation of any federal, state or local statute, law, ordinance, rule,
regulation, code, standard or order, and neither Company nor Shareholders have
knowledge, or any reasonable grounds to know, of any such violation.
3.10 LEGAL POWER AND AUTHORITY TO ENTER TRANSACTION
Company and Shareholders each have the full right, power, legal capacity,
and authority to enter into and deliver this Agreement and to perform its
obligations hereunder and the transactions contemplated hereby. The execution,
delivery and performance of this Agreement and the transactions contemplated
hereby have been duly authorized by Company's Board of Directors and
shareholders, and by the Board of Directors of each Shareholder that is a
corporation, and a copy of such resolutions so authorizing the execution,
delivery and performance of this Agreement, certified, as appropriate, by the
Secretary of Company or the Shareholder, shall be delivered to Buyer no later
than ten (10) days prior to the Closing Date. This Agreement constitutes the
valid and binding obligation of Company and each Shareholder and is enforceable
in accordance with its terms. Except as stated above, no approvals or consents
of any persons or entities are required for Company or
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Shareholders to execute and deliver this Agreement or perform its obligations
hereunder and the transactions contemplated hereby.
3.11 REAL PROPERTY HOLDING CORPORATION
Company is not and has not been a United States real property holding
corporation (as defined in Section 897(c)(2) of the Internal Revenue Code, 26
U.S.C. Section 897(c)(2) during the applicable period specified in Section
897(c)(1)(A)(ii) thereof.
3.12 BOOKS AND RECORDS
The books and records of Company, including, without limitation, the books
of account, minute books, stock certificate books and stock ledger, are
complete, true and correct in all material respects and fairly reflect the
conduct of the business of Company.
3.13 DISCLOSURE
No representation or warranty by Company or Shareholders contained in this
Agreement, and no writing, certificate, schedule, list, report, instrument, or
other document furnished to or to be furnished to Buyer pursuant hereto or in
connection with the transactions contemplated hereby, contains or will contain
any untrue statement of material fact, or omits or will omit to state a material
fact necessary in order to make the statements and information contained therein
not misleading, or necessary in order to provide a prospective purchaser of the
capital stock of Company with full and proper information as to Company and
Company's affairs and the prospects of future business.
3.14 POWER OF ATTORNEY
Neither Company nor, with respect to the Shares, Shareholders have given to
any person or organization for any purpose any power of attorney which is
currently in effect.
3.15 NET WORTH
The total shareholders' equity of Company on the Closing Date shall be at
least One Million Six Hundred Fifty Thousand Dollars ($1,650,000), less the
amount of the Inventory Adjustment up to a maximum of Two Hundred Thousand
Dollars ($200,000). For purposes of this calculation: (i) the National
Cooperative Bank stock held by Company and the capitalized costs of Company's
software development activities shalt be valued as presented on the Closing Date
Financial Statements, so long as the valuations do not exceed One Hundred Twenty
One Thousand Dollars
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($121,000) and Two Hundred Forty-Three Dollars ($243,000), respectively; (ii)
the equity of the Company on the Closing Date shall not be reduced by the amount
of the Stock Appreciation Rights, in the approximate amount of Thirty One
Thousand Two Hundred Seventy-One Dollars ($31,271) payable to certain employees,
the forgiveness of the promissory note made by LeFevre or the current-year LIFO
adjustment to the inventory of Company; and (iii) the equity of the Company on
the Closing Date shall not be increased by the amount of any tax refunds or
credits which Buyer is obligated to pay to Shareholders pursuant to the terms of
Section 4.15.
3.16 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING
All representations and warranties made by Company or Shareholders in or
pursuant to this Agreement or in any writing, certificate, schedule, exhibit,
statement, list, report, instrument or other document furnished or delivered to
Buyer pursuant to the terms of this Agreement shall be true on and as of the
Closing Date with the same effect (except for matters disclosed in this
Agreement or the schedules delivered hereunder) as if made on and as of the
Closing Date.
ARTICLE 4 COVENANTS OF COMPANY AND SHAREHOLDERS
Company and Shareholders jointly and severally covenant that:
4.1 ACCESS AND INFORMATION
Buyer and its counsel, accountants and other representatives shall have
full access during normal business hours to all assets, properties, books,
accounts, records, contracts and documents of or relating to Company. Company
shall furnish or cause to be furnished to Buyer and its representatives all data
and information concerning the business, finance and properties of Company that
may reasonably be requested.
4.2 BUSINESS AS USUAL
Company will continue to carry on its business diligently in substantially
the same manner as heretofore and will make no material change in or institute
any unusual or novel methods of business operation. Company or Shareholders
shall promptly notify Buyer in writing of any material change to Company or its
business.
4.3 CONTRACT COMMITMENTS
Without the prior written consent of Buyer, which shall not be unreasonably
withheld, Company will not make any contract or commitment or series of related
contracts or commitments, written or oral, which: (a) has a term of performance
extending beyond one (1) year; (b) involves payment by Company of an aggregate
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amount of more than Fifteen Thousand Dollars ($15,000 ) or (c) involves sales or
purchases other than in the ordinary course of business by Company.
4.4 INDEBTEDNESS
Company will not create any indebtedness other than that: (a) incurred in
the ordinary course of business; (b) incurred pursuant to existing contracts;
(c) incurred pursuant to commitments permitted hereby; (d) reasonably incurred
in doing the acts and things contemplated by this Agreement; or (e) arising from
personal injuries or property damage or other causes beyond Company's control.
4.5 CREDIT
Company will not extend credit to any third party other than in accordance
with its normal credit terms.
4.6 EMPLOYEE, SUPPLIER, CUSTOMER RELATIONS
Company will use its best efforts, without making any commitment on behalf
of Buyer, to preserve intact the business organization of Company, to maintain
the present employees of Company, and to preserve the good will of Company's
suppliers, customers and others having business relations with it.
4.7 INVENTORIES
Except for the published May, June and July special inventory close out
sales the Company will buy and maintain inventories only in the ordinary course
of business.
4.8 CONDITION OF ASSETS
Company will maintain its assets in as good condition as on the date of
this Agreement, ordinary wear and tear excepted.
4.9 DIVIDENDS
Without Buyer's prior written consent, Company will not declare or pay any
dividend or make any other distribution to its shareholders with respect to the
capital stock or debt of Company, will not purchase or redeem any of its shares
of capital stock, will not issue rights or options to purchase or subscribe to
any shares of its capital stock, or subdivide or otherwise change any such
shares, and will not issue or sell any shares of its capital stock.
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4.10 AMENDMENT OF ARTICLES OF INCORPORATION; BY-LAWS
Company will not amend its Articles of Incorporation or its By-Laws.
4.11 ACQUISITION, MERGER, CONSOLIDATION
Subject to Section 8.5 hereof, Neither Company nor Shareholders shall sell
or negotiate for the sale of the Shares or any shares of the capital stock or
assets of Company to any purchaser other than Buyer, nor negotiate or consummate
any acquisition, merger, consolidation or other similar transaction involving
Company.
4.12 POWER OF ATTORNEY
Neither Company nor Shareholders will give to any person or organization
any power of attorney, without the prior written consent of Buyer.
4.13 VIOLATION OF LAW
Company will promptly notify Buyer of receipt by Company of any claim
alleging its violation of any federal, state or local law, statute, ordinance,
regulation, rule, code, standard or order.
4.14 ADVANCES, LOANS
Other than the existing loan to LeFevre, Company shall not advance or loan
any sum of money to any shareholder, director, officer or employee or to any
third party. Other than the existing loan to LeFevre, all advances or loans to
the shareholders, directors, officers, or employees of Company or to any third
party made prior to the Closing Date shall be fully paid as of the Closing Date.
4.15 TAXES
(A) RETURNS AND TAX RESPONSIBILITY
(i) Company shall timely prepare and file all Returns of Company
for all periods ending on or before the Closing Date. All such Returns shall be
prepared, and all elections with respect to such Returns shall be made, to the
extent permitted by law, in a manner consistent with Company's prior normal
practice.
(ii) Company shall timely pay or cause to be paid all Taxes with
respect to Returns prepared by Company pursuant to Section 4.15(a)(i). Company
shall provide adequate reserves, computed in a manner consistent with Company's
prior normal practice, on Company's Closing Date Financial Statements for all
liabilities for and with respect to Taxes of Company for periods ending on or
before
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the Closing Date which are not required to be paid on or prior to the Closing
Date. Shareholders will pay to Buyer an amount equal to the excess, if any, of
(A) Taxes due with respect to any such Returns filed or caused to be filed by
Company for any period which ends on or before the Closing Date over (B) any
accruals or reserves therefor on the Closing Date Financial Statements. Buyer
will pay to Shareholders an amount equal to the excess, if any, of (A) any
accruals or reserves therefor on the Closing Date Financial Statements over (B)
Taxes due with respect to any such Returns filed or caused to be filed by
Company for any period which ends on or before the Closing Date. Payments
pursuant to this Section 4.15(a)(ii) shall be made not later than ten (10) days
before the date on which Company is required to pay or cause to be paid the
related Tax liability. If such amounts are not timely paid by Shareholders or
Buyer, as appropriate, interest will accrue on the amounts unpaid from the date
due until the date paid at a rate of seven and one- half percent (7.5%) per
annum. Buyer shall pay over to Shareholders, immediately upon receipt, the
entire refund due from Washington State Labor and Industries for the period 7-1-
92 through 6-30-94, and the amount of the Labor and Industries refund prorated
as of Closing Date for the period 7-1-94 through 6-30-95 payable from WTA
Services, Inc.
(B) INDEMNIFICATION
In addition to the provisions of Article 9, Shareholders will
indemnify, defend and hold harmless Buyer and Company against any and all
liability assessed against Company for any Tax for which Company has filing
responsibility under Section 4.15(a) for any period of Company ending on or
before the Closing Date, including any increase in Company's liability for Taxes
as a result of payments under this Section 4.15(b) or Article 9. Any indemnity
payable by Shareholders pursuant to this Section 4.15(b) shall be paid within
the later of ten (10) days after Buyer's request therefor or ten (10) days prior
to the date on which the liability upon which the indemnity is based is required
to be satisfied by Buyer or Company.
(C) ALLOCATION OF BENEFITS
(i) Shareholders shall be entitled to the benefits of any refunds
or credits of federal, state, local or foreign income taxes (including any
interest paid thereon) with respect to Company for any taxable period ended on
or prior to the Closing Date. If any adjustments shall be made to any federal,
state, local or foreign income tax returns relating to Company for any such
period which result in any tax detriment to Shareholders and any tax benefits to
Company or Buyer for any taxable period ending after the Closing Date,
Shareholders shall be entitled to the benefit of such tax benefit to the extent
of such detriment, and Buyer shall pay to Shareholders the amount of such tax
benefit at such time or times as and to the extent that Company or Buyer
realizes such benefit through a refund of tax or reduction in the amount of
taxes which Company or Buyer would otherwise have had to pay if such adjustment
had not been made.
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(ii) Buyer shall be entitled to the benefit of any refunds or
credits of federal, state, local, or foreign income taxes (including any
interest paid thereon) with respect to Company for any taxable period ending
after the Closing Date. If any adjustments shall be made to any federal, state,
local, or foreign income tax returns relating to Company for any such period
which result in any tax detriment to Buyer or Company with respect to such
period and any tax benefits to Shareholders for any tax period ended on or
before the Closing Date, Buyer shall be entitled to the benefit of such tax
benefit to the extent of such detriment, and Shareholders shall pay to Buyer the
amount of such tax benefit at such time or times as and to the extent that
Shareholders realize such benefit through a refund of tax or reduction in the
amount of taxes which Shareholders would otherwise have had to pay if such
adjustment had not been made.
(D) AUDITS
Buyer shall promptly notify Shareholders in writing upon receipt by
Buyer or Company of notice of any Tax audits, any pending or threatened Tax
assessments, or any requests by a taxing authority to extend the applicable
statute of limitations relating to taxable periods and Taxes of Company for
which Shareholders have any liability for Taxes under this Agreement.
Shareholders shall have the right, at Shareholders' cost, to determine whether
to grant or deny any such extensions, to control Company's interests in any Tax
audit or other examination by any taxing authority, and to contest, resolve and
defend against any assessment for additional Taxes, notice of Tax deficiency or
other adjustment of Taxes of, or relating to Company for taxable periods of
Company ending on or prior to the Closing Date and to employ counsel of their
choice at their expense; provided that Buyer has received assurance acceptable
to Buyer that Shareholders will pay any liability for indemnification hereunder
resulting therefrom; and provided further that Shareholders shall not settle or
otherwise resolve any issue which may affect the liability for Taxes of Company
for any period with respect to which Buyer or Company has any responsibility for
payments thereof, without Buyer's consent.
(E) COOPERATION
Buyer and Shareholders shall, and Buyer shall cause Company to,
provide the requesting party with such reasonable assistance (without charge) as
may be requested by the other party, including access to such employees, books
and records as may be reasonably requested, in connection with the preparation
of any Tax Return, any audit, or any judicial or administrative proceeding or
determination relating to liability for Taxes covered by this Section 4.15 of
Company and each party shall retain, for a reasonable period of time (but not
less than six (6) years after the Closing Date or until expiration of all
applicable statutes of limitation, whichever is later), and provide the other
party with, any records or information or any other
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assistance (including, without limitation, making employees available to such
other party) which may be relevant to such Tax Return, audit, proceeding or
determination.
(F) AFFIDAVIT REGARDING REAL PROPERTY HOLDING CORPORATION
At the Closing, Shareholders shall cause to be delivered to Buyer an
affidavit of Company, signed by or on behalf of Company, in the form attached as
Exhibit D. Notwithstanding anything to the contrary set forth in this Agreement,
should Shareholders fail to fulfill their obligations under this Section
4.15(f), Buyer will be entitled to withhold the requisite amounts from the
Purchase Price.
4.16 CAPITAL EXPENDITURES
Without the prior written consent of Buyer, Company will not make any
capital expenditures in excess of Fifteen Thousand Dollars ($15,000) for any
single item, or enter into any leases of capital equipment or property under
which the annual lease charge is in excess of Fifteen Thousand Dollars ($15,000)
or the term is greater than one year.
4.17 CAPITAL DISPOSITIONS
Company will not sell or dispose of any capital assets without the prior
written consent of Buyer.
4.18 PAYMENT OF LIABILITIES AND WAIVER OF CLAIMS
Company will not do, or agree to do, any of the following acts:
(a) pay any obligation or liability, fixed or contingent, other than
current liabilities;
(b) waive or compromise any right or claim; or
(c) cancel, without full payment, any note, loan, or other obligation
owing to Company or assigned for the benefit of Company.
4.19 EXISTING AGREEMENTS
Company will not modify, amend, cancel or terminate any of its existing
contracts or agreements, or agree to do any of those acts without the prior
written consent of Buyer.
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4.20 INSURANCE
Company will keep in effect and undiminished its existing insurance of all
types. At the request of Buyer and at Buyer's sole expense, the amount of
insurance against fire and other casualties which at the date of this Agreement
Company carried on any of its properties or in respect of its operations shall
be increased by such amount or amounts as Buyer shall specify.
4.21 COMPENSATION
Except with the prior written approval of Buyer and except to the extent,
if any, required by good faith collective bargaining obligations, Company shall
not grant any general or uniform increase in the rate of pay to employees, any
increase in salaries to any director, officer, employee or agent or any bonus or
profit sharing payment. Company shall not increase, by means of any new or
preexisting pension, profit-sharing, retirement, deferred compensation,
insurance, vacation, termination or other similar employee benefit plan,
contract or commitment, by any amount, the current or deferred compensation of
any director, officer, employee or agent.
4.22 BANKING
Company will not make any change in its banking or safe deposit
arrangements.
4.23 ACCOUNTING
Except as required by generally accepted accounting principles, Company
will not make any changes in its accounting methods or practices.
4.24 FINANCIAL INFORMATION
Company, promptly upon their becoming available, shall provide to Buyer
all financial information and data compiled or generated by or for Company or
Shareholders relating to the business operations or financial condition of
Company, including, without limitation, all balance sheets, statements of
retained earnings, statements of changes in financial position, income
statements, or information relating to Company's sales or receipts. Company
shall also promptly provide to Buyer such other financial information and data
relating to the business operations or financial condition of Company as may
reasonably be requested by Buyer.
4.25 WARRANTIES AND REPRESENTATIONS
Company and Shareholders shall refrain from taking any action which
would render any representation or warranty contained in this Agreement
inaccurate and
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shall promptly notify Buyer of the occurrence of any event or the failure of any
event to occur prior to the Closing which results in an omission in or breach of
any of the representations or warranties by Company or Shareholders in this
Agreement or any of the exhibits or schedules delivered pursuant hereto.
4.26 NATIONAL COOPERATIVE BANK LINE OF CREDIT
On or prior to the Closing, Company shall repay in full its line of credit
from National Cooperative Bank and shall obtain from National Cooperative Bank
the subordination, or the release and refiling in second priority, of any liens
or encumbrances of National Cooperative Bank against any property of Company to
the lien of Bank.
4.27 BENEFICIAL SUPPLY AGREEMENT
Prior to the Closing Date, Company and Puget Consumers Co-op shall
enter into a Beneficial Supply Agreement, on terms and conditions satisfactory
to Buyer and Shareholders.
4.28 CHUCK LEFEVRE
(a) Effective on the Closing, Company, TMSA Holdings, Inc., and
LeFevre shall enter into a Management Consulting Agreement in substantially the
form of Exhibit E attached hereto and incorporated herein, which provide for
---------
payment to TMSA Holdings, Inc. of $150,000.
(b) In consideration of LeFevre's agreement to terminate his
employment with Company, effective on the Closing, Company agrees to forgive all
principal and interest owed by LeFevre pursuant to that certain Stock Purchase
Agreement between LeFevre and the Company dated 2-16-94 in the principal amount
of $31,719 and to waive any restrictions on the transfer of LeFevre's shares
contained in said Agreement.
4.29 STOCK APPRECIATION RIGHTS
At the Closing, Company agrees to pay the officers of Company by check
an amount equal to the vested balance of their Stock Appreciation Rights
("SARs") in Company as set forth on Schedule 3.6(h), in an amount not to exceed
$31,271 in the aggregate for all officers having SARs.
4.30 INCORPORATION AND SHAREHOLDERS AGREEMENT
The Shareholders shall have executed a written waiver, in form and
substance satisfactory to Buyer, waiving their rights of first refusal contained
in Section 14 of
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the Incorporation and Shareholder Agreement dated March 4, 1991, and agreeing to
terminate such Agreement effective on the Closing Date.
4.31 REQUIREMENTS OF BUYER'S BANK
Company and Shareholders shall comply with all reasonable requirements and
requests of Bank to enable Buyer to complete this transaction, including,
without limitation execution of the Subordination Agreement. Shareholders shall
also execute a subordination agreement in the form of the Subordination
Agreement subordinating the existing obligations of Company to certain
Shareholders to the lien of Bank.
4.32 COMPLETION OF SCHEDULES
Except for information relating to specific customers and sales programs,
Company and Shareholders shall complete and furnish to Buyer all schedules to be
attached to this Agreement immediately upon delivery to Company from Buyer of
Bank's letter committing Bank to provide financing to Buyer to consummate the
transactions contemplated in this Agreement.
4.33 MAINTENANCE OF INVENTORY
From April 26, 1995, to and including the Closing Date, Company shall not,
except for certain sales invoiced prior to May 2, 1995, which sales were
approved by Buyer and are listed on Schedule 4.33 attached hereto, and without
the prior approval of Buyer, which approval may be withheld in Buyer's sole
discretion: (i) liquidate any inventory by selling it at discounts that are
greater than the discounts customarily given by Company in the ordinary course
of its business, (ii) write down or write-off any item of inventory for any
reason, including without limitation, because such item is Unsalable Inventory,
in an amount which would reduce the book value of such item below its cost,
(iii) create any reserves for losses for any item of inventory from any reason,
including, without limitation, because such item is Unsalable Inventory, (iv)
dispose of any inventory in any fashion for no consideration, or (v) destroy any
inventory. For purposes of determining the amount of "the discounts customarily
given by Company in the ordinary course of its business" under subsection (i)
above, the discounts given by Company during 1995 in order to liquidate
approximately $40,000 of Unsalable Inventory per month shall not be considered
discounts in the ordinary course of Company's business.
ARTICLE 5 REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYER
Buyer represents, warrants and covenants that:
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5.1 ORGANIZATION, STANDING AND QUALIFICATION OF BUYER
Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of California and has all necessary
corporate powers, governmental qualifications and authorizations to own its
assets and operate its business.
5.2 NO VIOLATION
Neither this Agreement nor the consummation of the transactions
contemplated hereby violates or will violate any statute, law, regulation, rule,
ordinance, code, standard, order, writ, judgment, injunction, decree,
determination or award, or conflicts with or constitutes a default under Buyer's
articles, charter, or certificate of incorporation or by-laws or any indenture,
mortgage, lease, lien, instrument or other agreement by which Buyer is bound
(nor will it result in an event which, whether immediately or upon the giving of
notice or lapse of time or both, will permit the acceleration of the maturity
date of any material obligation under any such indenture, mortgage, lease, lien,
instrument or other agreement or the creation of any lien or encumbrance on any
property or asset of Buyer, nor will it enable any party to any material
agreement to which Buyer is a party to exercise a right to terminate or
otherwise modify the terms thereof).
5.3 LEGAL POWER AND AUTHORITY TO ENTER TRANSACTION
Buyer has the full right, power, legal capacity and authority to enter
into and deliver this Agreement and to perform its obligations hereunder and the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement and the transactions contemplated hereby have been duly
authorized by Buyer's Board of Directors, and a copy of such resolutions so
authorizing the execution, delivery and performance of this Agreement, certified
by the Secretary of Buyer, shall be delivered to Company and Shareholders no
later than ten (10) days prior to the Closing Date. This Agreement constitutes
the valid and binding obligation of Buyer and is enforceable in accordance with
its terms. Except as stated above, no approvals or consents of any persons or
entities are required for Buyer to execute and deliver this Agreement or perform
its obligations hereunder and the transactions contemplated hereby.
5.4 FINANCING
Buyer shall use its commercially reasonable efforts to obtain financing on
terms and conditions satisfactory to Buyer in its sole discretion in order to
complete the transactions contemplated by this Agreement. Such financing shall
include the loan to Company of sufficient funds, not to exceed One Million Eight
Hundred
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Thousand Dollars ($1,800,000), to enable Company to repay in full its line of
credit from National Cooperative Bank.
5.5 SECURITY
The Shareholder's security interest in and to all of the assets, accounts
receivables, inventory, and equipment (collectively, "Assets") of Company and of
Buyer shall be a legally valid and enforceable second priority lien behind
Bank's lien with respect to Buyer's assets and a legally valid and enforceable
third priority lien behind Bank's lien and National Consumers Bank's lien with
respect to Company's assets.
5.6 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING
All representations and warranties made by Buyer in or pursuant to this
Agreement or in any writing, certificate, schedule, exhibit, statement, list,
report, instrument or other document furnished or delivered to Shareholders
pursuant to the terms of this Agreement shall be true on and as of the Closing
Date with the same effect (except for matters disclosed in this Agreement or the
schedules delivered hereunder) as if made on and as of the Closing Date.
ARTICLE 6 CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
All obligations of Buyer to be performed at the Closing are subject to the
fulfillment, prior to or at the Closing, of each of the conditions hereinafter
set forth in this Article 6. Nothing in this Article 6 shall limit or restrict
any rights or remedies which Buyer may have by reason of any misrepresentation,
breach of warranty or nonfulfillment of any covenant, agreement or obligation by
Shareholders or Company under or pursuant to this Agreement.
6.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES
The representations and warranties of Shareholders and Company contained
in this Agreement or in any writing, certificate, schedule, exhibit, statement,
list, report, instrument or other document furnished or delivered to Buyer
pursuant to the terms of this Agreement shall be true at and as of the Closing
as fully as if such representations and warranties had been made or given at
the Closing. The President of Company and Shareholders shall deliver a
certificate stating the same to Buyer at the Closing.
6.2 PERFORMANCE BY COMPANY AND SHAREHOLDERS
Company and Shareholders shall have performed and complied with all
covenants, agreements and conditions required by this Agreement (or by any
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agreement ancillary to this Agreement) to be performed or complied with by
Company or Shareholders prior to or at the Closing.
6.3 DOCUMENTS AND CERTIFICATES
Buyer shall have received from Company and Shareholders, at or prior to
the Closing, all of the certificates, instruments and other documents required
to be delivered pursuant to Section 8.2 hereof.
6.4 NO ADVERSE CHANGE
No event shall have occurred prior to the Closing in the business,
financial condition, results of operations, assets, or prospects of Company
(whether or not any such event is covered by insurance), from the business,
financial condition, results of operations, assets, or prospects of Company
indicated in the financial statements of Company dated November 5, 1994, which,
in the reasonable business judgment of Buyer, materially and adversely affects
the value of Company, or the business thereof.
6.5 ACTION OR PROCEEDING
No action or proceeding by any person, entity, administrative agency or
public authority shall be pending or threatened against any party hereto, to
restrain, prohibit or nullify the consummation of the transactions contemplated
herein, or wherein an unfavorable judgment, decree or order would prevent or
make unlawful the fulfillment of this Agreement or performance hereunder.
6.6 COMPANY AND SHAREHOLDER CORPORATE APPROVALS
The execution and delivery of this Agreement by Company, and the
performance of its covenants and obligations hereunder and the transactions
contemplated hereby, shall have been duly authorized by all necessary corporate
and shareholder action, and Buyer shall have received copies of all resolutions
pertaining to that authorization, certified by the Secretary of Company. The
execution and delivery of this Agreement by Shareholders, and the performance of
its covenants and obligations hereunder and the transactions contemplated
hereby, shall have been duly authorized by all necessary corporate action of
each Shareholder (other than LeFevre), and Buyer shall have received copies of
all resolutions pertaining to that authorization, certified by the Secretary of
each Shareholder (other than LeFevre).
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6.7 APPROVAL OF DOCUMENTATION
The form and substance of all certificates, schedules, exhibits,
instruments, opinions, and other documents delivered to Buyer under this
Agreement shall be satisfactory to Buyer and its counsel.
6.8 SHARES
At the Closing, Buyer shall acquire hereunder one hundred percent (100%)
of the issued and outstanding shares of the capital stock of Company.
6.9 THIRD PARTY CONSENTS
Company or Shareholders shall have obtained in writing all requisite
consents from third parties with respect to the sale, conveyance, transfer, or
assignment of the Shares or the assets of Company hereunder.
6.10 APPROVAL OF DUE DILIGENCE REVIEW
Buyer and its representatives shall have conducted a review and
investigation, and Company shall have cooperated with Buyer and shall have
facilitated such review and investigation, of the books, records, documents,
accounts, finances, contracts, customers, vendors, suppliers, facilities,
equipment, inventory, properties, sales and account information, operations,
prospects and other aspects of Company's business and operations, as Buyer deems
necessary or appropriate for its review and investigation. Buyer shall have
determined, in its reasonable business judgment, that Company's business,
financial condition, results of operations and assets, and its prospects for
sales and earnings growth and profitability, are acceptable to Buyer, and that
the acquisition of Company will further Buyer's business and financial
objectives.
6.11 FINANCING
Buyer shall have obtained financing on terms and conditions that are
satisfactory to Buyer in the exercise of its sole discretion, enabling Buyer to
complete the transactions provided for in this Agreement. Buyer shall provide
Company with its bank commitment letter on or before five (5) days prior to
closing.
6.12 NATIONAL COOPERATIVE BANK LINE OF CREDIT
Company's line of credit from National Cooperative Bank shall have been
repaid in full, and National Cooperative Bank shall have agreed that its lien
against the assets of Company (as security for its continuing term loan to
Company) shall be
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in second priority behind Bank's lien, except that its lien against the
equipment of Company may be in first priority position.
6.13 BENEFICIAL SUPPLY AGREEMENT
Company and Puget Consumers Co-op shall have entered into a Beneficial
Supply Agreement on terms and conditions satisfactory to Buyer.
6.14 SHAREHOLDER LOANS
The loans of the Shareholders to the Company in the amount of Two
Hundred Eighty-One Thousand Two Hundred and Fifty Dollars ($281,250) shall not
be accelerated upon the Closing and shall be due and payable according to their
original terms, as provided in the promissory notes held by the Shareholders
evidencing such loans, copies of which are attached hereto as Schedule 6.14 and
incorporated by reference.
6.15 NET WORTH
The total shareholders' equity of Company on the Closing Date shall be at
least One Million Six Hundred Fifty Thousand Dollars ($1,650,000), less the
amount of the Inventory Adjustment up to a maximum of Two Hundred Thousand
Dollars ($200,000). For purposes of this calculation: (i) the National
Cooperative Bank stock held by Company and the capitalized costs of Company's
software development activities shall be valued as presented on the Closing Date
Financial Statements, so long as the valuations do not exceed One Hundred Twenty
One Thousand Dollars ($121,000) and Two Hundred Forty-Three Thousand Dollars
($243,000), respectively; (ii) the equity of the Company on the closing Date
shall not be reduced by the amount of the Stock Appreciation Rights, in the
approximate amount of Thirty-One Thousand Two Hundred Seventy-One Dollars
($31,271) to certain employees of Company, the forgiveness of the promissory
note made by LeFevre or the current-year LIFO adjustment to the inventory of
Company; and (iii) the equity of the Company on the Closing Date shall not be
increased by the amount of any tax refunds or credits which Buyer is obligated
to pay to Shareholders pursuant to the terms of Section 4.15.
ARTICLE 7
CONDITIONS PRECEDENT TO COMPANY'S AND SHAREHOLDERS' OBLIGATION TO CLOSE
All obligations of Company and Shareholders to be performed at the Closing are
subject to the fulfillment, prior to or at the Closing, of each of the
conditions hereinafter set forth in this Article 7. Nothing in this Article 7
shall limit or restrict any rights or remedies which Company or Shareholders may
have by reason of any
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misrepresentation, breach of warranty or nonfulfillment of any covenant by Buyer
under this Agreement.
7.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES
The representations and warranties of Buyer contained in this Agreement or
in any writing, certificate, schedule, exhibit, statement, list, report,
instrument or other document furnished or delivered to Company or Shareholders
pursuant to the terms of this Agreement shall be true at and as of the Closing
as fully as if such representations and warranties had been made or given at the
Closing. Buyer's officer who executes this Agreement shall deliver a certificate
stating the same to Company at the Closing.
7.2 PERFORMANCE BY BUYER
Buyer shall have performed and complied with all agreements and conditions
required by this Agreement (or by any agreement ancillary to this Agreement) to
be performed or complied with by Buyer prior to or at the Closing.
7.3 DOCUMENTS AND CERTIFICATES
Shareholders shall have received from Buyer, at or prior to the Closing,
all of the certificates, instruments and other documents required to be
delivered pursuant to Section 8.3 hereof.
7.4 BUYER CORPORATE APPROVAL
The execution and delivery of this Agreement by Buyer, and the performance
of its covenants and obligations hereunder and the transactions contemplated
hereby, shall have been duly authorized by all necessary corporate and
shareholder action, and Company shall have received copies of all resolutions
pertaining to that authorization, certified by the Secretary of Buyer.
7.5 APPROVAL OF DOCUMENTATION
The form and substance of all certificates, instruments, opinions, and
other documents delivered to Company under this Agreement shall be reasonably
satisfactory to Company, Shareholders and their respective counsel.
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ARTICLE 8 CLOSING
8.1 DATE, TIME AND PLACE
The closing under this Agreement (herein referred to as the "Closing")
shall take place at the offices of Mendelson & Brown, located at 1040 Marina
Village Parkway, Alameda, CA 94501, on May 22, 1995, at 9:00 a.m., local time or
at such other time and place as Buyer, Company and Shareholders may mutually
agree upon in writing (said date, as it may be extended pursuant to Section 8.5,
shall herein be referred to as the "Closing Date"). All transactions at the
Closing shall be deemed to take place simultaneously and no transaction shall be
deemed to have been completed and no document or certificate shall be deemed to
have been delivered until all transactions are completed and all documents
delivered.
8.2 OBLIGATIONS OF COMPANY AND SHAREHOLDERS
At the Closing, Company and/or Shareholders shall deliver to Buyer the
following:
(a) certificates for all of the issued and outstanding shares of common
stock of Company, properly endorsed for transfer with all required federal,
state and local stock transfer stamps attached;
(b) the complete and correct corporate minute books, stock transfer
books and other corporate records and the corporate seals of Company;
(c) general releases of all claims Shareholders may have against
Company, except for the Shareholder loans which are payable according to their
terms, or any of its then incumbent or past directors, officers, employees or
agents arising out of or in connection with the business of Company;
(d) the opinion of Coe, Nordwall and Liebman, counsel for Company,
substantially identical in form and substance to Exhibit F-1 attached hereto;
and the opinion of each Shareholder's counsel (other than LeFevre),
substantially identical in form and substance to Exhibit F-2 attached hereto;
(e) a Secretary's Certificate, in form and substance substantially
identical to Exhibit G-1 hereto, duly executed by the Secretary of Company;
Secretary's Certificates, in form and substance substantially identical to
Exhibit G-2 hereto, duly executed by the Secretary of each Shareholder other
than LeFevre;
(f) a Bring Down Certificate, in form and substance substantially
identical to Exhibit H hereto, duly executed by the President of Company and
Shareholders;
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(g) an Estoppel Certificate, in form and substance substantially
identical to Exhibit I hereto, from all landlords and mortgagees, covering each
parcel of property leased or mortgaged by Company;
(h) the written resignation of Chuck LeFevre and all members of the
board directors of Company in office immediately prior to the Closing;
(i) all required consents of third parties to the sale, conveyance,
transfer, assignment and delivery of the Shares or any assets of Company
hereunder;
(j) any other consents, waivers, instruments or documents as may be
reasonably requested by Buyer;
(k) a Beneficial Supply Agreement in form and substance satisfactory
to Buyer duly executed by Company and Puget Consumers Co-op,
(l) a release of all liens, in form and substance satisfactory to
Buyer, and UCC termination statements executed by National Cooperative Bank as
appropriate,
(m) a Consulting Agreement in the form of Exhibit E executed by Chuck
Lefevre and TMSA Holdings, Inc.,
(o) a Subordination Agreement in the form of Exhibit C executed by the
Shareholders.
(p) a Security Agreement in the form of Exhibit B executed by Company,
Buyer and Shareholders.
(q) such other certificates and agreements as may reasonably be required
by Bank.
(r) an Affidavit, in form and substance substantially identical to
Exhibit D hereto, duly executed by Company;
(s) a receipt for the items delivered by Buyer to Shareholders.
(t) a wire transfer from Shareholders in the aggregate amount of
Sixty-Four Thousand Nine Hundred Four Dollars ($64,904), payable to Company, as
required by Section 15.2.
8.3 OBLIGATIONS OF BUYER
At the Closing, Buyer shall deliver to Shareholders the following:
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(a) a wire transfer in the aggregate amount of One Million Nine
Hundred Thousand Dollars ($1,900,000), payable to the trust account of Coe,
Nordwall & Liebman at Key Bank, 600 Olive Way, Seattle, Washington.
(b) a wire transfer of One Hundred Thousand Dollars ($100,000) shall
be delivered to the escrow agent selected by Buyer and approved by Company.
(c) the Note, substantially in the form and substance of Exhibit A, in
the principal amount of Eight Hundred Eighteen Thousand Two Hundred Eighty-One
Dollars ($818,281).
(d) the opinion of Mendelson & Brown, substantially identical in form
and substance to Exhibit F-3 attached hereto,
(e) a wire transfer in the aggregate amount of One Million Dollars
($1,000,000) for the covenant not to compete, payable to the trust account of
Coe, Nordwall & Liebman at Key Bank, 600 Olive Way, Seattle, Washington, and
(f) to National Cooperative Bank, a wire transfer in the amount of the
line of credit extended to Company, for repayment of such line of credit, not to
exceed One Million Eight Hundred Thousand Dollars ($1,800,000).
(g) a certificate signed by an officer of Buyer stating that: (i)
Buyer has complied with and fulfilled as of the Closing Date with all terms and
conditions of this Agreement required to be performed or fulfilled by Buyer
prior to or at the Closing; (ii) Buyer has all necessary corporate power and
authority necessary to enter into this Agreement and perform the transactions
contemplated hereby; and (iii) the representations, warranties and covenants
made by Buyer in this Agreement are true and correct on and as of the Closing
Date with fully the same effect as if such representations, warranties and
covenants had been made on or given on and as of the Closing Date.
(h) a Subordination Agreement in the form of Exhibit C executed by
Buyer.
(i) a Security Agreement in the form of Exhibit B executed by the
Company and Buyer.
8.4 COOPERATION AFTER THE CLOSING
(a) Buyer, Company and Shareholders will, at any time, and from time
to time, after the Closing Date, execute and deliver such further instruments of
conveyance and transfer and take such additional action as may be reasonably
necessary to effect, consummate, confirm or evidence the transactions
contemplated by this Agreement.
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(b) Shareholders agree that, after the Closing, they shall provide
reasonable cooperation and assistance to Buyer or Company, subject to
Shareholders' obligations under cooperation and assistance to Buyer or Company,
subject to Shareholders' obligations under Section 9.1(a), at Buyer's or
Company's sole cost and expense, with respect to any matters, disputes, suits or
claims by or against any person not a party to this Agreement.
8.5 EXTENSION OF CLOSING DATE
(a) Either Buyer or Shareholders may extend the Closing Date, from
time to time, until May 30, 1995 for any reason, upon notice to the other party.
(b) In the event that Company and Shareholders have performed each and
every agreement, covenant, obligation, representation and warranty of Company or
Shareholders in the Agreement or in any agreement, schedule or exhibit hereto,
and either (i) all conditions to Buyer's obligation to close contained in
Article VI have been satisfied, other than the condition contained in Section
6.11 relating to Buyer's financing for the transaction, or (ii) Buyer is
otherwise unable to close, Buyer may extend the Closing Date from time to time
for a period of up to thirty (30) days beyond any extension made by either party
pursuant to Section 8.5(a) by depositing into escrow the amount of One Hundred
Thousand Dollars ($100,000). This amount shall be non-refundable, provided that
at the end of said thirty (30) day period, neither Company nor Shareholders
shall have breached or failed to perform any agreement, covenant, obligation,
representation or warranty of Company or Shareholders in the Agreement or in any
agreement, schedule or exhibit hereto. If Company or Shareholders shall have
breached or failed to perform any agreement, covenant, obligation,
representation or warranty of Company or Shareholders in the Agreement or in any
agreement, schedule or exhibit hereto, then such deposit shall be returned to
Buyer.
ARTICLE 9 INDEMNIFICATION
9.1 INDEMNIFICATION
(A) SHAREHOLDER INDEMNIFICATION
(i) Shareholders shall, jointly and severally, indemnify, defend
and hold harmless Buyer, Company and Bank, and their successors and assigns, and
their respective officers, directors, employees, stockholders, agents and
affiliates (in the case of Company, those persons or entities who are officers,
directors, employees, stockholders, agents and affiliates of Company from and
after the Closing) harmless from, against and in respect of any and all claims,
demands, lawsuits, proceedings, losses, assessments, fines, penalties,
administrative orders, obligations, costs, expenses, liabilities and damages,
including interest, penalties and reasonable
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attorneys' fees and costs (all of the foregoing hereinafter referred to
collectively as "Buyer Claims"), which arise or result from or relate to:
(A) Company's or Shareholders' breach of, or failure to perform, any
of their representations, warranties, covenants, commitments, agreements or
obligations under this Agreement or in any writing, certificate, exhibit,
schedule, statement, list, report, instrument or other document furnished or
delivered to Buyer in connection with the Agreement;
(B) any material inaccuracy or misrepresentation of Company or
Shareholders, or any material fact represented to be true by Company or
Shareholders which is not true, contained in the Agreement or in any writing,
certificate, exhibit, schedule, statement, list, report, instrument or other
document furnished or delivered to Buyer in connection with the Agreement;
(C) Buyer's or Company's having to assume, defend, compromise,
discharge, pay or perform any material claim, proceeding, suit, debt, liability,
obligation, loss, fee, cost or expense (whether known or unknown, absolute or
contingent, liquidated or unliquidated on the Closing Date) of Buyer or Company
arising or resulting from or relating to the conduct of the business of Company,
the operation of Company, or the ownership or condition of the properties owned
or leased by Company prior to the Closing, unless such claim, proceeding, suit,
debt, liability, obligation, loss, fee, cost or expense is disclosed in the
Agreement or in any exhibit or schedule hereto;
(D) any debt, liability or obligation imposed upon Buyer or Company
as a result of the purchase of the Shares unless such debt, liability or
obligation is disclosed in the Agreement or in any exhibit or schedule hereto;
or
(E) Company's use, analysis, storage, handling, transportation,
disposal, release, threatened release, discharge or generation of Hazardous
Substances in the conduct of Company's business, or to, in, on, under, about or
from any property owned or leased by Company or from Company's failure to comply
with any Environmental Law. For purposes of this provision, any acts or
omissions of Company, or by partners, employees, agents, assignees, contractors
or subcontractors of Company or others acting for or on behalf of Company
(whether or not they are negligent, intentional, willful or unlawful) shall be
strictly attributable to Company. This indemnification shall include, without
limitation: (x) consulting fees and costs and expert fees and costs, (y) the
cost of any investigation of site conditions, and (z) the cost of any repair,
clean-up, health or other environmental assessments, remedial, closure,
removal or restoration work, decontamination or detoxification if required by
any governmental or quasi-governmental agency or body having jurisdiction or
deemed necessary in Buyer's reasonable judgment. This indemnification is
intended to constitute an indemnity agreement within the meaning of Section
9607(e)(l) of the
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Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42
USC (9607(e)(l)).
(ii) Upon obtaining knowledge thereof, Buyer, Bank and/or Company
shall notify Shareholders in writing of any Buyer Claim that is claimed to be
the basis for indemnification pursuant to Section 9.1(a) hereof (such written
notice being hereinafter referred to as "Notice of Buyer Claim"). A Notice of
Buyer Claim shall specify in reasonable detail the nature and any particulars of
any such Buyer Claim giving rise to a right of indemnification. Shareholders
shall, in good faith and at their own expense, defend, contest, or otherwise
protect against any such Buyer Claim with legal counsel of their own selection
who is reasonably acceptable to Buyer. Buyer, Bank and/or Company shall have the
right, but not the obligation, to participate, at their own expense, in the
defense thereof through counsel of their own choice and shall have the right,
but not the obligation, to assert any and all crossclaims or counterclaims they
may have in the name of Buyer, Bank, Company or Shareholders. So long as
Shareholders are defending in good faith any such Buyer Claim, Buyer, Bank and
Company shall at all times cooperate in all reasonable ways with, make their
relevant files and records available for inspection and copying by, and make
their employees available or otherwise render reasonable assistance to,
Shareholders in connection with the defense of such Buyer Claim, subject to any
reasonable limitations and protections for trade secrets and other confidential
matters. In the event that Shareholders fail to timely defend, contest or
otherwise protect against any such Buyer Claim, Buyer, Bank and/or Company shall
have the right, but not the obligation, without further notice or demand on
Shareholders, to defend, contest, assert crossclaims or counterclaims, or
otherwise protect against any such Buyer Claim and may make any compromise or
settlement thereof and recover and be indemnified for the entire cost thereof
from Shareholders, including, without limitation, reasonable attorneys' fees,
disbursements, and all amounts paid as a result of such Buyer Claim or any
compromise or settlement thereof.
(B) BUYER INDEMNIFICATION
(i) Buyer shall, jointly and severally, indemnify, defend and hold
harmless Shareholders, and their successors and assigns, and their respective
officers, directors, employees, stockholders, agents and affiliates harmless
from, against and in respect of any and all claims, demands, lawsuits,
proceedings, losses, assessments, fines, penalties, administrative orders,
obligations, costs, expenses, liabilities and damages, including interest,
penalties and reasonable attorneys' fees and costs (all of
the foregoing hereinafter referred to collectively as "Shareholder Claims"),
which arise or result from or relate to:
(A) Buyer's breach of, or failure to perform, any of its
representations, warranties, covenants, commitments, agreements or obligations
under this Agreement or in any writing, certificate, exhibit, schedule,
statement, list,
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report, instrument or other document furnished or delivered to Shareholders in
connection with the Agreement;
(B) any material inaccuracy or misrepresentation of Buyer,
or any material fact represented to be true by Buyer which is not true,
contained in the Agreement or in any writing, certificate, exhibit, schedule,
statement, list, report, instrument or other document furnished or delivered to
Shareholders in connection with the Agreement;
(C) Shareholders' having to assume, defend, compromise,
discharge, pay or perform any material claim, proceeding, suit, debt, liability,
obligation, loss, fee, cost or expense of Buyer or Company arising or resulting
from or relating to the conduct of the business of Company, the operation of
Company, or the ownership or condition of the properties owned or leased by
Company following the Closing, unless such claim, proceeding, suit, debt,
liability, obligation, loss, fee, cost or expense is disclosed in the Agreement
or in any exhibit or schedule hereto.
(ii) Upon obtaining knowledge thereof, Shareholders shall notify
Buyer in writing of any Shareholder Claim that is claimed to be the basis for
indemnification pursuant to Section 9.1(b) hereof (such written notice being
hereinafter referred to as "Notice of Shareholder Claim"). A Notice of
Shareholder Claim shall specify in reasonable detail the nature and any
particulars of any such Shareholder Claim giving rise to a right of
indemnification. Buyer shall, in good faith and at its own expense, defend,
contest, or otherwise protect against any such Shareholder Claim with legal
counsel of its own selection who is reasonably acceptable to those Shareholders
who held a majority of the Shares prior to the Closing. Shareholders shall have
the right, but not the obligation, to participate, at their own expense, in the
defense thereof through counsel of their own choice and shall have the right,
but not the obligation, to assert any and all crossclaims or counterclaims they
may have. So long as Buyer is defending in good faith any such Shareholder
Claim, Shareholders shall at all times cooperate in all reasonable ways with,
make their relevant files and records available for inspection and copying by,
and make their employees available or otherwise render reasonable assistance to
Buyer in connection with the defense of such Shareholder Claim, subject to any
reasonable limitations and protections for trade secrets and other confidential
matters. In the event that Buyer fails to timely defend, contest or otherwise
protect against any such Shareholder Claim, Shareholders shall have the right,
but not the obligation, without further notice or demand on Buyer, to defend,
contest, assert crossclaims or counterclaims, or otherwise protect against any
such Shareholder Claim and may make any compromise or settlement thereof and
recover and be indemnified for the entire cost thereof from Buyer, including,
without limitation, reasonable attorneys' fees, disbursements, and all amounts
paid as a result of such Shareholder Claim or any compromise or settlement
thereof.
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9.2 ACCOUNTS RECEIVABLE
Shareholders represent to Buyer that the accounts receivable of Company on
hand on the Closing Date will be paid during a collection period of one hundred
eighty (180) days immediately following the Closing. Upon delivery to
Shareholders of a schedule of all such accounts receivable unpaid at the end of
this collection period, Shareholders agree to indemnify and hold harmless Buyer
from and against all losses, damages, costs and expenses it may incur (including
reasonable attorneys' fees and costs) by reason of its failure to collect the
Net Uncollected Accounts Receivable up to a maximum of Fifteen Thousand Dollars
($15,000). As used herein, the term "Net Uncollected Accounts Receivable" shall
mean all accounts receivable of Company on hand at the Closing Date which remain
unpaid after the aforementioned collection period less the amount of the reserve
for doubtful accounts reflected on the Closing Date Financial Statements;
provided, however, that the amount of the reserve for doubtful accounts
reflected on the Closing Date Financial Statements shall in no event exceed
Fifteen Thousand Dollars ($15,000). If more than one invoice is outstanding for
any customer, the "first-in, first-out" principle shall be applied in
determining the invoice to which a payment relates, unless the payment by its
terms specifies or clearly indicates the invoice to which it relates or unless
any of such invoices are in dispute. Buyer shall exercise prompt and diligent
efforts to collect all unpaid accounts receivable before the end of the
aforementioned collection period; provided, however, that Buyer shall not be
required to initiate legal proceedings for this purpose. At the end of the
collection period, Shareholders shall pay Buyer in the form of an offset against
the outstanding principal of the Shareholder Promissory Notes. Upon receipt of
payment by Shareholders, Buyer shall assign the Net Uncollected Accounts
Receivable to Shareholders, and Shareholders may attempt to collect all amounts
owing with respect to such accounts.
9.3 REMEDIES
The indemnification rights provided for in this Article 9 shall be in
addition to, and shall not restrict or impair in any respect, any other rights
or remedies of Buyer at law, equity or otherwise.
ARTICLE 10 SURVIVAL OF REPRESENTATIONS AND WARRANTIES
10.1 SURVIVAL
All representations and warranties made by Buyer, Company and Shareholders
in or pursuant to this Agreement or in any writing, certificate, exhibit,
schedule, statement, list, report, document or instrument furnished or delivered
pursuant hereto, shall survive any investigations made at any time with respect
to the provisions of this Agreement or the provisions of such writing,
certificate, exhibit, schedule, statement, list, report, document or instrument
until the expiration of the
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period specified in Section 10.2, and thereafter, to the extent a claim is made
prior to such expiration pursuant to Article 9 hereof or otherwise under law or
in equity, until such claim is finally determined or settled.
10.2 SPECIFIC TERMS
(a) all representations and warranties relating to the corporate power
and authority of a party shall survive indefinitely;
(b) all representations and warranties relating to environmental
claims shall survive for a period of five (5) years after the Closing Date; and
(c) all other representations and warranties, and indemnifications
shall survive for a period of three (3) years after the Closing Date.
ARTICLE 11 CONFIDENTIALITY
From and after the Closing, Shareholders shall not, directly or
indirectly, except at the request of Buyer, use or disclose to any third party
any of the technical, financial, operational, marketing, customer, supplier or
other confidential and proprietary information pertaining to the assets or the
business of Company. If no Closing occurs, Buyer shall not, directly or
indirectly, except at the request of Company, use or disclose to any third party
any of (a) the technical, financial, operational, marketing, customer, supplier
or other confidential and proprietary information pertaining to the assets or
the business of Company or (b) the payment terms of this Agreement.
ARTICLE 12 COVENANT NOT TO COMPETE
12.1 COVENANTS
In consideration for the payments specified in Section 12.2, Wholesale
Food Coop hereby represents, warrants, covenants and agrees that it will not,
for a period of three (3) years, directly or indirectly, engage in any business
in the States of Washington, Oregon, Alaska, California, Nevada, Hawaii,
Colorado, Arizona, New Mexico, Utah, Idaho, Montana or Wyoming which is
competitive with the business of Buyer or Company, uses the name of Company, any
name similar thereto or any variations, acronyms, forms or combinations thereof.
"Competitive with the business of Buyer or Company" shall mean a business whose
operations include the wholesale distribution of natural food or products, but
it shall not include a manufacturing business which is engaged in the
distribution of its own products or, as an ancillary as part of its distribution
of its own manufactured products, distributes other products that are
complimentary to its manufactured products. Wholesale Food Coop shall be deemed
to be engaged in a particular business if it is an employee, officer,
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director, trustee, agent, principal or partner of, or a consultant or advisor to
or for, a person, firm, corporation, association, trust or other entity which is
engaged in such business or if they own, directly or indirectly, any outstanding
stock or shares or has a beneficial or other financial interest in the stock or
net assets of any such person, firm, corporation, association, trust or other
entity engaging in such business. Wholesale Food Coop shall not be deemed to be
engaged in a business solely by reason of owning an interest of less than two
percent (2%) of the shares of any company traded on a national securities
exchange. The parties agree that the remedy at law for any breach of any
obligation under this Section 12.1 will be inadequate and that in addition to
any other rights and remedies to which they may be entitled hereunder, at law or
in equity, Company and/or Buyer shall be entitled to injunctive relief, and
reimbursement for all reasonable attorneys' fees and other expenses incurred in
connection with the enforcement hereof.
12.2 PAYMENTS
In consideration for the covenants and agreements set forth in Section
12.1, One Million Dollars ($1,000,000) shall be paid to Wholesale Foods Co-Op at
Closing.
12.3 SEVERABILITY
It is the intention of the parties that this Article 12 be fully
enforceable in accordance with its terms and that the provisions hereof be
interpreted so as to be enforceable to the maximum extent permitted by
applicable law. To the extent that any obligation to refrain from competing
within an area for a period of time as provided in this Article 12 is held
invalid or unenforceable, it shall to the extent that it is invalid or
unenforceable, be deemed void ab initio. The remaining obligations imposed by
the provisions of this Article shall be fully enforceable as if such invalid or
unenforceable provisions had not been included herein and shall be construed, to
the extent possible, such that the purpose of this Article 12, as intended by
the parties, can be achieved in a lawful manner.
ARTICLE 13 ANNOUNCEMENTS
Prior to the Closing, no public announcement related to this Agreement
or the transactions contemplated hereby, nor any other announcement or
disclosure to any employee, customer or supplier of Company or to any other
third party will be made by Buyer, Company or Shareholders without the prior
approval of the other parties to this Agreement (which approval shall not be
unreasonably withheld or delayed), except as shall be required by applicable law
or governmental regulations, in which case the party making the announcement
shall afford the other parties as much advance notice as is practicable under
the circumstances. On the Closing, Buyer and Shareholders shall mutually agree
on the text of an announcement of the sale for public distribution. Following
the Closing, Buyer shall have the right to make any
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<PAGE>
public announcements it deems appropriate, except that Buyer shall not publicly
disclose the payment terms of this Agreement.
ARTICLE 14 TRANSACTIONAL EXPENSES
14.1 EXPENSES
Subject to Sections 15.2 and 15.3, whether or not the transactions
contemplated by this Agreement are consummated, each of the parties hereto shall
bear the fees and expenses incurred by it in connection with the preparation,
negotiation, execution, delivery, and performance of this Agreement. Expenses
incurred by Company in connection with the transactions contemplated by this
Agreement shall be limited to ordinary and necessary business expenses within
the definition of Section 162 of the Internal Revenue Service Code of 1986, as
amended. If for any reason the performance of the transactions contemplated by
this Agreement are not consummated, no party shall have any liability to any
other party whatsoever with respect to such expenses.
14.2 TAXES
Company shall be responsible for all taxes, excises and other
governmental charges and/or fees payable in connection with the sale,
conveyance, transfer, assignment and delivery of the Shares or any assets of
Company hereunder (including, without limitation, all sales, use, transfer,
filing or recording taxes or fees) except for taxes on or measured by net income
or gain and taxes in the nature of an income or gains tax and payable by Buyer
in connection with the transactions contemplated by this Agreement. Company
shall also be responsible for the costs of obtaining all notices and consents
and for the preparation of all necessary assignments in connection with the
sale, conveyance, transfer, assignment, and delivery of the Shares and the
assets of Company to Buyer hereunder.
14.3 CLOSING DATE FINANCIAL STATEMENTS
All expenses, taxes, charges, fees and costs payable by Company
pursuant to this Article 14 shall be charged against and shall reduce the net
worth of Company as reflected on the Closing Date Financial Statements.
ARTICLE 15 BROKERS' FEES AND OTHER PARTIES' COMPENSATION
15.1 NO BROKER
Except for the persons, if any, listed on Schedule 15.1, all
negotiations relative to this Agreement and the transactions contemplated hereby
have been carried on directly between Buyer, Company and Shareholders, without
the intervention or
50
<PAGE>
assistance of any party not a party to this Agreement (other than to provide
legal counsel). No party to this Agreement, nor any third party, has any right
or claim to any commission, brokerage fee or other compensation relative to this
Agreement or the transactions contemplated hereby (other than for legal
services).
15.2 INDEMNIFICATION BY SHAREHOLDERS
Shareholders shall pay at Closing the commission, brokerage fee or
other compensation of any party listed on Schedule 15.1 who was retained by
Company or Shareholders to represent Company or Shareholders relative to this
Agreement or the transactions contemplated hereby, which parties include,
without limitation, Deloitte & Touche, Commerce Bank, and Coe, Nordwall &
Liebman. Company has previously paid Commerce Bank the amount of Sixty-Four
Thousand Nine Hundred and Four Dollars ($64,904) as a retainer against the
commission due to Commerce Bank for its services in connection with this
transaction. Shareholders shall pay that amount to Company on the Closing Date.
