FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 26, 1999
COMMISSION FILE NUMBER: 0-19797
WHOLE FOODS MARKET, INC.
(Exact name of registrant as specified in its charter)
TEXAS 74-1989366
(State of (IRS employment
incorporation) identification no.)
601 North Lamar Suite 300
AUSTIN, TEXAS 78703
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code:
512-477-4455
Securities registered pursuant to section 12(g) of the Act:
Common Stock, no par value
Preferred Stock Purchase Rights
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant on November 30, 1999 was $1,006,383,630.
The number of shares of the registrant's common stock, no par value, outstanding
as of November 30, 1999 was 25,956,871.
The following document is incorporated by reference into the part of this annual
report on Form 10-K as indicated: Portions of the registrant's definitive proxy
statement for the annual meeting of shareholders to be held on March 27, 2000
are incorporated into Part III to the extent indicated herein.
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PART I
Item 1. BUSINESS
Whole Foods Market is the country's largest retailer of natural foods as defined
by sales. The Company opened its first store in Austin, Texas in 1980 and
operated 100 stores in 20 states and the District of Columbia as of September
26, 1999. As a result of both acquisitions and internal expansion, the Company
has grown rapidly from sales of approximately $92.5 million in fiscal 1991 to
approximately $1.6 billion in fiscal 1999. At the end of fiscal 1999, the
Company's stores averaged approximately 26,000 square feet and $16 million in
sales. Sales per gross square foot were approximately $661, which the Company
believes is higher than most conventional supermarkets or food retailers,
including competitors in the large-store segment of the natural foods industry.
Through Amrion, its subsidiary acquired in September 1997, the Company is
engaged in developing, producing and marketing high quality nutriceuticals and
nutritional supplements. Amrion's products include nutriceuticals, herbs, herbal
formulas, vitamins, minerals and homeopathic products. The Company also engages
in specialty coffee roasting and distribution through Allegro Coffee Company,
its subsidiary acquired in December 1997, and in Internet commerce through
WholeFoods.com, its subsidiary formed in fiscal 1999. Internet users can access
information about the Company and its products at http://www.wholefoods.com.
In fiscal 2000, the Company plans to merge Amrion and WholeFoods.com into a new
subsidiary, WholePeople.com. WholePeople.com is intended to be the leading
Internet brand in the "Whole Living" industry and the home page for individuals
who use their purchasing power to express their commitment to a healthy
lifestyle and concern for the environment. The Company will transition its
Internet commerce operations from WholeFoods.com to the WholePeople.com Web site
in fiscal 2000.
Financial information about industry segments is included under the caption
"Segment Information" in the Notes to Consolidated Financial Statements.
The Natural Products Industry
According to a leading trade publication for the industry, natural products
sales have grown to over $25 billion in 1998. The Company's natural product
offerings include natural foods and nutritional supplements. Natural foods can
be defined as foods which are minimally processed, largely or completely free of
artificial ingredients, preservatives and other non-naturally occurring
chemicals and in general are as near to their whole, natural state as possible.
Sales growth for natural foods has resulted from several factors, including
increasing consumer concern over the purity and safety of food due to the
presence of pesticide residues, artificial ingredients and other chemicals;
environmental concerns due to the degradation of water and soil quality; and
healthier eating patterns due to a better educated populace whose median age is
increasing each year. Sales growth for vitamin and nutritional supplements has
resulted from an increased national interest in preventative health choices,
favorable consumer attitude shifts toward natural health care, increased
consumer willingness toward self-care in resistance to rising health care costs
and a rapidly growing demographic segment of the population over 40 years old
concerned with aging and disease. Additionally, public awareness of the positive
effects of vitamins and other nutritional supplements on health has been
heightened by widely publicized reports of favorable research findings. Recent
estimates indicate that approximately 40% of the U.S. population use nutritional
supplements in some form.
According to a leading trade publication for the industry, there were
approximately 16,500 natural products retail stores in 1998 in the United
States. While natural/health food stores have historically provided only a
limited selection of products, the natural foods supermarket-size formats
provide a complete grocery shopping alternative to conventional supermarkets.
Whole Foods Market also believes that the growth of larger supermarket-size
natural foods stores has increased consumer awareness of and demand for natural
foods.
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Business Strategy
Whole Foods Market is the country's largest sales volume retailer of natural
products. The Company believes its success to date is the result of its ability
to differentiate itself from other retailers competing for consumers' food
dollars by tailoring its product mix, customer service attitude and store
environment to satisfy the needs of the natural foods shopper and to appeal to
the broader market of quality-oriented consumers. Each element of the Company's
strategy is designed to enhance and build the Whole Foods Market brand name and
to engender a high degree of loyalty among the Company's customers.
Product Offerings
o Quality Standards. The Company is committed to offering its customers
the highest quality products. It features products that are free of
artificial flavors, sweeteners, colors, preservatives and added
chemicals. To better ensure quality and to enhance merchandising, the
Company has acquired or developed businesses that manufacture and
distribute significant product categories. For instance, Whole Foods
Market operates regional bakehouses and commissaries, a seafood wharf,
a nutritional supplement manufacturer and a coffee roaster.
o Broad Product Assortment. The Company provides its customers the
convenience of one-stop shopping by offering not only a broader
product selection than is available in smaller natural foods stores
but also by having a full range of merchandise categories comparable
to those available in conventional supermarkets. The Company's stores
carry approximately 20,000 SKU's on average and feature categories
such as prepared foods, vitamins and nutriceuticals, bakery items and
specialty wines and cheeses which the Company believes differentiate
it from many other food retailers.
o Private Label Products. Under the premium "Whole Foods" and "Whole
Kids" labels and the value-priced "365" label, the Company offers its
customers unique, high quality goods available only at Whole Foods
Market stores. The Company developed its private label products to
enhance its offering of natural food brands which are typically not as
well known as larger national brands found in conventional
supermarkets. The Company believes that customers trust the Whole
Foods Market name because of its position as the industry leader and
reputation for quality.
o Competitive Pricing. The Company seeks to price its products at or
below comparable products in its geographic markets.
Company Culture
o Decentralized Team Approach. The Company promotes a decentralized team
approach to store operations in which many personnel, merchandising
and operating decisions are made by employee teams at the individual
store level. This approach allows the Company to better tailor its
store environment and product offering to local markets and customers.
o Employees (Team Members) as "Stakeholders." The Company believes it
has been successful in motivating its team members by making them
stakeholders in the organization through its "gainsharing" programs,
which reward specifically targeted performance such as team labor
productivity, and through its stock option and stock purchase plans.
In addition, since 1996 the Company has made its employer's match in
the Company's 401(k) plan in Company stock.
o Customer Service Attitude. Due to the Company's distinctive company
culture which creates a sense of personal responsibility among its
team members, Whole Foods Market team members' self interest and job
satisfaction are closely tied to ensuring customer satisfaction.
o Sense of Purpose. The Company believes that by promoting healthy,
nutritious and environmentally safe products it helps inspire its team
members by providing them with a greater sense of purpose and mission
in their work.
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The Shopping Experience
o Large Format Stores. Averaging approximately 26,000 square feet, the
Company's stores are significantly larger than typical natural foods
stores, more closely resembling the size of some conventional
supermarkets.
o Information Orientation. To familiarize customers with natural food
products and to inform them about developments in the natural foods
industry, the Company provides a significant amount of product
information throughout each store. Most stores also contain a
centrally located, fully staffed information booth. In addition, the
Company trains store team members to be knowledgeable about its
products and to provide information and a high level of service to its
customers.
o Appealing Shopping Environment. The Company has designed its stores to
create a sense of warmth, fun and informality. Many stores feature
juice and coffee bars, in-store massage therapists and other amenities
which provide convenience and service to its customers.
In fiscal 1999, the Company adopted an Economic Value Added (EVA) management and
incentive system. In its simplest definition, EVA is equivalent to net operating
profits after taxes minus a charge for the cost of capital necessary to generate
that profit. The Company believes that EVA will have a positive impact on its
financial results as the focus of its incentive programs shifts from the income
statement to the balance sheet. Currently the Company employs over 16,000 Team
Members, and has a culture primarily structured around decentralization, teams,
networking, and individual empowerment. This culture has been one of the
Company's strongest competitive advantages. The Company believes that EVA will
provide a unifying measurement and incentive system that will blend with its
existing empowerment culture to provide essential tools for Team Members to
collectively create additional sustainable shareholder value.
Growth Strategy
Whole Foods Market's growth strategy is to expand through a combination of new
store openings and the acquisition of existing stores. The Company seeks to open
or acquire stores in existing regions and in metropolitan areas where the
Company believes it can become a leading natural foods supermarket. The Company
primarily seeks to open large format stores which range between 25,000 to 50,000
square feet, located on premium real estate sites, often in urban, high
population locales. The Company has also grown through acquisitions, as the
natural foods retailing industry is extremely fragmented and comprised of many
smaller local and regional chains. The Company believes that the acquisition of
smaller chains may provide access to desirable locations and markets and pursues
such acquisitions on an opportunistic basis.
<TABLE>
<CAPTION>
Historical store growth is summarized below:
Fiscal Year (1)
1995 1996 1997 1998 1999
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Beginning of year 35 41 68 75 87
New and acquired stores 9 32 9 15 14
Relocations and closures (3) (5) (2) (3) (1)
-------------------------------------------------------------
End of year 41 68 75 87 100
-------------------------------------------------------------
Total square footage, end of year (in thousands) 862 1,563 1,724 2,092 2,584
-------------------------------------------------------------
</TABLE>
(1) Stores acquired in pooling transactions are reflected as acquired in the
period in which the applicable transaction closed.
As of November 30, 1999 the Company had signed leases for an additional 29
stores with an average total store size of approximately 35,000 square feet. The
Company expects to open approximately twenty stores per year, including
relocations of existing stores, in each of the next two fiscal years.
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Products
The Company's stores carry approximately 20,000 SKU's on average of food and
non-food products. The Company's broad product selection is designed to meet the
needs of natural foods shoppers as well as gourmet customers. The Company has
been able to expand the breadth of its product offerings by carefully monitoring
the market for new products and by responding to customer input. Many national
brands featured in conventional supermarkets are not available at Whole Foods
Market because they do not meet the Company's quality standards. The Company's
product line consists primarily of products from natural food vendors which
typically do not have the resources to build brand recognition with consumers.
Quality Standards. The Company's objective is to sell its customers the highest
quality foods available. The Company defines quality in terms of nutrition,
freshness, appearance and taste and has the following product quality goals:
o Whole Foods. The Company evaluates each and every product that is
sold.
o Natural. The Company features foods that are free from artificial
preservatives, colors, flavors and sweeteners.
o Taste. The Company is passionate about great tasting food and the
pleasure of sharing it with others.
o Freshness. The Company is committed to foods that are fresh, wholesome
and safe to eat.
o Organic. The Company seeks out and promotes organically grown foods.
o Wellness. The Company provides foods and nutritional products that
support health and well-being.
Product Categories. The Company's product offerings include organic and high
quality conventional produce; convenient and tasty prepared foods; high quality
natural and conventional meats; a variety of wild and natural farm-raised
seafood; a bakery featuring Whole Foods Market brand crusty breads; choice
selections of specialty cheeses, beer and wine; a mixture of natural, organic,
gourmet and ethnic grocery products; numerous value priced items in the bulk
department; and a nutrition area offering a complete alternative pharmacy with
holistic remedies, herbs, vitamins and supplements as well as body care.
Private Label Products. The Company has expanded its private label offerings
over the last several years and has developed three different lines of products.
The "Whole Foods" label program began in 1992 and markets "best of class"
premium and super premium products. The Company seeks out artisan food
producers, small batch production and hand-tested recipes for products included
in this program. In 1997, the Company introduced a new line of products under
the "365" label which emphasizes every day value products. The goal of this
program is to find products that meet the Company's quality standards but are
less expensive than alternative products available to the Company. In 1999, the
Company introduced a product line that appeals to its younger customers under
the "Whole Kids" label. The Company markets its private label products to its
customer through special displays and distinctive packaging.
Nutritional Supplements. Amrion currently markets and sells more than 850
products, including nutriceuticals, herbs, herbal formulas, vitamins, minerals
and homeopathic products. Amrion products are dietary nutritional supplements
and not pharmaceutical or medicinal products, and these products are sold under
Company-owned trademarks primarily through direct marketing. Whole Foods Market
introduced private label nutritional supplements and nutriceuticals manufactured
by Amrion in its retail stores during fiscal 1998. Amrion has also assisted in
the redesign of many of the Company's nutrition departments, which have been
merchandised in a more customer-friendly manner with extensive product
information available at point of sale.
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Store Operations
Team Approach to Store Operations. The Company has promoted a strong company
culture featuring a team approach to store operations which the Company believes
is distinctly more empowering of employees than that of the traditional
supermarket. Each store employs between 12 and 350 people, organized into up to
eleven teams, each led by a team leader. Each team is responsible for a
different aspect of store operations, such as produce; grocery; meat, poultry
and seafood; prepared foods; bakery goods; specialty; body care and nutrition
products (nutritional supplements and herbs); customer service; and the
front-end section which runs the customer check-out stations. The Company
promotes a decentralized team approach to store operations in which many
personnel, merchandising and operating decisions are made by employee teams at
the individual store level.
The Company strives to create a company-wide consciousness of "shared fate" by
uniting the self-interests of team members as closely as possible to the
self-interests of customers and of shareholders. One way the Company reinforces
this concept is through its various gainsharing programs, which reward
specifically targeted performance such as team labor productivity. There is also
a team member incentive program which rewards team members for specific goals
such as sales increases of private label products. The Company also reinforces
the shared fate concept by offering team members three programs which encourage
stock ownership. Team members are eligible for stock options under the Team
Member Stock Option Plan either through seniority, promotion or at the
discretion of senior management. Team members can also purchase restricted stock
at a discount through payroll deductions under the Team Member Stock Purchase
Plan. In addition, since 1996 the Company has made its employer's match in the
Company's 401(k) plan in Company stock. The Company believes encouraging team
members to become shareholders aligns the interests of team members with the
interests of its shareholders.
The Company believes that it helps to inspire its team members by providing them
with a greater sense of purpose and mission in their work. For many team
members, their job is an extension of their personal philosophy and lifestyle.
Many team members feel they are contributing to the good of others by selling
clean and nutritious foods, by contributing to long-term sustainable agriculture
and by promoting a pesticide-free and healthier environment. Additionally, the
Company has a program which provides paid time off to team members for working
with qualified community service organizations. Because of the Company's
decentralized management structure, an effective store team leader (store
manager) is critical to the success of the store. Store team leaders are paid a
salary plus a bonus based on store profit contribution. The store team leader
works closely with one or more associate store team leaders, as well as with all
the department team leaders, to operate the store as efficiently and profitably
as possible. For the past two years, Fortune magazine has selected Whole Foods
Market, Inc. as one of the "100 Best Companies to Work for in America."
Store Description. Each store's design is customized to the actual size and
configuration of the particular location. The Company emphasizes strong visual
presentations in all key traffic areas of its stores. Merchandising displays are
changed frequently and often incorporate seasonal themes. The stores also
sponsor a variety of organized in-store activities, such as store tours,
samplings, taste fairs and other special events. To further a sense of community
and interaction with customers, the stores typically include sit-down eating
areas, customer comment boards and centrally located information booths. In
addition, some stores offer special services such as valet parking or home
delivery.
Site Selection. Each of the stores are generally located in high-traffic
shopping areas and are either freestanding or in strip centers. In selecting
store locations, the Company uses an internally-developed model to analyze
potential markets on such criteria as education levels, population density, and
income levels. After the Company has selected a target site, its consultant does
a comprehensive site study and sales projection. The Company primarily seeks to
open large format stores which range between 25,000 to 50,000 square feet,
located on premier real estate sites, often in urban, high population locales.
Stores currently under development average approximately 35,000 square feet. In
addition, the Company will also opportunistically pursue smaller store sites
which it believes can achieve management's sales and return on investment
targets.
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The Company typically opens a new store approximately 12 to 24 months after a
store site is selected and the lease is signed. The Company estimates that its
cash requirements to open a new store will range (depending on the size of the
new store, geographic location, degree of work performed by the landlord, and
complexity of site development issues) from approximately $3 million to $12
million, excluding new store inventory (approximately $750,000). The Company
incurred in fiscal 1999 on average approximately $530,000 in pre-opening
expenses for new stores other than relocated stores.
Purchasing and Distribution
The Company's buyers purchase products for retail sale from regional wholesale
suppliers and vendors. Over the last few years, the Company has shifted the
majority of its purchasing operations from the store to the regional and
national level. By purchasing on a regional and national level, the Company is
able to negotiate better volume discounts with major vendors and distributors.
The Company expects upgrades to its information systems to improve the Company's
purchasing leverage by providing product and quantity information by supplier on
a regional and company-wide basis. The Company owns and operates seven regional
distribution centers across the country. The largest of the Company's regional
distribution centers, Texas Health Distributors in Austin, Texas, distributes
natural products to the Company's stores in Texas, Colorado and Louisiana as
well as to other food retailers.
The other six regional distribution centers primarily distribute produce and the
Company's private label products to Company stores in their respective regions.
In addition, the Company owns a seafood wharf, a produce procurement center, a
specialty coffee roaster and distributor and has established regional
commissaries and bakehouses, all of which distribute products to the Company's
stores. Relocation of Amrion's operations to the Company's new manufacturing,
distribution warehousing and office facilities in Thornton, Colorado began in
fiscal 1999 and will be completed in fiscal 2000.
Amrion currently imports approximately 75% of its raw materials from various
foreign countries. Amrion has developed strategic partnerships with key domestic
and international raw material suppliers. Supply contracts between Amrion and
principal raw material suppliers are negotiated each year and provide reasonable
assurance that Amrion's supply of raw materials will not be interrupted.
However, alternative sources of Amrion's materials are generally available in
the event a supplier is unable to deliver as specified in the written supply
contract. The termination of supply by one or more of its vendors could have a
temporary adverse effect on Amrion's sales. The cost incurred by Amrion for its
raw materials could rise in the event of a deterioration of the value of the
U.S. Dollar against the foreign currencies of Amrion's suppliers. Further cost
increases could result due to the increase in demand relative to the supply of
these products from the overall growth in the natural products industry.
Marketing
The Company spends less on advertising than conventional supermarkets, instead
relying primarily on word-of-mouth recommendations from its customers. The
Company allocates about half of its marketing budget to region-wide programs and
the remainder to the individual store's marketing efforts. The stores spend most
of their own marketing budgets on store events such as taste fairs, classes,
store tours and product samplings. Each store also has a separate budget for
making contributions to a variety of philanthropic and community activities,
creating goodwill and maintaining a high profile in the community. The Company
presently contributes approximately 5% of its after tax profits in the form of
cash or products to not-for-profit organizations.
Amrion utilizes direct mail of Company designed catalogs, brochures and
individual mail pieces which highlight product lines and current promotional
activities. Amrion complements its direct mail activities with print
advertising, free standing inserts and package insert programs. Additionally,
Amrion's retail and health care professional divisions, which target health food
stores, health care providers and mass merchandisers, utilize marketing
strategies which include direct mail, telemarketing contact, personal visits
from sales representatives, consumer and trade advertising, point of sale
materials, free standing inserts with coupons in newspapers and radio
advertising. The Company also utilizes Amrion's expertise to market Whole Foods
Market private label products through catalog and Internet-based sales.
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Competition
The Company's competitors currently include other natural foods supermarkets,
conventional and specialty supermarkets, other natural foods stores, small
specialty stores and online retailers. Although the Company historically has
encountered limited competition in its geographic markets with other stores
operating in the natural foods supermarket format, it has faced increased
competition in recent years from such stores, particularly in new markets, and
expects to encounter additional competition from such stores in its existing
markets and in new markets. When the Company faces such direct competition,
there can be no assurance that the Company will be able to compete effectively
or that increased competition will not adversely impact the Company's results of
operations. In addition, conventional and specialty supermarkets compete with
the Company in one or more product categories and may expand more aggressively
in marketing a broad range of natural foods and thereby compete more directly
with the Company for products, customers and locations. Some of the Company's
competitors have been in business longer or have greater financial or marketing
resources than the Company and may be able to devote greater resources to
securing suitable locations and to the sourcing, promotion and sale of their
products.
The business of developing, manufacturing and marketing vitamins, minerals and
other nutritional supplements is highly competitive. It is not possible to
accurately assess the number and size of competitors, as the nutritional
supplement industry is composed of many small companies, many of which are
privately-held and do not publish sales and marketing figures. The Company
believes that Amrion's competitive pricing, quality of advertising,
comprehensive lines of quality products and customer service commitment enable
it to compete favorably with other vitamin and nutritional supplement companies.
The Company believes that competition will intensify as more companies offer
competitive products and services over the Internet.
Government Regulation
The Company's stores are subject to various federal, state and local laws,
regulations and administrative practices affecting its business and must comply
with provisions regulating health and sanitation standards, food labeling, equal
employment, minimum wages and licensing for the sale of food and, in some
stores, alcoholic beverages. Difficulties or failures in obtaining or
maintaining required licenses or other required approvals could delay or prevent
the opening of new stores or adversely affect the operations of existing stores.
The manufacturing, processing, formulating, packaging, labeling and advertising
of products, particularly the nutriceutical and nutritional supplement products
developed, produced and marketed by Amrion, are subject to regulation by one or
more federal agencies, including the Food and Drug Administration ("FDA"), the
Federal Trade Commission ("FTC"), the Consumer Product Safety Commission
("CPSC"), the United States Department of Agriculture ("USDA") and the
Environmental Protection Agency ("EPA"). Amrion's activities are also regulated
by various agencies of the states, localities and foreign countries to which
Amrion's products are distributed and in which Amrion's products are sold. The
composition and labeling of nutritional supplements and nutriceuticals, which
comprise a significant majority of Amrion's products, is most actively regulated
by the FDA under the provisions of the Federal Food, Drug and Cosmetic Act
("FFDC Act"). The FFDC Act has been revised in recent years with respect to
dietary supplements by the Nutrition Labeling and Education Act of 1990 ("NLEA")
and by the Dietary Supplement Health and Education Act of 1994 ("DSHEA"). Final
rules establishing labeling and notification requirements for dietary
supplements were promulgated by the FDA on September 23, 1997, and the labeling
portion of the regulations became effective on March 23, 1999. The Company
believes it is in material compliance with these labeling requirements.
Employees
As of September 26, 1999, the Company had approximately 16,600 employees,
including approximately 13,700 full-time and 2,900 part-time employees. For the
past two years, Fortune magazine has selected Whole Foods Market, Inc. as one of
the "100 Best Companies to Work for in America." The Company sponsors a
partially self-insured health care benefits plan for participating employees.
The Company does not subscribe to any workers' compensation insurance program
with respect to its employees in Texas and instead maintains a reserve for
job-related injury claims. The employees of the Company are not represented by a
labor union or collective bargaining agreement. Certain of the Company's stores
have been, and certain stores continue to be, subjected to informational pickets
by the local retail clerks' and butchers' unions.
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Trademarks
Trademarks owned by the Company that have been registered or pending in the
United States Patent and Trademark Office include "Whole Foods Market," "365
Every Day Value," "Allegro Coffee Company," "Amrion," "Bread & Circus," "Bread
of Life," "Fresh Fields," "Merchant of Vino," "Wellspring Grocery," "Whole
Food," "Whole Kids," "Whole Foods, Whole People, Whole Planet," "WholeFoods.com"
and "WholePeople.com." The Company also holds registrations and maintains common
law trademark rights for its stylized logos and brand names for products created
by Amrion, Allegro and many of its private label products.
Factors That May Affect Future Results
The Company wishes to caution readers that the following important factors,
among others, could cause the actual results of Whole Foods Market to differ
materially from those indicated by forward-looking statements in this report.
Forward-looking statements involve risks and uncertainties, including but not
limited to general business conditions, the timely and successful development
and opening of new stores, the impact of competition and other risks detailed
below. Additional risks and uncertainties not presently known to the Company or
that the Company currently deems immaterial may also have a material adverse
impact on the Company's financial condition or operations. The Company does not
undertake any obligation to update forward-looking statements. "Forward-looking
statements" within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended, can be identified by the use of predictive, future-tense or
forward-looking terminology, such as "believes," "anticipates," "expects,"
"estimates," "may," "will" or similar terms. Forward-looking statements also
include projections of financial performance, statements regarding management's
plans and objectives and statements concerning any assumptions relating to the
foregoing.
Growth Dependent on Expansion. The Company's strategy is to expand through a
combination of new store openings and acquisitions of existing stores as well as
the possible acquisition or development of businesses with complementary product
lines and related lines of business. Successful implementation of this strategy
is contingent on numerous conditions, some of which are described below, and
there can be no assurance that the Company's expansion strategy can be
successfully executed.
Continued growth of Whole Foods Market will depend to a significant degree upon
its ability to open or acquire new stores in existing and new markets and to
operate these stores on a successful basis. Further, the Company's expansion
strategy is dependent on finding suitable locations, and Whole Foods Market
faces intense competition with other retailers for such sites. There can be no
assurance that Whole Foods Market will be able to open or acquire new stores in
a timely manner and to operate them on a successful basis. In addition, there
can be no assurance that Whole Foods Market can successfully hire and train new
employees and integrate them into the programs and policies of Whole Foods
Market or adapt its distribution, management information and other operating
systems to the extent necessary to operate new or acquired stores in a
successful and profitable manner and adequately supply natural foods products to
these stores at competitive prices.
There can be no assurance that Whole Foods Market will continue to grow through
acquisitions. To the extent Whole Foods Market further expands by acquiring
existing businesses, there can be no assurance that Whole Foods Market can
successfully integrate the acquired businesses into its operations and support
systems, and that the operations of acquired businesses will not be adversely
affected as the Company's decentralized approach to operations is introduced.
