<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 000-21531
UNITED NATURAL FOODS, INC.
(Exact name of Registrant as Specified in Its Charter)
Delaware 05-0376157
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
260 Lake Road
Dayville, CT 06241
(Address of Principal Executive Offices, Including Zip Code)
Registrant's Telephone Number, Including Area Code: (860) 779-2800
-------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days:
Yes X No
--- ---
As of December 11, 1997, there were 17,356,705 shares of the Registrant's Common
Stock, $0.01 par value per share, outstanding.
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<PAGE>
UNITED NATURAL FOODS, INC.
FORM 10-Q
FOR THE QUARTER ENDED OCTOBER 31, 1997
TABLE OF CONTENTS
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of July 31, 1997 and
October 31, 1997
Consolidated Statements of Income for the three months
ended October 31, 1996 and October 31, 1997
Consolidated Statements of Cash Flows for the three months
ended October 31, 1996 and October 31, 1997
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Part II. Other Information
Item 2. Changes in Securities and Use of Proceeds
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JULY 31, 1997 OCTOBER 31, 1997
------------- ----------------
<S> <C> <C>
ASSETS
------
Current assets:
Cash $952,498 $510,529
Accounts receivable, net of allowance 42,952,127 48,761,073
Notes receivable, trade 866,160 901,209
Inventories 71,508,896 78,760,752
Prepaid expenses 4,109,945 3,176,573
Deferred income taxes 1,031,767 1,031,767
----------------- -----------------
Total current assets 121,421,393 133,141,903
----------------- -----------------
Property & equipment, net 32,412,128 32,263,488
----------------- -----------------
Other assets:
Notes receivable, trade 995,398 1,367,381
Goodwill, net 7,579,408 8,118,112
Covenants not to compete, net 591,665 603,547
Other, net 1,560,583 827,500
----------------- -----------------
Total assets $164,560,575 $176,321,931
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Notes payable $27,221,690 $34,461,765
Current installments of long-term debt 3,016,218 2,128,404
Current installment of obligations under capital leases 680,533 475,069
Accounts payable 30,535,786 38,706,515
Accrued expenses 6,298,682 9,041,738
Income taxes payable 377,322 1,288,796
Other 190,667 180,375
----------------- -----------------
Total current liabilities 68,320,898 86,282,662
Long-term debt, excluding current installments 26,453,762 15,147,634
Deferred income taxes 677,560 677,560
Obligations under capital leases, excluding current installments 1,235,928 886,048
----------------- -----------------
Total liabilities 96,688,148 102,993,904
----------------- -----------------
Stockholders' equity:
Common stock, $.01 par value, authorized 25,000,000 shares;
issued 17,377,110 and outstanding 17,356,705 173,771 173,771
Additional paid-in capital 45,702,244 51,745,341
Unallocated shares of ESOP (2,910,400) (2,869,600)
Retained earnings 24,951,266 24,322,969
Treasury stock, 20,405 shares at cost (44,454) (44,454)
----------------- -----------------
Total stockholders' equity 67,872,427 73,328,027
----------------- -----------------
----------------- -----------------
Total liabilities and stockholders' equity $164,560,575 $176,321,931
================= =================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
OCTOBER 31,
-----------
1996 1997
---- ----
<S> <C> <C>
Net sales $146,302,981 $173,382,986
Cost of sales 116,656,617 139,193,855
------------ -------------
Gross profit 29,646,364 34,189,131
------------ -------------
Operating expenses 25,075,027 27,659,453
Merger expenses - 4,063,912
Amortization of intangibles 265,677 260,063
------------ -------------
Total operating expenses 25,340,704 31,983,428
------------ -------------
Operating income 4,305,660 2,205,703
------------ -------------
Other expense (income):
Interest expense 2,110,905 1,081,169
Other, net (148,374) (167,993)
------------ -------------
Total other expense 1,962,531 913,176
------------ -------------
Income before income taxes 2,343,129 1,292,527
Income taxes 1,053,905 1,920,824
------------ -------------
Net income (loss) $ 1,289,224 $ (628,297)
============ =============
Pro forma additional income tax expense (benefit) (35,880) 320,098
------------ -------------
Pro forma net income (loss) $ 1,325,104 $ (948,395)
============ =============
Supplemental pro forma net income (loss)
after contractual reduction of officer compensation $ 1,809,442 $ (492,167)
============ =============
Pro forma net income (loss) per share of common stock $ 0.09 $ (0.05)
============ =============
Supplemental pro forma net income (loss) per share
of common stock after contractual reduction of
officer compensation $ 0.12 $ (0.03)
============ =============
Weighted average shares of common stock 15,092,568 17,777,593
============ =============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
OCTOBER 31,
-----------
1996 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $1,289,224 $ (628,297)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 1,638,148 1,380,372
Gain on disposals of property & equipment (1,000) (11,786)
Accretion of original issue discount 152,847 -
Provision for doubtful accounts 541,610 131,528
Increase in accounts receivable (3,174,703) (5,940,474)
Increase in inventory (7,179,711) (6,917,372)
Decrease in prepaid expenses 197,345 933,372
(Increase) decrease in other assets (145,546) 874,239
(Increase) decrease in notes receivable, trade 23,622 (407,032)
Increase in accounts payable 7,043,811 8,170,729
Increase (decrease) in accrued expenses (162,566) 2,732,767
Increase in income taxes payable 399,433 911,474
------------ ------------
Net cash provided by operating activities 622,514 1,229,520
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of a new business - (1,359,484)
Proceeds from disposals of property and equipment 1,000 124,875
Capital expenditures (1,183,972) [970,766]
------------ ------------
Net cash used in investing activities (1,182,972) (2,205,375)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under note payable 1,215,029 7,240,075
Repayments on long-term debt (919,055) (6,150,845)
Proceeds from long-term debt 587,741 -
Principal payments of capital lease obligations (148,397) (555,344)
Stock issuance expenses (381,639) -
Cash distributions to partners 30,000 -
------------ ------------
Net cash provided by financing activities 383,679 533,886
------------ ------------
NET DECREASE IN CASH (176,779) (441,969)
Cash at beginning of period 1,282,471 952,498
------------ ------------
Cash at end of period $1,105,692 $ 510,529
============ ============
Supplemental disclosures of cash flow information:
- --------------------------------------------------
Cash paid during the period for:
Interest $1,954,462 $1,115,246
============ ============
Income taxes $583,497 $892,355
============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED OCTOBER 31, 1997
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements ("financial statements")
include the accounts of United Natural Foods, Inc. and its wholly owned
subsidiaries (the "Company"). The Company is a distributor and retailer of
natural foods and related products.
On October 31, 1997, a subsidiary of the Company completed its merger with Stow
Mills, Inc. ("Stow") wherein Stow became a wholly owned subsidiary of the
Company. The merger with Stow was accounted for as a pooling of interests and,
accordingly, all financial information included is reported as though the
companies had been combined for all periods reported. Net sales for the quarter
ended October 31, 1996 and 1997 for United Natural Foods, Inc. (pre merger) were
approximately $99.1 million and $116.5 million, respectively. Net income for the
quarter ended October 31, 1996 and 1997 for United Natural Foods, Inc. was $1.4
million and $1.2 million, respectively. Net sales for the quarter ended October
31, 1996 and 1997 for Stow were $47.2 million and $56.9 million, respectively.
Net losses for the quarter ended October 31, 1996 and 1997 for Stow were $(0.1)
million and $(1.8) million, respectively.
The financial statements have been prepared pursuant to rules and regulations of
the Securities and Exchange Commission for interim financial information,
including the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, certain information and footnote disclosures normally required in
complete financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. In the opinion of
management, these financial statements include all adjustments necessary for a
fair presentation of the results of operations for the interim periods
presented. The results of operations for interim periods, however, may not be
indicative of the results that may be expected for a full year.
Certain fiscal 1997 balances have been reclassified to conform to the fiscal
1998 presentation.
2. TRADE ACCOUNTS RECEIVABLE
An allowance for doubtful accounts is deducted from trade accounts receivable in
the accompanying financial statements. The allowance for doubtful accounts was
$2,411,379 at July 31, 1997 and $2,542,907 at October 31, 1997.
3. PRO FORMA AND SUPPLEMENTAL PRO FORMA NET INCOME (LOSS)
Stow was subject to taxation as an S corporation until the merger on October 31,
1997. For pro forma disclosure purposes, income tax adjustments were assumed in
order to reflect results as if Stow had been subject to taxation as a C
corporation.
<PAGE>
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(continued)
In addition, for supplemental pro forma disclosure purposes, adjustments were
made to reflect the contractual reduction of officer compensation. The
adjustments totaled $749,000 and $654,000 for the quarter ended October 31, 1996
and 1997, respectively.
4. NOTE PAYABLE
In October 1997, the Company amended its credit agreement with its bank to
increase the amount of the facility from $50 million to $100 million, to
increase the limit on inventory advances to $50 million and the advance rate to
60%, to establish a term loan of $6.6 million and to increase the aggregate
amount of real estate acquisition loans and real estate term loans to $20
million. The agreement also provides for the bank to syndicate the credit
facility to other banks and lending institutions. The credit facility will be
used to repay existing indebtedness of Stow owing to the Company's bank and for
general operating capital needs. Interest under the facility, except the
portion related to the mortgage commitments, accrues at the Company's option at
the New York Prime Rate or 1.00% above the bank's London Interbank Offered Rate
(LIBOR), and the Company has the option to fix the rate for all or a portion of
the debt for a period up to 180 days. Interest on the mortgage facility will
accrue at 1.25% above the bank's LIBOR rate, although the Company has the option
to fix the rate for a period of five years at a rate of 1.25% above the five-
year U.S Treasury Note rate. The Company has pledged all of its assets as
collateral for its obligations under the credit agreement. As of October 31,
1997, the Company's outstanding borrowings under the credit agreement totaled
$34.5 million. The credit agreement expires on July 31, 2002.
5. SUBSEQUENT EVENT
In connection with the amendment to the Company's credit agreement with its bank
as explained in Note 4, an Agency and Interlender Agreement was entered into by
the Company, its bank and two additional participating banks effective December
1, 1997. This agreement states that the Company's primary bank will participate
in this credit facility with the other banks.