Shareholders shall defend and indemnify Buyer and Company against any and all
claims that Buyer or Company is liable to any party claiming to represent
Company or Shareholders for any commission, brokerage fee or other compensation,
or any part thereof, relative to this Agreement or the transactions contemplated
hereby.
15.3 INDEMNIFICATION BY BUYER
Buyer shall defend and indemnify Shareholders against any and all
claims that Shareholders are liable to any party claiming to represent Buyer,
for any commission, brokerage fee or other compensation, or any part thereof,
relative to this Agreement or the transactions contemplated hereby, which
parties include, without limitation, Mozart, Inc., KMPG Peat Marwick LLP, Union
Bank and Mendelson & Brown.
ARTICLE 16 GOVERNING LAW AND VALUE
The laws of the State of California, without giving effect to its
conflicts of law provisions, shall govern all questions concerning the
construction, validity and interpretation of this Agreement, the performance of
the obligations hereunder and the relations of the parties hereto. Any action or
proceeding brought under this Agreement, the subject matter hereof, or in
connection with the transactions contemplated by this Agreement shall be brought
exclusively in the United States District Court, Northern District of
California, or in any California state court situated in such District, and the
parties irrevocably submit to the jurisdiction, forum and venue of such courts.
51
<PAGE>
ARTICLE 17 NOTICES
All notices, requests, demands, reports, statements or other
communications required to be given hereunder or relating to this Agreement
shall be in writing and shall be deemed to have been duly given on the date of
service if personally served on the party to whom notice is to be given, or
three days after the date of mailing if mailed to the party to whom notice is to
be given, by first class mail, registered or certified, return receipt requested
postage prepaid, and properly addressed as follows:
To Buyer: Michael Funk, President
Mountain Peoples' Warehouse, Inc.
12745 Earhart Avenue
Auburn, CA 95602
Copy To: Richard A. Lyons
Mendelson & Brown
1040 Marina Village Parkway, Ste. B
Alameda, CA 94501
To Company: President
NutraSource, Inc.
4005 Sixth Avenue South
Seattle, WA 98108
Copy To: Henry G. Liebman
Coe, Nordwall & Liebman
720 Olive Way, Ste. 1300
Seattle, WA 98101-1812
To Shareholders: Margo Robinson, President
Associated Cooperatives, Inc.
12284 San Pablo Avenue, Suite 155
Richmond, CA 94805
Terry Baird, Executive Director
Twin Pines Cooperative Foundation
12284 San Pablo Avenue, Suite 155
Richmond, CA 94805
Jeff Voltz, Secretary
Wholesale Foods Co-op
c/o PCC
52
<PAGE>
4201 Roosevelt Way NE
Seattle, WA 98105
Allan Gallant, President
Alaska Ventures, Inc.
2200 South Road
Baltimore, MD 21209
Chuck LeFevre
2116 232nd Place NE
Redmond, WA 98053
Any party may at any time direct in writing that all communications or
particular communications or particular types of communications be delivered to
specific designees other than those specified herein by notifying the other
parties in the manner prescribed herein.
ARTICLE 18 REMEDIES
18.1 SET-OFF
The parties expressly acknowledge and agree that in addition to any
other rights and remedies available to Buyer at law, in equity or otherwise, and
provided that Buyer complies with the provisions of this Section 18.1, Buyer
shall have the right to set off against its payment obligations under the Note
any amounts to which Buyer may be entitled in accordance with the provisions of
this Agreement, including, without limitation, any amounts with respect to
Shareholders' indemnification obligations pursuant to Section 9.1 hereof and
Shareholders' obligations with respect to the accounts receivable of Company
pursuant to Section 9.2 hereof. In the event of any claim for indemnification
made by Buyer which Buyer desires to set-off against payments due to
Shareholders under the Note, Buyer shall notify Shareholders of its intention to
withhold Note payments in satisfaction of Buyer's claims for indemnification. If
those Shareholders that held a majority of the number of Shares prior to the
Closing agree with the amount and validity of Buyer's claim, Buyer shall be
entitled to set-off the claim against the Note payments. If those Shareholders
that held a majority of the number of Shares prior to the Closing disagree with
the amount or validity of Buyer's claim, they shall so notify Buyer within ten
(10) days of notice of Buyer's claim to them, and Buyer and Shareholders shall
submit the matters in dispute to a sole arbitrator for arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association in
San Francisco, California. The determination of the arbitrator shall be
conclusive and binding upon the parties. The parties shall use their best
efforts to cause the arbitrator to make such determination within thirty (30)
days after the arbitrator is appointed. Each party, Buyer, one the one hand, and
Shareholders, on the other, shall
53
<PAGE>
bear the expense of its own counsel in such proceedings. The fees and expenses
of the arbitrator and the American Arbitration Association shall be shared
equally by Buyer, on the one hand, and Shareholders, on the other hand.
18.2 SPECIFIC PERFORMANCE
Each party's obligation under this Agreement is unique. Subject to the
conditions in Articles 6 and 7, if any party should default in its obligations
under this Agreement, the parties each acknowledge that it would be extremely
impracticable to measure the resulting damages. Accordingly, the nondefaulting
party, in addition to any other available rights or remedies, may sue in equity
for specific performance, and the parties each expressly waive the defense that
a remedy in damages will be adequate.
18.3 RECOVERY OF LITIGATION COSTS
If any legal action, or any arbitration or other proceeding, is
brought for the enforcement of this Agreement, or because of an alleged dispute,
breach, default, or misrepresentation in connection with any of the provisions
of this Agreement, or otherwise arising under this Agreement, the successful or
prevailing party or parties shall be entitled to recover reasonable attorneys'
fees and other costs incurred in that action or proceeding, in addition to any
other relief to which it or they may be entitled.
ARTICLE 19 TERMINATION
19.1 COMPANY'S AND SHAREHOLDERS' TERMINATION RIGHTS
The Agreement may be immediately terminated by Company or Shareholders
upon written notice to Buyer at any time prior to the Closing upon the
occurrence of any of the following events:
(a) Company's or Shareholders' discovery of a material breach of, or
a material error, omission or misstatement contained in, any representation,
warranty or covenant of Buyer under this Agreement and Buyer's failure to remedy
such breach, error, omission or misstatement within ten (10) days after written
notice by Company or Shareholders to Buyer, or by the day prior to the Closing
if such notice is given less than ten (10) days prior to the Closing; provided,
however, that if Company's or Shareholders' notice to Buyer regarding such
breach, error, omission or misstatement is provided less than five (5) days
prior to the Closing, Buyer shall be permitted to delay the Closing upon written
notice to Company and Shareholders up to a maximum of five (5) days to remedy
such breach, error, omission or misstatement: or
54
<PAGE>
(b) Buyer's failure to perform any condition or agreement required to
be performed under this Agreement, which failure is not remedied within ten (10)
days after written notice by Company or Shareholders to Buyer, or by the day
prior to the Closing if such notice is given less than ten (10) days prior to
the Closing; provided, however, that if Company's or Shareholders' notice to
Buyer regarding such failure is provided less than five (5) days prior to the
Closing, Buyer shall be permitted to delay the Closing up to a maximum of five
(5) days to remedy such failure.
19.2 BUYER'S TERMINATION RIGHTS
This Agreement may be immediately terminated by Buyer upon written
notice to Company and Shareholders at any time prior to the Closing upon the
occurrence of any of the following events:
(a) Buyer's discovery of a material breach of, or a material error,
omission or misstatement contained in, any representation, warranty or covenant
of Company or Shareholders under this Agreement and Company's or Shareholders'
failure to remedy such breach, error, omission or misstatement within ten (10)
days after written notice by Buyer to Company or Shareholders, or by the day
prior to the Closing if such notice is given less than ten (10) days prior to
the Closing; provided, however, that if Buyer's notice to Company or
Shareholders regarding such breach, error, omission or misstatement is provided
less than five (5) days prior to the Closing, Company or Shareholders shall be
permitted to delay the Closing upon written notice to Buyer up to a maximum of
five (5) days to remedy such breach, error, omission or misstatement;
(b) Company's or Shareholders' failure to perform any condition or
agreement required to be performed under this Agreement which failure is not
remedied within ten (10) days after written notice by Buyer to Company or
Shareholders, or by the day prior to the Closing if such notice is given less
than ten (10) days prior to the Closing; provided, however, that if Buyer's
notice to Company or Shareholders regarding such failure is provided less than
five (5) days prior to the Closing, Company or Shareholders shall be permitted
to delay the Closing up to a maximum of five (5) days to remedy such failure;
(c) If the value of Company or the business thereof, is not
reasonably determined, upon satisfactory due diligence to be conducted by Buyer,
to be adequate or sufficient to warrant Buyer to perform the transactions
contemplated by this Agreement; provided that this condition shall be deemed
waived sixty (60) hours after delivery to Buyer of the customer information
specified in Sections 3.6(p)(i) and (ii) unless Buyer notifies Company that it
is not satisfied with such information; or
55
<PAGE>
(d) If Buyer does not obtain financing on terms and conditions that
are satisfactory to Buyer in the exercise of its sole discretion, enabling Buyer
to complete the transactions contemplated by this Agreement.
19.3 MUTUAL AGREEMENT
This Agreement may be immediately terminated at any time prior to the
Closing upon the mutual written consent of the parties.
ARTICLE 20 MISCELLANEOUS
20.1 ENTIRE AGREEMENT
The terms and conditions of this Agreement (including the exhibits and
schedules hereto) constitute the entire agreement between the parties with
respect to the subject matter hereof and supersede any prior understandings,
agreements or representations by or between the parties, written or oral. There
are no understandings, representations or warranties of any kind whatsoever,
except as expressly set forth herein. The exhibits and schedules attached to
this Agreement constitute an integral part hereof for all purposes, including,
without limitation, the construction and interpretation of the respective rights
and obligations of the parties hereto.
20.2 AMENDMENT
No amendment or modification of this Agreement or waiver of the terms
or conditions hereof shall be binding upon any party unless approved in writing
by such party or by an authorized representative of party.
20.3 NONWAIVER
The failure of any party hereto to enforce at any time any of the
provisions of this Agreement shall not be construed to be a waiver of any such
provisions, nor in any way affect the validity of this Agreement or any part
hereof or the right of any party thereafter to enforce any such provisions. No
waiver of any breach of this Agreement shall be deemed a waiver of any other or
subsequent breach, whether of the same provision or otherwise.
20.4 ASSIGNMENT
This Agreement shall inure to the benefit of and be binding on
Company, Shareholders, Buyer and their respective successors, assigns, legal
representatives and heirs. This Agreement shall not be assigned by Company or
Shareholders without the prior written consent of Buyer. Any attempted
assignment without such consent shall
56
<PAGE>
be void. This Agreement shall not be assigned by Buyer without the prior
written consent of Shareholders, except to a subsidiary controlled by Buyer.
20.5 COUNTERPARTS
This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement and shall become a binding
agreement when one or more counterparts have been signed by each of the parties
and delivered to the other parties.
20.6 AFFILIATED PERSONS
As used herein, the term "any person affiliated with" any other person
shall mean any member of the class that includes the spouse, parents, children,
brothers and sisters of such other person, the spouse of any such parent, child,
brother or sister, or any corporation, partnership, sole proprietorship, trust
or other entity in which such person or any one or more members of the foregoing
class has any direct or beneficial interest of ten percent (10 %) or more in the
aggregate. As used herein, the term "any person affiliated with Company" shall
mean any member of the class that includes the directors, officers, employees
and shareholders of the Company, the spouse, parents, children, brothers and
sisters, of such directors, officers, employees and shareholders, the spouse of
any such parent, child, brother or sister, or any corporation, partnership, sole
proprietorship, trust or other entity in which any one or more members of the
foregoing class has any direct or beneficial interest of ten percent (10%) or
more in the aggregate.
20.7 NUMBER
In this Agreement, where applicable, references to the singular shall
include the plural and references to the plural shall include the singular.
20.8 GENDER
In this Agreement, where applicable, references to the male gender
shall include the female gender.
20.9 HEADINGS
The subject headings of the Articles, Sections and Subsections of this
Agreement are included for purposes of convenience and reference only, and shall
not affect the construction or interpretation of any of its provisions.
57
<PAGE>
20.10 SEVERABILITY OF INVALID PROVISIONS
Any provision of this Agreement which is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in that
or any other jurisdiction.
20.11 DEFINITION OF "MATERIAL"
For purposes of this Agreement, and except as expressly provided
otherwise in this Agreement, the terms "material" and "materiality" include,
without limitation, liabilities or amounts that, individually or in the
aggregate, exceed or would exceed Fifteen Thousand Dollars ($15,000).
20.12 CONSTRUCTION
This Agreement and its associated exhibits and schedules is the
product of negotiation between the parties and their respective attorneys.
Accordingly, this Agreement shall be deemed to have been mutually prepared, and
the rules of construction to the effect that any ambiguities are to be resolved
against the drafting party shall not be employed in the interpretation of this
Agreement.
20.13 GLOSSARY OF DEFINED TERMS
"Accounts Receivable Adjustment" shall have the meaning set forth in
Section 2.3(a).
"Action" shall have the meaning set forth in Section 3.6(i).
"Adjustment Fund" shall have the meaning set forth in Section 1.3(b).
"Adjustment Period" shall have the meaning set forth in Section
2.3(a).
"Any person affiliated with" shall have the meaning set forth in
Section 20.6.
"Any person affiliated with Company" shall have the meaning set for
the in Section 20.6.
"Audited Statements" shall have the meaning set forth in Section
3.4(a).
"Bank" shall have the meaning set forth in Section 1.3(c).
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"Broker List" shall have the meaning set forth in Section 3.6(p)(iv).
"Buyer Claims" shall have the meaning set forth in Section 9.1 (a)(i).
"Closing" shall have the meaning set forth in Section 8.1.
"Closing Date" shall have the meaning set forth in Section 8.1.
"Closing Date Financial Statements" shall have the meaning set forth
in Section 2.1.
"Code" shall have the meaning set forth in Section 3.5(a).
"Competitive with the business of Buyer or Company" shall have the
meaning set forth in Section 12.1(b).
"Customer List" shall have the meaning set forth in Section 3.6(p)(i).
"Environmental Laws" shall have the meaning set forth in Section
3.6(n)
"ERISA" shall have the meaning set for the in Section 3.6(h).
"Financial Statement" shall have the meaning set forth in Section
3.4(a).
"Financial Statements" shall have the meaning set for the in Section
3.4(a).
"Hazardous Substances" shall have the meaning set forth in Section
3.6(n)
"Income Taxes" shall have the meaning set forth in Section 3.5(b)(i).
"Inventory Adjustment" shall have the meaning set forth in Section
2.3(a)(i).
"May 20, 1995 Statements" shall have the meaning set forth in Section
3.4(a).
"Material" shall have the meaning set forth in Section 20.11.
"Net Uncollected Accounts Receivable" shall have the meaning set forth
in Section 9.2.
"Net Worth Adjustment" shall have the meaning set forth in Section
2.2(a).
"Note" shall have the meaning set forth in Section 1.3(c).
"Notice of Buyer Claims" shall have the meaning set forth in Section
9.1(a)(ii).
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"Notice of Shareholder Claims" shall have the meaning set forth in
Section 9.1(b)(ii).
"November 1994 Statements" shall have the meaning set forth in Section
3.4(a).
"Peat Marwick" shall have the meaning set forth in Section 2.1.
"Physical Inventory" shall have the meaning set forth in Section 2.4.
"Purchase Price" shall have the meaning set forth in Section 1.2.
"Returns" shall have the meaning set forth in Section 3.5(a).
"SARs" shall have the meaning set forth in Section 3.6(h)(v).
"Security Agreement" shall have the meaning set forth in Section
1.3(c).
"Shareholder Claims" shall have the meaning set forth in Section
9.1(b)(i).
"Shares" shall have the meaning set forth in Recitals - A.
"Subordination Agreement" shall have the meaning set forth in Section
1.3(c).
"Tax or Taxes" shall have the meaning set forth in Section 3.5(b)(ii).
"Unsalable Inventory" shall have the meaning set forth in Section
2.3(a)(iii).
"Vendor List" shall have the meaning set forth in Section 3.6(p)(iii).
IN WITNESS WHEREOF, the parties to this Agreement have duly executed
it as of the day and year first above written.
Mountain Peoples' Warehouse, Inc.
By: /s/ Michael Funk Date: May 19, 1995
----------------
Michael Funk, President
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<PAGE>
NutraSource, Inc.
By: /s/ Chuck LeFevre Date: 5/18/95
-----------------
Chuck LeFevre, President
Wholesale Food Co-Op
By: /s/ Jeffrey Voltz Date: 5/18/95
-------------------
Title: Secretary
---------
Alaska Ventures, Inc.
By: /s/ Allan D. Gallant Date: 5/16/95
---------------------
Title: President
---------
Associated Cooperatives, Inc.
By: /s/ Margo Robison Date: 5/17/95
------------------
Title: President
---------
Twin Pines Cooperative Foundation.
By: /s/ Terry Baird Date: 5/18/95
----------------
Title: Executive Director
------------------
/s/ Chuck LeFevre Date: 5/18/95
- -----------------
Chuck LeFevre, Individual
61
<PAGE>
Exhibit A
Nonnegotiable Promissory Note
May 22, 1995
Auburn, California
$818,281
FOR VALUE RECEIVED the undersigned, a corporation organized and
existing under the laws of the State of California, having an office at 12745
Earhart Avenue, Auburn, CA 95602 ("Maker") hereby promises to pay those persons
whose names are set forth on Schedule A attached hereto and incorporated herein
by reference as if fully set forth herein ("Payees") the principal sum of Eight
Hundred Eighteen Thousand Two Hundred and Eighty One Dollars ($818,281),
together with simple interest on the unpaid balance of such principal from the
date hereof until this obligation shall be paid in full in accordance with the
following:
1. The principal sum shall be payable in full on May 22, 1998.
2. Simple interest on the unpaid principal balance hereof shall be
payable at a rate of seven and one-half percent (7.5%). Payments of principal
and interst shall be made in accordance with Schedule A.
3. Payments of principal and interest shall be made in lawful money
of the United States of America at the office of Maker, or at such other place
as Payees shall designate to Maker in writing.
4. All payments shall first be applied to the payment of accrued and
unpaid interest on this Note and shall thereafter be applied to the payment of
the principal of this Note.
5. Maker may, at its option, at any time and from time to time,
prepay all or any part of this Note together with all unpaid interest on this
Note (including all unpaid interest on the principal amount so prepaid) accrued
to the date of prepayment, without penalty. Prepayments of this Note shall
first be applied to any unpaid but accrued interest and then to the unpaid
principal balance of this Note, unless otherwise agreed in writing by Maker and
Payees.
Should default be made in payment of any sums due hereunder, or if any
sums shall not be paid when due, or if there shall be any Event of Default under
the Security Agreement securing this Note, the whole sum of principal and
interest shall become immediately due at the option of Payees of this Note. No
waiver of this right shall be effective unless in writing. Consent by Payees to
one such transaction
A-1
<PAGE>
shall not constitute a waiver of the right to require such consent to succeeding
transactions.
Borrower understands this Note is secured by a subordinated Security
Agreement of even date herewith (the "Security Agreement"), respecting
borrower's assets, Inventory, receivables and other property, and reference is
made thereto for additional rights in default hereof, and acceleration of the
indebtedness described herein. Borrower promises to pay all costs and expenses
which Payees may incur by reason of any breach or default of this Note or
instrument securing this Note. Such expenses shall include attorneys' fees
incurred both before and after acceleration, including those in any action or
proceedings in which Payees may appear or participate and in all appeals
therefrom.
If Borrower shall sell, convey, transfer, alienate, or otherwise
permit conveyance of the property securing this Note, or any interst therein,
whether voluntarily or involuntarily, other than the encumbrance of such
property, and other than the sales of inventory and equipment in the ordinary
course of business, without the consent of Payees of this Note, which shall not
be unreasonably withheld, Payees shall have the right to declare this Note,
irrespective of the maturity date specified immediately due and payable.
Except as provided above with regard to payment defaults and Events of
Default under the Security Agreement, if Borrower should fail to perform any
covenants, conditions or agreements which are a part of this Note, which failure
continues for a period of twenty (20) days after notice thereof, or if the
Borrower should make an assignment for the benefit of creditors, declare
bankruptcy, or if insolvency, or reorganization proceedings are instituted by or
against the Borrower, which proceedings are not withdrawn or dissolved within
ninety (90) days of the initiation thereof, Payees may immediately, without
notice, declare the entire remaining unpaid balance and all earned interest and
accrued late charges, if any, immediately due and payable without notice to the
Borrower. Thereafter, such total so declared due and payable shall bear
interest at the rate specified in this Note plus an additional four percent (4%)
per annum.
Presentment, Notice of Dishonor, and Protest are hereby waived by all
makers, sureties, guarantors, and endorses hereof.
The provisions of this instrument are to be construed in accordance
with the laws of the State of Washington. If any portion of this note shall be
found unenforceable, then it shall be severable from the remainder hereof, and
the remainder shall remain in full force and effect.
It is the intent of the parties hereto that under no circumstances
shall the Borrower be required to pay interest in excess of the maximum
permitted by the laws
A-2
<PAGE>
of the State of Washington. If a court of competent jurisdiction should find,
for any reason, that the interest charged on this loan is in excess of the
lawful maximum, the parties agree that the interest charged on the loan shall be
automatically reduced to the lawful maximum applicable to this loan under the
laws of the State of Washington.
The terms and conditions of this Note, the Security Agreement, and the
Stock Purchase Agreement dated as of April 20, 1995 by and among Maker, Payees
and NutraSource, Inc. (which provides for the reduction of the principal amount
of this Note under certain terms and conditions upon notice to Payees)
constitute the entire agreement among Maker and Payees with respect to the
subject matter hereof and supersede any prior representations, agreements or
understandings by or among Maker and Payees, whether written or oral. There are
no representations, warranties, agreements or understandings among Maker and
Payees of any kind whatsoever, except as expressly set forth herein, in the
Security Agreement or in the aforementioned Stock Purchase Agreement. No
amendment or modification of this Note or waiver of the terms of conditions
hereof shall be binding upon Maker or Payees, unless approved in writing by such
party or parties.
IN WITNESS WHEREOF, Maker has caused this Note to be executed in its
behalf by a duly authorized officer as of the day and year first above written.
MOUNTAIN PEOPLE'S WAREHOUSE, INC.
By: /s/ Michael Funk
--------------------------
Michael Funk, President
A-3
<PAGE>
SCHEDULE A
----------
PAYEES
------
Allan Gallant, President
2200 South Road
Baltimore, MD 21209
Associated Cooperatives, Inc.
Margo Robison, President
12284 San Pablo Avenue, Suite 155
Richmond, CA 94805
Charles LeFevre
2116 232nd Place NE
Redmond, WA 98053
Twin Pines Cooperative Foundation
Terry Baird, Executive Director
12284 San Pablo Avenue, Suite 155
Richmond, CA 94805
Wholesale Foods Co-op
Jeff Voltz, Secretary
c/o PCC
4201 Roosevelt Way NE
Seattle, WA 98105
Schedule A-1
<PAGE>
SHAREHOLDER LOANS AMORTIZATION TABLE FOR: ALASKA
VENTURES, INC.
NOTE DATE: 05/22/95 INT. RATE: 7.5%
PRINCIPAL 209,889.08 MONTHS: 36
<TABLE>
<CAPTION>
DUE DATE INTEREST PRINCIPAL PAYMENT BALANCE
<S> <C> <C> <C> <C> <C>
209,889.08
1 06/22/95 1,311.81 0.00 1,311.81 209,889.08
2 07/22/95 1,311.81 0.00 1,311.81 209,889.08
3 08/22/95 1,311.81 0.00 1,311.81 209,889.08
4 09/22/95 1,311.81 0.00 1,311.81 209,889.08
5 10/22/95 1,311.81 0.00 1,311.81 209,889.08
6 11/22/95 1,311.81 0.00 1,311.81 209,889.08
7 12/22/95 1,311.81 0.00 1,311.81 209,889.08
8 01/22/96 1,311.81 0.00 1,311.81 209,889.08
9 02/22/96 1,311.81 0.00 1,311.81 209,889.08
10 03/22/96 1,311.81 0.00 1,311.81 209,889.08
11 04/22/96 1,311.81 0.00 1,311.81 209,889.08
12 05/22/96 1,311.81 0.00 1,311.81 209,889.08
13 06/22/96 1,311.81 0.00 1,311.81 209,889.08
14 07/22/96 1,311.81 0.00 1,311.81 209,889.08
15 08/22/96 1,311.81 0.00 1,311.81 209,889.08
16 09/22/96 1,311.81 0.00 1,311.81 209,889.08
17 10/22/96 1,311.81 0.00 1,311.81 209,889.08
18 11/22/96 1,311.81 0.00 1,311.81 209,889.08
19 12/22/96 1,311.81 5,830.25 7,142.06 204,058.83
</TABLE>
Schedule A-2
<PAGE>
<TABLE>
<CAPTION>
DUE DATE INTEREST PRINCIPAL PAYMENT BALANCE
<S> <C> <C> <C> <C> <C>
20 01/22/97 1,275.37 5,830.25 7,105.62 198,228.58
21 02/22/97 1,238.93 5,830.25 7,069.18 192,398.33
22 03/22/97 1,202.48 5,830.25 7,032.74 186,568.08
23 04/22/97 1,166.05 5,830.25 6,996.30 180,737.83
24 05/22/97 1,129.61 5,830.25 6,959.86 174,907.58
25 06/22/97 1,093.17 5,830.25 6,923.42 169,077.33
26 07/22/97 1,056.73 5,830.25 6,886.98 163,247.08
27 08/22/97 1,020.29 5,830.25 6,850.54 157,416.83
28 09/22/97 983.86 5,830.25 6,814.11 151,586.58
29 10/22/97 947.42 5,830.25 6,777.67 145,756.33
30 11/22/97 910.98 5,830.25 6,741.23 139,926.08
31 12/22/97 874.54 5,830.25 6,704.79 134,095.83
32 01/22/98 838.10 5,830.25 6,668.35 128,265.58
33 02/22/98 801.66 5,830.25 6,631.91 122,435.33
34 03/22/98 765.22 5,830.25 6,595.47 116,605.08
35 04/22/98 728.78 5,830.25 6,559.03 110,774.83
36 05/22/98 692.34 5,830.25 6,522.59 104,944.58
37 05/22/98 0.00 104,944.58 104,944.58 0.00
</TABLE>
Schedule A-3
<PAGE>
SHARHOLDER LOANS AMORTIZATION TABLE FOR: ASSOCIATED
COOPERATIVES
NOTE DATE: 05/22/95 INT. RATE: 7.5%
PRINCIPAL: 110,467.93 MONTHS: 36
<TABLE>
<CAPTION>
DUE DATE INTEREST PRINCIPAL PAYMENT BALANCE
<S> <C> <C> <C> <C> <C>
110,467.93
1 06/22/95 690.42 0.00 690.42 110,467.93
2 07/22/95 690.42 0.00 690.42 110,467.93
3 08/22/95 690.42 0.00 690.42 110,467.93
4 09/22/95 690.42 0.00 690.42 110,467.93
5 10/22/95 690.42 0.00 690.42 110,467.93
6 11/22/95 690.42 0.00 690.42 110,467.93
7 12/22/95 690.42 0.00 690.42 110,467.93
8 01/22/96 690.42 0.00 690.42 110,467.93
9 02/22/96 690.42 0.00 690.42 110,467.93
10 03/22/96 690.42 0.00 690.42 110,467.93
11 04/22/96 690.42 0.00 690.42 110,467.93
12 05/22/96 690.42 0.00 690.42 110,467.93
13 06/22/96 690.42 0.00 690.42 110,467.93
14 07/22/96 690.42 0.00 690.42 110,467.93
15 08/22/96 690.42 0.00 690.42 110,467.93
16 09/22/96 690.42 0.00 690.42 110,467.93
17 10/22/96 690.42 0.00 690.42 110,467.93
18 11/22/96 690.42 0.00 690.42 110,467.93
19 12/22/96 690.42 3,068.55 3,758.97 107,399.38
20 01/22/97 671.25 3,068.55 3,739.80 104,330.83
</TABLE>
Schedule A-4
<PAGE>
<TABLE>
<CAPTION>
DUE DATE INTEREST PRINCIPAL PAYMENT BALANCE
<S> <C> <C> <C> <C> <C>
21 02/22/97 652.07 3,068.55 3,720.62 101,262.28
22 03/22/97 632.89 3,068.55 3,701.44 98,193.73
23 04/22/97 613.71 3,068.55 3,682.26 95,125.18
24 05/22/97 594.53 3,068.55 3,683.08 92,056.83
25 06/22/97 575.35 3,068.55 3,643.90 88,988.08
26 07/22/97 556.18 3,068.55 3,624.73 85,919.53
27 08/22/97 537.00 3,068.55 3,605.55 82,850.98
28 09/22/97 517.82 3,068.55 3,586.37 79,782.43
29 10/22/97 498.64 3,068.55 3,567.19 76,713.88
30 11/22/97 479.46 3,068.55 3,548.01 73,645.33
31 12/22/97 460.28 3,068.55 3,528.83 70,576.78
32 01/22/98 441.10 3,068.55 3,509.65 67,508.23
33 02/22/98 421.93 3,068.55 3,490.48 64,439.68
34 03/22/98 402.75 3,068.55 3,471.30 61,371.13
35 04/22/98 383.57 3,068.55 3,452.12 58,302.58
36 05/22/98 364.39 3,068.55 3,432.94 55,234.03
37 05/22/98 0.00 55,234.03 55,234.03 0.00
</TABLE>
Schedule A-5
<PAGE>
SHAREHOLDER LOANS AMORTIZATION TABLE FOR: CHARLES LEFEVRE
<TABLE>
<CAPTION>
NOTE DATE: 05/22/95 INT. RATE 7.5%
PRINCIPAL: 81,828.10 MONTHS: 36
DUE DATE INTEREST PRINCIPAL PAYMENT BALANCE
<S> <C> <C> <C> <C> <C>
81,828.10
1 06/22/95 511.43 0.00 511.43 81,828.10
2 07/22/95 511.43 0.00 511.43 81,828.10
3 08/22/95 511.43 0.00 511.43 81,828.10
4 09/22/95 511.43 0.00 511.43 81,828.10
5 10/22/95 511.43 0.00 511.43 81,828.10
6 11/22/95 511.43 0.00 511.43 81,828.10
7 12/22/95 511.43 0.00 511.43 81,828.10
8 01/22/96 511.43 0.00 511.43 81,828.10
9 02/22/96 511.43 0.00 511.43 81,828.10
10 03/22/96 511.43 0.00 511.43 81,828.10
11 04/22/96 511.43 0.00 511.43 81,828.10
12 05/22/96 511.43 0.00 511.43 81,828.10
13 06/22/96 511.43 0.00 511.43 81,828.10
14 07/22/96 511.43 0.00 511.43 81,828.10
15 08/22/96 511.43 0.00 511.43 81,828.10
16 09/22/96 511.43 0.00 511.43 81,828.10
17 10/22/96 511.43 0.00 511.43 81,828.10
18 11/22/96 511.43 0.00 511.43 81,828.10
19 12/22/96 511.43 2,273.00 2,784.43 79,555.10
20 01/22/97 497.22 2,273.00 2,770.22 77,282.10
</TABLE>
Schedule A-6
<PAGE>
<TABLE>
<CAPTION>
DUE DATE INTEREST PRINCIPAL PAYMENT BALANCE
<S> <C> <C> <C> <C> <C>
21 02/22/97 483.01 2,273.00 2,758.01 75,009.10
22 03/22/97 468.81 2,273.00 2,741.81 72,736.10
23 04/22/97 454.60 2,273.00 2,727.60 70,463.10
24 05/22/97 440.39 2,273.00 2,713.39 68,190.10
25 06/22/97 426.19 2,273.00 2,699.19 65,917.10
26 07/22/97 411.98 2,273.00 2,684.98 63,644.10
27 08/22/97 397.78 2,273.00 2,670.78 61,371.10
28 09/22/97 383.57 2,273.00 2,656.57 59,098.10
29 10/22/97 369.36 2,273.00 2,642.36 56,825.10
30 11/22/97 355.16 2,273.00 2,628.16 54,552.10
31 12/22/97 340.95 2,273.00 2,613.95 52,279.10
32 01/22/98 326.74 2,273.00 2,599.74 50,006.10
33 02/22/98 312.54 2,273.00 2,585.54 47,733.10
34 03/22/98 298.33 2,273.00 2,571.33 45,460.10
35 04/22/98 284.13 2,273.00 2,557.13 43,187.10
36 05/22/98 269.92 2,273.00 2,542.92 40,914.10
37 05/22/98 0.00 40,914.10 40,914.10 0.00
</TABLE>
Schedule A-7
<PAGE>
SHAREHOLDER LOANS AMORTIZATION TABLE FOR:TWIN PINES COOPERATIVE FOUNDATION
<TABLE>
<CAPTION>
NOTE DATE: 05/22/95 INT. RATE: 7.5%
PRINCIPAL: 73,645.29 MONTHS: 36
DUE DATE INTEREST PRINCIPAL PAYMENT BALANCE
<S> <C> <C> <C> <C> <C>
73,645.29
1 06/22/95 460.28 0.00 460.28 73,645.29
2 07/22/95 460.28 0.00 460.28 73,645.29
3 08/22/95 460.28 0.00 460.28 73,645.29
4 09/22/95 460.28 0.00 460.28 73,645.29
5 10/22/95 460.28 0.00 460.28 73,645.29
6 11/22/95 460.28 0.00 460.28 73,645.29
7 12/22/95 460.28 0.00 460.28 73,645.29
8 01/22/96 460.28 0.00 460.28 73,645.29
9 02/22/96 460.28 0.00 460.28 73,645.29
10 03/22/96 460.28 0.00 460.28 73,645.29
11 04/22/96 460.28 0.00 460.28 73,645.29
12 05/22/96 460.28 0.00 460.28 73,645.29
13 06/22/96 460.28 0.00 460.28 73,645.29
14 07/22/96 460.28 0.00 460.28 73,645.29
15 08/22/96 460.28 0.00 460.28 73,645.29
16 09/22/96 460.28 0.00 460.28 73,645.29
17 10/22/96 460.28 0.00 460.28 73,645.29
18 11/22/96 460.28 0.00 460.28 73,645.29
19 12/22/96 460.28 2,045.70 2,505.98 71,599.59
</TABLE>
Schedule A-8
<PAGE>
<TABLE>
<CAPTION>
DUE DATE INTEREST PRINCIPAL PAYMENT BALANCE
<S> <C> <C> <C> <C> <C>
20 01/22/97 447.50 2,045.70 2,493.20 69,553.89
21 02/22/97 434.71 2,045.70 2,480.41 67,508.19
22 03/22/97 421.93 2,045.70 2,467.63 65,482.49
23 04/22/97 409.14 2,045.70 2,454.84 63,418.79
24 05/22/97 396.35 2,045.70 2,442.05 61,371.09
25 06/22/97 383.57 2,045.70 2,429.27 59,325.39
26 07/22/97 370.78 2,045.70 2,416.48 57,279.69
27 08/22/97 358.00 2,045.70 2,403.70 55,233.99
28 09/22/97 345.21 2,045.70 2,390.91 53,188.29
29 10/22/97 332.43 2,045.70 2,378.13 51,142.59
30 11/22/97 318.64 2,045.70 2,365.34 48,096.89
31 12/22/97 306.86 2,045.70 2,352.56 47,051.19
32 01/22/98 294.07 2,045.70 2,339.77 45,005.49
33 02/22/98 281.28 2,045.70 2,326.98 42,959.79
34 03/22/98 268.50 2,045.70 2,314.20 40,914.09
35 04/22/98 255.71 2,045.70 2,301.41 38,868.39
36 05/22/98 242.93 2,045.70 2,288.63 36,822.69
37 05/22/98 0.00 36,822.69 36,822.69 0.00
</TABLE>
Schedule A-9
<PAGE>
SHAREHOLDER LOANS AMORTIZATION TABLE FOR:WHOLESALE FOODS COOP
<TABLE>
<CAPTION>
NOTE DATE: 05/22/95 INT. RATE: 7.5%
PRINCIPAL: 342,450.80 MONTHS: 36
DUE DATE INTEREST PRINCIPAL PAYMENT BALANCE
<S> <C> <C> <C> <C> <C>
342,450.60
1 06/22/95 2,140.32 0.00 2,140.32 342,450.60
2 07/22/95 2,140.32 0.00 2,140.32 342,450.60
3 08/22/95 2,140.32 0.00 2,140.32 342,450.60
4 09/22/95 2,140.32 0.00 2,140.32 342,450.60
5 10/22/95 2,140.32 0.00 2,140.32 342,450.60
6 11/22/95 2,140.32 0.00 2,140.32 342,450.60
7 12/22/95 2,140.32 0.00 2,140.32 342,450.60
8 01/22/96 2,140.32 0.00 2,140.32 342,450.60
9 02/22/96 2,140.32 0.00 2,140.32 342,450.60
10 03/22/96 2,140.32 0.00 2,140.32 342,450.60
11 04/22/96 2,140.32 0.00 2,140.32 342,450.60
12 05/22/96 2,140.32 0.00 2,140.32 342,450.60
13 06/22/96 2,140.32 0.00 2,140.32 342,450.60
14 07/22/96 2,140.32 0.00 2,140.32 342,450.60
15 08/22/96 2,140.32 0.00 2,140.32 342,450.60
16 09/22/96 2,140.32 0.00 2,140.32 342,450.60
17 10/22/96 2,140.32 0.00 2,140.32 342,450.60
18 11/22/96 2,140.32 0.00 2,140.32 342,450.60
19 12/22/96 2,140.32 9,512.52 11,652.84 332,938.08
20 01/22/97 2,080.86 9,512.52 11,593.38 323,425.58
</TABLE>
Schedule A-10
<PAGE>
<TABLE>
<CAPTION>
DUE DATE INTEREST PRINCIPAL PAYMENT BALANCE
<S> <C> <C> <C> <C> <C>
21 02/22/97 2,021.41 9,512.52 11,533.93 313,913.04
22 03/22/97 1,961.96 9,512.52 11,474.48 304,400.52
23 04/22/97 1,902.50 9,512.52 11,415.02 294,888.00
24 05/22/97 1,843.05 9,512.52 11,355.57 285,375.48
25 06/22/97 1,783.60 9,512.52 11,296.12 275,862.96
26 07/22/97 1,724.14 9,512.52 11,236.66 266,350.44
27 08/22/97 1,664.69 9,512.52 11,177.21 256,837.92
28 09/22/97 1,605.24 9,512.52 11,117.76 247,325.40
29 10/22/97 1,545.78 9,512.52 11,058.30 237,812.88
30 11/22/97 1,486.33 9,512.52 10,998.85 228,300.36
31 12/22/97 1,426.88 9,512.52 10,939.40 218,787.84
32 01/22/98 1,367.42 9,512.52 10,879.94 209,275.32
33 02/22/98 1,307.97 9,512.52 10,820.49 199,762.80
34 03/22/98 1,248.52 9,512.52 10,761.04 190,250.28
35 04/22/98 1,189.06 9,512.52 10,701.58 180,737.76
36 05/22/98 1,129.61 9,512.52 10,642.13 171,225.21
37 05/22/98 0.00 171,225.24 171,225.24 0.00
</TABLE>
Schedule A-11
<PAGE>
Exhibit B
---------
SECURITY AGREEMENT
Mountain Peoples' Warehouse, Inc. ("MPW") a California Corporation,
borrowed Eight Hundred Eighteen Thousand Two Hundred and Eighty One Dollars
($818,281) pursuant to the Promissory Note of May 22, 1995, ("Note"). MPW and
its subsidiary company, NutraSource, Inc., ("NutraSource") a Washington
Corporation, hereinafter jointly referred to as "Debtor or Debtors" hereby grant
to Associated Cooperatives, Inc., a California Corporation, Twin Pines
Cooperative Foundation, a California Foundation, Wholesale Foods Co-op, a
Washington Corporation, Alaska Ventures, Inc., a Washington Corporation, and
Chuck LeFevre, an individual resident in the State of Washington, jointly and
severally, ("Shareholders") a security interest in the following property
("Collateral"): all inventory and stock in trade of the Debtor, all products of
the Debtor, all cash and non-cash proceeds of such property, including without
limitation chattel paper and accounts receivable, together with all increases
therein, all added and substitute property, all furniture, fixtures, parts,
equipment, supplies, improvements therefor, together with all proceeds,
additions or substitutions of such property.
Debtor hereby assigns all of its right, title and interest in and to the
Collateral for security purposes only, to the Shareholders. Debtor shall execute
all documents reasonably required to assign the Collateral to Shareholders.
This Security Agreement is given to secure payment and performance of
indebtedness and obligations of Debtor to Shareholders under the Note. Debtors
shall be jointly and severally liable.
Debtor hereby represents, covenants, and agrees with Shareholders as
follows:
1. Liens. Debtor owns the Collateral free and clear of all liens and
-----
encumbrances of every nature except: a first lien on MPW Collateral assets in
favor of Union Bank and a first lien on NutraSource Collateral in favor of Union
Bank, a second lien on NutraSource Collateral in favor of the National
Cooperative Bank, the liens of NutraSource disclosed by the Stock Purchase
Agreement of April 20, 1995 between MPW and the Shareholders (the "Agreement"),
and the liens of MPW disclosed in the Officer's Certificate attached hereto as
Exhibit A and incorporated by reference.
- ---------
2. Taxes and other Obligations. Debtor shall pay, before delinquency, all
---------------------------
taxes or other governmental charges and all obligations levied against the
Collateral or any of its property.
1
<PAGE>
3. Access to Records. Subject to Shareholders' agreement to maintain the
-----------------
confidentiality of Debtor's confidential information, at any reasonable time
Debtor shall permit Shareholders' representative to examine and make copies of
such books and records of MPW or NutraSource as may be necessary to verify
Debtor's compliance with this Agreement. Debtor shall maintain adequate books
and records accurately reflecting the financial transactions of Debtor.
4. Conduct of Business. Debtor shall conduct its business substantially as
-------------------
presently conducted.
5. Compliance with Laws. Debtor shall comply with all material laws,
--------------------
regulations, rules and orders of any governmental authority.
6. Insurance. Debtor shall keep in force insurance in such amounts as
---------
reasonably required to adequately protect the Collateral.
7. Payment by Shareholders. Shareholders at their sole option may pay any
-----------------------
tax, assessment, expense or any other charge payable by Debtor and any filing or
recording fees, and any amount so paid, with interest thereon at the maximum
rate permitted by law from the date of payment until repaid, shall be secured
hereby and shall be repayable by Debtor on demand. The rights granted by this
paragraph are not a waiver of any other rights of Shareholders arising from
breach of any of the covenants hereof by Debtor.
8. Waiver. This Agreement shall not be qualified or supplemented by course of
------
dealing. No waiver or modification by Shareholders shall be effective unless in
writing signed by Shareholders. No waiver by Shareholders shall constitute a
waiver as to any subsequent performance or obligations of Debtor.
9. Default. Default shall occur in any of the following events ("Events of
-------
Default"):
a. Failure to pay when due any amount or obligation secured
hereby;
b. Failure to perform as required any material term, covenant
or agreement herein or in the Promissory Note within twenty
(20) days after notice thereof;
c. Any misrepresentation of Debtor in the Note or this
Agreement; or
d. If Debtor becomes insolvent or is the subject of a petition
in bankruptcy, either voluntary or involuntary, which is not
2
<PAGE>
dismissed or withdrawn within (90) ninety days after filing
of such petition, or in any other proceedings under the
federal bankruptcy laws; or makes an assignment for the
benefit of creditors; or if Debtor is named in or the
property is subject to a suit for the appointment of a
receiver.
Then, in the event of any Event of Default, the entire amount of indebtedness
secured hereby shall then or any time thereafter, at the option of Shareholders,
become immediately due and payable without notice of demand, and Shareholders
shall have an immediate right to pursue the remedies set forth in this
Agreement.
10. Remedies. In the event of any Event of Default, without prior notice,
--------
Shareholders shall have all remedies provided by law and in equity, including,
but not limited to:
a. Take possession of the Collateral;
b. Sell products of any nature owned by Debtor under Debtor's
trade names, using Debtor's trademark;
c. Send written notice to Debtor's customers of Debtor's
default and advise Debtor's customers that Debtor's trade
names and trademarks now belong to Shareholders, in which
case Debtor shall be deemed to have sold all of its accounts
to Shareholders in satisfaction of all debts secured hereby
and Debtor shall have no further interest in the Collateral;
d. Debtor agrees to pay on demand all expenses incurred by
Shareholders in protection of the Collateral, including but
not limited to attorney fees, with or without suit, title
searches, court costs, and any other associated costs. Such
sums shall be secured hereby; and/or
e. Debtor agrees to pay the deficiency remaining after
application of the net proceeds of the Collateral to any
indebtedness secured hereby.
11. Attorney in Fact. Debtor hereby nominates and appoints Shareholders or the
----------------
assignee of Shareholders as its attorney-in-fact for the purpose of executing in
Debtor's name any continuation statements required to continue Shareholders'
security interest in the Collateral or for any other purpose reasonably related
to the exercise of Shareholders' rights under this Agreement.
3
<PAGE>
12. Successors; Modification. This Agreement shall be fully binding on the
------------------------
successors, heirs, legal representatives and assigns of the parties hereto. No
change or modification of this Agreement shall be valid unless it is in writing
and signed by all the parties. This Agreement and the Note represent the sole
agreement between the parties and supersedes all other written or oral
agreements, except that this Security Agreement shall be subject to the terms of
the Agreement.
13. Paragraph Headings. The paragraph headings are for convenience only and in
------------------
no way define, limit, extend or interpret the scope of this Agreement or of any
particular paragraph hereof.
14. Interpretation and Fair Construction of Contract. This Agreement has been
------------------------------------------------
reviewed and approved by each of the parties. In the event it should be
determined that any provision of this Agreement is uncertain or ambiguous, the
language in all parts of this Agreement shall be in all cases construed as a
whole according to its fair meaning and not strictly construed for, or against,
either party.
15. Validity. In case any term of this Agreement shall be invalid, illegal or
--------
unenforceable, in whole or in part, the validity of any of the other terms of
this Agreement shall not in any way be affected thereby.
16. Counterparts. This Agreement may be signed in counterparts, any one of
------------
which shall be deemed to be an original.
17. Variations in Pronouns. All pronouns include the masculine, feminine,
----------------------
neuter, singular or plural as the identification of persons, places, firms,
corporations or entities as the context may require.
18. Waiver of Breach. The failure of any party hereto to insist upon strict
----------------
performance of any of the covenants and agreements herein contained, or to
exercise any option or right herein conferred, in any one or more instances,
shall not be construed to be a waiver or relinquishment of any such option or
right, or of any other covenants or agreement, but the same shall be and remain
in full force and effect.
19. Independent Counsel. The parties hereto acknowledge and agree that they
-------------------
have each been represented in the negotiations and preparation of this Agreement
by independent counsel of their choice, and that they have read this Agreement,
have had its contents fully explained to them by such counsel, and are fully
aware of the contents hereof and of its legal effect.
20. Law. This Agreement shall be governed by, construed, and enforced in
---
accordance with the internal laws of the State of Washington without giving
effect to principles and provisions thereof relating to conflict or choice of
laws irrespective of
4
<PAGE>
the fact that any one of the parties is now or may become a resident of a
different state. Venue for any action under this Agreement shall lie in King
County, Washington.
IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties
have duly executed this Agreement effective on the date hereinbelow written.
Dated this 22nd day of May, 1995.
Shareholder Signatures:
- ----------------------
ASSOCIATED COOPERATIVES, INC. WHOLESALE FOODS CO-OP
By: /s/ Margo Robison By: /s/ Jeff Voltz
------------------------ ---------------------
Margo Robison, President Jeff Voltz, Secretary
ALASKA VENTURES, INC. TWIN PINES COOPERATIVE FOUNDATION
By: /s/ Allan Gallant By: /s/ Terry Baird
------------------------ -------------------------------
Allan Gallant, President Terry Baird, Executive Director
/s/ Chuck LeFevre
-------------------------
Chuck LeFevre, Individual
Debtor Signatures:
- -----------------
MOUNTAIN PEOPLES' NUTRASOURCE, INC.
WAREHOUSE, INC.
By: /s/ Michael Funk By: /s/ Michael Funk
----------------------- -----------------------
Michael Funk, President Michael Funk, President
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Exhibit C
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SUBORDINATION AGREEMENT
("Agreement")
TO: UNION BANK
___________________________________
___________________________________
The undersigned, _________________________________________________
("Creditor"), is interested in the financial success of _______________________
____________________________________, ("Debtor") and acknowledges that UNION
BANK ("Bank") has entered or is presently intending to enter into certain
licensing arrangements with Debtor. Creditor agrees that the financing
arrangements between Bank and Debtor are in Debtor's and Creditor's best
interests and, in order to induce Bank to enter into or continue such financing
arrangements, Creditor agrees as follows:
1. The term "Obligations" is used in this Agreement in its broadest and
most comprehensive sense and shall mean all present and future indebtedness of
Debtor which may be, from time to time, incurred by Debtor, including, but not
limited to, any negotiable instruments, evidencing the same, all guaranties,
debts, demands, monies, indebtedness, liabilities and obligations owed or to
become owing, including interest, principal, costs, and other charges, and all
claims, rights, causes of action, judgments, decrees, remedies, security
interests, or other obligations of any kind whatsoever and howsoever arising,
whether voluntary, involuntary, absolute, contingent, direct, indirect, or by
operation of law.
2. The term "Creditor Obligations" shall mean all Obligations owing at
any time by Debtor to Creditor.
3. Except as provided in Section 5, below, the Creditor Obligations are
hereby subordinated and subject, in the manner and to the extent described
below, to any and all Obligations owed by Debtor to Bank, including, but not
limited to, Obligations arising pursuant to any agreements between Bank and
Debtor, now or hereafter existing, whether matured or not ("Bank Obligations"),
so long as any Bank Obligations shall remain unpaid, in whole or in part, or
Bank is committed or otherwise obligated to extend credit to Debtor.
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4. So long as any of the Bank Obligations remain unpaid, in whole or in
part, or so long as Bank is committed or otherwise obligated to extend credit to
Debtor, Creditor agrees that, except to the extent that payments under the
Creditor Obligations are permitted under Section 5 below, Creditor shall not:
(a) collect, or receive payment upon, by setoff or in any other manner, all or
any portion of the Creditor Obligations now or hereafter existing; (b) sell,
assign, transfer, pledge, or give a security interest in the Creditor
Obligations (except subject expressly to this Agreement); (c) declare or in any
other manner find or hold Debtor in default under the Creditor Obligations; (d)
enforce or apply any security, now or hereafter existing for the Creditor
Obligations; (e) commence, prosecute or participate in any administrative,
legal, or equitable action against Debtor concerning the Creditor Obligations;
(f) join in any petition for bankruptcy, assignment for the benefit of
creditors, or creditors' agreement; (g) take, maintain or enforce any lien or
security, which is senior to Bank's interest, in any property, real or personal,
to secure the Creditor Obligations; or (h) incur any obligation to, or receive
any loans, advances, dividends, payments of any kind or gifts from, Debtor.
5. Notwithstanding the preceding section, so long as Debtor has made each
and every payment of principal and interest due and owing to Bank, is not in
default under any of Debtor's agreements with Bank and none of the following
payments would cause such default, then: (a) Creditor shall be entitled to
receive regularly scheduled payments of principal and interest (i.e., not a
prepayment or a payment resulting from acceleration) on the Creditor Obligations
not exceeding $_____________ per _____________; and (b) Creditor shall be
entitled to receive any and all employment compensation (regular salary,
reasonable bonuses, and reimbursement for actual and necessary business
expenses) which is or may be due to Creditor from Debtor; provided, however,
that the aggregate amount of all payments made as employment compensation from
Debtor to Creditor shall not exceed, during any fiscal year of Debtor, the sum
of $_____________.
6. Except as otherwise expressly agreed to herein, all of the Bank
Obligations now or hereafter existing shall be first paid by Debtor before any
payment shall be made by Debtor on the Creditor Obligations. This priority of
payment shall apply at all times until all of the Bank Obligations have been
repaid in full. In the event of any assignment by Debtor for the benefit of
Debtor's creditors, any bankruptcy proceedings instituted by or against Debtor,
the appointment of any receiver for Debtor or Debtor's business or assets, or
any dissolution or other winding up of the affairs of Debtor or of Debtor's
business, and in all such cases, the officers of Debtor and any assignee,
trustee in bankruptcy, receiver or other person or persons in charge,
respectively, are hereby directed to pay to Bank the full amount of the Bank
Obligations before making any payment to Creditor.
7. Creditor agrees that if part or all of the Creditor Obligations are
evidenced, now or in the future, by a promissory note or other instrument,
Creditor
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shall place or cause to be placed on its face a legend stating that the payment
thereof is subject to the terms of this Agreement and is subordinate to the
payment of all the Bank Obligations. Creditor agrees to deliver to Bank a
certification in form requested by Bank; and, at any time during the term of
this Agreement, at the Bank's request, to deliver the original promisory note or
instrument to Bank. Creditor agrees to mark all books of account in such manner
as to indicate that payment thereof is subordinated pursuant to the terms of
this Agreement. Creditor agrees to execute any recordable subordination
agreements, financing statement amendments or other documents reasonably
required by Bank to provide notice to others of this Agreement, and agrees to
the recording of any such documents as Bank may require.
8. Creditor agrees that Bank shall have absolute power and discretion,
without notice to Creditor, to deal in any manner with the Bank Obligations,
including, interest, costs and expenses payable by Debtor to Bank, and any
security and guaranties therefor including, but not limited to, release,
surrender, extension, renewal, acceleration, compromise, or substitution.
Creditor hereby waives and agrees not to assert against Bank any rights which a
guarantor or surety could exercise; but nothing in this Agreement shall
constitute Creditor a guarantor or surety. Creditor hereby waives the right, if
any, to require that Bank marshal, or otherwise proceed to dispose of or
foreclose upon, collateral Bank may have in any manner or order.
9. If, at any time hereafter, Bank shall, in its own judgment, determine
to discontinue the extension of credit to or on behalf of Debtor, Bank may do
so. This Agreement, the obligations of Creditor owing to Bank, and Bank's
rights and privileges hereunder shall continue until payment in full of all of
the Obligations owing to Bank by Debtor notwithstanding any action or non-action
by Bank with respect to the Obligations or with respect to any collateral
therefor or any guaranties thereof. All rights, powers and remedies hereunder
shall apply to all past, present and future Bank Obligations, including under
successive transactions, any of which may continue, renew, increase, decrease or
from time to time create new Bank Obligations and notwithstanding that from time
to time Bank Obligations theretofore existing may have been paid in full.
10. Creditor further agrees that in case Creditor should, contrary to
Section 4 above, take or receive any additional security interest in, or
additional lien by way of attachment, execution, or otherwise on any property,
real or personal, or should take or join in any other measure or advantage
contrary to this Agreement, at any time prior to the payment in full of all of
the Bank Obligations, Bank shall be entitled to have the same vacated, dissolved
and set aside by such proceedings at law, or otherwise, as Bank may deem proper,
and this Agreement shall be and constitute full and sufficient grounds therefor
and shall entitle Bank to become a party to any proceedings at law, or
otherwise, initiated by Bank or by any other party, in or by which Bank may deem
it proper to protect its interests hereunder. Creditor agrees
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that if Creditor violates this Agreement, Creditor shall be liable to Bank for
all losses and damages sustained by Bank by reason of such breach.
11. Except as otherwise expressly agreed to herein, if Creditor shall
receive any payments, security interests, or other rights in any property of
Debtor in violation of this Agreement, such payment or property shall be
received by Creditor in trust for Bank and shall forthwith be delivered and
transferred to Bank.
12. Creditor represents and warrants that Creditor hs not previously
subordinated the Creditor obligations for the benefit of any other party, and
agrees that any such subordinations hereafter executed shall be expressly made
subject and subordinate to the terms of this Agreement. Creditor further
warrants having established with Debtor adequate means of obtaining, on an
ongoing basis, such information as Creditor may require which may effect the
ultimate satisfaction by Debtor of the Creditor Obligations. Bank shall have no
duty to provide any such information to Creditor.