Quarterly Fluctuations. The Company's quarterly operating results could be
adversely affected by losses from new stores, variations in the mix of product
sales, price changes in response to competitive factors, increases in
merchandise costs, possible supply shortages and the timing of acquisitions. In
addition, the Company's quarterly results of operations may fluctuate
significantly as the result of the timing of new store openings and the range of
operating results which may be generated from newly opened stores. In fiscal
1999 and prior years, the Company capitalized pre-opening costs and expensed
such amounts in the quarter of the location opening. The American Institute of
Certified Public Accountants ("AICPA") issued Statement of Position ("SOP") 98-5
"Reporting on the Costs of Start-up Activities" in April 1998. SOP 98-5 requires
costs of start-up activities and organization costs to be expensed as incurred
and is effective for financial statements issued for fiscal years beginning
after December 15, 1998. Effective the beginning of fiscal year 2000, the
Company will charge pre-opening costs to expense as incurred in accordance with
SOP 98-5. Quarter to quarter comparisons of results of operations have been and
may be materially impacted by the timing of new store openings.
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Capital Needed for Expansion. The acquisition of existing stores, the opening of
new stores and the development of new production and distribution facilities
requires significant amounts of capital. In the past, the Company's growth has
been funded primarily through proceeds from public offerings, bank debt, private
placements of debt, and internally generated cash flow. These and other sources
of capital may not be available to Whole Foods Market in the future.
Competition. The Company's competitors currently include other natural foods
supermarkets, conventional and specialty supermarkets, other natural foods
stores, small specialty stores and online retailers. These businesses compete
with Whole Foods Market in one or more product categories. In addition,
traditional and specialty supermarkets are expanding more aggressively in
marketing a broad range of natural foods and thereby competing directly with
Whole Foods Market for products, customers and locations. Some of these
potential competitors have been in business longer or have greater financial or
marketing resources than Whole Foods Market and may be able to devote greater
resources to the sourcing, promotion and sale of their products. Increased
competition may have an adverse effect on profitability as the result of lower
sales, lower gross profits, and/or greater operating costs such as marketing.
The sales of nutritional supplements, nutriceuticals and other fitness and
health-related products are highly competitive, and the Company expects to face
such continued competitive pressure in the future. Amrion's nutritional
supplement products, which are its largest source of revenue, compete on a
national and regional basis directly with other specialty health retailers,
nutritional supplement manufacturers and mass merchandisers such as drug stores
and supermarkets. Many of these competitors are substantially larger and have
greater resources than Whole Foods Market.
The Company believes that competition will intensify as more companies offer
competitive products and services over the Internet.
Food Safety. There is increasing governmental scrutiny of and public awareness
regarding food safety. The Company believes that many customers choose to shop
at Whole Foods Market because of their interest in health, nutrition and food
safety. Although the Company has intensified its food safety procedures for
perishables, it anticipates that its customers will hold it to a higher standard
than conventional supermarkets. The sale of contaminated food products, or the
perception of such sale, by the Company could have a material adverse effect on
its operations.
Personnel Matters. Whole Foods Market is dependent upon a number of key
management and other personnel. The loss of the services of a significant number
of key personnel within a short period of time could have a material adverse
effect upon Whole Foods Market. The Company's continued success is also
dependent upon its ability to attract and retain qualified employees to meet
Whole Foods Market's future needs. The Company faces intense competition for
qualified personnel, many of whom are subject to offers from competing
employers, and there can be no assurance that Whole Foods Market will be able to
attract and retain such personnel. Whole Foods Market does not maintain key
person insurance on any employee.
Integration of Acquired Operations. By acquiring many new stores and certain
manufacturing type businesses in the last several years, the Company has
materially increased the scope of its operations by (i) increasing the number of
its stores and entering new markets and (ii) including the manufacturing of
nutriceuticals and nutritional supplements and the direct marketing of these.
There can be no assurance that comparable store sales of acquired stores will
increase to or be maintained at the level achieved by existing Whole Foods
Market stores. Additionally, there can be no assurance that the operations of
acquired stores will not be adversely affected as a result of the introduction
of the Company's team approach to store operations, or the response of customers
to the changes in operations and merchandising mix made by new ownership. With
respect to the Company's acquisition of manufacturing operations, there can be
no assurance that current retail stores which are customers of the acquired
companies will continue to do business with such companies, nor can there be any
assurance that Whole Foods Market can realize the expected benefits from the
acquisition of these companies. The integration of acquired operations into
Whole Foods Market will require the dedication of management resources which may
temporarily detract from attention to day-to-day business of the Company.
10
<PAGE>
Government Regulation. The Company's stores are subject to various federal,
state and local laws, regulations and administrative practices affecting its
business and must comply with provisions regulating health and sanitation
standards, food labeling, equal employment, minimum wages and licensing for the
sale of food and, in some stores, alcoholic beverages. Difficulties or failures
in obtaining or maintaining required licenses or other required approvals could
delay or prevent the opening of new stores or adversely affect the operations of
existing stores.
The manufacturing, processing, formulating, packaging, labeling and advertising
of products, particularly the nutriceutical and nutritional supplement products
developed, produced and marketed by Amrion, are subject to regulation by one or
more federal agencies, including the FDA, the FTC, the CPSC, the USDA and the
EPA. Amrion's activities are also regulated by various agencies of the states,
localities and foreign countries to which Amrion's products are distributed and
in which Amrion's products are sold. The composition and labeling of nutritional
supplements and nutriceuticals, which comprise a significant majority of
Amrion's products, is most actively regulated by the FDA under the provisions of
the FFDC Act. The FFDC Act has been revised in recent years with respect to
dietary supplements by the NLEA and by the DSHEA. Final rules establishing
labeling and notification requirements for dietary supplements were promulgated
by the FDA on September 23, 1997, and the labeling portion of the regulations
became effective on March 23, 1999. The Company believes it is in material
compliance with these labeling requirements.
The Company cannot predict the nature of future laws, regulations,
interpretations or applications, nor can it determine what effect either
additional government regulations or administrative orders, when and if
promulgated, or disparate federal, state and local regulatory schemes would have
on its business in the future. They could, however, require the reformulation of
certain products to meet new standards, the recall or discontinuance of certain
products not able to be reformulated, additional record keeping, expanded
documentation of the properties of certain products, expanded or different
labeling and/or scientific substantiation. Any or all of such requirements could
have an adverse effect on the Company's results of operations and financial
condition. Government regulations in foreign countries where Amrion plans to
expand sales may prevent or delay entry into the market or prevent or delay the
introduction, or require the reformulation, of certain of Amrion's products.
Internet Operations. In fiscal 2000, the Company plans to merge Amrion and
WholeFoods.com into a new subsidiary, WholePeople.com, and expects to begin
operation of the WholePeople.com Web site in fiscal 2000. WholeFoods.com is
currently operating at a loss, and there can be no assurance that the Company
will be able to operate an Internet commerce business profitably in the future.
WholePeople.com's success depends in part on the Company's ability to migrate
some of its natural foods supermarket customers and Amrion catalog customers to
online customers. There can be no assurance that the Company can successfully
migrate these customers or that their migration will not require a significantly
higher than expected level of expenditures. The Company may choose to expand
online operations by developing new Web sites, offering products or services not
currently offered or expanding market presence through relationships with third
parties. There can be no assurance that any new web site or product category
launched by the Company will be favorably received. In addition, expansion of
our online business may require significant additional expenditures. The online
market for the Company's products and services is extremely competitive, and
competition may intensify. The Company must also compete to retain its existing
online customers. Many of the Company's potential online competitors are larger
and have greater financial, marketing and other resources than ours. There can
be no assurance that the Company will be able to successfully compete with other
online retailers.
Future revenue and profit, if any, of the Company's Internet operations
substantially depend upon the widespread acceptance and use of the Internet. Any
change in the required Internet infrastructure, standards or protocols may
require the Company to incur substantial expenditures in order to adapt to these
changing or emerging technologies. The Company's ability to successfully
receive, fill and deliver orders and ability to provide high-quality customer
service over the Internet largely depends on the operation of its technical
systems. These systems could be vulnerable to, among other factors, disruptions
caused by system failures, power losses, communication problems, natural
disasters, break-ins and similar problems. Any system interruptions that result
in the unavailability of the Company's Web site or reduced order fulfillment
performance would reduce customer satisfaction and could result in negative
publicity and decrease the volume of goods sold.
11
<PAGE>
A number of legislative and regulatory proposals relating to Internet commerce
are under consideration by federal, state, local and foreign governments.
Additional burdens imposed by the adoption of new laws or the application of
existing laws to the Internet may decrease the growth in the use of the
Internet, which could in turn decrease the demand for the Company's online
services, increase costs of doing business over the Internet or otherwise
adversely affect the Company's operations. As a publisher of online content, the
Company is subject to potential liability for copyright, patent or trademark
infringement or other claims based on the nature and content of materials we
publish or distribute. The Company currently holds various Web domain names
including "WholePeople.com" Currently, domain name acquisition and maintenance
is regulated by governmental agencies and their designees. The regulation of
domain names will change in the future, and requirements for the name
acquisition and maintenance of domain names will be affected. There can be no
assurance that the Company will be able to prevent third parties from acquiring
domain names that are similar to, infringe upon or otherwise decrease the value
of the Company's trademarks, and any such inability could have a material
adverse effect on its operations.
Possible Volatility of Convertible Subordinated Debentures and Common Stock
Price. The market price of the Company's convertible subordinated debentures and
common stock could be subject to significant fluctuation in response to various
market factors and events, including variations in the Company's earning
results, changes in earnings estimates by securities analysts, publicity
regarding the Company, its competitors, the health food industry generally, new
statutes or regulations or changes in the interpretation of existing statutes or
regulations affecting the health food industry specifically, sales of
substantial amounts of common stock in the public market or the perception that
such sales could occur and other factors. In addition, in recent years, the
stock market has experienced broad price and volume fluctuations that often have
been unrelated to the operating performance of particular companies. These
market fluctuations also may adversely affect the market price of the debentures
and the common stock. Volatility in the price of the Company's common stock,
changes in prevailing interest rates and changes in perception of the Company's
creditworthiness may in the future adversely affect the price of the debentures.
Information System Upgrades and Year 2000 Issues. The Company continually
evaluates and upgrades its management information systems. The Company has
completed a number of acquisitions in recent years, and the information systems
of some of the acquired operations have not been fully integrated with the
Company's information systems. Although the Company does not anticipate any
disruption in its operations or financial reporting as a result of system
upgrades or system integrations, there can be no assurance that such disruption
will not occur or that the desired benefits from the system upgrades will be
realized.
Information on the Company's Year 2000 issues is included under the caption
"Year 2000 Issues" in Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Self-Insured Benefits Plans. The Company provides partially self-insured,
voluntary Team Member benefits plans which provide, among other benefits, health
care benefits to participating Team Members. The plans are designed to provide
specified levels of coverage, with excess insurance coverage provided by a
commercial insurer. Although not currently anticipated by management, the
Company's results could be materially impacted by claims and other expenses
related to such plans.
Negative Impact of Litigation Possible. From time to time the Company is a party
to legal proceedings including matters involving personnel and employment issues
and other proceedings arising in the ordinary course of business. Additionally,
like other retailers, distributors and manufacturers of products that are
ingested, the Company faces an inherent risk of exposure to product liability
claims in the event that the use of its products results in injury. Although not
currently anticipated by management, the Company's results could be materially
impacted by legal and settlement expenses related to such lawsuits.
12
<PAGE>
Item 2. Properties
At September 26, 1999, the Company operated 100 stores in twenty states and the
District of Columbia. The Company owns the New Orleans, Berkeley and Atlanta
store locations. The Company owns the underlying property for its store in Santa
Fe which opened in December 1999. The Company also owns a building in Austin,
Texas which houses one of its stores, the corporate headquarters and a
bookstore. The underlying property is leased from a third party under a ground
lease which has a base term of twenty years with ten options to renew for five
years each. The Company owns manufacturing, distribution warehousing and office
facilities near Boulder, Colorado and in Thornton, Colorado and an undeveloped
property in Westminster, Colorado. All other stores, distribution centers,
bakehouses and administrative facilities are leased, with expiration dates
ranging from 1 to 25 years. The Company has options to renew most of its leases
with renewal periods ranging from 5 to 50 years. The following table shows the
number of Company stores by state and the District of Columbia as of September
26, 1999:
<TABLE>
Number Number Number
Location of Stores Location of Stores Location of Stores
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Arizona 1 Illinois 7 New York 1
California 25 Louisiana 1 North Carolina 3
Colorado 1 Maryland 4 Pennsylvania 5
Connecticut 1 Massachusetts 11 Rhode Island 1
District of Columbia 2 Michigan 7 Texas 12
Florida 5 Minnesota 1 Virginia 7
Georgia 1 New Jersey 3 Wisconsin 1
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company has a lease with the bookstore at its building in Austin, Texas.
Certain officers of the Company are also shareholders of the bookstore in which
they own a combined 13% of the outstanding stock. The Company believes that the
terms of the lease between the Company and the bookstore are on terms no less
favorable to the Company than could have been negotiated with an independently
owned retailer. This is partially based on an appraisal of the lease by an
independent appraisal firm. The income from this lease is not material to the
operations of the Company.
Item 3. Legal Proceedings
From time to time, the Company is involved in lawsuits that the Company
considers to be in the normal course of its business which have not resulted in
any material losses to date.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
13
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters
The Company's common stock is traded on the Nasdaq Stock Market under the symbol
"WFMI." The following sets forth the high and low sales prices of the Company's
common stock for the last two fiscal years:
Fiscal 1999 High Low
- --------------------------------------------------------------------------------
September 28, 1998 to January 17, 1999 $50.75 $32.00
January 18, 1999 to April 11, 1999 42.75 28.25
April 12, 1999 to July 4, 1999 48.75 36.75
July 5, 1999 to September 26, 1999 48.00 32.38
- --------------------------------------------------------------------------------
Fiscal 1998 High Low
- --------------------------------------------------------------------------------
September 29, 1997 to January 18, 1998 $51.38 $34.63
January 19, 1998 to April 12, 1998 70.13 44.50
April 13, 1998 to July 5, 1998 67.50 53.00
July 6, 1998 to September 27, 1998 66.50 35.50
- --------------------------------------------------------------------------------
The Company had approximately 1,520 record holders of its common stock as of
November 30, 1999.
The Company intends to retain any earnings for use in its business and therefore
does not anticipate paying any cash dividend in the foreseeable future. The
Company's present bank credit agreement contains certain restrictive covenants
that include the prohibition of the payment of dividends on common stock.
14
<PAGE>
<TABLE>
<CAPTION>
Item 6. Selected Financial Data
Whole Foods Market, Inc. and Subsidiaries
Summary Financial Information In thousands, except per share and operating data
Sept 26 Sept 27 Sept 28 Sept 29 Sept 24
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Consolidated Statements of Operations Data (1):
Sales $ 1,567,879 1,389,768 1,117,346 946,353 748,691
Cost of goods sold and occupancy costs 1,029,350 921,104 749,551 645,925 504,211
Inventory writeoffs associated with reorganization 2,480 - - - -
- -------------------------------------------------------------------------------------------------------------------
Gross profit 536,049 468,664 367,795 300,428 244,480
Selling, general and administrative expenses 448,147 385,573 312,703 266,107 225,755
Pre-opening and relocation costs 5,914 3,979 5,243 5,903 6,361
Merger expenses - 1,699 4,887 36,214 -
Other reorganization and asset disposal costs 6,979 - - 2,302 -
- -------------------------------------------------------------------------------------------------------------------
Income (loss) from operations 75,009 77,413 44,962 (10,098) 12,364
Interest expense (8,248) (7,685) (6,044) (4,671) (2,368)
Investment and other income 2,345 2,328 450 650 1,087
- -------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 69,106 72,056 39,368 (14,119) 11,083
Provision (credit) for income taxes 26,951 26,661 12,724 (1,404) 6,899
- -------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 42,155 45,395 26,644 (12,715) 4,184
===================================================================================================================
Basic income (loss) per common share $ 1.60 1.74 1.10 (0.54) 0.18
===================================================================================================================
Weighted average common shares outstanding 26,374 26,159 24,194 23,366 22,724
===================================================================================================================
Diluted income (loss) per common share $ 1.54 1.64 1.06 (0.54) 0.18
===================================================================================================================
Weighted average shares outstanding,
diluted basis 27,446 27,744 25,162 23,366 23,404
===================================================================================================================
Operating Data:
- -------------------------------------------------------------------------------------------------------------------
Number of stores at end of period 100 87 75 68 61
Store sales per gross square foot $ 661 670 638 636 625
Average weekly sales per store $ 309,836 291,690 277,141 253,555 238,776
Comparable store sales increase (2) 7.7% 11.0% 8.3% 5.4% 6.2%
- -------------------------------------------------------------------------------------------------------------------
Consolidated Balance Sheets Data (End of Year):
- -------------------------------------------------------------------------------------------------------------------
Working capital $ 19,270 93,064 35,427 15,648 871
Total assets 659,735 544,808 398,484 340,819 290,414
Long-term debt (including current maturities) 215,517 159,016 93,844 85,291 53,721
Shareholders' equity 311,220 277,273 205,465 172,024 172,353
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Fiscal years 1999, 1998, 1997, and 1995 are 52-week years and fiscal year
1996 is a 53-week year.
(2) For internal reporting purposes, the Company's fiscal year is comprised of
13 accounting periods generally consisting of four weeks each. Sales of a
store are deemed to be "comparable" commencing in the fifty-third full week
during which the store was open.
15
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Whole Foods Market opened its first store in Texas in 1980 and has expanded its
operations to 100 stores as of September 26, 1999 both by opening new stores and
acquiring existing stores from third parties. The results of the Company's
operations have been and will continue to be materially affected by the timing
and number of new store openings. New stores may incur operating losses for the
first one or two years of operations. The Company's results of operations are
reported on a 52- or 53-week fiscal year ending on the last Sunday in September.
Fiscal years 1999, 1998 and 1997 are 52-week years. Financial information about
industry segments is included under the caption "Segment Information" in the
Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
Development Activity
The following is a schedule of stores opened, relocated and acquired during
fiscal years 1999, 1998 and 1997:
Store Location Date
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Vienna Vienna, VA opened November 1996
La Jolla La Jolla, CA opened November 1996
Philadelphia Philadelphia, PA opened January 1997
Wheaton Wheaton, IL relocated February 1997
Hillcrest San Diego, CA opened April 1997
San Rafael San Rafael, CA opened April 1997
Federal Ft. Lauderdale, FL acquired April 1997
Plantation Plantation, FL acquired April 1997
Granary Monterey, CA acquired April 1997
Quarry San Antonio, TX relocated October 1997
Brentwood Brentwood, CA opened October 1997
Evanston Evanston, IL relocated December 1997
Birmingham Birmingham, MI acquired December 1997
Farmington Hills Farmington Hills, MI acquired December 1997
Plymouth Ann Arbor, MI acquired December 1997
Rochester Rochester, MI acquired December 1997
Somerset Troy, MI acquired December 1997
Troy Troy, MI acquired December 1997
Pearl Boulder, CO opened February 1998
Tempe Tempe, AZ opened March 1998
Winter Park Winter Park, FL opened April 1998
Marlton Marlton, NJ opened May 1998
Monterey/Granary Monterey, CA relocated June 1998
Coral Springs Coral Springs, FL opened September 1998
Preston Dallas, TX opened February 1999
Good Nature Grocery Walnut Creek, CA acquired April 1999
Briarcliff Atlanta, GA opened April 1999
Pasadena Pasadena, CA opened April 1999
Bedford Bedford, MA acquired April 1999
Bellingham Bellingham, MA acquired April 1999
Newtonville Newton, MA acquired April 1999
Wayland Wayland, MA acquired April 1999
Biscayne Aventura, FL relocated May 1999
Costa Mesa Costa Mesa, CA opened July 1999
Parkway Arlington, TX opened August 1999
Gold Coast Chicago, IL opened September 1999
Torrance Torrance, CA opened September 1999
Jenkintown Jenkintown, PA opened September 1999
- ----------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Results of Operations
The following table sets forth the statement of operations data of Whole Foods
Market expressed as a percentage of total sales for the fiscal years indicated:
Year Ended 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales:
Natural foods supermarkets 94.8% 93.5% 93.9%
Direct marketing 5.0 6.0 6.1
Other 0.8 1.0 0.0
Intersegment sales (0.6) (0.5) 0.0
- ---------------------------------------------------------------------------------------------------------------
Total sales 100.0 100.0 100.0
Cost of goods sold and occupancy costs 65.7 66.3 67.1
Inventory writeoffs associated with reorganization 0.2 0.0 0.0
- ---------------------------------------------------------------------------------------------------------------
Gross profit 34.1 33.7 32.9
Selling, general and administrative expenses 28.6 27.7 28.0
Pre-opening and relocation costs 0.4 0.3 0.5
Merger expenses 0.0 0.1 0.4
Other reorganization and asset disposal costs 0.4 0.0 0.0
- ---------------------------------------------------------------------------------------------------------------
Income from operations 4.8 5.6 4.0
Interest expense (0.5) (0.6) (0.5)
Investment and other income 0.1 0.2 0.0
- ---------------------------------------------------------------------------------------------------------------
Income before income taxes 4.4 5.2 3.5
Provision for income taxes 1.7 1.9 1.1
- ---------------------------------------------------------------------------------------------------------------
Net income 2.7% 3.3% 2.4%
===============================================================================================================
</TABLE>
Figures may not add due to rounding.
Sales
Total sales increased 12.8%, 24.4% and 18.1% in fiscal years 1999, 1998 and
1997, respectively. Sales in the natural foods supermarket segment for all years
shown reflect increases due to new stores opened and acquired and comparable
store sales increases of 7.7%, 11.0%, and 8.3% in fiscal years 1999, 1998 and
1997, respectively. Sales of a store are deemed to be comparable commencing in
the fifty-third full week after the store was opened or acquired. Comparable
store sales increases generally resulted from an increase in the number of
customer transactions and slightly higher average transaction amounts,
reflecting an increase in market share as the stores mature in a particular
market. These increases are due to such factors as improvements in overall store
execution and increased sales of private label products. Sales in the direct
marketing segment decreased from the prior year by 5.8% in fiscal year 1999 as a
result of a decline in international sales and increased competition in the
supplement category. Sales in the direct marketing segment increased by 20.0%
and 25.5% in fiscal years 1998 and 1997, respectively, as a result of
improvements in customer acquisition and expanded retail and mass market
distribution programs. External sales at Allegro Coffee Company have declined
since it was acquired by the Company as a result of increased focus on internal
distribution. The Company believes that historical sales trends may not
necessarily be indicative of future results of operations.
17
<PAGE>
Gross Profit
Gross profit consists of sales less cost of goods sold and occupancy costs plus
contribution from non-retail grocery distribution and food preparation
operations. Gross profit in fiscal year 1999 also includes inventory writeoffs
associated with the elimination of certain business lines at Amrion. The
Company's consolidated gross profit in fiscal year 1999 increased as a
percentage of sales to 34.1% from 33.7% in fiscal year 1998 and from 32.9% in
fiscal year 1997. In the Company's natural foods supermarket segment, these
increases reflect increased national buying and private label initiatives which
continue to lower the cost of product purchased on a national basis, and
continued improvement by new stores with respect to product procurement and
merchandising and controlling spoilage. In all years, gross profit margins were
positively affected by margin improvements as stores mature. Relative to other
stores in a region, gross profit margins tend to be lower for new stores and
increase as stores mature, reflecting lower spoilage as volumes increase, as
well as increasing experience levels and operational efficiencies of the store
teams. Additionally, gross profit margins were positively affected in all years
by the increased percentage of sales in certain regions and in departments such
as prepared foods where the Company achieves higher gross profits. Gross profits
of the Company's direct marketing segment were negatively affected in 1999 by
increased competition and overall weakness in the nutritional supplement
category. For fiscal years 1998 and 1997, gross profits of the Company's direct
marketing segment were positively affected by reductions in product cost as a
percentage of sales, offset by a slight increase in indirect costs in fiscal
1998.
Selling, General and Administrative Expenses
Selling, general and administrative expenses as a percentage of sales were
28.6%, 27.7% and 28.0% for fiscal years 1999, 1998 and 1997, respectively. In
fiscal year 1999 the Company's natural foods supermarket segment had an increase
in the number of administrative and support personnel at the regional and
national levels to support current and planned growth and the implementation of
new management information systems and costs incurred to address the Company's
Year 2000 issues. Whole Foods Market has historically been able to expand
without a significant increase in general and administrative costs. In all
years, selling, general and administrative expenses as a percentage of sales at
the Company's direct marketing segment increased as a result of higher market
development costs, increased administrative staff related to the Company's
direct marketing operations and a decline in international market sales.
Selling, general and administrative expenses also increased as a percentage of
sales in the current fiscal year as a result of start-up costs associated with
WholeFoods.com.
Pre-opening and Relocation Costs
Pre-opening costs include costs associated with hiring and training personnel,
supplies and certain occupancy and miscellaneous costs related to new store and
facility openings. Pre-opening costs are generally higher in locations which are
some distance from an existing base of operations due to higher training, travel
and moving costs. In fiscal 1999 and prior years, the Company capitalized
pre-opening costs and expensed such amounts in the quarter of the location
opening. Effective the beginning of fiscal year 2000, the Company will charge
pre-opening costs to expense as incurred in accordance with SOP 98-5. Relocation
costs consist of losses on the disposition of inventories, remaining lease
payments and other costs of holding idle replaced facilities and other related
expenses. Whole Foods Market developed and opened eight new stores in fiscal
1999, six new stores in fiscal 1998 and five new stores in fiscal 1997.