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Background And Other Information
United Natural Foods, Inc. (the "Company") is one of only two national
distributors of natural foods and related products in the United States. On
October 31, 1997, a subsidiary of the Company completed its merger with Stow
Mills, Inc. ("Stow"), whereupon Stow became a wholly owned subsidiary of the
Company. Upon consummation of the merger, Stow became subject to taxation as C
corporation. The merger with Stow was accounted for as a pooling of interests
and, accordingly, all financial information included herein is reported as
though the companies had been combined for all periods reported.
Statements contained in this Form 10-Q that are not historical facts are
forward-looking statements. Any statements contained herein (including without
limitations statements to the effect that the Company or its management
"believes," "expects," "anticipates," "plans" and similar expressions) that are
not statements of historical fact should be considered forward-looking
statements. The Company cautions that a number of important factors could cause
the Company's actual results for fiscal 1998 and beyond to differ materially
from those expressed in any forward-looking statements made by, or on behalf of,
the Company. See "Certain Factors That May Affect Results."
Quarter Ended October 31, 1997 Compared to Quarter Ended October 31, 1996
The following table presents certain items from the Company's consolidated
statements of income, and such amounts as a percentage of net sales, for the
periods indicated in millions, except the percentages.
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
OCTOBER 31,
1996 1997
---- ----
$$ % $$ %
-- -- -- --
<S> <C> <C> <C> <C>
Net sales $146.3 100.0% $173.4 100.0%
Cost of sales 116.7 79.7% 139.2 80.3%
------- -------- ------- -------
Gross profit 29.6 20.3% 34.2 19.7%
------- -------- ------- -------
Operating expenses 25.0 17.1% 27.6 16.0%
Merger expenses - - 4.1 2.3%
Amortization of intangibles 0.3 0.2% 0.3 0.1%
------- -------- ------- -------
Total operating expenses 25.3 17.3% 32.0 18.4%
------- -------- ------- -------
Operating income 4.3 3.0% 2.2 1.3%
------- -------- ------- -------
Other expense (income):
Interest expense 2.1 1.5% 1.1 0.7%
Other, net (0.1) -0.1% (0.2) -0.1%
------- -------- ------- -------
Total other expense 2.0 1.4% 0.9 0.6%
------- -------- ------- -------
Income before income taxes 2.3 1.6% 1.3 0.7%
Income taxes 1.0 0.7% 1.9 1.1%
------- -------- ------- -------
Net income (loss) $ 1.3 0.9% $ (0.6) -0.4%
======= ======== ======= =======
</TABLE>
Net Sales. The Company's net sales increased approximately 18.5%, or
$27.1 million, to $173.4 million for the three months ended October 31, 1997
from $146.3 million for the three months ended October 31, 1996. The overall
increase in net sales was primarily attributable to increased sales to existing
customers, sales to new accounts in existing geographic areas and the
introduction of new products not formerly offered by the Company.
Gross Profit. The Company's gross profit increased approximately 15.3%,
or $4.6 million, to $34.2 million for the three months ended October 31, 1997
from $29.6 million for the three months ended October 31, 1996. The Company's
gross profit as a percentage
<PAGE>
of net sales decreased to 19.7% for the three months ended October 31, 1997 from
20.3% for the three months ended October 31, 1996. The decrease in gross profit
as a percentage of net sales resulted partially from the comparatively lower
gross margin contribution from the Stow operation. Also, as in past periods,
increased sales to existing customers under the Company's volume discount
program resulted in a further reduction in gross margin.
Operating Expenses. The Company's total operating expenses increased
approximately 26.2%, or $6.7 million, to $32.0 million for the three months
ended October 31, 1997 from $25.3 million for the three months ended October 31,
1996. Operating expenses for the three months ended October 31, 1997 included
a charge of $4.1 million for expenses related to the merger with Stow, primarily
investment banking and other professional fees. As a percentage of net sales,
operating expenses increased to 18.4% for the three months ended October 31,
1997 from 17.3% for the three months ended October 31, 1996. Excluding the
merger charge, the Company's total operating expenses for the three months ended
October 31, 1997 would have been $27.9 million, or 16.1% of net sales. The
decrease in total operating expenses as a percentage of net sales was primarily
attributable to the Company's increased absorption of fixed expenses and
overhead over a larger sales base, as well as its continuing effort to implement
its "best practices" throughout its distribution regions. Best practices have
been implemented in distribution, technology and sales and marketing.
Operating Income. Operating income decreased $2.1 million, or
approximately 48.8%, to $2.2 million for the three months ended October 31, 1997
from $4.3 million for the three months ended October 31, 1996. As a percentage
of net sales, operating income decreased to 1.3% in the three months ended
October 31, 1997 from 3.0% in the three months ended October 31, 1996.
Excluding the $4.1 million in merger-related expenses incurred during the
three months ending October 31, 1997, operating income would have been $6.3
million, or 3.6% of net sales, for the three months ending October 31, 1997.
Other Income/(Expense). The $1.0 million decrease in interest expense in
the three months ended October 31, 1997 compared to the three months ended
October 31, 1996 was primarily attributable to the Company's initial public
offering in November 1996, the net proceeds of which were used by the Company to
repay existing indebtedness.
Income Taxes. The Company's effective income tax rate was 148.6% and 45.0%
for the three months ended October 31, 1997 and 1996, respectively. The
effective rates were higher than the federal statutory rate primarily due to
nondeductible expenses of $4.1 million associated with the merger with Stow in
the three months ended October 31, 1997, as well as state and local income
taxes.
Net Income. As a result of the foregoing, the Company's net income
decreased by $1.9 million to $(0.6) million for the three months ended October
31, 1997 from $1.3 million in the three months ended October 31, 1996.
Excluding the $4.1 million in merger expenses mentioned above, net income would
have been $3.4 million, or 2.0% of net sales, for the three months ended October
31, 1997.
Liquidity and Capital Resources
The Company historically has financed its operations and growth primarily
from cash flows from operations, borrowings under its credit facility, seller
financing of
<PAGE>
acquisitions, operating and capital leases, trade payables, bank indebtedness
and the sale or exchange of equity securities. Primary uses of capital have been
acquisitions, expansion of plant and equipment and investment in accounts
receivable and inventory.
Net cash provided by operations was $1.2 million and $0.6 million for the
three months ended October 31, 1997 and 1996, respectively. Net income
decreased in fiscal 1998 as compared with fiscal 1997 primarily as a result of
the above-mentioned merger expenses. Excluding the merger expenses, net cash
provided from operations for fiscal 1998 would have been $5.3 million. The
Company's working capital at October 31, 1997 was $46.9 million.
Net cash used in investing activities was $2.2 million and $1.2 million for
the three months ended October 31, 1997 and 1996, respectively. Investing
activities included primarily expenditures related to the purchase of a retail
store, material handling equipment, tractors and trailers and the continued
upgrade of existing management information systems. The capital expenditures
were primarily funded from senior bank indebtedness, including term loans.
Net cash provided by financing activities was $0.5 million and $0.4 million
for the three months ended October 31, 1997 and 1996, respectively, and resulted
primarily from proceeds from borrowings under the Company's credit facility and
from long-term debt.
In October 1997, the Company amended its credit agreement with its bank to
increase the amount of the facility from $50 million to $100 million, to
increase the limit on inventory advances to $50 million and the advance rate to
60%, to establish a term loan of $6.6 million and to increase the aggregate
amount of real estate acquisition loans and real estate term loans to $20
million. The agreement also provides for the bank to syndicate the credit
facility to other banks and lending institutions. The credit facility will be
used to repay existing indebtedness of Stow owing to the Company's bank and for
general operating capital needs. Interest under the facility, except the
portion related to the mortgage commitments, accrues at the Company's option at
the New York Prime Rate or 1.00% above the bank's London Interbank Offered Rate
(LIBOR), and the Company has the option to fix the rate for all or a portion of
the debt for a period up to 180 days. Interest on the mortgage facility will
accrue at 1.25% above the bank's LIBOR rate, although the Company has the option
to fix the rate for a period of five years at a rate of 1.25% above the five-
year U.S Treasury Note rate. The Company has pledged all of its assets as
collateral for its obligations under the credit agreement. As of October 31,
1997, the Company's outstanding borrowings under the credit agreement totaled
$34.5 million. The credit agreement expires on July 31, 2002.
In connection with this amendment, an Agency and Interlender Agreement was
entered into by the Company, its bank and two additional participating banks
effective December 1, 1997. This agreement states that the Company's primary
bank will participate in this credit facility with the other banks.
The Company expects to spend an aggregate of $7 million for fiscal 1997 and
1998 in capital expenditures to fund the expansion of existing facilities,
upgrade information systems and technology and to update its material handling
equipment. Management believes that it will have adequate capital resources and
liquidity to meets its debt obligations and to fund its planned capital
expenditures and operate its business for the foreseeable future.
<PAGE>
Impact of Inflation
Historically, the Company has been able to pass along inflation-related
increases. Consequently, inflation has not had a material impact upon the
results of the Company's operations or profitability.
Seasonality
Generally, the Company does not experience any material seasonality.
However, 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.
New Accounting Standards
In February 1997, the Financial Accounting Standards Board released SFAS
No. 128, "Earnings per Share." This statement establishes standards for
computing and presenting earnings per share (EPS) and applies to entities with
publicly held common stock or potential common stock. The statement replaces
the presentation of primary EPS with a presentation of basic EPS. The statement
also requires a dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation.
Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity. This statement is effective for periods ending
after December 15, 1997. The Company will calculate earnings per share under
the standard for the quarter ending January 31, 1998 and does not believe it
will have a material impact on the Company's earnings per share presentation.
The Financial Accounting Standards Board recently issued SFAS No. 129,
"Disclosure of Information about Capital Structure." This statement establishes
standards for disclosing information about an entity's capital structure. This
statement is effective for periods ending after December 15, 1997. The Company
believes it is already substantially in compliance with this standard.
The Financial Accounting Standards Board recently issued SFAS No. 130,
"Reporting Comprehensive Income." This statement establishes standards for
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. This statement is effective for fiscal
years beginning after December 15, 1997 and requires reclassification of
financial statements for earlier periods provided for comparative purposes. The
Company will comply with the required presentation in fiscal 1999.