13. This Agreement shall be binding upon the successors and assigns of
Creditor, and shall inure to the benefit of Bank's successors and assigns.
14. This Agreement and all rights and liabilities of the parties hereto
shall be governed as to validity, interpretation, enforcement and effect by the
laws of the State of California.
15. In the event of any dispute under this Agreement, the prevailing party
shall be entitled to recover its reasonable attorneys' fees and costs whether or
not suit is brought.
16. This Agreement shall remain in full force and effect until and unless
Creditor delivers to Bank written notice that this Agreement has been revoked as
to credit granted by Bank subsequent to the delivery of such notice, but
delivery of such notice shall not affect any of Creditor's obligations hereunder
with respect to credit granted by Bank prior to such delivery.
17. (a) Mandatory Arbitration. Any controversy or claim between or among
---------------------
the parties to this Agreement arising out of or relating to (i) this Agreement
or any guaranties, subordination agreements, pledges or accommodation pledges,
security documents and other agreements, documents and instruments of every kind
relating in any way to the Bank Obligations (collectively, the "Subject
Documents"), (ii) any negotiations, correspondence or communications, whether or
not incorporated or integrated into the Subject Documents, relating to the
Subject Documents or any indebtedness evidenced thereby, or (iii) the
administration or management of the Subject Documents or the credit evidenced
thereby, and with respect to (i), (ii) and (iii) also including any such
controversy or claim based on or arising out of an alleged
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<PAGE>
tort, shall be determined by arbitration in accordance with Title 9 of the U.S.
Code and the Commercial Arbitration Rules of the American Arbitration
Association (AAA). All statutes of limitations and waivers which would otherwise
be applicable shall apply to any arbitration proceeding under this subsection
(a). Judgment upon the award rendered may be entered in any court having
jurisdiction. The subsection (a) shall apply only if, at the time of the
proposed submission to AAA, none of the obligations to Bank described in or
covered by any of the Subject Documents are secured by real property collateral
or, if so secured, all parties consent to such submission.
(b) Judicial Reference. If the controversy or claim is not submitted
------------------
to arbitration as provided and limited in subsection (a), but becomes the
subject of a judicial action, any party may elect to have all decisions of fact
and law determined by a reference in accordance with applicable state law. If
such an election is made, the parties shall designate to the court a referee or
referees selected under the suspices of the AAA in the same manner as
arbitrators are selected in AAA-sponsored proceedings. The referee, or
presiding referee of the panel, shall be an active attorney or retired judge.
Judgment upon the award rendered shall be entered in the court in which such
proceeding was commenced.
(c) Provision Remedies, Self-Help, and Foreclosure. No provision of,
----------------------------------------------
or the exercise of any rights under subsection 17(a) shall limit the right of
any party to obtain provisional or ancillary remedies, including but not limited
to injunctive relief or the appointment of a receiver, from a court having
jurisdiction before, during, or after the pendency of any arbitration. The
institution and maintenance of an action for judicial relief or pursuit of
provisional or ancillary remedies shall not constitute a waiver of the right of
any party, including the plaintiff, to submit the controversy or claim to
arbitration.
(d) Miscellaneous. Any arbitration questions arising under this
-------------
Agreement shall be governed in accordance with Title 9 of the U.S. Code. To the
extent any terms of this Section 17 conflict with any terms of the Subject
Documents, the terms of this Agreement shall prevail. The provisions of this
Section 17 shall survive any termination, amendment, or expiration of the
Subject Documents, unless Bank and other parties otherwise expressly agree in
writing. Subject to the award of the arbitrator or referee, each party shall pay
an equal share of the arbitrators' or referees' fees. In this regard, the
arbitrator or referee shall have the power to award recovery to such prevailing
party of all costs and fees (including attorneys' fees and a reasonable
allocation for the costs of Bank's in-house counsel), administrative fees,
arbitrators' or referees' fees, and court costs, all as determined by the
arbitrator or referee, as the case may be. If any provision of this Section 17
is found to be illegal, invalid or unenforceable, such provision shall be fully
severable, and this Section 17 shall be construed as if such provision and never
been a part hereof; and, the remaining provisions of this Section 17 shall
remain in full force and effect and shall
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<PAGE>
not be affected by the illegal, invalid or unenforceable provision or by
severance from this Section 17.
Dated:________________________
_____________________________
______________________________ _____________________________
Address
______________________________ _____________________________
______________________________ _____________________________
The undersigned, being the Debtor named in the foregoing Agreement, hereby
waives its confidentiality rights with respect to such Agreement, accepts and
consents to such Agreement, and agrees to be bound by all of the provisions
thereof and to recognize all priorities and other rights granted thereby to
UNION BANK and to pay its Obligations only in accordance therewith.
Dated:________________________
______________________________ _____________________________
______________________________ _____________________________
______________________________ _____________________________
______________________________ _____________________________
______________________________ _____________________________
______________________________ _____________________________
______________________________ _____________________________
______________________________ _____________________________
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Exhibit D
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AFFIDAVIT
NUTRASOURCE, INC. a Washington corporation ("NutraSource"), claiming that taxes
should not be withheld pursuant to Section 1445 of the Internal Revenue Code
(the "Code"), 26 USCS (S) 1445 based upon the sale of its stock to MOUNTAIN
PEOPLES' WAREHOUSE, a California corporation, because such sale is not a
disposition of a United States real property interest, certifies the following:
1. NutraSource is a nonpublicly traded corporation incorporated under the
laws of the State of Washington;
2. NutraSource is not and has not been a United States real property
holding corporation (as defined in Section 897(c)(2) of the Code) during the
applicable period specified in Section 897(c)(1)(A)(ii) thereof;
3. The Internal Revenue Service (IRS) has not issued any notice with
respect to NutraSource or listed NutraSource as a person whose affidavit may not
be relied upon for purposes of the Foreign Investment in Real Property Tax Act
of 1980 (FIRPTA), 26 USCS (S) 1445.
The undersigned understands that this certification may be disclosed to the
IRS by the Mountain Peoples' Warehouse and that any false statement contained in
it is punishable by fine, imprisonment, or both.
Under penalty of perjury, I declare that I have examined this
certification, and to the best of my knowledge and belief, it is true, correct,
and complete. I further declare that I have authority to sign this document on
behalf of Seller.
NUTRASOURCE, INC.
Date: May 18, 1995 /s/ Charles LeFevre
------------ -------------------
Name: Charles LeFevre
---------------
Title: President
---------
Notary acknowledgement and seal:
<PAGE>
Exhibit E
MANAGEMENT CONSULTING AGREEMENT
This Management Consulting Agreement ("Agreement") is made as of May 22,
1995 between NutraSource, Inc., a Washington corporation ("NutraSource"), whose
address is 4005 Sixth Avenue South, Seattle, Washington 98108, and TMSA
Holdings, Inc., a Washington corporation ("Consultant"), whose address is 2116
232nd Place NE, Redmond, Washington 98053.
RECITALS:
A. NutraSource is engaged in the wholesale distribution of natural foods
and products primarily in the States of Washington, Oregon and Alaska.
Chuck LeFevre, the president of Consultant, is the former president of
NutraSource.
B. All of the common stock of NutraSource was acquired by Mountain
Peoples' Warehouse, Inc., a California corporation ("MPW"), on May 22, 1995
pursuant to a Stock Purchase Agreement dated as of April 20, 1995 (the
"Stock Purchase Agreement") among MPW, NutraSource and the shareholders of
NutraSource (including Chuck LeFevre, the president of Consultant).
Capitalized terms used herein shall have the respective meanings ascribed
thereto in the Stock Purchase Agreement.
C. The Stock Purchase Agreement provides as a condition to MPW's
obligation to purchase the common stock of NutraSource at the Closing, that
NutraSource and Consultant enter into this Agreement. MPW and Consultant
desire that Consultant provide management consulting services to
NutraSource upon and subject to the terms and provisions contained herein.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
promises and agreements contained herein, the parties hereto agree as follows:
1. Retention as Consultant. NutraSource hereby agrees to retain
-----------------------
Consultant and Consultant hereby accepts such retention for the period (the
"Consulting Period") beginning on the date first above written and terminating
twelve (12) months thereafter, subject to the terms and conditions hereinafter
set forth.
2. Duties
------
(a) During the first ninety (90) days (the "Initial Period") of the
Consulting Period, Consultant shall provide such consulting services to
NutraSource as may be requested by the president or board of directors of
NutraSource, provided
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that Consultant shall not be obligated to spend more than forty (40) hour per
week providing services during this period. During the two hundred seventy (270)
days following the Initial Period, Consultant shall provide periodic consulting
services to NutraSource as mutually agreed by NutraSource and Consultant.
(b) After the first ninety (90) days of the term of this Agreement,
Consultant shall be available to perform such advisory and consulting services
(the "Services") with respect to the business, operations and affairs of
NutraSource as are mutually agreed to by NutraSource and Consultant. The
Services may include, without limitation, meeting with customers, vendors and
others to assist NutraSource in maintaining or increasing its level of business.
3. Manner of Performance of Services
---------------------------------
(a) Chuck LeFevre will perform the Services, on behalf of Consultant,
in a professional and workmanlike manner and without direct supervision of
NutraSource personnel.
(b) Any documents, equipment, or other materials supplied to
Consultant by NutraSource are and shall remain the property of NutraSource, and
are for use in performing Services for NutraSource only. Upon completion of
consultant's assignment or termination of the assignment for any reason,
Consultant shall promptly return to NutraSource such documents, equipment, and
other materials and any copies thereof, in the same condition as supplied,
reasonable wear and tear excepted.
(c) Consultant is self-employed and, except during the initial ninety
(90) day period of this Agreement, may perform work for others during the course
of this contract.
4. Price and Payment. In full consideration of the Services and the
-----------------
other obligations of Consultant provided for in this Agreement, NutraSource
agrees to pay Consultant by cash or check the amount of One Hundred Fifty
Thousand Dollars ($150,000) at the end of the Initial Period.
5. Work Product. Any and all recommendations, findings, reports,
------------
writings of any nature, computer programs, discoveries and improvements
developed, written, made, conceived or reduced to practice in the course of or
arising out of the Services performed for NutraSource under this Agreement
(collectively, "Work Product") shall be promptly disclosed to NutraSource and
shall become and remain the sole and exclusive property of NutraSource.
Consultant hereby irrevocably transfers and assigns to NutraSource all right,
title and interest, including copyrights, in and to the Work Product.
Consultant agrees to execute any documents, including copyright assignments, and
to cooperate with NutraSource at NutraSource's
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expense in any action NutraSource deems necessary to secure fully to NutraSource
all rights in the Work Product.
6. Infringement. Consultant warrants that Consultant has the right to
------------
use and to incorporate in the Work Product any concepts, processes or
information so used or incorporated without violation of any right of any third
party and without creating any obligation on the part of NutraSource to pay any
fee, license, penalty or other expense, other than the payments to Consultant
set forth above. Consultant covenants that the Work Product shall be delivered
to NutraSource free and clear of all liens, encumbrances or claims of any third
party.
7. Confidential Information.
------------------------
(a) As used in this Agreement, the term "Confidential Information"
refers to any and all information of a confidential, proprietary, or secret
nature which (i) is or may be related in any way to the accounts, clients,
finances or operations of NutraSource; or (ii) relates to the finances,
purchases or operations of, or was disclosed by, any of NutraSource's customers.
In the course of his employment, Consultant will have access to books and
records containing Confidential Information.
(b) Consultant acknowledges that the Confidential Information is a
valuable and unique asset of NutraSource. Consultant shall not, either during
or after the term of this Agreement, directly or indirectly, use, reproduce or
copy the Confidential Information other than in the course of performing his
Services as a consultant to NutraSource, nor will Consultant directly or
indirectly disclose any Confidential Information to any person or entity, except
in the course of performing Services as a consultant to NutraSource and only
with the prior consent of NutraSource. Consultant agrees to abide by
NutraSource's policies and regulations, as established from time to time, for
the protection of Confidential Information.
(c) This provision shall not apply to any information which is now,
or subsequently becomes, in the public domain, provided that consultant has not,
during or after the term of this Agreement, in violation of this Agreement,
disclosed or caused to be disclosed such information as to make it public or in
the public domain.
8. Termination of Services.
-----------------------
(a) Either party may terminate this Agreement if the other party
breaches or fails to fully and timely perform any material obligation,
representation or warranty of such party, provided that the non-breaching party
gives the breaching party notice of such failure or breach and the breaching
party does not cure such failure or breach to the satisfaction of the non-
breaching party within thirty (30) days after notice thereof.
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(b) Upon termination, Consultant shall promptly deliver to
NutraSource all Work Product together with all copies of any documents,
software, books and records of any sort which were furnished by NutraSource to
Consultant. Consultant's obligations under paragraphs 5, 6, 7, 12, 13 and 14
hereof shall survive expiration or any termination of this Agreement.
9. Injunctive Relief. Consultant acknowledges that he is obligated under
-----------------
this Agreement to render services of a special, unique, unusual and intellectual
character, which give this Agreement particular value to NutraSource. The loss
of those services cannot be reasonably or adequately compensated in damages in
an action at law. Accordingly, in addition to the other remedies provided by
law or this Agreement, NutraSource shall have the right during the term of this
Agreement to obtain injunctive relief against the breach of this Agreement.
Without limiting the foregoing, the parties acknowledge that if Consultant
breaches his obligations under paragraphs 5, 6, 7, 12 or 13, NutraSource will
suffer irreparable injury and that money damages will not provide an adequate
remedy. In such circumstances, NutraSource shall have the right, in addition to
any other rights and remedies available to it at law or in equity, to have such
obligations specifically enforced by any court having equity jurisdiction and
shall be entitled to reimbursement for all reasonable attorneys' fees and other
expenses incurred in connection with the enforcement hereof.
10. Notices. Notices required hereunder shall be in writing and delivered
-------
personally or by confirmed facsimile transmission or sent by U.S. registered or
certified mail or overnight delivery service to the parties at their addresses
set out above and shall be deemed to have been given when delivered if delivered
personally, by facsimile transmission or by overnight delivery service, or three
(3) days after being mailed.
11. Relationship of the Parties.
---------------------------
(a) consultant is an independent contractor and is responsible for
paying all taxes, including Social Security, unemployment and income taxes, for
itself.
(b) It is understood that Consultant is highly skilled in the subject
area for which Consultant has been retained and will utilize the highest degree
of skill and expertise in order to achieve the desired result in a professional
and timely fashion.
12. Noncompetition.
--------------
(a) For a period of three (3) years after commencement of this
Agreement, Consultant will not, directly or indirectly, engage in any business
in the States of Washington, Oregon, Alaska, California, Nevada, Hawaii,
Colorado, Arizona, New Mexico, Utah, Idaho, Montana or Wyoming which is
competitive with the
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business of Mountain Peoples' Warehouse ("Buyer") or NutraSource, uses the name
of NutraSource, any name similar thereto or any variations, acronyms, forms or
combinations thereof. "Competitive with the business of Buyer or NutraSource"
shall mean a business whose operations include the wholesale distribution of
natural food or products, but it shall not include a manufacturing business
which is engaged in the distribution of its own products or, as an ancillary as
part of its distribution of its manufactured products, distributes other
products that are complementary to its manufactured products. Consultant shall
be deemed to be engaged in a particular business if he is an employee, officer,
director, trustee, agent, principal or partner of, or a consultant or advisor to
or for, a person, firm, corporation, association, trust or other entity which is
engaged in such business or if he owns, directly or indirectly, any outstanding
stock or shares or has a beneficial or other financial interest in the stock or
net assets of any such person, firm, corporation, association, trust or other
entity engaging in such business. Consultant shall not be deemed to be engaged
in a business solely by reason of owning an interest of less than two percent
(2%) of the shares of any company traded on a national securities exchange.
(b) It is the intention of the parties that this Section 12 be fully
enforceable in accordance with its terms and that the provisions hereof be
interpreted so as to be enforceable to the maximum extent permitted by
applicable law. To the extent that any obligation to refrain from competing
within an area for a period of time as provided in this Section 12 is held
invalid or unenforceable, it shall, to the extent that it is invalid or
unenforceable, be deemed void and initio. The remaining obligations imposed by
the provisions of this Section shall be fully enforceable as if such invalid or
unenforceable provisions had not been included herein and shall be construed, to
the extent possible, such that the purpose of this Section 12, as intended by
the parties, can be achieved in a lawful manner.
13. Non-Solicitation of NutraSource Employees; Disruption of Other
--------------------------------------------------------------
Business Relationships. For a period of three (3) years after commencement of
- ----------------------
this Agreement for any reason, Consultant shall not disrupt, damage, impair or
interfere with the NutraSource business by directly or indirectly soliciting any
of NutraSource's employees to work for or engage in any activity competitive
with the NutraSource business, or by disrupting the relationships NutraSource
has with its customers.
14. Miscellaneous. This Agreement represents the entire agreement and
-------------
supersedes all prior agreements and understandings between the parties relating
to the subject matter hereof and may be changed only in a writing signed by both
parties. This provisions of this Agreement shall prevail over any inconsistent
terms in any other document with regard to the subject matter hereof. Consultant
may not assign this Agreement or any right or obligation hereunder. Any such
attempted assignment shall be void. This Agreement may be assigned by
NutraSource. No Failure of either party to enforce any right hereunder shall be
deemed a waiver thereof. This Agreement shall be governed by the Laws of the
State of Washington.
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If any provision of this Agreement shall be held invalid or unenforceable by a
court of competent jurisdiction, such provision shall be deemed omitted to the
extent required by such judgment and the remainder of this Agreement shall
continue in full force and effect. Paragraph headings are provided for the
convenience of reference only and shall not be construed otherwise. This
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of the respective parties hereto. This Agreement may be executed in one
or more counterparts, any one of which need not contain the signature of more
than one party, but all of such counterparts taken together shall constitute one
and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
TMSA HOLDINGS, INC. NUTRASOURCE, INC.
By:_________________________ By__________________________
Chuck LeFevre, President Michael Funk, President
The undersigned agrees to be bound by and comply with the terms of the above
Agreement, including, without limitation, Sections 7, 12 and 13 thereof, and
agrees that NutraSource shall have all rights and remedies against the
undersigned that it would have against TMSA Holdings, Inc. under such Agreement.
____________________________
Chuck LeFevre
Dated:______________________
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Exhibit 10.21
-------------
California Chapters of the
Society of Industrial and Office Realtors(R), Inc.
INDUSTRIAL REAL ESTATE LEASE
(SINGLE-TENANT FACILITY)
ARTICLE ONE: BASIC TERMS
This Article One contains the Basic Terms of this Lease between the Landlord
and Tenant named below. Other Articles, Sections and Paragraphs of the Lease
referred to in this Article One explain and define the Basic Terms and are to be
read in conjunction with the Basic Terms.
Section 1.01. Date of Lease:
-------------------------------------------
Section 1.02. Landlord (include legal entity): Panattoni-Catlin Joint
-----------------------------
Venture
- --------------------------------------------------------------------------------
Address of Landlord: 1851 Heritage Lane, Suite 260, Sacramento, CA 95815
--------------------------------------------------------
- --------------------------------------------------------------------------------
Section 1.03. Tenant (include legal entity): Mountain Peoples Warehouse
--------------------------------
- --------------------------------------------------------------------------------
Address of Tenant: 110 Springhill Drive, Grass Valley, CA 95945
-------------------------------------------------------------
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Section 1.04. Property: (include street address, approximate square
footage and description) 130,200 square feet. A portion of Placer
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County Assessor's Parcel #52-010-07 consisting of property
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commonly known as Auburn Airport Industrial Park parcels 32-41
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and 44-47, Wilbur Way. Fee title held by the City of Auburn.
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Section 1.05. Lease Term: 15 years 0 months beginning on occupancy or such
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other date as is specified in this Lease, and ending on
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Section 1.06. Permitted Uses: (See Article Five) Warehouse facility and
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allied operations.
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Section 1.07. Tenant's Guarantor: (If none, so state) Michael Funk
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Section 1.08. Brokers: (See Article Fourteen) (If none, so state)
Landlord's Broker: none
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Tenant's Broker: none
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Section 1.09. Commission Payable to Landlord's Broker: (See Article
Fourteen) $ none
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Section 1.10. Initial Security Deposit: (See Section 3.03) $ $125,000
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Section 1.11. Vehicle Parking Spaces Allocated to Tenant: all per code
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Section 1.12. Rent and Other Charges Payable by Tenant:
(a) BASE RENT: Forty-Seven Thousand Nine Hundred Fourteen Dollars
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($ 47,914) per month for the first thirty (30) months, as provided in
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Section 3.01, and shall be increased on the first day of the thirty-first
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(31st) month(s) after the Commencement Date, either (i) as provided in
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Section 3.02, or (ii)__________________________________________________________
_______________________________________________________________________________.
(If (ii) is completed, then (i) and Section 3.02 are inapplicable.)
(b) OTHER PERIODIC PAYMENTS: (i) Real Property Taxes (See Section 4.02);
(ii) Utilities (See Section 4.03); (iii) Insurance Premiums (See Section 4.04);
(iv) Impounds for Insurance Premiums and Property Taxes (See Section 4.07); (v)
Maintenance, Repairs and Alterations (See Article Six).
Section 1.13. Landlord's Share of Profit on Assignment or Sublease: (See
Section 9.05) fifty percent ( 50 )% of the Profit
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(the "Landlord's Share").
Section 1.14. Riders: The following Riders are attached to and made a part
of this Lease: (If none, so state)
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ARTICLE TWO: LEASE TERM
Section 2.01. Lease of Property For Lease Term. Landlord leases the
Property to Tenant and Tenant leases the Property from Landlord for the Lease
Term. The Lease Term is for the period stated in Section 1.05 above and shall
begin and end on the dates specified in Section 1.05 above, unless the beginning
or end of the Lease Term is changed under any provision of this Lease. The
"Commencement Date" shall be the date specified in Section 1.05 above for the
beginning of the Lease Term, unless advanced or delayed under any provision of
this Lease.
Section 2.02. Delay in Commencement. Landlord shall not be liable to
Tenant if Landlord does not deliver possession of the Property to Tenant on the
Commencement Date. Landlord's non-delivery of the Property to Tenant on that
date shall not affect this Lease or the obligations of Tenant under this Lease
except that the Commencement Date shall be delayed until Landlord delivers
possession of the Property to Tenant and the Lease Term shall be extended for a
period equal to the delay in delivery of possession of the Property to Tenant,
plus the number of days necessary to end the Lease Term on the last day of a
month. If Landlord does not deliver possession of the Property to Tenant within
sixty (60) days after the Commencement Date, Tenant may elect to cancel this
Lease by giving written notice to Landlord within ten (10) days after the sixty
(60)-day period ends. If Tenant gives such notice, the Lease shall be cancelled
and neither Landlord nor Tenant shall have any further obligations to the other.
If Tenant does not give such notice, Tenant's right to cancel the Lease shall
expire and the Lease Term shall commence upon the delivery of possession of the
Property to Tenant. If delivery of possession of the Property to Tenant is
delayed, Landlord and Tenant shall, upon such delivery, execute an amendment to
this Lease setting forth the actual Commencement Date and expiration date of the
Lease. Failure to execute such amendment shall not affect the actual
Commencement Date and expiration date of the Lease.
Section 2.03. Early Occupancy. If Tenant occupies the Property prior to
the Commencement Date, Tenant's occupancy of the Property shall be subject to
all of the provisions of this Lease. Early occupancy of the Property shall not
advance the expiration date of this Lease. Tenant shall pay Base Rent and all
other charges specified in this Lease for the early occupancy period.
Section 2.04. Holding Over. Tenant shall vacate the Property upon the
expiration or earlier termination of this Lease. Tenant shall reimburse Landlord
for and indemnify Landlord against all damages which Landlord incurs from
Tenant's delay in vacating the Property. If Tenant does not vacate the Property
upon the expiration or earlier termination of the Lease and Landlord thereafter
accepts rent from Tenant, Tenant's occupancy of the Property shall be a
"month-to-month" tenancy, subject to all of the terms of this Lease applicable
to a month-to-month tenancy, except that the Base Rent then in effect shall be
increased by twenty-five percent (25%).
ARTICLE THREE: BASE RENT
Section 3.01. Time and Manner of Payment. Upon execution of this Lease,
Tenant shall pay Landlord the Base Rent in the amount stated in Paragraph
1.12(a) above for the first month of the Lease Term. On the first day of the
second month of the Lease Term and each month thereafter, Tenant shall pay
Landlord the Base Rent, in advance, without offset, deduction or prior demand.
The Base Rent shall be payable at Landlord's address or at such other place as
Landlord may designate in writing.
Section 3.02. Cost of Living Increases. The Base Rent shall be increased
on each date (the "Rental Adjustment Date") stated in Paragraph 1.12(a) above in
accordance with the increase in the United States Department of Labor, Bureau of
Labor Statistics, Consumer Price Index for All Urban Consumers (all items for
the
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geographical Statistical Area in which the Property is located on the basis
of 1982 - 1984 = 100) (the "Index") as follows:
(a) The Base Rent (the "Comparison Base Rent") in effect immediately
before each Rental Adjustment Date shall be increased by the percentage that the
Index has increased from the date (the "Comparison Date") on which payment of
the Comparison Base Rent began through the month in which the applicable Rental
Adjustment Date occurs. The Base Rent shall not be reduced by reason of such
computation. Landlord shall notify Tenant of each increase by a written
statement which shall include the Index for the applicable Comparison Date, the
Index for the applicable Rental Adjustment Date, the percentage increase between
those two Indices, and the new Base Rent. Any increase in the Base Rent provided
for in this Section 3.02 shall be subject to any minimum or maximum increase, if
provided for in Paragraph 1.12(a).
(b) Tenant shall pay the new Base Rent from the applicable Rental
Adjustment Date until the next Rental Adjustment Date. Landlord's notice may be
given after the applicable Rental Adjustment Date of the increase, and Tenant
shall pay Landlord the accrued rental adjustment for the months elapsed between
the effective date of the increase and Landlord's notice of such increases
within ten (10) days after Landlord's notice. If the format or components of the
Index are materially changed after the Commencement Date, Landlord shall
substitute an index which is published by the Bureau of Labor Statistics or
similar agency and which is most nearly equivalent to the Index in effect on the
Commencement Date. The substitute index shall be used to calculate the increase
in the Base Rent unless Tenant objects to such index in writing within fifteen
(15) days after receipt of Landlord's notice. If Tenant objects, Landlord and
Tenant shall submit the selection of the substitute index for binding
arbitration in accordance with the rules and regulations of the American
Arbitration Association at its office closest to the Property. The costs of
arbitration shall be borne equally by Landlord and Tenant.
Section 3.03 Security Deposit; Increases.
(a) Upon the execution of this Lease, Tenant shall deposit with Landlord
a cash Security Deposit in the amount set forth in Section 1.10 above. Landlord
may apply all or part of the Security deposit to any unpaid rent or other
charges due from Tenant or to cure any other defaults of Tenant. If Landlord
uses any part of the Security Deposit, Tenant shall restore the Security Deposit
to its full amount within ten (10) days after Landlord's written request.
Tenant's failure to do so shall be a material default under this Lease. No
interest shall be paid on the Security Deposit. Landlord shall not be required
to keep the Security Deposit separate from its other accounts and no trust
relationship is created with respect to the Security Deposit.
(b) Each time the Base Rent is increased, Tenant shall deposit additional
funds with Landlord sufficient to increase the Security Deposit to an amount
which bears the same relationship to the adjusted Base Rent as the initial
Security Deposit bore to the initial Base Rent.
Section 3.04. Termination; Advance Payments. Upon termination of this
Lease under Article Seven (Damage or Destruction), Article Eight (Condemnation)
or any other termination not resulting from Tenant's default, and after Tenant
has vacated the Property in the manner required by this Lease, Landlord shall
refund or credit to Tenant (or Tenant's successor) the unused portion of the
Security Deposit, any advance rent or other advance payments made by Tenant to
Landlord, and any amounts paid for real property taxes and other reserves which
apply to any time periods after termination of the Lease.
ARTICLE FOUR: OTHER CHARGES PAYABLE BY TENANT
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Section 4.01. Additional Rent. All charges payable by Tenant other than
Base Rent are called "Additional Rent." Unless this Lease provides otherwise,
Tenant shall pay all Additional Rent then due with the next monthly installment
of Base Rent. The term "rent" shall mean Base Rent and Additional Rent.
Section 4.02. Property Taxes.
(a) Real Property Taxes. Tenant shall pay all real property taxes on the
Property (including any fees, taxes of assessments against, or as a result of,
any tenant improvements installed on the Property by or for the benefit of
Tenant) during the Lease Term. Subject to Paragraph 4.02(c) and Section 4.07
below, such payment shall be made at least ten (10) days prior to the
delinquency date of the taxes. Within such ten (10)-day period, Tenant shall
furnish Landlord with satisfactory evidence that the real property taxes have
been paid. Landlord shall reimburse Tenant for any real property taxes paid by
Tenant covering any period of time prior to or after the Lease Term. If Tenant
fails to pay the real property taxes when due, Landlord may pay the taxes and
Tenant shall reimburse Landlord for the amount of such tax payment as Additional
Rent.
(b) Definition of "Real Property Tax." "Real property tax" means: (i) any
fee, license fee, license tax, business license fee, commercial rental tax,
levy, charge, assessment, penalty or tax imposed by any taxing authority against
the Property; (ii) any tax on the Landlord's right to receive, or the receipt
of, rent or income from the Property or against Landlord's business of leasing
the Property; (iii) any tax or charge for fire protection, streets, sidewalks,
road maintenance, refuse or other services provided to the Property by any
governmental agency; (iv) any tax imposed upon this transaction or based upon a
re-assessment of the Property due to a change of ownership, as defined by
applicable law, or other transfer of all or part of Landlord's interest in the
Property; and (v) any charge or fee replacing any tax previously included within
the definition of real property tax. "Real property tax" does not, however,
include Landlord's federal or state income, franchise, inheritance or estate
taxes.
(c) Joint Assessment. If the Property is not separately assessed,
Landlord shall reasonably determine Tenant's share of the real property tax
payable by Tenant under Paragraph 4.02(a) from the assessor's worksheets or
other reasonably available information. Tenant shall pay such share to Landlord
within fifteen (15) days after receipt of Landlord's written statement.
(d) Personal Property Taxes.
(i) Tenant shall pay all taxes charged against trade fixtures,
furnishings, equipment or any other personal property belonging to Tenant.
Tenant shall try to have personal property taxes separately from the Property.
(ii) If any of Tenant's personal property is taxed with the
Property, Tenant shall pay Landlord the taxes for the personal property within
fifteen (15) days after Tenant receives a written statement from Landlord for
such personal property taxes.
(e) Tenant's Right to Contest Taxes. Tenant may attempt to have the
assessed valuation of the Property reduced or may initiate proceedings to
contest the real property taxes. If required by law, Landlord shall join in the
proceedings brought by Tenant. However, Tenant shall pay all costs of the
proceedings, including any costs or fees incurred by Landlord. Upon the final
determination of any proceeding or contest, Tenant shall immediately pay the
real property taxes due, together with all costs, charges, interest and
penalties incidental to the proceedings. If Tenant does not pay the real
property taxes when due and contests such taxes, Tenant shall not be in default
under this Lease for nonpayment of such taxes if Tenant deposits funds with
Landlord or opens an interest-bearing account reasonably acceptable to Landlord
in the joint names of Landlord and Tenant. The amount
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of such deposit shall be sufficient to pay the real property taxes plus a
reasonable estimate of the interest, costs, charges and penalties which may
accrue if Tenant's action is unsuccessful, less any applicable tax impounds
previously paid by Tenant to Landlord. The deposit shall be applied to the real
property taxes due, as determined at such proceedings. The real property taxes
shall be paid under protest from such deposit if such payment under protest is
necessary to prevent the Property from being sold under a "tax sale" or similar
enforcement proceeding.
Section 4.03. Utilities. Tenant shall pay, directly to the appropriate
supplier, the cost of all natural gas, heat, light, power, sewer service,
telephone, water, refuse disposal and other utilities and services supplied to
the Property. However, if any services or utilities are jointly metered with
other property, Landlord shall make a reasonable determination of Tenant's
proportionate share of the cost of such utilities and services and Tenant shall
pay such share to Landlord within fifteen (15) days after receipt of Landlord's
written statement.
Section 4.04. Insurance Policies.
(a) Liability Insurance. During the Lease Term, Tenant shall maintain a
policy of commercial general liability insurance (sometimes known as broad form
comprehensive general liability insurance) insuring Tenant against liability for
bodily injury, property damage (including loss of use of property) and personal
injury arising out of the operation, use or occupancy of the Property. Tenant
shall name Landlord as an additional insured under such policy. The initial
amount of such insurance shall be One Million Dollars ($1,000,000) per
occurrence and shall be subject to periodic increase based upon inflation,
increased liability awards, recommendation of Landlord's professional insurance
advisers and other relevant factors. The liability insurance obtained by Tenant
under this Paragraph 4.04(a) shall (i) be primary and non-contributing; (ii)
contain cross-liability endorsements; and (iii) insure Landlord against Tenant's
performance under Section 5.05, if the matters giving rise to the indemnity
under Section 5.05 result from the negligence of Tenant. The amount and coverage
of such insurance shall not limit Tenant's liability nor relieve Tenant of any
other obligation under this Lease. Landlord may also obtain comprehensive public
liability insurance in an amount and with coverage determined by Landlord
insuring Landlord against liability arising out of ownership, operation, use or
occupancy of the Property. The policy obtained by Landlord shall not be
contributory and shall not provide primary insurance.
(b) Property and Rental Income Insurance. During the Lease Term, Landlord
shall maintain policies of insurance covering loss of or damage to the Property
in the full amount of its replacement value. Such policy shall contain an
Inflation Guard Endorsement and shall provide protection against all perils
included within the classification of fire, extended coverage, vandalism,
malicious mischief, special extended perils (all risk), sprinkler leakage and
any other perils which Landlord deems reasonably necessary. Landlord shall have
the right to obtain flood and earthquake insurance if required by any lender
holding a security interest in the Property. Landlord shall not obtain insurance
for Tenant's fixtures or equipment or building improvements installed by Tenant
on the Property. During the Lease Term, Landlord shall also maintain a rental
income insurance policy, with loss payable to Landlord, in an amount equal to
one year's Base Rent, plus estimated real property taxes and insurance premiums.
Tenant shall be liable for the payment of any deductible amount under Landlord's
or Tenant's insurance policies maintained pursuant to this Section 4.04, in an
amount not to exceed Ten Thousand Dollars ($10,000). Tenant shall not do or
permit anything to be done which invalidates any such insurance policies.
(c) Payment of Premiums. Subject to Section 4.07, Tenant shall pay all
premiums for the insurance policies described in paragraphs 4.04(a) and (b)
(whether obtained by Landlord or Tenant) within fifteen (15) days after Tenant's
receipt of a copy of the premium statement or other evidence of the amount due,
except landlord shall pay all premiums for non-primary comprehensive public
liability insurance which Landlord elects to obtain as
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provided in Paragraph 4.04(a). If insurance policies maintained by Landlord
cover improvements on real property other than the Property, Landlord shall
deliver to Tenant a statement of the premium applicable to the Property showing
in reasonable detail how Tenant's share of the premium was computed. If the
Lease Term expires before the expiration of an insurance policy maintained by
Landlord, Tenant shall be liable for Tenant's prorated share of the insurance
premiums. Before the Commencement Date, Tenant shall deliver to Landlord a copy
of any policy of insurance which Tenant is required to maintain under this
Section 4.04. At least thirty (30) days prior to the expiration of any such
policy, Tenant shall deliver to Landlord a renewal of such policy. As an
alternative to providing a policy of insurance, Tenant shall have the right to
provide Landlord a certificate of insurance, executed by an authorized officer
of the insurance company, showing that the insurance which Tenant is required to
maintain under this Section 4.04 is in full force and effect and containing such
other information which Landlord reasonably requires.
(d) General Insurance Provisions.
(i) Any insurance which Tenant is required to maintain under this
Lease shall include a provision which requires the insurance carrier to give
Landlord not less than thirty (30) days' written notice prior to any
cancellation or modification of such coverage.
(ii) If Tenant fails to deliver any policy, certificate or renewal to
Landlord required under this Lease within the prescribed time period or if
any such policy is cancelled or modified during the Lease Term without
Landlord's consent, Landlord may obtain such insurance, in which case Tenant
shall reimburse Landlord for the cost of such insurance within fifteen (15)
days after receipt of a statement that indicates the cost of such insurance.
(iii) Tenant shall maintain all insurance required under this Lease
with companies holding a "General Policy Rating" of A-12 or better, as set
forth in the most current issue of "Best Key Rating Guide". Landlord and
Tenant acknowledge the insurance markets are rapidly changing and that
insurance in the form and amounts described in this Section 4.04 may not be
available in the future. Tenant acknowledges that the insurance described in
this Section 4.04 is for the primary benefit of Landlord. If at any time
during the Lease Term, Tenant is unable to maintain the insurance required
under the Lease, Tenant shall nevertheless maintain insurance coverage which
is customary and commercially reasonable in the insurance industry for
Tenant's type of business, as that coverage may change from time to time.
Landlord makes no representation as to the adequacy of such insurance to
protect Landlord's or Tenant's interests. Therefore, Tenant shall obtain any
such additional property or liability insurance which Tenant deems necessary
to protect Landlord and Tenant.
(iv) Unless prohibited under any applicable insurance policies
maintained, Landlord and Tenant each hereby waive any and all rights of
recovery against the other, or against the officers, employees, agents or
representatives of the other, for loss of or damage to its property or the
property of others under its control, if such loss or damage is covered by
any insurance policy in force (whether or not described in this Lease) at
the time of such loss or damage. Upon obtaining the required policies of
insurance, Landlord and Tenant shall give notice to the insurance carriers
of this mutual waiver of subrogation.
Section 4.05. Late Charges. Tenant's failure to pay rent promptly may cause
Landlord to incur unanticipated costs. The exact amount of such costs are
impractical or extremely difficult to ascertain. Such costs may include, but are
not limited to, processing and accounting charges and late charges which may be
imposed on Landlord by any ground lease, mortgage or trust deed encumbering the
Property. Therefore, if Landlord does
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not receive any rent payment within ten (10) days after it becomes due, Tenant
shall pay Landlord a late charge equal to ten percent (10%) of the overdue
amount. The parties agree that such late charge represents a fair and reasonable
estimate of the costs Landlord will incur by reason of such late payment.
Section 4.06. Interest on Past Due Obligations. Any amount owed by Tenant
to Landlord which is not paid when due shall bear interest at the rate of
fifteen percent (15%) per annum from the due date of such amount. However,
interest shall not be payable on late charges to be paid by Tenant under this
Lease. The payment of interest on such amounts shall not excuse or cure any
default by Tenant under this Lease. If the interest rate specified in this Lease
is higher than the rate permitted by law, the interest rate is hereby decreased
to the maximum legal interest rate permitted by law.
Section 4.07. Impounds for Insurance Premiums and Real Property Taxes. If
requested by any ground lessor or lender to whom Landlord has granted a security
interest in the Property, or if Tenant is more than ten (10) days late in the
payment of rent more than once in any consecutive twelve (12)-month period.
Tenant shall pay Landlord a sum equal to one-twelfth (1/12) of the annual real
property taxes and insurance premiums payable by Tenant under this Lease,
together with each payment of Base Rent. Landlord shall hold such payments in a
non-interest bearing impound account. If unknown, Landlord shall reasonably
estimate the amount of real property taxes and insurance premiums when due.
Tenant shall pay any deficiency of funds in the impound account to Landlord upon
written request. If Tenant defaults under this Lease, Landlord may apply any
funds in the impound account to any obligation then due under this Lease.
ARTICLE FIVE: USE OF PROPERTY
Section 5.01. Permitted Uses. Tenant may use the Property only for the
Permitted uses set forth in Section 1.06 above.
Section 5.02. Manner of Use. Tenant shall not cause or permit the Property
to be used in any way which constitutes a violation of any law, ordinance, or
governmental regulation or order, which annoys or interferes with the rights of
other tenants of Landlord, or which constitutes a nuisance or waste. Tenant
shall obtain and pay for all permits, including a Certificate of Occupancy,
required for Tenant's occupancy of the Property and shall promptly take all
actions necessary to comply with all applicable statutes, ordinances, rules,
regulations, orders and requirements regulating the use by Tenant of the
Property, including the Occupational Safety and Health Act.
Section 5.03. Hazardous Materials. As used in this Lease, the term
"Hazardous Material" means any flammable items, explosives, radioactive
materials, hazardous or toxic substances, material or waste or related
materials, including any substances defined as or included in the definition of
"hazardous substances", "hazardous wastes", "hazardous materials" or "toxic
substances" now or subsequently regulated under any applicable federal, state or
local laws or regulations, including without limitation petroleum-based
products, paints, solvents, lead, cyanide, DDT, printing inks, acids,
pesticides, ammonia compounds and other chemical products, asbestos, PCBs and
similar compounds, and including any different products and materials which are
subsequently found to have adverse effects on the environment or the health and
safety of persons. Tenant shall not cause or permit any Hazardous Material to be
generated, produced, brought upon, used, stored, treated or disposed of in or
about the Property by Tenant, its agents, employees, contractors, sublessees or
invitees without the prior written consent of Landlord. Landlord shall be
entitled to take into account such other factors or facts as Landlord may
reasonably determine to be relevant in determining whether to grant or withhold
consent to Tenant's proposed activity with
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respect to Hazardous Material. In no event, however, shall Landlord be required
to consent to the installation or use of any storage tanks on the Property.
Section 5.04 Signs and Auctions. Tenant shall not place any signs on the
Property without Landlord's prior written consent. Tenant shall not conduct or
permit any auctions or sheriff's sales at the Property.
Section 5.05. Indemnity. Tenant shall indemnify Landlord against and hold
Landlord harmless from any and all costs, claims or liability arising from: (a)
Tenant's use of the Property; (b) the conduct of Tenant's business or anything
else done or permitted by Tenant to be done in or about the Property, including
any contamination of the Property or any other property resulting from the
presence or use of Hazardous Material caused or permitted by Tenant; (c) any
breach or default in the performance of Tenant's obligations under this Lease;
(d) any misrepresentation or breach of warranty by Tenant under this Lease; or
(e) other acts or omissions of Tenant. Tenant shall defend Landlord against any
such cost, claim or liability at Tenant's expense with counsel reasonably
acceptable to Landlord or, at Landlord's election, Tenant shall reimburse
Landlord for any legal fees or costs incurred by Landlord in connection with any
such claim. As a material part of the consideration to Landlord, Tenant assumes
all risk of damage to property or injury to persons in or about the Property
arising from any cause, and Tenant hereby waives all claims in respect thereof
against Landlord, except for any claim arising out of Landlord's gross
negligence or willful misconduct. As used in this Section, the term "Tenant"
shall include Tenant's employees, agents, contractors and invitees, if
applicable.
Section 5.06. Landlord's Access. Landlord or its agents may enter the
Property at all reasonable times to show the Property to potential buyers,
investors or tenants or other parties; to do any other act or to inspect and
conduct tests in order to monitor Tenant's compliance with all applicable
environmental laws and all laws governing the presence and use of Hazardous
Material; or for any other purpose Landlord deems necessary. Landlord shall give
Tenant prior notice of such entry, except in the case of an emergency. Landlord
may place customary "For Sale" or "For Lease" signs on the Property.
Section 5.07. Quiet Possession. If Tenant pays the rent and complies with
all other terms of this Lease, Tenant may occupy and enjoy the Property for the
full Lease Term, subject to the provisions of this Lease.
ARTICLE SIX: CONDITION OF PROPERTY; MAINTENANCE, REPAIRS AND ALTERATIONS
Section 6.01. Existing Conditions. Tenant accepts the Property in its
condition as of the execution of the Lease, subject to all recorded matters,
laws, ordinances, and governmental regulations and orders. Except as provided
herein, Tenant acknowledges that neither Landlord nor any agent of Landlord has
made any representation as to the condition of the Property or the suitability
of the Property for Tenant's intended use. Tenant represents and warrants that
Tenant has made it own inspection of and inquiry regarding the condition of the
Property and is not relying on any representations of Landlord or any Broker
with respect thereto. If Landlord or Landlord's Broker has provided a Property
Information Sheet or other Disclosure Statement regarding the Property, a copy
is attached as an exhibit to the Lease.
Section 6.02. Exemption of Landlord from Liability. Landlord shall not be
liable for any damage or injury to the person, business (or any loss of income
therefrom), goods, wares, merchandise or other property of Tenant. Tenant's
employees, invitees, customers or any other person in or about the Property,
whether such damage or injury is caused by or results from: (a) fire, steam
electricity, water, gas or rain; (b) the breakage, leakage, obstruction or other
defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or
lighting
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fixtures or any other cause; (c) conditions arising in or about the Property or
from other sources or places; or (d) any act or omission of any other tenant of
Landlord. Landlord shall not be liable for any such damage or injury even though
the cause of or the means of repairing such damage or injury are not accessible
to Tenant. The provisions of this Section 6.02 shall not, however, exempt
Landlord from Liability for Landlord's gross negligence or willful misconduct.
Section 6.03. Landlord's Obligations. Subject to the provisions of Article
Seven (Damage or Destruction) and Article Eight (Condemnation), Landlord shall
have absolutely no responsibility to repair, maintain or replace any portion of
the Property at any time. Tenant waives the benefit of any present or future law
which might give Tenant the right to repair the Property at Landlord's expense
or to terminate the Lease due to the condition of the Property.
Section 6.04. Tenant's Obligations.
(a) Except as provided in Article Seven (Damage or Destruction) and
Article Eight (Condemnation), Tenant shall keep all portions of the Property
(including structural, nonstructural, interior, exterior, and landscaped areas,
portions, systems and equipment) in good order, condition and repair (including
interior repainting and refinishing, as needed). If any portion of the Property
or any system or equipment in the Property which Tenant is obligated to repair
cannot be fully repaired or restored, Tenant shall promptly replace such portion
of the Property or system or equipment in the Property, regardless or whether
the benefit of such replacement extends beyond the Lease Term; but if the
benefit or useful life of such replacement extends beyond the Lease Term (as
such term may be extended by exercise of any options), the useful life of such
replacement shall be prorated over the remaining portion of the Lease Term (as
extended), and Tenant shall be liable only for that portion of the cost which is
applicable to the Lease Term (as extended). Tenant shall maintain a preventive
maintenance contract providing for the regular inspection and maintenance of the
heating and air conditioning system by a licensed heating and air conditioning
contractor. If any part of the Property is damaged by any act or omission of
Tenant, Tenant shall pay Landlord the cost or repairing or replacing such
damaged property, whether or not Landlord would otherwise be obligated to pay
the cost of maintaining or repairing such property. It is the intention of
Landlord and Tenant that at all times Tenant shall maintain the portions of the
Property which Tenant is obligated to maintain in an attractive, first-class and
fully operative conditions.
(b) Tenant shall fulfill all of Tenant's obligations under this Section
6.04 at Tenant's sole expense. If Tenant fails to maintain, repair or replace
the Property as required by this Section 6.04, Landlord may, upon ten (10) days'
prior notice to Tenant (except that no notice shall be required in the case of
an emergency), enter the Property and perform such maintenance or repair
(including replacement, as needed) on behalf of Tenant. In such case, Tenant
shall reimburse Landlord for all costs incurred in performing such maintenance
or repair immediately upon demand.
Section 6.05. Alterations, Additions, and Improvements.
(a) Tenant shall not make any alterations, additions, or improvements to
the Property without Landlord's prior written consent, except for non-structural
alterations which do not exceed Ten Thousand Dollars ($10,000) in cost
cumulatively over the Lease Term and which are not visible from the outside of
any building of which the Property is part. Landlord may require Tenant to
provide demolition and/or lien and completion bonds in form and amount
satisfactory to Landlord. Tenant shall promptly remove any alterations,
additions, or improvements constructed in violation of this Paragraph 6.05(a)
upon Landlord's written request. All alterations, additions, and improvements
shall be done in a good and workmanlike manner, in conformity with all
applicable laws and
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regulations, and by a contractor approved by Landlord. Upon completion of any
such work, Tenant shall provide Landlord with "as built" plans, copies of all
construction contracts, and proof of payment for all labor and materials.
(b) Tenant shall pay when due all claims for labor and material furnished
to the Property. Tenant shall give Landlord at least twenty (20) days' prior
written notice of the commencement of any work on the Property, regardless of
whether Landlord's consent to such work is required. Landlord may elect to
record and post notices of non-responsibility on the Property.
Section 6.06. Condition upon Termination. Upon the termination of the
Lease, Tenant shall surrender the Property to Landlord, broom clean and in the
same condition as received except for ordinary wear and tear which Tenant was
not otherwise obligated to remedy under any provision of this Lease. However,
Tenant shall not be obligated to repair any damage which Landlord is required to
repair under Article Seven (Damage or Destruction). In addition, Landlord may
require Tenant to remove any alterations, additions or improvements (whether or
not made with Landlord's consent) prior to the expiration of the Lease and to
restore the Property to its prior condition, all at Tenant's expense. All
alterations, additions and improvements which Landlord has not required Tenant
to remove shall become Landlord's property and shall be surrendered to Landlord
upon the expiration or earlier termination of the Lease, except that Tenant may
remove any of Tenant's machinery or equipment which can be removed without
material damage to the Property. Tenant shall repair, at Tenant's expense, any
damage to the Property caused by the removal of any such machinery or equipment.
In no event, however, shall Tenant remove any of the following materials or
equipment (which shall be deemed Landlord's property) without Landlord's prior
written consent: any power wiring or power panels; lighting or lighting
fixtures; wall coverings; drapes, blinds or other window coverings; carpets or
other floor coverings; heaters, air conditioners or any other heating or air
conditioning equipment; fencing or security gates; or other similar building
operating equipment and decorations.
ARTICLE SEVEN: DAMAGE OR DESTRUCTION
Section 7.01. Partial Damage to Property.
(a) Tenant shall notify Landlord in writing immediately upon the
occurrence of any damage to the Property. If the Property is only partially
damaged (i.e., less than fifty percent (50%) of the Property is untenantable as
a result of such damage or less than fifty percent (50%) of Tenant's operations
are materially impaired) and if the proceeds received by Landlord from the
insurance policies described in Paragraph 4.04(b) are sufficient to pay for the
necessary repairs, this Lease shall remain in effect and Landlord shall repair
the damage as soon as reasonably possible. Landlord may elect (but is not
required) to repair any damage to Tenant's fixtures, equipment, or improvements.
(b) If the insurance proceeds received by Landlord are not sufficient to
pay the entire cost of repair, or if the cause of the damage is not covered by
the insurance policies which Landlord maintains under Paragraph 4.04(b),
Landlord may elect either to (i) repair the damage as soon as reasonably
possible, in which case this Lease shall remain in full force and effect, or
(ii) terminate this Lease as of the date the damage occurred. Landlord shall
notify Tenant within thirty (30) days after receipt of notice of the occurrence
of the damage whether Landlord elects to repair the damage or terminate the
Lease. If Landlord elects to repair the damage, Tenant shall pay Landlord the
"deductible amount" (if any) under Landlord's insurance policies and, if the
damage was due to an
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act or omission of Tenant, or Tenant's employees, agents, contractors or
invitees, the difference between the actual cost of repair and any insurance
proceeds received by Landlord. If Landlord elects to terminate this Lease,
Tenant may elect to continue this Lease in full force and effect, in which case
Tenant shall repair any damage to the Property and any building in which the
Property is located. Tenant shall pay the cost of such repairs, except that upon
satisfactory completion of such repairs, Landlord shall deliver to Tenant any
insurance proceeds received by Landlord for the damage repaired by Tenant.
Tenant shall give Landlord written notice of such election within ten (10) days
after receiving Landlord's termination notice.
(c) If the damage to the Property occurs during the last six (6) months of
the Lease Term and such damage will require more than thirty (30) days to
repair, either Landlord or Tenant may elect to terminate this Lease as of the
date the damage occurred, regardless of the sufficiency of any insurance
proceeds. The party electing to terminate this Lease shall give written
notification to the other party of such election within thirty (30) days after
Tenant's notice to Landlord of the occurrence of the damage.
Section 7.02. Substantial or Total Destruction. If the Property is
substantially or totally destroyed by any cause whatsoever (i.e., the damage to
the Property is greater than partial damage as described in Section 7.01), and
regardless of whether Landlord receives any insurance proceeds, this Lease shall
terminate as of the date the destruction occurred. Notwithstanding the preceding
sentence, if the Property can be rebuilt within six (6) months after the date of
destruction, Landlord may elect to rebuild the Property at Landlord's own
expense, in which case this Lease shall remain in full force and effect.
Landlord shall notify Tenant of such election within thirty (30) days after
Tenant's notice of the occurrence of total or substantial destruction. If
Landlord so elects, Landlord shall rebuild the Property at Landlord's sole
expense, except that if the destruction was caused by an act or omission of
Tenant, Tenant shall pay landlord the difference between the actual cost of
rebuilding and any insurance proceeds received by Landlord.
Section 7.03. Temporary Reduction of Rent. If the Property is destroyed or
damaged and Landlord or Tenant repairs or restores the Property pursuant to the
provisions of this Article Seven, any rent payable during the period of such
damage, repair and/or restoration shall be reduced according to the degree, if
any, to which Tenant's use of the Property is impaired. However, the reduction
shall not exceed the sum of one year's payment of Base Rent, insurance premiums
and real property taxes. Except for such possible reduction in Base Rent,
insurance premiums and real property taxes, Tenant shall not be entitled to any
compensation, reduction, or reimbursement from Landlord as a result of any
damage, destruction, repair, or restoration of or to the Property.
Section 7.04. Waiver. Tenant waives the protection of any statute, code or
judicial decision which grants a tenant the right to terminate a lease in the
event of the substantial or total destruction of the leased property. Tenant
agrees that the provisions of Section 7.02 above shall govern the rights and
obligations of Landlord and Tenant in the event of any substantial or total
destruction to the Property.
ARTICLE EIGHT: CONDEMNATION
If all or any portion of the Property is taken under the power of eminent
domain or sold under the threat of that power (all of which are called
"Condemnation"), this Lease shall terminate as to the part taken or sold on the
date the condemning authority takes title or possession, whichever occurs first.
If more than twenty percent (20%) of the floor area of the building in which the
Property is located, or which is located on the Property, is taken, either
Landlord or Tenant may terminate this Lease as of the date the condemning
authority takes title or
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possession, by delivering written notice to the other within ten (10) days after
receipt of written notice of such taking (or in the absence of such notice,
within ten (10) days after the condemning authority takes title or possession).
If neither Landlord nor Tenant terminates this Lease, this Lease shall remain in
effect as to the portion of the Property not taken, except that the Base Rent
and Additional Rent shall be reduced in proportion to the reduction in the floor
area of the Property. Any Condemnation award or payment shall be distributed in
the following order: (a) first, to any ground lessor, mortgagee or beneficiary
under a deed of trust encumbering the Property, the amount of its interest in
the Property; (b) second, to Tenant, only the amount of any award specifically
designated for loss of or damage to Tenant's trade fixtures or removable
personal property; and (c) third, to Landlord, the remainder of such award,
whether as compensation for reduction in the value of the leasehold, the taking
of the fee, or otherwise. If this Lease is not terminated, Landlord shall repair
any damage to the Property caused by the Condemnation, except that Landlord
shall not be obligated to repair any damage for which Tenant has been reimbursed
by the condemning authority. If the severance damages received by Landlord are
not sufficient to pay for such repair, Landlord shall have the right to either
terminate this Lease or make such repair at Landlord's expense.
ARTICLE NINE: ASSIGNMENT AND SUBLETTING
Section 9.01. Landlord's Consent Required. No portion of the Property or
of Tenant's interest in this Lease may be acquired by any other person or
entity, whether by sale, assignment, mortgage, sublease, transfer, operation of
law, or act of Tenant, without Landlord's prior written consent, except as
provided in Section 9.02 below. Landlord has the right to grant or withhold its
consent as provided in Section 9.05 below. Any attempted transfer without
consent shall be void and shall constitute a non-curable breach of this Lease.
If Tenant is a partnership, any cumulative transfer of more than twenty percent
(20%) of the partnership interests shall require Landlord's consent. If Tenant
is a corporation, any change in the ownership of a controlling interest of the
voting stock of the corporation shall require Landlord's consent.