Additionally, the Company relocated one store in fiscal 1999, three stores in
fiscal 1998 and one store in fiscal 1997. Pre-opening and relocation costs in
fiscal 1999, 1998 and 1997 were approximately $5.9 million, $4.0 million and
$5.2 million, respectively.
Reorganization and Asset Disposal Costs
During the fourth quarter of fiscal 1999, the Company recognized reorganization
and asset disposal costs totaling approximately $9.5 million. Included in this
total are costs associated with the elimination of certain business lines at
Amrion, the disposal of accounting and distribution software, and other hardware
and software disposals. Reorganization costs associated with business lines
eliminated totaled approximately $3.5 million and consisted primarily of
inventory writeoffs totaling approximately $2.5 million that have been
classified as a component of cost of goods sold and the writedown of other
remaining assets to net realizable value. Costs associated with the disposal of
accounting and distribution software which was replaced with the implementation
of new financial software totaled approximately $2.8 million. Costs associated
with other hardware and software disposals totaled approximately $3.1 million
and consisted of the writeoffs of certain Year 2000 non-compliant or obsolete
hardware and certain software under development that the Company determined
would not be placed in service. Substantially all activities related to the
reorganization and asset disposals have been completed.
18
<PAGE>
Interest Expense
Interest expense consists of costs related to Company's convertible subordinated
debentures, senior notes and bank line of credit, net of capitalized interest
associated with new location development and internally developed software.
Interest expense related to the Company's borrowings, net of amounts
capitalized, was approximately $8.2 million in fiscal 1999, $7.7 million in
fiscal 1998 and $6.0 million in fiscal 1997.
Investment and Other Income
Investment and other income for fiscal 1999 and 1998 consists primarily of
interest income earned on a short-term corporate bond portfolio and a prime
money market portfolio. In fiscal 1997, investment and other income consists
primarily of interest income generated from U.S. Treasury and agency securities.
Investment and other income was approximately $2.3 million, $2.3 million and
$450,000 in fiscal 1999, 1998 and 1997, respectively.
Income Taxes
The Company's effective tax rate was 39%, 37% and 32.3% in fiscal years 1999,
1998 and 1997, respectively. The income tax rates for fiscal 1998 and 1997
reflect reductions in the valuation allowance previously provided on net
operating loss carryforwards assumed in the Fresh Fields acquisition of
approximately $7.8 million and $3.1 million, respectively, which eliminated the
valuation allowance during fiscal 1998. As of September 26, 1999, the Company
considers it more likely than not that all net operating loss carryforwards will
be utilized. As of September 26, 1999, the Company had remaining net operating
loss carryforwards of approximately $1.1 million which are available to offset
certain future taxable income. The Company expects its effective tax rate for
fiscal 2000 will be higher than its effective rate for fiscal 1999.
Business Combinations
In April 1999, the Company acquired the outstanding stock of Nature's Heartland,
Inc., which operated four natural foods supermarkets in the greater Boston
metropolitan area, in exchange for approximately $25 million in cash. This
transaction was accounted for using the purchase method and, accordingly, the
purchase price was allocated to net assets acquired based on their estimated
fair values at the date of acquisition. This allocation resulted in acquired
goodwill of approximately $13.5 million, which is being amortized on a
straight-line basis over 40 years.
In December 1997, the Company acquired Merchant of Vino, which operated four
gourmet/natural foods stores and two specialty wine and gourmet food shops in
the Detroit area, in exchange for approximately 1 million shares of Company
common stock. Also in fiscal 1998, the Company acquired Allegro Coffee Company,
a specialty coffee roaster and distributor based in Boulder, Colorado, in
exchange for approximately 175,000 shares of Company common stock. These
acquisitions were accounted for using the pooling-of-interests method. Due to
the immateriality of Merchant of Vino and Allegro financial statements to the
Company's consolidated financial statements, financial information for the
periods prior to fiscal 1998 was not restated. Transaction and other
merger-related costs associated with these acquisitions totaled approximately
$1.7 million.
In September 1997, the Company acquired Amrion in exchange for approximately 4.7
million shares of Company common stock, plus the assumption of approximately
330,000 outstanding options to purchase shares of common stock. The merger was
accounted for using the pooling-of-interests method and, accordingly, financial
information for the periods prior to the merger date was restated to reflect the
business combination. Transaction and other merger-related costs associated with
the acquisition of Amrion totaled approximately $4.9 million. Also in fiscal
1997, the Company acquired three natural foods markets in exchange for a total
of approximately 230,000 shares of Company common stock. These acquisitions were
accounted for using the pooling-of-interests method. Due to the immateriality of
the financial statements of these acquired companies to the Company's
consolidated financial statements, financial information for the periods prior
to the combination was not restated.
19
<PAGE>
Quarterly Results
The first quarter consists of 16 weeks, the second and third quarters each
consist of 12 weeks and the fourth quarter consists of 12 or 13 weeks. Fiscal
year 1999 and 1998 are 52-week years with the fourth quarters consisting of 12
weeks. Because the first quarter is longer than the remaining quarters and
contains both the Thanksgiving and Christmas holidays, it typically represents a
larger share of the Company's annual sales from existing stores. In fiscal 1999
and prior years, the Company capitalized pre-opening costs and expensed such
amounts in the quarter of the location opening. Effective the beginning of
fiscal year 2000, the Company will charge pre-opening costs to expense as
incurred in accordance with SOP 98-5. Quarter to quarter comparisons of results
of operations have been and may be materially impacted by the timing of new
store openings. The Company believes that the historical pattern of quarterly
sales and income as a percentage of the annual total may not be indicative of
the pattern in future years. The following tables set forth selected quarterly
unaudited consolidated statements of operations and operating information for
the fiscal years ended September 26, 1999 and September 27, 1998 (in thousands
except per share data):
<TABLE>
1st 2nd 3rd 4th
1999 Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 456,239 358,872 377,580 375,188
Gross profit 153,210 124,240 130,446 128,153
Pre-opening and relocation costs - 2,243 809 2,862
Other reorganization and asset disposal costs - - - 6,979
Income from operations 22,905 20,513 21,513 10,078
Income before income taxes 21,238 19,094 19,753 9,021
Net income 12,955 11,647 12,050 5,503
Basic income per share $ 0.49 0.44 0.46 0.21
Weighted average common shares outstanding 26,552 26,339 26,205 26,342
Diluted income per share $ 0.47 0.43 0.44 0.20
Weighted average shares outstanding - diluted basis 27,694 27,156 27,428 27,425
Average weekly sales per store $ 305 319 316 303
- -------------------------------------------------------------------------------------------------------------------
1st 2nd 3rd 4th
1998 Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------------------------------------
Sales $ 407,788 324,811 330,999 326,170
Gross profit 135,752 110,939 110,832 111,141
Pre-opening and relocation costs 1,065 1,462 1,024 428
Merger expenses 1,699 - - -
Income from operations 21,084 18,857 18,921 18,551
Income before income taxes 19,092 17,657 17,621 17,686
Net income 12,028 11,124 11,101 11,142
Basic income per share $ 0.46 0.43 0.42 0.42
Weighted average common shares outstanding 25,913 26,094 26,279 26,435
Diluted income per share $ 0.44 0.40 0.40 0.40
Weighted average shares outstanding - diluted basis 27,523 27,824 27,880 27,824
Average weekly sales per store $ 287 299 299 290
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
Liquidity and Capital Resources
At September 26, 1999 and September 27, 1998, the Company's working capital was
approximately $19.3 million and $93.1 million, respectively, and the ratio of
current assets to current liabilities was 1.16 to 1 and 2.02 to 1, respectively.
Net cash provided by operating activities was approximately $123.2 million,
$90.9 million and $54.0 million in fiscal 1999, 1998 and 1997, respectively.
Whole Foods Market maintains a bank credit agreement which provides a revolving
line of credit of up to $100 million through June 28, 2002. This credit
agreement contains certain restrictive covenants, including the prohibition of
the payment of dividends on common stock. The credit agreement also contains
certain affirmative covenants including maintenance of certain financial ratios
as defined in the agreement. All outstanding amounts borrowed under this
agreement bear interest at the Company's option of either a defined base rate or
the Eurodollar rate plus a premium. Commitment fees ranging from 0.20% to 0.30%
of the undrawn amount are payable under this agreement. At September 26, 1999,
approximately $49 million was drawn and approximately $44 million was available
under the agreement. At September 27, 1998, there were no amounts drawn under
the agreement. The average interest rate on amounts outstanding under this
agreement at September 26, 1999 was approximately 6.45%. During 1998 the Company
issued zero coupon convertible subordinated debentures for approximately $115
million. The issue price of the debentures results in an effective yield to
maturity of 5 percent. The debentures are convertible at the option of the
holder, at any time on or prior to maturity, unless previously redeemed or
otherwise purchased. Debentures may be redeemed at the option of the holder on
March 2, 2003, March 2, 2008 or March 2, 2013 for a purchase price equal to
issue price plus accrued original issue discount to such dates. Subject to
certain limitations, the Company, at its option, may elect to pay this purchase
price in cash, shares of common stock or any combination thereof. Debentures may
also be redeemed in cash at the option of the holder if there is a change in
control at a purchase price equal to issue price plus original issue discount to
the date of redemption. Subsequent to March 2, 2003, the debentures are
redeemable at the option of the Company for cash, in whole or in part, at
redemption prices equal to issue price plus accrued original issue discount to
date of redemption. The debentures are subordinated in the right of payment to
all existing and future senior indebtedness. The Company also has outstanding
$40 million of senior unsecured notes, bearing interest at 7.29% and payable in
seven equal annual installments of approximately $5,714,000 beginning May 16,
2000. The Board of Directors has authorized the Company to repurchase up to $50
million in outstanding shares of Company common stock. During fiscal year 1999,
the Company repurchased 608,000 shares of its common stock for an aggregate cost
of approximately $18,939,000. During the first quarter of fiscal year 2000, the
Company repurchased an additional 429,000 shares of its common stock for an
aggregate cost of approximately $13,534,000. Net cash provided by financing
activities was approximately $36.5 million, $60.7 million and $11.8 million in
fiscal 1999, 1998 and 1997, respectively.
Whole Foods Market's principal capital requirements have been the funding of the
development or acquisition of new stores and, to a lesser extent, the resultant
increase in working capital requirements. The Company estimates that cash
requirements to open a new store will range from approximately $3 million to $12
million (after giving effect to any landlord construction allowance). This
excludes new store inventory of approximately $750,000, a portion of which is
financed by the vendors of Whole Foods Market. The Company expects to open
approximately twenty to twenty-five stores in fiscal 2000 and will have under
development additional stores that will open in fiscal 2001. The Company will
incur additional capital expenditures in fiscal 2000 in connection with ongoing
equipment upgrades and resets at its existing stores, development of facilities
for WholePeople.com and continued development of its management information
systems. Net cash used in investing activities was approximately $187.3 million,
$128.3 million and $56.4 million in fiscal 1999, 1998 and 1997, respectively.
The Company expects that cash generated from operations and available under its
current bank credit agreement will be sufficient to fund planned store openings
and other cash needs through the end of fiscal 2000, absent any material cash
acquisitions.
21
<PAGE>
Year 2000 Issues
During fiscal 1998, the Company established a project team to coordinate
existing Year 2000 activities and address remaining Year 2000 issues. The
Company adopted a Year 2000 plan consisting of five phases: Phase I inventory
and ranking of the Company's systems and components, equipment, and suppliers
that may be vulnerable to Year 2000 problems; Phase II - assessment of items
identified in Phase I; Phase III - remediation or replacement of non-compliant
systems and components; Phase IV - testing and implementation of systems for
which remediation or replacement is complete; and Phase V - development of
contingency plans to mitigate the potential adverse effects on the Company's
operations that have been determined to be most reasonably likely based upon the
results of Phases I through IV. The Company has completed Phases I through IV.
This completion status includes all information systems ("IS") software and
hardware and non-IS equipment with embedded systems. Phase V, contingency
planning, is substantially completed and will continue to be updated for the
remainder of 1999.
The Company has identified significant third parties upon which it relies and
has communicated with these third parties through questionnaires and interviews
or otherwise obtained information to determine, to the extent practical, their
Year 2000 readiness. The Company has received no indication from these third
parties that their systems will not be Year 2000 compliant. The Company has
developed contingency plans to secure products and services from alternative
sources in the event the current parties suffer significant disruption as a
result of Year 2000 systems failures.
Expenses associated with the Year 2000 Plan have totaled approximately $815,000
to date. Additionally hardware and software purchases totaling approximately
$1.8 million have been capitalized to date pursuant to the Year 2000 Plan. These
expenditures have been funded through operating cash flows. The Company does not
expect that the total expenditures remaining under the Year 2000 Plan will be
material to its financial condition or results of operations.
The Company believes that the Year 2000 Plan will address its Year 2000 issues
but can make no assurance that its efforts will be fully effective or that Year
2000 issues will not have a material adverse impact on the Company's results of
operations. Should the Company or significant third parties upon which it relies
have a Year 2000 systems failure, the Company believes that the most significant
impact would likely be the inability of one or more stores to electronically
process customer sales, to conduct operations due to the failure of utility
companies to provide services or to receive products from certain vendors. The
Company has developed contingency plans that include performing certain
processes manually and securing products and services from alternative sources
to address these and other potential risks. Due to the general uncertainty
inherent in Year 2000 issues, the contingency planning process is ongoing and
will continue to be updated as additional information becomes available.
Adoption of Accounting Standards
The AICPA issued SOP 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" in March 1998. SOP 98-1 is effective for
fiscal years beginning after December 15, 1998 and establishes criteria for
capitalizing certain internal use software costs. The Company will adopt SOP
98-1 in fiscal year 2000. The adoption of SOP 98-1 will not have a material
impact on the Company's consolidated financial statements.
The AICPA issued SOP 98-5, "Reporting on the Costs of Start-up Activities" in
April 1998. SOP 98-5 requires costs of start-up activities and organization
costs to be expensed as incurred and is effective for financial statements
issued for fiscal years beginning after December 15, 1998. The Company will
adopt SOP 98-5 effective the first quarter of fiscal year 2000, with the initial
application recognized as the cumulative effect of a change in accounting
principle. Capitalized pre-opening costs at September 26, 1999 totaled
approximately $647,000. In fiscal 1999 and prior years, the Company capitalized
pre-opening costs and expensed such amounts in the quarter of the location
opening.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133") in June 1998. SFAS No. 133 establishes reporting
standards for derivative instruments and hedging activities that require an
entity to recognize all derivatives as assets or liabilities measured at fair
value and is effective for financial statements issued for all fiscal quarters
of fiscal years beginning after June 15, 2000. If certain conditions are met, a
derivative may be specifically designated as a hedge of the exposure to changes
in the fair market value, variable cash flow, or foreign currency of a
recognized asset or liability or certain other transactions and firm
commitments. The Company will adopt SFAS No. 133 in fiscal year 2001. The
Company is evaluating the impact of SFAS No.133 on its consolidated financial
statements.
22
<PAGE>
Disclaimer on Forward Looking Statements
Except for the historical information contained herein, the matters discussed in
this analysis are forward looking statements that involve risks and
uncertainties, including but not limited to general business conditions, the
timely development and opening of new stores, the impact of competition, and the
other risks detailed herein and from time to time in the Company's filings with
the Securities and Exchange Commission. The Company does not undertake any
obligation to update forward-looking statements.
Item 7(a) Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to interest rate changes and changes in the market value
of its investments. The Company is not a party to any derivative arrangement and
does not use financial instruments for trading or other speculative purposes.
The impact of the foreign exchange fluctuations on the Company's foreign
subsidiary is not material.
Interest Rate Risk. The Company is exposed to cash flow and fair value risk from
changes in interest rates, which may affect its financial position, results of
operations and cash flows. In seeking to minimize the risks from interest rate
fluctuations, the Company manages exposures through ongoing evaluation of the
composition of its long-term debt.
The Company's senior unsecured notes and subordinated convertible debentures
have fixed interest rates, and the fair value of these instruments is affected
by changes in market interest rates. The senior unsecured notes bear interest at
a fixed rate of 7.29% and have an outstanding balance of $40.0 million at
September 26, 1999 and September 27, 1998. At September 26, 1999 and September
27, 1998, the estimated fair value of the senior notes exceeded the carrying
amount by approximately $400,000 and $2.8 million, respectively. The zero coupon
subordinated convertible debentures have an effective yield to maturity of 5%
and an outstanding balance of approximately $124.4 million and $118.4 million at
September 26, 1999 and September 27, 1998, respectively. At September 26, 1999
and September 27, 1998, the carrying amount of the convertible debentures
exceeded the estimated fair value by approximately $22.7 million and $12.8
million, respectively. Should interest rates increase or decrease, the estimated
fair values of the senior notes and the zero coupon subordinated debentures
would decrease or increase accordingly.
Investment Risk. The Company has investments in equity securities of public and
non-public companies for business and strategic purposes. At September 26, 1999,
the carrying and fair values of the Company's investment in equity securities of
publicly-held companies were approximately $3.6 million. Changes in the market
may affect the fair value of these securities; however, such gains and losses
would not be realized unless the investments are sold. The Company's investments
in equity securities of non-public companies are accounted for under the cost
method and have a carrying value of approximately $20.0 million at September 26,
1999. The Company reviews such factors as prices recently paid for shares in
companies in which it invests and the underlying operating and cash flow
performance in assessing the carrying values of its investments to determine if
a decline in their fair value below cost is other than temporary. No impairment
losses have resulted to date based on these analyses.
Item 8. Financial Statements and Supplementary Data
See Item 14 (a).
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
23
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
A brief description of each executive officer and director of the Company is
provided below. The Company has a "staggered" board of directors in which only a
portion of the Company's directors stand for reelection each year. The term of
office of Avram J. Goldberg, Dr. John B. Elstrott and Dr. Ralph Z. Sorenson will
expire at the annual meeting of shareholders in 2000, the term of office of
David W. Dupree, Fred "Chico" Lager and John P. Mackey will expire at the annual
meeting of shareholders in 2001, and the term of office of Linda A. Mason and
Jirka Rysavy will expire at the annual meeting of shareholders in 2002. The term
of office for the directors elected at this annual meeting will expire in 2003.
All officers serve at the discretion of the Board of Directors.
John P. Mackey, 46, co-founder of the Company, has served as Chairman of the
Board and Chief Executive Officer since 1980.
Chris Hitt, 50, has served as President of the Company since January 1999. Mr.
Hitt has held various positions with the Company since 1985 including President
of the Mid-Atlantic, Northern California, Northeast, Southeast, and Southwest
Regions.
Glenda Flanagan, 45, has served as Vice President and Chief Financial Officer of
the Company since December 1988.
James P. Sud, 47, has served as Vice President and Chief Operating Officer since
May 1997. Mr. Sud had been President of MPS Production Company, an independent
oil and gas company engaged in exploration, production and oil field equipment
services from 1977 to May 1997. Mr. Sud served as a director of the Company from
1980 to March 1997.
Michael Besancon, 53, has served as President of the Mid-Atlantic Region since
January 1999. Mr. Besancon joined the Company in 1995, serving as purchasing
director for the Southern Pacific Region before becoming the Vice President for
that region in 1996.
Rich Cundiff, 42, has served as President of the Southern Pacific Region since
January 1996. Mr. Cundiff has held various positions with the Company since
1988, including President and Vice President of the Southwest Region and store
team leader.
A.C. Gallo, 46, has served as President of the Northeast Region since July 1996.
Mr. Gallo has held various positions with the Company and with Bread & Circus,
Inc., which was acquired by the Company in October 1992, including Vice
President of the Northeast Region, Vice President of Perishables and produce
coordinator.
Juan Nunez, 41, has served as President of the Florida Region since September
1998. Mr. Nunez has held various positions with the Company and with Mrs.
Gooch's Natural Food Markets, Inc., which was acquired by the Company in
September 1993, including Vice President of the Southwest Region, Director of
Store Operations, and store team leader.
Walter Robb, 46, has been with the Company since 1991 and served as President of
the Northern Pacific Region since August 1993.
Dan Rodenberg, 44, has served as President of the Midwest Region since January
1997. Mr. Rodenberg has held various positions with the Company since 1989,
including Vice President of the Mid-Atlantic and Midwest Regions and store team
leader.
Lee Valkenaar, 44, has served as President of the Southwest Region since January
1996. Mr. Valkenaar has held various store team leader positions with the
Company since 1987.
David W. Dupree, 46, has served as director of the Company since August 1996.
Mr. Dupree is a Managing Partner and founder of The Halifax Group, a limited
partnership founded to pursue small and mid cap investment opportunities. He was
the Managing Director of The Carlyle Group, a Washington, D.C. based merchant
banking concern, from 1992 to 1998. Mr. Dupree also serves as a director of
Insight Health Services Corp.
24
<PAGE>
Dr. John B. Elstrott, 51, has served as a director of the Company since February
1995. Dr. Elstrott is the founding director of the Levy Rosenblum Institute for
Entrepreneurship at Tulane University's A.B. Freeman School of Business which
was started in 1991. He has been on the faculty at Tulane since 1982.
Avram J. Goldberg, 70, has served as a director of the Company since May 1994.
Mr. Goldberg has been the Chairman of the Board of AVCAR Group, Ltd., a
consulting firm specializing in the retail industry, since 1989.
Fred "Chico" Lager, 45, has served as a director of the Company since January
1996. Mr. Lager has been a Trustee of Fenimore Asset Management Trust, a mutual
fund company, since 1997. Mr. Lager has been a self-employed consultant, working
with a select number of emerging small businesses, since 1991.
Linda A. Mason, 45, has served as a director of the Company since July 1992.
Mrs. Mason is the co-founder of Bright Horizons Family Solutions, Inc., which
operates work-site childcare centers, and served as its President from 1986 to
July 1998. Since July 1998, she has served as Chairman of the Board.
Jirka Rysavy, 45, has served as a director of the Company since November 1998.
Mr. Rysavy is the founder, Chairman and Chief Executive Officer of Gaiam, Inc.
which provides goods, services and information to customers who value the
environment, a sustainable economy, healthy lifestyles and personal development.
He has been Chairman since Gaiam's inception in 1988 and became the full-time
Chief Executive Officer in December 1998. Mr. Rysavy is also Chairman Emeritus
and a director of Corporate Express, Inc., a $4 billion corporate supplier of
non-production goods. Mr. Rysavy founded Corporate Express in 1986 and until
September 1998 was its Chairman and Chief Executive Officer.
Dr. Ralph Z. Sorenson, 66, has served as a director of the Company since
December 1994. Dr. Sorenson is currently Professor Emeritus of business
administration at the University of Colorado, Boulder and has served in various
capacities at the University of Colorado since July 1992, including Dean of the
College of Business and Graduate School of Business Administration. Dr. Sorenson
serves as a director of the Polaroid Corporation, Houghton Mifflin Company,
Eaton Vance, Inc. and Exabyte Corporation.
Each non-employee director of the Company receives $3,000 for each Board of
Directors meeting he or she attends and $500 for each telephone meeting called
by the Company which is greater than one hour in length and in which a majority
of directors participate. Each non-employee committee chair receives an annual
retainer of $1,500. Each non-employee director receives $500 for each committee
meeting attended. In addition, directors are reimbursed for reasonable expenses
incurred in attending Board of Directors meetings. Directors who are employees
of the Company are not paid any separate fees for serving as directors.
The Board of Directors held seven meetings in fiscal 1999. No director attended
fewer than 75% of the meetings of the Board (and any committees thereof) which
they were required to attend.
Section 16(a) Beneficial Ownership Reporting Compliance
Under the securities laws of the United States, the Company's directors and
executive officers, and persons who own more than 10% of the Company's common
stock, are required to report their initial ownership of the Company's common
stock and any subsequent changes in that ownership to the Securities and
Exchange Commission. Specific due dates have been established for these reports,
and the Company is required to disclose any failure to file by these dates.
Based solely upon a review of Forms 3, 4 and 5 furnished to the Company, the
Company believes that all of its directors, officers and applicable shareholders
timely filed these reports.
In addition, under the Company's option plan for outside directors, each newly
elected director receives an option as of the date of his or her election to
purchase 10,000 shares of the Company's common stock at an exercise equal to the
closing price of the Company's common stock on the date of grant. Incumbent
directors receive an option grant as of the date of the Company's annual meeting
of shareholders to purchase 2,000 shares of the Company's common stock at an
exercise price equal to the closing price of the Company's common stock on the
date of grant if the director attended at least two-thirds of the meeting of the
Company's Board of Directors held in the preceding year.
25
<PAGE>
Item 11. Executive Compensation
The following table sets forth information concerning compensation paid or
accrued by the Company during the three-year period ended September 26, 1999 to
or for the Company's Chief Executive Officer and the certain other highest
compensated executive officers of the Company whose total compensation exceeded
$100,000.
<TABLE>
<CAPTION>
Summary Compensation Table
- --------------------------
Other Company
Annual Stock
Name and Principal Position Year Salary (1) Bonus Compensation (2) Options
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
John P. Mackey 1999 $200,000 $ 50,000 $ - 9,000
CEO 1998 185,000 90,000 500 9,000
1997 170,000 93,000 500 9,000
Chris Hitt 1999 $180,000 $ 72,000 $ - 4,000
President 1998 165,000 94,000 500 -
1997 150,000 68,900 500 3,600
Glenda Flanagan 1999 $165,000 $ 65,000 $ - 4,000
CFO 1998 150,000 125,000 500 4,000
1997 135,000 105,000 500 4,000
James P. Sud 1999 $165,000 $ 65,000 $ - 4,000
COO 1998 150,000 125,000 500 4,000
1997 (3) 90,000 47,600 - 14,000
Walter Robb 1999 $175,000 $ 79,000 $ - 3,900
Regional President 1998 130,000 145,000 500 4,000
Northern Pacific Region 1997 130,000 92,000 500 4,000
- -----------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company has a policy that limits the cash compensation paid in any one
year to any Team Member to ten times the average full time salary of all
Team Members. Amounts earned in excess of the salary limitation may be
deferred to the next year, subject to certain restrictions.