<PAGE>
The Financial Accounting Standards Board recently issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." This
statement establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. This statement
supersedes SFAS No. 14, "Financial Reporting for Segments of a Business," but
retains the requirement to report information about major customers. This
statement also amends SFAS No. 94, "Consolidation of All Majority-Owned
Subsidiaries." SFAS No. 131 is effective for financial statements for periods
beginning after December 15, 1997 and requires that comparative information for
earlier years be restated. The Company will comply with the required
presentation in fiscal 1999.
Certain Factors That May Affect Future Results
The following important factors, among others, could cause actual results
to differ materially from those indicated by forward-looking statements made in
this Quarterly Report on Form 10-Q and presented elsewhere by management from
time to time.
A number of uncertainties exist that could affect the Company's future
operating results, including, without limitation, continued demand for current
products offered by the Company, the success of the Company's acquisition
strategy, competitive pressures, general economic conditions, the success of new
product introductions and government regulation.
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 four large regional distributors of
natural products. The successful and timely integration of these acquisitions
and mergers is critical to future operating and financial performance of the
Company. While the integration of these acquisitions and mergers with the
Company's existing operations has begun, the Company believes that the
integration will not be substantially completed until the end of calendar 1998.
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 loss of
momentum in, the activities of the respective businesses, which could have an
adverse effect on their combined operations.
The Company is currently experiencing a period of growth which 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. 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
<PAGE>
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 it will successfully identify suitable acquisition candidates,
consummate and integrate such potential acquisitions or expand into new markets.
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 the mass market grocery distributors will not increase their
emphasis on natural products and more directly compete with the Company or that
new competitors will not enter the market.
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 product supply may be adversely affected
from time to time by economic downturns.
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
On October 31, 1997 (the "Effective Time"), the Company completed its
acquisition of Stow pursuant to an Agreement and Plan of Reorganization, dated
as of June 23, 1997, and as amended and restated as of August 8, 1997 (the
"Merger Agreement"), among the Company, Stow, GEM Acquisition Corp., a wholly
owned subsidiary of the Company (the "Merger Subsidiary"), Barclay McFadden and
Richard S. Youngman.
Pursuant to the Merger Agreement, the Merger Subsidiary was merged with and into
Stow at the Effective Time, whereupon Stow became a wholly owned subsidiary of
the Company. At that time, each outstanding share of capital stock of Stow was
converted into 2,711.4817 shares of Common Stock of the Company, or an aggregate
of 4,978,280 shares of Common Stock (the "Shares"). The Company issued the
Shares to the eight stockholders of Stow.
The Company offered and sold the Shares in reliance on the exemption from
registration under Section 4(2) of the Securities Act of 1933, as amended, which
relates to sales by an issuer not involving any public offering. No
underwriters were involved in the offer and sale of the Shares.
Item 4. Submission of Matters to a Vote of Security Holders
At a Special Meeting of Stockholders of the Company (the "Special Meeting") held
on October 30, 1997, the stockholders of the Company considered and voted upon a
proposal to approve the issuance of up to 5,000,000 shares of Common Stock in
order to effect the proposed acquisition of Stow. The number of shares of
Common Stock outstanding and entitled to vote at the Special Meeting was
12,378,425, and 9,168,894 shares were represented in person or by proxy. The
results of the voting were as follows: (i) 9,165,634 votes FOR, (ii) 1,010
votes AGAINST and (iii) 2,250 votes ABSTAINING. There were no broker non-votes.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
The exhibits listed in the Exhibit Index immediately preceding such Exhibits are
filed as part of this Quarterly Report on Form 10-Q.
b) Reports on Form 8-K.
The Company did not file any Current Reports on Form 8-K during the quarter
covered by this Report.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED NATURAL FOODS, INC.
/s/ Steven Townsend
-----------------------------------
Steven Townsend
Chief Financial Officer
(Principal Financial and Accounting Officer)
Dated: December 12, 1997
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
Third Amendment to Amended and Restated Loan
Agreement between United Natural Foods, Inc. and
10.1 Fleet Capital Corporation, dated October 31, 1997
Agency and Interlender Agreement between United
Natural Foods, Inc. and Fleet Capital Corporation,
First Union National Bank and Nationsbank, N.A.,
10.2 dated December 1, 1997
11 Computation of Earnings Per Share
27 Financial Data Schedule
</TABLE>
<PAGE>
UNITED NATURAL FOODS, INC.
260 LAKE ROAD
DAYVILLE, CONNECTICUT 06241
As of October 31, 1997
FLEET CAPITAL CORPORATION
200 Glastonbury Boulevard
Glastonbury, Connecticut 06033
Re: Third Amendment to Amended and Restated Loan Agreement
------------------------------------------------------
Ladies and Gentlemen:
Reference is made to the Amended and Restated Loan and Security Agreement
dated February 20, 1996 as amended ("Loan Agreement") and all promissory notes,
mortgages, guaranties, agreements, documents and instruments entered into by
United Natural Foods, Inc., Mountain People's Warehouse Incorporated, Natural
Retail Group, Inc., Rainbow Natural Foods, Inc., and Nutrasource, Inc.
(collectively, the "Borrowers") and any other person or obligor pursuant thereto
(collectively, the "Loan Documents") with or for the benefit of Fleet Capital
Corporation ("Lender" or "FCC"). Except as otherwise defined herein,
capitalized terms used herein shall have the meanings given them in the Loan
Agreement. This Third Amendment to Loan Agreement is referred to as the "Third
Amendment".
Background. The Borrowers have requested that the Lender consent to the merger
by Gem Acquisition Corp. with and into Stow Mills, Inc., a Vermont corporation
("Stow") as a result of which Stow will become a wholly owned subsidiary of UNF
and the subsidiaries of Stow including, without limitation RB Acquisition,
L.L.C., a Delaware limited liability company ("Newsub"), will become indirect
subsidiaries of UNF (the "Merger"). In connection with this consent, Borrowers
have requested, among other things, that Lender agree that Stow and Newsub
become Borrowers under the Loan Agreement and the other Loan Document, that the
total credit facility be increased to $100,000,000 and the limit on inventory
advances be increased to $50,000,000 and the advance rate on inventory to 60%, a
term loan in the amount of $6,600,000 be made to the Borrowers, and the
aggregate amount of Real Estate Acquisition Loans and the Real Estate Term Loan
be increased to $20,000,000. To accommodate these requests, the Lender has
proposed and the Borrowers have agreed that the Lender syndicate the credit
facilities to other banks and lending institutions as agent for itself and the
new lenders pursuant to the terms set forth herein and the Agency and
Interlender Agreement attached hereto.
Consent to Merger. Subject to the satisfaction of the terms and conditions
- -----------------
hereof, the Lender hereby consents to the Merger.
Amendments to the Loan Agreement. Subject to the satisfaction of the terms and
- --------------------------------
conditions hereof, Lender and Borrower have agreed that the Loan Agreement shall
be amended as follows:
<PAGE>
Designation of Additional Borrowers.
- -----------------------------------
Stow and Newsub each are, and hereby shall be, a Borrower under the Loan
Agreement, jointly and severally with UNF, MPW, NRG, Rainbow and NutraSource
with respect to all existing and hereafter arising Obligations and all
references in the Loan Agreement and other Loan Documents to Borrowers shall
mean and include UNF, MPW, NRG, Rainbow, NutraSource, Stow and Newsub, jointly
and severally.
Stow and Newsub each hereby irrevocably appoints and constitutes UNF as to be
its agent under the Loan Agreement, the Loan Documents or otherwise to (i)
request all Loans and LC Guaranties and Letters of Credit, to select interest
rates and, for Euro-Dollar Loans, Euro-Dollar Interest Periods, pursuant to
Section 3.1.1; (ii) receive all notices, reports, statements and other
information or communications from Lender to the Borrowers or any of them; (iii)
receive the proceeds of all Loans from the Lender and to distribute such
proceeds among the Borrowers in accordance with the terms of this Agreement; and
(iv) otherwise take such action as may be required or permitted by the terms of
the Loan Agreement by and on behalf of the Borrowers.
Designation of Additional Lenders and Agent for Lenders.
- -------------------------------------------------------
In accordance with Section 11.3 of the Loan Agreement, FCC intends to assign a
portion of its interest in the Loans, LC Guaranties and Letters of Credit, this
Agreement and the other Loan Documents to one or more banking or lending
institutions. Upon notice by FCC to Borrowers that such assignments are
effective, each assignee shall be deemed to be a Lender under the Loan Agreement
and other Loan Documents. FCC and such additional Lenders shall thereupon be
severally liable in accordance with the proportionate interest assigned to each
such new Lender and retained by FCC (the "Pro Rata Share") for the obligations
of the Lender under the Loan Agreement and FCC shall be correspondingly relieved
of such obligations to the extent of such assignments. Henceforth all
references in the Loan Agreement and other Loan Documents to Lender in the
singular shall be deemed to be changed to refer to all of the Lenders in the
plural, in their individual and several capacities.
For ease in the administration of the responsibilities of the Lenders under the
Agreement, the Lenders have appointed FCC as agent for the Lenders ("Agent")
pursuant to the Agency and Interlender Agreement attached hereto. Pursuant to
the Agency and Interlender Agreement, FCC has assigned to the Agent, for the
benefit of all the Lenders, all of its right, title and interest in the
Collateral, the Liens granted to the Lenders under the Loan Agreement and other
Loan Documents and all rights, remedies and claims with respect to the
Collateral and such Liens. All actions or omissions of the Agent and all
expenditures made and costs and expenses incurred by Agent shall be deemed to be
made or incurred on behalf of the Lenders, shall be deemed to be Obligations
under the Loan Agreement and other Loan Documents and shall be secured by the
Liens granted on all of the Collateral.
Upon notice from the Agent of an assignment by a Lender, Borrowers agree to
issue replacement Notes to FCC and to each assignee of a Lender in amounts equal
to the Pro Rata Share of each such assignee of the total amount of each of the
credit facilities under the Loan Agreement.