Section 9.02. Tenant Affiliate. Tenant may assign this Lease or sublease
the Property, without Landlord's consent, to any corporation which controls, is
controlled by or is under common control with Tenant, or to any corporation
resulting from the merger of or consolidation with Tenant ("Tenant's
Affiliate"). In such case, any Tenant's Affiliate shall assume in writing all of
Tenant's obligations under this Lease.
Section 9.03. No Release of Tenant. No transfer permitted by this Article
Nine, whether with or without Landlord's consent, shall release Tenant or change
Tenant's primary liability to pay the rent and to perform all other obligations
of Tenant under this Lease. Landlord's acceptance of rent from any other person
is not a waiver of any provision of this Article Nine. Consent to one transfer
is not a consent to any subsequent transfer. If Tenant's transferee defaults
under this Lease, Landlord may proceed directly against Tenant without pursuing
remedies against the transferee. Landlord may consent to subsequent assignments
or modifications of this Lease by Tenant's transferee, without notifying Tenant
or obtaining its consent. Such action shall not relieve Tenant's liability under
this Lease.
Section 9.04. Offer to Terminate. If Tenant desires to assign the Lease or
sublease the Property, Tenant shall have the right to offer, in writing, to
terminate the Lease as of a date specified in the offer. If Landlord elects in
writing to accept the offer to terminate within twenty (20) days after notice of
the offer, the Lease shall terminate as of the date specified and all the terms
and provisions of the Lease governing termination shall apply. If Landlord does
not so elect, the Lease shall continue in effect until otherwise terminated and
the provisions of
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Section 9.05 with respect to any proposed transfer shall continue to apply.
Section 9.05. Landlord's Consent.
(a) Tenant's request for consent to any transfer described in Section 9.01
shall set forth in writing the details of the proposed transfer, including the
name, business and financial condition of the prospective transferee, financial
details of the proposed transfer (e.g., the term of and the rent and security
deposit payable under any proposed assignment or sublease), and any other
information Landlord deems relevant. Landlord shall have the right to withhold
consent, if reasonable, or to grant consent, based on the following factors: (i)
the business of the proposed assignee or subtenant and the proposed use of the
Property; (ii) the net worth and financial reputation of the proposed assignee
or subtenant; (iii) Tenant's compliance with all of its obligations under the
Lease; and (iv) such other factors as Landlord may reasonably deem relevant. If
Landlord objects to a proposed assignment solely because of the net worth and/or
financial reputation of the proposed assignee, Tenant may nonetheless sublease
(but not assign), all or a portion of the Property to the proposed transferee,
but only on the other terms of the proposed transfer.
(b) If Tenant assigns or subleases, the following shall apply:
(i) Tenant shall pay to Landlord as Additional Rent under the Lease
the Landlord's Share (stated in Section 1.13) of the Profit (defined below)
on such transaction as and when received by Tenant, unless Landlord gives
written notice to Tenant and the assignee or subtenant that Landlord's Share
shall be paid by the assignee or subtenant to Landlord directly. The
"Profit" means (A) all amounts paid to Tenant for such assignment or
sublease, including "key" money, monthly rent in excess of the monthly rent
payable under the Lease, and all fees and other consideration paid for the
assignment or sublease, including fees under any collateral agreements, less
(B) costs and expenses directly incurred by Tenant in connection with the
execution and performance of such assignment or sublease for real estate
broker's commissions and costs of renovation or construction of tenant
improvements required under such assignment or sublease. Tenant is entitled
to recover such costs and expenses before Tenant is obligated to pay the
Landlord's Share to Landlord. The Profit in the case of a sublease of less
than all the Property is the rent allocable to the subleased space as a
percentage on a square footage basis.
(ii) Tenant shall provide Landlord a written statement certifying
all amounts to be paid from any assignment or sublease of the Property
within thirty (30) days after the transaction documentation is signed, and
Landlord may inspect Tenant's books and records to verify the accuracy of
such statement. On written request, Tenant shall promptly furnish to
Landlord copies of all the transaction documentation, all of which shall be
certified by Tenant to be complete, true and correct. Landlord's receipt of
Landlord's Share shall not be a consent to any further assignment or
subletting. The breach of Tenant's obligation under this Paragraph 9.05(b)
shall be a material default of the Lease.
Section 9.06. No Merger. No merger shall result from Tenant's sublease of
the Property under this Article Nine, Tenant's surrender of this Lease or the
termination of this Lease in any other manner. In any such event, Landlord may
terminate any or all subtenancies or succeed to the interest of Tenant as
sublandlord under any or all subtenancies.
ARTICLE TEN: DEFAULTS; REMEDIES
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Section 10.01. Covenants and Conditions. Tenant's performance of each of
Tenant's obligations under this Lease is a condition as well as a covenant.
Tenant's right to continue in possession of the Property is conditioned upon
such performance. Time is of the essence in the performance of all covenants and
conditions.
Section 10.02. Defaults. Tenant shall be in material default under this
Lease:
(a) If Tenant abandons the Property or if Tenant's vacation of the
Property results in the cancellation of any insurance described in Section 4.04;
(b) If Tenant fails to pay rent or any other charge when due;
(c) If Tenant fails to perform any of Tenant's non-monetary obligations
under this Lease for a period of thirty (30) days after written notice from
Landlord; provided that if more than thirty (30) days are required to complete
such performance, Tenant shall not be in default if Tenant commences such
performance within the thirty (30)-day period and thereafter diligently pursues
its completion. However, Landlord shall not be required to give such notice if
Tenant's failure to perform constitutes a non-curable breach of this Lease. The
notice required by this Paragraph is intended to satisfy any and all notice
requirements imposed by law on Landlord and is not in addition to any such
requirement.
(d) (i) If Tenant makes a general assignment or general arrangement for
the benefit of creditors; (ii) if a petition for adjudication of bankruptcy or
for reorganization or rearrangement is filed by or against Tenant and is not
dismissed within thirty (30) days; (iii) if a trustee or receiver is appointed
to take possession of substantially all of Tenant's assets located at the
Property or of Tenant's interest in this Lease and possession is not restored to
Tenant within thirty (30) days; or (iv) if substantially all of Tenant's assets
located at the Property or of Tenant's interest in this Lease is subjected to
attachment, execution or other judicial seizure which is not discharged within
thirty (30) days. If a court of competent jurisdiction determines that any of
the acts described in this subparagraph (d) is not a default under this Lease,
and a trustee is appointed to take possession (or if Tenant remains a debtor in
possession and such trustee or Tenant transfers Tenant's interest hereunder,
then Landlord shall receive, as Additional Rent, the excess, if any, of the rent
(or any other consideration) paid in connection with such assignment or sublease
over the rent payable by Tenant under this Lease.
(e) If any guarantor of the Lease revokes or otherwise terminates, or
purports to revoke or otherwise terminate any guaranty of all or any portion of
Tenant's obligations under the Lease. Unless otherwise expressly provided, no
guaranty of the Lease is revocable.
Section 10.03. Remedies. On the occurrence of any material default by
Tenant, Landlord may, at any time thereafter, with or without notice or demand
and without limiting Landlord in the exercise of any right or remedy which
Landlord may have:
(a) Terminate Tenant's right to possession of the Property by any lawful
means, in which case this Lease shall terminate and Tenant shall immediately
surrender possession of the Property to Landlord. In such event, Landlord shall
be entitled to recover from Tenant all damages incurred by Landlord by reason of
Tenant's default, including (i) the worth at the time of the award of the unpaid
Base Rent, Additional Rent and other charges which Landlord had earned at the
time of the termination; (ii) the worth at the time of the award of the amount
by which the unpaid Base Rent, Additional Rent and other charges which Landlord
would have earned after termination until the time of the award exceeds the
amount of such rental loss that Tenant proves Landlord could have reasonably
avoided; (iii) the worth at the time of the award of the amount by which the
unpaid Base Rent, Additional Rent and other charges which Tenant would have paid
for the balance of the Lease term after the time
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of award exceeds the amount of such rental loss that Tenant proves Landlord
could have reasonably avoided; and (iv) any other amount necessary to compensate
Landlord for all the detriment proximately caused by Tenant's failure to perform
its obligations under the Lease or which in the ordinary course of things would
be likely to result therefrom, including, but not limited to any costs or
expenses Landlord incurs in maintaining or preserving the Property after such
default, the cost of recovering possession of the Property, expenses of
reletting, including necessary renovation or alteration of the Property,
Landlord's reasonable attorneys' fees incurred in connection therewith, and any
real estate commission paid or payable. As used in subparts (i) and (ii) above,
the "worth at the time of the award" is computed by allowing interest on unpaid
amounts at the rate of fifteen percent (15%) per annum, or such lesser amount as
may then be the maximum lawful rate. As used in subpart (iii) above, the "worth
at the time of the award" is computed by discounting such amount at the discount
rate of the Federal Reserve Bank of San Francisco at the time of the award plus
one percent (1%). If Tenant has abandoned the Property, Landlord shall have the
option of (i) retaking possession of the Property and recovering from Tenant the
amount specified in this Paragraph 10.03(a), or (ii) proceeding under Paragraph
10.03(b);
(b) Maintain Tenant's right to possession, in which case this Lease shall
continue in effect whether or not Tenant has abandoned the Property. In such
event, Landlord shall be entitled to enforce all of Landlord's rights and
remedies under this Lease, including the right to recover the rent as it becomes
due;
(c) Pursue any other remedy now or hereafter available to Landlord under
the laws or judicial decisions of the state in which the Property is located.
Section 10.04. Repayment of "Free" Rent. If this Lease provides for a
postponement of any monthly rental payments, a period of "free" rent or other
rent concession, such postponed rent or "free" rent is called the "Abated Rent".
Tenant shall be credited with having paid all of the Abated Rent on the
expiration of the Lease Term only if Tenant has fully, faithfully, and
punctually performed all of Tenant's obligations hereunder, including the
payment of all rent (other than the Abated Rent) and all other monetary
obligations and the surrender of the Property in the physical condition required
by this Lease. Tenant acknowledges that its right to receive credit for the
Abated Rent is absolutely conditioned upon Tenant's full, faithful and punctual
performance of its obligations under this Lease. If Tenant defaults and does not
cure within any applicable grace period, the Abated Rent shall immediately
become due and payable in full and this Lease shall be enforced as if there were
no such rent abatement or other rent concession. In such case, Abated Rent shall
be calculated based on the full initial rent payable under this Lease.
Section 10.05. Automatic Termination. Notwithstanding any other term or
provision hereof to the contrary the Lease shall terminate on the occurrence of
any act which affirms the Landlord's intention to terminate the Lease as
provided in Section 10.03 hereof, including the filing of an unlawful detainer
action against Tenant. On such termination, Landlord's damages for default shall
include all costs and fees, including reasonable attorneys' fees that Landlord
incurs in connection with the filing, commencement, pursuing and/or defending of
any action in any bankruptcy court or other court with respect to the Lease; the
obtaining of relief from any stay in bankruptcy restraining any action to evict
Tenant; or the pursuing of any action with respect to Landlord's right to
possession of the Property. All such damages suffered (apart from Base Rent and
other rent payable hereunder) shall constitute pecuniary damages which must be
reimbursed to Landlord prior to assumption of the Lease by Tenant or any
successor to Tenant in any bankruptcy or other proceeding.
Section 10.06. Cumulative Remedies. Landlord's exercise of any right or
remedy shall not prevent it from exercising any other right or remedy.
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ARTICLE ELEVEN: PROTECTION OF LENDERS
Section 11.01. Subordination. Landlord shall have the right to subordinate
this Lease to any ground lease, deed of trust or mortgage encumbering the
Property, any advances made on the security thereof and any renewals,
modifications, consolidations, replacements or extensions thereof, whenever made
or recorded. Tenant shall cooperate with Landlord and any lender which is
acquiring a security interest in the Property or the Lease. Tenant shall execute
such further documents and assurances as such lender may require, provided that
Tenant's obligations under this Lease shall not be increased in any material way
(the performance of ministerial acts shall not be deemed material), and Tenant
shall not be deprived of its rights under this Lease. Tenant's right to quiet
possession of the Property during the Lease Term shall not be disturbed if
Tenant pays the rent and performs all of Tenant's obligations under this Lease
and is not otherwise in default. If any ground lessor, beneficiary or mortgagee
elects to have this Lease prior to the lien of its ground lease, deed of trust
or mortgage and gives written notice thereof to Tenant, this Lease shall be
deemed prior to such ground lease, deed of trust or mortgage whether this Lease
is dated prior or subsequent to the date of said ground lease, deed of trust or
mortgage or the date of recording thereof.
Section 11.02. Attornment. If Landlord's interest in the Property is
acquired by any ground lessor, beneficiary under a deed of trust, mortgagee, or
purchaser at a foreclosure sale, Tenant shall attorn to the transferee of or
successor to Landlord's interest in the Property and recognize such transferee
or successor as Landlord under this Lease. Tenant waives the protection of any
statute or rule of law which gives or purports to give Tenant any right to
terminate this Lease or surrender possession of the Property upon the transfer
of Landlord's interest.
Section 11.03. Signing of Documents. Tenant shall sign and deliver any
instrument or documents necessary or appropriate to evidence any such attornment
or subordination or agreement to do so. If Tenant fails to do so within ten (10)
days after written request, Tenant hereby makes, constitutes and irrevocably
appoints Landlord, or any transferee or successor of Landlord, the
attorney-in-fact of Tenant to execute and deliver any such instrument or
document.
Section 11.04. Estoppel Certificates.
(a) Upon Landlord's written request, Tenant shall execute, acknowledge and
deliver to Landlord a written statement certifying: (i) that none of the terms
or provisions of this Lease have been changed (or if they have been changed,
stating how they have been changed); (ii) that this Lease has not been cancelled
or terminated; (iii) the last date of payment of the Base Rent and other charges
and the time period covered by such payment; (iv) that Landlord is not in
default under this Lease (or, if Landlord is claimed to be in default, stating
why); and (v) such other representations or information with respect to Tenant
or the Lease as Landlord may reasonably request or which any prospective
purchaser or encumbrancer of the Property may require. Tenant shall deliver such
statement to Landlord within ten (10) days after Landlord's request. Landlord
may give any such statement by Tenant to any prospective purchaser or
encumbrancer of the Property. Such purchaser or encumbrancer may rely
conclusively upon such statement as true and correct.
(b) If Tenant does not deliver such statement to Landlord within such ten
(10)-day period, Landlord, and any prospective purchaser or encumbrancer, may
conclusively presume and rely upon the following facts: (i) that the terms and
provisions of this Lease have not been changed except as otherwise represented
by Landlord; (ii) that this Lease has not been cancelled or terminated except as
otherwise represented by Landlord; (iii) that not more than one month's Base
Rent or other charges have been paid in advance; and (iv) that Landlord is not
in default under the Lease. In such event, Tenant shall be estopped from denying
the truth of such facts.
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Section 11.05. Tenant's Financial Condition. Within ten (10) days after
written request from Landlord, Tenant shall deliver to Landlord such financial
statements as Landlord reasonably requires to verify the net worth of Tenant or
any assignee, subtenant, or guarantor of Tenant. In addition, Tenant shall
deliver to any lender designated by Landlord any financial statements required
by such lender to facilitate the financing or refinancing of the Property.
Tenant represents and warrants to Landlord that each such financial statement is
a true and accurate statement as of the date of such statement. All financial
statements shall be confidential and shall be used only for the purposes set
forth in this Lease.
ARTICLE TWELVE: LEGAL COSTS
Section 12.01 Legal Proceedings. If Tenant or Landlord shall be in breach
or default under this Lease, such party (the "Defaulting Party") shall reimburse
the other party (the "Nondefaulting Party") upon demand for any costs or
expenses that the Nondefaulting Party incurs in connection with any breach or
default of the Defaulting Party under this Lease, whether or not suit is
commenced or judgment entered. Such costs shall include legal fees and costs
incurred for the negotiation of a settlement, enforcement of rights or
otherwise. Furthermore, if any action for breach of or to enforce the provisions
of this Lease is commenced, the court in such action shall award to the party in
whose favor a judgment is entered, a reasonable sum as attorneys' fees and
costs. The losing party in such action shall pay such attorneys' fees and costs.
Tenant shall also indemnify Landlord against and hold Landlord harmless from all
costs, expenses, demands and liability Landlord may incur if Landlord becomes or
is made a party to any claim or action (a) instituted by Tenant against any
third party, or by any third party against Tenant, or by or against any person
holding any interest under or using the Property by license of or agreement with
Tenant; (b) for foreclosure of any lien for labor or material furnished to or
for Tenant or such other person; (c) otherwise arising out of or resulting from
any act or transaction of Tenant or such other person; or (d) necessary to
protect Landlord's interest under this Lease in a bankruptcy proceeding, or
other proceeding under Title 11 of the United States Code, as amended, Tenant
shall defend Landlord against any such claim or action at Tenant's expense with
counsel reasonably acceptable to Landlord or, at Landlord's election, Tenant
shall reimburse Landlord for any legal fees or costs Landlord incurs in any such
claim or action.
Section 12.02. Landlord's Consent. Tenant shall pay Landlord's reasonable
attorneys' fees incurred in connection with Tenant's request for Landlord's
consent under Article Nine (Assignment and Subletting), or in connection with
any other act which Tenant proposed to do and which requires Landlord's consent.
ARTICLE THIRTEEN: MISCELLANEOUS PROVISIONS
Section 13.01. Non-Discrimination. Tenant promises, and is a condition to
the continuance of this Lease, that there will be no discrimination against, or
segregation of, any person or group of persons on the basis of race, color, sex,
creed, national origin or ancestry in the leasing, subleasing, transferring,
occupancy, tenure or use of the Property or any portion thereof.
Section 13.02. Landlord's Liability; Certain Duties.
(a) As used in this Lease, the term "Landlord" means only the current
owner or owners of the fee title to the Property or the leasehold estate under a
ground lease of the Property at the time in question. Each Landlord is obligated
to perform the obligations of Landlord under this Lease only during the time
such Landlord owns such
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interest or title. Any Landlord who transfers its title or interest is relieved
of all liability with respect to the obligations of Landlord under this Lease to
be performed on or after the date of transfer. However, each Landlord shall
deliver to its transferee all funds that Tenant previously paid if such funds
have not yet been applied under the terms of this Lease.
(b) Tenant shall give written notice of any failure by Landlord to
perform any of its obligations under this Lease to Landlord and to any ground
lessor, mortgagee or beneficiary under any deed of trust encumbering the
Property whose name and address have been furnished to Tenant in writing.
Landlord shall not be in default under this Lease unless Landlord (or such
ground lessor, mortgagee or beneficiary) fails to cure such non-performance
within thirty (30) days after receipt of Tenant's notice. However, if such non-
performance reasonably requires more than thirty (30) days to cure, Landlord
shall not be in default if such cure is commenced within such thirty (30)-day
period and thereafter diligently pursued to completion.
(c) Notwithstanding any term or provision herein to the contrary, the
liability of Landlord for the performance of its duties and obligations under
this Lease is limited to Landlord's interest in the Property, and neither the
Landlord nor its partners, shareholders, officers or other principals shall have
any personal liability under this Lease.
Section 13.03. Severability. A determination by a court of competent
jurisdiction that any provision of this Lease or any part thereof is illegal or
unenforceable shall not cancel or invalidate the remainder of such provision or
this Lease, which shall remain in full force and effect.
Section 13.04. Interpretation. The captions of the Articles or Sections of
this Lease are to assist the parties in reading this Lease and are not a part of
the terms or provisions of this Lease. Whenever required by the context of this
Lease, the singular shall include the plural and the plural shall include the
singular. The masculine, feminine and neuter genders shall each include the
other. In any provision relating to the conduct, acts or omissions of Tenant,
the term "Tenant" shall include Tenant's agents, employees, contractors,
invitees, successors or others using the Property with Tenant's expressed or
implied permission.
Section 13.05. Incorporation of Prior Agreements; Modifications. This
Lease is the only agreement between the parties pertaining to the lease of the
Property and no other agreements are effective. All amendments to this Lease
shall be in writing and signed by all parties. Any other attempted amendment
shall be void.
Section 13.06. Notices. All notices required or permitted under this Lease
shall be in writing and shall be personally delivered or sent by certified mail,
return receipt requested, postage prepaid. Notices to Tenant shall be delivered
to the address specified in Section 1.03 above, except that upon Tenant's taking
possession of the Property, the Property shall be Tenant's address for notice
purposes. Notices to Landlord shall be delivered to the address specified in
Section 1.02 above. All notices shall be effective upon delivery. Either party
may change its notice address upon written notice to the other party.
Section 13.07. Waivers. All waivers must be in writing and signed by the
waiving party. Landlord's failure to enforce any provision of this Lease or its
acceptance of rent shall not be a waiver and shall not prevent Landlord from
enforcing that provision or any other provision of this Lease in the future. No
statement on a payment check from Tenant or in a letter accompanying a payment
check shall be binding on Landlord. Landlord may, with or without notice to
Tenant, negotiate such check without being bound to the conditions of such
statement.
Section 13.08. No Recordation. Tenant shall not record this Lease without
prior written consent from Landlord. However, either Landlord or Tenant may
require that a "Short Form" memorandum of this Lease
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executed by both parties be recorded. The party requiring such recording shall
pay all transfer taxes and recording fees.
Section 13.09. Binding Effect; Choice of Law. This Lease binds any party
who legally acquires any rights or interest in this Lease from Landlord or
Tenant. However, Landlord shall have no obligation to Tenant's successor unless
the rights or interests of Tenant's successor are acquired in accordance with
the terms of this Lease. The laws of the state in which the Property is located
shall govern this Lease.
Section 13.10. Corporate Authority; Partnership Authority. If Tenant is a
corporation, each person signing this Lease on behalf of Tenant represents and
warrants that he has full authority to do so and that this Lease binds the
corporation. Within thirty (30) days after this Lease is signed, Tenant shall
deliver to Landlord a certified copy of a resolution of Tenant's Board of
Directors authorizing the execution of this Lease or other evidence of such
authority reasonably acceptable to Landlord. If Tenant is a partnership, each
person or entity signing this Lease for Tenant represents and warrants that he
or it is a general partner of the partnership, that he or it has full authority
to sign for the partnership and that this Lease binds the partnership and all
general partners of the partnership. Tenant shall give written notice to
Landlord of any general partner's withdrawal or addition. Within thirty (30)
days after this Lease is signed, Tenant shall deliver to Landlord a copy of
Tenant's recorded statement of partnership or certificate of limited
partnership.
Section 13.11. Joint and Several Liability. All parties signing this Lease
as Tenant shall be jointly and severally liable for all obligations of Tenant.
Section 13.12. Force Majeure. If Landlord cannot perform any of its
obligations due to events beyond Landlord's control, the time provided for
performing such obligations shall be extended by a period of time equal to the
duration of such events. Events beyond Landlord's control include, but are not
limited to, acts of God, war, civil commotion, labor disputes, strikes, fire,
flood or other casualty, shortages of labor or material, government regulation
or restriction and weather conditions.
Section 13.13. Execution of Lease. This Lease may be executed in
counterparts and, when all counterpart documents are executed, the counterparts
shall constitute a single binding instrument. Landlord's delivery of this Lease
to Tenant shall not be deemed to be an offer to lease and shall not be binding
upon either party until executed and delivered by both parties.
Section 13.14. Survival. All representations and warranties of Landlord and
Tenant shall survive the termination of this Lease.
[intervening sections intentionally omitted]
Section 14.04. No Other Brokers. Tenant represents and warrants to Landlord
that no broker is entitled to a commission fee for the procurement of this
lease.
ADDITIONAL PROVISIONS MAY BE SET FORTH IN A RIDER OR RIDERS ATTACHED
HERETO OR IN THE BLANK SPACE BELOW. IF NO ADDITIONAL PROVISIONS ARE INSERTED,
PLEASE DRAW A LINE THROUGH THE SPACE BELOW.
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Landlord and Tenant have signed this Lease at the place and on the dates
specified adjacent to their signatures below and have initialled all Riders
which are attached to or incorporated by reference in this Lease.
Signed on January 21, 1992 "LANDLORD"
---------------------
at Auburn, CA Panattoni-Catlin Joint Venture
----------------------------
---------------------------------
By: /s/ Benjamin S. Catlin
------------------------------
Benjamin S. Catlin
Its: Managing Partner
-----------------------------
By:
------------------------------
Its:
-----------------------------
Signed on January 21, 1992 "TENANT"
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Mountain Peoples Warehouse
at Auburn, CA ---------------------------------
----------------------------
---------------------------------
By: /s/ Michael S. Funk
-----------------------------
Michael S. Funk
Its: General Manager
-----------------------------
By:
------------------------------
Its:
-----------------------------
IN ANY REAL ESTATE TRANSACTION, IT IS RECOMMENDED THAT YOU CONSULT WITH
A PROFESSIONAL, SUCH AS A CIVIL ENGINEER, INDUSTRIAL HYGIENIST OR OTHER PERSON
WITH EXPERIENCE IN EVALUATING THE CONDITION OF THE PROPERTY, INCLUDING THE
POSSIBLE
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PRESENCE OF ASBESTOS, HAZARDOUS MATERIALS AND UNDERGROUND STORAGE TANKS.
THIS PRINTED FORM LEASE HAS BEEN DRAFTED BY LEGAL COUNSEL AT THE DIRECTION
OF THE SOUTHERN CALIFORNIA CHAPTER OF THE SOCIETY OF INDUSTRIAL AND OFFICE
REALTORS,(R) INC. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE SOUTHERN
CALIFORNIA CHAPTER OF THE SOCIETY OF INDUSTRIAL AND OFFICE REALTORS,(R) INC.,
ITS LEGAL COUNSEL, THE REAL ESTATE BROKERS NAMED HEREIN, OR THEIR EMPLOYEES OR
AGENTS, AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT OR TAX CONSEQUENCES OF THIS
LEASE OR OF THIS TRANSACTION. LANDLORD AND TENANT SHOULD RETAIN LEGAL COUNSEL TO
ADVISE THEM ON SUCH MATTERS AND SHOULD RELY UPON THE ADVICE OF SUCH LEGAL
COUNSEL.
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RIDER 1
CONSTRUCTION OF IMPROVEMENTS BY LANDLORD
This Rider is attached to and made part of that certain lease dated
January 21, 1992 between Panattoni-Catlin Joint Venture, as Landlord and
Mountain Peoples Warehouse, as Tenant, covering the Property commonly known as
described in Exhibit 1 APV 052-010-07. The terms used in this Rider shall have
the same definitions as set forth in the Lease. The provisions of this Rider
shall prevail over any inconsistent or conflicting provisions of the Lease.
A. Description of Improvements. Landlord shall, at Landlord's
expense, construct certain improvements on or about the Property (the "Work") in
accordance with certain plans and specifications attached hereto as Exhibit "1"
and incorporated herein by this reference. Tenant hereby approves the plans and
specifications attached hereto as Exhibit "1."
B. Preliminary Plans. If the plans and specifications attached
hereto are final plans and specifications, such final plans and specifications
are hereinafter referred to as the "Final Plans," and the remainder of this
Paragraph shall be inoperative. If the plans and specifications attached hereto
are preliminary plans, Landlord shall prepare final working drawings and
outlined specifications for the Work and submit such plans and specifications to
Tenant for its approval on or before sixty (60) days from execution. Tenant
shall approve or disapprove such drawings and specifications within fifteen (15)
days after receipt from Landlord. Tenant shall have the right to disapprove such
drawings and specifications only if they materially differ from the plans and
specifications attached hereto. If Tenant disapproves such drawings and
specifications, Landlord and Tenant shall promptly meet in an attempt to resolve
any dispute regarding such drawings and specifications. If the parties are
unable to agree upon the final working drawings and specifications for the Work
on or before one hundred twenty (120) days, Landlord may, at Landlord's option,
either (1) terminate this Lease upon seven (7) days' prior written notice to
Tenant, and refund the Tenant's deposit pursuant to the terms outlined in
Paragraph F in which case neither Landlord nor Tenant shall have further
liability to the other, or (2) submit the matter to conclusive and binding
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association. Final working drawings and specifications prepared in
accordance with this Paragraph B and approved by Landlord and Tenant are
hereinafter referred to as the "Final Plans."
C. Completion of the Work. Landlord shall use its best efforts to
complete the Work described in the Final Plans prior to the scheduled
Commencement Date set forth in Section 1.05, the Commencement Date shall be the
date upon which the Work is substantially completed and the Property is
delivered to Tenant.
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For the purposes of the Paragraph C, the Work shall be conclusively deemed to be
substantially completed when all Work described in the Final Plans is completed,
except for minor items of work (e.g., "pick-up work") which can be completed
with only minor interference with Tenant's conduct of business on the Property.
D. Changes. Landlord's obligation to prepare the Property for
Tenant's occupancy is limited to the completion of the Work set forth in the
plans and specifications attached hereto as Exhibit "1" or reasonably inferable
therefrom. Otherwise, Landlord shall not be required to furnish, construct or
install any items not shown thereon. If Tenant requests any change, addition or
alteration ("Changes") in such plans and specifications or in the Work, Landlord
shall promptly give Tenant an estimate of the cost of such Changes and the
resulting delay in the delivery of the Property to Tenant. Within three (3) days
after receipt of such estimate, Tenant shall give Landlord written notice
whether Tenant elects to proceed with such Changes. If Tenant notifies Landlord
in writing that Tenant elects to proceed with such Changes and if Landlord
approves such Changes, Landlord shall, at Tenant's expense, promptly make such
Changes. If Tenant fails to notify Landlord of its election with the three (3)
day period, Landlord may either (1) make such Changes at Tenant's expense or (2)
complete the Work without making such Changes. Tenant shall pay or reimburse
Landlord for the costs of such Changes within fifteen (15) days after billing.
Any delay caused by Tenant's request for any Changes or from the construction of
any Changes shall not, in any event, delay the Commencement Date, which shall
occur on the date it would have occurred but for such Changes. The Work shall be
property of Landlord and shall remain upon and be surrendered with the Property
upon the expiration of the Lease Term.
E. Value Engineering and Change Orders. Many assumptions have been
made by Landlord in the preparation of the construction bid to assure a
consistent high level of quality in the finished product. Landlord and Tenant
shall work together during the value engineering phase to reduce costs. The
schedule for savings shall be one hundred percent (100%) to Tenant prior to
Tenant's approval of Final Plans and fifty percent (50%) equally between
Landlord and Tenant following Tenant's approval of Final Plans. Changes which
result in higher costs will be priced at a documented cost plus eight percent
(8%). Lease rates will be increased or decreased in proportion to a ratio formed
utilizing the original base rent as specified in Section 1.12 a the numerator
and the purchase price as specified in Article 2.02 of Rider 2 as denominator:
46,360 new rental rate
( i.e. --------- = --------------- = 1.06%)
4,367,500 new price
F. Financing Contingency. Landlord and Tenant shall use their best
efforts to secure financing for the project reasonably satisfactory to both
Parties on or before one hundred twenty (120) days from mutual execution. In the
event such financing shall not be obtained by such date, Landlord and Tenant
shall have the option to either continue forward with the project on terms
deemed satisfactory or to terminate the project. In the event that the project
is terminated by either Party due to the failure to obtain such reasonably
satisfactory financing, Tenant shall have the option to retain the drawings,
documents prepared by Landlord, plans and other work deemed necessary to the
development of the project to that time (collectively referred to as
"development planning"). In the event that Tenant elects to utilize the
development planning then Tenant shall reimburse Landlord as follows: At the
termination of the option Tenant shall receive back its deposit less the costs
incurred by Landlord. In the event Tenant elects not to retain the development
planning upon termination of the project but to Terminate the project,
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then Tenant shall receive back its deposit less one-half (1/2) of the
development planning costs of Landlord.
G. Early Occupancy. As long as such access or occupancy does not
interfere with Landlord's construction of the building, Tenant or Tenant's
Agent(s) shall have access to the property up to forty-five (45) days prior to
completion for the installation of Tenant's equipment and racking. During the
period of such early access, Tenant shall not be liable for rent payments but
shall indemnify Landlord from any injury or damage sustained by Tenant or
Tenant's Agent(s) while on the property and shall indemnify Landlord from any
damage done by Tenant or Tenant's Agent(s) to the property. Except for damages
caused by the gross negligence or wilful misconduct of Landlord or Landlord's
Agent(s), Landlord shall have no liability for any damage to Tenant's equipment
installed on the property during the period of early occupancy.
Agreed and Accepted:
/s/ Benjamin Catlin /s/ Michael Funk
- ------------------------------- --------------------------------
Landlord Tenant
1/21/92 1/21/92
- ------------------------------- --------------------------------
Date Date
A:RIDER1
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RIDER 2 (PURCHASE OPTION)
PURCHASE OPTION AND PURCHASE AND SALE AGREEMENT
PANATTONI-CATLIN JOINT VENTURE IV, a California General Partnership
("Landlord"/"Optionor"/"Seller"), and MOUNTAIN PEOPLES WAREHOUSE
("Tenant"/"Optionee"/ "Buyer"), AGREE AS FOLLOWS:
ARTICLE 1. GENERAL
1.01. The Purchase Option. The Tenant shall have the option to purchase
-------------------
the Property described in the Lease pursuant to the terms and conditions
hereinafter set forth ("Option" or "Purchase Option"). This Option shall expire,
if not exercised, at the end of the twenty-fourth (24th) month after occupancy.
Tenant shall deposit, as described in the Lease, One Hundred Twenty Five
Thousand Dollars ($125,000.00) with Landlord as part of the consideration for
the Lease and the granting of this Option per Paragraph 20 of the First Addendum
and Section 1.10 of the Lease. Said deposit shall be a credit against the
Purchase Price in the event the Option is exercised and the escrow is
successfully closed. In the event Tenant chooses not to exercise this Option, or
this Option expires, Fifty Thousand Dollars ($50,000.00) shall be refunded
forthwith, without interest, to Tenant but in no case sooner than nine (9)
months after occupancy, the balance shall be retained by Landlord as a security
deposit. The Option must be exercised in writing by Tenant within Twenty-Four
(24) months from occupancy of the property by Tenant by delivery to Landlord of
a notice of exercise of Option. After the exercise of the Option, the sale of
the Property shall be consummated in accordance with this Agreement.
1.02. The Purchase Property. Seller is the owner and leaseholder (or will
---------------------
be prior to occupancy) of that certain real property located in Placer County,
California, described in Exhibit 1 incorporated in Rider 1 attached hereto (the
---------
"Purchase Property") and made a part hereof by reference. By lawful exercise of
the Option by Optionee, Optionor has agreed as Seller to sell to Buyer and Buyer
has agreed to purchase from Seller the Purchase Property.
1.03. Purpose. The purpose of this Agreement is to provide for the purchase
-------
and sale of the Purchase Property.
ARTICLE 2. PURCHASE AND SALE.
2.01. Purchase and Sale. Seller shall sell the Purchase Property to
-----------------
Buyer, and Buyer shall purchase the Purchase Property from Seller on the terms
and conditions specified in this Agreement and in the Option Agreement to which
this Purchase and Sale Agreement is attached. The terms and conditions of the
Option Agreement are incorporated herein by reference.
2.02. Price. The purchase price for the Purchase Property shall be the
-----
sum of Four Million Three Hundred Sixty-Seven Thousand Five Hundred Dollars
($4,367,500) ("Purchase Price") except, however, said purchase price may be
increased per Paragraph 8 (Exclusions) of Exhibit 1. Upon
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exercise of this Option Buyer is to assume and pay when due the amount of any
assessments or bonds upon the Property. If the Option is not exercised on or
before one hundred twenty (120) days after occupancy, then the Purchase Price
shall increase one-half percent (0.5%) each month, beginning on month five (5)
and continuing through month twenty-four (24). By its terms, the Purchase Option
terminates if not exercised within twenty-four (24) months following occupancy
of the Property. However, Tenant shall retain a First Right of Refusal for the
term of the Lease as defined herein.
2.03. First Right of Refusal. Provided that Tenant shall not be in
----------------------
default during the preceding one (1) year period, Tenant shall have a First
Right of Refusal to purchase the building and project and to assume the
Landlord's leasehold interests. In the event that Landlord receives a bona fide
offer for same, Landlord shall communicate to Tenant the essential terms and
conditions of said offer. Tenant then shall have ten (10) days within which to
notify Landlord in writing that it wishes to purchase the building on the same
terms and conditions as are specified in the offer which Landlord will have
received.
2.04. Payment. Buyer shall pay the Purchase Price as follows: All cash
-------
within sixty (60) days of the Option Exercise.
2.05. Deposit. Upon the opening of escrow, as herein defined, Seller
-------
shall deposit with Escrow Holder the sum of Fifty Thousand Dollars ($50,000),
which sum has already been paid to Seller by reason of the Purchase Option. In
lieu of such deposit, the Seller may acknowledge in writing to Escrow Holder
that Seller is holding such deposit and that it is a credit to Buyer against the
Purchase Price.
ARTICLE 3. ESCROW.
3.01. Opening. The purchase and sale of the Purchase Property shall be
-------
consummated by means of an escrow which is to be opened with a title company
selected by the Seller ("Escrow Holder").
3.02. Instructions. The escrow instructions given to Escrow Holder shall
------------
be consistent with the terms of this Agreement and the Purchase Option.
3.03. Close of Escrow. Escrow shall close on or before the sixtieth
---------------
(60th) day following the date of Option Exercise (the "Closing Date").
3.04. Costs. The title insurance premium for a standard owner's policy
-----
of title shall be paid by Seller. The premium for any extended coverage shall be
paid for by Buyer. Transfer taxes and costs of recording shall be paid by Buyer.
All other charges and expenses incurred in this transaction (including escrow
fees) are to be divided and paid equally by Seller and Buyer.
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3.05. Prorations. Real property taxes shall be prorated as of the Closing
----------
Date.
ARTICLE 4. CONDITIONS TO CLOSE OF ESCROW.
4.01. General. The provisions of this Article 4 are conditions precedent
-------
to the close of the escrow described in Article 3 and, where provided expressly
or by context, are covenants.
4.02. Title. Seller shall have caused title to the Purchase Property to
-----
be conveyed to Buyer by deed subject only to current property taxes, the
existing encumbrances, including the Land Lease and other exceptions approved by
Buyer. Seller shall have caused Escrow Holder to cause its underwriter to issue
a standard owner's policy of title insurance insuring title in Buyer with
liability in the amount of the Purchase Price. Any extended coverages shall be
paid for by Buyer.
4.03. Approval of Encumbrances. As soon as practical, after mutual
------------------------
execution of the Option Agreement, Seller shall deliver to Buyer a preliminary
title report ("Report") concerning the Property. Buyer shall have five (5) days
from the date of delivery within which to object in writing to any exceptions or
matters listed in the report. Failure to so object shall be deemed acceptance of
the Report. If Buyer objects to any exception or matter in the Report, Buyer
shall specify as part of the written objection the specific exception or matter
objected to. Seller shall have thirty (30) days to remove or otherwise rectify
the objection ("Objection Removal Period"). If Seller fails or refuses to
rectify the objection, then Buyer may deliver to Seller a written notice of
termination of the Option Agreement, at which time such Agreement shall be
deemed terminated and of no further force and effect. However, if such notice of
termination is not delivered to Seller within five (5) days after the end of the
Objection Removal Period, then all objections to the exceptions and other
matters in the Report shall be deemed waived by Buyer.
In the event that Buyer has no objections to the Report, or waived
objections to the Report, then all exceptions and matters referred to in the
Report shall be deemed accepted matters by Buyer ("Accepted Matters"). Seller
promises that Seller will not cause any additional encumbrances, liens or other
matters to attach to the Property, other than the Accepted Matters, without the
written consent of Buyer which shall not be unreasonably withheld or delayed.
4.04. Nonforeign Certification. Seller shall have furnished to Buyer a
------------------------
certification duly executed by Seller under penalty of perjury in form approved
by Buyer setting forth Seller's business address and federal tax identification
number or Social Security number and certifying that Seller is not a "foreign
person" in accordance with the provisions of Section 1445 of the Internal
Revenue Code of 1954, as amended, and the regulations promulgated thereunder.
ARTICLE 5. REPRESENTATIONS.
5.01. Warranties and Representations by Seller.
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A. Seller hereby makes the following representations, covenants
and warranties and acknowledges that the acquisition by Buyer of the Purchase
Property will have been made in material reliance by Buyer on such covenants,
representations and warranties which are true as of the date of mutual execution
of the Purchase Option.
1. To Seller's knowledge, there is presently no claim,
litigation, proceeding or governmental investigation pending or
threatened against or relating to the Purchase Property or the
transaction contemplated hereby. Seller shall give Buyer prompt
notice of such claim, litigation, proceeding or investigation which
becomes known to it prior to Closing Date.
2. To Seller's knowledge, no uncured notice of violation
of any applicable zoning regulation or ordinance with other law,
order, ordinance, permit, rule, regulation or requirements, or any
covenants, conditions or restrictions affecting or relating to the
use or occupancy of the Purchase Property has been given to Seller
by any governmental agency having jurisdiction or by any other
person entitled to enforce the same.
3. To Seller's knowledge there is presently no pending or
contemplated condemnation of the Purchase Property or any part
thereof.
4. Seller represents and warrants the closing of the sale
contemplated by this Agreement will not constitute or result in any
default or event that, with a notice or lapse of time, or both,
would be a default, breach or violation of any lease, mortgage,
deed of trust, covenant or other agreement, instrument or
arrangement by which Seller or the Purchase Property is bound.
5. If Seller becomes aware of any fact or circumstance
which would change a representation or warranty, then Seller will
immediately give notice of such changed fact or circumstance to
Buyer in writing.
6. Seller represents and warrants that the Purchase
Property is being conveyed to Buyer free and clear of all recorded
liens, encumbrances and title defects other than those shown in the
title commitment. Buyer acknowledges that the building and
improvements are situated on Leased Land.
7. Buyer understands and acknowledges that, except as
stated above, Seller makes no representation or warranty with
reference to the Purchase Property, and Buyer shall conduct his due
diligence and satisfy himself as to all matters of importance
concerning the property. The Buyer is purchasing the property "as
is."
4
<PAGE>
Buyer acknowledges that Buyer will be in possession of the Purchase
Property pursuant to the Lease of which the Purchase Option is a
part, and will have full and ample opportunity to investigate and
evaluate the Property.
ARTICLE 6. MISCELLANEOUS.
6.01. Notices. Notices shall be delivered in accordance with the
-------
procedures set forth in the Option Agreement.
6.02. Interpretation. This Agreement has been executed by Buyer and
--------------
Seller in Auburn, California, and shall be interpreted in accordance with
California law. The captions of paragraphs used in this Agreement are for
convenience only. The provisions hereof shall be binding upon and inure to the
benefit of the successors and assigns of Seller and Buyer.
6.03. Time of Essence. Time is of the essence of this Agreement and of
---------------
the escrow provided for herein.
6.04. Attorneys' Fees; Prejudgment Interest. If the services of an
-------------------------------------
attorney are required by any party to secure the performance hereof or otherwise
upon the breach or default of a party to this Agreement, or if any judicial
remedy or arbitration is necessary to enforce or interpret any provision of this
Agreement or the rights and duties of any person in relation thereto, the
prevailing party shall be entitled to reasonable attorneys' fees, expert witness
fees, costs an other expenses, in addition to any other relief to which such
party may be entitled. Any award of damages following judicial remedy or
arbitration as a result of the breach of this Agreement or any of its
provisions, shall include an award of prejudgment interest from the date of the
breach at the maximum amount of interest allowed by law.
6.05. Integration. This Agreement contains the entire agreement of the
-----------
parties hereto, and supersedes any prior written or oral agreements between them
concerning the subject matter contained herein. There are no representations,
agreements, arrangements or understandings, oral or written, relating to the
subject matter which are not fully expressed herein.
6.06. Additional Documents. From time to time, prior to and after the
--------------------
close of escrow, each party shall execute and deliver such instruments of
transfer and other documents as may be reasonably requested by the other party
to carry out the purpose and intent of the Agreement.
6.07. Dependency and Survival of Provisions. The respective warranties,
-------------------------------------
representations, covenants, agreements, obligations and undertakings of each
party hereunder shall be construed as dependent upon and given in consideration
of those of the other party, and shall survive the close of escrow and
conveyance of the Purchase Property.
5
<PAGE>
6.08. Cooperation in Exchange. The parties agree to cooperate with each
-----------------------
other in an exchange of the Purchase Property pursuant to Section 1031 of the
Internal Revenue Code of 1986. Each party may assign this Agreement, including
all the rights and duties which survive the close of escrow, and may convey the
Purchase Property to an exchange intermediary for the purpose of facilitating
such an exchange by the assigning party. Exchanger shall pay all costs of any
such exchange and shall indemnify and defend and hold the other party harmless
from any claims, loss, damages or liability arising out of participation in an
exchange.
6.09. Waiver. Any of the terms or conditions of this Agreement may be
------
waived at any time by the party entitled to the benefit thereof, but no such
waiver shall affect or impair the right of the waiving party to require
observance, performance or satisfaction either of that term or condition as it
applies on a subsequent occasion or of any other term or condition hereof.
6.10. Severability. If any provision of this Agreement is held by a court
------------
of competent jurisdiction to be invalid or unenforceable, the remainder of the
Agreement which can be given effect in keeping with the purpose and intent of
the parties, without the invalid provision, shall continue in full force and
effect and shall in no way be impaired or invalidated.
6.11. Counterparts. This Agreement may be executed in counterparts, each
------------
of which shall be original and all of which shall constitute one and the same
instrument.
6.12. LIQUIDATED DAMAGES. BUYER RECOGNIZES THAT SELLER'S PROPERTY WILL BE
------------------
REMOVED FROM THE MARKET DURING THE EXISTENCE OF THIS PURCHASE AND SALE AGREEMENT
AND THAT IF THIS TRANSACTION IS NOT CONSUMMATED BECAUSE OF BUYER'S DEFAULT OR
BREACH, SELLER SHOULD BE ENTITLED TO COMPENSATION FOR SUCH DETRIMENT; HOWEVER,
IT IS EXTREMELY DIFFICULT AND IMPRACTICAL TO ASCERTAIN THE EXTENT OF THE
DETRIMENT AND TO AVOID THIS PROBLEM, BUYER AND SELLER AGREE THAT IF THIS
TRANSACTION IS NOT CONSUMMATED BECAUSE OF BUYER'S DEFAULT OR BREACH, SELLER
SHALL BE ENTITLED TO RECOVER FROM BUYER THE AMOUNT OF ALL DEPOSITS AS LIQUIDATED
DAMAGES IN THE AMOUNT OF FIFTY THOUSAND DOLLARS ($50,000.00). THE BALANCE OF THE
DEPOSIT SHALL BE DEEMED A SECURITY DEPOSIT UNDER THE LEASE AND HELD BY SELLER AS
SUCH PURSUANT TO THE TERMS OF THE LEASE. THE AMOUNT HAS BEEN AGREED UPON, AFTER
NEGOTIATIONS, AS THE PARTIES' BEST ESTIMATE OF SELLER'S DAMAGES. THE PARTIES
AGREE THAT THE AMOUNT OF DEPOSIT STATED ABOVE AS LIQUIDATED DAMAGES SHALL BE
SELLER'S SOLE AND EXCLUSIVE REMEDY AND SHALL BE IN LIEU OF ANY OTHER RELIEF TO
WHICH SELLER MIGHT OTHERWISE BE ENTITLED BY VIRTUE OF THIS PURCHASE AND SALE
AGREEMENT OR BY OPERATION OF LAW OR EQUITY.
Seller's Initials BC Buyer's Initials MF
-------- --------
6
<PAGE>
6.13. Arbitration of Disputes. Any controversy or claim between or among
-----------------------
the parties arising out of or relating to this Agreement or breach thereof shall
be determined by binding arbitration pursuant to the following provisions:
a. Appointment of Arbitrators and Conduct of Hearing. The
-------------------------------------------------
arbitrators shall be appointed and the arbitration hearing conducted under the
commercial rules of the American Arbitration Association. Either party may make
application to the American Arbitration Association for appointment of
arbitrators and each party agrees that such arbitration shall be the sole and
exclusive remedy for all disputes arising by reason of this Agreement. The
hearing shall be conducted by three (3) arbitrators. One (1) arbitrator shall be
chosen by Seller and one (1) arbitrator shall be chosen by Buyer. The third
(3rd) arbitrator shall be chosen by the procedures of the American Arbitration
Association.
b. Arbitrators' Findings and Award Final. The findings of the
-------------------------------------
arbitrators shall be treated as a final judgment on the merits which is binding
upon all parties to this Agreement. No cause of action or liability shall accrue
or be incurred for violation of this Agreement unless and until shall claim has
been arbitrated under the terms of this Section. The extent of claim or
liability shall be limited to the findings and award of the arbitrators.
Notwithstanding any provision to the contrary, the parties shall have no further
right or appeal from the findings and award of the arbitrators and hereby
explicitly, knowingly, and voluntarily waive any such rights to any further
appeal whatsoever.
c. Statute of Limitations. The statute of limitations for any
----------------------
party to make a claim for breach of this Agreement, or for resolution of any
dispute hereunder, whether for damages or otherwise, shall be one hundred eighty
(180) days from the date of discovery of the facts underlying the claim by the
party wishing to make said claims. No further actions, whether by arbitration or
by court proceeding, may be filed after expiration of this statute of
limitations.
d. NOTICE. BY INITIALLING IN THE SPACE BELOW YOU ARE AGREEING TO
------
HAVE ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF
DISPUTES" PROVISION DECIDED BY NEUTRAL ARBITRATION AND YOU ARE GIVING UP ANY
RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR JURY TRIAL.
BY INITIALLING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO
DISCOVERY AND APPEAL, UNLESS SUCH RIGHTS ARE SPECIFICALLY INCLUDED IN THE
"ARBITRATION OF DISPUTES" PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION
AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE
AUTHORITY OF APPLICABLE CALIFORNIA LAW. YOUR AGREEMENT TO THIS ARBITRATION
PROVISION IS VOLUNTARY. WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO
SUBMIT DISPUTES ARISING OUT OF THE MATERIAL INCLUDED IN THE "ARBITRATION OF
DISPUTES" PROVISION TO NEUTRAL ARBITRATION.
BC MSF
- --------------------------- --------------------------
INITIALS OF SELLER/OPTIONOR INITIALS OF BUYER/OPTIONEE
7
<PAGE>
This arbitration provision shall be the exclusive remedy for disputes
involving the Option Agreement and the Purchase and Sale Agreement.
8
<PAGE>
The parties, intending to be legally bound, have executed the Option
Agreement to which this Purchase and Sale Agreement is attached as an exhibit
with the understanding that the terms hereof shall control upon the exercise of
the Option.
OPTIONOR/SELLER
PANATTONI-CATLIN JOINT VENTURE IV
By: /s/ Benjamin S. Catlin
---------------------------------
Its: Managing Partner
OPTIONEE/BUYER:
MOUNTAIN PEOPLES WAREHOUSE
By: /s/ Michael Funk
---------------------------------
Its: General Manager
9
<PAGE>
EXHIBIT 1
126,000 SQUARE FOOT FACILITY
MOUNTAIN PEOPLE'S WAREHOUSE
AUBURN AIRPORT INDUSTRIAL PARK
AUBURN, CALIFORNIA
<PAGE>
INITIAL
PREMISES: An approximately 126,000 square foot facility to be located
on approximately five and eighty-five one hundredths (5.85)
acres of land in the Auburn Airport Industrial Park, Auburn,
California.
BUILDING
SHELL: We envision an exterior composed of partial height concrete
tilt-up panels, painted, and accented with a color
coordinated paint stripe. The building will have a "standing
seam" steel roof system with steel side skirting. In
addition, the facility will have an attractive office
entrance, complementary landscaping, and exterior lighting.
Additional architectural accents are possible if desired.
They have not been included in this contract.
BUILDING
IMPROVEMENTS: The facility would incorporate all of the design
specifications outlined in this Exhibit 1 or reasonably
inferable therefrom, and those smaller details not mentioned
but normally included in a distribution facility. The
building is being designed to accommodate wholesale food
distribution and allied operations.
ASSUMPTIONS: 1. The site can be leased for approximately $.104 per
square foot per year including any improvements
required to develop.
2. The site to be created will be adequate for building,
truck area, landscaping and setbacks, and vehicle
parking.
3. Development and permit fees do not exceed the $2.50 per
building square foot or $325,500.
OCCUPANCY: Landlord will tender possession of the premises on
January 1, 1993.
DEVELOPMENT
TIME SCHEDULE: For planning, in working with our firm on a build-to-suit
basis, Tenant should anticipate that approximately two (2)
months will be required for complete building design and
preparation of working drawings including Tenant approval.
Assuming a period of three (3) months for approval of plans
and issuance of building permits by the governing agency(s),
project completion would occur approximately six (6) months,
weather permitting, after start of construction, or eleven
(11) months total.
FORCE
MAJEURE: Occupancy shall be subject to time extensions for acts or
occurrences beyond the reasonable control of Panattoni-Catlin
Venture, including but not limited to adverse weather
conditions or delays in issuance of applicable permits or
other required governmental approvals where such delays
result in a period in excess of eighty-five (85) days from
initial submittal of the drawing/information for plan check
or similar review to final permit.
ENVIRONMENTAL
COMPLIANCE: Tenant shall be responsible for the cost of any additional
improvements or permits, and the processing of any such
permits required by or delays caused by any environmental
quality control board or similar governmental entity as a
result of Tenant's specific or unique uses or activities.
HAZARDOUS
<PAGE>
MATERIALS: Tenant shall be responsible for obtaining any permits
required by any regulatory agency governing the storage of
hazardous materials used in Tenant's trade or business.
EXPANSION: Panattoni-Catlin Venture will work with Tenant to provide for
Tenant's expansion needs and in a time frame which fits with
Tenant's growth plans. There are many ways which we believe
would be satisfactory to both parties to achieve this
expansion requirement.
GENERAL DESCRIPTION
- -------------------
Building Type: 126,000 square foot concrete tilt-up (16' partial height)
with steel upper section and steel "standing seam" roof,
"food grade" facility.
Clear Height: 28 feet, excluding draft curtains which may be required
for customer's use.
Building Dimensions: 210' deep x 600' wide.
Bay Sizes: Approximately 40' wide x 50' deep adjusted at end of
building.
Office: Approximately 8,000 square feet, two story, with accented
entry. Design for a 4,000 square foot expansion.
Exterior Glazing: 1,040 square feet.
SITE WORK
Assumes a level site (+/- two/tenths). An allowance of $138,581 has been
included to cover site preparation to make it level and remove/mitigate trees.
On-site storm drain system complete.
Domestic water and sewer stubbed to building.
(All utility runs not to exceed 100' from building exterior.)
Paving: Total concrete and paved area equal to approximately
eighty-five (85%) percent of building square footage
(i.e. 126,000 s.f. bldg. would expect 107,100 s.f. of
total concrete and paving). Exact paving to be per final
plan.
Car Operations: 3" asphalt over 6" of base rock or equivalent.
Truck Operations: 4" asphalt over 8" base rock, unreinforced concrete or
equivalent with a reinforced concrete apron sixty (60)
feet out from building in front of dock doors (if any).
Landscaping: Per code. An allowance of $7,000 has been included for
landscaping.
Curbs & Stripping: Per code.
SHELL IMPROVEMENT SCHEDULE
- --------------------------
CONCRETE
Walls: Wall thickness per code, partial height, interior pick
points exposed, smooth exterior, broom finish interior.
<PAGE>
Floor Slab: 6" concrete, 3,000 psi (no allowance for additional
inspections), green saw cut @ 400 s.f. maximum, #4 rebar 24"
on center throughout plus fibermesh in high traffic area
adjacent to docks (20,000 s.f. maximum contiguous). Allowance
of $7,500 for freezer floor upgrade included. Floors to have
Tieh sealer or equivalent (allowance of $26,615).
FRAMING
Roof: Steel bar joist roof. An allowance of $33,900 is included for
snow load capacity which may be required (estimated 25 pound
load).
DOORS & HARDWARE
Exterior Doors:
Truck: Dock doors - fourteen (14) 9' x 10' roll up, 26 gauge with
levelers (Rite Hite Model RH-68 30,000 pounds or equivalent)
and dock seals (Fromelt Model TP801-VC or equivalent). Dock
height will be 48".
Grade doors - Four (4) total, two (2) 12' x 12' and two (2)
12' x 14' roll up doors, 26 gauge.
Man: 3' x 6'8" doors with metal frames, thumb latch dead bolt
(quantity to code).