(2) The amounts indicated reflect the Company's contributions on behalf of the
persons indicated to the Whole Foods Market, Inc. Savings Plan and Trust.
In 1997 and 1998, the Company's contribution was a maximum of $500 paid in
shares of the Company's common stock. The Company's contribution for 1999
has not been determined as of November 30, 1999.
(3) Salary and bonus for 1997 are prorated to reflect May 1, 1997 employment
date.
26
<PAGE>
Option Plans
The following table sets forth certain information with respect to the options
granted during the fiscal year ended September 26, 1999 to each executive
officer of the Company listed in the Summary Compensation Table set forth under
the caption "Executive Compensation."
<TABLE>
<CAPTION>
Option Grants in Fiscal Year 1999
- ---------------------------------
Percent of
Total Options Exercise or Potential Realizable Value at
Number of Granted to Base Price Assumed Annual Rates of Stock Price
Options Employees in in Dollars Expiration Appreciation for Option Term (1)
Name Granted Fiscal Year per Share (2) Date 5 % 10 %
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
John P. Mackey 9,000 * $31.875 3/29/06 $116,787 $272,163
Chris Hitt 4,000 * $31.875 3/29/06 $51,905 $120,961
Glenda Flanagan 4,000 * $31.875 3/29/06 $51,905 $120,961
James P. Sud 4,000 * $31.875 3/29/06 $51,905 $120,961
Walter Robb 3,900 * $31.875 3/29/06 $50,608 $117,937
---------------------------------------------------------------------------------------------------------------
* Less than one percent
(1) The 5% and 10% assumed annual rates of appreciation are mandated by the
rules of the Securities and Exchange Commission and do not reflect the
Company's estimates or projections of future prices of the shares of the
Company's common stock. There can be no assurance that the amounts
reflected in this table will be achieved.
(2) Closing price of common stock at date of grant.
The following table sets forth certain information with respect to the options
exercised by the executive officers named above during the year ended September
26, 1999 or held by such persons at September 26, 1999. The number of options
held at September 26, 1999 includes options granted under the 1992 Option Plan
for Team Members and under the 1987 Option and Incentive Plan (the "1987 Plan").
The 1987 Plan was terminated by the Company in 1992, except as to options
previously granted.
Aggregated Option Exercises in Fiscal Year 1999 and Fiscal Year End Option
Values
- --------------------------------------------------------------------------------
Number of Value of Unexercised
Shares Unexercised Options In-the-Money Options (2)
Acquired Value at September 26, 1999 at September 26, 1999
--------------------- -----------------------
Name on Exercise Realized (1) Exercisable Unexercisable Exercisable Unexercisable
- ----------------------------------------------------------------------------------------------------------------
John P. Mackey 20,000 $663,350 69,700 23,300 $1,495,459 $10,062
Chris Hitt - - 34,181 14,255 $439,459 $83,509
Glenda Flanagan 5,100 $160,238 60,950 12,050 $1,309,667 $65,294
James P.Sud - - 15,900 14,900 $214,438 $98,231
Walter Robb 2,670 $108,945 33,738 10,212 $432,796 $52,748
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Based upon the market price of the underlying shares of common stock of
Whole Foods Market at date of exercise and the option exercise price.
(2) Based upon the closing price of the common stock of Whole Foods Market on
September 26, 1999, which was $33.094 per share.
27
<PAGE>
Compensation Committee Interlocks and Insider Participation
No executive officer of the Company served as a member of the Compensation
Committee (or other board committee performing similar functions or, in the
absence of any such committee, the entire board of directors) of another
corporation, one of whose executive officers served on the Compensation
Committee. No executive officer of the Company served as a director of another
corporation, one of whose executive officers served on the Compensation
Committee. No executive officer of the Company served as a member of the
Compensation Committee (or other board committee performing equivalent functions
or, in the absence of any such committee, the entire board of directors) of
another corporation, one of whose executive officers served as a director of the
Company.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the beneficial
ownership of the Company's common stock as of November 30, 1999 for (i) each
person who is known by the Company to own beneficially more than 5% of the
outstanding shares of common stock, (ii) each director of the Company, (iii)
each executive officer of the Company listed in the Summary Compensation Table
set forth under the caption "Executive Compensation," and (iv) all of the
directors and officers of the Company as a group. Except pursuant to applicable
community property laws and except as otherwise indicated, each shareholder
identified in the table possesses sole voting and investment power with respect
to its or his shares.
<TABLE>
<CAPTION>
Shares Owned (1)
-----------------------------------------------
Name Number Percent
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Wellington Management Company (2) 1,717,600 6%
David W. Dupree (3) 9,551 *
Dr. John B. Elstrott (4) 7,800 *
Glenda Flanagan (5) 66,974 *
Avram J. Goldberg (6) 18,200 *
Chris Hitt (7) 52,205 *
Fred "Chico" Lager (8) 13,317 *
John P. Mackey (9) 321,567 1%
Linda A. Mason (10) 18,000 *
Walter Robb (11) 44,598 *
Dr. Ralph Z. Sorenson (12) 13,000 *
James P. Sud (13) 57,475 *
All directors and officers as a group (18 persons) 776,039 3%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
* Less than one percent
(1) Includes shares issuable upon exercise of stock options, which are vested
or will be vested prior to January 29, 2000.
(2) Based on information contained in Schedule 13G, as filed on February 9,
1999. The amount indicated reflects Wellington Management Company's
beneficial ownership as of December 31, 1998. Of the shares indicated,
Wellington Management Company has the sole voting power of 0 shares and the
sole power to dispose of 0 shares. The address of such shareholder is 75
State Street, Boston, Massachusetts 02109.
(3) Includes options to purchase 3,582 shares of common stock.
(4) Includes options to purchase 3,500 shares of common stock.
(5) Includes options to purchase 60,950 shares of common stock.
(6) Includes options to purchase 14,600 shares of common stock.
(7) Includes options to purchase 34,181 shares of common stock.
(8) Includes options to purchase 11,500 shares of common stock.
(9) Includes options to purchase 72,200 shares of common stock.
(10) Includes options to purchase 18,000 shares of common stock.
(11) Includes options to purchase 33,738 shares of common stock.
(12) Includes options to purchase 13,000 shares of common stock.
(13) Includes options to purchase 15,900 shares of common stock.
28
<PAGE>
Item 13. Certain Relationships and Related Transactions
John P. Mackey and Glenda Flanagan, executive officers of the Company, own
approximately 13% in the aggregate of BookPeople, Inc. which leases facilities
from the Company. The lease provides for an aggregate annual minimum rent of
approximately $391,000 which was received in rental income by the Company in
fiscal 1999.
Retention Agreements
Since November 1991, the Company has entered into Retention Agreements with the
executive officers of the Company or its subsidiaries which provide for certain
benefits upon an involuntary termination of employment other than for cause
after a "Triggering Event." A Triggering Event includes a merger of the Company
with and into an unaffiliated corporation if the Company is not the surviving
corporation or the sale of all or substantially all of the Company's assets. The
benefits to be received by the executive officer whose employment is terminated
after a Triggering Event occurs include receipt of his or her annual salary
through the one-year period following the date of the termination of employment
and the immediate vesting of any outstanding stock options granted to such
executive officer.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) and (2) Financial Statements and Schedules.
Reference is made to the listing on page 30 of all financial statements
filed as a part of this report. No schedules are required.
(b) (3) Exhibits
Reference is made to the Exhibit Index on page 53 for a list of all
exhibits filed as a part of this report.
29
<PAGE>
<TABLE>
<CAPTION>
Whole Foods Market, Inc. and Subsidiaries
Index to Consolidated Financial Statements
Page
Number
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Independent Auditors' Report 31
Consolidated Balance Sheets at September 26, 1999 and September 27, 1998 32
Consolidated Statements of Operations for the fiscal years ended September 26, 1999,
September 27, 1998 and September 28, 1997 33
Consolidated Statements of Shareholders' Equity and Comprehensive Income for the
fiscal years ended September 26, 1999, September 27, 1998 and September 28, 1997 34
Consolidated Statements of Cash Flows for the fiscal years ended September 26, 1999,
September 27, 1998 and September 28, 1997 35
Notes to Consolidated Financial Statements 37
- ---------------------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE>
Whole Foods Market, Inc. and Subsidiaries
Independent Auditors' Report
The Board of Directors
Whole Foods Market, Inc.
We have audited the accompanying consolidated balance sheets of Whole Foods
Market, Inc. and subsidiaries ("Company") as of September 26, 1999 and September
27, 1998 and the related consolidated statements of operations, shareholders'
equity and comprehensive income, and cash flows for each of the fiscal years in
the three-year period ended September 26, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall consolidated financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Whole Foods Market,
Inc. and subsidiaries as of September 26, 1999 and September 27, 1998, and the
results of their operations and their cash flows for each of the fiscal years in
the three-year period ended September 26, 1999, in conformity with generally
accepted accounting principles.
/s/ KPMG LLP
- -----------------
Austin, Texas
November 15, 1999
31
<PAGE>
<TABLE>
<CAPTION>
Whole Foods Market, Inc. and Subsidiaries
Consolidated Balance Sheets In thousands
September 26, 1999 and September 27, 1998
Assets
1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 9,019 36,674
Marketable securities - 27,019
Trade accounts receivable 19,578 15,201
Merchandise inventories 93,452 85,628
Prepaid expenses and other current assets 11,169 8,870
Deferred income taxes 7,407 10,701
- -------------------------------------------------------------------------------------------------------------------
Total current assets 140,625 184,093
Property and equipment, net of accumulated depreciation and amortization 407,204 291,478
Marketable securities and other long-term investments 23,600 -
Acquired leasehold rights, net of accumulated amortization 14,150 12,150
Excess of cost over net assets acquired, net of accumulated amortization 49,288 35,802
Other assets, net of accumulated amortization 24,868 21,285
- -------------------------------------------------------------------------------------------------------------------
$ 659,735 544,808
===================================================================================================================
Liabilities and Shareholders' Equity
1999 1998
- -------------------------------------------------------------------------------------------------------------------
Current liabilities:
Current installments of long-term debt and capital lease obligations $ 6,655 343
Trade accounts payable 49,038 34,137
Accrued payroll, bonus and employee benefits 29,638 26,670
Other accrued expenses 36,024 29,879
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 121,355 91,029
Long-term debt and capital lease obligations, less current installments 208,862
158,673
Deferred rent liability 9,375 7,932
Other long-term liabilities 4,376 6,792
Deferred income taxes 4,547 3,109
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 348,515 267,535
- -------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Common stock, no par value, 100,000 shares authorized, 26,986 and 26,500 shares
issued, 26,378 and 26,500
shares outstanding in 1999 and 1998, respectively 230,131 219,189
Common stock in treasury, at cost (18,939) -
Accumulated other comprehensive income - 211
Retained earnings 100,028 57,873
- -------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 311,220 277,273
- -------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
- -------------------------------------------------------------------------------------------------------------------
$ 659,735 544,808
===================================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
Whole Foods Market, Inc. and Subsidiaries
Consolidated Statements of Operations In thousands, except per share data
Fiscal years ended September 26, 1999, September 27, 1998 and September 28, 1997
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $ 1,567,879 1,389,768 1,117,346
Cost of goods sold and occupancy costs 1,029,350 921,104 749,551
Inventory writeoffs associated with reorganization 2,480 - -
- -------------------------------------------------------------------------------------------------------------------
Gross profit 536,049 468,664 367,795
Selling, general and administrative expenses 448,147 385,573 312,703
Pre-opening and relocation costs 5,914 3,979 5,243
Merger expenses - 1,699 4,887
Other reorganization and asset disposal costs 6,979 - -
- -------------------------------------------------------------------------------------------------------------------
Income from operations 75,009 77,413 44,962
Other income (expense):
Interest expense (8,248) (7,685) (6,044)
Investment and other income 2,345 2,328 450
- -------------------------------------------------------------------------------------------------------------------
Income before income taxes 69,106 72,056 39,368
Provision for income taxes 26,951 26,661 12,724
- -------------------------------------------------------------------------------------------------------------------
Net income $ 42,155 45,395 26,644
===================================================================================================================
Basic income per common share $ 1.60 1.74 1.10
===================================================================================================================
Weighted average common shares outstanding 26,374 26,159 24,194
===================================================================================================================
Diluted income per common share $ 1.54 1.64 1.06
===================================================================================================================
Weighted average shares outstanding, diluted basis 27,446 27,744 25,162
===================================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Whole Foods Market, Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity and Comprehensive Income In thousands
Fiscal years ended September 26, 1999, September 27, 1998 and September 28, 1997
Accumulated
Common Other Retained Total
Shares Common Stock in Comprehensive Earnings Shareholders'
Outstanding Stock Treasury Income (Loss) (Deficit) Equity
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances at September 29, 1996 23,792 $ 183,305 - (217) (11,064) 172,024
- -------------------------------------------------------------------------------------------------------------------
Net income - - - - 26,644 26,644
Change in unrealized gain (loss)
on investments - - - 92 - 92
- -------------------------------------------------------------------------------------------------------------------
Comprehensive income - - - 92 26,644 26,736
Adjustment to conform fiscal year of
pooled entity - - - - (1,268) (1,268)
Other acquisitions 244 2,200 - - (1,236) 964
Issuance of common stock 514 7,907 - - - 7,907
Common stock purchased and retired (97) (2,187) - - - (2,187)
Tax benefit related to exercise of
employee stock options - 1,289 - - - 1,289
- -------------------------------------------------------------------------------------------------------------------
Balances at September 28, 1997 24,453 192,514 - (125) 13,076 205,465
- -------------------------------------------------------------------------------------------------------------------
Net income - - - - 45,395 45,395
Change in unrealized gain (loss)
on investments - - - 336 - 336
- -------------------------------------------------------------------------------------------------------------------
Comprehensive income - - - 336 45,395 45,731
Acquisitions 1,187 2,027 - - (598) 1,429
Issuance of common stock 860 14,925 - - - 14,925
Tax benefit related to exercise of
employee stock options - 9,723 - - - 9,723
- -------------------------------------------------------------------------------------------------------------------
Balances at September 27, 1998 26,500 219,189 - 211 57,873 277,273
- -------------------------------------------------------------------------------------------------------------------
Net income - - - - 42,155 42,155
Change in unrealized gain (loss)
on investments - - - (211) - (211)
- --------------------------------------------------------------------------------------------------------------------
Comprehensive income - - - (211) 42,155 41,944
Issuance of common stock 486 7,049 - - - 7,049
Common stock purchased (608) - (18,939) - - (18,939)
Tax benefit related to exercise of
employee stock options - 3,893 - - - 3,893
- -------------------------------------------------------------------------------------------------------------------
Balances at September 26, 1999 26,378 $ 230,131 (18,939) - 100,028 311,220
===================================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Whole Foods Market, Inc. and Subsidiaries
Consolidated Statements of Cash Flows In thousands
Fiscal years ended September 26, 1999, September 27, 1998 and September 28, 1997
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 42,155 45,395 26,644
Adjustments to reconcile net income to net cash flows
provided by operating activities:
Depreciation and amortization 53,339 42,307 34,456
Loss on disposal of fixed assets 1,285 1,421 1,945
Reorganization and asset disposal costs 9,459 - -
Other loss provisions - - 1,088
Deferred income tax expense (benefit) 4,732 (1,204) (1,390)
Change in LIFO reserve 834 417 800
Rent differential 1,443 1,525 800
Tax benefit related to exercise of employee stock options 3,893 9,723 1,289
Interest accretion on long-term debt 6,058 3,337 -
Adjustment to conform fiscal year of pooled entity - - (1,268)
Lease termination and other merger accrual payments (2,169) (8,497) (2,956)
Other - - 449
Net change in current assets and liabilities:
Trade accounts receivable (5,751) (1,922) (4,681)
Merchandise inventories (8,093) (14,442) (18,694)
Prepaid expenses and other current assets (4,986) 883 (510)
Trade accounts payable 11,854 (947) 3,934
Accrued payroll, bonus and employee benefits 2,724 4,948 9,671
Other accrued expenses 6,414 7,929 2,464
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 123,191 90,873 54,041
- -------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Acquisition of property and equipment (75,048) (41,197) (31,062)
Development costs of new store locations (80,976) (54,521) (24,566)
Acquisition of intangible assets (9,994) (4,984) (6,693)
Purchase of marketable securities and other long-term investments (23,600) (25,594) -
Proceeds from sale of marketable securities 26,808 - 5,899
Payment for purchase of acquired entities, net of cash acquired (24,500) (1,841) -
Other investing activities - (191) -
- -------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (187,310) (128,328) (56,422)
- --------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. (continued)
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
Whole Foods Market, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (continued) In thousands
Fiscal years ended September 26, 1999, September 27, 1998 and September 28, 1997
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from financing activities
Net proceeds from issuance of convertible debentures $ - 111,748 -
Net proceeds from long-term borrowings 49,000 11,000 24,336
Payments on long-term debt and capital lease obligations (646) (76,939) (18,277)
Issuance of common stock 7,049 14,925 7,907
Purchase of treasury stock (18,939) - (2,187)
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 36,464 60,734 11,779
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (27,655) 23,279 9,398
Cash and cash equivalents at beginning of year 36,674 13,395 3,997
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 9,019 36,674 13,395
===================================================================================================================
Supplemental disclosures of cash flow information
Interest and income taxes paid:
Interest $ 3,245 5,691 6,733
===================================================================================================================
Federal and state income taxes $ 21,159 16,618 11,221
===================================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
36
<PAGE>
Whole Foods Market, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Fiscal years ended September 26, 1999, September 27, 1998 and September 28, 1997
(1) Corporate Organization
The consolidated financial statements include the accounts of Whole Foods
Market, Inc. and its subsidiaries ("Company"). All significant majority-owned
subsidiaries are consolidated on a line-by-line basis. All significant
intercompany accounts and transactions are eliminated upon consolidation. Where
appropriate, prior years' financial statements have been reclassified to conform
with the 1999 presentation.
(2) Summary of Significant Accounting Policies
Business
The Company and its subsidiaries engage in the sale of natural food and
nutritional products, primarily through its natural foods supermarkets and
direct marketing of nutritional supplements. As of September 26, 1999, the
Company operated 100 stores, all of which are located in the United States, and
engaged in direct marketing of nutritional supplements primarily in the United
States.
Definition of Fiscal Year
The Company reports its results of operations on a 52- or 53-week fiscal year
ending on the last Sunday in September. Fiscal years 1999, 1998 and 1997 are
52-week years.
Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company considers
all highly liquid investments with an original maturity of 90 days or less to be
cash equivalents.
Investments in Debt and Equity Securities
Marketable securities and other long-term investments at September 26, 1999
consisted of investments in equity instruments of public and non-public
companies. Marketable securities at September 27, 1998 consisted of investments
in short-term high quality corporate bond funds. The Company classifies its
investments in debt and equity securities of public companies as
available-for-sale. Available-for-sale securities are recorded at fair value.
Unrealized holding gains and losses, net of the related tax effect, on
available-for-sale securities are excluded from earnings and are reported as a
separate component of shareholders' equity until realized. A decline in the fair
value of any available-for-sale security below cost that is deemed to be other
than temporary results in a reduction in carrying amount to fair value. The
impairment is charged to earnings and a new cost basis of the security is
established. The Company's investments in equity securities of non-public
companies at September 26, 1999 are accounted for under the cost method.
Realized gains and losses from the sale of investments in debt and equity
securities are determined on a specific identification basis. Dividend and
interest income are recognized when earned.
(continued)
37
<PAGE>
Whole Foods Market, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(2) Summary of Significant Accounting Policies, continued
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, trade accounts receivable,
trade accounts payable, accrued payroll, bonus and employee benefits, and other
accrued expenses approximate fair value because of the short maturity of those
instruments. The carrying value of notes payable to banks approximates fair
value due to variable interest rates charged on these notes. Marketable
securities are stated at fair value with unrealized gains and losses included as
a component of shareholders' equity until realized. The fair value of long-term
investments accounted for under the cost method is estimated, where practicable,
based on prices recently paid for shares in those companies. The fair value of
convertible subordinated debentures is estimated using quoted market prices. The
fair value of senior unsecured notes is estimated by discounting the future cash
flows at the rates currently available to the Company for similar debt
instruments of comparable maturities. Carrying amounts and fair values of the
Company's financial instruments other than those for which carrying amounts
approximate fair values as noted above are as follows (in thousands):
<TABLE>
1999 1998
---------------------- ----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Marketable securities, short-term $ - - $ 27,019 27,019
Marketable securities, long-term 3,600 3,600 - -
Other long-term investments 20,000 20,000 - -
Liabilities:
Convertible subordinated debentures $ 124,419 101,656 $ 118,361 105,581
Senior unsecured notes 40,000 40,444 40,000 42,842
===================================================================================================================
Inventories
Inventories, both retail and wholesale, are valued at the lower of cost or
market. Cost is principally determined by the last-in, first-out ("LIFO")
method. The manufactured inventories of Amrion and Allegro are determined by the
first-in, first-out ("FIFO") method. The excess of estimated current costs over
LIFO carrying value was approximately $4,492,000 and $3,658,000 at September 26,
1999 and September 27, 1998, respectively. Balances of inventories are as
follows (in thousands):
1999 1998
- -------------------------------------------------------------------------------------------------------------------
Manufactured inventories:
Raw materials $ 11,380 10,472
Work in process 651 363
Finished goods 8,451 12,446
- -------------------------------------------------------------------------------------------------------------------
Total manufactured inventories 20,482 23,281
- -------------------------------------------------------------------------------------------------------------------
Other inventories, net of LIFO reserve 72,970 62,347
- -------------------------------------------------------------------------------------------------------------------
$ 93,452 85,628
===================================================================================================================
(continued)
</TABLE>
38
<PAGE>
Whole Foods Market, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(2) Summary of Significant Accounting Policies, continued
Property and Equipment
Property and equipment is stated at cost, net of accumulated depreciation and
amortization. Depreciation of equipment is provided over the estimated useful
lives (generally 3 to 15 years) using the straight-line method. Leasehold
improvements are depreciated on the straight-line method over the shorter of the
estimated useful lives of the improvements or the terms of the related leases.
Costs related to a projected site determined to be unsatisfactory and general
site selection costs which cannot be identified with a specific store location
are charged to operations currently.
Pre-opening costs include costs associated with hiring and training personnel,
supplies and certain occupancy and miscellaneous costs related to new locations.
In fiscal 1999 and prior years, the Company capitalized pre-opening costs and
expensed such amounts in the quarter of the location opening. The AICPA issued
SOP 98-5, "Reporting on the Costs of Start-up Activities" in April 1998. SOP
98-5 requires costs of start-up activities and organization costs to be expensed
as incurred and is effective for financial statements issued for fiscal years
beginning after December 15, 1998. The Company will adopt SOP 98-5 in fiscal
year 2000, with the initial application recognized as the cumulative effect of a
change in accounting principle. Capitalized pre-opening costs at September 26,
1999 totaled approximately $647,000.
Acquired Leasehold Rights
Acquired leasehold rights are amortized as rent expense over the remaining lease
term using the straight-line method. Accumulated amortization of acquired
leasehold rights at September 26, 1999 and September 27, 1998 totaled
approximately $2,238,000 and $2,081,000, respectively.
Excess of Cost Over Net Assets Acquired
Excess of cost over net assets acquired is amortized over 40 years using the
straight-line method. Accumulated amortization of excess of cost over net assets
acquired at September 26, 1999 and September 27, 1998 totaled approximately
$8,301,000 and $6,973,000, respectively. The carrying value of the excess of
cost over net assets acquired is evaluated periodically in relation to such
factors as the occurrence of a significant event, the operating performance of
each acquired subsidiary and the estimated future undiscounted cash flows of the
underlying business of each subsidiary.
Other Assets
Other assets include non-competition agreements, trademarks and certain costs
associated with the issuance of debt. Non-competition agreements and debt
issuance costs are amortized over the life of the related agreement using the
straight-line method. Trademarks are amortized over 40 years using the
straight-line method. Also included in other assets at September 26, 1999 and
September 27, 1998 was a note receivable with a carrying amount of approximately
$2,213,000 and $2,341,000, respectively. Accumulated amortization included in
other assets at September 26, 1999 and September 27, 1998 totaled approximately
$6,358,000 and $3,497,000, respectively.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of
The Company evaluates long-lived assets and certain identifiable intangibles for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future undiscounted cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
Advertising
The Company expenses the production costs of advertising when the advertising
first takes place, except for direct-response advertising which is capitalized
and amortized over its expected period of future benefit. Direct response
advertising consists primarily of direct mail advertising, including deferred
promotional mailing costs, of the Company's products. The capitalized costs of
mailed promotional materials are amortized over the expected promotional benefit
period of three months. Advertising expense for fiscal years 1999, 1998 and 1997
was approximately $17,628,000, $19,121,000 and $14,403,000, respectively.
(continued)
39
<PAGE>
Whole Foods Market, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(2) Summary of Significant Accounting Policies, continued
Income Taxes
The Company uses the asset and liability approach which accounts for deferred
income taxes by applying statutory tax rates in effect at the balance sheet date
to differences between the book basis and the tax basis of assets and
liabilities. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The deferred tax assets and
liabilities are adjusted in income to reflect changes in tax laws or rates in
the period that includes the enactment date.