The Borrowers acknowledge, confirm and agree that all representations,
warranties, covenants, indemnities and other agreements under the Loan Agreement
and other Loan Documents shall be deemed to be made to all of the Lenders and to
the Agent. Section 1 of the Loan Agreement is amended to delete the amount
"$50,000,000" in the third line of the first paragraph thereof and to substitute
"$100,000,000" in place thereof.
<PAGE>
Section 1.1.2 of the Loan Agreement is deleted in its entirety and the following
is substituted in place thereof.
"1.1.2 Use of Proceeds. The Revolving Credit Loans shall be used for
---------------
the satisfaction of existing Indebtedness of Stow Mills, Inc. owing to Fleet
National Bank and for the Borrowers' general operating capital needs in a manner
consistent with the provisions of this Agreement and all applicable laws."
Section 1.2.1 of the Loan Agreement is deleted and the following is substituted
in place thereof:
"1.2.1 Term Loan. Lender agrees to make a term loan to the Borrowers
---------
on the Third Amendment Closing Date in the principal amount of $6,600,000, which
shall be repayable in accordance with the Term Note and shall be secured by all
the Collateral. The proceeds shall be used for purposes for which the proceeds
of Revolving Credit Loans are authorized to be used."
Section 1.2.3 of the Loan Agreement is amended to delete the first sentence
thereof and to substitute in place thereof the following: "The Lender agrees to
make to the Borrowers additional Loans ("Real Estate Acquisition Loans") in an
aggregate principal amount not to exceed $14,625,000 for the purpose of
financing the purchase of the real property to be used by the Borrowers in
Auburn, California and to finance the purchase of other parcels of real property
to be used by the Borrowers.
Appendix A. General Definitions is hereby amended as follows:
- ----------
The definition of Borrowing Base is amended to delete the definition thereof in
its entirety and to substitute in place thereof:
"Borrowing Base - at any date of determination thereof, an amount
--------------
equal to the lesser of:
(i) $100,000,000 minus the unpaid principal balance of (a) the Term
-----
Loan; (b) the Real Estate Term Loan; (c) the Acquisition Loans; (d) the Real
Estate Acquisition Loans; and (d) the face amount of any Letter of Credit or LC
Guaranty outstanding at such date; or
(ii) an amount equal to:
(a) ninety percent (90%) of the net amount of Eligible Accounts
outstanding at such date not including UNF's Eligible
Accounts due from the New Subsidiaries and Rainbow;
PLUS
(b) the lesser of (1) $50,000,000.00 or (2) sixty percent (60%)
of the value of the Eligible Inventory at such date, not
including the Eligible Inventory of the New Subsidiaries,
consisting of finished goods calculated on the basis of the
lower of cost or market with the cost of finished goods
calculated on a first-in, first-out basis.
PLUS
<PAGE>
(c) either (1) seventy-five percent (75%) of the net amount of
the UNF's Eligible Accounts due from the New Subsidiaries
outstanding at such date; or (2) sixty percent (60%) of the
value of the Eligible Inventory of the New Subsidiaries at
such date, consisting of finished goods calculated on the
basis of the lower of cost or market with the cost of
finished goods calculated on a first-in, first out basis.
MINUS
(d) an amount equal to the face amount of any LC Guaranty and
Letter of Credit outstanding on such date.
For purposes hereof, the net amount of Eligible Accounts at any time
shall be the face amount of such Eligible Accounts less any and all returns,
rebates, discounts (which may, at Lender's option, be calculated on shortest
terms), credits, allowances or excise taxes of any nature at any time issued,
owing, claimed by Account Debtors, granted, outstanding or payable in connection
with such Accounts at such time."
The definition of Euro-Dollar Interest Period is amended to delete the words "or
twelfth" in the third line thereof and by inserting the word "or" after the word
"third" and before the word "sixth" in such third line.
Security Interest in Collateral. To secure the prompt payment and performance
- -------------------------------
to Lenders of the Obligations, each of Stow and Newsub hereby grants to Lenders
and to Agent a continuing Lien upon all of their respective assets, including
all of the following Property and interests in Property of each such Borrower,
whether now owed or existing or hereafter created, acquired or arising and
wheresoever located:
(i) Accounts;
(ii) Inventory;
(iii) Equipment
(iv) General Intangibles
(v) All monies and other Property of any kind now or at any
times hereafter in the possession or under the control of Lender or a
bailee or Affiliate of Lender;
(vi) All accessions to, substitutions for and all
replacements, products and cash and non-cash proceeds of (i) through
(v) above, including, without limitation, proceeds of and unearned
premiums with respect to insurance policies insuring any of the
Collateral; and
(vii) All books and records (including, without limitation,
customer lists, credit files, computer programs, print-outs, and other
computer materials and records of any Borrower pertaining to any of
(i) through (vi) above.
<PAGE>
Representations and Warranties.
- ------------------------------
To induce Lenders to enter into this Third Amendment, each Borrower
warrants, represents and covenants to the Lenders and Agent that:
Organization and Qualification. Each Borrower is a corporation duly
- ------------------------------
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. Each Borrower is duly qualified or is
authorized to do business and is in good standing as a foreign corporation or
limited liability company in all states and jurisdictions in which the failure
of such Borrower to be so qualified would have a material adverse effect on the
financial condition, business or properties of such Borrower.
Corporate Power and Authority. Each Borrower is duly authorized and empowered
- -----------------------------
to enter into, execute, deliver and perform this Third Amendment and each of the
Loan Documents to which it is a party. The execution, delivery and performance
of this Third Amendment and each of the other Loan Documents have been duly
authorized by all necessary corporate action and do not and will not (i) require
any consent or approval of the shareholders or members of a Borrower; (ii)
contravene any Borrower's charter, by-laws or operating agreement; (iii)
violate, or cause Borrower to be in default under, any provision of any law,
rule, regulation, order, writ, judgment, injunction, decree, determination or
award in effect having applicability to any Borrower; (iv) result in a breach of
or constitute a default under any indenture or loan or credit agreement or any
other agreement, lease or instrument to which any Borrower is a party or by
which Borrower's Properties may be bound or affected; or (v) result in, or
require, the creation or imposition of any Lien (other than Permitted Liens)
upon or with respect to any of the Properties now owned or hereafter acquired by
Borrower.
Legally Enforceable Agreement. This Third Amendment and each of the other Loan
- -----------------------------
Documents when delivered under this Third Amendment will be, a legal, valid and
binding obligation of each Borrower, enforceable against each Borrower in
accordance with its respective terms.
No Material Adverse Change. Since the date of the last financial statements
- --------------------------
provided by the Borrowers to the Lender, there has been no material adverse
change in the condition, financial or otherwise, of any Borrower as shown on the
Consolidated balance sheet as of such date and no change in the aggregate value
of the Collateral, except changes in the ordinary course of business, none of
which individually or in the aggregate has been materially adverse.
<PAGE>
Continuous Nature of Representations and Warranties. Each representation and
warranty contained in the Loan Agreement and the other Loan Documents remains
accurate, complete and not misleading in any material respect on the date of
this Third Amendment, except for representations and warranties that explicitly
relate to an earlier date and changes in the nature of any Borrower's business
or operations that would render the information in any exhibit attached thereto
either inaccurate, incomplete or misleading, so long as such changes were
disclosed in the Form S-1 Registration Statement of UNF as filed with the
Securities and Exchange Commission on September 4, 1996, as amended, in the
amended Exhibits attached hereto or Lenders have consented to such changes or
such changes are expressly permitted by the Loan Agreement.
Conditions Precedent.
- --------------------
Notwithstanding any other provision of this Third Amendment or any of
the other Loan Documents, and without affecting in any manner the rights of
Lenders under the other sections of this Third Amendment, this Third Amendment
shall not be effective as to Lenders unless and until each of the following
conditions has been and continues to be satisfied (the "Third Amendment Closing
Date"):
Documentation. Lenders shall have received, in form and substance satisfactory
to Lenders and their counsel, a duly executed copy of this Third Amendment, the
Term Note, the replacement Notes for each new Lender, and the Loan Documents
required to be executed in connection herewith, together with such additional
documents, instruments, opinions of Borrowers' counsel and certificates as FCC
and its counsel shall require in connection therewith, all in form and substance
satisfactory to Lenders and their counsel.
No Default. No Default or Event of Default shall exist except as previously
disclosed to and consented to by Lenders.
No Litigation. Except as previously disclosed to and consented to by Lender, no
action, proceeding, investigation, regulation or legislation shall have been
instituted, threatened or proposed before any court, governmental agency or
legislative body to enjoin, restrain or prohibit, or to obtain damages in
respect of, or which is related to or arises out of the Loan Agreement or this
Third Amendment or the consummation of the transactions contemplated thereby or
hereby.
Amendments to Exhibits. The Exhibits to the Loan Agreement shall have been
amended by Borrowers and attached hereto and the information therein shall be
satisfactory to the Lender.
The Merger has closed and all conditions precedent thereto shall have been
satisfied and not waived.
Acknowledgment of Obligations.
- -----------------------------
Each Borrower hereby (1) reaffirms and ratifies all of the promises,
agreements, covenants and obligations to Lenders under or in respect of the Loan
Agreement and other Loan Documents as amended hereby and (2) acknowledges that
it is unconditionally liable for the punctual and full payment of all
Obligations, including, without limitation, all charges, fees, expenses and
costs (including reasonable attorneys' fees and expenses) under the Loan
Documents, as amended hereby, and that it has no defenses, counterclaims or
setoffs with respect to full, complete and timely payment and performance of all
Obligations.
<PAGE>
Confirmation of Liens.
- ---------------------
Each Borrower acknowledges, confirms and agrees that the Loan
Documents, as amended hereby, are effective to grant to Agent and to Lenders
duly perfected, valid and enforceable first priority security interests and
liens in the Collateral described therein and that the locations for such
Collateral specified in the Loan Documents have not changed. Each Borrower
further acknowledges and agrees that all Obligations of such Borrower are and
shall be secured by the Collateral.
Miscellaneous.