ROOF
Type: "Standing seam" steel roof, Varco Pruden SSR-24 or
equivalent, 20 year manufacturer's warranty.
FINISHES
Paint: Exterior - walls to receive one coat oil based primer and one
latex finish coat; one color only, with accent stripe.
Interior - walls to receive one coat oil based primer and one
latex finish coat, white or off white.
MECHANICAL
Sprinklers: Engineered to .33/3,000 ESFR system or local code
requirements for high pile storage, whichever is less.
No hose rack connections or fire extinguisher. Exit signs and
spare sprinkler heads as required by code.
Connection to central station monitoring if required by local
ordinance.
HVAC
Warehouse: R-11 insulation in roof and R-6 in metal portion of walls,
vinyl backed, two air exchanges per hour ventilation; no heat
or air conditioning.
ELECTRICAL
Service: 1200 amp, 277/480 volt, 3 phase service, main panel housing,
conduit, and pad only. Utility company to set transformer and
complete hookup.
<PAGE>
Duplex plug for fire sprinkler monitoring
equipment/connection to house loads.
Lighting: Exterior - To code with building mounted fixtures.
Interior - Approximately 122,000 s.f. to be provided with
17.5 foot candle, 400 watt HID "high bay" metal hallide with
lenses.
Light Panels - One (1%) percent - approximately thirty-seven
(37), (2' x 10' dimension).
Telephone: Main telephone termination installed at building.
PLUMBING
Floor Drains: Four (4) near office, without grease traps or filters, 100'
pipe per drain maximum.
Bathrooms: To code for sixty (60) employees, male and female furnished
as identified in office Improvement Schedule - I.
MISCELLANEOUS
Truck Maintenance
Facility: Per plan, to be developed jointly, (estimated cost $38,000,
as an included allowance), to be contracted separately.
----------
EXCLUSIONS:
1. All improvements required to obtain height variance issue with City of
Auburn.
2. Any extra landscaping which may be required to satisfy the City of Auburn.
3. Traffic mitigation which may be required and costs associated with the
realignment of Wilbur Way.
4. A fire line loop, if required.
5. Streambed Protection and Parkway charges (none anticipated).
6. Abnormal utility connection charge.
7. Mitigation and/or cleanup which may be required by any site toxic report.
Total Cost increases caused by erroneous assumptions made by Landlord including,
but not limited to the foregoing seven (7) exclusions shall not exceed four (4%)
of the proposed purchase price as specified in Paragraph 2.02 of Rider 2 except
by mutual agreement.
In the event that such total cost increases exceed Three Hundred Thousand
($300,000) Dollars, then Landlord shall have the option to terminate this
Agreement and refund deposit to Buyer.
STANDARD OFFICE IMPROVEMENT SCHEDULE - I
- ----------------------------------------
PARTITIONING One hundred (100) lineal feet of eight foot finish
height, 2' x 4' finish with 1/2" sheetrock partitioning
per one thousand (1,000) square feet of office area
(includes required demising wall(s)).
<PAGE>
DOORS In addition to required exterior entry door(s), two (2)
hollow core, metal frame doors per one thousand (1,000)
square feet of office area, including code required
doors.
CEILING 2' x 4' acoustical tile ceiling will be provided as
building standard.
FLOORING 26 oz. commercial grade glue down carpet will be
installed (or VCT tile if so desired). Ceramic tile in
entry way (approximately 225 s.f.).
HEATING/AIR
CONDITIONING Heating and air conditioning will be provided throughout
the office area in accordance with sound engineering
practice, and in California, as required by Title 24.
ELECTRICAL
OUTLETS One (1) standard wall duplex outlet will be provided for
every one hundred (100) square feet of office area.
Special attention to be paid to upstairs office.
TELEPHONE
OUTLETS One (1) standard wall outlet will be provided for every
two hundred (200) square feet of office area.
LIGHT FIXTURES One (1) standard 2' x 4' lay-in florescent fixture will
be provided for every seventy-five (75) square feet of
office area, and in California, as required by Title 24.
Switching to code.
PAINTING All walls shall be painted with one (1) finish coat of
latex paint.
RESTROOMS Standard restrooms to code with one hot and cold water
wall hung sink, tank-type toilet, paper dispenser,
exhaust fan, standard light fixture, and wall hung
mirror. These to be installed as per code requirements.
Floor covering to be sheet vinyl with cove base per
customer's selection of standard options -- finished,
sheetrocked, and painted.
Note: The above items represent the standard allowance for the building. Unless
specifically indicated otherwise, any item not included in the schedule
will be paid for by the customer.
<PAGE>
FIRST ADDENDUM
This first addendum shall be attached to and incorporated with the lease dated
January 21, 1992 wherein Panattoni-Catlin Joint Venture is referred to as
Landlord and Mountain Peoples Warehouse is referred to as Tenant.
18. PURCHASE OPTION.
Subject to approval of the assignment of the land leasehold interest by
the City of Auburn and removal of the Landlord from all obligations on
that land lease, Tenant has a purchase option to purchase the building
and improvements and Landlord's leasehold interest in the land pursuant
to the terms of RIDER 2, attached hereto, and made a part hereof by
reference.
19. LAND LEASE
Tenant acknowledges that Landlord does not own the land under the
building, but will obtain a lease with the City of Auburn and Tenant
agrees to be bound by the provisions of that lease agreement. Landlord
will provide a copy for Tenant to approve, such approval not to be
unreasonably withheld. Landlord will make all lease payments to the
City unless or until Tenant exercises this purchase option. After
Tenant exercises the purchase option, all lease payments and
obligations shall become the obligation of the Tenant.
20. DEPOSIT
An initial deposit of Ten Thousand ($10,000) Dollars is due within Ten
(10) Days of mutual execution of Purchase Agreement. A second deposit
of Thirty Thousand Dollars ($30,000) is due within Thirty (30) Days
following mutual execution. A third deposit of Sixty Thousand Dollars
($60,000) is due Fifteen (15) days after Tenant's receipt of working
drawings but in no event prior to Sixty (60) Days following mutual
execution. Lastly, a fourth deposit of Twenty Five Thousand Dollars
($25,000) is due ninety (90) days after mutual execution.
21. GENERAL CONDITIONS
This contract is conditioned upon the following:
1. Approval by Panattoni-Catlin Venture and the selected lender of
the necessary financial information and acceptance by all
parties of the terms the lender(s) may require.
2. Approval of plans and issuance of permits to building the
contemplated building by the government agency in the location
specified.
<PAGE>
First Addendum
Page 2
All other paragraphs shall remain as executed.
Agreed and Accepted Agreed and Accepted
/s/ Benjamin S. Catlin /s/ Michael Funk
- ------------------------------ ---------------------------------
Landlord Tenant
January 21, 1992 January 21, 1992
- ------------------------------ ---------------------------------
Date Date
<PAGE>
SECOND ADDENDUM
This second addendum shall be attached to and incorporated with the lease dated
January 21, 1992 wherein Panattoni-Catlin Joint Venture is referred to as
Landlord and Mountain People's Warehouse is referred to as Tenant.
1. LEASE COMMENCEMENT DATE:
The above-referenced lease shall commence on April 1, 1993.
/s/ Benjamin Catlin October 27, 1992
- ------------------------------ -------------------------------
Landlord Date
/s/ Michael Funk October 31, 1992
- ------------------------------ -------------------------------
Tenant Date
<PAGE>
THIRD ADDENDUM
This third addendum shall be attached to and incorporated with the lease dated
January 21, 1992 wherein Panattoni-Catlin Joint Venture is referred to as
Landlord and Mountain People's Warehouse is referred to as Tenant.
1. AMENDED SECURITY DEPOSIT:
The above-referenced lease shall have total security deposits
of one hundred forty-four thousand five hundred thirty-five
dollars ($144,535.00).
2. AMENDED RENT PAYABLE BY TENANT:
The above-referenced lease shall have a new monthly base rent
of forty-nine thousand two hundred dollars ($49,200).
3. AMENDED PURCHASE PRICE:
The above-referenced lease shall have a new base purchase
price of four million six hundred seventy-two thousand three
hundred seventy-four dollars ($4,672,374.00).
All other terms and conditions of the aforesaid lease
agreement shall remain the same.
/s/ Benjamin Catlin December 2, 1992
- ------------------------------ -------------------------------
Landlord Date
/s/ Michael Funk January 5, 1993
- ------------------------------ -------------------------------
Tenant Date
<PAGE>
Fourth Addendum
This Fourth Addendum shall be attached to and incorporated with the
Lease dated January 21, 1992, wherein Panattoni-Catlin Joint Venture is referred
to as Landlord and Mountain People's Warehouse is referred to as Tenant.
1. Amended Commencement Date and Delay in Commencement; Liquidated
---------------------------------------------------------------
Damages Clause:
- --------------
The above-referenced Lease (Article Two: Lease Term, Section 2.02 Delay
in Commencement) shall be amended to delete the current Section and replace it
with the following:
"Section 2.02. Delay in Commencement. Landlord shall not be
liable to Tenant if Landlord does not deliver possession of the
Property to Tenant on the Commencement Date. Landlord's non-delivery of
the Property to Tenant on that date shall not affect this Lease or the
obligations of Tenant under this Lease except that the Commencement
Date shall be delayed until Landlord delivers possession of the
Property to Tenant and the Lease Term shall be extended for a period
equal to the delay in delivery of possession of the Property to Tenant,
plus the number of days necessary to end the Lease Term on the last day
of a month. If delivery of possession of the Property to Tenant is
delayed, Landlord and Tenant shall, upon such delivery, execute an
amendment to this Lease setting forth the actual Commencement Date and
expiration date of the Lease. Failure to execute such amendment shall
not affect the actual Commencement Date and expiration date of the
Lease. In the event that the Property is not ready to occupy on June 1,
1993, Landlord shall pay Tenant Five Hundred Dollars ($500.00) per day
for each day possession is delayed beyond June 1, 1993, because the
Property is not ready to occupy."
The above-referenced Lease (Article One: Basic Terms, Section 1.05
Lease Term and The Second Addendum: Lease Commencement Date) shall be amended as
follows:
"Lease Term: Fifteen (15) years beginning on June 1, 1993, or such
other date as is specified in this Lease, and ending on May 30, 2008."
Agreed and accepted:
/s/ Benjamin Catlin February 10, 1993
- ------------------------------ -------------------------------
Landlord Date
<PAGE>
/s/ Michael Funk February 17, 1993
- ------------------------------ -------------------------------
Tenant Date
<PAGE>
Fifth Addendum
This Fifth Addendum shall be attached to and incorporated with the
Lease dated January 21, 1992, wherein Panattoni-Catlin Joint Venture is referred
to as Landlord and Mountain People's Warehouse is referred to as Tenant.
The above-referenced Lease (Article One: Basic Terms, Section 1.02
Landlord) shall be amended to delete the current Section and replace it with the
following
"Section 1.02. Landlord (include legal entity): Panattoni-Catlin
Joint Venture and Souza Revocable Trust dated February 3, 1984."
Agreed and Accepted:
/s/ Benjamin Catlin May 12, 1993
- ------------------------------ -------------------------------
Landlord Date
/s/ Michael Funk May 17, 1993
- ------------------------------ -------------------------------
Tenant Date
<PAGE>
SIXTH ADDENDUM
--------------
This Sixth Addendum shall be attached to and incorporated in the Lease
dated January 21, 1992 ("Lease"), wherein Panattoni-Catlin Joint Venture is
referred to as Landlord and Mountain People's Warehouse is referred to as
Tenant. The Lease shall be deemed to include the Industrial Real Estate Lease,
Exhibits attached thereto, all Amendments by way of Addendum and all Riders
attached thereto. Landlord and Tenant agree that this Addendum shall be an
Amendment to the Lease.
AMENDMENT
ARTICLE ONE, Section 1.01 is deleted and replaced with the following:
"Section 1.01 Date of Lease. January 21, 1992."
-------------
ARTICLE ONE, Section 1.12(a) of the Lease is hereby deleted and
replaced with the following:
"Section 1.12. Rent and Other Charges Payable by Tenant: (a) BASE RENT:
----------------------------------------
Forty Six Thousand Three Hundred Sixty Dollars ($46,360.00) per month as
provided in Section 3.01. The Base Rent shall be increased upon the completion
of each thirty (30) month period in the Lease following the Commencement Date
pursuant to Section 3.02. Increases in Base Rent shall be computed pursuant to
Section 3.02 and take affect on the first (1st) day of month thirty-one (31),
sixty-one (61), eighty-one (81), one hundred twenty-one (121), one hundred
fifty-one (151)."
1
<PAGE>
ARTICLE ONE, Section 1.01 of Rider 2 (Purchase Option) to the Lease is
hereby deleted and replaced with the following:
"1.01. The Purchase Option. The Tenant shall have the option to
-------------------
purchase the Property described in the Lease pursuant to the terms and
conditions hereinafter set forth ("Option" or "Purchase Option"). This Option
shall expire, if not exercised, at the end of the Eighty-fourth (84th) month
after occupancy. Tenant shall deposit, as described in the Lease, One Hundred
Twenty Five Thousand Dollars ($125,000.00) with Landlord as part of the
consideration for the Lease and the granting of this Option per Paragraph 20 of
the First Addendum and Section 1.10 of the Lease. Said deposit shall be a credit
against the Purchase Price in the event the Option is exercised and the escrow
is successfully closed. In the event Tenant elects in writing prior to
expiration not to exercise this Option, or this Option expires, Fifty Thousand
Dollars ($50,000.00) shall be refunded forthwith, without interest, to Tenant
but in no case sooner than nine (9) months after occupancy, the balance shall be
retained by Landlord as a security deposit. The Option must be exercised in
writing by Tenant within Eighty-four (84) months from occupancy of the Property
by Tenant by delivery to Landlord of a written notice of exercise of Option.
After the exercise of the Option, the sale of the Property shall be consummated
in accordance with this Agreement. In the event that the Tenant exercises the
Option prior to the expiration of sixty (60) months following occupancy, Tenant,
at its sole cost and expense, and as a condition precedent to its rights under
this Purchase Option (including, but not limited to, exercise thereof) shall pay
all loan prepayment fees, costs and penalties
2
<PAGE>
charged by any lender having a loan secured by Deed of Trust, mortgage or other
security interest in the Property."
ARTICLE TWO, Section 2.02 of Rider 2 (Purchase Option) to the Lease is
hereby deleted and replaced with the following:
"2.02. Price. The purchase price for the Purchase Property shall be in
-----
the sum of Four Million Three Hundred Sixty-Seven Thousand Five Hundred Dollars
($4,367,500.00) ("Purchase Price") except, however, said Purchase Price may be
increased per Paragraph 8 (Exclusions) of Exhibit 1. Upon exercise of this
Option Buyer is to assume and pay when due the amount of any assessments or
bonds upon the Property. If the Option is not exercised on or before one hundred
twenty (120) days after occupancy, then the Purchase Price shall increase
one-quarter percent (0.25%) each month, beginning on month five (5) and
continuing through month eighty-four (84). By its terms, the Purchase Option
terminates if not exercised within eighty-four (84) months following occupancy
of the Property. However, Tenant shall retain a First Right of Refusal for the
term of the Lease as defined herein."
The Guarantee of the Lease, executed by Michael S. Funk ("Guarantor")
on December 17, 1992, shall remain in full force and effect and shall be deemed
to apply to the Lease, all Exhibits, Addendums and Riders thereto, and
Amendments thereof, including this Sixth Addendum.
Except as herein amended, and except to the extent all other terms,
covenants and conditions of the Lease, each Rider thereto, each
3
<PAGE>
Addendum thereto and each Amendment and Modification thereto are not in conflict
with this Sixth Addendum, such terms, covenants and conditions shall remain in
full force and effect.
In Witness Whereof, the parties have set their hands on the date
opposite each signature.
"LANDLORD":
PANATTONI-CATLIN JOINT VENTURE
By: /s/ Benjamin Catlin Date: May 28, 1995
--------------------------- ------------
Benjamin S. Catlin,
Managing Partner
"TENANT":
MOUNTAIN PEOPLE'S WAREHOUSE
By: /s/ Michael S. Funk Date: May 27, 1993
--------------------------- ------------
Michael S. Funk, General
Manager and individually as
Guarantor
4
<PAGE>
SEVENTH ADDENDUM
This seventh addendum shall be attached to and incorporated with the
Lease dated January 21, 1992 wherein Panattoni-Catlin Joint Venture is referred
to as Landlord and Mountain Peoples Warehouse as Tenant.
1. AMENDED RENT PAYABLE BY TENANT:
The above referenced Lease shall have a new monthly base rent of fifty
eight thousand one hundred twenty one dollars ($58,121.00).
2. AMENDED PURCHASE PRICE:
The above referenced Lease shall have a new base purchase price of five
million six hundred eighty five thousand one hundred seventy-four
dollars ($5,685,174.00).
All other terms and conditions of the aforesaid Lease agreement shall remain the
same.
/s/ Benjamin Catlin June 22, 1995
- ------------------------------ -------------------------------
Landlord Date
/s/ Michael Funk June 19, 1995
- ------------------------------ -------------------------------
Tenant Date
<PAGE>
COMMENCEMENT DATE ACKNOWLEDGEMENT
This Commencement Date Acknowledgement is between Panattoni-Catlin Joint Venture
------------------------------
and Souza Revocable Trust dated February 3, 1984, as "landlord" and Mountain
- ------------------------------------------------ --------
Peoples Warehouse, as "Tenant" regarding that certain premises ("Premises")
- -----------------
located at 12745 Earhart Avenue, Auburn, CA 95602.
--------------------------------------
The undersigned hereby confirms the following:
MOVE-IN AND
RENT START DATE: October 1, 1995
LEASE AMOUNT: $58,121.00 per month Net, Net, Net
LEASE
EXPIRATION DATE: May 30, 2008
1. Governing contract is "Seventh Addendum" to lease dated January 21, 1994.
2. That Tenant accepted possession of the Premises from Landlord on
October 1, 1995.
3. That all conditions which are to be satisfied prior to the full
effectiveness of the Lease have been satisfied and that Landlord has
fulfilled all its duties of an inducement nature.
4. That there are no existing defenses which Tenant has against the
enforcement of the Lease by Landlord, and no offsets or credits against any
amounts owned by Tenant pursuant to the Lease.
5. That Tenant has not made any prior assignment, hypothecation or pledge of
the Lease or of the rents thereunder.
TENANT:
MOUNTAIN PEOPLES WAREHOUSE By: /s/ Michael Funk
- -------------------------- ------------------------
Michael Funk
Date: 10/24/95 Its: President
<PAGE>
Amendment to Industrial Real Estate Lease
Date of Lease: January 21, 1992
Date of Amendment: June 28, 1994
This amendment ("Amendment") is made this 28th day of June 1994, by and
between Panattoni-Catlin Joint Venture, a California general partnership
("Landlord") and Mountain Peoples Warehouse ("Tenant") (collectively "Parties"),
to that certain lease dated January 21, 1992, executed by the Parties ("Lease").
The Parties intend by this Amendment to modify the size of the Property by
constructing a Property addition on the north end of the building and by setting
the rent therefore and by modifying the price payable pursuant to the Option to
Purchase. Except to the extent that this Amendment is in conflict with the
terms, covenants and conditions of the Lease, in which case this Amendment shall
control, the Lease shall remain in full force and effect and shall limit and be
considered a part of this Amendment. The Parties agree as follows:
1. Build to Suit Addition. Landlord shall construct, pursuant to the
----------------------
provisions of Article 16 of the Lease, a build to suit addition to the building
occupied by Tenant and comprising the Property under the Lease ("Addition"). The
Addition shall be constructed on the north end of the property according to
plans and specifications approved by Tenant pursuant to Section 16 of the Lease.
The Addition is approximately twenty-one thousand eight hundred forty (21840)
square feet.
2. Occupancy and Term of Addition. The date of occupancy of the
------------------------------
Addition by the Tenant shall be not later than February 1, 1995 ("Addition
Commencement Date"), and Landlord shall use commercially reasonable efforts to
complete the Addition by the Addition Commencement Date subject to the issuance
of necessary building permits and the provisions of the Lease, including but not
limited to all sections in Article Two and Section 13.12 of the Lease. Tenant
agrees to pay the new rent as hereinafter defined for the Property, including
the Addition, and shall take occupancy of the Addition on the date a certificate
of occupancy or like public entity approval is issued for the Addition, which
shall thereafter be the Addition Commencement Date. On the Addition Commencement
Date, for the purposes of Lease Term and Rent, the Addition shall become part of
the Property an shall merge in the Lease Term.
3. New Rent. Tenant shall pay, as new rent ("New Rent") for the
--------
Property commencing on the one hundred eighty-first day following the Addition
Commencement Date ("New Rent Commencement Date"), an amount equal to Fifty-Seven
Thousand Two Hundred Thirty-Seven and No/100 Dollars ($57,237.00) per month. In
the event that the Addition is more or less than twenty-one thousand eight
hundred forty (21840) square feet, the New Rent shall be adjusted using .368
(36.8 cents) per square foot. Prior to the New Rent Commencement Date the Rent
shall be paid in accordance with the Lease. The New Rent shall be adjusted in
accordance with the Lease including Sections 1.12 and 3.02.
<PAGE>
4. Option. Section 17.05 of the Lease is hereby amended by deleting,
------
in the second and third lines of the Section, the following: "Four Million Eight
Hundred Twelve Thousand Five Hundred Forty-Five and NO/100 Dollars
($4,812,545.00)" and replacing it with "Five Million Five Hundred Ninety-Eight
Thousand Seven Hundred Four and No/100 Dollars ($5,598,704.00)" which shall be
the Purchase Price of the Property in the Option.
The Parties have hereafter set their signatures on the date first above
written.
Landlord:
Panattoni-Catlin Joint Venture,
a California General Partnership
/s/ Benjamin Catlin
- ---------------------------------
Benjamin Catlin
Managing General Partner
Tenant:
Mountain Peoples Warehouse
/s/ Michael Funk
- ---------------------------------
Michael Funk
Title: President
--------------------------
<PAGE>
Exhibit 10.22
-------------
INDUSTRIAL REAL ESTATE LEASE
PREM MARK, INC.
DRY SPACE, WAREHOUSE _____
ARTICLE 1: BASIC TERMS
This Article One contains the Basic Terms of this Lease between the
Landlord and Tenant named below. Other Articles, Sections and Paragraphs of the
Lease referred to in this Article One explain and define the Basic Terms and are
to be read in conjunction with the Basic Terms.
Section 1.1. Date of Lease: July 29, 1995.
-------------
Section 1.2. Landlord: Prem Mark, Inc., a Colorado corporation
--------
Address of Landlord: c/o Executive International, 516 Pennsfield Place,
-------------------
P.O. Box 1437, Thousand Oaks, California 91358, Attention: John Bayle, with a
copy of notices to Donald deLaski, Deltek Systems, Inc., 8280 Greensboro Drive,
Suite 300, McLean, Virginia 22102.
Section 1.3. Tenant: Cornucopia Natural Foods, Inc., a Delaware
------
Corporation.
Address of Tenant: 260 Lake Road, Dayville, Connecticut 06241.
-----------------
Section 1.4. Property: 4850 Moline Street, Denver, Colorado,
--------
including the warehouse building and offices contained thereon.
Section 1.5. [Intentionally left blank.]
Section 1.6. Lease Term: The Lease shall commence on this date
----------
and shall continue for a period of 60 months, provided, however, that Tenant has
the right to terminate this Lease, effective at any time after 12 months from
this date, provided that Tenant has first given written, irrevocable and
unconditional notice to Landlord of such termination not less than 9 months in
advance of the effective date of termination (the "Term").
Section 1.7. Permitted Uses: General foods warehouse and
--------------
distribution, related office uses. (See Section 5.1)
Section 1.8. Security: $41,250, as a cash security deposit.
--------
Section 1.9. Landlord's Broker: Not applicable.
-----------------
<PAGE>
Section 1.10. Tenant's Broker: Not applicable.
---------------
Section 1.11. Commission Payable to Landlord's Broker: Not
---------------------------------------
applicable.
Section 1.12. Rent and Other Charges Payable by Tenant:
----------------------------------------
1.12.1 Base Rent: $247,500.00 on an annualized basis,
---------
payable as provided in Section 3.1 and subject to annual increases as provided
in Section 3.2.
1.12.2 Other Charges:
-------------
1.12.2.1 Utilities (See Section 4.2).
1.12.2.2 Insurance Premiums (See Section 4.3(c)).
1.12.2.3 Real and Personal Property Taxes (See
Section 4.1).
ARTICLE 2: LEASE TERM
Section 2.1. Lease of Property for Lease Term: Landlord leases
--------------------------------
the Property to Tenant and Tenant leases the Property from Landlord for the
Term. The Term is for the period stated in Section 1.6 above and shall begin
and end on the dates in accordance with Section 1.6 above, unless the beginning
or the end of the Term is changed under any provision of this Lease. The
"Commencement Date" shall be the Date of Lease as defined in Section 1.1.
Section 2.2. Delay in Commencement: Not applicable.
---------------------
Section 2.3. Holding Over: Tenant shall vacate the Property upon
------------
the expiration or earlier termination of this Lease. Tenant shall reimburse
Landlord for and indemnify Landlord against all damages incurred by Landlord
from any delay by Tenant in vacating the Property. If Tenant does not vacate
the Property upon the expiration or earlier termination of the Lease and
Landlord thereafter accepts rent from Tenant, Tenant's occupancy of the Property
shall be a "month-to-month" tenancy, subject to all of the terms of this Lease
applicable to a month-to-month tenancy at the Other Charges and one hundred
(100%) percent of the Rent and additional Rent then in effect for the first two
months, and thereafter at the Other Charges and one hundred twenty-five (125%)
percent of the Rent and additional Rent then in effect and subject to increases
as provided in Section 3.2 hereof.
-2-
<PAGE>
ARTICLE 3: RENT
Section 3.1. Time and Manner of Payment: The Rent shall be due
--------------------------
without notice, offset or prior demand, in equal monthly installments at the
applicable Base Rent described in Section 1.12(a) above, on the first day of
each month during the Term, payable no later than the tenth day of each month.
Rent and all additional Rent and other charges shall be paid to Landlord at
Landlord's Address.
Section 3.2. Annual Base Rent Increases: On each annual
--------------------------
anniversary date of the Date of Lease, Base Rent for the next year shall be the
amount of the Base Rent payable for the preceding 12-month period multiplied by
that percentage equal to (i) one hundred percent (100%), plus (ii) the
percentage increase, if any, between the most recent CPI Index available on the
first day of the first month of such period and the most recent CPI Index
available on the first day of the last month of such period. The "CPI Index"
shall mean the Consumer Price Index for All Urban Consumers computed by the U.
S. Department of Labor, Bureau of Labor Statistics, for the Denver-Boulder
Metropolitan Area, unless such index is discontinued in which case CPI Index
shall mean a similar index commonly used for commercial purposes as selected by
Landlord exercising reasonable judgment.
ARTICLE 4: OTHER CHARGES PAYABLE BY TENANT
In addition to Base Rent, Tenant shall pay other charges as set forth in
this Article, which other charges shall also be "Rent" under this Lease.
Section 4.1. Real Property Taxes:
-------------------
4.1.1 Definition of "Real and Personal Property Taxes".
------------------------------------------------
"Real and Personal Property Taxes" means: (i) any fee, license fee, license tax,
business license fee, commercial rental tax, levy, charge, assessment, penalty
or tax imposed by any taxing authority against the Property or any personal
property therein or attributable to Tenant's use thereof; (ii) any tax on the
Landlord's right to receive, or the receipt of, rent or income from the Property
or against Landlord's business of leasing the Property, excluding general income
taxes; (iii) any tax or charge for fire protection, streets, sidewalks, road
maintenance, refuse or other services provided to the Property by any
governmental agency; (iv) any tax imposed upon this transaction, or based upon a
re-assessment of the Property due to a change in ownership or transfer of all or
part of Landlord's interest in the Property; and (v) any charge or fee replacing
any tax previously included within the definition of Real property tax. Real and
Personal Property Taxes does not, however, include Landlord's federal or state
income taxes. For any special assessment payable without delinquency over a
period longer than one year, Real and Personal Property Taxes shall include only
those
-3-
<PAGE>
portions of the assessment that are apportioned on a monthly or daily basis, as
the case may be, to the Term of this Lease.
4.1.2 Payment of Real and Personal Property Taxes. Tenant
-------------------------------------------
shall pay to Landlord as additional Rent, no later than ten (10) days prior to
their due date (before the time of any penalty, interest or delinquency), the
Real and Personal Property Taxes that are due for that year, apportioned on a
monthly or daily basis (as the case may be) for such part of the year that is
included with the Term of this Lease. Tenant shall also pay all taxes charged
against trade fixtures, furnishings, equipment or any other personal property
belonging to Tenant. Tenant shall have its personal property taxed separately
from the Property. If any of Tenant's personal property is taxed with the
Property, Tenant shall pay Landlord the taxes for the personal property within
10 days after Tenant receives written statement from Landlord for such personal
property taxes. If Tenant fails to pay the Real and Personal Property Taxes
timely, Landlord shall thereafter during the Term of the Lease have the right to
collect the anticipated amount of such Taxes from Tenant in advance, payable
1/12 of the estimated amount each month together with Rent as additional Rent.
In such event, Tenant shall also pay any known deficiency in the final amount of
Real and Personal Property Taxes that are due and owing within 10 days after
written demand by Landlord, and Landlord shall refund to Tenant any excess Real
and Personal Property Taxes collected.
Section 4.2. Utilities:
---------
4.2.1 Telephone and Refuse: Tenant shall pay, directly to
--------------------
the appropriate supplier, the cost of all telephone and refuse disposal.
4.2.2 Energy and Water/Sewer Usage: Landlord shall cause
----------------------------
all energy, water, sewer and drainage utilities to be invoiced directly to
Tenant, and Tenant shall pay such invoices directly to the appropriate utility
company before delinquency.
Section 4.3. Insurance Premiums: Tenant and Landlord shall
------------------
maintain the following insurance during the term of this Lease. Tenant's
insurance shall be primary coverage with Tenant as the primary party and
Landlord named as an additional insured.
4.3.1 Tenant's Insurance. Tenant shall maintain a policy
------------------
of comprehensive general liability including property damage and contractual
liability insurance insuring Tenant and Landlord for liability arising out of
Tenant's use, occupancy or maintenance of the Property. The policy shall have
limits of liability of no less than $2,000,000 single limit bodily injury and/or
property damage combined, for damages arising out of bodily injuries to or death
of all persons arising from one occurrence; and damage to or destruction of
property including loss thereof, arising
-4-
<PAGE>
from one occurrence. The insurance may contain a deductible clause of not more
than $0.00 but Tenant shall be liable to the extent of the deductible amount.
The property portion of the policy, or a separate property damage policy in the
amount of $2,000,000, as the case may be, shall name Landlord as the loss payee
and shall provide protection of the Property against all risks, physical loss,
damages, and perils including fire, extended coverage, vandalism, malicious
mischief, theft, special extended perils, sprinkler leakage, earthquake and
Inflation Guard endorsement, and any other perils (except flood and earthquake,
unless required by any lender holding a security interest in the Property) which
Landlord deems necessary.
Tenant also agrees to procure and maintain the following policies: (1)
Workers' Compensation and Employer's Liability; (2) automobile insurance with
limits of not less than $1,000,000 bodily injury and property damage each
occurrence; and (3) Umbrella Liability Insurance of not less than $5,000,000 in
the aggregate.
Tenant shall name Landlord as an Additional Insured on the Comprehensive
General Liability, Property and Umbrella policies. Certificates of Insurance
and/or Policy Endorsements executed by Insurer indicating that Landlord is an
Additional Insured shall be furnished to Landlord prior to the commencement date
of this Lease.
All policies must be endorsed to provide that the Insurer shall give the
Landlord thirty (30) days' written notice prior to cancellation and/or
modification of any policy. Tenant shall not do or permit to be done anything
which invalidates any subsequent insurance policies. If Tenant fails to
maintain the policies, Landlord may elect to maintain such insurance at Tenant's
expense.
Tenant shall, at Tenant's expense, maintain such primary or additional
insurance on its fixtures, equipment and building improvements as Tenant deems
necessary to protect its interest. Landlord may obtain insurance coverage for
Tenant's fixtures, equipment or building improvements installed by Tenant in the
Property. Landlord may also require that Tenant, at its expense and for the
benefit of Landlord, acquire a Landlord's protective liability endorsement with
respect to the Property.
4.3.2 Landlord's Insurance. Landlord shall maintain a policy of
--------------------
comprehensive public liability insurance insuring Landlord for liability arising
out of the conditions on the Property at the date of this Lease and Landlord's
ownership of the Property. The policy shall have limits of liability of no less
than $2,000,000 single limit bodily injury and/or property damage combined, for
damages arising out of bodily injuries to or death of all persons arising from
one occurrence; and damage to or destruction of property including loss thereof,
arising from one occurrence. The insurance may contain a deductible clause of
not more than $0.00 but Landlord shall be liable to the extent of the deductible
amount. Landlord also agrees to maintain excess coverage of not less than
$5,000,000.
-5-
<PAGE>
Section 4.4. Multiple Tenant Buildings; Rules and Regulations:
------------------------------------------------
Not Applicable.
Section 4.5. Late Charges: Tenant's failure to pay rent promptly
------------
may cause Landlord to incur unanticipated costs. The exact amount of such costs
is impractical or extremely difficult to ascertain. Such costs may include, but
are not limited to, processing and accounting charges and late charges which may
be imposed on Landlord by any ground lease, mortgage or trust deed encumbering
the Property. Therefore, if Landlord does not receive any rent payment by its
allowed date, beginning with the second such incident in any calendar year,
Tenant shall pay Landlord a late charge equal to five percent (5%) of the
overdue amount, payable with the next rental payment. The parties agree that
such late charge represents a fair and reasonable estimate of the costs Landlord
will incur by reason of such payment.
Section 4.6. Interest on Past Due Obligations: Any amount owed by
--------------------------------
Tenant to Landlord which is not paid by its allowed payment date, following
applicable notice and cure periods shall bear interest at the rate of two
percentage points over the "base rate" or "prime rate" per annum published from
time to time by the Wall Street Journal from the due date of such amount and
-------------------
shall be payable with the next rental payment. However, interest shall not be
payable on late charges to be paid by Tenant under this Lease. The payment of
interest on such amounts shall not excuse or cure any default by Tenant under
this Lease. If the interest rate specified in this Lease is higher than the
rate permitted by law, the interest rate is hereby decreased to the maximum
legal interest rate permitted by law.
ARTICLE 5: USE OF PROPERTY
Section 5.1. Permitted Uses: Tenant may use the Property only for
--------------
the Permitted Uses set forth in Section 1.7 above.
Section 5.2. Manner of Use: Tenant shall not cause or permit the
-------------
Property to be used in any way which constitutes a violation of any law,
ordinance, or governmental regulation or order, which annoys or interferes with
the rights of the Property of which the Property is part, or which constitutes a
nuisance or waste. Tenant shall obtain and pay for all permits required for
Tenant's occupancy of the Property and shall promptly take all substantial and
non-substantial actions necessary to comply with all applicable statutes,
ordinances, rules, regulations, orders and requirements regulating the use by
Tenant of the Property, including the occupational Safety and Health Act;
provided, however, that the cost of capital improvements required to comply with
governmental regulations applicable to the Property generally (and not as a
result of Tenant's use thereof) shall be amortized over the normal useful life
of such improvement and Tenant shall be responsible to pay,
-6-
<PAGE>
monthly as additional Rent, the monthly portion of that amount allocated to the
remaining Term of this Lease.
Section 5.3. Contamination and Environmental Protection:
------------------------------------------
5.3.1 Definition of Hazardous Materials. "Hazardous
---------------------------------
Materials" means any hazardous or toxic substance, material or waste that is or
becomes regulated by any local government authority, the State of Colorado or
the United States Government, including without limitation, under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, 42 U.S.C. 9601 et seq., and the Resource Conservation and Recovery Act,
42 U.S.C. 6901 et seq., and the regulations promulgated thereunder, including
without limitation 40 C.F.R. 761 et seq. and regulations promulgated under the
occupational Safety and Health Act of 1970, as amended.
5.3.2 Protection against Contamination. The nature of the
--------------------------------
product to be stored by Tenant within the Property may require periodic fogging
or spraying for pest and rodent control. Tenant agrees to take all steps
necessary to protect the Property, persons using or present on the Property and
other tenants and their property against any contamination or other adverse
effects from such fogging or spraying, or from the generation, transportation,
use, storage or disposal of any Hazardous Materials. Tenant agrees to generate,
transport, use, store and dispose all Hazardous Materials fully in compliance
with all applicable governmental laws and regulations and all recommendations of
the manufacturers and distributors of such Hazardous Materials. Tenant agrees
to generate and store Hazardous Materials at the Property only in amounts that
are incident to and necessary for the normal operation of Tenant as permitted by
this Lease, to deliver promptly to Landlord true and complete copies of all
notices received by Tenant from any governmental authority with respect to the
generation, transportation, use, storage and disposal of Hazardous Materials,
and to permit reasonable entry onto the Property by Landlord for verification of
Tenant's compliance with this paragraph. In the event of an incident or
occurrence that can cause contamination to the Property or other persons or
property intended to be protected by this Section 5.3, Tenant agrees immediately
to notify Landlord and to take such steps as may be necessary to contain such
contamination with a minimum of damage or adverse effect. Tenant agrees to
defend (with legal counsel reasonably acceptable to Landlord), indemnify and
hold Landlord and other tenants on the Property harmless against any and all
claims, losses, damages, costs (including, without limitation attorneys' fees,
clean-up expenses and environmental impairment expenses) and liabilities of
every kind and nature arising from or relating to the obligations of Tenant
under this Section 5.3 and the generation, transportation, storage, use or
disposal by Tenant, its successors, assigns, sublessees, invitees and guests of
Hazardous Materials. Tenant shall have no liability to Landlord for any claims,
losses, damages, costs or other liabilities of any kind or nature which do not
arise from the acts or omissions of Tenant, its
-7-
<PAGE>
successors, assigns, sublessees, invitees and guests. Landlord agrees to defend
(with legal counsel reasonably acceptable to Tenant), indemnify and hold Tenant
harmless against any and all claims, costs (including, without limitation
attorneys' fees, clean-up expenses and environmental impairment expenses) and
liabilities of every kind and nature suffered by Tenant and arising from or
relating to the generation, transportation, storage, use or disposal of
Hazardous Materials on the Property by Landlord or persons other than Tenant,
its successors, assigns, sublessees, invitees and guests.
Section 5.4 Signs and Auctions: Tenant shall not place any sign
------------------
on the Property without Landlord's prior written consent, which will not be
unreasonably withheld. Tenant shall not conduct or permit any auctions or
sheriff's sales in the Property.
Section 5.5. Tenant's Indemnification: Tenant shall indemnify
------------------------
Landlord against and hold Landlord harmless from any and all costs, claims or
liability arising from tortious acts or omissions of Tenant, provided that such
acts or omissions constitute gross negligence or willful misconduct by Tenant.
Tenant shall defend Landlord against any such cost, claim or liability at
Tenant's expense with counsel reasonably acceptable to Landlord or, at
Landlord's election, Tenant shall reimburse Landlord for any legal fees or costs
incurred by Landlord in connection with any such claim, on a periodic basis as
billed by counsel.
Section 5.6. Landlord's Access: Landlord or its agents may enter
-----------------
the Property during regular business hours, or at other times with the consent
of Tenant which consent will not be unreasonably withheld, to show the Property
to potential buyers, investors or tenants or other parties, or for any other
purpose Landlord deems necessary. Landlord shall give Tenant prior notice of
such entry, except in the case of an emergency. Landlord may place customary
"For Sale" or "For Lease" signs on the Property.
Section 5.7. Quiet Possession: If Tenant pays the rent and
----------------
complies with all other terms of this Lease, Tenant may occupy and enjoy the
Property for the full Lease Term, subject to the provisions of this Lease.
ARTICLE 6: CONDITION OF PROPERTY; MAINTENANCE, REPAIRS AND ALTERATIONS
Section 6.1. Existing Condition: Tenant accepts the Property in
------------------
its condition as of the execution of the Lease, subject to all recorded matters,
laws, ordinances, and governmental regulations and orders. Tenant acknowledges
that neither Landlord nor any agent of Landlord has made any representation as
to the condition of the Property or the suitability of the Property for Tenant's
intended use.
-8-
<PAGE>
Landlord represents and warrants to Tenant that the Property is zoned for
permitted uses that include the warehouse and office uses as existing on the
date of this Lease.
Section 6.2. Limitations on Landlord's Liability: Landlord shall
-----------------------------------
indemnify Tenant against and hold Tenant harmless from any and all costs, claims
or liability arising from tortious acts or omissions of Landlord, provided that
such acts or omissions constitute gross negligence or willful misconduct by
Landlord, and from claims in tort arising with respect to the Property that
occurred prior to the commencement of this Lease. Landlord shall defend Tenant
against any such cost, claim or liability at Landlord's expense with counsel
reasonably acceptable to Tenant or, at Tenant's election, Landlord shall
reimburse Tenant for any legal fees or costs incurred by Tenant in connection
with any such claim, on a periodic basis as billed by counsel. Landlord shall
not be liable for any damage or injury to the person, business (or any loss of
income therefrom), goods, wares, merchandise or other property of Tenant,
Tenant's employees, invitees, customers or any other person in or about the
Property, whether such damage or injury is caused by or results from: (a) fire,
steam, electricity, water, gas or rain; (b) the breakage, leakage, obstruction
or other defects of pipes, sprinklers, wires, appliances, plumbing, air
conditioning or lighting fixtures or any other cause; (c) conditions arising in
or about the Property or upon other portions of any building of which the
Property is a part, or from other sources of places; or (d) any act or omission
of any other tenant of any building of which the Property is a part. Landlord
shall not be liable for any such damage or injury even though the cause of or
the means of repairing such damage or injury are not accessible to Tenant. The
provisions of this Section 6.2 shall not, however, exempt Landlord from
liability for Landlord's gross negligence or willful misconduct.
Section 6.3. Landlord's Obligations: Subject to the provisions of
----------------------
Article 7 (Damage or Destruction) and Article 8 (Condemnation), and except for
the damage caused by any act or omission of Tenant, Landlord shall keep the
foundation, roof and structural portions of exterior walls of the improvements
on the Property in good order, condition and repair and, subject to Landlord's
right to additional Rent as specified in this Lease, Landlord shall make such
capital improvements or replacements as is necessary to comply with Sections 5.2
and 6.4.1 of this Lease. However, Landlord shall not be obligated to maintain or
repair windows, doors, plate glass or the surfaces of walls. Landlord shall be
obligated to commence, and thereafter diligently complete, repairs under this
Section 6.3 within a reasonable time after receipt of a written notice from
Tenant of the need for such repairs.
Section 6.4. Tenant's Obligations:
--------------------
6.4.1 Subject to the provisions of Section 6.3, Article 7
(Damage or Destruction) and Article 8 (Condemnation), Tenant shall, at all
times, keep the Property (excluding the foundation, roof and structural portions
of exterior walls of the improvements on the Property) in good order, condition
and repair, excepting
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reasonable wear and tear. In addition, Tenant shall, at Tenant's expense,
repair any damage to the roof, foundation or structural portions of walls caused
by Tenant's negligence or willful misconduct. It is the intention of Landlord
and Tenant that, at all times during the Lease Term, Tenant shall maintain the
Property in an orderly, sanitary and fully operative condition; provided,
however, that the cost of capital improvements required to replace portions or
systems of the Property that are no longer in good condition and repair
notwithstanding Tenant's satisfaction of its maintenance and repair obligations
under this Lease, shall be amortized over the useful life of such improvements
and Tenant shall be responsible to pay, monthly as additional Rent, the monthly
portion of that amount allocated to the remaining Term of this Lease.
6.4.2 All of Tenant's obligations to maintain and repair
shall be accomplished at Tenant's sole expense. If Tenant fails to maintain and
repair the Property as required by this Section 6.4, Landlord may on ten (10)
days' prior notice (except that no notice shall be required in case of
emergency), enter the Property and perform such maintenance or repair on behalf
of Tenant. In such case, Tenant shall reimburse Landlord for all costs incurred
in performing such maintenance or repair immediately upon demand.
Section 6.5. Alterations, Additions, and Improvements:
----------------------------------------
6.5.1 Tenant shall not make any improvements to the
Property without Landlord's prior written consent which shall not be
unreasonably withheld based on plans approved in advance by Landlord exercising
its reasonable judgment. Landlord may require Tenant to provide demolition
and/or lien and completion bonds in form and amount reasonably satisfactory to
Landlord. Tenant shall promptly remove any alterations, additions, and
improvements constructed in violation of this Paragraph 6.5(a) upon Landlord's
written request. All alterations, additions, and improvements will be
accomplished in a good and workmanlike manner, in conformity with all applicable
laws and regulations, and by a contractor approved by Landlord exercising its
reasonable judgment. Upon completion of any such work, Tenant shall provide
Landlord with "as built" plans, copies of all construction contracts, and proof
of payment for all labor and materials.
6.5.2 Tenant shall pay when due all claims for labor and
material furnished to the Property. Tenant shall give Landlord at least ten
(10) days' prior written notice of the commencement of any work in the Property.
Landlord may elect to record and post notices of non-responsibility on the
Property.
Section 6.6 Condition upon Termination: Upon termination of the
--------------------------
Lease, Tenant shall surrender the Property to Landlord, broom clean and in the
same condition as received except for ordinary wear and tear in which Tenant was
not otherwise obligated to remedy under any provisions of this Lease. However,
Tenant
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shall not be obligated to repair any damage which Landlord is required to repair
under Article 7 (Damage or Destruction). Unless Landlord otherwise consents,
Tenant shall remove any alterations, additions, or improvements (if designated
by the Landlord, in its sole discretion, for removal at the time of its consent
to the making thereof), and Tenant's machinery and equipment, prior to the
termination of the Lease and shall restore the Property to its prior condition,
all at Tenant's expense. Any alterations, additions, improvements' machinery and
equipment not timely removed by Tenant shall, at Landlord's sole election,
become Landlord's property and shall be deemed surrendered to Landlord upon the
termination of the Lease. In no event, however, shall Tenant remove any of the
following materials or equipment without Landlord's prior written consent: any
power panels; lighting or lighting fixtures; wall coverings; drapes, blinds or
other window coverings; carpets or other floor coverings; heaters, air
conditioners or any other heating or air conditioning equipment; fencing or
security gates; or other similar building operating equipment and decorations.
ARTICLE 7: DAMAGE OR DESTRUCTION
Section 7.1. Partial Damage to Property: Tenant shall notify
--------------------------
Landlord in writing immediately upon the occurrence of any damage to the
Property. If the Property is only partially damaged so that the damage can be
repaired within ninety (90) days after Tenant's notice, or if in the reasonable
judgment of Tenant the Property remains substantially usable to Tenant for the
intended purposes of the Lease, and if the proceeds received by Landlord from
the insurance policies described in Paragraph 4.3(b), if any, are sufficient to
pay for the necessary repairs, this Lease shall remain in effect and Landlord
shall repair the damage as soon as reasonably possible. Landlord may elect to
repair any damage to Tenant's fixtures, equipment, or improvements.
If the Property damage cannot be repaired within ninety (90) days after
Tenant's notice and if in the reasonable judgment of Tenant the Property does
not remain substantially usable to Tenant for the intended purposes of the
Lease, either Landlord or Tenant may elect to terminate the Lease as of the date
the damage occurred, and in either event Landlord shall retain all insurance
proceeds.
Subject to the terms of any debt lien against the Property, if the
insurance proceeds received by Landlord are not sufficient to pay the entire
cost of repair, or if the damage was due to a cause not covered by the insurance
policies which Tenant maintains under Paragraph 4.3(b), Landlord may elect to
either (a) repair the damage as soon as reasonably possible in which case this
Lease shall remain in full force and effect, or (b) terminate this Lease as of
the date the damage occurred, and in either event to retain all insurance
proceeds. Landlord shall notify Tenant within thirty (30)
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days after receipt of notice of the occurrence of the damage, whether Landlord
elects to repair the damage or terminate the Lease.
If Landlord elects or is obligated to repair the damage and the damage
was due to an act or omission of Tenant, Tenant shall pay Landlord upon demand
the difference between the actual cost of repair and the insurance proceeds
received by Landlord. If Landlord elects to terminate the Lease, Tenant may
elect to continue this Lease in full force and effect, in which case Tenant
shall repair any damage to the Property. Tenant shall pay the cost of such
repairs, except that, upon satisfactory completion of such repairs, Landlord
shall deliver to Tenant any insurance proceeds received by Landlord for the
damage repaired by Tenant. Tenant shall give Landlord written notice of such
election with ten (10) days after receiving Landlord's termination notice.
If the damage to the Property occurs during the last six (6) months of
the Lease Term and cannot be repaired within forty-five (45) days after Tenant's
notice of the damage, Landlord may elect to terminate this Lease as of the date
the damage occurred regardless of the sufficiency of any insurance proceeds. In
such event, Landlord shall not be obligated to repair or restore the Property
and Tenant shall have no right to continue this Lease. Landlord shall notify
Tenant of its election within thirty (30) days after receipt of notice of the
occurrence of the damage.
Section 7.2. Total or Substantial Destruction: If the Property is
--------------------------------
totally or substantially destroyed, in the reasonable judgment of Tenant, by any
cause whatsoever so that it is not substantially usable by Tenant for the
intended purposes of the Lease and cannot be repaired within the time set forth
above, this Lease shall terminate as of the date the destruction occurred
regardless of whether Landlord receives any insurance proceeds. If the
destruction was caused by an act or omission of Tenant, Tenant shall pay
Landlord the difference between the actual cost of rebuilding (whether or not
Landlord elects to rebuild) and any insurance proceeds received by Landlord from
Tenant's policy maintained pursuant to Section 4.3.2.
Section 7.3. Temporary Reduction of Rent: If the Property is
---------------------------
destroyed or damaged and Landlord or Tenant repairs or restores the Property
pursuant to the provisions of this Article 7, the Base Rent payable during the
period of such damage, repair and/or restoration shall be reduced according to
the degree, if any, to which Tenant's use of the Property is impaired. However,
the reduction shall not exceed the sum of one year's payment of Base Rent.
Except for such possible reduction in Base Rent, Tenant shall not be entitled to
any compensation, reduction, or reimbursement from Landlord as a result of any
damage, destruction, repair, or restoration of or to the Property.
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ARTICLE 8: CONDEMNATION
Section 8.1. Condemnation: If all or any portion of the Property
------------
is taken under the power of eminent domain or sold under the threat of that
power (all of which are called "Condemnation"), this Lease shall terminate as to
the part taken or sold on the date the condemning authority takes title or
possession, whichever occurs first. If in the reasonable judgment of Tenant the
Condemnation renders the Property substantially unusable to Tenant for the
intended purposes of the Lease, either Landlord or Tenant may terminate this
Lease as of the date the condemning authority takes title or possession, by
delivering written notice to the other within ten (10) days after receipt of
written notice of such taking (or in the absence of such notice, within ten (10)
days after the condemning authority takes possession). If neither Landlord nor
Tenant terminates this Lease, this Lease shall remain in effect as to the
portion of the Property not taken, except that the Base Rent shall be reduced in
proportion to the reduction in the floor area of the Property. Any Condemnation
award or payment shall be distributed in the following order: (a) first, to any
ground lessor, mortgagee or beneficiary under a deed of trust encumbering the
Property, the amount of its interest in the Property; (b) second, to Tenant only
the amount of any award specifically designated for loss of or damage to
Tenant's trade fixtures or removable personal property; and (c) third, to
Landlord, the remainder of such award, whether as compensation for reduction in
the value of the leasehold, the taking of the fee, or otherwise. If this Lease
is not terminated, then subject to the terms of any debt lien against the
Property, Landlord shall repair any damage to the Property caused by the
Condemnation, except that Landlord shall not be obligated to repair any damage
for which Tenant has been reimbursed by the condemning authority. If the
severance damages received by Landlord are not sufficient to pay for such
repair, Landlord shall have the right to either terminate this Lease or make
such repair at Landlord's expense. Nothing in this Section shall be construed
to prevent Tenant from exercising any right it may have under the law to
prosecute its own separate claim for damages or compensation and to obtain an
award independent from the award due to Landlord.
ARTICLE 9: ASSIGNMENT AND SUBLETTING
Section 9.1. Landlord's Consent Required: No portion of the
---------------------------
Property or of Tenant's interest in this Lease may be acquired by any other
person or entity, whether by assignment, mortgage, sublease, transfer, operation
of law, or act of Tenant, without Landlord's prior written consent, which
consent Landlord may grant or withhold in its sole and absolute discretion;
provided, however, that Tenant shall have the right to sublease, assign or
otherwise transfer all or any part of Tenant's interest in this Lease to an
entity that fifty (50%) percent or more owns, is owned by or is under common
ownership with Tenant so long as by the express terms of such sublease,
assignment or other transfer Cornucopia Natural Foods, Inc. remains fully
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liable to Landlord for Tenant's obligations under the Lease and Landlord is
given direct recourse against such sublessee, assignee or transferee with
respect to its obligations under such sublease, assignment or transfer in the
event of a default by Tenant.
ARTICLE 10: DEFAULTS; REMEDIES
Section 10.1. Covenants and Conditions: Tenant's performance of
------------------------
each Tenant's obligation under this Lease is a condition as well as a covenant.
Tenant's right to continue in possession of the Property is conditional upon
such performance. Time is of the essence in the performance of all covenants and
conditions.
Section 10.2. Defaults: Tenant shall be in material default under
--------
this Lease:
10.2.1 If Tenant abandons the Property or if Tenant's
vacation of the Property results in the cancellation of any insurance described
in Section 4.3.
10.2.2 If Tenant fails to pay rent or any other charge
required to be paid by Tenant, as and when due, provided, however, that Tenant
shall have the right to notice of such default and an opportunity to cure the
same for three (3) business days.
10.2.3 If Tenant fails to perform any of Tenant's non-
monetary obligations under this Lease for a period of thirty (30) days after
written notice from Landlord; provided that if more than thirty (30) days are
required to complete such performance, Tenant shall not be in default if Tenant
commences such performance within the thirty (30) day period and thereafter
diligently pursues its completion. However, Landlord shall not be required to
give such notice if Tenant's failure to perform constitutes a non-curable breach
of this Lease. The notice required by this Paragraph is intended to satisfy any
and all notice requirements imposed by law on Landlord and is not in addition to
any such requirement.
10.2.4 (i) If Tenant makes a general assignment or general
arrangement for the benefit of creditors; (ii) if a petition for adjudication of
bankruptcy or for reorganization or rearrangement is filed by or against Tenant
and is not dismissed within thirty (30) days; (iii) if a trustee or receiver is
appointed to take possession of substantially all of Tenant's assets located in
the Property or of Tenant's interest in this Lease and possession is not
restored to Tenant within thirty (30) days; or (iv) if substantially all of
Tenant's assets located in the Property or of Tenant's interest in this Lease is
subjected to attachment, execution or other judicial seizure which is not
discharged within thirty (30) days. If a court of competent jurisdiction
determines that any of the acts described in this subparagraph (d) is not a
default under this Lease, and a trustee is appointed to take possession (or if
Tenant
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remains a debtor in possession) and such trustee or Tenant transfers Tenant's
interest hereunder, then Landlord shall receive, as Additional Rent, the
difference between the rent (or any other consideration) paid in connection with
such assignment or sublease and the rent payable by Tenant hereunder.
Section 10.3. Remedies: On the occurrence of any material default
--------
by Tenant, Landlord may, at any time thereafter, with or without notice or
demand and without limiting Landlord in the exercise of any right or remedy
which Landlord may have:
10.3.1 Terminate this Lease, effective at such time as may
be specified by written notice to Tenant, and demand and recover possession of
the Property from Tenant. Notwithstanding how Tenant may hold title to its
interest under this Lease, the obligations of Tenant under this Lease are not
separable, the Property may not be subdivided, and the Landlord has the right to
terminate the Lease if Tenant does not fully perform all its obligations under
this Lease. Tenant shall remain liable to Landlord for damages in an amount
equal to the Base Rent and Other Charges which would have been owing by Tenant
hereunder for the balance of the Lease Term, and this Lease not been terminated,
less the net proceeds, if any, of any reletting. Landlord shall be entitled to
collect such damages from Tenant on the days on which the Base Rent and Other
Charges would have been payable if this lease had not been terminated.