Income per Share
Basic income per share is based on the weighted average number of common shares
outstanding during the fiscal period. Diluted income per share is based on the
weighted average number of common shares outstanding plus, where applicable, the
additional common shares that would have been outstanding as a result of the
conversion of dilutive options and convertible debt.
<TABLE>
<CAPTION>
A reconciliation of the denominators of the basic and diluted income per share
calculations follows (in thousands):
1999 1998 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Denominator for basic income per
share: weighted average shares 26,374 26,159 24,194
Additional shares deemed outstanding from
the assumed exercise of stock options 1,072 1,585 968
- -------------------------------------------------------------------------------------------------------
Denominator for diluted income per
share: adjusted weighted average
shares and assumed conversions 27,446 27,744 25,162
=======================================================================================================
</TABLE>
The computation of diluted income per share does not include approximately
1,643,000 shares of common stock related to the zero coupon convertible
subordinated debentures at the end of fiscal years 1999 and 1998 and options to
purchase approximately 1,508,000 shares, 1,014,000 shares and 380,000 shares of
common stock at the end of fiscal years 1999, 1998 and 1997, respectively,
because to do so would be antidilutive.
Comprehensive Income
Effective September 28, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130").
SFAS No. 130 establishes standards for reporting and displaying comprehensive
income and its components in a full set of general-purpose financial statements.
Financial statements for all periods presented have been restated to reflect the
adoption of SFAS No. 130. The Company's comprehensive income consisted of net
income and changes in unrealized gains and losses on marketable securities, net
of tax. Comprehensive income is reflected in the consolidated statements of
shareholders' equity and comprehensive income.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the period reported. Actual results could differ
from those estimates. Estimates are used when accounting for depreciation and
amortization, allowance for doubtful accounts, employee benefit plans, taxes,
reorganization reserves and contingencies.
40
<PAGE>
Whole Foods Market, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(3) Business Combinations
Nature's Heartland
In April 1999, the Company acquired the outstanding stock of Nature's Heartland,
Inc., which operated four natural foods supermarkets in the greater Boston
metropolitan area, in exchange for approximately $25 million in cash. This
transaction was accounted for using the purchase method and, accordingly, the
purchase price was allocated to net assets acquired based on their estimated
fair values at the date of acquisition. This allocation resulted in acquired
goodwill of approximately $13.5 million, which is being amortized on a
straight-line basis over 40 years. Pro forma results of operations are not
presented due to the immaterial effect of the acquired company's results on
consolidated results of operations.
Merchant of Vino
In December 1997, the Company acquired Merchant of Vino, which operated four
gourmet/natural food supermarkets and two specialty wine and gourmet food shops
in the greater Detroit metropolitan area, for approximately 1 million shares of
Company common stock. The acquisition was accounted for using the
pooling-of-interests method. Due to the immateriality of the financial
statements of the acquired entity to the Company's consolidated financial
statements, financial information for the periods prior to fiscal 1998 has not
been restated. An adjustment to decrease retained earnings by approximately $1.8
million was recorded to include results of operations of the acquired entity
prior to the combination in these consolidated financial statements. Revenue and
results of operations of the acquired entity for the period from September 29,
1997 through the date of acquisition are not material to the combined results.
Transaction and other merger-related costs associated with the acquisition of
Merchant of Vino totaled approximately $1,139,000.
Allegro Coffee Company
In December 1997, the Company acquired Allegro Coffee Company, a specialty
coffee roaster and distributor based in Boulder, Colorado, for approximately
175,000 shares of Company common stock. The acquisition was accounted for using
the pooling-of-interests method. Due to the immateriality of the financial
statements of the acquired entity to the Company's consolidated financial
statements, financial information for the periods prior to fiscal 1998 has not
been restated. An adjustment to increase retained earnings by approximately $1.2
million was recorded to include results of operations of the acquired entity
prior to the combination in these consolidated financial statements. Revenue and
results of operations of the acquired entity for the period from September 29,
1997 through the date of acquisition are not material to the combined results.
Transaction and other merger-related costs associated with the acquisition of
Allegro Coffee Company totaled approximately $560,000.
Amrion, Inc.
In September 1997, the Company acquired Amrion, Inc., a Boulder, Colorado-based
company engaged in developing, producing and marketing nutriceuticals and
nutritional supplements, in exchange for approximately 4,680,000 shares of
Company common stock plus the assumption of approximately 330,000 outstanding
options to purchase shares of common stock. The merger was accounted for using
the pooling-of-interests method and, accordingly, financial information for the
periods prior to the merger date was restated to reflect the business
combination. Transaction and other merger-related costs associated with the
acquisition of Amrion totaled approximately $4,887,000.
Granary Market
In August 1997, the Company acquired Organic Merchants, Inc., doing business as
Granary Market ("Granary"), which operated a natural foods market in Monterey,
California, in exchange for approximately 33,000 shares of Company common stock.
The acquisition was accounted for using the pooling-of-interests method. Due to
the immateriality of Granary financial statements to the Company's consolidated
financial statements, financial information for the periods prior to the
combination was not restated. An adjustment to increase retained earnings by
approximately $346,000 was recorded to include results of Granary operations for
the periods prior to the combination in these consolidated financial statements.
Revenue and results of operations of Granary for the period from September 30,
1996 through the date of acquisition were not material to the combined results.
(continued)
41
<PAGE>
Whole Foods Market, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(3) Business Combinations, continued
Bread of Life
In April 1997, the Company acquired Bread of Life, Inc. ("Bread of Life"), which
operated two natural foods markets in South Florida, in exchange for
approximately 200,000 shares of Company common stock. The acquisition was
accounted for using the pooling-of-interests method. Due to the immateriality of
Bread of Life financial statements to the Company's consolidated financial
statements, financial information for the periods prior to the combination was
not restated. An adjustment to decrease retained earnings by approximately
$1,582,000 was recorded to include results of Bread of Life operations for the
periods prior to the combination in these consolidated financial statements.
Revenue and results of operations of Bread of Life for the period from September
30, 1996 through the date of acquisition were not material to the combined
results.
(4) Reorganization and Asset Disposal Costs
During the fourth quarter of fiscal 1999, the Company recognized reorganization
and asset disposal costs totaling approximately $9,459,000. Included in this
total are costs associated with the elimination of certain business lines at
Amrion, the disposal of accounting and distribution software, and other hardware
and software disposals. Reorganization costs associated with business lines
eliminated totaled approximately $3,519,000 and consisted primarily of inventory
writeoffs totaling approximately $2,480,000 that have been classified as a
component of cost of goods sold and the writedown of other remaining assets to
net realizable value. Costs associated with the disposal of accounting and
distribution software which was replaced with the implementation of new
financial software totaled approximately $2,848,000. Costs associated with other
hardware and software disposals totaled approximately $3,092,000 and consisted
of the writeoffs of certain Year 2000 non-compliant or obsolete hardware and
certain software under development that the Company determined would not be
placed in service. Substantially all activities related to the reorganization
and asset disposals have been completed.
<TABLE>
<CAPTION>
(5) Property and Equipment
Balances of major classes of property and equipment are as follows (in
thousands):
1999 1998
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 13,595 11,051
Buildings and leasehold improvements 238,766 190,341
Fixtures and equipment 259,979 207,534
Construction in progress and equipment not yet in service 67,535 20,196
- -------------------------------------------------------------------------------------------------------
579,875 429,122
Less accumulated depreciation and amortization 172,671 137,644
- -------------------------------------------------------------------------------------------------------
$ 407,204 291,478
=======================================================================================================
</TABLE>
Depreciation and amortization expense related to property and equipment totaled
approximately $46,967,000, $37,344,000 and $30,725,000 for fiscal years 1999,
1998 and 1997, respectively. Property and equipment includes approximately
$1,759,000, $735,000 and $769,000 of interest capitalized during fiscal years
1999, 1998 and 1997, respectively.
42
<PAGE>
<TABLE>
<CAPTION>
Whole Foods Market, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(6) Long-Term Debt
The Company has long-term debt and obligations under capital leases as follows
(in thousands):
1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Obligations under capital lease agreements for equipment,
due in monthly installments through 2005 $ 1,716 590
Notes payable to banks 49,000 -
Senior unsecured notes 40,000 40,000
Convertible debentures, including accreted interest 124,419 118,361
Other notes payable 382 65
- -------------------------------------------------------------------------------------------------------------------
215,517 159,016
Less current installments 6,655 343
- -------------------------------------------------------------------------------------------------------------------
$ 208,862 158,673
===================================================================================================================
</TABLE>
The Company's bank credit agreement was amended in June 1999 to provide a
revolving line of credit of up to $100 million through June 28, 2002. This
credit agreement contains certain restrictive covenants, including the
prohibition of the payment of dividends on common stock. The credit agreement
also contains certain affirmative covenants including maintenance of certain
financial ratios as defined in the agreement. All outstanding amounts borrowed
under this agreement bear interest at the Company's option of either a defined
base rate or the Eurodollar rate plus a premium. Commitment fees ranging from
0.20% to 0.30% of the undrawn amount are payable under this agreement. At
September 26, 1999, approximately $49 million was drawn and at September 27,
1998, there were no amounts drawn under the agreement. The average interest rate
on amounts outstanding under this agreement at September 26, 1999 was
approximately 6.45%. The amounts available to the Company under this line of
credit were effectively reduced by outstanding letters of credit totaling
approximately $6.9 million and $5.8 million at September 26, 1999 and September
27, 1998, respectively.
During the second quarter of fiscal 1998, the Company issued a private offering
under Rule 144A of the Securities Act of 1933, as amended, of zero coupon
convertible subordinated debentures with no sinking fund requirement and a
scheduled maturity date of March 2, 2018. The debentures were subsequently
registered. The offering resulted in gross proceeds to the Company of
approximately $115 million. The issue price of the debentures results in an
effective yield to maturity of 5 percent. The principal amount of the debentures
at maturity is approximately $308.8 million. The debentures are convertible at
the option of the holder, at any time on or prior to maturity, unless previously
redeemed or otherwise purchased. The debentures have a conversion rate of 5.320
shares per $1,000 principal amount at maturity, initially representing a
conversion price of approximately $70 per share of common stock, or
approximately 1,643,000 shares. The debentures may be redeemed at the option of
the holder on March 2, 2003, March 2, 2008 or March 2, 2013 at the issue price
plus accrued original discount to the date of redemption. Subject to certain
limitations, the Company, at its option, may elect to pay this purchase price in
cash, shares of common stock or any combination thereof. The debentures may also
be redeemed in cash at the option of the holder if there is a change in control
at the issue price plus accrued original discount to the date of redemption.
Subsequent to March 2, 2003, the Company, at its option, may redeem the
debentures for cash, in whole or in part, at redemption prices equal to the
issue price plus accrued original discount to the date of redemption. The
debentures are subordinated in the right of payment to all existing and future
senior indebtedness. All amounts outstanding under the Company's line of credit
were repaid during the second quarter of fiscal 1998 with proceeds from the
issuance of the convertible subordinated debentures.
Senior unsecured notes payable bear interest at 7.29% and are payable in seven
equal annual installments of approximately $5,714,000 beginning May 16, 2000.
The notes contain certain affirmative and negative covenants, including
maintenance of certain financial ratios as defined in the agreement. At
September 26, 1999 and September 27, 1998, the Company was in compliance with
the debt covenants.
43
<PAGE>
Whole Foods Market, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(7) Leases
The Company is committed under certain capital leases for rental of equipment
and certain operating leases for rental of facilities and equipment. These
leases expire or become subject to renewal at various dates from 2000 to 2024.
Rental expense charged to operations under operating leases for fiscal years
1999, 1998 and 1997 totaled approximately $38,870,000, $35,180,000 and
$29,153,000, respectively. Minimum rental commitments required by all
noncancelable leases are approximately as follows (in thousands):
<TABLE>
Capital Operating
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
2000 $ 975 51,212
2001 666 53,140
2002 188 52,505
2003 12 50,572
2004 12 49,053
Future years 2 464,302
- ---------------------------------------------------------------------------------------------
1,855
Less amounts representing interest 139
- ---------------------------------------------------------------------------------------------
1,716
Less current installments 879
- ---------------------------------------------------------------------------------------------
$ 837
===================================================================================================================
Minimum rentals for operating leases do not include certain amounts of
contingent rentals which may become due under the provisions of leases for
retail space. These agreements provide that minimum rentals may be increased
based on a percent of annual sales from the retail space. During fiscal 1999,
1998 and 1997, the Company paid contingent rentals of approximately $2,022,000,
$1,456,000 and $1,200,000 respectively. Certain officers of the Company own
approximately 13% of a business which leases facilities from the Company under a
lease that commenced in fiscal 1995. The Company's rental income from this lease
during fiscal years 1999, 1998 and 1997 totaled approximately $391,000, $456,000
and $582,000, respectively.
(8) Income Taxes
Components of total income tax expense are as follows (in thousands):
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
Current federal income tax $ 17,255 22,165 11,556
Current state income tax 4,964 5,700 2,558
- -------------------------------------------------------------------------------------------------------------------
Total current tax 22,219 27,865 14,114
- -------------------------------------------------------------------------------------------------------------------
Deferred federal income tax 4,423 (1,463) 271
Deferred state income tax 309 259 (1,661)
- -------------------------------------------------------------------------------------------------------------------
Total deferred tax 4,732 (1,204) (1,390)
- -------------------------------------------------------------------------------------------------------------------
Total income tax expense $ 26,951 26,661 12,724
===================================================================================================================
(continued)
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
Whole Foods Market, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(8) Income Taxes, continued
Actual income tax expense differed from the amount computed by applying
statutory corporate income tax rates to income before taxes as follows (in
thousands):
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal tax based on statutory rates $ 24,187 25,220 13,779
Increase (reduction) in income taxes resulting from:
Non-deductible merger transaction costs - 2,677 646
Non-deductible amortization of cost in excess
of net assets acquired 389 356 354
Reduction in valuation allowance - (7,760) (3,086)
Deductible state income taxes (1,846) (2,085) (895)
Other, net (1,052) 2,294 1,029
- -------------------------------------------------------------------------------------------------------------------
Total federal taxes 21,678 20,702 11,827
State income taxes 5,273 5,959 897
- -------------------------------------------------------------------------------------------------------------------
Total income tax expense $ 26,951 26,661 12,724
===================================================================================================================
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are as follows (in
thousands):
Current deferred tax assets (liabilities) 1999 1998
===================================================================================================================
Compensated absences, principally due to financial reporting accrual $ 5,516 4,500
Inventories, principally due to additional costs inventoried
for tax purposes pursuant to the Tax Reform Act of 1986 1,488 2,843
Alternative minimum tax credit - 245
Acquired net operating loss carryforwards 468 3,235
Other (65) (122)
- -------------------------------------------------------------------------------------------------------------------
Net current deferred tax asset $ 7,407 10,701
===================================================================================================================
Long-term deferred tax assets (liabilities) 1999 1998
- -------------------------------------------------------------------------------------------------------------------
Lease termination and other merger accruals $ 914 1,462
Rent differential, principally due to financial
reporting of pro rata expense 4,012 3,405
Financial basis of fixed assets in excess of tax basis (8,990) (7,052)
Capitalized costs expensed for tax purposes (510) (1,092)
Other 27 168
- -------------------------------------------------------------------------------------------------------------------
Net long term deferred tax liability (4,547) (3,109)
- -------------------------------------------------------------------------------------------------------------------
Net deferred tax asset $ 2,860 7,592
===================================================================================================================
</TABLE>
Management believes that it is more likely than not that the Company will fully
realize the total deferred tax assets based on the nature of these deductible
temporary differences and a history of profitable operations. As of September
26, 1999, the Company had net operating loss carryforwards assumed in the Fresh
Fields acquisition totaling approximately $1.1 million that will begin to expire
in 2003 and are subject to certain limitations on use.
45
<PAGE>
Whole Foods Market, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(9) Shareholders' Equity
Treasury Stock
The Board of Directors has authorized the Company to repurchase up to $50
million in outstanding shares of Company common stock. During fiscal year 1999,
the Company repurchased 608,000 shares of its common stock for an aggregate cost
of approximately $18,939,000. During the first quarter of fiscal year 2000, the
Company repurchased an additional 429,000 shares of its common stock for an
aggregate cost of approximately $13,534,000.
Preferred Stock Purchase Rights
On September 22, 1999, the Company's Board of Directors declared a dividend of
one Right to purchase preferred stock ("Right") for each outstanding share of
Company common stock to shareholders of record at the close of business on
October 4, 1999. Each right initially entitles the registered holder to purchase
from the Company a fractional share consisting of one one-thousandth of a share
of Series A Junior Participating Preferred Stock, par value $.01 per share, at a
purchase price of $225 per fractional share, subject to adjustment. The Rights
generally will not become exercisable until ten days after a public announcement
that a person or group has acquired 15% or more of Company common stock (thereby
becoming an "Acquiring Person") or the commencement of a tender or exchange
offer that would result in an Acquiring Person (the earlier of such dates being
called the "Distribution Date"). Rights will be issued with all shares of
Company common stock issued from the record date to the Distribution Date. Until
the Distribution Date, the Rights will be evidenced by the certificates
representing Company common stock and will be transferable only with Company
common stock. Generally, if any person or group becomes an Acquiring Person,
each right, other than Rights beneficially owned by the Acquiring Person (which
will thereupon become void), will thereafter entitle its holder to purchase, at
the Rights' then current exercise price, shares of the Company's common stock
having a market value of two times the exercise price of the Right. If, after
there is an Acquiring Person, and the Company or a majority of its assets is
acquired in certain transactions, each Right not owned by an Acquiring Person
will entitle its holder to purchase, at a discount, shares of common stock of
the acquiring entity (or its parent) in the transaction. After there is an
Acquiring Person, the Company's Board of Directors may, under certain
circumstances, exchange shares of the Company's common stock or other securities
for each Right not held by an Acquiring Person. At any time until ten days after
a public announcement that the Rights have been triggered, the Company will
generally be entitled to redeem the Rights for $.01 and to amend the rights in
any manner. Certain subsequent amendments are also permitted. The Rights expire
on September 22, 2009.
(10) Team Member Benefit Plans
Team Member Stock Option Plans
The Company grants options to purchase common stock under its 1992 Stock Option
Plans, as amended. Under these plans, options are granted at an option price
equal to the market value of the stock at the date of grant and are generally
exercisable ratably over a four-year period beginning one year from date of
grant. Options granted in fiscal years 1999, 1998 and 1997 expire seven years
from date of grant. The Company has, in connection with certain of its business
combinations, assumed the stock option plans of the acquired companies. All
options outstanding under the Company's previous plans and plans assumed in
business combinations continue to be governed by the terms and conditions of
those grants. At September 26, 1999, September 27, 1998 and September 28, 1997,
approximately 519,000, 1,378,000 and 1,570,000 shares of Company common stock,
respectively, were available for option grants.
(continued)
46
<PAGE>
Whole Foods Market, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(10) Team Member Benefit Plans
Team Member Stock Option Plans, continued
The following table summarizes option activity (in thousands, except per share
data):
<TABLE>
Weighted
Number Average
of Options Exercise
Outstanding Price
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at September 29, 1996 2,688 $ 17.19
Options granted 665 22.48
Options assumed 330 9.28
Options exercised (413) 16.13
Options canceled (165) 22.26
- ----------------------------------------------------------------------------------------------------------------------
Balance at September 28, 1997 3,105 17.36
Options granted 1,580 68.39
Options exercised (839) 16.70
Options canceled (126) 41.06
- ----------------------------------------------------------------------------------------------------------------------
Balance at September 27, 1998 3,720 38.38
Options granted 1,165 32.17
Options exercised (471) 13.04
Options canceled (291) 46.59
- ----------------------------------------------------------------------------------------------------------------------
Balance at September 26, 1999 4,123 $ 38.91
======================================================================================================================
A summary of options outstanding and exercisable at September 26, 1999 follows
(in thousands, except per share data):
Options Outstanding Options Exercisable
---------------------------------- -----------------------------
Range of Weighted Average Weighted Weighted
Exercise Prices Number Remaining Average Number Average
From To Outstanding Life (in Years) Exercise Price Exercisable Exercise Price
--------------------------------------------------------------------------------------------------------------------
$ 0.90 $19.50 933 3.83 $ 14.46 763 $ 14.18
21.50 27.63 626 4.43 22.90 341 23.15
31.88 36.50 1,177 6.34 32.06 47 33.47
42.38 69.75 1,387 5.47 68.39 360 68.74
--------------------------------------------------------------------------------------------------------------------
Total 4,123 5.19 $ 38.91 1,511 $ 29.79
====================================================================================================================
</TABLE>
At September 27, 1998 and September 28, 1997, approximately 1,091,000 and
1,282,000 outstanding options, respectively, were exercisable. The weighted
average exercise price for outstanding exercisable options was $16.10 and $15.36
at September 27, 1998 and September 28, 1997, respectively.
(continued)
47
<PAGE>
Whole Foods Market, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(10) Team Member Benefit Plans
Team Member Stock Option Plans, continued
In accordance with Statement of Financial Accounting Standards No. 123 ("SFAS
No. 123"), "Accounting for Stock-Based Compensation," the Company continues to
apply Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" and related interpretations in accounting for its stock option
grants. Accordingly, no compensation expense has been recognized for option
grants to Team Members. As required by SFAS No. 123, the Company has determined
pro forma net income and net income per common share as if compensation costs
had been recognized based on the fair value of the options granted to Team
Members. The fair value of stock option grants has been estimated at the date of
grant using the Black-Scholes multiple option pricing model with the following
weighted average assumptions:
<TABLE>
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Expected dividend yield 0.00% 0.00% 0.00%
Risk-free interest rate 5.23% 5.63% 6.79%
Expected volatility 54.89% 53.72% 54.28%
Expected life, in years 3.40 3.37 3.28
=======================================================================================================================
The weighted average estimated fair values at grant date of Team Member stock
options granted during fiscal years 1999, 1998 and 1997 were $13.91, $30.03 and
$10.46, respectively. Had the Company recognized compensation cost based on the
fair value of stock options granted to Team Members at grant date as determined
using the Black-Scholes option valuation model described above consistent with
SFAS No. 123, net income and diluted income per common share would have changed
to the pro forma amounts shown below (in thousands, except per share data):
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
Net income:
As reported $42,155 45,395 26,644
Pro forma $30,175 36,437 23,660
Diluted income per common share:
As reported $1.54 1.64 1.06
Pro forma $1.10 1.31 0.94
======================================================================================================================
</TABLE>
The above pro forma disclosures may not be representative of the effects on net
income and net income per common share in future years because they do not take
into consideration pro forma compensation expense related to grants awarded
prior to fiscal year 1996 or additional stock options that may be granted in
future years.
Team Member Stock Purchase Plan
The Company offers a Team Member stock purchase plan to all full-time Team
Members with a minimum of 400 hours of service. Under this plan, participating
Team Members may purchase common stock of the Company each fiscal quarter
through payroll deductions. Participants in the plan may elect to purchase
unrestricted shares of stock at 100 percent of its market value or restricted
shares at 85 percent of its market value on the purchase date. Participants are
required to hold restricted shares for two years before selling them.
Approximately 15,000, 8,000 and 9,000 shares were issued by the Company under
this plan in fiscal 1999, 1998 and 1997, respectively.
Team Member 401(k) Plan
The Company offers a Team Member 401(k) plan to all Team Members with a minimum
of one year of service and 1,000 service hours in the plan year. Company
matching contributions under this plan, determined at the Company's discretion,
totaled approximately $1,111,000, $821,000 and $436,000 in fiscal 1999, 1998 and
1997, respectively. Matching contributions were made in Company common stock
totaling approximately 32,000 shares purchased in open market transactions in
fiscal 1999 and approximately 13,000 and 15,000 newly-issued shares in fiscal
1998 and 1997, respectively.