- -------------
Except as set forth herein, the undersigned confirms and agrees that
the Loan Documents remain in full force and effect without amendment or
modification of any kind. Each Borrower hereby acknowledges its obligation to
pay to Lenders' and Agent's reasonable attorneys' fees and costs incurred in
connection with this Third Amendment, as set forth in the Loan Agreement. The
execution and delivery of this Third Amendment by Lenders and Agent shall not be
construed as a waiver by Lenders of any Default or Event of Default under the
Loan Documents. This Third Amendment, together with the Loan Agreement and
other Loan Documents, constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior dealings,
correspondence, conversations or communications between the parties with respect
to the subject matter hereof. This Third Amendment and the transactions
hereunder shall be deemed to be consummated in the State of Connecticut and
shall be governed by and interpreted in accordance with the laws of that state.
This Third Amendment and the agreements, instruments and documents entered into
pursuant hereto or in connection herewith shall be "Loan Documents" under and as
defined in the Loan Agreement.
EACH BORROWER HEREBY WAIVES SUCH RIGHTS AS IT MAY HAVE TO NOTICE AND/OR
HEARING UNDER ANY APPLICABLE FEDERAL OR STATE LAWS INCLUDING, WITHOUT
LIMITATION, CONNECTICUT GENERAL STATUTES SECTIONS 52-278A, ET-SEQ., AS AMENDED,
--
PERTAINING TO THE EXERCISE BY AGENT AND/OR LENDERS OF SUCH RIGHTS AS THE AGENT
AND/OR LENDERS MAY HAVE INCLUDING, BUT NOT LIMITED TO, THE RIGHT TO SEEK
PREJUDGMENT REMEDIES AND/OR DEPRIVE BORROWERS OF OR AFFECT THE USE OF OR
POSSESSION OR ENJOYMENT OF BORROWERS' PROPERTY PRIOR TO THE RENDITION OF A FINAL
JUDGMENT AGAINST A BORROWER. EACH BORROWER FURTHER WAIVES ANY RIGHT IT MAY
HAVE TO REQUIRE AGENT AND/OR LENDERS TO PROVIDE A BOND OR OTHER SECURITY AS A
PRECONDITION TO OR IN CONNECTION WITH ANY PREJUDGMENT REMEDY SOUGHT BY AGENT
AND/OR LENDERS.
Executed under seal on the date set forth above.
ATTEST: UNITED NATURAL FOODS, INC.
/s/ Chris Correa By: /s/ Steven Townsend
- ------------------------------ ----------------------------------
Name: Steven Townsend
-----------------------------
Title: CFO
----------------------------
ATTEST: MOUNTAIN PEOPLE'S WAREHOUSE, INC.
<PAGE>
/s/ Chris Correa By: /s/ Steven Townsend
- ------------------------------ ----------------------------------
Name: Steven Townsend
-----------------------------
Title: CFO
----------------------------
ATTEST: NATURAL RETAIL GROUP, INC.
/s/ Chris Correa By: /s/ Steven Townsend
- ------------------------------ ----------------------------------
Name: Steven Townsend
-----------------------------
Title: CFO
----------------------------
<PAGE>
ATTEST: NUTRASOURCE, INC.
/s/ Chris Correa By: /s/ Steven Townsend
- ------------------------------ ----------------------------------
Name: Steven Townsend
-----------------------------
Title: CFO
----------------------------
ATTEST: RAINBOW NATURAL FOODS, INC.
/s/ Chris Correa By: /s/ Steven Townsend
- ------------------------------ ----------------------------------
Name: Steven Townsend
-----------------------------
Title: CFO
----------------------------
ATTEST: STOW MILLS, INC.
/s/ Chris Correa By: /s/ Steven Townsend
- ------------------------------ ----------------------------------
Name: Steven Townsend
-----------------------------
Title: CFO
----------------------------
ATTEST: RB ACQUISITION, L.L.C.
/s/ Chris Correa By: /s/ Steven Townsend
- ------------------------------ ----------------------------------
Name: Steven Townsend
-----------------------------
Title: CFO
----------------------------
Accepted in Glastonbury, Connecticut
on October 31, 1997
FLEET CAPITAL CORPORATION, as Agent
By: /s/ Howard Handman
---------------------------
Name: Howard Handman
----------------------
Title: Vice President
---------------------
FLEET CAPITAL CORPORATION, as Lender
By: /s/ Howard Handman
---------------------------
Name: Howard Handman
----------------------
Title: Vice President
---------------------
<PAGE>
AGENCY AND INTERLENDER AGREEMENT
--------------------------------
AGREEMENT made as of this 1st day of December, 1997 among Fleet Capital
Corporation ("FCC"), as agent ("Agent") for itself and each of the financial
institutions identified under the caption "LENDERS" on the signature page hereof
(together, FCC and such financial institutions are collectively referred to as
the "Lenders").
WHEREAS, FCC, as a Lender and United Natural Foods, Inc. Natural Retail
Group, Inc., Rainbow Natural Foods, Inc., Mountain People's Warehouse
Incorporated, Nutrasource Inc., Stow Mills, Inc. and RB Acquisition, L.L.C.
(collectively, the "Borrowers") are parties to a certain Amended and Restated
Loan and Security Agreement dated February 20, 1996 as amended (the "Loan
Agreement") pursuant to which FCC has made available to Borrowers credit
facilities aggregating $100,000,000 including revolving credit loans, term
loans, acquisition loans, real estate acquisition loans, and letters of credit
(the "Credit Facilities");
WHEREAS, pursuant to the Assignment and Acceptances of even date FCC has
assigned to the Lenders interests in the Credit Facilities with the Borrowers
and the Lenders have purchased such interests thereby becoming Lenders under the
Loan Agreement and other Loan Documents;
WHEREAS, in addition to (and in some instances, in lieu of) the provisions
set forth in the Loan Agreement and other Loan Documents, the Lenders, the Agent
and the Borrowers wish to memorialize their understandings and agreements with
respect to the Loan Agreement and the other Loan Documents;
NOW THEREFORE, for good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows. Capitalized terms not otherwise defined herein shall have the meanings
given in the Loan Agreement.
Appointment. FCC is hereby appointed as Agent under the Loan Agreement, the
- -----------
other Loan Documents and hereunder by each Lender and each Lender hereby
authorizes Agent to act hereunder, under the Loan Agreement and under the other
Loan Documents as its agent hereunder and thereunder. FCC agrees to act as such
upon the express conditions contained in this Agreement. The provisions of this
Agreement are solely for the benefit of Agent and Lenders, and Borrowers shall
not have any rights as third party beneficiaries of any of the provisions of
this Agreement. In performing its functions and duties under this Agreement,
Agent shall act solely as agent of Lenders and does not assume and shall not be
deemed to have assumed any obligation towards or relationship of agency or trust
with or for any Borrower.
Assignment of Interests on Collateral. FCC hereby assigns to itself as Agent
- -------------------------------------
for itself and the Lenders all of its right, title and interest in the
Collateral, the Liens granted by Borrowers and other obligors therein, and the
rights, remedies and claims therein provided under the Loan Documents and at law
or in equity. The Lenders acknowledge and agree that with respect to the
Collateral, the Liens thereon, the Guaranties, and their respective rights,
interest and claims therein, they will act only through the Agent as provided in
this Agreement. No Lender shall have any right
<PAGE>
individually to enforce any such Lien or Guaranty or to otherwise realize upon
the security granted under the Loan Documents, it being understood and agreed
that such rights and remedies shall be exercised by the Agent for the benefit of
itself and the Lenders.
Pro Rata Share. For purposes hereof, and the Loan Agreement, the term Pro Rata
- --------------
Share shall mean, for any Lender, such Lender's relative interest, expressed as
a percentage in outstanding Loans and commitments to extend Loans, LC
Guaranties, Letters of Credit and the other credit extensions under the Loan
Agreement. Upon the purchase by each of the Lenders of their respective
interests in the Credit Facilities from FCC pursuant to the Assignment and
Acceptance, the Pro Rata Shares of the Lenders shall be as set forth in Exhibit
A hereto. The commitment of each Lender to make Loans and other extensions of
credit under the Loan Agreement and hereunder shall be on a several basis only
and not jointly with the other Lenders.
Procedures for Making Loans and issuing LC Guaranties and Letters of Credit.
- ---------------------------------------------------------------------------
The Borrowers, acting through their agent UNF, shall make requests for Revolving
Credit Loans to the Agent pursuant to Sections 3.1.1 of the Loan Agreement not
later than 1:00 p.m. Hartford, Connecticut time on the date any Base Rate
Revolving Credit Loan is to be made and three (3) Business Days prior to the
date that any Euro-Dollar Rate Loan is to be made. In addition, the Borrowers,
acting through their agent UNF, may request that Loans bearing interest at the
Base Rate may be converted to Euro-Dollar Rate Loans or Fixed Rate Loans by
request made three (3) Business Days prior to the date that any such Euro-Dollar
Rate Loan or Fixed Rate Loan is to be made. The Agent shall thereupon notify
the Lenders of such request and on or before 2:00 p.m. Hartford, Connecticut
time on the date of any Base Rate Revolving Credit Loan request and 2:00 p.m.
Hartford, Connecticut time on the third business day following any such Euro-
Dollar Rate Loan or Fixed Rate Loan request, each Lender shall thereupon advance
to the Agent by wire transfer of immediately available funds such Lender's Pro
Rata Share of such Loan.
Borrowers shall request Acquisition Loans and Real Estate Acquisition Loans by
and through the Agent. Agent shall notify Lenders of any request by Borrowers
or UNF for an Acquisition Loan or Real Estate Acquisition Loan promptly
following receipt. Lenders will fund their Pro Rata Share of each such
Acquisition Loan or Real Estate Acquisition Loan by wire transfer of immediately
available funds on or before 2:00 p.m. Hartford, Connecticut time on the first
business day (or if the Acquisition Loan or Real Estate Acquisition Loan is to
be made as a Euro-Dollar Rate Loan or Fixed Rate Loan, on the third business
day) following receipt of notice from Agent of Borrowers' request therefore.
Borrowers shall request the issuance of LC Guaranties and Letters of Credit
pursuant to Section 1.3 of the Loan Agreement by and through the Agent and the
Agent shall arrange for the issuance of such LC Guaranties and Letters of Credit
and notify the Lenders thereof. Upon the issuance of an LC Guaranty and/or
Letter of Credit, each Lender shall each be deemed to have purchased a
participation interest therein equal to its Pro Rata Share.