Alternatively, at the option of the Landlord, Landlord shall be entitled to
recover forthwith from Tenant, as damages for loss of the bargain and not as a
penalty, an aggregate sum which, at the time of such termination of the Lease,
represents the excess, if any, of (i) the aggregate of the Base Rent and all
other sums payable by Tenant hereunder that would have accrued for the balance
of the Lease Term, over (ii) the sum of Rent collected after default with
respect to the Property for the balance of the Lease Term. Landlord's loss of
future increases in rent being deemed a sufficient approximation of any present
value discount which otherwise might be appropriate.
10.3.2 Without terminating this Lease, to terminate
Tenant's rights of possession of the Property on a date specified by written
notice to Tenant, and demand and recover possession of the Property from Tenant.
Upon the giving of such notice, Tenant's right to possession of the Property
shall expire and terminate on such date, but Tenant shall remain liable as
hereinafter provided. Landlord shall also have the right, without termination of
the Lease, to accelerate the entire outstanding balance of Rent for the
remaining portion of the Term. No discount for acceleration shall be allowed.
10.3.3 If any event of default shall have occurred,
Landlord shall have the immediate right, whether or not this Lease shall have
been terminated, to re-enter and repossess the Property or any part thereof by
force, summary proceedings, ejectment or otherwise and shall have the further
right to remove all
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persons and property therefrom. Landlord shall be under no liability for or by
reason of any such entry, repossession or removal. No such re-entry or taking
of possession of the Property by Landlord shall be construed as an election on
Landlord's part to terminate this Lease unless a written notice of such election
has been given to Tenant pursuant to Section 10.3.1 or unless the termination of
this Lease has been decreed by a court of competent jurisdiction.
10.3.4 Pursue any other remedy now or hereafter available
to Landlord under the laws or judicial decisions of Colorado.
Section 10.4. Cumulative Remedies: Landlord's exercise of any
-------------------
right or remedy shall not prevent it from exercising any other right or remedy.
ARTICLE 11: PROTECTION OF LENDERS
Section 11.1. Subordination: Landlord shall have the right to
-------------
subordinate this Lease to any ground lease, deed or trust of mortgage
encumbering the Property, any advances made on the security thereof and any
renewals, modifications, consolidations, replacements or extensions thereof,
whenever made or recorded. However, Tenant's right to quiet possession of the
Property during the Lease Term shall not be disturbed if Tenant pays the rent
and performs all of Tenant's obligations under this Lease and is not otherwise
in default. If any ground lessor, beneficiary or mortgagee elects to have this
Lease senior in priority to the lien of its ground lease, deed of trust or
mortgage and gives written notice thereof to Tenant, this Lease shall be deemed
prior to such ground lease, deed of trust or mortgage whether this Lease is
dated prior or subsequent to the date of said ground lease, deed of trust or
mortgage or the date of recording thereof.
Section 11.2. Attornment: If Landlord's interest in the Property
----------
is acquired by any ground lessor, beneficiary under a deed of trust, mortgagee,
or purchaser at a foreclosure sale, Tenant shall attorn to the transferee of or
successor to Landlord's interest in the Property and recognize such transferee
or successor as Landlord under this Lease. However, Tenant's right to quiet
possession of the Property during the Lease Term shall not be disturbed if
Tenant pays the rent and performs all of Tenant's obligations under this Lease
and is not otherwise in default. Tenant waives the protection of any statute or
rule of law which gives or purports to give Tenant any right to terminate this
Lease or surrender possession of the Property upon transfer of Landlord's
interest.
Section 11.3. Signing of Documents: Tenant shall sign and deliver
--------------------
any instrument or documents reasonably requested by Landlord to evidence any
such attornment or subordination or agreement to do so. Such subordination and
attornment documents are subject to the reasonable approval of Tenant as to form
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and may contain such provisions as are customarily required by any ground
lessor, beneficiary under a deed of trust or mortgagee. Notwithstanding the
foregoing, Tenant hereby agrees to such subordination and attornment, such
attornment and subordination shall be automatic and the Lease shall not be
construed to require the execution of any instrument or document by Tenant for
such attornment or subordination to be effective.
Section 11.4. Estoppel Certificates:
---------------------
11.4.1 Upon Landlord's written request, Tenant shall
execute, acknowledge and deliver to Landlord a written statement certifying: (i)
that none of the terms or provisions of this Lease have been changed (or if they
have been changed, stating how they have been changed); (ii) this Lease has not
been canceled or terminated; (iii) that the last date of payment of the Base
Rent and Other Charges and the time period covered by such payment; (iv) that
Landlord is not in default under this Lease (or, if Landlord is claimed to be in
default, stating why); and (v) such other matters as may be reasonably required
by Landlord or the holder of a mortgage, deed of trust or lien to which the
property is or becomes subject. Tenant shall deliver such statement to Landlord
within ten (10) days after Landlord's request. Any such statement by Tenant may
be given by Landlord to any prospective purchaser or encumbrancer of the
Property. Such purchaser or encumbrancer may rely conclusively upon such
statement as true and correct.
11.4.2 If Tenant does not deliver such statement to
Landlord within such ten (10) day period, Landlord, and any prospective
purchaser or encumbrancer, may conclusively presume and rely upon the following
facts: (i) that the terms and provisions of this Lease have not been changed
except as otherwise represented by Landlord; (ii) that this Lease has not been
canceled or terminated except as otherwise represented by Landlord; (iii) that
not more than one month's Base Rent or Other Charges have been paid in advance;
and (iv) that Landlord is not in default under the Lease. In such event, Tenant
shall be estopped from denying the truth of such facts.
Section 11.5. Tenant's Financial Condition: Within ten (10) days
----------------------------
after written request from Landlord, but not more frequently than once per Lease
Year, Tenant shall deliver to any lender designated by Landlord any financial
statements reasonably required by such lender to facilitate the financing or
refinancing of the Property; provided, however, that such lender shall agree not
to disclose such information except as reasonably necessary in the ordinary
course of lender's business. Tenant represents and warrants to Landlord that
each financial statement is a true and accurate statement as of the date of such
statement. All financial statements shall be used only for the purposes set
forth herein.
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ARTICLE 12: LEGAL COSTS
Section 12.1. Legal Proceedings: If any action for breach of or
-----------------
to enforce the provisions of this Lease is commenced, the court in such action
shall award to the party in whose favor a judgment is entered, a reasonable sum
as attorneys' fees and costs. Such attorneys' fees and costs shall be paid by
the losing party in such action. Tenant shall also indemnify Landlord if
Landlord becomes or is made a party to any claim or action (a) instituted by
Tenant, or by any third party against Tenant arising out of negligence or the
willful misconduct of Tenant, or by or against any person holding any interest
under or using the Property by license of or agreement with Tenant; (b) for
foreclosure of any lien for labor or material furnished to or for Tenant or such
other person; (c) otherwise arising out of or resulting from any negligence or
willful misconduct by Tenant; or (d) necessary to protect Landlord's interest
under this Lease in a bankruptcy proceeding, or other proceeding under Title 11
of the United States Code, as amended. Tenant shall defend Landlord against any
such claim or action at Tenant's expense with counsel reasonably acceptable to
Landlord or, at Landlord's election, Tenant shall reimburse Landlord for any
legal fees or costs incurred by Landlord in any such claim or action.
Section 12.2. Landlord's Consent: Tenant shall pay Landlord's
------------------
reasonable attorneys' fees which under the circumstances and by the nature of
Tenant's proposal are reasonably incurred in connection with any act which
Tenant proposes to do which requires Landlord's consent, excluding Landlord's
review of improvements plans proposed by Tenant and excluding a proposed
assignment or sublease of the entire leasehold estate to a wholly owned
subsidiary of Tenant provided that Cornucopia Natural Foods, Inc. remains liable
to Landlord for the Tenant's obligations as stated in this Lease.
ARTICLE 13: MISCELLANEOUS PROVISIONS
Section 13.1. Waiver of Subrogation: Landlord and Tenant each
---------------------
hereby waive any and all rights of recovery against the other, or against the
officers, employees, agents or representatives of the other, for loss of or
damage to its property or the property of others under its control, if such loss
or damage is covered by any insurance policy in force (whether or not described
in this Lease) at the time of such loss or damage. Upon obtaining the policies
of insurance described herein, Landlord and Tenant shall give notice to the
insurance carrier or carriers of the foregoing mutual waiver of subrogation.
Section 13.2. Landlord's Liability; Certain Duties:
------------------------------------
13.2.1 As used in this Lease, the term "Landlord" means
only the current owner or owners of the fee title to the Property or the
leasehold estate under
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a ground lease of the Property at the time in question. Each Landlord is
obligated to perform the obligations of Landlord under this Lease only during
the time such Landlord owns such interest or title. Any Landlord who transfers
its title or interest is relieved of all liability with respect to the
obligations of Landlord under this Lease to be performed on or after the date of
transfer. However, each Landlord shall deliver to its transferee all funds
previously paid by Tenant if such funds have not yet been applied under the
terms of this Lease.
13.2.2 Tenant shall give written notice of any failure by
Landlord to perform any of its obligations under this Lease to landlord and to
any ground lessor, mortgagee or beneficiary under any deed or trust encumbering
the Property or the Property whose name and address have been furnished to
Tenant in writing. Landlord shall not be in default under this Lease unless
Landlord (or such ground lessor, mortgagee or beneficiary) fails to cure such
non-performance within thirty (30) days after receipt of Tenant's notice.
However, if such non-performance reasonably requires more than thirty (30) days
to cure, Landlord shall not be in default if such cure is commenced within such
thirty (30) day period and thereafter diligently pursued to completion. Tenant
shall not be required to give such notice if Landlord's failure to perform
constitutes a non-curable breach of this Lease.
13.2.3 Notwithstanding any provision of the Lease otherwise
to the contrary, Landlord shall have no monetary liability to Tenant except in
the event of Landlord's gross negligence, willful misconduct or the
indemnification covenants by Landlord contained in this Lease. Except in such
events, the recourse of Tenant against Landlord for breach or default of the
Lease or the obligations of Landlord hereunder shall be limited to termination
of the Lease if the Property is thereby made unusable to Tenant for the intended
purposes of the Lease, subject to Landlord's rights to notice and an opportunity
to cure such breach or default as set forth in the Lease; provided, however,
that if Landlord fails to perform its obligations under this Lease that can be
performed by the payment of money and if the failure by Landlord materially
interferes with Tenant's use of the Property for its intended purposes, Tenant
may, on ten (10) days' prior notice (or such shorter notice as may be required
in case of emergency), perform such obligations on behalf of Landlord. In such
case, Landlord shall reimburse Tenant for all costs incurred in performing such
maintenance or repair immediately upon demand.
Section 13.3. Severability: A determination by a court of
------------
competent jurisdiction that any provision of this Lease or any part thereof is
illegal or unenforceable shall not cancel or invalidate the remainder of such
provision or this Lease, which shall remain in full force and effect.
Section 13.4. Interpretation: The captions of the Articles or
--------------
Sections of this Lease are to assist the parties in reading this Lease and are
not a part of the terms or provisions of this Lease. Whenever required by the
context of this Lease, the singular
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shall include the plural and the plural shall include the singular. The
masculine, feminine and neuter genders shall each include the other. In any
provision relating to the conduct, acts or omissions of Tenant, the term
"Tenant" shall include Tenant's agents, employees, contractors, invitees,
successors or others using the Property with Tenant's expressed or implied
permission.
Section 13.5. Incorporation of Prior Agreements; Modifications:
------------------------------------------------
This Lease is the only agreement between the parties pertaining to the lease of
the property and no other agreements are effective. All amendments to this
Lease shall be in writing and signed by all parties. Any other attempted
amendment shall be void.
Section 13.6. Notices: All notices required or permitted under
-------
this Lease shall be in writing and shall be personally delivered or sent by
certified mail, return receipt requested, postage prepaid. Notices to Tenant
shall be delivered to the address specified in Section 1.3 above. Notices to
Landlord shall be delivered to the address specified in Section 1.2 above. All
notices shall be effective upon delivery or attempted delivery in accordance
with this Section 13.7. Either party may change its notice address upon written
notice to the other party.
Section 13.7. Waivers: All waivers must be in writing and signed
-------
by the waiving party. Landlord's failure to enforce any provision of this Lease
or its acceptance of rent shall not be a waiver and shall not prevent Landlord
from enforcing that provision or any other provision of this Lease in the
future. No statement on a payment check from Tenant or in a letter accompanying
a payment check shall be binding on Landlord. Landlord may, with or without
notice to Tenant, negotiate such check without being bound to the conditions of
such statement.
Section 13.8. No Recordation: Tenant shall not record this Lease
--------------
without prior written consent from Landlord. However, either Landlord or Tenant
may require that a "Short Form" memorandum of this Lease executed by both
parties be recorded.
Section 13.9. Binding Effect; Choice of Law: This Lease binds any
-----------------------------
party who legally acquires any rights or interest in this Lease from Landlord or
Tenant. However, Landlord shall have no obligation to Tenant's successor unless
the rights or interests of Tenant's successor are acquired in accordance with
the terms of this Lease. The laws of the State of Colorado shall govern this
Lease.
Section 13.10. Corporate Authority: Each person signing this
-------------------
Lease on behalf of Tenant represents and warrants that he has full authority to
do so and that this lease binds the corporation. Within 10 days after this
Lease is signed, Tenant shall deliver to Landlord a certified copy of a
resolution of Tenant's Board of
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<PAGE>
Directors authorizing the execution of this lease or other evidence of such
authority reasonably acceptable to Landlord.
Section 13.11. Execution of Lease: This Lease may be executed in
------------------
counterparts, and, when all counterpart documents are executed, the counterparts
shall constitute a single binding instrument. The delivery of this Lease by
Landlord and Tenant shall not be deemed to be an offer and shall not be binding
upon either party until executed and delivered by both parties.
Section 13.12. No Brokers: Tenant represents and warrants to
----------
Landlord that it has employed no agents, brokers, finders or other parties with
whom Tenant has dealt who are or may be entitled to any commission or fee with
respect to this Lease or the Property.
Section 13.13. Riders: Not applicable.
------
Landlord and Tenant have signed this Lease and have initialed all Riders
which are attached to this Lease.
"LANDLORD"
PREM MARK, INC.
By: /s/ Donald de Laski
------------------------------------
Its: Donald de Laski, Chairman
"TENANT"
CORNUCOPIA NATURAL FOODS, INC.
By: /s/ Norman Cloutier
-------------------------------------
Its: Norman A. Cloutier, President
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<PAGE>
STATE OF COLORADO )
) ss.
CITY AND COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 28th day of
July, 1995, by Donald de Laski, as Chairman of Prem Mark, Inc., a Colorado
corporation.
WITNESS my hand and official seal.
/s/ Jerry D. Parker
----------------------------------------
Notary Public
My commission expires: 12/3/96
-------
[SEAL]
STATE OF COLORADO )
) ss.
CITY AND COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 28th day of
July, 1995, by Norman A. Cloutier, as President of Cornucopia Natural Foods,
Inc., a Delaware corporation.
WITNESS my hand and official seal.
/s/ Jerry D. Parker
----------------------------------------
Notary Public
My commission expires: 12/3/96
-------
[SEAL]
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<PAGE>
EXHIBIT 10.23
-------------
LEASE
-----
THIS LEASE IS MADE AND entered into this 12 day of July,
1990, by and between CORNUCOPIA NATURAL FOODS, INC., a
Rhode Island corporation ("Tenant") and SYLVAN AND STANFORD
MAKOVER JOINT VENTURE ("Landlord").
W I T N E S S E T H
Demise
------
Landlord does hereby lease to Tenant and Tenant hereby leases
from Landlord that certain real property and the improvements
thereon (comprising approximately 175,380 square feet), more
particularly described on Exhibit "A" attached hereto and made a
part hereof (the "Premises").
Such leasing is subject to the terms, covenants and
conditions herein set forth and Tenant and Landlord covenant as
a material part of the consideration for this Lease to keep and
perform each and all of said terms, covenants and conditions by
them to be kept and performed.
1.
Purpose
-------
The Premises are to be used as a warehouse and distribution
center for Tenant's business, which is the production or sale of
health foods products, and for no other purpose without the
prior written consent of Landlord, which consent shall not be
unreasonably withheld.
2.
Term
----
SEE ADDENDUM (a) The term of this Lease shall be for a period of eight
No. 1. (8) years and eight (8) months beginning on the Commencement
Date as hereinafter defined and ending at midnight on March 31,
1999 (the "Term"), except as otherwise expressly provided in
this Lease.
<PAGE>
3.
Definitions Used in This Lease
------------------------------
(a) The term "Energy Costs" means the cost for all electric
power, water and other utilities for heating, air conditioning,
cooling, ventilating and lighting the Premises.
(b) The term "Lease Year" means the period from the
commencement date to a period six (6) months thereafter and each
successive twelve (12) month period thereafter.
(c) The term "Operating Costs" means any and all expenses,
costs and disbursements (other than taxes as defined in Section
3(d), of every kind and nature whatsoever, in connection with
the management, maintenance, operation and repair of the
Premises and the building included in the Premises (the
"Building) excepting, without limitation, Energy Costs, all
utilities, landscaping and other maintenance of property which
benefit the Premises, insurance costs, repairs, and expenses for
security services, maintenance and decorating.
(d) The term "Taxes" means any and all taxes of every kind
and nature whatsoever relating to the Premises during a calendar
year (regardless of whether such taxes were assessed or became a
lien during, prior or subsequent to the calendar year of payment
because of or in connection with the ownership, leasing and
operation of the Premises including without limitation, real
estate taxes, personal property taxes, sewer rents, water rents,
special assessments, transit taxes.
4.
Base Rent
---------
SEE ADDENDUM (b) Any rent or other amount due from Tenant to Landlord
No. 2. under this Lease not paid when due or within ten (10) days
thereafter shall bear interest from the date due until the date
paid at the annual rate of two (2) percentage points above the
prime rate charged by the Citizens and Southern National Bank
(also called the Corporate Base Rate by said Bank) on ninety
(90) day commercial loans to its largest customers from time to
time during during such period but the payment of such interest
shall not excuse or cure any default by Tenant under this Lease.
The covenants herein to pay rent shall be independent of any
other covenant set forth in this Lease. If the prime
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<PAGE>
rate is no longer used by the said bank or it is not feasible to
use the prime rate to calculate the interest rate charged
herein, Landlord may use such other comparable index as the
parties mutually agree upon.
(c) Base Rent and all of the rent provided herein shall be
paid in lawful money of the United States of American to Sylvan
and Stanford Makover Joint Venture at 178 Paces West Drive,
N.W., Atlanta, Georgia 30327 or as designated from time to time
by written notice from Landlord.
5.
Taxes
-----
(a) From the Commencement Date, Tenant shall be responsible
for and shall pay all taxes for the Premises and Building during
any calendar year or a portion thereof during the Term. Tenant
shall pay all Taxes directly to the appropriate taxing
authority. Landlord shall deliver all tax bills to Tenant as
soon as practicable after receipt by Landlord. Taxes relating to
any tax year in which the the commencement or the expiration
(for whatever reason) of the Lease occurs shall be apportioned;
provided, however, Landlord shall not be required to apportion
such payments if the Lease has been terminated by reason of
default by Tenant. Taxes shall be prorated for the first and
last Lease Year and Tenant shall deliver its pro rata portion of
such taxes to Landlord within fifteen (15) days after requested
by Landlord.
6.
Operating Costs
---------------
As of the Commencement Date, Tenant shall pay, as additional
rent for any calendar year or portion thereof during the Term,
an amount equal to all of the Operating Costs related to the
Premises and Building. Tenant shall pay all Operating Costs as
they are incurred directly to the appropriate creditor and if
requested by Landlord, shall provide satisfactory evidence of
such payment. Tenant shall be responsible, at sole expense, for
all utilities and other services required used, rendered or
supplied in or to the premises.
7.
Insurance
---------
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<PAGE>
(a) During the Term, Tenant, at no cost or expense to
Landlord, will keep and maintain ("All Risk" insurance coverage
for physical loss or damage to the Premises with liability
limits of not less than 100% of the full insurable value of the
Premises (without deduction for depreciation). Such policy shall
be of broad form and shall include, but shall not be limited to,
coverage for fire, extended coverage, vandalism and malicious
mischief. Each policy shall have a "replacement cost"
endorsement, which provides for payment of the actual cost of
repair or replacement without depreciation or deduction. "Full
insurable value" as used herein, means the actual cost of
replacing the Building. All of the policies of insurance
provided in this Agreement shall be in form and substance and
with companies approved by Landlord. Tenant shall deliver to
Landlord certificates showing such insurance to be in full force
and effect, and to the extent permitted by the Tenants insurance
carrier, such policies shall contain express waivers by the
insurer thereon of any rights of subrogation against waivers by
the insurer thereon of any rights of subrogation against
Landlord and any holder of indebtedness secured by a deed to
secure debt against the Premises, as insured, all as their
respective interests may appear. All policies of insurance
required hereunder, except for general liability insurance and
workers' compensation insurance, shall also provide for payment
of loss to Landlord, Tenant and the holder of any indebtedness
secured a deed to secure debt against the Premises, as their
interests may appear.
All such policies of insurance shall also provide for the
adjustment of claims with the insured under such policy by
Landlord, Tenant and the holder of any indebtedness secured by a
deed to secure debt against the Premises in the case of any
particular casualty resulting in damage or destruction of the
Premises exceeding $25,000.00
SEE ADDENDUM (b) All insurance policies shall be renewable by Tenant
No. 3. annually. Prior to or on such expiration dates, tenant shall
deliver to the Landlord a certificate showing said insurance to
be in full force and effect.*
8.
No Waiver Adjustment
--------------------
Any delay or failure of Landlord in computing or billing for
the Base Rent or any other payments required hereunder shall not
constitute a wavier of or in any way impair the continuing
obligation of Tenant to pay Base Rent or to make such payments.
Notwithstanding
-4-
<PAGE>
any expiration or termination of this Lease, Tenant's obligation
to pay Base Rent or other payments required hereunder shall
continue and shall cover all periods up to the expiration date,
and shall survive any expiration or termination of this Lease.
9.
Holding Over
------------
Should Tenant hold over after the termination of this Lease
by lapse of time or otherwise, Tenant shall become a tenant from
month to month and shall be bound by each and all of the terms
herein provided as may be applicable to such month to month
tenancy and any such holding over shall not constitute an
extension of this Lease; provided, however, during such holding
over, Tenant shall pay Base Rent at 200% of the rate payable for
the month immediately preceding said holding over, shall
continue to be responsible for all expenses as set forth herein
and in addition, Tenant shall pay Landlord all damages,
consequential as well as direct, sustained by reason of Tenant's
holding over.
10.
Building Service
----------------
(a) Tenant shall be responsible for and shall maintain and
keep lighted the exterior Premises as determined to be necessary
by Tenant. Tenant shall not use, improve, occupy or permit or
suffer the use, improvements or occupancy of the Premises or any
part thereof or keep or allow to be kept any material,
machinery, equipment, substance or other thing in any manner:
(i) which will constitute a violation of any law, statute, rule
or regulation of any local, state or federal governmental agency
or bureau; (ii) will cause any fire insurance or other policy or
policies of insurance with respect to the Premises or protecting
Landlord to be cancelled or voided; (iii) is in violation of or
contrary to interference with any easement, covenant, condition,
restriction or agreement to which the Premises or any part
thereof or Tenant is subject; or (iv) will constitute a
commission of waste.
(b) Tenant shall obtain and keep in full force and effect
throughout the Term any and all necessary permits, licenses,
certificates or other authorizations required in connection with
the lawful and proper use, occupancy, operation and management
of the Premises.
-5-
<PAGE>
11.
Condition of the Premises
-------------------------
SEE ADDENDUM
No. 4.(A.)
(b) All maintenance, repairs and replacements of the
premises and Building shall be at the sole expense of the
Tenant. Landlord shall not be required to furnish any services
or facilities, or to make any repairs or alterations, of any
nature whatsoever with respect to the Premises, except as
provided in Section 11 (c) and 12 (c).
SEE ADDENDUM (c) Landlord agrees to repair or to make replacements to
No. 4.(B.) the roof of the Building so that the same remains in
substantially leak-free condition and to repair or make
replacements to the structural walls, foundation, of the
Building (specifically excluding water mains, air conditioning,
gas and water lines, fixtures, glass, utilities, connections or
other service connections, wall coverings and insulations) so
that the same shall remain reasonable sound and serviceable for
their intended purpose, provided that Landlord will not be
obligated to make any repairs or replacements caused by the
neglect or deliberate acts of Tenant, its agents, employees or
invitees.
(d) Tenant hereby agrees to keep and maintain, at its sole
expense, the Premises in clean, sanitary, good, first class
order, condition or repair, or replace as necessary throughout
the Term, the Premises and every part thereof with the exception
of only those portions of the Building for which Landlord is
responsible according to the express provisions of Section
11(c). Without limiting the foregoing, Tenant hereby agrees to
keep and maintain in good working order and repair: (i) any
sprinkler systems and utility lines serving within the Premises;
(ii) all other utility lines within and without the Premises;
(iii) any and all fixtures installed by Tenant; (iv) any portion
of the heating ventilating and air conditioning systems
servicing the Premises; (v) utility lines within or serving the
Premises; and (vi) glass within or without the Premises. Tenant
shall also, at its sole cost, remove on a regular basis any
trash, waste and debris from the Premises. Tenant shall not be
required to make any repairs if such repairs are made necessary
by any act or omission of Landlord or its employees, agents,
SEE ADDENDUM invitees, licensees, visitors or contractors. Landlord shall be
NO. 4.(C.) entitled upon reasonable notice* to enter the Premises during
normal business hours in order to make reasonable inspections of
the Premises or to make such repairs or replacements as may be
required hereunder in the
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<PAGE>
event Tenant fails to make the same or to make any other repairs
which Landlord may deem necessary for the safety of, or the
preservation of, the Premises or the Building and to charge the
expense thereof to Tenant, which charge shall be deemed
additional rent. At the end of the Term, Tenant shall deliver
the Premises to Landlord in good repair and first class
condition, reasonable wear and tear excepted.
SEE ADDENDUM NO. * 12.
4.(D.)
Tenant Improvements
-------------------
(a) Tenant hereby agrees, and Landlord hereby acknowledges,
that Tenant is to make alterations to the Premises so as to make
the Premises suitable for use by Tenant as a warehouse. Such
improvements shall include but shall not be limited to: (i) the
realignment of the lights within the Building; (ii) adding dock
levelers to the Building; (iii) sealing the warehouse floor;
(iv) adding freezers and coolers to the Building; and (v)
SEE ADDENDUM caulking the perimeters of the building (collectively, the
No. 5.(A.) "Tenant Improvements").* The Tenant Improvements shall be at the
sole cost, expense and responsibility of Tenant except as noted
below and Tenant shall indemnify and hold Landlord harmless for
any costs, expenses, fees or damages relating to the Tenant
Improvements. At least fifteen (15) days prior to the
commencement of any work relating to the Tenant Improvements,
Tenant shall deliver to Landlord plans and specifications
setting forth the design of the Tenant Improvements. Such plans
and specifications must be approved by Landlord prior to
commencement of work by Tenant which approval shall not be
unreasonably withheld, the Landlord shall have the right, at its
sole cost and expense, to hire an architect or engineer to
review the plans and specifications. Once the plans and
specifications are approved by Landlord, Tenant shall be
entitled to commence the Tenant work, which must be
substantially completed in accordance with the plans and
specifications. Such Tenant Improvements shall be completed in a
first class workmanlike condition.
SEE ADDENDUM
No. 5.(B.)
SEE ADDENDUM * 13.
No. 6.
Compliance with Law
-------------------
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<PAGE>
Tenant shall not use the Premises or permit anything to be
done in or about the Premises which in any way conflicts with
any law, statute, ordinance or governmental rule or regulation
now in force or which may hereafter be enacted or promulgated.
Tenant shall, at its sole cost and expense, promptly comply with
all laws, statutes, ordinances and governmental rules,
regulations or requirements now or in force or which may
hereafter be in force and with the requirements of any board of
fire underwriters or other similar body now or hereafter
constituted relating to or affecting the condition, use or
occupancy of the Premises. The judgment of any court or
competent jurisdiction or the admission of Tenant in any action
SEE ADDENDUM against Tenant, whether Landlord be a party thereto or not, that
No. 7. Tenant has violated any law, statute, ordinance or governmental
rule, regulation or requirement shall be conclusive of that fact
as between Landlord and Tenant.
14.
Alterations and Repairs
-----------------------
Tenant shall keep the Premises in good condition and repair
and shall not do any painting or decorating, or erect any
partitions, make any alterations in or additions, changes or
repairs to the Premises without Landlord's prior written
approval in each and every instance, such consent not to be
unreasonably withheld. During the Term of this Lease, no work
shall be performed by or under the direction of Tenant without
the express written consent of Landlord, Unless otherwise
provided by written agreement, all alterations, improvements,
and changes shall remain upon and be surrendered with the
Premises, excepting however that at Landlord's option, Tenant
shall, at its expense, then surrendering the Premises, remove
from the Premises any trade fixtures provided the Premises are
restored to a condition reasonably satisfactory to Landlord. If
Tenant does not remove said additions, decorations, fixtures,
hardware, non-trade fixtures and improvements after request to
do so by Landlord, Landlord may remove the same and Tenant shall
pay the cost of such removal to Landlord upon demand. Tenant
hereby agrees to hold Landlord and Landlord's heirs and
beneficiaries, their agents and employees harmless from any and
all liabilities of every kind and description which may arise
out of or be connected in any way with said alterations or
additions. Except as provided in Section 12(c) hereof, any
mechanic's or materialmen's lien filed against Premises for work
claimed to have been furnished to Tenant shall be discharged of
record by Tenant within ten (10) days thereafter, at Tenant's
expense, provided however Tenant shall
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<PAGE>
have the right to contest any such lien on the posting of
reasonably sufficient security.
15.
Abandonment
-----------
During the Term, if Tenant shall abandon, vacate or
surrender (whether at the end of the stated Term or otherwise)
the Premises; or be dispossessed by process of law, or
otherwise, any personal property belonging to Tenant and left on
the Premises shall be deemed abandoned and become the property
of Landlord, at the option of Landlord.
16.
Assignment and Subletting
-------------------------
SEE ADDENDUM (a) Provided that Tenant is in good standing and not in
No. 8. default under the terms and conditions of this Lease, Tenant may
sublet*; in the event of such sublease, Tenant shall remain
liable to Landlord under the Terms of this Lease unless Landlord
releases Tenant pursuant to paragraph (e) hereof.
(b) Except as provided in Section (c) hereof, Tenant shall
not assign, transfer or otherwise encumber this Lease, or any
portion of the term thereof, without the previous written
consent in each instance of Landlord, and Tenant shall furnish
to Landlord a copy of such proposed instrument, Landlord
agreeing, however, not to unreasonably withhold consent to
assigning.
(c) Notwithstanding anything to the contrary contained
herein, Tenant shall have the right to assign this Lease to the
entity which is a parent, subsidiary or affiliate of the Tenant
named herein, without Landlord's consent.
(d) No assignment shall be effective until there shall have
been delivered to Landlord an executed counterpart of such
assignment containing an agreement, in recordable form, executed
by the assignor and the proposed assignee, (and executed by
Landlord to evidence Landlord's consent) whereby such assignee
assumes due performance of the obligations on the assignor's
part to be performed under this Lease to the end of the term
hereof.
-9-
<PAGE>
(e) The consent by Landlord to any assignment shall not
constitute a waiver of the necessity for such consent to any
subsequent assignment or subletting. Notwithstanding any
permitted assignment or sublease, Tenant shall remain fully
liable and shall not be released from performing any of the
terms of this Lease, except as specifically provided in Section
(e). In the event the amount of rend paid by a subtenant to
Tenant exceed the sum paid as Rent by Tenant to Landlord for the
same premises, Tenant shall be entitled to retain the excess
except as otherwise provided herein. If Tenant requests to be
released from its obligations to Landlord (including the
obligation to pay Rent to Landlord for the portion of the
Demised Premises which is subleased), and if Landlord agrees to
release Tenant, then Tenant shall assign directly to Landlord,
all of Tenant's rights to receive payments under the sublease,
in consideration for such release. Notwithstanding the
foregoing, in the event any charges due to Tenant from a
subtenant relate to logistics distribution services rendered by
Tenant to subtenant, as provided in an operating agreement
between subtenant and Tenant, such payments shall not be part of
any "rent" or other charge payable to Landlord in the event of a
release by Landlord of Tenant.
17.
Signs
-----
Tenant shall have the right to place or fix any exterior or
interior signs are visable from the outside of the premises
provided the placing of said signs is in compliance with
applicable law.
18.
Damage to Property - Injury to Persons
--------------------------------------
Tenant, as a material part of the consideration to be
rendered to Landlord under this Lease, to the extent permitted
by law, hereby waives all claims except claims caused by or
resulting from the non-performance, willful and wanton conduct
or negligence of Landlord, its agents, servants or employees,
which Tenant or Tenant's successor or assigns may have against
Landlord, its agent, servants or employees from loss, theft or
damage to the property and for injuries to persons in, upon or
about the Premises from any cause whatsoever. Tenant will hold
Landlord, their heirs, representatives, agents, servants, and
employees exempt and harmless from and on account of any damage
or injury to any person, or to the goods, wares and merchandise
of any person, arising from the uses of the Premises by Tenant
or arising from
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<PAGE>
the failure of Tenant to keep the Premises in good condition as
herein provided, if non-performance by Landlord or negligence by
Landlord, its agents, servants or employees does not contribute
thereto, Tenant agrees to pay for all damage to the Premises
caused by Tenant's misuse or neglect of Premises, its apparatus
or appurtenances or caused by any licensee, contractor, agent or
employees of Tenant. Notwithstanding the foregoing provisions,
neither Landlord nor Tenant shall be liable to one another for
any loss, damage or injury caused by its act or neglect to the
extent that the other party has recovered the amount of such
loss, damage or injury from insurance and the insurance company
is bound by this waiver of liability.
Particularly, but not in limitation of the foregoing
paragraph, all property belonging to Tenant on the Premises
shall be at the risk of Tenant, and Landlord or their heirs,
representatives, agents, servants, or employees (except in case
of non-performance, negligence or willful and wanton conduct of
Landlord or their agents, servants, employees) shall not be
liable for: (i) damage to or theft of or misappropriation of
such property; nor for any damage to property entrusted to
Landlord, their agents, servants, or employees, if any; (ii) for
the loss of or damage to any property by theft or otherwise, by
any means whatsoever; (iii) for any injury or damage to persons
or property resulting from fire, explosion, falling plaster,
steam, gas, electricity, snow, water or rain which may leak from
any part of the Building or from pipes, appliances or plumbing
works therein or frontthe roof, street or subsurface or from any
other place or resulting from dampness or any other cause
whatsoever; (iv) for interference with the light or other
incorporeal hereditaments; or (v) for any latent defect in the
Premises or in the Building. Tenant shall give prompt notice to
Landlord in case of fire or accidents in the Premises or in the
Building or of defects therein or in the fixtures or equipment.
In case any action or proceeding be brought against Landlord
by reason of any obligation of Tenant's part to be performed
under the terms of this Lease, or arising from any act or
negligence of Tenant, or of their agents or employees, Tenant,
upon notice from Landlord shall defend the same at Tenant's
expense by counsel mutually agreed upon by the Landlord and the
Tenant.
Tenant shall maintain in full force and effect during the
Term of this Lease (including any period prior to the beginning
of the Term during which Tenant has taken possession and
including also any period of extension of the Term in which
Tenant obtains possession), with responsible companies; (i)
public liability insurance insuring
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<PAGE>
Tenant against all claims, demands or actions for injury to
or death of any one person in an amount of not less than One
Million ($1,000,000.00) Dollars and for injury to or death of
not more than one person in any one accident in an amount not
SEE ADDENDUM less than One Million ($1,000,000.00) Dollars and for damage to
No. 9. property in an amount of no less than One Million
($1,000,000.00) Dollars.*
All such policies, shall name Landlord, any mortgagees of
Landlord, and all other parties designated by Landlord as
additional parties insured. All insurance policies shall
indicate that at least thirty (30) days prior written notice
shall be delivered to all additional parties insured by the
insurer prior to termination of cancellation of such insurance
and Tenant shall provide Certificates of Insurance, not less
than ten (10) days prior to the Commencement Date of the Term
hereof, evidencing the aforesaid coverage to all insured
parties. Tenant shall not violate or permit a violation of any
of the conditions or terms of any such insurance policies and
shall perform and satisfy all reasonable requirements of the
insurance company issuing such policies.
19.
Damage or Destruction
---------------------
(a) Tenant shall give prompt notice to Landlord of all
occurrences, in, on or about the Premises which result in any
personal injury or death or any damage or destruction of the
Premises or any part thereof, generally describing the nature
and extent of the injury, death, damage or destruction.
(b) In the event that the leased premises shall be totally
destroyed by fire or other casualty insured against, or shall be
so damaged that repairs and restoration cannot be accomplished
both (a) within a period of one hundred twenty (120) days, and
(b) more than ninety (90) days prior to the expiration of the
term hereof, including any renewal term for which the option
therefor shall have been exercised, this Lease shall
automatically terminate without further act of either part
hereto and each party shall be relieved of any further
obligation to the other except that the Tenant shall be liable
for and shall promptly pay the Landlord any rent then in arrears
or the Landlord shall promptly rebate to the Tenant a pro rate
portion of any rent paid in advance. In the event the leased
premises shall be so damaged that repairs and restoration can be
accomplished both (a) within a period of one hundred twenty
(120) days, and (b) more than ninety (90) days prior to the
expiration of the term hereof, including the
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<PAGE>
renewal term if the option therefor shall have been exercised,
this Lease shall continue in effect in accordance with its
terms; the Landlord shall accomplish such repairs and
restoration as promptly as practicable (utilizing therefor the
proceeds of the insurance applicable thereto without any
apportionment therefore for damages to the leasehold interest
created by this Indenture); and until such repairs and
restoration have been accomplished a portion of the rent shall
abate equal to the proportion of the leased premises rendered
unusable by the damage. In no event shall the obligation of the
Landlord to repair and restore exceed in amount the sum of the
insurance proceeds paid to him and/or released to him by any
mortgagee with which settlement was made, and the Tenant agrees
to execute and deliver to the Landlord all instruments and
documents necessary to evidence the fact that the right to such
insurance proceeds is vested in the Landlord. The Landlord shall
notify the Tenant within thirty (30) days following the date of
any such damage or destruction whether or not repairs and
restoration can be accomplished both (a) with a period of one
hundred twenty (120) days and (b) more than ninety (90) days
prior to the expiration of the term hereof, including any
renewal term for which the option therefore shall have been
exercised.
SEE ADDENDUM *
NO. 10.
20.
Entry by Landlord
-----------------
Landlord and its agents shall have the right to enter the
Premises upon reasonable notice and during normal business hours
for the purpose of examining and inspecting the same and to
supply other service to be provided by Landlord to the Tenant
hereunder show the same to prospective purchasers or Tenants of
the Premises, and make such alterations, repairs, improvements,
or additions, whether structural or otherwise, to the Premises
as Landlord may deem necessary or desirable. Landlord shall use
reasonable efforts on any such entry not to unreasonably
interrupt or interfere with Tenant's use and occupancy of the
Premises and shall further not unreasonably exercise this right.
In addition, Landlord or its agents shall have the right to
enter upon the Premises in the case of any emergency, including
but not limited to fire, hurricane, tornado and other natural or
man-made disasters.
21.
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<PAGE>
Insolvency or Bankruptcy
------------------------
If at any time during the Term or prior thereto there shall
be filed by or against Tenant in any court pursuant to any
statute, either of the United States or of any state, a petition
in bankruptcy or insolvency or for reorganization or for the
appointment of a receiver or trustee of all or a portion of
Tenant's property, and within thirty (30) days thereof Tenant
fails to secure a discharge thereof, or its Tenant make an
assignment for the benefit or creditors, this Lease, at the
option of Landlord, exercised within a reasonable time after
notice of the happening of any one or more of such events, may
be cancelled and terminated and in which event either Tenant nor
any person claiming through or under Tenant by virtue of any
statute or of any order of any court shall be entitled to
possession or to remain in possession of the Premises demised
but shall forthwith quit and surrender the Premises, and
Landlord, in addition to the other rights and remedies it has by
virtue of any other provision herein or elsewhere in this Lease
or by virtue of any statute or rule of law, may retain as
liquidated damages any rent, security deposit or monies received
by it from Tenant or others on behalf of Tenant. Notwithstanding
anything to the contrary herein contained, upon the event of
cancellation of this Lease as provided in this paragraph,
Landlord shall be entitled to recover damages in an amount equal
to the present value of the Base Rent specified hereunder less
the fair market rental value of the Premises for the stated
Term.
22.
Default
-------
The following events shall constitute an event of default
hereunder:
(a) Tenant defaults for more than ten (10) days after
receipt of written notice of default in the payment of rent or
any other sum required to be paid hereunder, or any part
thereof; or
(b) Tenant defaults in the prompt and full performance of
any other covenant, agreement or condition of this Lease and
such other default shall continue for a period of thirty (30)
days after written notice thereof from Landlord to Tenant
(unless such other default involves a hazardous condition, in
which event it shall be cured forthwith); or
-14-
<PAGE>
(c) Tenant or any guarantor of Tenant's obligations under
this Lease shall become insolvent or shall make a transfer in
default of creditors or make an assignment for the benefit of
creditors; or
(d) A receiver or trustee shall be appointed for the
Premises or for all or substantially all of the assets of Tenant
or any guarantor of Tenant's obligations under this lease; or
SEE ADDENDUM (e) Tenant shall abandon, desert or vacate all* of the
No. 11.(A.) Premises; or
SEE ADDENDUM *
No. 11.(B.)
Tenant hereby waives all claims for damage which may be
caused by the re-entry of the Landlord provided said re-entry is
pursuant to an order of a court of competent jurisdiction and
taking possession of the premises or removing or storing the
furniture and property as herein provided, and will save
Landlord harmless from any loss, costs or damages occasioned
thereby.
Should Landlord elect to re-enter, pursuant to an order of a
court of competent jurisdiction, as herein provided, or should
it take possession pursuant to legal proceedings; it may either
terminate this Lease or it may from time to time, without
terminating this Lease, re-let the Premises or any part thereof
for such terms and at such rental or rentals and upon such terms
and conditions as Landlord in its sole discretion may deem
advisable, with the right to make alterations and repairs to the
Premises.
Landlord may elect to apply rentals received by it: (i) to
the payment of any indebtedness; (ii) to the payment of any cost
of such re-letting including but not limited to any broker's
commissions or fees in connection therewith; (iii) to the
payment of the cost of any alterations and repairs to the
Premises: (iv) to the payment of Base Rent or other charges due
and unpaid hereunder; and, (v) the residue, if any, shall be
held by Landlord and applied in payment of future rent as the
same become due and payable hereunder. Should such rentals
received from such re-letting after application by Landlord to
the payments described in the foregoing clauses (i) thorough (v)
during any month be less than that agreed to be paid during that
month by Tenant hereunder, then Tenant shall pay such deficiency
to Landlord. Such deficiency shall be calculated and paid
monthly by Tenant.
Nothing herein contained shall limit or prejudice the right
of Landlord to provide for and obtain as damages by reason of
any such
-15-
<PAGE>
termination of this Lease or of possession an amount equal to
the maximum allowed by any statute or rule of law in effect at
the time when such termination takes place, whether or not such
amount be greater, equal to or less than the amounts of damages
which Landlord may elect to receive as set forth above.
23.
Non Real Estate Taxes
---------------------
During the term hereof, Tenant shall pay to the appropriate
agency prior to delinquency all taxes assessed against and
levied upon fixtures, furnishings, equipment and all other
personal property of Tenant contained in the Premises, and
Tenant shall cause said fixtures, furnishings, equipment and
other personal property to be assessed and billed separately
from the real property of Landlord.
24.
Eminent Domain
--------------
In the event that the leased premises shall be lawfully
condemned or taken by any public authority either in their
entirety or in such proportion that they are no longer suitable
for the intended use by the Tenant, this Lease shall
automatically terminate without further act of either party
hereto on the date when possession of the leased premises shall
be taken by such public authority, and each party hereto shall
be relieved of any further obligation to the other except that
the Tenant shall be liable for and shall promptly pay to the
Landlord any rent then in arrears or the Landlord shall promptly
rebate to the Tenant a pro rata portion of any rent paid in
advance. In the event the proportion of the leased premises so
condemned or taken is such that they are still suitable for the
SEE ADDENDUM intended use by the Tenant, this Lease shall continue in effect
No. 12. in accordance with its terms and a portion of the rent shall
abate equal to the proportion of the rental value of the leased
premises so condemned or taken.
25.
Subordination
-------------
Landlord has heretofore and may hereafter from time to time
execute and deliver mortgages or trust deeds in the nature of a
mortgage, both referred to herein as "Mortgages" against the
Premises,
-16-
<PAGE>
or any interest therein. Tenant hereby agrees that (a) its
interest in this Lease is subordinate to said Mortgages, and to
any and all advance made thereunder and to the interest thereon,
to any and all advance made thereunder and to the interest
thereon, and to all renewals, replacements, modifications and
extensions thereof; and (b) Tenant's interest in this Lease is
inferior thereto. Tenant will promptly execute and deliver such
agreement or agreements as may be reasonable required by such
mortgagee or trustee under any Mortgage, provided however that
any such subordination shall provide that so long as Tenant is
not in default hereunder, its tenancy shall not be disturbed.
It is further agreed that (a) if any Mortgage shall be
foreclosed: (i) the liability of the mortgagee or trustee
thereunder or purchaser at such foreclosure sale or the
liability of a subsequent owner designated as Landlord under
this Lease shall exist only so long as such trustee, mortgagee,
purchaser or owner is the owner of the Premises and such
liability shall not continue or survive after further transfer
of ownership; and (ii) upon request of the mortgagee or trustee,
Tenant will attorn, as Tenant under this Lease, to the purchaser
at any foreclosure sale under any Mortgage, and Tenant will
execute such instruments as may be necessary or appropriate to
evidence such attornement; and (b) this Lease may not be
modified or amended so as to reduce the Base Rent or shorten the
Term provided hereunder or so as to adversely affect in any
other respect to any material extent the rights of Landlord, nor
shall this Lease be cancelled or surrendered without the prior
written consent, in each instance of the mortgagee or trustee
under any Mortgage. It is understood that Tenant's tenancy shall
not be disturbed so long as Tenant is not in default under this
Lease. In addition, Tenant will execute and deliver an estoppel
certificate, in form satisfactory to any mortgagee or trustee,
stating that there is no event of default under the Lease, and
such other matters as mortgagee or trustee may request, in their
sole discretion, within ten (10) days from written request from
said mortgagee or trustee.
SEE ADDENDUM *
No. 13.
26.
Waiver
------
The waiver of Landlord or any breach of any term, covenant
or condition herein contained shall not be deemed to be a waiver
of such term, covenant or condition or any subsequent breach of
the same or
-17-
<PAGE>
any other term, covenant, or condition herein contained. It is
understood and agreed that the remedies herein given to Landlord
shall be cumulative, and the exercise of any one remedy by
Landlord shall not be to the exclusion of any other remedy. It
is also agreed that after the service of notice or the
commencement of a suit or judgment for possession of the
Premises, Landlord may collect and receive any monies due, and
the payment of said monies shall not waive or affect said
notice, suit or judgment.
27.
Inability to Perform
--------------------
SEE ADDENDUM *
No. 14.
28.
Subrogation
-----------
The parties hereto agree to use good faith efforts to have
any and all fire, extended coverage or any and all material
damage insurance which may be carried endorsed with a
subrogation clause substantially as follows: "This insurance
shall not be invalidated should the insured waive in writing
prior to a loss any or all right of recovery against any party
for loss occurring to the property described herein."
29.
Sale by Landlord
----------------
The Landlord may sell or convey the Premises without the
Tenant's consent, however, any such sale or conveyance shall be
expressly subject to the Tenant's right and option to purchase
the Premises pursuant to the provisions of Section 35 of this
Lease, which right and option is binding on the Landlord, its
heirs, successors and assigns. Provided, the Landlord is not in
default at the time of said sale, the same shall operate to
release the Landlord from any future liability of any of the
covenants, conditions, express or implied, herein in favor of
the Tenant and in such event the Tenant agrees to look solely to
the responsibility of the successor and interest the Landlord in
and to this Lease. If any security deposit has been made by the
Tenant hereunder, the Landlord shall transfer such security
deposit to such successor and interest to the Landlord and
thereupon Landlord shall be released from any further
obligations hereunder. This Lease shall not
-18-
<PAGE>
be affected by any such sale, and Tenant agrees to attorn to the
purchaser or assignee.
30.
Rights of Landlord To Perform
-----------------------------
All covenants and agreements to be performed by Tenant under
any of the terms of this Lease shall be performed by Tenant at
Tenant's sole cost and expense and without any abatement of
rent. If Tenant shall fail to pay any sum of money, other than
rent, required to be paid it hereunder, or shall fail to perform
any other act on its part to be performed hereunder and such
failure shall continue for ten (10) days after notice thereof by
Landlord, Landlord may, but shall not be obligated so to do, and
without waiving or releasing Tenant from any obligations of
Tenant, make any such payment or perform any such other act on
Tenant's part to be made or performed as provided in this Lease.
All sums so paid by Landlord and all necessary incidental costs
together with interest thereon at the rate set forth in Section
4 of this lease computed from the date of such payment by
Landlord shall be payable to Landlord and Landlord shall have
(in addition to any other right or remedy of Landlord) the same
rights and remedies in the event of the non-payment thereof by
Tenant as in the case of default by Tenant in the payment of
rent.
31.
Attorneys' Fees
---------------
SEE ADDENDUM *
No. 15.
32.
Estoppel Certificate
--------------------
Tenant shall at any time and from time to time upon not less
than ten (10) days prior written notice from Landlord execute,
acknowledge and deliver to Landlord a statement in writing
certifying that this Lease is unmodified and in full force and
effect (or if modified, stating the nature of the modification
and certifying that this Lease, as so modified, in is in full
force and effect) and the dates to which the rental and other
charges are paid and acknowledging that there are not, to
Tenant's knowledge, any uncured defaults on the party of
Landlord
-19-
<PAGE>
hereunder or specifying such defaults if any are claimed. It is
expressly understood and agreed that any such statement may be
relied upon by any prospective purchaser or mortgagee of any or
any portion of the Premises. Tenant's failure to deliver such
statement within such time be conclusive upon Tenant that this
Lease is in full force and effect, without modification except
as may be represented by Landlord, that there are no uncured
defaults in Landlord's performance and that not more than two
(2) months' rental has been paid in advance.
33.
Deposit
-------
SEE ADDENDUM Upon execution of this Lease, Tenant will deposit
No. 16.(A.) with Landlord the sum of __________________ Dollars as security
for the full and faithful performance of every provision of this
Lease to be performed by Tenant. If Tenant defaults with respect
to any provision of this Lease, including but not limited to the
provisions relating to the payment of rent, Landlord may use,
apply or retain all or any part of this security deposit for the
payment of any rent and any other sum in default, or for the
payment of any other amount which Landlord may spend or become
obligated to spend by reason of Tenant's default or to
compensate Landlord for any other loss or damage which Landlord
may suffer by reason of Tenant's default. If any portion of said
deposit is to be used or applied, Tenant shall within ten (10)
days after written demand therefor deposit cash with Landlord in
an amount sufficient to restore the security deposit to its
original amount and Tenant's failure to do so shall be a
SEE ADDENDUM material breach of this Lease. Landlord shall* be required to
No. 16.(B.) keep the security deposit separate from its general funds and
the Tenant shall be entitled to interest on such deposit.* If
Tenant shall fully and faithfully perform every provision of
this Lease to be performed by it, the security deposit or any
balance thereof shall be returned to Tenant (or at Landlord's
option to the last assignee of Tenant's interest hereunder) at
the expiration of the Term and upon Tenant's vacating of the
Premises. After the Tenant improvements have been completed and
the free rental period expired, the sum of the $24,115.00 of the
security deposit will be applied to the first month's rent
leaving the sum of __________ as the security deposit to be
SEE ADDENDUM deposited in accordance with the terms and conditions of this
No. 16.(A.) provision.
-20-
<PAGE>
34.
Easements
---------
Landlord shall have the right to place upon the property
easements for ingress and egress or for the attachment of
utilities for the benefit of certain property contiguous to the
Premises owned by Landlord, provided that such easements do not
impair the peaceable and quiet enjoyment and possession of the
Premises by Tenant.
35.
Purchase Option
---------------
(a) For and in consideration of the sum of Ten ($10.00) and
the execution and delivery of this Lease, Landlord hereby grants
to Tenant the right and option to purchase the Premises, upon
the terms and conditions set forth in this Section 35. Tenant
may not transfer and assign its rights under this Section,
without the express written consent of Landlord.
(b) The purchase price of the Premises shall be as follows,
if exercised and closed during the time periods set forth below:
SEE ADDENDUM *
No. 17.
The purchase price shall be paid in full and in cash at closing,
by wired funds or cashier's check, drawn to the Landlord's
order.
(c) Provided that Tenant is not then in default under this
Lease, and this Lease has not sooner terminated, at any time
during the Term, Tenant can exercise its option under this
Section by giving written notice of its intention to do so to
Landlord at least 120 days prior to the end of the Term, which
notice shall designate: (i) a date and time for the closing nor
more than 90 days after the date of Tenant's notice; (ii) the
place of closing, which shall be within Fulton County, Georgia;
and (iii) shall enclose therewith in good funds, Tenant's check
payable to Landlord in the amount of $25,000 to be held and
disbursed by Landlord as earnest money and to be credited toward
the purchase price at closing. The purchase and sale pursuant to
Tenant(s exercise of its option hereunder shall be closed on the
date, time and place designated by Tenant or on such earlier
date as may be agreed upon by Landlord and Tenant. At closing
Landlord shall pay
-21-
<PAGE>
all transfer taxes or similar taxes under the general warranty
deed required hereinbelow. Tenant shall pay all other closing
and recording costs, intangibles tax, appraisal fees and
engineering fees, except that Landlord and Tenant shall each pay
their respective attorneys' fees. Ad valorem taxes, rents and
all other items of income and expense in connection with the
operation of the Premises shall be paid by Tenant whether prior
to or after the closing date. In the event that at the time of
closing the Premises is subject to or affected by any assessment
of water, sewer or other utilities, which is or shall be a
charge or lien against the Premises, then in such event such
assessment, shall be deemed due and payable for purposes of this
Lease and shall be paid in full at closing by Tenant. Nothing
contained in this Section shall be construed to relieve Tenant
of any obligation to pay for taxes, operating costs or other
expenses at set forth in this Agreement.
(d) At the closing, each party hereto shall execute and
deliver all documents necessary to affect and complete the
closing, including but not limited to, the following documents
to be executed and delivered by Landlord to Tenant: (i) limited
warranty deed from Landlord conveying fee simple title to the
Premises, free and clear of all liens, restrictions and
encumbrances other than zoning restrictions, utility or other
easements of records, real estate taxes for all years subsequent
to the year in which the sale of the Premises is closed, real
estate taxes for the year in which the sale of the Premises is
closed if any such taxes are a lien against the Premises but not
yet due and payable and matters shown on a true and accurate
survey ("Permitted Exceptions"); (ii) an owner's affidavit, in
form and substance satisfactory to the title insurance company
and sufficient to cause the title company to issue an owner's
title policy without standard exceptions for mechanic's lien,
but subject to the Permitted Exceptions. Tenant may at Tenant's
sole cost and expense obtain a survey for the Premises. Landlord
shall deliver to Tenant an affidavit, in form and substance
satisfactory to Landlord, stating Landlord's tax identification
number, Landlord and all persons holding beneficial interest in
the Premises are "United States Persons," as defined in the
Internal Revenue Code of 1986, as amended, and that the purchase
of the Premises by Tenant pursuant to this Lease is not subject
to withholding requirements of the Internal Revenue Code of 1986
as amended. The transfer of the Premises to Tenant shall be
without any representations or warranties other than as set
forth in the warranty deed.
(e) This provision shall be binding upon the Landlord's
heirs, successors and assigns.