48
<PAGE>
Whole Foods Market, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(11) Quarterly Results (unaudited)
For fiscal years 1999 and 1998, the first quarter is 16 weeks and the remaining
quarters are each 12 weeks. The following tables set forth selected quarterly
unaudited consolidated statements of operations and operating information for
the fiscal years ended September 26, 1999 and September 27, 1998 (in thousands
except per share data):
<TABLE>
1st 2nd 3rd 4th
1999 Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 456,239 358,872 377,580 375,188
Gross profit 153,210 124,240 130,446 128,153
Pre-opening and relocation costs - 2,243 809 2,862
Other reorganization and asset disposal costs - - - 6,979
Income from operations 22,905 20,513 21,513 10,078
Income before income taxes 21,238 19,094 19,753 9,021
Net income 12,955 11,647 12,050 5,503
Basic income per share $ 0.49 0.44 0.46 0.21
Weighted average common shares outstanding 26,552 26,339 26,205 26,342
Diluted income per share $ 0.47 0.43 0.44 0.20
Weighted average shares outstanding - diluted basis 27,694 27,156 27,428 27,425
Average weekly sales per store $ 305 319 316 303
- -------------------------------------------------------------------------------------------------------------------
1st 2nd 3rd 4th
1998 Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------------------------------------
Sales $ 407,788 324,811 330,999 326,170
Gross profit 135,752 110,939 110,832 111,141
Pre-opening and relocation costs 1,065 1,462 1,024 428
Merger expenses 1,699 - - -
Income from operations 21,084 18,857 18,921 18,551
Income before income taxes 19,092 17,657 17,621 17,686
Net income 12,028 11,124 11,101 11,142
Basic income per share $ 0.46 0.43 0.42 0.42
Weighted average common shares outstanding 25,913 26,094 26,279 26,435
Diluted income per share $ 0.44 0.40 0.40 0.40
Weighted average shares outstanding - diluted basis 27,523 27,824 27,880 27,824
Average weekly sales per store $ 287 299 299 290
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
49
<PAGE>
Whole Foods Market, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(12) Segment Information
In fiscal 1999, the Company adopted Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS No. 131") which establishes standards for reporting information about
operating segments and related disclosures about products, geographic
information, and major customers. The Company has identified three business
segments based on management responsibility and the nature of products and
services: natural foods supermarkets, direct marketing and other. The natural
foods supermarket segment includes all activities associated with retail sale of
natural food and nutritional products through the Company's supermarkets. The
direct marketing segment includes all activities of Amrion, which is engaged in
developing, producing and marketing high quality nutriceuticals and nutritional
supplements. The "Other" segment includes Allegro Coffee Company and all
activities, including start-up costs, of the Company's Internet subsidiary,
WholeFoods.com. The Company evaluates segments based on income from operations,
which is defined as income before interest expense, investment and other income,
and income taxes. Intersegment sales consist primarily of sales by Allegro
Coffee Company and Amrion to natural foods supermarkets recorded using internal
transfer prices based on cost. Costs and assets associated with corporate
administrative activities are not allocated and are included in the natural
foods supermarkets segment. Merger costs in 1998 and 1997 were associated with
the natural foods supermarket segment. The Company does not rely on any major
customers as a source of revenue. Summary segment information follows (in
thousands):
<TABLE>
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales:
Natural foods supermarkets $ 1,485,618 1,299,147 1,049,283
Direct marketing 78,539 83,355 68,063
Other 13,255 13,847 -
- -------------------------------------------------------------------------------------------------------------------
1,577,412 1,396,349 1,117,346
Intersegment sales (9,533) (6,581) -
- -------------------------------------------------------------------------------------------------------------------
Total $ 1,567,879 1,389,768 1,117,346
===================================================================================================================
Other reorganization and asset disposal costs:
Natural foods supermarkets $ 5,940 - -
Direct marketing 1,039 - -
Other - - -
- -------------------------------------------------------------------------------------------------------------------
Total $ 6,979 - -
===================================================================================================================
Depreciation and amortization:
Natural foods supermarkets $ 48,902 38,156 32,362
Direct marketing 3,579 3,681 2,094
Other 858 470 -
- -------------------------------------------------------------------------------------------------------------------
Total $ 53,339 42,307 34,456
===================================================================================================================
Income from operations and reconciliation to income before income taxes:
Natural foods supermarkets $ 74,926 68,121 36,606
Direct marketing 2,945 8,891 8,356
Other (2,862) 401 -
- -------------------------------------------------------------------------------------------------------------------
Income from operations 75,009 77,413 44,962
Interest expense (8,248) (7,685) (6,044)
Investment and other income 2,345 2,328 450
- -------------------------------------------------------------------------------------------------------------------
Total $ 69,106 72,056 39,368
===================================================================================================================
(continued)
50
<PAGE>
Whole Foods Market, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(12) Segment Information, continued
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
Total assets:
Natural foods supermarkets $ 605,538 494,141 366,408
Direct marketing 47,257 45,679 32,076
Other 6,940 4,988 -
- -------------------------------------------------------------------------------------------------------------------
Total $ 659,735 544,808 398,484
===================================================================================================================
Expenditures for additions to long-lived assets:
Natural foods supermarkets $ 182,207 96,935 56,749
Direct marketing 2,981 7,109 4,647
Other 3,043 572 -
- -------------------------------------------------------------------------------------------------------------------
Total $ 188,231 104,616 61,396
===================================================================================================================
</TABLE>
(13) Commitments and Contingencies
The Company provides partially self-insured, voluntary Team Member benefits
plans which provide, among other benefits, health care benefits to participating
Team Members. The plans are designed to provide specified levels of coverage,
with excess insurance coverage provided by a commercial insurer. The Company's
exposure related to claims associated with unreported cases or underestimated
future costs associated with known cases for which the Company is partially
self-insured at September 26, 1999 has been estimated based on management's
review of claims outstanding at fiscal year end, claims reported subsequent to
fiscal year end and management's knowledge of the typical length of time from
date of occurrence to date of reported claim.
The Company is a party to legal proceedings including matters involving
personnel and employment issues and other proceedings arising in the ordinary
course of business. Plaintiffs in certain of these proceedings may seek to
recover large and sometimes unspecified amounts, and some matters may remain
unresolved for several years. It is not possible to predict a range of possible
loss for the Company's litigation matters, and losses could be material to
operating results in a future reporting period. However, after consultation with
counsel and a review of available facts, management believes that damages, if
any, arising from litigation will not be material to the Company's financial
position.
51
<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 hereunto duly authorized.
WHOLE FOODS MARKET, INC.
Date: December 21, 1999 By: /s/ Glenda Flanagan
-------------------
Glenda Flanagan, Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on December 21, 1999.
Name Title
/s/ John P. Mackey
- -------------------------
John Mackey Chairman of the Board, Chief Executive Officer
and Director (Principal Executive Officer)
/s/ Glenda Flanagan
- -------------------------
Glenda Flanagan Chief Financial Officer (Principal Financial
and Accounting Officer)
/s/ David W. Dupree
- -------------------------
David W. Dupree Director
/s/ Dr. John B. Elstrott
- ------------------------
Dr. John B. Elstrott Director
/s/ Avram J. Goldberg
- -------------------------
Avram J. Goldberg Director
/s/ Fred Lager
- -------------------------
Fred Lager Director
/s/ Linda A. Mason
- -------------------------
Linda A. Mason Director
/s/ Jirka Rysavy
- -------------------------
Jirka Rysavy Director
/s/ Dr. Ralph Z. Sorenson
- -------------------------
Dr. Ralph Z. Sorenson Director
<PAGE>
INDEX TO EXHIBITS
2.1 Stock Purchase Agreement, among the Registrant, Whole Foods
Market Group, Inc. and Nature's Heartland, Inc. (13)
2.2 Amendment to Stock Purchase Agreement, among the Registrant,
Whole Foods Market Group, Inc. and Nature's Heartland, Inc. (13)
3.1 Restated Articles of Incorporation of the Registrant, as amended (2)
3.2 By-laws of the Registrant adopted May 23, 1995 (8)
4.1 Form of Zero Coupon Convertible Subordinated Debentures Due 2018 (4)
4.2 Indentures between the Company and Chase Bank of Texas, National
Association, as Trustee (4)
4.3 Registration Rights Agreement by and among the Company and BT
Alex Brown Incorporated and Morgan Stanley & Co. Incorporated (4)
4.4 Shareholder Rights Agreement, dated September 22, 1999, between
the Registrant, Whole Foods Market, Inc. and Securities
Transfer Corporation (7)
10.1 1987 Stock Option and Incentive Plan for Employees (3)
10.2 1987 Stock Option Plan for Outside Directors (3)
10.3 1993 Team Member Stock Ownership Plan (1)
10.5 Form of Retention Agreement between the executive officers of
the Registrant and the Registrant (3)
10.6 Form of amendment to Retention Agreement (1)
10.7 Amended and Restated Credit Agreement, dated December 27, 1994,
by and among the Registrant, the subsidiaries of the Registrant
and Texas Commerce Bank National Association (8)
10.8 First Amendment dated May 16, 1996 to Amended and Restated
Credit Agreement, dated December 27, 1994, by and among
Registrant, the subsidiaries of the Registrant and Texas
Commerce Bank National Association (9)
10.9 Second Amendment dated December 24, 1996 to Amended and Restated
Credit Agreement, dated December 27, 1994, by and among
Registrant, the subsidiaries of the Registrant and Texas
Commerce Bank National Association (10)
10.10 Third Amendment dated March 24, 1997 to Amended and Restated
Credit Agreement, dated December 27, 1994, by and among
Registrant, the subsidiaries of the Registrant and Texas
Commerce Bank National Association (10)
10.11 Fourth Amendment dated September 2, 1997 to Amended and Restated
Credit Agreement, dated December 27, 1994, by and among
Registrant, the subsidiaries of the Registrant and Texas
Commerce Bank National Association (10)
10.12 Fifth Amendment dated December 19, 1997 to Amended and Restated
Credit Agreement, dated December 27, 1994, by and among
Registrant, the subsidiaries of the Registrant and Texas
Commerce Bank National Association (11)
10.13 Sixth Amendment dated June 28, 1999 to Amended and Restated
Credit Agreement, dated December 27, 1994, by and among
Registrant, the subsidiaries of the Registrant and Chase Bank of
Texas, National Association (13)
10.14 1992 Stock Option Plan for Team Members, as amended (1)
10.15 1992 Stock Option Plan for Outside Directors (1)
10.16 1993 Team Member Stock Purchase Plan (1)
10.17 Second Amended and Restated 1991 Stock Incentive Plan of Fresh
Fields Markets, Inc. with amendments thereto (5)
10.18 1994 Director Stock Option Plan with amendments thereto (5)
10.19 Non-Qualified Stock Option Plan of Amrion, Inc. (6)
10.20 1994 Non-Employee Director Stock Option Plan of Amrion, Inc. (6)
12.1 Computation of Ratio of Earnings to Fixed Charges (13)
21.1 Subsidiaries of the Registrant (13)
23.1 Consent of KPMG LLP (13)
27.1 Financial Data Schedule (13)
99.1 Proxy Statement for Annual Meeting of Shareholders to be held
March 27, 2000 (12)
(continued)
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INDEX TO EXHIBITS, continued
(1) Filed as an exhibit to Registration Statement on Form S-4 (No. 33-63824)
and incorporated herein by reference
(2) Filed as an exhibit to Registration Statement on Form S-3 (No.33-69362)
and incorporated herein by reference
(3) Filed as an exhibit to Registration Statement on Form S-1 (No.
33-44214) and incorporated herein by reference
(4) Filed as an exhibit to Registration Statement on Form S-3 (No.
333-51419) and incorporated herein by reference
(5) Filed as an exhibit to Registration Statement on Form S-8 (No.
33-11273) and incorporated herein by reference
(6) Filed as an exhibit to Registration Statement on Form S-8 (No.
33-35809) and incorporated herein by reference
(7) Filed as an exhibit to Registrant's Form 8-K (No. 033-44214) and
incorporated herein by reference
(8) Filed as an exhibit to Registrant's Form 10-K for year ended September
24, 1995 and incorporated herein by reference
(9) Filed as an exhibit to Registrant's Form 10-K for year ended September
29, 1996 and incorporated herein by reference
(10) Filed as an exhibit to Registrant's Form 10-K for year ended September
28, 1997 and incorporated herein by reference
(11) Filed as an exhibit to Registrant's Form 10-K for year ended September
27, 1998 and incorporated herein by reference
(12) To be filed with the Securities and Exchange Commission and incorporated
herein by reference
(13) Filed herewith
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Exhibit 2.1
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement") is made as of April
30, 1999, by and among Whole Foods Market Group, Inc., a Delaware corporation
("Purchaser"), Nature's Heartland, Inc., a Massachusetts corporation (the
"Company"), Leo Kahn ("Kahn") and the other shareholders of the Company who are
signatories hereto (such persons, together with Kahn, being referred to herein
collectively as the "Sellers").
WHEREAS, the Purchaser and the Company have executed and delivered an
Asset Purchase Agreement dated March 15, 1999 (the "Asset Purchase Agreement");
and
WHEREAS, the Purchaser and the Company desire to restructure the
transactions contemplated by the Asset Purchase Agreement, and upon the
execution and delivery of this Agreement, the parties intend that the Asset
Purchase Agreement be superseded by this Agreement in all respects; and
WHEREAS, the Sellers own all of the issued and outstanding shares of
capital stock and any other securities, options, warrants or other rights to
acquire shares of the Company's capital stock (collectively the "Shares") of the
Company; and
WHEREAS, the Purchaser desires to purchase the Shares from the Sellers,
and the Sellers desire to sell the Shares to Purchaser, subject to the terms and
provisions hereof;
In consideration of the mutual covenants and agreements herein
contained, the parties hereto agree as follows:
1. SALE AND PURCHASE OF SHARES
1.1. Purchase and Sale of Shares. Upon the terms and subject to the
conditions set forth in this Agreement, at the Closing (as defined in Section
2.2 hereof), the Sellers shall assign, transfer, convey and deliver to
Purchaser, and Purchaser shall purchase from the Sellers, all right, title and
interest in and to all of the Shares, free and clear of all liens, security
interests, charges, encumbrances and rights of others.
1.2 Excluded Liabilities. The parties further intend that as of the
Closing the Company shall only be liable, in respect of periods prior to the
Closing, for the liabilities and obligations set forth below (the "Assumed
Liabilities") and that the Company shall be indemnified by the Sellers for all
other liabilities and obligations of the Company in respect of periods prior to
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the Closing (the "Excluded Liabilities"):
(i) The current trade accounts payable and other
current liabilities incurred in the operation of the Stores in
the "Accounts Payable," "Accrued Liabilities" and "Withholding
Taxes" categories on the 1998 Balance Sheet (as defined
herein), to the extent (X) the same have been properly
recorded in the general ledger of the Company through the
Closing Date and (Y) the Company at the Closing shall have
provided a complete listing of the same as recorded on the
general ledger through the Closing Date;
(ii) The store leases, office lease and other
specified contractual obligations listed as "Assumed
Contracts" on Schedule 1.2(b) hereto, as the same may be
amended through the Closing Date with the mutual consent of
the Company and Purchaser; and
(iii) The liabilities for severance, accrued
vacation, sick time and COBRA that are set forth in Article 5
hereof.
1.3 Non-Competition Agreement. Contemporaneously with the purchase and
sale of the Shares at the Closing, Purchaser and Kahn shall enter into a
Non-Competition Agreement in the form of Exhibit A hereto (the "Non-Competition
Agreement").
1.4. Purchase Price. The consideration to be received by the Sellers at
Closing in exchange for the Shares (the "Purchase Price") shall be
$24,950,000.The Purchase Price shall be paid in cash at the Closing, except as
follows:
(i) The Purchaser shall retain the sum of $450,000 and shall
pay $90,000 to the Sellers on each of the five succeeding anniversary
dates of the Closing, provided that on each payment date and for the
year then ended, Kahn is not then, and has not been, in default under
the Non-Competition Agreement; and upon such default all remaining
unpaid installments of such $450,000 sum shall be forfeited by the
Sellers. In the event of the death of Kahn prior to any such default,
the Purchaser shall pay to the Sellers all remaining unpaid
installments of such $450,000 amount; and
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(ii) The Sellers and Purchaser will deposit the sum of $2.0
million into an escrow account pursuant to terms of the escrow
agreement (the "Escrow Agreement") substantially in the form of Exhibit
A attached hereto.
The Purchase Price shall be delivered to Kahn as the duly authorized
representative of all of the Sellers.
2. CLOSING
2.1 Closing. A closing (the "Closing") to effect the purchase and sale
of the Shares shall be held at the offices of the Company on the date hereof
(the "Closing Date"). At the Closing, the Sellers shall deliver the certificates
representing the Shares, duly endorsed to Purchaser or accompanied by stock
powers so endorsed, against delivery of the amount of the Purchase Price as
described in Section 1.4 hereof. All actions taken at the Closing shall be
deemed to have been taken simultaneously at the time the last of any such
actions is taken or completed.
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2.2. Section 338(h)(10)Election; Payment of Taxes.
(a) Contemporaneously with the execution and delivery of this
Agreement, the Purchaser and the Sellers have joined in making an
election under Section 338(h)(10) of the Internal Revenue Code of 1986,
as amended (the "Code"), and any comparable elections, with respect to
the purchase of the Shares, under any state or local income tax law
(each a "Section 338(h)(10) Election"). The Purchaser represents and
warrants that it is qualified to make such election. The Purchaser and
the Sellers further agree to (i) allocate the Purchase Price among the
assets of the Company that are deemed to have been acquired pursuant to
Section 338(h)(10) of the Code and comparable state income tax
provisions (the "Section 338 Asset Allocation Schedule") and (ii)
exchange, complete and properly execute copies of Internal Revenue
Service Form 8023A, the required schedules related thereto, and
comparable state forms and schedules, all of which have been prepared
on a basis consistent with the Section 338 Asset Allocation Schedule.
The Section 338 Asset Allocation Schedule shall be based upon the
allocations set forth on Schedule 2.2 hereto. If any changes are
required to be made to these forms or schedules (including the Section
338 Asset Allocation Schedule) as a result of the valuation of fixed
assets to be undertaken by the Purchaser after the Closing or of
information that becomes available after the Closing Date, the parties
shall promptly and in good faith reach an agreement as to the precise
changes required to be made. The Purchaser will prepare and file all
further documents and materials necessary in connection with making a
Section 338(h)(10) Election, and the Sellers agree to assist the
Purchaser and cooperate with the Purchaser in connection therewith.
(b) The Purchaser and the Sellers will prepare and file all
tax returns and reports with respect to taxes including if necessary,
Internal Revenue Service Form 8594 and comparable state forms in a
manner consistent with the Section 338(h)(10) Election and the
valuation of the assets as set forth in the Section 338 Asset
Allocation Schedule. All taxes imposed on the deemed sale of assets
resulting from the Section 338(h)(10) Election will be included in
Sellers' tax returns as applicable and will be paid by Sellers.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLERS. The
Company and the Sellers, jointly and severally (but subject to the provisions of
Section 7.7), hereby represent and warrant to Purchaser as follows.
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3.1. Organization and Good Standing of the Company. The Company is a
corporation duly organized and validly existing and in good standing under the
laws of the Commonwealth of Massachusetts.
3.2. Binding Effect. This Agreement has been or will have been duly
authorized, executed and delivered by the Company and is the legal, valid and
binding obligation of the Company and each of the Sellers enforceable in
accordance with its terms except that (i) enforceability may be limited by
bankruptcy, insolvency or other similar laws affecting creditors' rights and
(ii) the availability of equitable remedies may be limited by equitable
principles of general applicability.
3.3. Compliance with Other Instruments. Neither the execution and
delivery by the Company or the Sellers of this Agreement nor the consummation by
any of them of the transactions contemplated hereby will violate, breach, be in
conflict with, or constitute a default under, or permit the termination or the
acceleration of maturity of, or result in the imposition of any lien, claim, or
encumbrance upon any property or asset of the Company pursuant to (i) the
Company's articles of organization or bylaws or (ii) any note, bond, indenture,
mortgage, deed of trust, evidence of indebtedness, loan or lease agreement,
other agreement or instrument which is material to the operation of the four
Nature's Heartland natural foods supermarkets that are owned by or under the
control of the Company (the "Stores") or any judgment, order, injunction, or
decree by which the Company or any Seller is bound, to which any of them is a
party, or to which any of their respective assets are subject.
3.4. Financial Statements and Records of the Company.
(a) The Company has delivered to Purchaser true, correct and
complete copies of the following financial statements (the "Company
Financial Statements"): the compiled balance sheet of the Company as of
December 26, 1998 (the "1998 Balance Sheet"), and the related
statements of operations for the year then ended. The Company Financial
Statements present fairly the assets, liabilities and financial
position of the Company as of the dates thereof and the results of
operations thereof for the periods then ended. The books and records of
the Company have been and are being maintained in accordance with good
business practice, reflect only valid transactions, are complete and
correct in all material respects, and present fairly in all material
respects the basis for the financial position and results of operations
of the Company set forth in the Company Financial Statements.
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(b) The accounts receivable set forth on the 1998 Balance
Sheet are reflected thereon in accordance with good business practice
and on a basis consistent with prior periods. The allowance for
collection losses on the 1998 Balance Sheet has been determined in
accordance with past practice. The amounts receivable arising since the
date of the 1998 Balance Sheet are, to the knowledge of the Sellers,
valid and genuine and have been properly recorded in the general ledger
of the Company.
(c) All inventory used in the conduct of the operations of the
Stores reflected on the 1998 Balance Sheet, or acquired since the date
thereof, was acquired and has been maintained in the ordinary course of
business, consists substantially of good and merchantable quality and,
other than after acquired inventory, has been recorded on the 1998
Balance Sheet in accordance with good business practice and on a basis
consistent with prior periods. Inventory acquired since the date of the
1998 Balance Sheet consists of good and merchantable quality and has
been properly recorded in the general ledger of the Company.
(d) The accounts payable and accrued expenses reflected on the
1998 Balance Sheet includes all trade liabilities and accrued expenses
incurred in the ordinary course of business as of that date, and have
been recorded on the 1998 Balance Sheet in accordance with good
business practice and on a basis consistent with prior periods. All
trade accounts payable and accrued expenses incurred since the date of
the 1998 Balance Sheet have been recorded in the general ledger of the
Company. As of the Closing Date, none of the trade accounts payable
included in the Assumed Liabilities will relate to invoices incurred
for purposes other than the operation of the Stores.
3.5. Absence of Certain Changes. Since December 26, 1998, the Company
has not (except as may result from the transactions contemplated by this
Agreement or as set forth on the Company Financial Statements):
(i) suffered any adverse change in its results of operations or
financial condition, other than changes in the ordinary course of
business that, individually or in the aggregate, have not had a
material adverse effect on the Stores;
(ii) suffered any damage or destruction to or loss of the its
material assets not covered by insurance;
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(iii) forgiven, compromised, canceled, released, waived or
permitted to lapse any material rights or claims; or
(iv) except as set forth on Schedule 3.5, entered into or
terminated any material agreement, commitment or transaction, or
agreed or made any changes in the Assumed Contracts.
3.6. No Material Undisclosed Liabilities. There are no material
liabilities or obligations of the Company of any nature, whether absolute,
accrued, contingent or otherwise, other than (i) the liabilities and obligations
that are fully reflected, accrued, or reserved against on the Company Financial
Statements, for which the reserves are appropriate and reasonable, or incurred
in the ordinary course of business and consistent with past practices since
December 26, 1998; or (ii) liabilities or obligations not required to be
disclosed in financial statements prepared in accordance with generally accepted
accounting principles.
3.7. Tax Liabilities. The Company has filed all federal, state, county
and local tax returns and reports required to be filed by it, including those
with respect to income, payroll, property, withholding, social security,
unemployment, franchise, excise and sales taxes, to the extent that the same
relate to the assets or the operations of the Company; has either paid in full
all such taxes that have become due as reflected on any return or report and any
interest and penalties with respect thereto or has fully accrued on its books or
has established adequate reserves for all taxes payable but not yet due; and has
made required cash deposits with appropriate governmental authorities
representing estimated payments of taxes, including income taxes and employee
withholding tax obligations. No extension or waiver of any statute of
limitations or time within which to file any return has been granted to or
requested by the Company with respect to any such tax. No unsatisfied
deficiency, delinquency or default for any tax, assessment or governmental
charge has been assessed (or, to the knowledge of the Sellers, claimed or
proposed) against the Company, nor has the Company received notice of any such
deficiency, delinquency or default.
3.8. Title to Properties. The Company has good and marketable fee or
leasehold title to its material assets, free and clear of any lien, claim or
encumbrance, except as reflected in the Company Financial Statements or notes
thereto and except for the following liens and encumbrances ("Permitted Liens"):
(i) liens for taxes, assessments or other governmental charges
not yet due and payable;
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(ii) statutory liens incurred in the ordinary course of business
with respect to liabilities that are not yet due and payable;
(iii) landlord liens contained in the leases set forth on
Schedule 3.14 hereto; and
(iv) such imperfections of title and/or encumbrances as are not
material in character, amount or extent and do not materially detract
from the value or interfere with the use of the properties and assets
subject thereto or affected thereby.
3.9. Condition of Assets. All of the material assets of the
Company (other than inventory) viewed as a whole and not on an asset by asset
basis are in good condition and working order, ordinary wear and tear excepted,
and are reasonably suitable for the uses for which intended, free from any
defects known to the Company, except such minor defects, as do not substantially
interfere with the continued use thereof.
3.10 Real Estate.
(a) The Company has a valid, binding and enforceable leasehold
interest, free and clear of liens, claims, encumbrances, subleases or
other restrictions, in and to the real estate on which the operations
of the Stores are conducted and the buildings, structures and
improvements situated thereon (the "Real Estate"), other than Permitted
Liens. A true, complete and correct copy of the Store Leases has been
furnished to Purchaser; each Store Lease is currently, or prior to the
Closing Date will be, in the name of the Company.
(b) The Company has not received any notice of, and has no
actual knowledge of, any material violation of any zoning, building,
health, fire, water use or similar statute, ordinance, law, regulation
or code in connection with the leasehold interest in the Real Estate.
To the knowledge of the Sellers, no fact or condition exists which
would result in the termination or impairment of access to the Real
Estate or discontinuation of necessary sewer, water, electrical, gas,
telephone or other utilities or services.
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(c) To the knowledge of the Sellers, except as noted in the
environmental reports listed on Schedule 3.10 annexed hereto, no
hazardous or toxic material (as hereinafter defined) exists in any
structure located on, or exists on or under the surface of, any of the
Real Estate which is, in any case, in material violation by the Company
of applicable environmental law. For purposes of this Section,
"hazardous or toxic material" shall mean waste, substance, materials,
smoke, gas or particulate matter designated as hazardous, toxic or
dangerous under any environmental law. For purposes of this Section,
"environmental law" shall include the Comprehensive Environmental
Response Compensation and Liability Act, the Clean Air Act, the Clean
Water Act and any other applicable federal, state or local
environmental, health or safety law, rule or regulation relating to or
imposing liability or standards concerning or in connection with
hazardous, toxic or dangerous waste, substance, materials, smoke, gas
or particulate matter.
3.11. Litigation and Government Claims. Except as set forth on
Schedule 3.11, there is no pending suit, action or litigation, or
administrative, arbitration or other proceeding or governmental investigation or
inquiry, to which the Company is a party or to which its assets are subject
which would, if decided against the Company, individually or in the aggregate,
have a material adverse effect on the results of operations of the Stores. To
the knowledge of the Sellers, there are no such proceedings threatened which
would, if decided against the Company, individually or in the aggregate, have a
material adverse effect on the results of operations or financial condition of
the Stores.