Unless the Agent has been notified in writing by a Lender prior to the proposed
time for the funding of a borrowing that such Lender does not intend to deposit
with Agent such Lender's Pro Rata Share of the requested borrowing, the Agent
may assume that such Lender has deposited or promptly will deposit its Pro Rata
Share of such Loan with the Agent and Agent may advance funds on behalf of the
other Lenders hereunder, but shall have no obligation to do so. If a Lender's
Pro Rata Share of a borrowing is not deposited with the Agent as required
hereunder, then if Agent has disbursed to Borrowers an amount corresponding to
such share, such
<PAGE>
Lender agrees to pay, and the Borrowers also agree to pay to Agent on demand
such corresponding amount together with interest thereon at the interest rate
applicable thereto under the Loan Agreement.
In order to facilitate the administration of the Loan, the Lenders agree and
authorize the Agent to request that FCC make Revolving Credit Loans for itself
and on behalf of the other Lenders on a daily basis subject to the weekly (or
more often at Agent's election) settlement among the Lenders as provided under
Section 5 hereof (provided that FCC shall have no obligation to make such
Loans). All Loans made hereunder or under subsection 4(d) hereof shall be
deemed to be Revolving Credit Loans under the Agreement and shall have all the
rights and benefits thereof.
Payments Made to Agent. All payments to be made by Borrowers in respect of the
- ----------------------
Loans, LC Guaranties and Letters of Credit under the Loan Agreement shall be
made to and received by FCC in its capacity as Agent for the benefit of Lenders.
On a weekly basis, or more often as determined by Agent in its discretion, Agent
shall transfer to each Lender in immediately available funds by wire transfer
any amounts then due to such Lender. If, pursuant to subsections 4(d) or (e)
the Agent determines that amounts are due from the Lenders to the Agent or FCC,
the Agent will notify the Lenders of the amounts due, deduct from payments made
by the Borrowers under the Loan Agreement the amounts so due to Agent and/or FCC
and each Lender will transfer to Agent in immediately available funds any
amounts then due from such Lender to FCC. If Agent shall pay an amount to any
Lender pursuant to this Agreement in the expectation that a related payment has
been or will be received or collected from Borrowers, and such related payment
is not received or collected by Agent from Borrowers, such Lender shall promptly
upon demand by Agent, return such amount to Agent, together with interest
thereon, at the rate applicable to Loans made hereunder. If Agent determines at
any time that any amounts received or collected by Agent on account of
Borrowers' Obligations must be returned to Borrowers or paid to any other Person
pursuant to the provisions of the Loan Documents or applicable laws, Agent shall
not be required to distribute any portion thereof to Lenders, and if Agent shall
have distributed any portion thereof to Lenders, each Lender shall promptly upon
demand by Agent repay such portion to Agent together with interest thereon at
the rate, if any, that Agent shall be required to pay to Borrowers or such other
Person with respect thereto.
Sharing of Interest and Fees. The Lenders shall receive interest (including
- ----------------------------
interest at the Default Rate if and to the extent the Default Rate is required
to be paid and is paid under the Loan Agreement) in respect of the closing daily
balances in the Borrowers' Loan Accounts as such interest is earned and received
by FCC from the Borrowers pursuant to the Loan Agreement, to the extent of
Lenders' Pro Rata Share at a rate equal to rates specified for the various types
of Loans under the Loan Agreement. It is understood that notwithstanding
anything else to the contrary contained in the Loan Agreement or herein, the
interest earned and due to the Lenders hereunder, shall be the sole compensation
to the Lenders, except with respect to the following that Lenders will be
entitled to as set forth below to the extent that such amounts are earned or
payable and received from Borrowers under the Loan Agreement:
<TABLE>
<CAPTION>
Fee Lenders
<S> <C>
(a) Letter of Credit Fees under Section 2.4 Pro Rata Share
(exclusive of charges due to Bank)
(b) Reimbursement of Expenses under As provided under Loan Agreement
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 2.8
(c) Bank Charges As provided under Loan Agreement
(d) Funding Losses under Section 3.8 Losses actually incurred
(e) Increased Costs under Section 3.9 Costs actually incurred
(f) Termination Charges under Section 4.2.3 Pro Rata Share
(g) Indemnity under Section 11.2 As provided under Loan Agreement
</TABLE>
Sharing of Collateral, Payments and Setoffs. Agent and the Lenders agree that
- -------------------------------------------
notwithstanding anything in any Loan Documents to the contrary, all proceeds of
Collateral and any amounts paid by any Guarantor under any Guaranty Agreement,
shall be distributed by Agent, after deduction and payment of all costs and
expenses incurred by the Agent and the repayment of all Loans made by Agent
and/or FCC under subsections 4(d) and (e) hereof, to the Lenders on a Pro Rata
Share basis. Each Lender agrees that if it shall, through the exercise of a
right of banker's lien, setoff, or counterclaim against any Borrower or any
Guarantor, obtain payment in respect of the Loans as a result of which the
unpaid portion of its Pro Rata Share of the Loans, LC Guaranties and Letters of
Credit is proportionately less than the unpaid portion of the Loans, LC
Guaranties and Letters of Credit of any other Lender it shall promptly purchase
at par (and shall be deemed to have thereupon purchased) from such other Lender
a participation in the Loans, LC Guaranties and Letters of Credit of such other
Lender, so that the aggregate unpaid principal amount of each Lender's Loans and
its participation in Loans, LC Guaranties and Letters of Credit of the other
Lenders shall be consistent with each such Lender's relative Pro Rata Share,
provided that if any such non-pro rata payment is thereafter recovered or
otherwise set aside such purchase of a participation shall be rescinded.
Overadvances.
- ------------
FCC shall not intentionally and with actual knowledge, make Revolving Credit
Loans to the Borrowers pursuant to the Loan Agreement that would cause an
Overadvance unless the Lenders expressly consent thereto in writing; provided
FCC may, without the consent of the Lenders , intentionally make Overadvances at
the request of the Borrowers provided that the aggregate amount of such advances
(the "Intentional Overadvance Loans") do not exceed Two Million Dollars
($2,000,000) at any time outstanding;
If an Overadvance exists, Agent agrees to demand the repayment thereof within
thirty (30) days of the date that Agent has actual knowledge that the
Overadvance occurred; provided that Agent agrees that, unless the Lenders shall
direct otherwise, to immediately demand the repayment of the full amount of any
Overadvance if the aggregate amount of such Overadvance exceeds Two Million
Dollars ($2,000,000).
The foregoing provisions shall not restrict Agent from making Loans for the
purpose of expending funds to be paid to parties other than the Borrowers to
preserve or protect the rights or interest of the Agent and the Lenders with
respect to the Collateral or the Loan Documents.
Agreement of Requisite Lenders. Except as otherwise specifically required
- ------------------------------
hereby, upon any occasion requiring or permitting an approval, consent, waiver,
election or
<PAGE>
other action on the part of the Lenders under the Loan Agreement and
the other Loan Documents, the action shall be taken by the Agent for and on
behalf or for the benefit of all Lenders upon the direction of the Requisite
Lenders (as defined below) or, if required by Section 10, all of the Lenders,
and any such action shall be binding on all Lenders. No amendment,
modification, consent, or waiver shall be effective except in accordance with
the provisions of Section 10 below. For purposes hereof, Requisite Lenders shall
mean at any time, at least two (2) Lenders holding Loans and participation
interests in LC Guaranties and Letters of Credit representing at least 51% of
the aggregate principal amount of the Loans, LC Guaranties and Letters of Credit
outstanding or, if no Loans are outstanding, at least two (2) Lenders having Pro
Rata Shares of at least 51%.
Amendments, Waivers and Actions Upon Default.
- --------------------------------------------
Actions Requiring Unanimous Consent. Without the consent of each Lender, Agent
- -----------------------------------
shall not, prior to the end of the Original Term (or any Renewal Term, if
applicable): (i) change the interest rate or forgive or waive the payment of any
interest on any Loans or change the payment date for any interest under the Loan
Documents; (ii) change, forgive or waive the fees payable under the Loan
Agreement which are shared among or payable to the Lenders pursuant to Section 6
hereof other than fees payable solely to FCC in its capacity as Lender or Agent;
(iii) change or forgive the payment of the principal amount of Loans outstanding
any time; (iv) extend the date on which the Original Term (or any Renewal Term,
if applicable) ends; (v) except as otherwise provided in the Loan Documents,
release any Guarantor, or release any Collateral, unless the proceeds thereof
are applied as provided in the Loan Documents; (vi) change the date principal,
any fees or other amounts payable to or shared among the Lenders (other than
principal, fees, or other amounts payable solely to FCC, in its capacity as a
Lender or Agent) are due under the Loan Documents; (vii) increase the advance
rates used in the Borrowing Base or change to allow greater availability the
representations relating to accounts and inventory incorporated therein or any
definitions utilized in the calculation of the Borrowing Base; (viii) increase
the commitments of the Lenders under the Loan Documents; (ix) change in any
manner the reimbursement obligations with respect to any LC Guaranties or
Letters of Credit; or (x) change the terms of this provision or the definition
of "Requisite Lenders".
Actions Requiring Consent of Requisite Lenders. Without the consent of the
- ----------------------------------------------
Requisite Lenders or, if required by Section 10, all the Lenders, the Agent
shall not, prior to the end of the Original Term (or any Renewal Term, if
applicable): (i) agree to waive or modify any material provisions of the Loan
Documents requested by Borrowers or any other party liable for the Loans; or
(ii) consent to any matter requested by Borrowers or any other party liable for
the Loans which, under the Loan Documents, requires Agent's or Lenders' consent.
Notice and Consultation after Default or Proposed Acceleration. Upon the
- --------------------------------------------------------------
occurrence of an Event of Default of which Agent obtains actual knowledge, or if
Agent otherwise intends to accelerate and demand payment of the Loans, Agent
shall promptly notify each Lender of such event or intention and consult with
Lenders as to whether to accelerate and demand payment of the Loans and which
other rights and remedies Agent should pursue or refrain from pursuing. Lenders
shall promptly confer with Agent in a good faith effort to arrive at a mutually
acceptable course of action.