-22-
<PAGE>
36.
Quiet Enjoyment
---------------
The Landlord shall put the Tenant in possession of the
Leased premises at the beginning of the term hereof, and the
Tenant, upon paying the rent and observing the other covenants
and conditions herein upon its part to be observed, shall
peaceably and quietly hold and enjoy the Leased Premises.
37.
Miscellaneous Provisions
------------------------
(a) The words "Re-enter" or "Re-entry" as used in this
Lease, are not restricted to their technical legal meaning. The
term "Landlord" as used in this Lease means only Landlord from
time to time and upon conveying its interest, such conveying
Landlord shall be relieved from any further obligation or
liability.
(b) Time is of the essence of this Lease.
(c) Submission of this instrument for examination or
signature by Tenant does not constitute a reservation or offer or
option for Lease.
(d) The invalidity or unenforceability of any provision
hereof shall not affect or impair any other provisions.
(e) This Lease shall be governed by and construed pursuant
to the laws of the State of Georgia.
(f) Should any mortgage require a modification of this
Lease, which modifications will not bring about any increased
cost or expense to Tenant or in any other way substantially
change the rights and obligations of Tenant hereunder, then and
in such event, Tenant agrees that this Lease may be so modified.
(g) All rights and remedies of Landlord under this Lease,
or that may be provided by law, may be exercised by Landlord in
their own names individually, or in their names by their agent,
all legal proceedings for the enforcement of any such rights or
remedies, including distress for rent forcible detainer, and any
other legal or equitable proceedings, may be commenced and
prosecuted to final judgment and execution by Landlord in their
own names individually
-23-
<PAGE>
or in their names or by their agent. Tenant conclusively agrees
that Landlord has full power and authority to execute this Lease
and to make and perform the agreements herein contained and
Tenant expressly stipulates that any rights or remedies available
to Landlord either by the provisions of this Lease or otherwise
may be enforced by Landlord in their own names individually or in
their names by agent or principal.
(h) Any of the covenants and conditions of this Lease shall
survive termination of this Lease.
(i) The marginal headings and titles to the paragraph of
this Lease are not a part of this Lease and shall have no effect
upon the construction or interpretation of any part hereof.
(j) This Lease includes Exhibit "A," which is expressly made
a part of this Lease.
(k) This Lease shall create the relationship of Landlord and
Tenant between the parties hereto and no estate shall pass out of
Landlord. Tenant shall have only a usufruct, not subject to levy
or sale, and not assignable by Tenant, except as set forth
herein.
SEE ADDENDUM *
No. 18.(A.) () Within one hundred and twenty (120) days prior to the
end of the Term or upon notice from Tenant that it intends to
terminate this Lease, Landlord shall have the right to enter upon
the Premises, and card the Premises for rent, and show the
Premsies to Prospective tenants during normal business hours.
() The parties hereto do hereby acknowledge that Landlord
and Cushman & Wakefield of Georgia, In. ("Cushman") have entered
into an agreement whereby Landlord will pay Cushman a leasing fee
and a sales commission upon the sale of the Premises. Landlord
and Tenant do hereby represent and warrant to each other that
neither has utilized or retained any other agent, broker or
finder.*
SEE ADDENDUM () This Lease embodies the entire agreement of the parties
No. 18.(B.) and supersedes all prior agreements, written or oral.
38.
Tenant-Corporation
------------------
-24-
<PAGE>
In case Tenant is a corporation, Tenant represents and
warrants that this Lease has been duly authorized, executed and
delivered by and on behalf of Tenant and constitutes the valid
and binding agreement of Tenant in accordance with the terms
hereof, and does not violate the terms and conditions of its
Articles of Incorporation and Bylaws.
39.
Successors and Assigns
----------------------
The covenants and conditions herein contained shall apply to
and bind the respective heirs, successors, executors,
administrators, and assigns of the parties hereto. The terms
"Landlord" and "Tenant" shall include the successors and assigns
of either such party, whether immediate or remote.
IN WITNESS WHEREOF, the parties have hereunto set their
hands this 12 day of July, 1990.
Signed, Sealed and Delivered
In the Presence of: LANDLORD:
STANFORD AND SYLVAN A.
MAKOVER, JOINT VENTURE
/s/ Lawrence Gold /s/ Stanford Makover (Seal)
----------------------------- ----------------------
Stanford Makover
/s/ Lawrence Gold /s/ Sylvan Makover (Seal)
----------------------------- ----------------------
Sylvan A. Makover
TENANT:
CORNUCOPIA NATURAL
FOODS, INC.
_____________________________ By:/s/ Norman Cloutier
-----------------------------
, Its President
/s/ Diane E. Desabris
-------------------------
-25-
<PAGE>
EXHIBIT "A"
BEGINNING at a point on the south line of said Land Lot 23, 174.43 feet east, as
measured along the south line of said Land Lot 23, from the southwest corner
thereof; running thence south 89 degrees 02 minutes east along the south line of
said Land Lot 23, a distance of 624.17 feet to a point; thence north 00 degrees
50 minutes east 687.40 feet to the southern side of Shirley Drive, thence north
76 degrees 22 minutes west along the southern side of Shirley Drive, a distance
of 184.50 feet to a point; thence in a northwesterly direction along the
southern side of Shirley Drive, and following the curvature thereof, a distance
of 184.30 feet (the chord of the arc formed by the curvature of Shirley Drive
running north 79 degrees 55 minutes west 184.10 feet); thence north 83 degrees
42 minutes west along the southern side of Shirley Drive 263.75 feet to a point;
thence south 00 degrees 50 minutes west, a distance of 781.55 feet to the south
line of said Land Lot 23 and the point of beginning, as more particularly shown
on plat of survey for Sylvan & Stanford Makover by C. R. Roberts, Registered
Engineer, dated June, 1965;
<PAGE>
Lease Addendum
Dated June 22, 1990
The following items are changes and/or clarifications to the lease agreement
dated June 22, 1990 between Cornucopia Natural Foods, Inc. and Sylvan and
Stanford Makover Joint Venture. This lease addendum is expressly made a
conditional part of the lease and is entered into simultaneously with the
original agreement.
Item #1) (Section 4a) Base Rent - (a) Tenant shall pay as rent to Landlord the
following sums, for the following time periods (the "Base Rent"):
<TABLE>
<CAPTION>
Base Rent Per Equal Monthly
Lease Year Lease Year Payments
---------- ------------- -------------
<S> <C> <C>
7/1/90-2/28/91 No Base Rent $ -0-
3/1/91-2/28/94 $289,377.00 $24,114.75
3/1/94-2/28/97 $318,314.70 $26,535.23
3/1/97-2/28/99 $350,146.20 $29,178.85
</TABLE>
*Subject to adjustment for the first month (March, 1991) as set forth in the
following paragraph:
The Base Rent shall be paid in equal monthly installments as set forth above
and shall be paid in advance on the first day of each month commencing on March
1, 1991, and on the first day of each calendar month thereafter during the Term
and at the same rate for fractions of a month is the Term shall begin on any day
except the first day or shall end on any day except the last day, of a calendar
month; provided however, that the payment for rent due for the month of March,
-----------------------------------------------------------------------
1991 shall be for $12,252.95. As set forth in the above table, Tenant shall not
- ----------------------------
be required to pay Base Rent for the period from the Commencement Date and
extending for a period of eight (8) months from said date; provided, however,
---------
that Tenant shall have all other obligations hereunder for said time period,
including but not limited to, the payment of Taxes, Operating Costs, insurance
and utilities.
Item #2) (Section 12c) - Tenant will take responsibility for roof gusset
supports and lighting relocation with landlords payment made in rent credits
which are reflected in Base Rent from Item #1 above.
Item #3) (Section 2b) - On the Commencement Date Tenant shall take possession
of the Premises and Commence the improvements to be made to the Premises, in
accordance with the terms and conditions herein.
<PAGE>
Item #4) (Section 11e) - (e) Landlord agrees to pay Tenant, simultaneously upon
the execution and delivery of this Lease by all parties, an amount equal to the
cost of removing: (a) the mezzanine and its rack support system and (b)
distribution offices as specified in a contract calling for such removal or
demolition attached hereto as Exhibit "B".
Tenant shall be solely responsible for supervising such removal and shall hold
Landlord harmless from any loss, damage, cost or expense sustained or incurred
by any person, including Tenant, its agents, officers, employees or invites
arising from such work. As further consideration for this Lease Landlord agrees
to pay a pro-rata portion of the real estate taxes and insurance costs for the
Premises for the period of thirty (30) days following July 1, 1990, based upon
one-twelfth of the annual amount of such items.
Item #5) (Purchase Option) (Section 35b) - (b) The purchase price of the
Premises shall be as follows, if exercised and closed during the time periods
set forth below:
<TABLE>
<CAPTION>
Closing Date Purchase Price
--------------- --------------
<C> <C>
7/1/90 - 1/31/94 $3,000,000.00
3/1/94 - 2/28/97 $3,300,000.00
3/1/97 - 2/28/99 $3,630,000.00
</TABLE>
The purchase price shall be paid in full and in cash at closing, by wired funds
or cashier's check, drawn to the Landlord's order.
Item #6) - This agreement is entered into by Cornucopia Natural Foods, Inc.
subject to the Tenant securing adequate financing to complete its construction
as specified in this lease as "Tenant Improvements".
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease, under seal,
the day and year first above written.
LANDLORD:
_______________________________(Seal)
Stanford Makover
_______________________________(Seal)
Sylvan A. Makover
TENANT:
ATTEST: CORNUCOPIA NATURAL FOODS, INC.
<PAGE>
By:__________________________ By:/s/ Norman Cloutier
Secretary --------------------------
Its: President
(Corporate Seal)
<PAGE>
Exhibit B
------- -
ALLIED ASBESTOS ABATEMENT, INC.
HEREINAFTER KNOWN AS THE SELLER
3077 MCCALL DRIVE
SUITE 17
ATLANTA, GA 30340
(404) 458-1730
PROPOSAL
Date July 11, 1990
--------------
TO: Martin Arnold/Peter Anderson, Cushman & Wakefield, Agents for Makeover
----------------------------------------------------------------------
& Makeover
----------
ADDRESS: 3300 One Atlantic Center, 1201 West Peachtree Street, Atlanta,
--------------------------------------------------------------
Georgia
-------
who shall hereinafter be known as the Buyer
The Seller proposes to furnish to the Buyer subject to provisions of Pars.
1 thru 19 on reverse side
hereof, all materials and labor necessary to install, abate, construct,
fabricate, and/or place the work
described herein on/in the building project identified as follows:
PROJECT: Shirley of Atlanta - 4200 Shirley Drive, Atlanta, Georgia
---------------------------------------------------------
(Name and Address)
ARCHITECT:_________________________________________________________
(Name and Address)
OWNER: Sylvan A. Makeover and Stanford Makeover
----------------------------------------
(Name and Address)
Said work proposed by the Seller shall be materials and labor to complete
the following, to wit:
SCOPE OF WORK
REMOVE AND PROPERLY DISPOSE OF APPROXIMATELY 22,778 SQ. FT. OF V.A.T.
FROM MEZZANINE AND OFFICE AREA IN WAREHOUSE.
1. Work area will be barracaded 10 feet around the perimeter of the work
area and will not be accessible to other trades while work is in
progress.
2. Scheduling will allow Allied to work continuously without significant
delays.
3. Replacement of materials is not included in our proposal.
4. The proposed work will be complete within 10 days. The 10 day notice
to E.P.D. is included in this estimate.**
5. Personnel air monitoring, as required by OSHA, will be the
responsibility of Allied. Final clearance air monitoring to be done by
an outside independent laboratory (Westinghouse Environmental) and is
included in the price below.
6. Certified, trained, medically documented workers will be employed.
7. Suitable storage, water, and electrical outlets to be provided by
owner.
8. One million dollars asbestos liability insurance coverage to be
provided by Allied.
9. Project will be executed according to federal, state and local codes
and regulations.
10. Owner will be provided with E.P.D. notifications to include original
notification and final completion, landfill receipts and results of
all air tests.
PRICE: Asbestos Removal $37,583.00
TERMS: NET CASH UPON COMPLETION
NOTE: Our proposal is based upon immediate acceptance and commencement of
work following 10 day E.P.D. notification.
Respectfully submitted.
Accepted: ALLIED ASBESTOS ABATEMENT, INC.
/s/ Sylvan A. Makover By/s/ Susan E. Hargreaves
---------------------------- ------------------------------------
Name Susan E. Hargreaves
___________________ 7/12/90 Title: President
Title ------- --------------------------------
Date
**NOTE: Should Emergency approval be granted by E.P.D., work will begin
as early as 07/16/90. Every effort will be made by ALLIED to
reach completion earliest possible.
<PAGE>
ADDENDUM TO LEASE
-----------------
This Addendum is made a part of that certain Lease dated July ____, 1990
(the "Lease") between Sylvan and Stanford Makover Joint Venture, as Landlord,
and Cornucopia Natural Foods, Inc., as Tenant. This Addendum is an integral part
of the Lease, is entered into contemporaneously with the Lease, and in the event
of any conflict between the terms of this Addendum and the Lease, the terms of
this Addendum shall govern.
1. Term.
-----
(Section 2(a)). The term of the Lease shall commence on August 1, 1990
which shall be the "Commencement Date".
2. Base Rent.
----------
(Section 4(a)). Delete Section 4(a) and substitute the following: (a)
Tenant shall pay as rent to Landlord the following sums, for the following time
periods (the "Base Rent"):
<TABLE>
<CAPTION>
Lease Year Base Rent Per Equal Monthly
Lease Year Payments
- ------------------------ ------------------- ---------------------
<S> <C> <C>
8/1/90 - 3/31/91 No Base Rent $ - 0 -
4/1/91 - 3/31/94 $289,377.00 $ 24,114.75
4/1/94 - 3/31/97 $318,314.70 $ 26,526.23
4/1/97 - 3/31/99 $350,146.20 $ 29,178.85
</TABLE>
The Base Rent shall be paid in equal monthly installments as set forth above and
shall be paid in advance on the first day of each month commencing on April 1,
1991, and on the first day of each calendar month thereafter during the Term and
at the same rate for fractions of a month if the Term shall begin on any day
except the first day or shall end on any day except the last day, of a calendar
month. As set forth in the above table, Tenant shall not be required to pay Base
Rent for the period from the Commencement Date and extending for a period of
eight (8) months from said date; provided, however, that Tenant shall have all
other obligations hereunder for said time period, including but not limited to,
the payment of Taxes, Operating Costs, insurance and utilities.
3. Insurance.
---------
(Section 7(b)). Insert at the end of Section 7(b) the following:
All policies shall provide that they may not be cancelled by the
insured, for non-payment of premiums or otherwise, until at least 30 days after
service of notice by registered mail of the proposed cancellation upon Landlord
and upon any holder of indebtedness secured by a deed to secure debt against the
Premises, and in any event that such policy shall not be invalidated, as to the
interest of Landlord or the
<PAGE>
holder of any deed to secure debt against the Premises by any act, omission or
neglect of Tenant or any occupant of the Premises which might otherwise result
in a forfeiture or suspension of such insurance.
4. Condition of the Premises.
-------------------------
(A.) (Section 11(a)). Delete Section 11(a) and substitute the following:
(a) Tenant agrees to accept the Premises in its present condition. No
promises of Landlord to alter, remodel, decorate, clean or improve the Premises
and no representation or warranty expressed or implied, respecting the condition
of the Premises has been made by Landlord to Tenant except as set forth in
Paragraph 11(e) below.
(B.) (Section 11(c)). Delete the words "and floors" in line 4, Section
11(c).
(C.) (Section 11(d)). Insert the words "or in the event of uncorrected
default, without notice," in line 21 after the words "upon reasonable notice."
(D.) (Section 11(e)). Insert new section 11(e) as follows:
(e) Landlord shall be responsible for removing, at its expense, the floor
tiles in the mezzanine area and the distribution office referred to above prior
to the Commencement Date. Tenant acknowledges that these tiles contain a type of
asbestos. Tenant may, at its expense, conduct such investigation regarding the
existence of asbestos in the Premises as it may desire. Further, Landlord agrees
to pay Tenant, simultaneously upon the execution and delivery of this Lease by
all parties, an amount equal to the cost of removing: (a) the mezzanine and its
rack support system and (b) one distribution office as specified in a contract
calling for such removal or demolition attached hereto as Exhibit "B". Tenant
shall be solely responsible for supervising such removal (other than the floor
tiles in the mezzanine and office referred to above) and shall hold Landlord
harmless from any loss, damage, cost or expense sustained or incurred by any
persons, including Tenant, its agents, officers, employees or invitees arising
from such work.
5. Tenant Improvements.
-------------------
(A.) (Section 12(a)). Insert new language, line 8, as follows, "and (vi)
gusset the roof of the Building" after the word "building" at the end of line 8.
(B.) (Sections 12(b) and 12(c)). Delete Sections 12(b) and 12(c) and
substitute the following:
(b) Tenant shall indemnify and hold Landlord harmless from any and all
loss, damage, cost or expense sustained or incurred by Landlord and arising out
of any work done by or at the request of Tenants pursuant to this Lease.
Further, Tenant agrees to repair, replace or restore any damage to the Premises
or the
<PAGE>
Building incurred during construction of the Tenant Improvements or the
demolition and removal referred to in Paragraph 11(e) of this Lease.
6. No Liens.
--------
Insert a new Section 12A as follows:
"12A. No Liens."
--------
Tenant shall not permit the filing of any liens against the
Premises at any time and shall promptly pay any and all contractors, sub-
contractors or suppliers. Tenant shall supply Landlord with lien waivers signed
by all contractors and subcontractors who may provide goods, materials, services
or supplies to or for the benefit of Tenant and relating to any work done at the
Premises, including, without limitation, the Tenant Improvements. In the event
of the filing of any notice of builder's, supplier's or mechanic's lien on the
Premises arising out of any work performed by or on behalf of the Tenant, the
Tenant shall, within thirty (30) days of notice of such filing, either cause
such lien to be discharged, released or satisfied or obtain and deliver to
Landlord an irrevocable letter of credit issued in favor of Landlord by a
national banking association of recognized standing in an amount sufficient to
cover the full amount of any such lien. If the Tenant shall cause such lien to
be discharged or released by the posting of bond, Tenant shall completely
indemnify the Landlord against any such claim or lien.
7. Compliance with Law.
-------------------
(Section 13). Delete the last sentence entirely beginning with "If at any
time", line 16, and ending with "terminate this Lease.", line 20.
8. Assignment and Subletting.
-------------------------
(Section 16(a)). Delete the words beginning in line 3 with "any portion"
through "prior written consent" in line 5 and substitute after "sublet" in line
3, the following: "portions, but not all, of the Premises with the Landlord's
consent, which consent shall not be unreasonably withheld".
9. Damage to Property - Injury to Persons.
--------------------------------------
(Section 18). Insert at the end of the fourth paragraph of Section 18
after the words "One Million ($1,000,000.00) Dollars," the following: "In
addition Tenant shall maintain umbrella liability coverage for the Premises with
Landlord as an additional named insured for at least an additional One Million
($1,000,000.00) Dollars."
10. Damage or Destruction.
---------------------
(Section 19). Delete Section 19(c) in its entirety and substitute the
following: "(c) Notwithstanding the foregoing, in the event substantial
destruction of the Premises occurs during the last twelve (12) months of the
Term, including any renewals, Tenant may, at its sole option, elect within
thirty (30) days of the date of such destruction, to terminate this Lease by
giving written notice thereof to the Landlord."
<PAGE>
11. Default.
-------
(A.) (Section 22). In Paragraph (e), after the words "vacate all" insert
"or any portion."
(B.) (Section 22). Insert New Paragraph (f) as follows:
(f) If Tenant's assets or effects in the Premises shall be levied upon or
attached under any process against Tenant involving a judgment against
Tenant of $75,000 or more, and such levy or attachment is not
satisfied or dissolved within thirty (30) days after written notice
from Landlord to Tenant to obtain satisfaction thereof.
12. Eminent Domain.
--------------
(Section 24). Delete the last sentence entirely, beginning in line 17,
with the words "In either of the above events" and substitute the following: "In
the event of a condemnation or taking, Landlord and Tenant shall each be
entitled to seek and recover awards for their respective interests."
13. Subordination.
-------------
(Section 25). Delete the last paragraph entirely and substitute the
following:
Tenant agrees to give any mortgagees or trust deed holders, by registered
mail, a copy of any notice of default served upon Landlord by Tenant provided
that prior to such notice Tenant has received notice (by way of service on
Tenant of a copy of an assignment of rents and lease, or otherwise) of the
address of such mortgagees or trust deed holders. Tenant further agrees that if
Landlord shall have failed to cure such default within the time provided for in
this Lease, then the mortgagees or trust deed holders shall have an additional
thirty (30) days after receipt of notice thereof within which to cure such
default. Such period of time shall be extended by any period within which such
mortgagee or trust deed holder is prevented from commencing or pursuing such
foreclosure proceedings by reason of Landlord's bankruptcy. Until the time
allowed as aforesaid for mortgagee or trust deed holder to cure such defaults
has expired without cure, Tenant shall have no right to and shall not terminate
this Lease on account of default.
14. Inability to Perform.
--------------------
(Section 27). Delete Section 27 in its entirety and substitute the
following:
"27.
Inability to Perform
Landlord hereby agrees to pay Tenant upon execution of the Lease, the sum
of $7,150 to be used by Tenant to increase the electrical power supply at the
Premises. Upon termination of the Lease, Tenant shall return the Premises to
Landlord with the same amount of electrical power as exists upon completion of
Tenants of such electrical improvements. Any further increase in electrical
power shall be at Tenant's sole expense. Tenant shall provide Landlord with
proof of such improvements as Landlord may reasonably request."
<PAGE>
15. Attorney's Fees.
---------------
(Section 31). Delete Section 31 entirely and substitute the following:
"Time is of the essence of this Lease. In the event Landlord shall be
required to enforce any of its rights as remedies hereunder, or collect rent, by
or through an attorney, Tenant shall be obligated to pay all of Landlord's costs
and expenses, including reasonable attorney's fees."
16. Deposit.
-------
(A.) (Section 33). Change the amount of the deposit from "Fifty Thousand
Six Hundred Forty ($50,640.00)" to "Fifty-Three Thousand Two Hundred Ninety-
Three and 60/100 ($53,293.60)." In the next to the last line of this Section,
change the figure $26,525.00" to "$29,178.60."
(B.) (Section 33). Insert the word "not" in line 18, after "shall." Delete
the words "at the prevailing certificate of deposit rate" in lines 19-21 and
substitute the following: "at a simple interest rate equal to the rate paid by
Bank South, N.A. in Atlanta, Georgia, on its standard money market account."
17. Purchase Option.
----------------
(Section 35). In paragraph (b) delete the dates and prices entirely and
substitute the following:
<TABLE>
<CAPTION>
Closing Date Purchase Price
---------------- --------------
<C> <C>
8/1/90 - 3/31/94 $3,000,000.00
4/1/94 - 3/31/97 3,300,000.00
4/1/97 - 3/31/99 3,630,000.00
</TABLE>
18. Miscellaneous Provisions.
------------------------
(A.) (Section 37). Insert a new paragraph (l) as follows:
(l) Upon fifteen (15) days written demand to Tenant from Landlord or its
agents, Tenant shall deliver to Landlord or its agents a financial statement
including balance sheet and statements of income as of the period most recently
prepared by Tenant, which financial statements shall be prepared, as far as
possible, in accordance with generally accepted accounting principles and shall
accurately reflect the financial condition of Tenant. Landlord shall keep all
such financial information strictly confidential at all times.
Reletter the remaining paragraphs of this Section (m)-(o).
(B.) (Section 37). Insert the following at the end of paragraph (n):
Cushman & Wakefield of Georgia, Inc. represents that Landlord and the
Tenant jointly, and such dual agency is expressly consented to by the parties by
their execution hereof. Cushman & Wakefield of Georgia, Inc. will be paid a fee
by the
<PAGE>
Landlord. The parties named below acknowledge, agree and consent to the
representation disclosed above.
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Addendum on
and as of the 12 day of July, 1990.
Signed, Sealed and Delivered
In the Presence of: LANDLORD:
STANFORD and SYLVAN A. MAKOVER,
JOINT VENTURE
/s/ Lawrence Gold /s/ Stanford Makover (Seal)
- ----------------------- --------------------------
Stanford Makover
/s/ Lawrence Gold /s/ Sylvan A. Makover (Seal)
- ----------------------- --------------------------
Sylvan A. Makover
TENANT:
CORNUCOPIA NATURAL FOODS, INC.
By:/s/ Norman Cloutier
_______________________ ---------------------------
, Its President
/s/ Dianne E. Desabris
- ----------------------
<PAGE>
FIRST AMENDMENT
TO
LEASE AGREEMENT
BETWEEN
CORNUCOPIA NATURAL FOODS, INC.
AND
SYLVAN AND STANFORD MAKOVER JOINT VENTURE
THIS IS THE FIRST AMENDMENT to that certain Lease Agreement dated July 12,
1990, including an Addendum of even date and made a part thereof (collectively,
the "Lease"), between Cornucopia Natural Foods, Inc., a Rhode Island corporation
(the "Tenant"), and Sylvan and Stanford Makover Joint Venture, a Georgia joint
venture (the "Landlord").
The Landlord and the Tenant now mutually desire to amend the Lease in
certain particular respects as set forth herein.
THEREFORE, in consideration of the mutual promises and covenants contained
in the Lease, the mutual promises and covenants contained herein, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties do hereby agree as follows:
1.
Effect
------
(a) Except as expressly and specifically amended as set forth herein, all
of the other terms and conditions of the Lease shall continue and remain in full
force and effect, without alteration, amendment or modification. Any capitalized
terms used in this First Amendment and not specifically defined herein, shall
have the meanings set forth in the Lease.
(b) As used herein, and hereafter, the term "Lease" shall mean the Lease
as originally executed and as herein amended.
(c) This First Amendment may be executed in one or more counterparts, each
of which shall be deemed an original and all of which together shall constitute
one and the same agreement.
2.
Renewal Option
--------------
(a) Provided that the Tenant is not in default under the Lease, the
Tenant shall have the right to renew the term of this Lease for one period of
twenty-four (24) months, commencing April 1, 1999, and expiring on March 31,
2001 (the "Renewal Term").
<PAGE>
(b) During the Renewal Term all of the terms and conditions of the Lease
shall continue and remain in full force and effect; provided, however, that
during the Renewal Term, the Base Rent shall be $350,146.20 per year ($29,178.85
per month), payable in the same manner and at the same times as the Base Rent is
payable during the original term. This is the same Base Rent that will be
payable by the Tenant for the last two years of the original term.
(c) The Purchase Option set forth in Section 35 of the Lease, as contained
in Paragraph 17 of the Addendum to the Lease, shall continue to be available to
the Tenant during the Renewal Term, with no further increase or escalation
during the Renewal Term. The Purchase Option Price set forth in such Paragraph
for the last two years of the original term shall remain the price during the
entire Renewal Term.
(d) In order to exercise its option to renew the Lease as set forth
herein, the Tenant shall give the Landlord at least 180 days prior written
notice of its election to exercise its option. Failure by the Tenant to give
such notice shall be deemed a decision not to exercise the renewal option and in
the absence of such notice, such renewal option shall be void and of no further
force or effect.
IN WITNESS WHEREOF, the Tenant and the Landlord have duly executed this
First Amendment on and as of the 14th day of November, 1994.
Signed, sealed and delivered LANDLORD:
in the presence of:
SYLVAN A. AND STANFORD MAKOVER
JOINT VENTURE
/s/ Maxine Makover /s/ Stanford Makover (Seal)
- ---------------------- --------------------------
Stanford Makover
/s/ Lawrence Gold /s/ Sylvan A. Makover (Seal)
- ---------------------- --------------------------
Sylvan A. Makover
Signed, sealed and delivered TENANT:
in the presence of:
CORNUCOPIA NATURAL FOODS, INC.
/s/ Janet Knox BY: /s/ Steve Townsend
- -------------- -------------------------------
Title: Treasurer and Secretary
(CORPORATE SEAL)
<PAGE>
Exhibit 10.24
Profile
Lease Document
Building Expansion 1990
A. Lessee: NutraSource
B. Lessor: Estate of A.H. Spear
C. Following are the main points contained in the lease:
1. The term of the lease is ten years (Sec. 1.02).
2. The first-five year, blended rate is thirty-five cents (.35) per square
foot per month for 79,840 sq. ft. (whse 67,350; office 12,490) (less
17,000 sq. ft. rent free for first year), triple net. approximately
32,694 sq. ft. currently exists. (Sec. 1.01, 3.02, 3.06).
3. The second five year, blended rate is forty cents (.40) per square foot
per month, triple net, unless the C.O.L.A. percentage is less. Then the
price would adjust with the C.O.L.A. rate. If inflation exceeds 80%, the
rate for the second five-year period would be renegotiated (Sec. 3.03).
4. At the end of the first ten-year lease, the company will have the option
to renew for an additional five to ten years, the length of which is to
be determined by NutraSource (Sec. 4.01, 4.03).
5. At the end of the first ten-year lease, the company will have the option
on the original 79,840 sq. ft. or the entire building. The option on the
additional space, over 79,840 sq. ft., can be forfeited if the option
prevents the landlord from leasing the vacant space (Sec. 4.06).
6. If within the first ten-year lease, the remaining space (13,717 sq. ft.)
in the building becomes vacant, management will have the right of first
refusal to acquire the vacated space under the same terms, conditions
and rate as the original 79,840 sq. ft. (Sec. 1.03, 28.01).
7. The landlord will finance leasehold improvements (freezer and cooler),
up to 400,000 for ten years at ten percent interest (Sec. 29.01 to
29.03).
8. Management has the option to terminate the lease early (at five years
from the commencement date) providing management gives the landlord six
months notice. Should the company opt for early termination of the
lease, the landlord must be provided payment for the unpaid principal on
the landlord-financed leasehold improvements in Section 7 above (Sec.
3.05).
9. The landlord will finish the offices space at its cost up to an amount
of $214,900 (Sec. 28.02).
10. The landlord will level the warehouse floor and paint the exterior
structure of the existing building as part of the construction phase.
11. Estimated lease commencement date: October 1, 1990.
Actual: February 1, 1991.
<PAGE>
INDEX
-----
<TABLE>
<CAPTION>
ARTICLE TITLE PAGE NO.
- ------- ----- --------
<S> <C> <C>
I Premises and Term 1
II Commencement of Term 2
III Rent 5
IV Option to Extend Term 7
V Use 11
VI Condition of Premises;
Maintenance; Return 12
VII Alterations and Improvements 14
VIII Lessee's Payment of Taxes,
Assessments, Etc. 14
IX Utilities 16
X Indemnification; Liability Insurance 16
XI Fire or Other Casualty 17
XII Fire and Extended Coverage Insurance 18
XIII Assignment or Sublease 19
XIV Access 20
XV Eminent Domain 20
XVI Default 21
XVII Litigation Fees 22
XVIII Waiver of Subrogation 22
XIX Advances by Lessor for Lessee 23
XX Nonwaiver 23
XXI Quiet Enjoyment 23
XXII Notices 23
XXIII Holdover 24
XXIV Successors & Assigns 24
XXV Estoppel Certificates; Attornment 24
XXVI Lessee's Right of First Refusal 25
XXVII Recordation/Memorandum 25
XXVIII New Construction 26
XXIX Special Equipment 27
XXX Miscellaneous 28
XXXI Authority 28
</TABLE>
<PAGE>
COMMERCIAL LEASE AGREEMENT
THIS AGREEMENT OF LEASE is made as of the 23rd day of August, 1989 between
Bradley K. Spear and Seattle First National Bank, co-executors of the Estate of
A. H. Spear (the "Lessor") and Nutrasource, a Washington General Partnership
(the "Lessee").
ARTICLE I
Premises and Term
Section 1.01 Premises. The Lessor hereby leases to the Lessee and the
--------
Lessee hereby leases from the Lessor that warehouse and office space described
as 79,840 (more or less) square feet of the warehouse/office space structure
(approximately 32,694 square feet of which is currently existing, with the
remainder to be constructed) located on the real property located in Seattle,
King County, Washington, known as 4005 Sixth Avenue South and legally described
on Exhibit A hereto. The portion of the existing building and the new
construction to be occupied by the Lessee (the "Demised Premises") is outlined
in red on Exhibit B hereto. The entire expanded structure to be built on the
real property described in Exhibit A hereto is hereinafter referred to as "the
Building". Of the approximately 79,840 square feet constituting the Demised
Premises, approximately 67,350 square feet will be warehouse space and corridor,
and approximately 12,490 square feet will be office space.
Section 1.02 Term. Except as otherwise provided herein (see Section 3.05
----
and Article IV, below), the term of this Lease shall be ten years, beginning on
Commencement Date, defined below.
Section 1.03 Right of First Refusal on Additional Space. If it is not in
------------------------------------------
default and if this Lease is in full force and effect, the Lessee shall have the
right to lease additional space in the Building upon the following terms: If,
during the ten-year term of this Lease, additional space in the Building becomes
available after first having been leased to a third party, the Lessor shall give
the Lessee written notice of the availability, indicating the number of square
feet, the location in the Building and the date of availability for occupation.
The Lessee shall have fifteen days after receipt of the notice to give the
Lessor written notice of its election to lease the space. If the Lessee elects
to lease the space, an Addendum to this Lease shall be executed whereby the
Lessee shall lease the additional space at the same rate and upon the same terms
and conditions as apply to the lease of the original Demised Premises hereunder.
If the Lessee does not elect to lease the additional space at that time, the
Lessor may lease it upon terms acceptable to it to any person or entity;
provided, however, that if the additional space is leased to a third party and
becomes available
-1-
<PAGE>
again during the ten-year term hereof, the Lessee shall have a new right of
first refusal upon the same terms and conditions set forth above.
ARTICLE II
Commencement of Term
Section 2.01 Commencement Date. The term of this Lease shall commence on
-----------------
the first day of the month following the date that the Demised Premises shall be
substantially completed (the "Commencement Date"). The Demised Premises shall
be deemed to be substantially completed when the Lessor has obtained a permanent
Certificate of Occupancy permitting the occupancy of the Demised Premises for
the use herein provided, and when the Lessor has substantially performed its
work as provided in Article XXVIII hereof.
Section 2.02 Notice of Completion. Lessor shall give Lessee at least
--------------------
thirty days' prior written notice of the anticipated date of substantial
completion of the work to be performed in the Demised Premises by the Lessor.
Lessor shall notify Lessee promptly if, after giving such notice, the
substantial completion date is delayed; and Lessor shall give Lessee at least
twelve days' prior written notice of the anticipated postponed date of
substantial completion. Further postponements shall also require at least
twelve days' prior written notice.
Section 2.03 Possession and Substantial Completion. Lessee's taking
-------------------------------------
possession of the Demised Premises shall be conclusive evidence, as against
Lessee, that, at the time such possession was so taken, the work to be performed
by Lessor pursuant to Article XXVIII, was substantially completed. Within ten
business days after the Lessee receives notice that the Demised Premises are
substantially completed, a representative of Lessor and a representative of
Lessee shall survey the Demised Premises for the purpose of determining those
items, if any, of the work to be performed by Lessor which remain to be
completed, which they shall reduce to an itemized agreed "punchlist". Lessor
agrees to complete the items on such agreed punchlist within a reasonable time
thereafter. Lessee will use its best efforts to identify uncompleted work items
for inclusion on the punchlist, but failure to place any work item on the
punchlist shall not be deemed to be acceptance of substantially nonconforming
construction. Ninety days after occupancy of the Premises by the Lessee, a
second punchlist will be compiled in the manner specified above, and Lessor will
complete work on items listed in the punchlist (excluding any Lessee-caused
damage or normal wear and tear) within a reasonable time.
Section 2.04 Site Representatives. Lessor and Lessee will each give full
--------------------
cooperation in having available at the Building those persons who are necessary
to resolve questions arising out of job conditions.
-2-
<PAGE>
Section 2.05 Lessee-Caused Delay. If the occurrence of any of the
-------------------
conditions specified in Section 2.01 shall be delayed due to any act or omission
of Lessee or its agents, the Demised Premises shall be deemed ready for
occupancy on the date when they would have been so ready but for such delay.
Such delay shall include:
(a) Delay in submission of Lessee's plans or specifications or giving
authorizations or approvals required for the preparations for or execution
of Lessor's work;
(b) Delay due to
(1) Changes made by or on behalf of Lessee in Lessee's plans or
in Lessor's work; or
(2) Postponement of any of Lessor's work at Lessee's request, or
because of any of Lessee's work required to be performed in advance of
items of Lessor's work so postponed (and Lessor agrees to give Lessee
notice of any such delays and/or of any additional costs resulting
therefrom prior to commencing or postponing any such work as the case
may be); and
(3) Delay due to any other interference with Lessor's work in the
Demised Premises or in the Building by Lessee, its agents, servants,
or employees.
Lessor shall notify Lessee of any incident or situation which Lessor believes to
have caused delay of the type described in this Section 2.05, in writing, within
five days of Lessor becoming aware of the cause of the delay.
Section 2.06 Delay Expenses. If, as a result of any delays on the part of
--------------
Lessee pursuant to the provisions of Section 2.05, Lessor shall be delayed in
achieving substantial completion of the construction in the Demised Premises,
Lessee shall commence paying rent as of the date the Demised Premises are deemed
ready for occupancy as set forth in Section 2.05.
Section 2.07 Completion Deadline. If the Commencement Date shall not have
-------------------
occurred by that date nine months after Lessor obtains all permits and approvals
which are prerequisite to the commencement of all construction activities
contemplated by Article XXVIII below, and in no event later than October 1,
1990, as that date may be extended pursuant to Section 2.05, above, Lessee shall
have the option to cancel and terminate this Lease by giving written notice to
Lessor of such cancellation and termination within 30 days following that date
nine months after Lessor obtains all such permits and approvals. In no event
shall the Commencement Date be later than October, 1990, as that date may be
extended pursuant to Section
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<PAGE>
2.05, above. Upon the giving of such notice, this Lease shall expire and come
to an end, and Lessor and Lessee shall each be released and discharged of and
from any and all further liability under this Lease. It is agreed that time is
of the essence with respect to any such notice of cancellation and termination,
and that Lessee shall not have the right to give any such notice after the 30-
day period referred to in this Section, and that any such notice given after the
expiration of such period shall have no force or effect. If Lessee shall fail
to give timely notice exercising the foregoing option to cancel and terminate
this Lease, or if Lessee shall use or occupy any part of the newly constructed
portion of the Demised Premises for the conduct of business, then, in either
case, the term shall commence in accordance with the provisions of Section 2.01
and Lessee shall have no further right to cancel and terminate this Lease under
the provisions of this Section. In the event that Lessee exercises its option
to cancel as provided in this Section 2.07, it shall, as part of its notice,
give the Lessor notice of the length of time which it intends to continue
occupying the portion of the Demised Premises which it currently occupies; the
length of time may not exceed six months; Lessor and Lessee agree that Lessee's
tenancy shall be extended for such length of time under all terms and conditions
of the lease arrangement to which the parties were theretofore subject. Lessee
may also exercise its option to cancel under this Section if Lessor has not
obtained all permits and approvals prerequisite to commencement of construction
by April 1, 1990; this option to cancel will expire on April 30, 1990 if not
exercised in writing prior to that date.
Section 2.08 Impracticability. In order for the Lessor to be able to
----------------
expand the existing building as contemplated in Article XXVIII, it must procure
numerous approvals from the City of Seattle, including street vacations and a
building permit. Lessor agrees to use its reasonable efforts to procure all
required approvals and permits within a reasonable time to the extent
practicable, but if it fails to do so by December 1, 1989, the Lessor may, upon
giving 30 days' notice, cancel this Lease, in which case Lessor and Lessee shall
each be released and discharged of and from any and all further obligations and
liabilities under this Lease. Lessor may also cancel this Lease to the same
effect and with the same notice in the event that it is unable to arrange
financing for the expansion project upon terms acceptable to it or in the event
that other unforeseen circumstances make it commercially impracticable to
proceed with the expansion project.
ARTICLE III
Rent
Section 3.01 Rent Payments. Rent shall be payable, in advance, on the
-------------
first day of each month during the term of this Lease at the Lessor's office c/o
A.H. Spear Investments, Post Office Box 4263, Seattle, Washington 98104, or such
other address as Lessor may designate in writing from time to time, with no set-
off or deduction whatsoever. Lessee agrees to pay such rent and any other
payments deemed to be Additional Rent by check drawn on a United States bank.
If the Lessee takes
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occupancy of the Demised Premises on a date other than the first day of a
calendar month, the Lessee shall on the Commencement Date pay the Lessor an
amount equal to such proportion of an equal monthly installment as the number of
days from the date of occupancy to the Commencement Date bears to the total
number of days in the month during which occupancy occurs, and such payment
shall represent the prorated rent from the date of occupancy to the Commencement
Date. Lessee covenants to pay Lessor the base rent and additional rent as in
this Lease provided, when due and without notice or demand, at the time and in
the manner herein specified.
Section 3.02 Base Rent. Subject to the provisions of Sections 3.03 and
---------
3.06, from the date of occupancy until that date five years after the
Commencement Date, the Lessee shall pay monthly base rent in an amount equal to
$0.35 for each square foot of floor space. Floor space is to be measured from
the exterior walls of the Demised Premises, and second floor office space square
footage is to be added to ground floor square footage to determine the amount of
floor space upon which the base rent is computed. From that date five years
after the Commencement Date until that date ten years after the Commencement
Date, the Lessee shall pay monthly base rent in an amount equal to $0.40 for
each square foot of floor space.
Section 3.03 Base Rent Adjustments. For purposes of this Section 3.03,
---------------------
the term "rate of inflation" shall be deemed to mean the aggregate change in the
Consumer Price Index as determined by the U.S. Department of Labor Statistics
for all items for the Seattle-Everett area for the period between the reporting
date occurring most closely before the Commencement Date and the reporting date
occurring five years thereafter. If the rate of inflation has exceeded eighty
percent, the monthly base rent to be paid for the second five-year portion of
the term shall be renegotiated by the Lessor and Lessee; if, within thirty days
of opening negotiations, the parties cannot agree upon a rate for that five-year
period, this Lease shall terminate six months after the end of that thirty-day
period, with the base rent rate of $0.40 per square foot of floor space applying
during that six month period. If the rate of inflation has been less than 16.7
percent, the monthly base rent for the second five-year portion of the term
shall not be $0.40 per square foot per month but shall be determined by
multiplying one plus the rate of inflation times $0.35 per square foot per
month. If the Department of Labor Statistics ceases compiling or reporting the
data specified above, the parties agree to substitute a similar index. In no
event shall the base rent be less than $0.35 per square foot of floor space per
month.
Section 3.04 Additional Rent. All costs, charges and expenses which the
---------------
Lessee assumes, agrees or is obligated to Lessor pursuant to this Lease shall be
deemed additional rent, and, in the event of nonpayment, Lessor shall have all
the rights and remedies with respect thereto as are provided herein in case of
nonpayment of rent. Without limitation, the obligations of Lessee set forth in
Articles VIII, IX, X and XII, and Section 29.03 shall be additional rent.
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<PAGE>
Section 3.05 Early Termination. So long as Lessee is not in default of
-----------------
any of the terms of this Lease, it may, at its option, terminate this Lease as
of the date five years after the Commencement Date, upon the following terms and
conditions. The Lessee must give the Lessor at least six months' written notice
of its election to terminate and must, at the time of giving its notice, give
the Lessor its check in an amount representing the principal balance of the
special equipment amortization (as described in Section 29.03, below) as of the
early termination date. So long as the Lessee shall comply with these
provisions in a timely manner and shall perform all continuing obligations
hereunder until the date of termination, this Lease will terminate as of that
date five years after the Commencement Date, and thereafter neither party shall
have any further obligations or liabilities to the other under the terms of this
Lease.
Section 3.06 Free Rent. Notwithstanding the foregoing provisions in this
---------
Article III, the Lessee shall not be obligated to pay base rent on 17,100 square
feet of the Demised Premises for a one-year period beginning on the Commencement
Date.
Section 3.07 Deposit. Lessee currently has on deposit the sum of $7,000
-------
for the last month's rent under a previous Lease Agreement and Lessee agrees to
leave that sum on deposit in accordance with the following provisions. Lessee
shall not be entitled to receive or be credited with interest earned on the
deposit, and Lessor may commingle the deposit with its own funds. Lessor may
use the funds so deposited to pay Lessee's obligations under this Lease if it so
chooses (see Article XIX), in which case Lessee agrees to reimburse Lessor,
together with interest at the rate of Seafirt Bank's prime lending rate in
effect at the time Lessor so uses the funds, plus two percent per annum.
ARTICLE IV
Option to Extend Term
Section 4.01 Grant of Option. Subject to the terms and conditions of this
---------------
Article IV, the Lessor hereby grants the Lessee an option to extend the term of
this Lease for one additional term. Subject to the conditions set forth in
Section 4.06, below, the option shall cover the entire Building or, at Lessee's
option, the portion of the Building occupied by Lessee at the time the notice of
exercise is given in accordance with Section 4.03, below.
Section 4.02 Non-Default. The option to extend may be exercised by the
-----------
Lessee only if, at the time the Lessee purports to exercise its option, the
Lessee is not in default of any of the terms and conditions of this Lease.
Section 4.03 Notice. The Lessee must give written notice of the exercise
------
of its option to the Lessor not less than fifteen nor more than eighteen months
prior to the date ten years after the Commencement Date. As part of its notice,
the Lessee must
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<PAGE>
set forth the length of the term for which it intends to renew, which may be for
any period not shorter than five years nor longer than ten years, and whether it
chooses to rent the entire Building or only the portion of the Building which it
then occupies.
Section 4.04 Negotiations. Following the Lessor's receipt of the notice
------------
specified in the preceding Section, the Lessor and Lessee shall enter good faith
negotiations in an effort to agree upon base rent rates and other conditions
pertinent to a renewal term. For purposes of the negotiation phase, neither
party shall be bound to the length of term specified in the Lessee's notice. If
the parties are able to reach agreement on all terms, then they shall execute
either an addendum to this Lease or a novation setting forth the terms and
conditions applicable to the extended term.
Section 4.05 Arbitration. If the parties have not reached agreement on
-----------
all terms for the extended period within ninety days of the Lessor's receipt of
the notice specified in Section 4.03, then either party may demand arbitration -
- - which shall be the only forum for resolution -- as follows:
(a) Lessor Demand. If the Lessor is first to demand arbitration, its
-------------
notice sent to the Lessee shall state that, if the Lessee desires to retain
its option to renew, the Lessee must, within fifteen days of its receipt of
the Lessor's demand, give written notice of its agreement to be bound by
the arbitration determination and sign a lease addendum upon the terms
decided in arbitration. If the Lessee fails to give such notice within
fifteen days, it shall be deemed to have waived its option to renew, and
the Lessor shall be free to attempt to arrange a lease with any third
party. Subject only to the Lessee being deemed to have waived its option
as stated above, the Lessor's arbitration demand shall be deemed to be its
agreement to be bound by the arbitration determination and to sign a lease
addendum upon the terms decided in the arbitration.
(b) Lessee's Demand. If the Lessee is first to demand arbitration,
---------------
its notice, sent to the Lessor, shall be deemed to be its agreement to be
bound by the arbitration determination and to sign a lease addendum upon
the terms decided in arbitration. Lessor likewise shall be deemed to have
agreed to be bound to the arbitration determination upon its receipt of the
Lessee's arbitration demand.
(c) Failure to Demand. If neither the Lessor nor the Lessee sends the
-----------------
other party an arbitration demand within 45 days after the ninety-day
negotiation period referred to above, the Lessee shall be deemed to have
waived its option to renew, and the Lessor shall be free to attempt to
arrange a lease with any third party.
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<PAGE>
(d) Selection of Arbitrator. Regardless of which party is the first
-----------------------
to send a demand for arbitration, its notice shall nominate five
disinterested persons (all of whom must be M.A.I.-certified appraisers) to
act as arbitrator. The party receiving the demand shall, within fifteen
days of receiving it, indicate in writing whether any of the nominated
persons is acceptable to it. If none of the nominated persons is
acceptable to the receiving party, it shall, within fifteen days of its
receipt of the initial demand, present a list to the other party of five
additional nominees (all of whom must be M.A.I.-certified appraisers) to
act as arbitrator, allowing that party ten days in which to respond. In
either event that a party receiving a list of nominees agrees to the
appointment of a person from the list presented by the other party, that
person shall serve as sole arbitrator. In the event that the nomination
procedure does not result in one mutually-agreeable arbitrator, then each
party shall, within fifteen days of the receiving party's receipt of the
second list of nominees, appoint one M.A.I.-certified appraiser to act as
arbitrator, and those two arbitrators shall, in turn, choose a third
M.A.I.-certified appraiser to act as an arbitrator. If the two designated
arbitrators are unable to agree upon a third within fifteen days of their
appointment, either party may apply to the Presiding Judge of the King
County Superior Court to appoint the third arbitrator.
(e) Criteria. Unless the parties jointly inform the arbitrator(s)
--------
otherwise, the arbitrator(s) shall determine the base rent to be paid for
the additional term (which shall be of the duration first designated by the
Lessee in accordance with Section 4.03, above), covering the amount of
space currently occupied by the Lessee, or the entire Building (whichever
is stated in the Lessee's notice as described in Section 4.03), and all
other terms and conditions of this Lease shall remain in full force and
effect for the renewal period; provided, however, that the Lessee shall
-------- -------
have no further rights to additional renewal terms or rights of first
refusal on additional space. The arbitrator(s) shall determine the base
rental rate based upon the fair rental value of the premises based upon
fair market rental rates for comparable office/warehouse facilities in
comparable geographical locations and of comparable physical condition; the
rental rate need not be constant for the duration of the extension period.
The arbitration determination shall be rendered, in writing, within 60 days
of the appointment of the agreed arbitrator or the third arbitrator,
whichever occurs. In the event that there are three arbitrators, each
shall determine the fair rental value, the highest and lowest will be
disregarded, and the middle base rent shall become the determination of the
arbitrators.
(f) Addendum. Within fifteen days of receipt of the arbitration
--------
decision, the parties shall execute an Addendum to this Lease which
incorporates the arbitration determination.
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<PAGE>
(g) Costs. Each party shall bear its own costs in the arbitration.
-----
In the event that there is one arbitrator, each party shall pay half of the
fee charged by that arbitrator. In the event that there are three
arbitrators, each party shall pay the fee charged by the arbitrator which
it has chosen plus one-half of the fee charged by the third arbitrator.
(h) Binding Effect. Except if Lessee is deemed to have waived its
--------------
option to renew by the operation of Paragraphs (a) or (c) of this Section
4.05, selection of the arbitrator(s) as provided herein shall be deemed to
be the parties' binding consent to abide by the decision of the
arbitrator(s). The decision of the arbitrator(s) shall be binding upon the
parties; there shall be no right of appeal or request for reconsideration.
Section 4.06 Forfeiture of Option to Extend. The Option to Extend granted
------------------------------
by this Article IV shall be forfeited by the Lessee as follows. In the event
that the Lessee does not exercise its right of first refusal in accordance with
Section 1.03, above, on any additional space which becomes available at least
three years after the Commencement Date, and further in the event that the
subject additional space remains unoccupied for at least six months following
the date on which it first becomes available, then the Lessee's Option to Extend
as described herein shall be forfeited and forever extinguished. Provided,
--------
however, that in that event, the Lessor will negotiate with the Lessee to enter
- -------
a new lease agreement with the Lessee for the space currently occupied by the
Lessee and any further space anticipated to be available at the end of the term
of this Lease if the Lessee gives written notice of its desire to negotiate such
a new agreement not more than eighteen nor less than fifteen months prior to the
expiration of the term of this Lease; the failure of the parties to come to
terms under these circumstances shall not invoke the arbitration provisions of
this Article IV.
ARTICLE V
Use
Lessee must use the Premises exclusively for a storage and distribution
operation along with associated office and administrative functions and for
activities typically incidental to those businesses, and for no other purposes
without Lessor's express prior written consent, which consent shall not be
unreasonably withheld. Lessee shall not use or permit the premises or any part
thereof to be used in violation of any federal, state, county or municipal law,
rule, regulation or ordinance; provided, however, that Lessee shall have thirty
--------
days following receipt of notice to cure any incidental violation.
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<PAGE>
ARTICLE VI
Condition of Premises; Maintenance; Return
Section 6.01 Condition. Lessee's taking occupancy of the Demised Premises
---------
shall constitute the Lessee's concurrence that, with the exception of
"punchlist" items addressed above, it is satisfied with the condition thereof
and accepts the Demised Premises in their present condition, AS IS, WITHOUT
WARRANTIES BY LANDLORD OF ANY KIND OR NATURE. The foregoing disclaimer shall
not apply to latent structural defects of which Lessee has no knowledge at the
time of taking occupancy, shall not apply to any substantially nonconforming new
construction of which the Lessee was not aware at the time of preparation of the
punchlist prepared in accordance with Section 2.03, and shall not be construed
to disclaim the Lessor's warranty of title to the Demised Premises and the
Building.
Section 6.02 Hazardous Waste. Lessor agrees to hold Lessee harmless from
---------------
any claims made by any person or entity, including but not limited to
governmental entities, arising out of or relating to any hazardous waste which
is alleged to be in, around or under the building; provided, however, that this
undertaking to hold harmless shall not apply to the extent, if any, to which the
Lessee has caused any hazardous waste to be in, around or under the Building.
In the event that any properly-constituted governmental entity orders any
hazardous waste (not created by Lessee) in, around or under the Building to be
removed or otherwise abated, and in the event that such order is or becomes
final, Lessor will expeditiously take all steps required to comply with such
order in a manner calculated to cause minimal interference with Lessee's
tenancy. Lessee agrees to refrain from any activities which cause hazardous
waste in, around or under the Building. As used herein, the term "hazardous
waste" shall have the same meaning as that term has in RCW 70.105.010, as
amended by the laws of the State of Washington, 1987, Chapter 488, Section 1.
The provisions in this Section 6.02 are intended to benefit only the parties
hereto and shall not be interpreted to benefit any other person or entity.
Section 6.03 Maintenance. Lessee agrees that Lessor shall have no
-----------
obligation to maintain or repair the Demised Premises or any part thereof
whatsoever except roof, structural elements of exterior walls, foundations, and
plumbing and electrical services concealed in walls, floors and ceilings, it
being expressly understood that Lessee, at its sole expense: shall keep them in
a neat and clean condition and in compliance with applicable laws and
regulations; shall make any changes therein required by governmental authorities
and pay all governmental fees due with respect thereto related to or arising out
of Lessee's use of the Demised Premises; shall at all times keep and maintain
the Premises and all appurtenances thereto in good order, repair and condition,
except roof, structural elements of exterior walls, foundations, and plumbing
and electrical services concealed in walls, floors and ceilings; shall allow no
nuisance to exist or be maintained therein; shall repair all cracked or broken
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<PAGE>
glass; shall keep the sidewalks and driveways in and about the Premises free
from ice, snow and other obstructions; shall keep all drainage pipes free and
open; shall protect water, heating and other pipes so they will not freeze or
become clogged. Lessee shall not commit waste or permit waste to be committed on
or to the Premises. In the event that the roof, structural elements of exterior
walls, foundations or plumbing and electrical services concealed in walls,
floors and ceilings are damaged or destroyed due to the negligent or intentional
acts of the Lessee, its agents or its invitees, Lessee and not Lessor shall have
the obligation to fully repair such damage. Lessee shall repair damage done to
exterior asphalt and concrete adjacent to its leased portion of the Premises,
but the duty shall not extend to normal wear and tear.
Section 6.04 Return. Upon termination of the Lease, Lessee shall return
------
and surrender the Premises, and all keys thereto, broom clean and in good order,
repair and condition, ordinary wear and tear excepted. Lessee shall repair any
damage to the Premises occasioned by its use thereof, or by the removal of
Tenant's fixtures, equipment and furnishings, which repair shall include but not
be limited to the patching and filling of holes and repair of any structural
damage. This duty shall survive termination of this Lease. Lessee will, within
thirty days of receipt of a written request from the Lessor, remove the cooler
and freezer to be installed in accordance with Article XXIX. Said request must
be in writing and delivered to the Lessee at least thirty days prior to the
termination date. Failure of the Lessee to remove the freezer and cooler in
accordance herewith will entitle the Lessor to take title to those items with no
compensation to the Lessee; provided, however, that the Lessor's right to take
title shall not be deemed to be its sole remedy in the event of breach of this
duty, the Lessor retaining all other remedies for such breach.