3.12. No Violations or Defaults. To the knowledge of the Sellers, the
Company is not in violation of or default under nor has any event occurred that,
with the lapse of time or the giving of notice or both, would constitute a
violation of or default under, or permit the termination or the acceleration of
maturity of, or result in the imposition of a lien, claim or encumbrance upon
the assets of the Company pursuant to, the articles of incorporation of the
Company or any loan or lease agreement, other agreement or instrument, judgment,
order, injunction, or decree to which it is a party, by which it is bound, or to
which any of its assets is subject, except where such violation or default would
not have a material adverse effect on the results of operations or financial
condition of the Company. To the knowledge of the Sellers, there are no existing
violations of any law applicable to the Stores.
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3.13. Labor Matters. The Company is not party to any collective
bargaining agreements with any union, and no collective bargaining agreement is
currently being negotiated by the Company. There is no labor strike or similar
material dispute pending or, to the knowledge of the Sellers, threatened against
or involving the Company.
3.14. Material Contracts. Set forth on Schedule 3.14 are complete and
accurate lists of all of the following categories of contracts and commitments
to which the Company is a party or bound:
(i) contracts with any labor union; employee benefit plans or
contracts; and employment, severance, consulting or similar contracts,
including confidentiality agreements;
(ii) leases, whether as lessor or lessee;
(iii) agreements providing for liens, claims or encumbrances on
the assets of the Company;
(iv) contracts (other than purchase orders in the ordinary course
of business) with third parties that involve aggregate payments by the
Stores of more than $50,000; and
(v) other contracts that are material to the operations of the
Stores.
To the extent requested, the Company has furnished or made available accurate
and complete copies of the foregoing contracts and agreements to Purchaser. All
such contracts are valid, binding, subsisting and enforceable obligations of the
Company. No contracts or commitments have been made by the Company granting any
person any right to develop, franchise, license, own, manage or operate the
Stores or any future store. The Company has not entered into any commitment or
understanding for the lease of real property other than the Real Estate.
3.15. Transaction with Affiliates. Upon the occurrence of the Closing,
no Seller or any Affiliate of the Company will have any material interest in or
will own any material property or material right used principally in the conduct
of the business of the Company (it being understood that the Company will have
engaged in the transactions described on Schedule 3.15 immediately prior to the
Closing). The term "Affiliate" shall mean any current officer or director of the
Company, any member of the immediate family (including brother, sister,
descendant, ancestor or in-law) of the forgoing persons or any corporation,
partnership, trust or other entity in which the Company, the Company's
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stockholders, the officer and directors of the Company or any of such family
member of such persons has a substantial interest or is a director, officer,
partner or trustee. The Company constitutes the sole legal entity which operates
the Stores.
3.16. Brokers and Finders. Except for Fulham & Company (the fees of
which shall be borne solely by the Sellers from its receipt of the Purchase
Price hereunder) the Company has not engaged any person to act or render
services as a broker, finder or similar capacity in connection with the
transactions contemplated herein and no other person has, as a result of any
agreement or action by the Company, any right or valid claim against the
Sellers, the Company, Purchaser or any of Purchaser's affiliates for any
commission, fee or other compensation as a broker or finder, or in any similar
capacity in connection with the transactions contemplated herein.
3.17. Capitalization. Schedule 3.17 sets forth the authorized capital
stock of the Company. All of the issued and outstanding Shares have been duly
authorized and validly issued and are fully paid and nonassessable. As of the
Closing, there will be no voting trusts, shareholder agreements or other voting
arrangements related to the Company's capital stock. There is no outstanding
subscription, contract, convertible or exchangeable security, option, warrant,
call or other right obligating the Company to issue, sell, exchange, or
otherwise dispose of, or to purchase, redeem or otherwise acquire, shares of, or
securities convertible into or exchangeable for, capital stock of the Company.
3.18. Title to Shares. All of the outstanding Shares are owned of
record and beneficially by the Sellers, free and clear of all liens, claims and
encumbrances.
4. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser hereby
represents and warrants to the Company and the Sellers as follows:
4.1. Organization and Good Standing. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and is in good standing as a foreign corporation under the laws of the
Commonwealth of Massachusetts.
4.2. Corporate Power and Authority. Purchaser has the corporate power
and authority and all licenses and permits required by governmental authorities
to execute, deliver and perform this Agreement.
4.3. Binding Effect. This Agreement has been duly authorized, executed
and delivered by Purchaser and is the legal, valid and binding obligation of it,
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enforceable in accordance with its terms except that (i) enforceability may be
limited by bankruptcy, insolvency, or other similar laws affecting creditors'
rights and (ii) the availability of equitable remedies may be limited by
equitable principles of general applicability.
4.4. Compliance with Other Instruments. Neither the execution and
delivery by Purchaser of this Agreement nor the consummation by it of the
transactions contemplated hereby will violate, breach, be in conflict with, or
constitute a default under, or permit the termination or the acceleration of
maturity of, or result in the imposition of any lien, claim or encumbrance upon
any property or asset of Purchaser pursuant to, its certificate of incorporation
or bylaws, or any note, bond, indenture, mortgage, deed of trust, evidence of
indebtedness, loan or lease agreement, other agreement or instrument, judgment,
order, injunction or decree by which Purchaser is bound, to which it is a party,
or to which its assets are subject.
4.5. Brokers and Finders. Purchaser has not engaged any person to act
or render services as a broker, finder or similar capacity in connection with
the transactions contemplated herein and no person has, as a result of any
agreement or action by Purchaser any right or valid claim against the Sellers,
the Company, Purchaser or any of the Company's affiliates for any commission,
fee or other compensation as a broker or finder, or in any similar capacity in
connection with the transactions contemplated herein.
4.6. Bellingham Letter of Credit. Purchaser has provided a guarantee
to the Company's landlord for the Bellingham Store in the form requested by such
landlord.
5. CERTAIN COVENANTS.
5.1. Continuing Employees. On the Closing Date, the Purchaser will
cause the Company to continue the at will employment of persons (the "Continuing
Employees") constituting the majority of the Store employees of the Company as
of the Closing Date. For the benefit of each non-officer of the Company as of
the Closing Date who is a full-time employee of the Company as of the Closing
Date and is not a Continuing Employee (the "Non-Continuing Employees"), the
Purchaser will:
(i) upon the execution and delivery by such persons of a
customary severance agreement in form satisfactory to the Purchaser,
pay a severance benefit equal to (X) four weeks' base salary for
Non-Continuing Employees who have been employed by the Company (as of
the Closing Date) for more than one year and (Y) two weeks' base
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salary for Non-Continuing Employees who have been employed by the
Company (as of the Closing Date) for one year or less; and
(ii) provide Non-Continuing Employees and Richard Kleinberg (as
well the seven former employees of the Company who have previously
elected COBRA) the opportunity to purchase health insurance in
accordance with the requirements of COBRA.
Schedule 5.1 sets forth all of the severance arrangements offered to employees
of the Company in excess of the amounts set forth above, it being understood
that the amounts set forth on such Schedule 5.1 shall be deemed Excluded
Liabilities and therefore excluded from the Basket described in Section 6.4
below. It is further understood that Kahn will fund such amounts prior to the
required disbursement dates.
5.2. Officers of the Company. Effective as of the Closing Date, each of
the officers and directors of the Company shall have resigned his position with
the Company and shall have provided the Company with a full and complete release
of liability. The Company shall have provided such officers with a full and
complete release of liability; provided, however, that such release will not
diminish the obligations of Kahn under Article 6.
5.3. Purchaser Benefit Plans. Effective as of the Closing Date, the
Purchaser shall make available to the Continuing Employees the employee benefit
plan(s) maintained by Whole Foods Market for its Team Members (the "WFM Plans")
in accordance with their terms. To the extent permitted by the terms of the WFM
Plans, the Purchaser will (i) waive all deductibles, waiting periods and
limitations with respect to pre-existing conditions and other conditions
applicable to employees of the Company under the WFM Plans, and (ii) grant full
past service credit (including credit for eligibility, benefit accrual and for
vesting) to the Continuing Employees for service with the Company under any and
all of the WFM Plans, including but not limited to bonus, severance, and similar
employment policies. Neither this Agreement nor the consummation of the
transactions contemplated by this Agreement will entitle any employee, including
but not limited to, Continuing Employees, to any other severance benefits nor
will it accelerate compensation due any such Continuing Employee as of the
Closing Date. The Purchaser will further credit each Continuing Employee with
the accrued vacation and sick time owing to such Continuing Employee by the
Company as of the Closing Date, provided that the same has been recorded in
either the general ledger or payroll records of the Company in accordance with
good business practice and on a basis consistent with prior periods. Subject to
13
<PAGE>
the foregoing, the Purchaser shall have the right in the good faith exercise of
operations and managerial discretion to make changes or cause changes to be made
after the Closing Date in compensation, benefits and other terms of employment
and to terminate any such employee.
5.4. Bellingham Letter of Credit. The Purchaser will use its best
efforts to cause the landlord of the Bellingham Store to return to Kahn the
letter of credit currently held by such landlord.
6. INDEMNIFICATION.
6.1. Indemnification of Purchaser. Subject to the limitations set forth
in Sections 6.3 and 6.4, Kahn shall indemnify and hold Purchaser harmless from,
against, for and in respect of (i) any and all damages, losses, settlement
payments, obligations, liabilities, claims, actions or causes of action and
encumbrances suffered, sustained, incurred or required to be paid by Purchaser,
net of any resulting income tax benefits to Purchaser, (A) because of the breach
of any written representation, warranty, agreement or covenant of the Company
contained in this Agreement or (B) in respect of the Excluded Liabilities, and
(ii) all reasonable costs and expenses (including, without limitation,
attorneys' fees, interest and penalties) incurred by Purchaser in connection
with any action, suit, proceeding, demand, assessment or judgment incident to
any of the matters indemnified against in this Section 6.1 (collectively
"Purchaser's Damages").
6.2. Indemnification of Sellers. Subject to the limitations set forth
in Sections 6.3 and 6.4, Purchaser shall indemnify and hold the Sellers harmless
from, against, for and in respect of: (i) any and all damages, losses,
settlement payments, obligations, liabilities, claims, actions or causes of
action and encumbrances suffered, sustained, incurred or required to be paid by
the Sellers, net of any resulting income tax benefits to the Sellers, (A)
because of the breach of any written representation, warranty, agreement or
covenant of Purchaser contained in this Agreement or (B) in respect of any of
the Assumed Liabilities; and (ii) all reasonable costs and expenses (including,
without limitation, attorneys' fees, interest and penalties) incurred by the
Sellers in connection with any action, suit, proceeding, demand, assessment or
judgment incident to any of the matters indemnified against in this Section 6.2
(collectively "Sellers' Damages").
6.3. Survival of Representations, Warranties and Covenants. All
representations, warranties, covenants and agreements made by any party to this
Agreement or pursuant hereto shall be deemed to be material and to have been
relied upon by the parties hereto, and shall survive until the 18 month
anniversary of the Closing Date. Notice of any claim, whether made under the
indemnification provisions hereof or otherwise, based on a breach of a
14
<PAGE>
representation, warranty, covenant or agreement must be given prior to the
expiration of such representation, warranty, covenant or agreement; and any
claim not made within such period shall be of no force or effect. The
representations and warranties hereunder shall not be affected or diminished by
any investigation at any time by or on behalf of the party for whose benefit
such representations and warranties were made.
6.4. General Rules Regarding Indemnification. The obligations and
liabilities of each indemnifying party hereunder with respect to claims
resulting from the assertion of liability by the other party shall be subject to
the following terms and conditions:
(a) The indemnified party shall give prompt written notice
(which in no event shall exceed 30 days from the date on which the
indemnified party first became aware of such claim or assertion) to the
indemnifying party of any claim which might give rise to a claim by the
indemnified party against the indemnifying party based on the indemnity
agreements contained in Sections 6.1 or 6.2 hereof, stating the nature
and basis of said claims and the amounts thereof, to the extent known;
(b) If any action, suit or proceeding is brought against the
indemnified party with respect to which the indemnifying party may have
liability under the indemnity agreements contained in Sections 6.1 or
6.2 hereof, the action, suit or proceeding shall, at the election of
the indemnifying party, be defended (including all proceedings on
appeal or for review which counsel for the indemnified party shall deem
appropriate) by the indemnifying party. The indemnified party shall
have the right to employ its own counsel in any such case, but the fees
and expenses of such counsel shall be at the indemnified party's own
expense unless the employment of such counsel and the payment of such
fees and expenses both shall have been specifically authorized in
writing by the indemnifying party in connection with the defense of
such action, suit or proceeding. Notwithstanding the foregoing, (A) if
there are defenses available to the indemnified party which are
inconsistent with those available to the indemnifying party to such
extent as to create a conflict of interest between the indemnifying
party and the indemnified party, the indemnified party shall have the
right to direct the defense of such action, suit or proceeding insofar
as it relates to such inconsistent defenses, and the indemnifying party
shall be responsible for the reasonable fees and expenses of the
indemnified party's counsel insofar as they relate to such inconsistent
defenses, and (B) if such action, suit or proceeding involves or could
have an effect on matters beyond the scope of the indemnity agreements
contained in Sections 6.1 and 6.2 hereof, the indemnified party shall
15
<PAGE>
have the right to direct (at its own expense) the defense of such
action, suit or proceeding insofar as it relates to such other matters.
The indemnified party shall be kept fully informed of such action, suit
or proceeding at all stages thereof whether or not it is represented by
separate counsel.
(c) The indemnified party shall make available to the
indemnifying party and its attorneys and accountants all books and
records of the indemnified party relating to such proceedings or
litigation and the parties hereto agree to render to each other such
assistance as they may reasonably require of each other in order to
ensure the proper and adequate defense of any such action, suit or
proceeding.
(d) The indemnified party shall not make any settlement of any
claims without the written consent of the indemnifying party.
(e) An indemnified party shall not make any claim hereunder
unless and until it has incurred Sellers' Damages or Purchaser's
Damages (as the case may be) of a cumulative aggregate of $250,000 (the
"Basket") and shall thereafter be entitled to make a claim only for
amounts incurred in excess of such Basket; provided, however, that the
provisions of this clause (e) shall not apply to any of Purchaser's
Damages arising from (i) the termination or settlement of the Company's
agreements with New Mexico Coffee (it being understood any agreement
made by Purchaser to continue coffee orders from New Mexico Coffee for
a future period shall not be considered Purchaser's Damages), (ii) any
claim by the landlord of the Bedford Store in respect of the change of
control of the Company as a result of the sale of the Shares, (iii)
unpaid use taxes in respect of periods prior to the Closing or (iv)
unpaid sales taxes in respect of periods prior to 30 days prior to the
Closing, all of which shall be made on a dollar-for-dollar basis.
(f) In no event shall the cumulative liability of the Sellers
in respect of Purchaser's Damages exceed $5.0 million; provided,
however, that (i) such aggregate maximum shall not apply in respect of
Purchaser's Damages arising from a breach of the representations and
warranties set forth in Sections 3.7 and 3.18 or arising from the
fraudulent conduct of the Sellers and/or their representatives and (ii)
the cumulative liability of the Sellers in respect of Purchaser's
Damages relating to the leases of the Stores shall not exceed $2.5
million.
(g) If any claims are made by third parties against an
indemnified party for which an indemnifying party would be liable, and
it appears likely that such claims might also be covered by the
indemnified party's insurance policies, the indemnified party shall
16
<PAGE>
make a timely claim under such policies and to the extent that such
party obtains any recovery from such insurance, such recovery shall be
offset against any sums due from an indemnifying party (or shall be
repaid by the indemnified party to the extent that an indemnifying
party has already paid any such amounts).
7. MISCELLANEOUS.
7.1. Expenses. The Purchaser shall pay its own expenses incurred in
connection with the negotiation, execution and delivery of the Asset Purchase
Agreement and this Agreement and the transactions contemplated hereby, and the
Sellers shall pay their expenses and those of the Company incurred in connection
with the negotiation, execution and delivery of the Asset Purchase Agreement and
this Agreement and the transactions contemplated hereby.
<PAGE>
7.2. Entire Agreement. This Agreement and the exhibits hereto contain
the complete agreement among the parties with respect to the transactions
contemplated hereby and supersede all prior agreements and understandings, oral
or written, among the parties with respect to such transactions. Section and
other headings are for reference purposes only and shall not affect the
interpretation or construction of this Agreement. The parties hereto have not
made any representation or warranty except as expressly set forth in this
Agreement or in any certificate or schedule delivered pursuant hereto.
7.3. Public Announcements. No party to this Agreement shall issue any
press release relating to, or otherwise publicly disclose, the transactions
contemplated by this Agreement without the prior approval of the other parties.
Notwithstanding the foregoing, any party may make such disclosure as may be
required by law, provided the disclosing party obtains from the other party
prior approval of the substance of the proposed disclosure (such as the content
of a proposed press release), which approval may not be unreasonably withheld or
delayed.
7.4. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, and such counterparts together shall constitute only one original.
7.5. Notices. All notices, demands, requests or other communications
that may be or are required to be given, served or sent by any party to any
other party pursuant to this Agreement shall be in writing and shall be mailed
by first-class, registered or certified mail, return receipt requested, postage
prepaid, or transmitted by a reputable overnight courier service or by hand
17
<PAGE>
delivery or facsimile transmission, addressed as follows:
(i) If to the Purchaser or the Company:
601 N. Lamar Blvd., Suite 300
Austin, Texas 78703
Attn: Chief Financial Officer
Fax: 512-477-1069
(ii) If to the Sellers:
c/o United Properties
One DeAngelo Drive
Bedford, Massachusetts 01730
Attn: Mr. Leo Kahn
Fax: 781-275-3023
Each party may designate by notice in writing a new address to which any notice,
demand, request or communication may thereafter be so given, served, or sent.
Each notice, demand, request or communication that is mailed, delivered, or
transmitted in the manner described above shall be deemed sufficiently given,
served, sent and received for all purposes at such time as it is delivered to
the addressee (with the return receipt, the delivery receipt, fax confirmation
sheet or the affidavit of courier or messenger being deemed conclusive evidence
of such delivery) or at such time as delivery is refused by the addressee upon
presentation.
7.6. Assignment; Successors and Assigns. This Agreement may not be
assigned by either of the parties hereto without the written consent of all the
other parties; provided, however, that the Purchaser shall be entitled to assign
this Agreement to any subsidiary corporation so long as the Purchaser remains
liable for the obligations of Purchaser hereunder. Subject to the preceding
sentence, this Agreement and the rights, interests and obligations hereunder
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and assigns.
7.7. Remedies of the Company. After the Closing, the Company shall have
the same rights and benefits under this Agreement as does the Purchaser with
respect to the representations, warranties and covenants of the Sellers
contained herein, as fully as if such representations, warranties and covenants
had been made to or with the Company in lieu of Purchaser. In any proceedings by
18
<PAGE>
Purchaser to assert or prosecute any claims under, or to otherwise enforce, this
Agreement or any other agreement contemplated hereby or any transaction
contemplated hereby or thereby, the Sellers agree that they shall not assert as
a defense or bar to recovery by the Company and hereby waive any right so to
assert such defense or bar such recovery, that (a) before the date of this
Agreement the Company (as opposed to Purchaser) had knowledge of the
circumstances giving rise to the claim being pursued by it; (b) before the date
of this Agreement the Company engaged in conduct or took action that caused or
brought about the circumstances giving rise to its claim or otherwise
contributed thereto; (c) the Company is estopped from asserting or recovering
upon its claim by reason of having joined in the representations, warranties,
and covenants made by Sellers in this Agreement; or (d) Sellers have a right of
contribution from or indemnification by the Company to the extent that there is
any recovery against it. The Sellers further agree that they shall not under any
circumstances whatsoever affirmatively seek any contribution from or
indemnification by the Company for any losses, damages, expenses or other
claims, regardless of form, suffered by them arising out of, related to or in
connection with this Agreement or any other agreement contemplated hereby
(except pursuant to Section 6.2) or any transaction contemplated hereby or
thereby.
7.8. Waiver and Other Action. This Agreement may be amended, modified,
or supplemented only by a written instrument executed by the parties against
which enforcement of the amendment, modification or supplement is sought.
7.9. Severability. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable, such provision shall be fully severable, and
this Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision were never a part hereof; the remaining provisions
hereof shall remain in full force and effect and shall not be affected by the
illegal, invalid or unenforceable provision or by its severance; and in lieu of
such illegal, invalid or unenforceable provision, there shall be added
automatically as part of this Agreement, a provision as similar in its terms to
such illegal, invalid or unenforceable provision as may be possible and be
legal, valid and enforceable.
7.10. Third-Party Beneficiaries. This Agreement and the rights,
obligations, duties and benefits hereunder are intended for the parties hereto,
and no other person or entity shall have any rights, obligations, duties and
benefits pursuant hereto.
7.11. Governing Law; Arbitration. This Agreement shall be governed by,
and construed in accordance with, the laws of the Commonwealth of Massachusetts.
19
<PAGE>
Any controversy or dispute among the parties arising in connection with this
Agreement shall be submitted to a panel of three arbitrators and finally settled
by arbitration in accordance with the commercial arbitration rules of the
American Arbitration Association. Each of the disputing parties shall appoint
one arbitrator, and these two arbitrators shall independently select a third
arbitrator. Arbitration shall take place in Boston, Massachusetts, or such other
location as the arbitrators may select. The prevailing party in such arbitration
shall be entitled to the award of all costs and attorneys' fees in connection
with such action. Any award for monetary damages resulting from nonpayment of
sums due hereunder shall bear interest from the date on which such sums were
originally due and payable. Judgment upon the award rendered may be entered in
any court having jurisdiction or application may be made to such court for
judicial acceptance of the award and an order of enforcement, as the case may
be.
20
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
Whole Foods Market Group, Inc.
By /s/ Glenda Flanagan
--------------------
Nature's Heartland, Inc.
By /s/ Leo Kahn
------------
Shareholders:
/s/ Leo Kahn
------------
Leo Kahn
/s/ Joseph Kahn
---------------
Joseph Kahn
/s/ Daniel Kahn
---------------
Daniel Kahn
/s/ Elizabeth Kahn
------------------
Elizabeth Kahn
Exhibit 2.2
AMENDMENT TO STOCK PURCHASE AGREEMENT
This Amendment to Stock Purchase Agreement is made as of August _____,
1999 by and among Whole Foods Market Group, Inc., a Delaware corporation (the
"Purchaser"), Nature's Heartland, Inc., a Massachusetts corporation (the
"Company"), Leo Kahn ("Kahn") and the other former shareholders of the Company
who are signatories hereto (such persons, together with Kahn, being referred to
herein collectively as the "Sellers").
WHEREAS, the Purchaser, the Company and the Sellers entered into a
Stock Purchase Agreement dated as of April 30, 1999 (the "Agreement") pursuant
to which the Purchaser purchased from the Sellers on April 30, 1999 all of the
issued and outstanding capital stock of the Company; and
WHEREAS, the Purchaser, the Company and the Sellers have determined
that it is in their mutual best interests to amend the Agreement in certain
respects pursuant to, and in accordance with, Section 7.8 of the Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto, intending to be legally bound, do hereby
agree as follows:
1. Defined Terms. All capitalized terms used herein which are not
otherwise defined shall have the same respective meanings as those terms set
forth in the Agreement.
2. Additional Covenant as to Company Tax Matters. Section 5 of the
Agreement is hereby amended by adding a new Section 5.5 immediately following
Section 5.4 of the Agreement which shall read as follows:
5.5 Post-Closing Tax Matters. >From and after the Closing
Date, none of the Purchaser, the Company nor any of their Affiliates
shall, without the prior written consent of Kahn (i) request any tax
good standing certificate, corporate excise tax lien waiver or any
other similar tax clearance certificate from any department, agent or
other taxing authority of the Commonwealth of Massachusetts; (ii)
request any review, examination or audit of the Company's tax filings
or payments by any department, agency or other taxing authority of the
Commonwealth of Massachusetts, (iii) take any other action which could
reasonably be expected to precipitate any review, examination or audit
of the Company's tax filings or payments by any department, agency or
other taxing authority of the Commonwealth of Massachusetts or (iv)
agree to extend, waive or toll any statute of limitations applicable to
any tax return filed or any tax which may have been payable prior to
the Closing Date. In the event that either the Purchaser or the Company
shall receive notice at any time following the Closing Date, that any
department, agency or other taxing authority of the Commonwealth of
Massachusetts intends to conduct, or has commenced, any review,
examination or audit of the Company's tax filings or payments for any
period ending on or prior to the Closing Date, the Purchaser or the
Company shall promptly give notice thereof to Kahn in the same manner
<PAGE>
as notice is given to any indemnifying party under Section 6.4 hereof
and Kahn shall be entitled to participate in such review, examination
or audit as an indemnifying party in accordance with Section 6.4.
3. Survival of Representations, Warranties and Covenants. Section 6.3
of the Agreement is hereby amended by deleting said Section 6.3 in its entirety
and inserting in lieu thereof a new Section 6.3 which shall read as follows:
6.3 Survival of Representations, Warranties and Covenants. All
representations, warranties, covenants and agreements made by any party
to this Agreement or pursuant hereto shall be deemed to be material and
to have been relied upon by the parties hereto, and shall survive until
the 18 month anniversary of the Closing Date; provided, however, that
the Sellers representation and warranty set forth in Section 3.7 with
respect to the payment of Massachusetts sales and use taxes shall
continue thereafter and shall survive until the expiration of the
applicable statute of limitations. Notice of any claim, whether made
under the indemnification provisions hereof or otherwise, based on a
breach of a representation, warranty, covenant or agreement must be
given prior to the expiration of such representation, warranty,
covenant or agreement; and any claim not made within such period shall
be of no force or effect. The representations and warranties hereunder
shall not be affected or diminished by any investigation at any time by
or on behalf of the party for whose benefit such representations and
warranties were made.