Procedure Following Notice and Consultation. After notice and consultation, as
- -------------------------------------------
provided in subsection (c) above, Agent shall, with the consent of the Lenders
(or, if there are more than two Lenders, the consent of the Requisite Lenders):
(i)
<PAGE>
accelerate or demand payment of the Loans, or refrain from doing so; and
(ii) thereafter exercise or refrain from exercising such rights and remedies to
collect or restructure the Loans as Agent may determine, in its opinion, to be
necessary or desirable to protect the Agent and the Lenders, including, without
limitation, terminating the commitments; requiring that Borrowers provide Agent
cash collateral to cover the LC Amount and all fees that may thereafter be
payable in respect of LC Guaranties and Letters of Credit; amending the Loan
Documents in connection with a workout of the Loans; and exercising any rights
and remedies provided in the Security Documents and other Loan Documents. The
Lenders agree to cooperate with any such actions (or inactions) which the Agent
is authorized to take under this subsection. If, prior to notice or
consultation, emergency action is required, in the opinion of Agent, to protect
the interests of Lenders or Agent, Agent may take such required action and the
Lenders shall be deemed to have consented thereto. In no event, however, shall
Agent, without the consent of the Lenders, take any action described in
subsection (a) above or any action in violation of Section 9 above.
Procedure in the Absence of Required Consent. If, after consultation, the
- --------------------------------------------
Requisite Lenders (or each Lender, as may be required under (a) above) fail to
approve Agent's proposed course of action under subsections (c) or (d) above,
within a reasonable period of time (not exceeding ten (10) business days), Agent
shall accelerate and demand payment of the Loans, and liquidate the Collateral
and collect the Loans, as provided in the Loan Documents. After demand, any
advances made by Agent to facilitate collection of the Loans, or to preserve or
protect the Collateral shall be treated as costs and expenses of liquidation,
which shall be repaid prior to payment of amounts due under Loans or on account
of LC Guaranties and Letters of Credit previously made or issued. In addition,
FCC shall have the right to purchase any non-consenting Lender's Loans and other
interests in the credit facilities for the full amount thereof, together with
accrued interest, fees, costs and other amounts owing in connection therewith
upon not less than ten (10) business days prior notice.
Renewal Terms. The term of the Loan Agreement automatically renews for one (1)
- -------------
year periods unless terminated in accordance with Section 4.2 of the Loan
Agreement. Section 4.2.1 of the Loan Agreement provides that at the end of the
Original Term or any Renewal Term, upon at least ninety (90) days prior written
notice, Lenders may terminate the Loan Agreement as of the last day of the
Original Term or any Renewal Term (the date which is ninety-one (91) days prior
to the last day of the Original Term or any Renewal Term is herein the
"Termination Notice Date"). At least thirty (30) days prior to each Termination
Notice Date, FCC shall provide to the Lenders written notice of the Termination
Notice Date and shall request that the Lenders advise FCC if they will agree to
continue as a Lender in any such Renewal Term (such notice herein the "Renewal
Request Notice"). Within fifteen (15) days after the Renewal Request Notice
(the date which is fifteen (15) days after the Renewal Request Notice, herein
the "Lender Determination Date"), each Lender shall advise FCC if such Lender
will agree to continue as a Lender during the applicable Renewal Term. If a
Lender does not agree to such renewal or if a Lender fails to advise FCC of its
decision with respect to such renewal by the Lender Determination Date, FCC
shall either (a) terminate the Loan Agreement in accordance with Section 4.2.1
or (b) prior to or at the end of the Original Term or, if applicable, the then
current Renewal Term, purchase such Lender's Loans and other interests in the
credit facilities for the full amount thereof, together with all interests,
fees, costs or other amounts owing in respect thereof. In addition, if FCC
fails to give the Renewal Request Notice and does not then terminate the Loan
Agreement, then
<PAGE>
prior to or at the end of the Original Term or, if applicable, the then current
Renewal Term, FCC agrees to purchase such Lender's Loans and other interests in
the Credit Facilities for the full amount thereof, together with all interests,
fees, costs or other amounts owing in respect thereof, provided that the
foregoing shall be the sole and exclusive obligation and liability of FCC to the
Lenders arising out of FCC's failure to give such notice.
Default by Lender. If any Lender defaults in its obligation to make Loans or to
- -----------------
comply with the terms of any LC Guaranty or Letter of Credit executed or issued
by it, then, so long as such default exists, such Lender shall not be entitled
to exercise any right of consent under Sections 8, 9 or 10 above, so that Agent
shall be entitled to take any actions described in such subsections without the
consent of such Lender, and such Lender's Pro Rata Share shall not be considered
in determining whether the Requisite Lenders have consented to any action
requiring consent of the Requisite Lenders hereunder. Nothing herein shall
relieve any Lender from any liability for any damages, cost or expenses suffered
by the other Lenders or the Agent as a result of such Lender's default.
Assignment and Participation. Except as provided herein, the Lenders (exclusive
- ----------------------------
of FCC) may not sell, assign or grant a participation interest in, in whole or
in part, its interests, rights or obligations in the Loans, LC Guaranties,
Letters of Credit or Loan Documents. Notwithstanding the foregoing, a Lender
may (a) grant a participation interest to any of its Affiliates so long as such
Lender retains its right and responsibility of enforcing the obligations of the
Borrowers hereunder, including without limitation its rights to approve
amendments, modifications and waivers of the terms hereof, or (b) sell or grant
participation interests or, during the continuance of an Event of Default,
assign its interests to Persons not affiliated with such Lender if it first
gives written notice of such offer to FCC. The written notice shall include all
material terms and conditions of the offer and shall be deemed for all purposes
to give FCC a first right of purchase (also known as a right of first refusal)
of such participation interest or assignment before any other action is taken by
such Lender to sell or grant such participation interest. Such first right of
purchase shall continue for 20 days from receipt of such written notice and if
the FCC elects to exercise its first right of purchase it will so notify such
Lender specifying the time and place for closing the purchase. If FCC declines
or fails to exercise its first right of purchase within the time period provided
herein, such Lender may, within 60 days from the date such right terminates,
sell or grant the participation interest or make such assignment, but only upon
the same terms and conditions offered to the FCC.
Benefit of Agreement. The provisions of this Agreement are solely for the
- --------------------
benefit of the Lenders and the Agent and shall not confer any rights on, benefit
in any way or be deemed to be enforceable by the Borrowers.
Powers of Agent; General Immunity.
- ---------------------------------
Duties Specified. Each Lender irrevocably authorizes Agent to take such action
- ----------------
on Lender's behalf and to exercise such powers hereunder and under the Loan
Agreement and other Loan Documents as are specifically delegated to Agent by the
terms hereof and thereof, together with such powers as are reasonably incidental
thereto. Agent shall have only those duties and responsibilities which are
expressly specified in this Agreement, the Loan Agreement and the other Loan
Documents, and it may perform such duties by or through its agents or employees.
The duties of Agent shall be mechanical and administrative in nature; Agent
shall not have by reason of this Agreement a fiduciary relationship in respect
of any Lender, and nothing in this Agreement, expressed or implied, is intended
to or shall be construed as to impose upon Agent any obligations in respect of
this Agreement or the other
<PAGE>
instruments and agreements referred to herein except as expressly set
forth herein or therein.
No Responsibility for Certain Matters. Agent shall not be responsible to any
- -------------------------------------
Lender for execution, effectiveness, genuineness, validity, enforceability,
collectibility or sufficiency of the Loan Agreement, or the other Loan
Documents, or the Notes issued hereunder, or for the validity or effectiveness
of any assignment, pledge, security agreement, financing statements, document or
instrument, or for the filing, recording, re-filing, continuing or recording
thereof, or for any representations, warranties, recitals or statement or in any
financial or other statements, instruments, reports, certificates or any other
documents in connection herewith or therewith furnished or made by Agent to
Lenders or by or on behalf of Borrowers to Agent or any Lender or be required to
ascertain or inquire as to the performance or observance of any of the terms,
conditions, provisions, covenants or agreements contained herein or therein or
as to the use of the proceeds of the Loans or of the existence or possible
existence of any Default or Event of Default. Anything contained in this
Agreement to the contrary notwithstanding, Agent shall have no liability arising
from (i) confirmations of the amount of outstanding Loans, or the component
amounts thereof, or (ii) arranging for the issuance of LC Guaranties or Letters
of Credit.
Exculpatory Provisions. None of Agent or any of its officers, directors,
- ----------------------
employees or agents shall be liable to Lenders for any action taken or omitted
hereunder or in connection herewith (including, without limitation, any act or
omission under the Loan Agreement or other Loan Documents) unless caused by its
or their gross negligence or willful misconduct. If Agent shall request
instructions from Lenders with respect to any act or action (including the
failure to take an action) in connection with this Agreement, or the Loan
Agreement or other Loan Documents, Agent shall be entitled to refrain from such
act or taking such action unless and until Agent shall have received
instructions from Lenders. Without prejudice to the generality of the
foregoing, (i) Agent shall be entitled to rely, and shall be fully protected in
relying, upon any communication, instrument or document believed by it to be
genuine and correct and to have been signed or sent by the proper person or
persons, and shall be entitled to rely and shall be protected in relying on
opinions and judgments of attorneys (who may be attorneys for Borrowers),
accountants, experts and other professional advisors selected by it; and (ii) no
Lender shall have any right of action whatsoever against Agent as a result of
Agent acting or (where so instructed) refraining from action under this
Agreement or the other instruments and agreements referred to herein in
accordance with the instructions of Lenders.
Agent Entitled to Act as Lender. The agency hereby created shall in no way
- -------------------------------
impair or affect any of the rights and powers of, or impose any duties or
obligations upon, FCC in its individual capacity as Lender hereunder. With
respect to its interests in the Loans, FCC shall have the same rights and powers
hereunder as any other Lender and may exercise the same as though it were not
performing the duties and functions delegated to it hereunder as Agent and the
term "Lender" or "Lenders" or any similar term shall, unless the context clearly
otherwise indicates, include FCC in its individual capacity as a Lender. Agent
and each of its Affiliates may accept deposits from, lend money to and generally
engage in any kind of banking, trust, financial advisory or other business with
Borrowers or any Affiliate of Borrowers as if it were not performing the duties
specified herein, and may accept fees and other consideration from Borrowers for
services in connection with this Agreement and otherwise without having to
account for the same to Lenders.