ARTICLE VII
Alterations and Improvements
Lessee shall not make any alterations, additions or improvements in or to
the Premises without first providing Lessor with the plans and specifications
there for and obtaining Lessor's prior written consent thereto. Lessor's
consent shall not be unreasonably withheld. All such alterations, additions and
improvements consented to by Lessor shall be made at Lessee's sole expense and
shall be in compliance with all applicable Codes and good construction
practices. Lessee shall secure any and all governmental permits and consents
required in connection with such work; shall keep the Premises free from liens;
and shall indemnify, defend and hold Lessor harmless from any and all claims,
suits, liabilities, damages, expenses and losses resulting from such work. The
foregoing shall not apply to construction activities undertaken by the Lessor
pursuant to Article XXVIII, below. All alterations, additions and improvements
to the Premises, except trade fixtures, shall immediately become the property of
Lessor upon installation without obligation of Lessor to pay Lessee therefor.
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<PAGE>
ARTICLE VIII
Lessee's Payment of Taxes, Assessments, Etc.
Lessee shall pay, before any fine, penalty, interest or cost may be added
thereto, or become due or be imposed by operation of law for the nonpayment
thereof, all taxes, assessments, water and sewer rents, rates and charges,
county taxes, charges for public utilities, excises, levies, and other
governmental charges, general and special, ordinary and extraordinary, whether
or not foreseen at the time of execution of this Lease, of any kind and nature
which at any time prior to or during the term of this Lease may be assessed,
levied, confirmed, imposed upon or become due and payable out of or in respect
of the use or occupation of the Demised Premises, or any part thereof or
appurtenance thereto; provided, however, with specific regard to local real
estate taxes, Lessor and Lessee shall each be obligated to pay a percentage of
such taxes based upon the percentage of floor space in the Building which is
leased by the Lessee under the terms of this Lease or any amendments or addenda
thereto assessed against the Building on an annual basis, and the Lessor shall
submit an annual statement for such taxes to the Lessee, and the Lessee shall
pay over to Lessor its proportionate share on a monthly basis by paying one-
twelfth of its share each month; provided, further, that:
(a) Any taxes, assessments or the like described in this section
relating to a fiscal period of the taxing authority, a part of which period
is included within the term of this Lease and a part of which is included
in a period of time after the expiration of the term of this Lease, shall
(whether or not such taxes, assessments or the like shall be assessed,
levied, confirmed, imposed upon or in respect of or become a lien upon the
Premises, or shall become payable, during the term of this Lease) be
adjusted between Lessor and Lessee as of the expiration of the term of this
Lease, so that Lessee shall pay that portion of such taxes, assessments or
the like which that part of such fiscal period included in the period of
time before the expiration of the term of this Lease bears to such fiscal
period, and Lessor shall pay the remainder thereof.
(b) Nothing herein contained shall require Lessee to pay municipal,
state or federal income taxes assessed against Lessor, municipal, state or
federal capital levy, estate, succession, inheritance or transfer taxes of
Lessor; provided, however, that if at any time during the term of this
Lease the methods of taxation prevailing at the commencement of the term
hereof shall be altered so as to cause the whole or any part of the taxes,
assessments, levies, impositions or charges now or hereafter levied,
assessed or imposed on real estate and the improvements thereon to be
levied, assessed and imposed, wholly or partially as a capital levy, or
otherwise, on the rents received therefrom, or if any tax, assessment, levy
(including but not limited to any municipal, state or federal levy),
imposition or charge, or any part thereof,
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<PAGE>
shall be measured by or based in whole or in part, upon the Demised
Premises and shall be imposed upon Lessor, then all such taxes,
assessments, levies, impositions or charges, or the part thereof so
measured or based, shall be payable by Lessee as if a tax, assessment or
the like as described in this Article VIII. In the event that any local
jurisdiction imposes a sales or use tax upon real property rents, Lessee
shall pay any such taxes pursuant to this Article VIII.
(c) Nothing stated in this Article VIII shall be construed to require
the Lessee to pay or reimburse Lessor for any taxes or assessments
attributable to the construction operations contemplated by Article XXVIII
or underground placement of the utility line which is currently
contemplated to occur in conjunction with those construction operations.
(d) As part of it obligations under this Section VIII, Lessee will pay
its proportionate part of any Local Improvement District assessments, on an
assumed twenty-year full amortization basis, as such assessments come due;
provided, however, that Lessee's obligation in this regard shall be limited
-------- -------
to no more than $5,000 per year.
ARTICLE IX
Utilities
Lessee shall pay, when due, for all electricity, garbage, water, sewer,
telephone, gas, oil and other utilities and services furnished to, charged
against or consumed on the Demised Premises during the term hereof. Lessee
shall also pay any and all fees for establishing such accounts in Lessee's name
and for installing any meters necessary for such utilities to the Premises. In
addition, Lessee shall pay to Lessor an allocated portion of any and all
maintenance contract charges applicable to heating, ventilation and air
conditioning equipment servicing the Building, the allocated portion being based
upon the proportionate square feet of floor space in the Building occupied by
the Lessee.
ARTICLE X
Indemnification; Liability Insurance
Section 10.01 Indemnity. Lessee shall indemnify the Lessor from and
---------
against all claims, demands, causes of action, suits or judgments (including
costs and expenses incurred in connection therewith) for deaths or injuries to
persons or for loss of or damage to property arising out of or in connection
with the use and occupancy of the Demised Premises by Lessee, its agents,
servants, employees or invitees unless caused solely by Lessor's negligence.
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<PAGE>
Section 10.02 Liability Insurance. Lessee shall, at its own expense,
-------------------
maintain comprehensive general liability insurance, in effect with respect to
the Demised Premises with at least $1,000,000 combined single limit for property
damage and bodily injury (which policy shall include personal injury liability
and advertising liability coverage) to indemnify both Lessor and Lessee against
claims, demands, losses, damages, liabilities and expenses. Lessor, Seattle
First National Bank and Bradley Spear (as co-fiduciaries), shall be named as
insureds and shall be furnished with either a certificate of insurance or with a
copy of such policy or policies of insurance, which shall bear an endorsement
that the same shall not be cancelled or reduced in amount of coverage without
thirty (30) days' prior written notice to Lessor.
ARTICLE XI
Fire Or Other Casualty
Section 11.01 Abatement Sole Remedy. No loss or damage by fire or other
---------------------
casualty, excepting acts of war, resulting in either partial or total
destruction of the Building or improvements on the Demised Premises, shall
operate to terminate this Lease, or to relieve or discharge Lessee from the
payment of rents or amounts collectible as rent as they become due and payable,
or from the performance and fulfillment of any of Lessee's obligations and
undertakings herein, except as specifically set forth otherwise in this Article
XI. If the Demised Premises are partially destroyed or damaged and the Lessor
repairs or restores them pursuant to this Article, the rent payable for the
period during which such damage, repair or restoration continues shall, to the
extent not compensated by proceeds from Lessee's insurance, be abated in
proportion to the degree to which Lessee's reasonable use of the Demised
Premises is impaired. Except for abatement of rent, if any, Lessee shall have
no claim against Lessor for any damages or loss suffered by reason of such
damage, destruction, repair or restoration.
Section 11.02 Reconstruction. If the Building or improvements on the
--------------
Demised Premises or any part thereof are at any time or times during the term of
this Lease damaged or destroyed by fire or other insured casualty, Lessor shall
determine whether to repair or reconstruct and shall give Lessee notice of its
decision, in writing, within 30 days of the event causing the damage. If Lessor
does elect to repair, it shall, with all reasonable dispatch and diligence,
repair, reconstruct or replace such buildings or improvements (excluding the
Lessee's personalty and the items described in Article XXIX below) upon the same
general plans and dimensions as before the occurrence of each fire or other
insured casualty. All such repairs, reconstruction or replacement shall be at
the sole cost and expense of Lessor, and upon the completion thereof, shall be
free and clear of all liens and encumbrances of any nature whatsoever, including
mechanics' liens. Such repairs or restorations shall be commenced within 90
days of the occurrence of any fire or destruction.
-14-
<PAGE>
In the event that the fire or other casualty makes it substantially
impossible for Lessee to conduct its operations, Lessee may, at any time up to
30 days after the occurrence of the fire or other casualty, terminate this Lease
by giving the Lessor written notice of its election to do so, in which case this
Lease shall be terminated as of the date of the Lessor's receipt of such notice
and further in which case the Lessor shall have no duty to restore or rebuild
even if it has given prior notice that it would do so. Further in the event
that the premises is substantially destroyed by fire or other insured casualty
and this Lease is not terminated in accordance with this Section 11.02, the term
of this Lease shall be extended by the number of months during which the Lessee
is unable to conduct business upon the premises due to the casualty and
reconstruction interruption. In the event that Lessor elects not to rebuild and
restore in accordance herewith, this Lease shall be terminated as of the date
the Lessee receives notice of the Lessor's election.
ARTICLE XII
Fire and Extended Coverage Insurance
Section 12.01 Coverage. Lessee, at its sole expense, shall obtain and
--------
keep in force at all times during the term hereof for all of its personalty and
the items described in Article XXIX, all risk insurance coverage, with extended
coverage endorsement, including coverage against losses by vandalism. Coverage
shall also be afforded for business interruption losses suffered by Lessee in
the event of fire or other casualty. The amount of the insurance carried on the
items described in Article XXIX shall be the full insurable value thereof at
replacement cost. Lessee shall not be required to carry fire and all risk
insurance coverage on the Building itself; Lessor shall carry such coverage.
Section 12.02 Loss Payee. All insurance required under terms of this
----------
Article and all renewals thereof shall be issued by reputable companies
authorized to write such coverage in Washington, and Lessor shall be named as an
insured on the policies covering the items described in Article XXIX, as its
interests appear. Any loss adjustment for those items shall require the written
consent of Lessor. All policies shall expressly provide that such policies
shall not be cancelled, terminated or altered without thirty (30) days' prior
written notice to Lessor. Upon the issuance thereof, each such policy, a
certified duplicate or certificate thereof shall be delivered to Lessor.
ARTICLE XIII
Assignment or Sublease
Section 13.01 Prohibition. Lessee shall not assign or transfer this Lease
-----------
or any interest therein nor sublet the whole or any part of the Premises, nor
shall this Lease or any interest thereunder be assignable or transferable by
operation of law or by any process or proceeding of any court, or otherwise,
without the prior written consent of
-15-
<PAGE>
Lessor, which consent shall not be unreasonably withheld. If Lessor consents to
any assignment or sublease, this Section shall nevertheless continue in full
force and effect and no further assignment or sublease shall be made without
Lessor's consent, provided that Lessor's consent shall not be unreasonably
withheld. No such assignment or sublease shall relieve Lessee from its primary
liability hereunder. For purposes of this Section, the change in business form
from partnership to corporation of Lessee's current business shall not be deemed
a prohibited assignment so long as the net worth of the company remains
substantially the same after the incorporation.
Section 13.02 Incorporation. If Lessor does consent in writing to an
-------------
assignment or sublease, such an assignment or sublease will be subject to and
will incorporate all provisions of this Lease.
Section 13.03 Required Information. Each time Lessee requests Lessor's
--------------------
consent to an assignment or sublease, Lessee will give Lessor (i) the name and
address of the proposed assignee or subtenant; (ii) a copy of the proposed
assignment or sublease; (iii) reasonably satisfactory information about the
nature, business and business history of the proposed assignee or subtenant, and
its proposed use of the Premises; and (iv) banking, financial or other credit
information, and references pertinent to proposed assignee or subtenant
sufficient to enable Lessor to determine the financial responsibility and
character of the proposed assignee or subtenant.
Section 13.04 Condition Precedent. The Lessor's consent to an assignment
-------------------
or sublease will not be effective until a fully executed copy of the instrument
of assignment or sublease has been delivered to the Lessor.
ARTICLE XIV
Access
Upon 24 hours' notice Lessee will allow Lessor access to the Premises at
all reasonable times for the purpose of inspections and of making repairs,
additions or alterations to the Premises which Lessor elects to make; but this
access shall not be construed as an agreement on the part of Lessor to make any
repairs, additions or alterations. Any such repairs, additions or alterations
shall be constructed in a manner calculated to minimize the disruption of
Lessee's business.
ARTICLE XV
Eminent Domain
If the whole of the Demised Premises is taken by any public, governmental
or other authority under the power of eminent domain or transferred under threat
thereof, then this Lease shall terminate as of the date possession is taken by
such authority and the rent shall be paid up to that date. If only a part of
the Demised Premises is taken, and the remainder not so taken remains tenantable
for the
-16-
<PAGE>
purposes for which Lessee has been using the Demised Premises, then this Lease
shall continue in full force and effect as to the remainder of the Demised
Premises and all of the terms herein provided shall continue in effect, except
the rental shall be reduced equitably, and Lessor at its expense shall make all
necessary repairs and alterations to the Demised Premises required by such
taking. All damages awarded for such taking shall belong to and be the property
of Lessor whether such damages shall be awarded as compensation for diminution
in the value of the leasehold or to the fee of the Premises; provided, however,
-------- -------
that the Lessee shall be entitled to retain damages awarded solely on the basis
of loss of or damages to the Lessee's business and/or other assets. The term
"eminent domain" as used in this paragraph shall include the exercise of any
similar governmental power and any purchase, transfer or other acquisition in
lieu thereof.
ARTICLE XVI
Default
Section 16.01 Default and Remedies. If (i) any rent (including base rent
--------------------
and additional rent) or other payments due from Lessee hereunder remain unpaid
for more than ten (10) days after the date due and payable; or (ii) if (A)
Lessee makes an assignment for the benefit of, or a general arrangement with,
creditors, (B) there is filing of a petition in bankruptcy by or against Lessee
which is not dismissed within thirty (30) days of filing, (C) if Lessee becomes
insolvent, or (D) if a receiver, trustee or liquidating officer is appointed for
Lessee's business; or (iii) if Lessee violates or breaches any of the other
covenants, agreements, stipulations or conditions herein, and such violation or
breach shall continue for a period of thirty (30) days after written notice of
such violation or breach, then Lessor may, at its option, declare this Lease
forfeited and the term hereof ended, or without terminating this Lease, re-enter
and attempt to relet the Premises. If Lessor, without terminating this Lease,
elects to re-enter and attempts to relet, then Lessee authorizes Lessor to relet
the Premises or any part thereof for such term or terms (which may be for a term
extending beyond the term of this Lease) and at such rental or rentals and upon
such other terms and conditions as Lessor in its sole discretion deems
advisable. Upon each such reletting, all rentals received by Lessor from such
reletting shall be applied, first to the payment of any amounts other than rent
due hereunder from Lessee to Lessor; second, to the payment of any costs and
expenses of such reletting and renovation, including brokerage fees and
attorneys' fees; third, to the payment of rent due and unpaid hereunder, and the
residue, if any, shall be held by Lessor and applied to payment of future rent
as the same may become due and payable hereunder. If rentals received from such
reletting during any month are less than that to be paid during that month by
Lessee hereunder, Lessee shall pay any such deficiency to Lessor, and Lessee
covenants and agrees to pay Lessor for all other expenses resulting from its
default, including, but not limited to, brokerage commissions and the reasonable
cost of converting the Premises for the next tenant. Delinquent rental and
other payments shall bear interest at the rate of Seafirst National Bank's prime
-17-
<PAGE>
lending rate, plus two percent per annum, beginning thirty days after the date
the rent or other payment was due, until paid. In addition, Lessee shall pay a
late charge of five percent on all rents received more than ten days after the
date on which they are due. The remedies provided for in this Section 16.01 are
in addition to, and not in substitution for, remedies provided by applicable
Washington statute; nothing stated herein shall be construed to impose
restrictions upon the Lessor's statutory remedies or expand any time frames
allowed by statute for the exercise of remedies.
Section 16.02 Removal of Personalty. If the Lessor takes possession of
---------------------
the Premises in the event of a default, Lessor shall have the right, but not the
obligation, to remove from the Premises all personal property located therein,
and may store the same in any place selected by Lessor, including but not
limited to a public warehouse, at the expense and risk of the owners thereof,
with the right to sell such stored property, without notice to Lessee, after it
has been stored for a period of forty-five (45) days or more, with the proceeds
of such sale to be applied to the cost of such sale and to the payment of
charges for storage, and then to the payment of any other sums of money which
may then be due from Lessee to Lessor under any of the terms hereof.
ARTICLE XVII
Litigation Fees
If either party commences an action to enforce any provision of this Lease
or protect its interests in or to the Premises, the prevailing party therein
shall be entitled to recover from the other the prevailing party's costs and
expenses, including reasonable attorneys' fees, incurred in such proceeding and
on any appeals therefrom. Venue for any such proceeding shall be laid in King
County Superior Court.
ARTICLE XVIII
Waiver of Subrogation
Lessor and Lessee each releases the other, and its employees, agents and
representatives, from liability and waives its entire right of recovery against
the other for loss or damage occurring in or about the Demised Premises from
losses that are insured against under fire and all-risk insurance policies,
including extended coverage endorsements, carried by the parties. Each party
agrees that each such insurance policy obtained by it with respect to the
Demised Premises and the Building shall include a waiver by the insurer of its
subrogation rights for such losses and damages.
-18-
<PAGE>
ARTICLE XIX
Advances by Lessor for Lessee
If Lessee fails to perform any act or pay any amount required to be done or
paid by it under the terms of this Lease, Lessor may, at its sole option,
perform such act or pay such amount on behalf of Lessee. Upon notification to
Lessee of the cost thereof to Lessor, Lessee shall promptly pay Lessor the
amount thereof, plus interest at the rate of Seafirst National Bank's prime
lending rate, plus two percent per annum, from the date that the cost was
incurred by Lessor to the date of Lessee's payment.
ARTICLE XX
Nonwaiver
Neither the acceptance of rental nor any other act or omission of Lessor at
any time or times after the happening of any breach or default by Lessee
hereunder shall operate as a waiver of any past or future violation, breach or
failure to keep or perform any covenant, agreement, term or condition hereof or
to deprive Lessor of its right to cancel or forfeit this Lease, or be construed
so as to at any future time estop Lessor from promptly exercising any option,
right or remedy that it may have under any term or provision of this Lease.
ARTICLE XXI
Quiet Enjoyment
So long as Lessee is in full compliance with all the terms, covenants and
conditions required under this Lease, Lessee shall have and quietly enjoy the
Premises during the term of this Lease, subject to all matters of record to
which this Lease is or may become subordinate.
ARTICLE XXII
Notices
All notices required or permitted hereunder shall be in writing and may be
either delivered personally or mailed. If mailed, they shall be sent by postage
prepaid certified or registered mail, return receipt requested, to Lessor in
care of Bradley Spear at Suite 432 Pioneer Building, 600 First Avenue, Seattle,
Washington 98104 and in care of Richard H. Anderson, Seafirst Bank Trust Real
Estate, Post Office Box 3586, Seattle, Washington 98124, and to Lessee at the
Premises, or to such other respective addresses as either party hereto may
hereafter from time to time designate in writing. Notices sent by mail shall be
deemed to have been given two days after being properly mailed, and the postmark
affixed shall be conclusive evidence of the date of mailing.
-19-
<PAGE>
ARTICLE XXIII
Holdover
If Lessee remains in possession of the Premises after the expiration of
this Lease, without a written lease, it shall be deemed to be occupying and
using the same as a Lessee from month-to-month, subject to all the conditions,
provisions, and obligations of this Lease insofar as they may be applicable to
such month-to-month tenancy; provided, however, that the base rent to be paid
for any such term shall be 110% of the base rent payable at the end of the
original term of this Lease. Nothing stated herein shall impair the Lessor's
right to terminate such holdover tenancy.
ARTICLE XXIV
Successors & Assigns
Subject to the provisions hereof pertaining to assignment and subletting,
the covenants and agreements of this Lease shall be binding upon the heirs,
legal representatives, successors and assigns of the parties hereto.
ARTICLE XXV
Estoppel Certificates; Attornment
It is understood and agreed that Lessor may mortgage, grant deeds of trust
with respect to the Building or the property of which the Demised Premises are a
part or sell or otherwise transfer the Building to a third party. On Lessor's
request, Lessee agrees to promptly execute and deliver such certificates as may
be reasonably required by a Lessor or any mortgagee, deed of trust beneficiary
or purchaser. Such certificates shall reflect that the Lease is in full force
and effect, the dates to which the rent and charges have been paid and other
Lease-related matters. Upon a foreclosure and a demand by Lessor's successor,
Lessee shall attorn to and recognize such successor as Lessor under this Lease.
ARTICLE XXVI
Lessee's Right of First Refusal
Section 26.01. Grant of Right. If Lessee is not in default of any
--------------
material term of this Lease, and if Lessor shall receive from any third party an
acceptable bona fide offer to purchase the Building and the underlying real
estate, it shall submit a written copy of such offer to Lessee, giving Lessee
twelve days after its receipt of the copy of the offer within which to elect to
meet such offer. For purposes of this Article 26, "third party" shall exclude
the A.H. Spear Testamentary Trust, the beneficiaries of the A.H. Spear Estate
and A.H. Spear Testamentary Trust and the families of those beneficiaries.
-20-
<PAGE>
Section 26.02 Conveyance. If Lessee elects to meet such offer, it shall
----------
give Lessor written notice thereof, and closing of the purchase and sale shall
occur within 45 days thereafter. At closing, Lessor shall convey to Lessee a
good and marketable title to the Building and the underlying real estate free
and clear of all liens, encumbrances and restrictions other than rights reserved
in federal patents or state deeds, building or use restrictions general to the
area, utility easements of record, reserved oil and/or mining rights and any
Local Improvement Area assessments of record; title shall be subject to leases
of record or of which Lessee has actual notice.
Section 26.03 Expiration. Lessee's right granted by this Article XXVI
----------
shall expire upon the earliest of any of the following events: termination of
this Lease (including any extensions of the original term); Lessee's subletting
or assignment of the entire Demised Premises in accordance with Article XIII
hereof; or Lessor's closing of a sale of the Building and underlying real estate
to a third party in accordance with this Article XXVI.
ARTICLE XXVII
Recordation/Memorandum
This Lease shall not be recorded, but upon the request of either party a
memorandum hereof, in the form attached as Exhibit D, shall be executed and
recorded.
ARTICLE XXVIII
New Construction
Section 28.01 Expansion. The Lessor plans to expand the existing
---------
structure, which covers approximately 32,694 square feet of ground space to a
structure which covers approximately 93,557 square feet of ground space.
Section 28.02 Existing Warehouse Space Improvements. As part of the
-------------------------------------
expansion project, the Lessor will perform the following work upon the portion
of the Building which is currently occupied by the Lessee: paint exterior of
structure, and level warehouse floor where it has settled.
Section 28.03 General Specifications. The footprint of the Building after
----------------------
the planned expansion is shown on Exhibit B. The outline specifications shown
on Exhibit C hereto represent the minimum quality of construction and finish
materials which the Lessor will employ in all newly constructed portions of the
Building. The Lessee approves of the quality of construction and finish
materials shown on Exhibit C. Construction consistent with Exhibit C will be
performed by the Lessor at no cost to the Lessee.
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<PAGE>
Section 28.04 Demising Wall. The Lessor shall, at no cost to the Lessee,
-------------
construct a demising wall between the Demised Premises and the remainder of the
Building at the location indicated on Exhibit B. Should Lessee, during the
original term of this Lease or any extension thereof, lease additional space in
the Building, Lessee will pay the cost of removing the demising wall shown on
Exhibit B and constructing a new demising wall of equal quality to separate its
total leased space from the remainder of the Building.
Section 28.05 Office Space. The Lessor will finish approximately 12,490
------------
square feet of office space in the Building in accordance with Lessee's
specifications, as provided below, at Lessor's expense. Provided, however, that
-------- -------
to the extent that Lessor's actual cost of finishing the space (which shall
include all work items beyond framing, installation of sub-floor and electrical
rough-in) exceeds $214,900, the Lessee shall reimburse the Lessor for the excess
within one month after the Commencement Date. Lessee shall give Lessor the
specifications for the improvements addressed in this section, in a written form
sufficiently detailed to allow the Lessor to get cost estimates and assign the
work to one or more contractors, within sixty days of Lessee's receipt of a
written request from Lessor to furnish such information. Lessor shall, within
30 days of its receipt of Lessee's specifications, advise Lessee of whether it
approves of the specifications. Lessor may withhold its approval of all or any
part of the specifications based upon anticipated availability of materials,
aesthetic considerations, concern over compatibility with the uses of the
Building as a whole or future value of the resulting improvements to successor
tenants. If Lessor fails to give Lessee a written response within the 30-day
period, Lessor shall be deemed to have approved Lessee's specifications in their
entirety. Lessor will advise Lessee if it becomes aware that the cost of making
improvements in accordance with Lessee's specifications will exceed the
allowances set forth above.
ARTICLE XXIX
Special Equipment
Section 29.01 Description of Equipment. As part of its expansion project,
------------------------
Lessor will purchase and install a cooler and a freezer of types designated in
writing by the Lessee. Lessee will give Lessor written descriptions of these
items and its preferred distributor within thirty days of executing this Lease.
Lessor makes no warranty whatsoever concerning these pieces of equipment and
specifically excludes any implied warranties, including warranties of fitness
for a particular purpose or merchantability, and Lessor accepts no
responsibility for obtaining any warranties of any type from the manufacturer or
distributor of the equipment.
Section 29.02 Cost. The cost of the freezer and cooler, including all
----
installation costs and applicable taxes, shall not exceed $350,000. If the
anticipated cost exceeds that amount, Lessee will either choose alternate
equipment to lower the costs, or sign an Addendum to this Lease committing to
pay the Lessor the excess
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<PAGE>
cost over $350,000 within 10 days of completion of the installation. In the
event that the total costs for the freezer and cooler, including installation
costs and applicable taxes, are less than $350,000, Lessee may, at its option,
apply the difference between $350,000 and the amount of those costs to any costs
over $214,900 incurred to finish the office space (see Section 28.05). If this
occurs, and if Lessee exercises this option, the amount of the excess applied to
Section 28.05 costs will be part of the basis of the additional rent provided
for in Section 29.03.
Section 29.03 Amortization. Lessee shall, as additional rent, pay Lessor
------------
the full cost of purchasing and installing the designated equipment in 120 equal
monthly installments based upon the original cost of the purchase and
installation, with an assumed interest rate of 10% per annum accumulating on the
unpaid principal. The first such payment of additional rent shall be made on
the Commencement Date, and payments shall be made on the first day of each month
thereafter until all 120 installments have been made. Title to the designated
equipment shall vest in Lessee, subject to Lessee's giving Lessor a security
interest in that equipment and Lessee executing all documents reasonably deemed
necessary by Lessor to establish, perfect and maintain its security interest.
Lessee shall be solely responsible for the costs of removing the designated
equipment at the termination of this Lease as provided in Section 6.04 and shall
repair all damage done to the Building in conjunction with the removal.
ARTICLE XXX
Miscellaneous
Section 30.01 Headings. Any headings preceding the text of the several
--------
articles, sections and subsections hereof are inserted solely for convenience of
reference and shall not constitute a part of this lease, nor shall they affect
its meaning, construction, or effect.
Section 30.02 Written Amendments. This Lease represents the entire
------------------
agreement between the parties and there are no collateral oral agreements or
understandings. All additions, variations, or modifications to this Lease shall
be void and of no effect unless in writing signed by the parties.
Section 30.03 Entire Agreement. This Lease and the attached exhibits set
----------------
forth all the promises, agreements, conditions, and understandings between the
Lessor and Lessee relative to the Demised Premises, and that there are no
promises, agreements, conditions, or understandings, either oral or written
between them other than are herein set forth.
-23-
<PAGE>
ARTICLE XXXI
Authority
Lessee will provide Lessor with a partnership resolution in form acceptable
to Lessor which grants authority to the individual executing this Lease on
behalf of the Lessee to bind Lessee and its constituent partners to the terms
hereof. At the request of the Lessor, that partnership resolution may be
attached to this Lease as an Exhibit.
IN WITNESS WHEREOF the parties have hereunto set their hand and seals the
day and year aforesaid.
NUTRASOURCE
a Washington General Partnership
1/12 , 1990 By:/s/ Charles L. LeFevre
- ---------------------------- -------------------------
DATE Its President
ESTATE OF A.H. SPEAR
Jan, 11 , 1990 /s/ Bradley K. Spear
- ---------------------------- -----------------------------
DATE By Bradley K. Spear
Co-Executor
1/11 , 1990 /s/ James E. Strock
- ---------------------------- -----------------------------
DATE SEATTLE FIRST NATIONAL BANK
TRUST REAL ESTATE
Its Co-Executor
Jan, 11 , 1990 /s/ Richard H. Anderson
- ---------------------------- -----------------------------
DATE SEATTLE FIRST NATIONAL BANK
TRUST REAL ESTATE
Its Co-Executor
-24-
<PAGE>
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that Charles L. LeFevre
is the person who appeared before me, and said person acknowledged that s/he
signed this instrument, on oath stated that s/he was authorized to execute the
instrument and acknowledged it as the President of NUTRASOURCE to be the free
and voluntary act of such party for the uses and purposes mentioned in the
instrument.
Dated: January 12 , 1990.
------------
/s/ Jacqueline Lee Craig
----------------------------------
Notary Public
My appointment expires:
10-9-90
------------------------
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that BRADLEY K. SPEAR
is the person who appeared before me, and said person acknowledged that he
signed this instrument, on oath stated that he was authorized to execute the
instrument and acknowledged it as the Co-Executor of THE ESTATE OF A. H. SPEAR
to be the free and voluntary act of such party for the uses and purposes
mentioned in the instrument.
Dated: 1/11 , 1990.
--------------------------
/s/ Randall R. Hall
-------------------
Notary Public
My appointment expires:
4/14/90
------------------------
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<PAGE>
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that James E. Strock
and Richard H. Anderson are the people who appeared before me, and said people
acknowledged that they signed this instrument, on oath stated that they were
authorized to execute the instrument and acknowledged it as the Vice President
and Assistant Vice President of SEATTLE FIRST NATIONAL BANK TRUST REAL ESTATE,
Co-Executors of THE ESTATE OF A. H. SPEAR to be the free and voluntary act of
such party for the uses and purposes mentioned in the instrument.
Dated: January 11, 1990
/s/ Michael V. Daly
------------------------------------
Notary Public
My appointment expires:
12/28/90
------------------------
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<PAGE>
EXHIBIT A
Lots 4-9, Block 2, South Seattle Add., together with portions of vacated alleys
and streets; and
Lot 7, Block 268, Seattle, Tidelands, together with portions of vacated alleys
and streets; and
Lots 1-12, Block 267, Seattle Tidelands and Lot 1, Block 1 Phinney's Second Add.
together with vacated alleys and streets.
<PAGE>
EXHIBIT B
[Diagram of Premises]
<PAGE>
EXHIBIT C
Outline Specifications for New Construction
Project Description: Lessor will construct a 1-story warehouse/distribution
- -------------------
building on slab-on-grade and pile-supported structural slab floor, precast
concrete walls and wood roof, with second floor office space supported on a
plywood deck on wood trusses and beams; all attached to an existing building.
UBO Occupancy Classification is B-2 with 4-hour area separation to existing
building. Construction type is IIIN - sprinklered.
Concrete: Foundation shall be reinforced spread footings or pile caps and grade
- -------- ----------
beams on augercast piling under structural slab, bearing walls, columns. As
deemed necessary by Soils Engineer, light-weight fills at existing building and
footing drains with clean outs, connected to storm system.
Structural slab shall be eight inches (8") thick, slab on grade shall
--------------- -------------
be five inches (5") thick; both steel reinforced, with hard smooth trowel
finish. Base vapor barrier, drainage, and minimum of 4" 5% maximum fines gravel
base under slab will be provided. Construction joints and shrinkage joints to
be spaced at 20' o.c. maximum, or as otherwise indicated.
Exterior concrete walls shall be reinforced concrete 3000 psi in 28
-----------------------
days or as otherwise noted; all offsets exceeding 1/32" shall be smoothed and
all flutes removed and smoothed. All holes larger than 1/8" shall be filled.
Interior face will have hard smooth trowel finish. Exterior concrete to be
sealed or painted, and painted surfaces shall receive smooth trowel finish.
Wood: Framing lumber to stress graded Hem-Fir or Douglas Fir, standard or
- ----- --------------
better. Plywood to be in accordance with referenced U.S. Product Standard PS
-------
1-74, and meeting minimum standards of DFPA & APA.
Glu laminated timber to be industrial grade.
--------------------
Roof construction will be of Glulam beams with sawn purlin and 2x
-----------------
stiffeners with CDX plywood roof sheathing as shown in structural drawings.
Finish carpentry will be with V.G. Hemlock or V.G. Fir or Oak where
----------------
noted or as otherwise indicated on drawings.
Thermal and Moisture Protection: Membrane waterproofing at walls below grade
- ------------------------------- ----------------------
shall be Volclay Panel Waterproofing or equivalent.
Insulation of all piping, waterlines and interior rain leaders will be
----------
provided; R-11 batt insulation at perimeter office walls, R-30 F.S. 25 batt
insulation above office 2nd floor ceiling, perimeter slab insulation of R-8
rigid closed cell foam or as required by Code.
Roofing shall be built-up roof and flashing systems.
-------
Doors: Metal doors to be 1-3/4" thick with 16 gauge frames and 18 gauge
- ------ -----------
doors.
Wood doors to be of solid core flush type with Birch veneer to receive
----------
paint finish installed in Fir or Hemlock frames receiving paint finish.
<PAGE>
Truck doors shall be 24 gauge galvanized steel, sectional vertical
-----------
acting, complete with framing tracks, counterbalance and mechanism, locking
devices and head, floor and jamb seal weatherstripping, manual operation.
Finishes: Interior walls to 5/8" type "X" GWB on metal or wood studs; restroom
- --------- --------------
dry walls to be water code GWB.
Ceilings indicated to be Suspended acoustical tile shall be non-rated
--------
2x4 tile typically in the 2x4 grid system designed for Seismic Zone 3; ceilings
at restrooms to be attached or suspended GWB.
Floors of lobby, corridor, stairs and north offices shall be minimum
------
32 oz. loop carpet with enhancer plus backing pad; warehouse office and all
restroom floors to be sheet vinyl-Armstrong Corlon or equivalent. Warehouse
floors to be concrete, cleaned and sealed with Burke Cure'N Seal or equivalent.
Portions of floor may be topped with shake on hardener of a type to be
determined by the parties.
Painting will be minimum one coat primer, one coat top paint of
--------
appropriate type for the surface and location.
Equipment: Dock bumpers will be provided, two 12" x 16" minimum 4" deep rubber
- --------- ------------
bumpers at each dock high door -- Fabco, Serco, Rite-Hite or equivalent.
Dock levelers will be provided for three doors-- Rite-Hite #RH66 with
-------------
20,000 lb. capacity or equivalent.
Dock shelters of rigid frame type shall be provided at each dock high
-------------
door.
Elevator of one single car, standard cab, 2500 pound capacity,
--------
hydraulic, 2 stops will be provided to comply with provisions of the handicap
code.
Power wiring for 16 N.l.C. battery chargers will be provided in the
--------------------------------------------
southeast corner of the existing building.
Mechanical: HVAC will be provided per Code and good industry practice and
- ---------- ----
designed to maintain office temperatures of 70 F in winter and 78 F in summer.
Warehouse heating will maintain 49 F in winter.
Sprinklered fire protection system will be provided per Code and
----------------------------------
good industry practice.
Plumbing fixtures will be American Standard, White.
-----------------
Electrical: Electrical and telephone service to the building will be provided,
- ---------- ------------------------
600 amp service.
Interior lighting for offices will be to maximum lighting levels
-----------------
allowed by State power budget, using 2x4' fluorescent recessed drop-in ceiling
fixtures with acrylic diffuser lenses, energy efficient ballast and energy saver
bulbs.
Warehouse lighting to use color-corrected high pressure sodium or
------------------
metal halide highbay lighting providing 25-30 fc maintained, measured 3' above
floor at night.
Computer wiring and computer outlets if desired, will be installed
------------------------------------
per Lessee's specifications and at Lessee's expense.
<PAGE>
EXHIBIT D
---------
FILED FOR RECORD AT REQUEST OF
AND RETURN RECORDED COPY TO:
Douglas J. Green, Esq.
HIGHT GREEN & YALOWITZ
3160 First Interstate Center
999 Third Avenue
Seattle, Washington 98104
MEMORANDUM OF LEASE
-------------------
I. PARTIES
-----------
This Memorandum of Lease refers to that certain Commercial Lease
Agreement dated as of the 23rd day of August, 1989 by whose terms the Estate of
A.H. Spear is Lessor and Nutrasource, a Washington General Partnership, is
Lessee. This Memorandum of Lease is entered by and between the Estate of A.H.
Spear and Nutrasource.
II. INCORPORATION
------------------
The terms and conditions of the above-referenced Commercial Lease
Agreement are hereby incorporated by this reference as though fully set forth
herein.
III. PREMISES
--------------
The estate of A.H. Spear has leased to Nutrasource a portion of the
real property located at 4005 - 6th Avenue South in Seattle, King County,
Washington, which real property is legally described on Exhibit A hereto.
IV. TERM
---------
The lease is for a period of ten (10) years commencing not later than
October 1, 1990. The tenant, Nutrasource, has an option under certain
circumstances to extend the term for an additional period of between five years
and ten years.
V. PURPOSE
-----------
This Memorandum of Lease is prepared solely for the purpose of
recordation and notice, and it shall in no way be deemed to supplement or modify
the terms of the above-referenced Commercial Lease Agreement.
-1-
<PAGE>
NUTRASOURCE
a Washington General Partnership
____________________________, 1990 By:_______________________________
DATE Its President
ESTATE OF A.H. SPEAR
____________________________, 1990 By:_______________________________
DATE Bradley K. Spear
Co-Executor
____________________________, 1990 __________________________________
DATE SEATTLE FIRST NATIONAL BANK
TRUST REAL ESTATE
Its Co-Executor
____________________________, 1990 __________________________________
DATE SEATTLE FIRST NATIONAL BANK
TRUST REAL ESTATE
Its Co-Executor
-2-
<PAGE>
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that
______________________ is the person who appeared before me, and said person
acknowledged that s/he signed this instrument, on oath stated that s/he was
authorized to execute the instrument and acknowledged it as the President of
NUTRASOURCE to be the free and voluntary act of such party for the uses and
purposes mentioned in the instrument.
Dated:_______________.
__________________________________
Notary Public
My Appointment Expires:
_________________
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that BRADLEY K. SPEAR
is the person who appeared before me, and said person acknowledged that he
signed this instrument, on oath stated that he was authorized to execute the
instrument and acknowledged it as the Co-Executor of THE ESTATE OF A. H. SPEAR
to be the free and voluntary act of such party for the uses and purposes
mentioned in the instrument.
Dated:_______________.
___________________________________
Notary Public
My Appointment Expires:
_________________
-3-
<PAGE>
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that _____________ and
____________________ are the people who appeared before me, and said people
acknowledged that they signed this instrument, on oath stated that they were
authorized to execute the instrument and acknowledged it as the ______________
and of SEATTLE FIRST NATIONAL BANK TRUST REAL ESTATE, Co-Executor of THE ESTATE
OF A. H. SPEAR to be the free and voluntary act of such party for the uses and
purposes mentioned in the instrument.
Dated:_______________.
___________________________________
Notary Public
My Appointment Expires:
_________________
-4-
<PAGE>
EXHIBIT A
Lots 4.9, Block 2, South Seattle Add., together with portions of vacated alleys
and streets; and
Lot 7, Block 268, Seattle, Tidelands, together with portions of vacated alleys
and streets; and
Lots 1-12, Block 267, Seattle Tidelands and Lot 1, Block 1 Phinney's Second Add.
together with vacated alleys and streets.
<PAGE>
[NutraSource Logo]
July 8, 1994
A. H. Spear Investments
P.O. Box 15714
Seattle, WA 98115-0714
Attn: Brad Spear
Re: Availability of Additional Space
Dear Brad:
This letter is to serve as notice that NutraSource, Inc. elects to lease the
additional Space at 4005 6th Avenue South, Seattle WA. The space consists of
the northwestern 20,000 square feet of the building. This is pursuant to the
provisions of Section 1.03 of the Lease Agreement dated August 23, 1989 between
Bradley K. Spear and Seattle First National Bank, co-executors of the Estate of
A. H. Spear, Lessor and NutraSource, Inc., Lessee.
It is understood that the commencement date of the lease for the additional
space is November 1, 1994.
Sincerely,
NUTRASOURCE, INC.
/s/ Chuck LeFevre
Chuck LeFevre
President
<PAGE>
EXHIBIT 10.25
------- -----
UNITED NATURAL FOODS, INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
The purpose of this 1996 Employee Stock Purchase Plan (the "Plan") is to
provide eligible employees of United Natural Foods, Inc., a Delaware corporation
(the "Company"), and certain of its subsidiaries with opportunities to purchase
shares of the Company's Common Stock, $.01 par value (the "Common Stock"). One
Hundred Thousand (100,000) shares of Common Stock in the aggregate have been
approved for this purpose.
1. Administration. The Plan will be administered by the Company's Board
--------------
of Directors (the "Board") or by a Committee appointed by the Board (the
"Committee"). The Board or the Committee has authority to make rules and
regulations for the administration of the Plan and its interpretation and
decisions with regard thereto shall be final and conclusive.
2. Eligibility. Participation in the Plan will neither be permitted nor
-----------
denied contrary to the requirements of Section 423 of the Internal Revenue Code
of 1986, as amended (the "Code"), and regulations promulgated thereunder. All
employees of the Company, including directors who are employees, and all
employees of any subsidiary of the Company (as defined in Section 424(f) of the
Code) designated by the Board or the Committee from time to time (a "Designated
Subsidiary"), are eligible to participate in any one or more of the offerings of
Options (as defined below) to purchase Common Stock under the Plan, provided
that:
(a) they are regularly employed by the Company or a Designated
Subsidiary for more than 20 hours a week and for more than five months in a
calendar year; and
(b) they have been employed by the Company or a Designated Subsidiary
for at least three months prior to enrolling in the Plan; and
(c) they are employees of the Company or a Designated Subsidiary on
the first day of the applicable Plan Period (as defined below).
No employee may be granted an option hereunder if such employee,
immediately after the option is granted, owns 5% or more of the total combined
voting power or value of the stock of the Company or any subsidiary. For
purposes of the preceding sentence, the attribution rules of Section 424(d) of
the Code shall apply in determining the stock ownership of an employee, and all
stock which the employee has a contractual right to purchase shall be treated as
stock owned by the employee.
<PAGE>
3. Offerings. The Company will make one or more offerings ("Offerings")
---------
to employees to purchase Common Stock under this Plan. The Board or the
Committee shall determine the commencement dates of each of the Offerings (the
"Offering Commencement Dates"). Each Offering Commencement Date will begin a
period (a "Plan Period") during which payroll deductions will be made and held
for the purchase of Common Stock at the end of the Plan Period. The Board or
the Committee shall choose a Plan Period of twelve (12) months or less for each
of the Offerings and may, at its discretion, choose a different Plan Period for
each Offering.
4. Participation. An employee eligible on the Offering Commencement Date
-------------
of any Offering may participate in such Offering by completing and forwarding a
payroll deduction authorization form to the Treasurer of the Company at least 14
days prior to the applicable Offering Commencement Date. The form will
authorize a regular payroll deduction from the Compensation received by the
employee during the Plan Period. Unless an employee files a new form or
withdraws from the Plan, his deductions and purchases will continue at the same
rate for future Offerings under the Plan as long as the Plan remains in effect.
The term "Compensation" means the amount of money reportable on the employee's
Federal Income Tax Withholding Statement, excluding overtime, shift premium,
incentive or bonus awards, allowances and reimbursements for expenses such as
relocation allowances for travel expenses, income or gains on the exercise of
Company stock options or stock appreciation rights, and similar items, whether
or not shown on the employee's Federal Income Tax Withholding Statement, but
including, in the case of salespersons, sales commissions to the extent
determined by the Board or the Committee.
5. Deductions.
----------
(a) The Company will maintain payroll deduction accounts for all
participating employees. With respect to any Offering made under this Plan, an
employee may authorize a payroll deduction, as set forth below, from the
Compensation he or she receives during the Plan Period or such shorter period
during which deductions from payroll are made. Payroll deductions may be at a
rate of not less than 1% nor more than 10% of Compensation.
(b) No employee may be granted an Option which permits his rights to
purchase Common Stock under this Plan and any other stock purchase plan of the
Company and its subsidiaries, to accrue at a rate which exceeds $25,000 of the
fair market value of such Common Stock (determined at the Offering Commencement
Date of the Plan Period) for each calendar year in which the Option is
outstanding at any time.
6. Deduction Changes. An employee may decrease or discontinue his
-----------------
payroll deduction once during any Plan Period by filing a new payroll deduction
authorization form. However, an employee may not increase his payroll deduction
-2-
<PAGE>
during a Plan Period. If an employee elects to discontinue his payroll
deductions during a Plan Period, but does not elect to withdraw his funds
pursuant to Section 8 hereof, funds deducted prior to his election to
discontinue will be applied to the purchase of Common Stock on the Exercise Date
(as defined below).
7. Interest. Interest will not be paid on any employee payroll deduction
--------
accounts, except to the extent that the Board or its Committee, in its sole
discretion, elects to credit such accounts with interest at such per annum rate
as it may from time to time determine.
8. Withdrawal of Funds. An employee may on any one occasion during a
-------------------
Plan Period and for any reason withdraw all or part of the balance accumulated
in the employee's payroll deduction account. Any such withdrawal must be
effected prior to the close of business on the last day of the Plan Period. If
the employee withdraws all of such balance, the employee shall thereby withdraw
from participation in the Offering and may not begin participation again during
the remainder of the Plan Period. Any employee withdrawing all or part of such
balance may participate in any subsequent Offering in accordance with terms and
conditions established by the Board or the Committee.
9. Purchase of Shares.
------------------
(a) On the Offering Commencement Date of each Plan Period, the Company
will grant to each eligible employee who is then a participant in the Plan an
option (an "Option") to purchase on the last business day of such Plan Period
(the "Exercise Date"), at the Option Price hereinafter provided for, such number
of whole shares of Common Stock of the Company reserved for the purposes of the
Plan as does not exceed the number of shares determined by dividing 15% of such
employee's Compensation for the Plan Period (assuming no change in compensation
during the Plan Period) by the price determined in accordance with the formula
set forth in the following paragraph but using the closing price on the Offering
Commencement Date of such Plan Period.
(b) The Option Price for each share purchased will be 85% of the
closing price of the Common Stock on (i) the first business day of such Plan
Period or (ii) the Exercise Date, whichever closing price shall be less. Such
closing price shall be (A) the closing price of the Common Stock on any national
securities exchange on which the Common Stock is listed, or (B) the closing
price of the Common Stock on the Nasdaq National Market ("Nasdaq") or (C) the
average of the closing bid and asked prices in the over-the-counter market,
whichever is applicable, as published in The Wall Street Journal. If no sales
-----------------------
of Common Stock were made on such a day, the price of the Common Stock for
purposes of clauses (A) and (B) above shall be the reported price for the next
preceding day on which sales were made.
-3-
<PAGE>
(c) Each employee who continues to be a participant in the Plan on
the Exercise Date shall be deemed to have exercised his Option at the Option
Price on such date and shall be deemed to have purchased from the Company the
number of full shares of Common Stock reserved for the purpose of the Plan that
his accumulated payroll deductions on such date will pay for pursuant to the
formula set forth above (but not in excess of the maximum number determined in
the manner set forth above).
(d) Any balance remaining in an employee's payroll deduction account
at the end of a Plan Period will be automatically refunded to the employee,
except that any balance which is less than the purchase price of one share of
Common Stock will be carried forward into the employee's payroll deduction
account for the following Offering, unless the employee elects not to
participate in the following Offering under the Plan, in which case the balance
in the employee's account shall be refunded.
10. Issuance of Certificates. Certificates representing shares of Common
------------------------
Stock purchased under the Plan may be issued only in the name of the employee,
in the name of the employee and another person of legal age as joint tenants
with rights of survivorship, or (in the Company's sole discretion) in the street
name of a brokerage firm, bank or other nominee holder designated by the
employee.
11. Rights on Retirement, Death or Termination of Employment. In the
--------------------------------------------------------
event of a participating employee's termination of employment prior to the last
business day of a Plan Period (whether as a result of the employee's voluntary
or involuntary termination, retirement, death or otherwise), no payroll
deduction shall be taken from any pay due and owing to the employee and the
balance in the employee's payroll deduction account shall be paid to the
employee or, in the event of the employee's death, (a) to a beneficiary
previously designated in a revocable notice signed by the employee (with any
spousal consent required under state law) or (b) in the absence of such a
designated beneficiary, to the executor or administrator of the employee's
estate or (c) if no such executor or administrator has been appointed to the
knowledge of the Company, to such other person(s) as the Company may, in its
discretion, designate. If, prior to the last business day of the Plan Period,
the Designated Subsidiary by which an employee is employed shall cease to be a
subsidiary of the Company, or if the employee is transferred to a subsidiary of
the Company that is not a Designated Subsidiary, the employee shall be deemed to
have terminated employment for the purposes of this Plan.
12. Optionees Not Stockholders. Neither the granting of an Option to an
--------------------------
employee nor the deductions from his pay shall constitute such employee a
stockholder of the shares of Common Stock covered by an Option under this Plan
until such shares have been purchased by and issued to him.
-4-
<PAGE>
13. Rights Not Transferable. Rights under this Plan are not transferable
-----------------------
by a participating employee other than by will or the laws of descent and
distribution, and are exercisable during the employee's lifetime only by the
employee.
14. Application of Funds. All funds received or held by the Company under
--------------------
this Plan may be combined with other corporate funds and may be used for any
corporate purpose.
15. Adjustment in Case of Changes Affecting Common Stock. In the event of
----------------------------------------------------
a subdivision of outstanding shares of Common Stock, or the payment of a
dividend in Common Stock, the number of shares approved for this Plan, and the
share limitation set forth in Section 9, shall be increased proportionately, and
such other adjustment shall be made as may be deemed equitable by the Board or
the Committee. In the event of any other change affecting the Common Stock,
such adjustment shall be made as may be deemed equitable by the Board or the
Committee to give proper effect to such event.
16. Merger.
------
(a) If the Company shall at any time merge or consolidate with
another corporation and the holders of the capital stock of the Company
immediately prior to such merger or consolidation continue to hold at least 80%
by voting power of the capital stock of the surviving corporation ("Continuity
of Control"), the holder of each Option then outstanding will thereafter be
entitled to receive at the next Exercise Date upon the exercise of such Option
for each share as to which such Option shall be exercised the securities or
property which a holder of one share of the Common Stock was entitled to upon
and at the time of such merger, and the Board or the Committee shall take such
steps in connection with such merger as the Board or the Committee shall deem
necessary to assure that the provisions of Section 15 shall thereafter be
applicable, as nearly as reasonably may be, in relation to the said securities
or property as to which such holder of such Option might thereafter be entitled
to receive thereunder.
(b) In the event of a merger or consolidation of the Company with or
into another corporation which does not involve Continuity of Control, or of a
sale of all or substantially all of the assets of the Company while unexercised
Options remain outstanding under the Plan, (i) subject to the provisions of
clauses (ii) and (iii), after the effective date of such transaction, each
holder of an outstanding Option shall be entitled, upon exercise of such Option,
to receive in lieu of shares of Common Stock, shares of such stock or other
securities as the holders of shares of Common Stock received pursuant to the
terms of such transaction; or (ii) all outstanding Options may be cancelled by
the Board or the Committee as of a date prior to the effective date of any such
transaction and all payroll deductions shall be paid out to the participating
employees; or (iii) all outstanding Options may be
-5-
<PAGE>
cancelled by the Board or the Committee as of the effective date of any such
transaction, provided that notice of such cancellation shall be given to each
holder of an Option, and each holder of an Option shall have the right to
exercise such Option in full based on payroll deductions then credited to his
account as of a date determined by the Board or the Committee, which date shall
not be less than ten (10) days preceding the effective date of such transaction.
17. Amendment of the Plan. The Board may at any time, and from time to
---------------------
time, amend this Plan in any respect, except that (a) if the approval of any
such amendment by the stockholders of the Company is required by Section 423 of
the Code, such amendment shall not be effected without such approval, and (b) in
no event may any amendment be made which would cause the Plan to fail to comply
with Section 423 of the Code.
18. Insufficient Shares. In the event that the total number of shares of
-------------------
Common Stock specified in elections to be purchased under any Offering plus the
number of shares purchased under previous Offerings under this Plan exceeds the
maximum number of shares issuable under this Plan, the Board or the Committee
will allot the shares then available on a pro rata basis.
19. Termination of the Plan. This Plan may be terminated at any time by
-----------------------
the Board. Upon termination of this Plan all amounts in the payroll deduction
accounts of participating employees shall be promptly refunded.
20. Governmental Regulations.
------------------------
(a) The Company's obligation to sell and deliver Common Stock under
this Plan is subject to listing on a national stock exchange or quotation on
Nasdaq and the approval of all governmental authorities required in connection
with the authorization, issuance or sale of such stock.
(b) The Plan shall be governed by the laws of the State of Delaware
except to the extent that such law is preempted by federal law.
(c) The Plan is intended to comply with the provisions of Rule 16b-3
promulgated under the Exchange Act. Any provision inconsistent with such Rule
shall to that extent be inoperative and shall not affect the validity of the
Plan.
21. Issuance of Shares. Shares may be issued upon exercise of an Option
------------------
from authorized but unissued Common Stock, from shares held in the treasury of
the Company, or from any other proper source.
22. Notification upon Sale of Shares. Each employee agrees, by entering
--------------------------------
the Plan, to promptly give the Company notice of any disposition of shares
purchased
-6-
<PAGE>
under the Plan where such disposition occurs within two years after the date of
grant of the Option pursuant to which such shares were purchased.
23. Effective Date and Approval of Stockholders. The Plan shall take
-------------------------------------------
effect upon the closing of the Company's initial public offering of Common Stock
pursuant to an effective registration statement under the Securities Act of
1933, as amended, subject to approval by the stockholders of the Company as
required by Section 423 of the Code, which approval must occur within twelve
months of the adoption of the Plan by the Board.
Adopted by the Board of Directors on
October __, 1996
Approved by the stockholders on
October __, 1996
-7-
<PAGE>
EXHIBIT 11
UNITED NATURAL FOODS, INC.
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
1994 1995 JULY 31, 1996
---- ------- -------------
Primary:
<S> <C> <C> <C>
Weighted average shares outstanding............. 8,713 8,713 8,709
Net effect of dilutive stock options and stock
warrants based on the treasury stock method us-
ing the assumed initial public offering price.. 1,381 1,435 1,435
------- ------- -------
Total........................................... 10,094 10,148 10,144
======= ======= =======
Net income...................................... $ 3,017 $ 2,603 $ 4,025
======= ======= =======
Per share amount................................ $ 0.30 $ 0.26 $ 0.40
======= ======= =======
<CAPTION>
Fully diluted:
<S> <C> <C> <C>
Weighted average shares outstanding............. 8,713 8,713 8,709
Net effect of dilutive stock options and stock
warrants based on the treasury stock method us-
ing the assumed initial public offering price.. 1,381 1,435 1,435
------- ------- -------
Total........................................... 10,094 10,148 10,144
======= ======= =======
Net income...................................... $ 3,017 $ 2,603 $ 4,025
======= ======= =======
Per share amount................................ $ 0.30 $ 0.26 $ 0.40
======= ======= =======
</TABLE>
<PAGE>
EXHIBIT 23.2
The Board of Directors
United Natural Foods, Inc. and Subsidiaries:
The audits referred to in our report dated August 30, 1996, included the
related financial statement schedule for the years ended October 31, 1994 and
1995, and for the nine months ended July 31, 1996, included in the
registration statement. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express
an opinion on this financial statement schedule based on our audits. In our
opinion, such financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" and "Selected Consolidated Financial
Data" in the prospectus.
Providence, Rhode Island KPMG Peat Marwick LLP
October 7, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report (and to all references to our firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Denver, Colorado
October 7, 1996