<PAGE>
Representations and Warranties; No Responsibility for Appraisal of
- ------------------------------------------------------------------
Creditworthiness. Each Lender represents and warrants that it has made its own
- ----------------
independent investigation of the financial condition and affairs of Borrowers in
connection with the making of the Loans and has made and shall continue to make
its own appraisal of the creditworthiness of the Borrowers. Agent shall not
have any duty or responsibility either initially or on a continuing basis to
make any such investigation or any such appraisal on behalf of Lenders or to
provide any Lender with any credit or other information with respect thereto
whether coming into its possession before the making of the Loans of any time or
times thereafter and Agent shall have no responsibility with respect the
accuracy of or the completeness of the information to Lenders.
Right to Indemnity. Each Lender severally agrees to indemnify Agent
- ------------------
proportionately to its Pro Rata Share, to the extent Agent shall not have been
reimbursed by Borrowers, for and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses
(including, without limitation, counsel fees and disbursements) or disbursements
of any kind or nature whatsoever which may be imposed on, incurred by or
asserted against Agent in performing its duties hereunder or in any way relating
to or arising out of this Agreement, the Loan Agreement or the other Loan
Documents; provided that no Lender shall be liable for any portion of such
--------
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from Agent's gross negligence or
willful misconduct. If any indemnity furnished to Agent for any purpose shall,
in the opinion of Agent, be insufficient or become impaired, Agent may call for
additional indemnity and cease, or not commence, to do the acts indemnified
against until such additional indemnity is furnished.
Payee of Note Treated as Owner. Agent may deem and treat the payee of any Note
- ------------------------------
as the owner thereof for all purposes hereof unless and until a written notice
of the assignment or transfer thereof shall have been filed with Agent. Any
request, authority or consent of any person or entity who, at the time of making
such request or giving such authority or consent, is the holder of any Note
shall be conclusive and binding on any subsequent holder, transferee or assignee
of that Note or of any Note or Notes issued in exchange therefor.
Successor Agent. Agent may resign at any time by giving 30 days prior written
- ---------------
notice thereof to Lenders and Borrowers, and Agent may be removed at any time
with or without cause by an instrument or concurrent instruments in writing
delivered to Borrowers and Agent and signed by Lenders. Upon any such notice of
resignation or any such removal, Lenders shall have the right, upon five days
notice to Borrowers, to appoint a successor Agent; provided that such
--------
appointment shall be subject to the consent of Borrowers, which consent shall
not be unreasonably withheld. Upon the acceptance of any appointment as Agent
hereunder by a successor Agent, the successor Agent shall thereupon succeed to
and become vested with all the rights, powers, privileges and duties of the
retiring or removed Agent, and the retiring or removed Agent shall be discharged
from its duties and obligations as Agent under this Agreement. After any
retiring or removed Agent's resignation or removal hereunder as Agent, the
provisions of this Section 16 shall inure to its benefit as to any actions taken
or omitted to be taken by it while it was Agent under this Agreement.
Governing Law; Loan Document. This Agreement shall be governed by the laws of
- ----------------------------
the State of Connecticut. This Agreement shall be deemed to be a Loan Document
under the Loan Agreement.
<PAGE>
Address for Notices. The address for notices to Lenders for purposes of Section
- -------------------
11.8 of the Loan Agreement and all other Loan Documents are as set forth on
the signature pages hereof:
EXECUTED as an instrument under seal on the date first above written.
FLEET CAPITAL CORPORATION, as Agent
By: /s/ Howard Handman
---------------------------------
Name: Howard Handman
---------------------------
Title: Vice President
--------------------------
Address: 200 Glastonbury Boulevard
Glastonbury, CT 06033
Attn: Northeast Loan Administration
LENDERS:
FLEET CAPITAL CORPORATION
By: /s/ Howard Handman
---------------------------------
Name: Howard Handman
---------------------------
Title: Vice President
--------------------------
Address: 200 Glastonbury Boulevard
Glastonbury, CT 06033
Attn: Northeast Loan Administrator
FIRST UNION NATIONAL BANK
By: /s/ Matthew Riley
---------------------------------
Name: Matthew Riley
---------------------------
Title: Vice President
--------------------------
Address: 10 State House Street
------------------------
Hartford, CT 06103
------------------------
------------------------
NATIONSBANK, N.A.
By: /s/ Andrew Hettinger
----------------------------------
Name: Andrew Hettinger
----------------------------
Title: Vice President
---------------------------
Address: 767 5th Ave, 12 A
-------------------------
New York, NY 10153
-------------------------
-------------------------
<PAGE>
ACKNOWLEDGMENT BY BORROWERS
Each of the undersigned acknowledges receipt of the foregoing Agency
and Interlender Agreement and agrees to be bound thereby in all respects.
ATTEST: UNITED NATURAL FOODS, INC.
/s/ Dawn E. Degnan By: /s/ Steven Townsend
- --------------------------- -------------------------------
Name: Steven Townsend
-------------------------
Title: CFO
------------------------
ATTEST: MOUNTAIN PEOPLE'S WAREHOUSE, INC.
/s/ Dawn E. Degnan By: /s/ Steven Townsend
- --------------------------- -------------------------------
Name: Steven Townsend
-------------------------
Title: CFO
------------------------
ATTEST: NATURAL RETAIL GROUP, INC.
/s/ Dawn E. Degnan By: /s/ Steven Townsend
- --------------------------- -------------------------------
Name: Steven Townsend
-------------------------
Title: CFO
------------------------
ATTEST: NUTRASOURCE, INC.
/s/ Dawn E. Degnan By: /s/ Steven Townsend
- --------------------------- -------------------------------
Name: Steven Townsend
-------------------------
Title: CFO
------------------------
ATTEST: RAINBOW NATURAL FOODS, INC.
/s/ Dawn E. Degnan By: /s/ Steven Townsend
- --------------------------- -------------------------------
Name: Steven Townsend
-------------------------
Title: CFO
-------------------------
ATTEST: STOW MILLS, INC.
/s/ Dawn E. Degnan By: /s/ Steven Townsend
- --------------------------- -------------------------------
Name: Steven Townsend
-------------------------
Title: CFO
------------------------
ATTEST: RB ACQUISITION, L.L.C.
/s/ Dawn E. Degnan By: /s/ Steven Townsend
- --------------------------- -------------------------------
<PAGE>
Name: Steven Townsend
-----------------
Title: CFO
----------------
<PAGE>
EXHIBIT A
- ---------
Lenders and Pro Rata Share
- --------------------------
<TABLE>
<CAPTION>
Lender Pro Rata Share
------ --------------
<S> <C>
Fleet Capital Corporation 50%
First Union National Bank 25%
Nationsbank, N.A. 25%
</TABLE>
<PAGE>
Exhibit 11 UNITED NATURAL FOODS, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED
OCTOBER 31,
-----------
1996 1997
---- ----
<S> <C> <C>
Primary:
Weighted average shares outstanding 13,666,253 17,356,705
Net effect of dilutive stock options and stock warrants based
upon the treasury stock method using the initial public
offering price for 1996 and average stock price for 1997 1,426,315 420,888
------------ ------------
Total 15,092,568 17,777,593
============ ============
Pro forma net income (loss) $ 1,325,104 $ (948,395)
============ ============
Pro forma net income (loss) per share of common stock $ 0.09 $ (0.05)
============ ============
Supplemental pro forma net income (loss)
after contractual reduction of officer compensation $ 1,809,442 $ (492,167)
============ ============
Supplemental pro forma net income (loss) per share
of common stock after contractual reduction of
officer compensation $ 0.12 $ (0.03)
============ ============
Fully diluted:
Weighted average shares outstanding 13,666,253 17,356,705
Net effect of dilutive stock options and stock warrants based
upon the treasury stock method using the initial public
offering price for 1996 and period end stock price if
higher than average stock price for 1997 1,426,315 420,888
------------ ------------
Total 15,092,568 17,777,593
============ ============
Pro forma net income (loss) $ 1,325,104 $ (948,395)
============ ============
Pro forma net income (loss) per share of common stock $ 0.09 $ (0.05)
============ ============
Supplemental pro forma net income (loss)
after contractual reduction of officer compensation $ 1,809,442 $ (492,167)
============ ============
Supplemental pro forma net income (loss) per share
of common stock after contractual reduction of
officer compensation $ 0.12 $ (0.03)
============ ============
</TABLE>
Related to the Stow Mills merger, income tax expense was
adjusted as though all companies were treated as C corporations
rather than S corporations to calculate pro forma net income
(loss). In addition to these adjustments, supplemental pro forma
net income (loss) has been calculated by adjusting net income
(loss) for the effect of eliminating bonuses to shareholders and
reducing compensation paid to shareholders to the extent such
amounts exceeded the maximum compensation payable to such
individuals under current compensation arrangements.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE INTERIM
CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED OCTOBER 31, 1997
AND THE CONSOLIDATED BALANCE SHEET AS OF OCTOBER 31, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-END> OCT-31-1997
<CASH> 510,529
<SECURITIES> 0
<RECEIVABLES> 52,205,189
<ALLOWANCES> 2,542,907
<INVENTORY> 78,760,752
<CURRENT-ASSETS> 133,141,903
<PP&E> 53,283,426
<DEPRECIATION> 21,019,940
<TOTAL-ASSETS> 176,321,931
<CURRENT-LIABILITIES> 86,282,662
<BONDS> 16,033,682
0
0
<COMMON> 173,771
<OTHER-SE> 73,154,256
<TOTAL-LIABILITY-AND-EQUITY> 176,321,931
<SALES> 173,382,986
<TOTAL-REVENUES> 173,382,986
<CGS> 139,193,855
<TOTAL-COSTS> 139,193,855
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 131,528
<INTEREST-EXPENSE> 1,081,169
<INCOME-PRETAX> 1,292,527
<INCOME-TAX> 1,920,824
<INCOME-CONTINUING> (628,297)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (628,297)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