4. Ratification of the Agreement. Except to the extent expressly
amended hereby, the Agreement shall remain in full force and effect and, as so
amended, is hereby ratified and confirmed.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date and year first above written.
WHOLE FOODS MARKET GROUP, INC.
By: /s/ Glenda Flanagan
-------------------
NATURE'S HEARTLAND, INC.
By:
SELLERS:
Leo Kahn /s/ Leo Kahn
------------
Joseph Kahn /s/ Joseph Kahn
---------------
Daniel Kahn /s/ Daniel Kahn
---------------
Elizabeth Kahn /s/ Elizabeth Kahn
------------------
Exhibit 10.13
AMENDED AND RESTATED CREDIT AGREEMENT
Reference is hereby made to that certain Credit Agreement dated as of
December 27, 1994, executed by and between WHOLE FOODS MARKET, INC. (the
"Company"), the financial institutions which are currently parties to said
Credit Agreement (each of said financial institutions now or hereafter a party
to said Credit Agreement being hereinafter referred to collectively as "Banks"
and individually as a "Bank"), and TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a
national banking association now known as CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION, a national banking association ("Chase"), in its capacity as agent
(the "Agent") for the Banks.
The Company, the Banks and the Agent have previously amended said
Credit Agreement pursuant to the terms of a First Amendment to Credit Agreement,
dated as of May 16, 1996 (the "First Amendment"), a Second Amendment to Credit
Agreement dated as of December 24, 1996 (the "Second Amendment"), a Third
Amendment to Credit Agreement dated as of March 24, 1997 (the "Third
Amendment"), a Fourth Amendment to Credit Agreement dated as of September 2,
1997 (the "Fourth Amendment"), and a Fifth Amendment to Credit Agreement dated
as of December 19, 1997 (the "Fifth Amendment"). Said Credit Agreement, as
previously amended by the First Amendment, the Second Amendment, the Third
Amendment, the Fourth Amendment, and the Fifth Amendment is referred to herein
as the "Original Agreement."
As a result of certain discussions between the Company, the Agent and
the Banks, and in connection with the increase of the Aggregate Commitment (as
defined in the Original Agreement), the parties to the Original Agreement, as
well as new Banks which are signatories hereto, now desire to amend and restate
the Original Agreement in its entirety. Accordingly, the Original Agreement is
hereby amended and restated in its entirety to hereafter be and read as follows:
THIS AMENDED AND RESTATED CREDIT AGREEMENT (together with all
amendments, modifications and supplements hereto and restatements hereof, this
"Agreement") is made and entered into as of June 28, 1999, by and among WHOLE
FOODS MARKET, INC. (the "Company"), a Texas corporation, EACH OF THE FINANCIAL
INSTITUTIONS WHICH IS A SIGNATORY HERETO OR WHICH MAY FROM TIME TO TIME BECOME A
PARTY HERETO (individually, a "Bank" and collectively, the "Banks") and CHASE
BANK OF TEXAS, NATIONAL ASSOCIATION ("Chase"), a national banking association as
agent for the Banks (in such capacity, together with its successors in such
capacity, the "Agent").
W I T N E S S E T H:
THAT, in consideration of the mutual covenants, agreements and
undertakings herein contained, the parties hereto agree as follows:
<PAGE>
1. Definitions.
1.1. Certain Defined Terms. Unless a particular word or phrase is
otherwise defined or the context otherwise requires, capitalized words and
phrases used in the Loan Documents have the meanings provided below.
Accounts shall have the meaning assigned to it in the Texas Business
and Commerce Code in force on the date the document using such term was
executed.
Adjusted LIBOR Rate shall mean, with respect to each LIBOR Interest
Period, a rate per annum equal to the quotient (converted to a percentage) of
(a) the London Interbank Rate with respect to such LIBOR Interest Period divided
by (b) 1 minus the Eurocurrency Reserve Requirement in effect on the first day
of such LIBOR Interest Period.
Affiliate shall mean any Person controlling, controlled by or under
common control with any other Person; and with respect to an individual,
"Affiliate" shall also mean any other individual related to such individual by
blood or marriage. For purposes of this definition, "control" (including
"controlled by" and "under common control with") means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of securities,
partnership or other ownership interests, by contract or otherwise.
Aggregate Commitment shall mean, on any day, the aggregate of all of
the Commitments of the Banks on such day.
Aggregate Unused Commitment shall mean, on any day, the aggregate of
all of the Unused Commitments of the Banks on such day.
Alternate Base Rate shall mean for any day a rate per annum (rounded
upwards to the nearest 1/16 of 1%) equal to the lesser of (a) the sum of (1) the
greater of (A) the Prime Rate (computed on the basis of the actual number of
days elapsed over a year of 365 or 366 days, as the case may be) in effect on
such day, and (B) the Federal Funds Rate (computed on the basis of the actual
number of days elapsed over a 360-day year) in effect for such day plus 1/2 of
1%, plus (2) the Applicable Margin in effect on such day or (b) the Highest
Lawful Rate. For purposes of this Agreement any change in the Alternate Base
Rate due to a change in the Prime Rate or Federal Funds Rate shall be effective
on the effective date of such change in the Prime Rate or Federal Funds Rate,
respectively. If for any reason the Agent shall have determined (which
determination shall be conclusive and binding, absent manifest error) that it is
unable to ascertain the Federal Funds Rate for any reason, including the
inability or failure of the Agent to obtain sufficient quotations in accordance
with the terms hereof, the Alternate Base Rate shall be the lesser of (a) the
Prime Rate plus the Applicable Margin or (b) the Highest Lawful Rate until the
circumstances giving rise to such inability no longer exist.
Alternate Base Rate Borrowing shall mean that portion of the principal
balance of the Loans at any time bearing interest at the Alternate Base Rate.
Annual Audited Financial Statements shall mean, with respect to each
fiscal year of the Company, the Company's 10-K Report filed with the Securities
Exchange Commission for such fiscal year, prepared in conformity with Generally
Accepted Accounting Principles and accompanied by a report and opinion of
independent certified public accountants with an accounting firm of national
standing and reputation, which shall state that such financial statements, in
the opinion of such accountants, present fairly, in all material respects, the
financial position of the Company and its Subsidiaries, on a consolidated basis,
as of the date thereof and the results of its operations and cash flows for the
period covered thereby in conformity with Generally Accepted Accounting
Principles.
Applicable Commitment Fee Percentage shall mean with respect to any
Unused Commitment, on any day occurring on or after (1) March 31 but prior to
June 30 of the applicable calendar year, the applicable per annum percentage
corresponding to the Leverage Ratio determined as of the end of the immediately
preceding first quarter of the Company's fiscal year, (2) June 30 but prior to
<PAGE>
September 30 of the applicable calendar year, the applicable per annum
percentage corresponding to the Leverage Ratio determined as of the end of the
immediately preceding second quarter of the Company's fiscal year, (3) September
30 but prior to December 31 of the applicable calendar year, the applicable per
annum percentage corresponding to the Leverage Ratio determined as of the end of
the immediately preceding third quarter of the Company's fiscal year, and (4)
December 31 but prior to March 31 of the applicable calendar year, the
applicable per annum percentage corresponding to the Leverage Ratio determined
as of the immediately preceding fiscal year of the Company, as provided below:
- ----------------------------------------------- -------------------------------
Per Annum
Leverage Ratio Percentage Rate
- ----------------------------------------------- -------------------------------
- ----------------------------------------------- -------------------------------
Less than 1.00x 0.20%
- ----------------------------------------------- -------------------------------
- ----------------------------------------------- -------------------------------
1.00x or greater, but less than 2.00x 0.25%
- ----------------------------------------------- -------------------------------
- ----------------------------------------------- -------------------------------
2.00x or greater 0.30%
- ----------------------------------------------- -------------------------------
Applicable Margin shall mean with respect to any Loan, on any day
occurring on or after (1) March 31 but prior to June 30 of the applicable
calendar year, the applicable per annum percentage corresponding to the Leverage
Ratio determined as of the end of the immediately preceding first quarter of the
Company's fiscal year, (2) June 30 but prior to September 30 of the applicable
calendar year, the applicable per annum percentage corresponding to the Leverage
Ratio determined as of the end of the immediately preceding second quarter of
the Company's fiscal year, (3) September 30 but prior to December 31 of the
applicable calendar year, the applicable per annum percentage corresponding to
the Leverage Ratio determined as of the end of the immediately preceding third
quarter of the Company's fiscal year, and (4) December 31 but prior to March 31
of the applicable calendar year, the applicable per annum percentage
corresponding to the Leverage Ratio determined as of the immediately preceding
fiscal year of the Company, as provided below:
<PAGE>
- ------------------------ ---------------------------- --------------------------
Per Annum Percentage Per Annum Percentage
for LIBOR Rate for Alternate Base
Leverage Ratio Borrowings Rate Borrowings
- ------------------------ ---------------------------- --------------------------
Less than 1.00x 0.75% 0.000%
- ------------------------ ---------------------------- --------------------------
1.00x or greater,
but less than 2.00x 1.00% 0.00%
- ------------------------ ---------------------------- --------------------------
2.00x or greater 1.25% 0.000%
- ------------------------ ---------------------------- --------------------------
Applications shall mean all applications and agreements for Letters of
Credit, or similar instruments or agreements, in Proper Form, now or hereafter
executed by any Person in connection with any Letter of Credit now or hereafter
issued or to be issued under the terms hereof at the request of any Person.
Business Day shall mean a day when the main office of the Agent is open
for business and banks in Houston, Texas are generally open for business.
Business Entity shall mean corporations, partnerships, joint ventures,
joint stock associations, business trusts and other business entities.
Capital Lease Obligations shall mean the obligations of the Company and
its Subsidiaries on a consolidated basis to pay rent or other amounts under a
lease of (or other agreement conveying the right to use) real and/or personal
Property which obligations are required to be classified and accounted for as a
capital lease on a consolidated balance sheet of the Company and its
Subsidiaries under Generally Accepted Accounting Principles (including Statement
of Financial Accounting Standards No. 13 of the Financial Accounting Standards
Board, as amended) and, for purposes of this Agreement, the amount of such
obligations shall be the capitalized amount thereof, determined in accordance
with Generally Accepted Accounting Principles (including such Statement No. 13).
Change of Control shall mean any change so that any Unrelated Person
(or any Unrelated Persons acting together which would constitute a Group)
together with any Affiliate or Related Persons of such Unrelated Person or
Unrelated Persons (in each case also constituting Unrelated Persons) shall at
any time after the date hereof either (i) Beneficially Own more than fifty
percent (50%) of the aggregate voting power of all classes of Voting Stock of
the Company, or (ii) succeed in having enough of its or their nominees elected
by the stockholders to the Board of Directors of the Company so as to constitute
a majority of the Board of Directors of the Company. As used herein, (a)
"Beneficially Own" shall mean "beneficially own" as defined in Rule 13d-3 of the
Securities and Exchange Act of 1934, as amended (the "34 Act") or any successor
provision thereto; (b) "Group" shall mean a "group" for purposes of Section
13(d) of the 34 Act or any successor provision; (c) "Unrelated Person" shall
mean any Person other than any trust for any employee stock ownership plan of
the Company or any Subsidiary of the Company; (d) "Related Person" shall mean as
to any Person, any other Person owning (1) five percent (5%) or more of the
outstanding common stock of such Person or (2) five percent (5%) or more of the
Voting Stock of such Person, and (e) "Voting Stock" shall mean as to any Person,
the Stock of such Person which ordinarily has voting power for the election of
directors (or persons performing similar functions) of such Person, whether at
all times or only so long as no senior class of securities has such voting power
by reason of any contingency.
Chapter 1D shall mean Chapter 1D of the Texas Finance Code, as in
effect on the date the document using such term was executed.
Code shall mean the Internal Revenue Code of 1986, as amended, as now
or hereafter in effect, together with all regulations, rulings and
interpretations thereof or thereunder by the Internal Revenue Service.
Commitment shall mean, as to any Bank, the obligation of such Bank to
make Loans and incur liability for the Letters of Credit Exposure Amount in an
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aggregate principal amount at any one time outstanding up to, but not exceeding,
the amount set forth opposite such Bank's name on the signature pages hereof
under the caption "Commitment" (as the same may be reduced from time to time
pursuant to Section 2.2 hereof).
Commitment Fee, with respect to any Bank, shall have the meaning
assigned to it in Section 2.2.
Commitment Percentage shall mean, with respect to any Bank, the ratio,
expressed as a percentage, of such Bank's Commitment to the Aggregate
Commitment.
Consequential Loss shall mean, with respect to (a) the Company's
payment of principal of a LIBOR Rate Borrowing on a day other than the last day
of the applicable LIBOR Interest Period, (b) the Company's failure to borrow a
LIBOR Rate Borrowing on the date specified by the Company for any reason, (c)
the Company's failure to make any prepayment of the Loans (other than Alternate
Base Rate Borrowings) on the date specified by the Company, or (d) any cessation
of the LIBOR Rate to apply to the Loans or any part thereof pursuant to Section
2.11 hereof, in each case whether voluntary or involuntary, any loss, expense,
penalty, premium or liability incurred by any of the Banks or the Agent,
including any interest paid by any of the Banks to lenders of funds borrowed by
it to make or carry the Loans. And "Consequential Loss" shall mean, with respect
to the termination or cancellation of any LIBOR Rate Borrowing pursuant to
Section 2.11 hereof, in each case whether voluntary or involuntary, any loss,
expense, penalty, premium or liability incurred by any of the Banks or the Agent
on account of any reduction resulting from such premature termination or
cancellation of such borrowing in such Person's margins or spreads between its
cost of funds and the interest earned on the principal of the borrowing so
terminated or canceled, including an amount equal to the excess (if any) of (x)
interest that would have accrued on any such borrowing during the remainder of
the applicable LIBOR Interest Period had such borrowing not been terminated or
canceled early, over (y) the interest actually accrued on the principal amount
of that terminated or canceled borrowing for such remainder of such LIBOR
Interest Period.
Consolidated Net Worth shall mean, at any time, shareholder's equity of
the Company as set forth in the most recent consolidated Annual Audited
Financial Statements of the Company and its Subsidiaries, determined in
accordance with Generally Accepted Accounting Principles, consistently applied.
Contingent Obligations shall mean, as to any Person, without
duplication, any obligation of such Person guaranteeing or intended to guarantee
the payment or performance of any Indebtedness, leases, dividends or other
obligations (collectively "primary obligations") of any other Person (the
"primary obligor") in any manner, whether directly or indirectly, including
without limitation, any obligation of the Person for whom Contingent Obligations
is being determined, whether or not contingent, (a) to purchase any such primary
obligation or other property constituting direct or indirect security therefor,
(b) assume or contingently agree to become or be secondarily liable in respect
of any such primary obligation, (c) to advance or supply funds (i) for the
purchase or payment of any such primary obligation or (ii) to maintain working
capital or equity capital for the primary obligor or otherwise to maintain the
net worth or solvency of the primary obligor, (d) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation, or (e) otherwise to assure or hold harmless the owner
of such primary obligation against loss in respect thereof; provided, however,
that the term "Contingent Obligations" shall not include (x) endorsements of
checks or other negotiable instruments in the ordinary course of business, (y)
performance or payment guarantees by the Company of any Indebtedness of any of
its Subsidiaries of the type permitted in Section 6.1(f) hereof, and (z) the
obligations and liabilities of each Guarantor to the Agent and the Banks under
the Guaranties. The amount of any Contingent Obligation shall be deemed to be an
amount equal to the stated or determinable amount of the primary obligation in
respect of which such Contingent Obligation is made or, if not stated or
determinable, the maximum anticipated liability in respect thereof (assuming the
Person for whom Contingent Obligations is being determined is required to
perform thereunder) as determined by the Agent in good faith.
Contribution Agreement shall mean that certain Contribution Agreement
of even date herewith, by and among the Company and the Current Guarantors, as
the same may be amended, modified, supplemented, restated and joined in pursuant
to a Joinder Agreement, from time to time.
Current Guarantors shall mean each of the Subsidiaries of the Company
listed on Schedule II attached hereto (other than Natrix International, LLC,
Amrion New Zealand Limited and Australian Naturalcare Products PTY LTD), and any
and all of their respective successors and assigns.
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Current Sum shall mean on any day, as to a particular Bank, the sum of
(a) the outstanding principal balance of such Bank's Note on such day plus (b)
the product of (i) such Bank's Commitment Percentage times (ii) the Letter of
Credit Exposure Amount on such day.
Discontinued Operations shall mean, as of any day, operations of the
Company or its Subsidiaries which have been discontinued, as reflected on the
most recent Form 10-K or 10-Q for the Company filed with the Security and
Exchange Commission, and which, as of such day, have been fully disposed of or
liquidated.
EBIT shall mean for any period for which EBIT is calculated, Net Income
of the Company and its Subsidiaries on a consolidated basis for such period plus
(a) non-recurring, non-cash charges of the Company and its Subsidiaries on a
consolidated basis for such period, (b) taxes of the Company and its
Subsidiaries on a consolidated basis for such period and (c) interest expense of
the Company and its Subsidiaries on a consolidated basis for such period. All
components of EBIT shall be determined in accordance with Generally Accepted
Accounting Principles, consistently applied.
EBITDA shall mean for any period for which EBITDA is calculated, Net
Income of the Company and its Subsidiaries on a consolidated basis for such
period plus (a) taxes of the Company and its Subsidiaries on a consolidated
basis for such period (calculated after excluding any gain or loss attributable
to Discontinued Operations as of such day), (b) depreciation, depletion,
obsolescence and amortization of Property of the Company and its Subsidiaries on
a consolidated basis for such period (calculated after excluding any
depreciation, depletion, obsolescence and amortization applicable to
Discontinued Operations as of such day), (c) interest expense of the Company and
its Subsidiaries on a consolidated basis for such period (calculated after
excluding any interest expense paid in connection with Discontinued Operations
as of such day), and (d) non-recurring, non-cash charges of the Company and its
Subsidiaries on a consolidated basis for such period. All components of EBITDA
shall be determined in accordance with Generally Accepted Accounting Principles,
consistently applied.
Eligible Assignee shall mean (a) a commercial bank having total assets
in excess of $10,000,000,000 or (b) a finance company, insurance company, other
financial institution or fund, acceptable to the Agent and the Company, which is
regularly engaged in making, purchasing or investing in loans and having total
assets in excess of $10,000,000,000.
Environmental Claim shall mean any third party (including any
Governmental Authority) action, lawsuit, claim or proceeding (including claims
or proceedings at common law) which seeks to impose or alleges liability for (i)
preservation, protection, conservation, pollution, contamination of, or releases
or threatened releases of Hazardous Substances into the air, surface water,
ground water or land or the clean-up, abatement, removal, remediation or
monitoring of such pollution, contamination or Hazardous Substances; (ii)
generation, recycling, reclamation, handling, treatment, storage, disposal or
transportation of Hazardous Substances or solid waste (as defined under the
Resource Conservation and Recovery Act and its regulations, as amended from time
to time); (iii) exposure to Hazardous Substances; (iv) the safety or health of
employees or other Persons in connection with any of the activities specified in
any other subclause of this definition; or (v) the manufacture, processing,
distribution in commerce, presence or use of Hazardous Substances. An
"Environmental Claim" includes a common law action, as well as a proceeding to
issue, modify or terminate an Environmental Permit, or to adopt or amend a
regulation to the extent that such a proceeding attempts to redress violations
of the applicable permit, license, or regulation as alleged by any Governmental
Authority.
Environmental Liabilities shall mean all liabilities arising from any
Environmental Claim, Environmental Permit or Requirement of Environmental Law
under any theory of recovery, at law or in equity, and whether based on
negligence, strict liability or otherwise, including: remedial, removal,
response, abatement, restoration (including natural resources) investigative, or
monitoring liabilities, personal injury and damage to property, natural
resources or injuries to persons, and any other related costs, expenses, losses,
damages, penalties, fines, liabilities and obligations, and all costs and
expenses necessary to cause the issuance, reissuance or renewal of any
Environmental Permit including attorney's fees and court costs. Environmental
Liability shall mean any one of them.
Environmental Permit shall mean any permit, license, approval or other
authorization under any applicable law, regulation and other requirement of the
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United States or of any state, municipality or other subdivision thereof
relating to pollution or protection of health or the environment, including
laws, regulations or other requirements relating to emissions, discharges,
releases or threatened releases of pollutants, contaminants or Hazardous
Substances or toxic materials or wastes into ambient air, surface water, ground
water or land, or otherwise relating to the manufacture, processing,
distribution, recycling, presence, use, treatment, storage, disposal, transport,
or handling of, wastes, pollutants, contaminants or Hazardous Substances.
Equipment shall have the meaning assigned to it in the Texas Business
and Commerce Code in force on the date the document using such term was
executed.
ERISA shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and all rules, regulations, rulings and
interpretations adopted by the Internal Revenue Service or the Department of
Labor thereunder.
Eurocurrency Reserve Requirement shall mean, on any day, for any LIBOR
Interest Period, the stated maximum rate (expressed as a decimal) for all
reserves (including basic, supplemental, marginal and emergency reserves)
required to be maintained during such LIBOR Interest Period under Regulation D
by any member bank of the Federal Reserve System against "Eurocurrency
liabilities," as currently defined in Regulation D, all as specified by any
Governmental Authority. Without limiting the effect of the foregoing, the
Eurocurrency Reserve Requirement shall reflect any other reserves required to be
maintained by such member banks by reason of any Regulatory Change against (a)
any category of liabilities which includes deposits by reference to which the
Adjusted LIBOR Rate is to be determined as provided in the definition of "London
Interbank Rate" or (b) any category of extensions of credit or other assets
which include Eurocurrency Loans. Each determination of the Eurocurrency Reserve
Requirement by the Agent shall be conclusive and binding, absent manifest error,
and may be computed using any reasonable averaging and attribution method.
Event of Default shall mean any of the events specified in Section 7.1
hereof or otherwise specified as an Event of Default in any other Loan Document,
provided there has been satisfied any requirement in connection with such event
for the giving of notice, or the lapse of time, or the happening of any further
condition, event or act, and Default shall mean any of such events, whether or
not any such requirement has been satisfied.
Excess Interest Amount shall have the meaning attributed to such term
in Section 2.12 hereof.
FDIC Percentage shall mean, on any day, the annual rate (rounded
upwards, if not already a whole multiple of 1/100% to the next higher 1/100%)
most recently estimated by the Agent as the then current annual assessment that
will be employed in determining amounts payable by Chase to any Governmental
Authority (including the Federal Deposit Insurance Corporation) for insuring
time deposits made in United States dollars at Chase's main banking house and
maturing at the end of the relevant LIBOR Interest Period. Each estimate of the
FDIC Percentage by the Agent shall be binding and conclusive, absent manifest
error, and may be computed by using any reasonable averaging and attribution
method.
Federal Funds Rate shall mean, for any period, a fluctuating interest
rate per annum equal for each day during such period to the weighted average of
the rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for such day on such
transactions received by Chase from three Federal funds brokers of recognized
standing selected by it.
Fixed Charge Coverage Ratio shall mean as of any day that the Fixed
Charge Coverage Ratio is being calculated, the ratio of (a) EBIT plus Operating
Lease Expense to (b) interest expense plus Operating Lease Expense. All
components of the Fixed Charge Coverage Ratio shall be computed for the Rolling
Four Quarters as of such day and determined for the Company and its Subsidiaries
on a consolidated basis in accordance with Generally Accepted Accounting
Principles, consistently applied.
Funded Indebtedness shall mean (a) all Indebtedness of the Company and
its Subsidiaries on a consolidated basis which by its terms matures more than
one year after the applicable date of calculation of Funded Indebtedness
(including without limitation, current maturities or scheduled principal
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payments of Funded Indebtedness for the applicable period for which Funded
Indebtedness is being calculated), and any Indebtedness of the Company and its
Subsidiaries on a consolidated basis maturing within one year from such date
which is renewable or extendable at the option of the obligor to a date beyond
one year from such date and (b) without duplication, Capital Lease Obligations
of the Company and its Subsidiaries on a consolidated basis. All components of
Funded Indebtedness shall be determined in accordance with Generally Accepted
Accounting Principles, consistently applied.
Generally Accepted Accounting Principles shall mean, as to a particular
Person, those principles and practices (a) which are recognized as such by the
Financial Accounting Standards Board or successor organization, (b) which are
applied for all periods after the date hereof in a manner consistent with the
manner in which such principles and practices were applied to the most recent
audited financial statements of the relevant Person furnished to the Agent and
the Banks, and (c) which are consistently applied for all periods after the date
hereof so as to reflect properly the financial condition, and results of
operations and changes in financial position, of such Person.
Governmental Authority shall mean any foreign governmental authority,
the United States of America, any state of the United States and any political
subdivision of any of the foregoing, and any agency, instrumentality,
department, commission, board, bureau, central bank, authority, court or other
tribunal, in each case whether executive, legislative, judicial, regulatory or
administrative, having jurisdiction over the Agent, any of the Banks or the
Company, any of the Company's Subsidiaries or their respective Property.
Guaranties shall mean that certain Master Guaranty of even date
herewith by and among the Current Guarantors, as amended, supplemented,
modified, joined in pursuant to a Joinder Agreement and restated from time to
time, and each and every other guaranty executed by any or all of the Guarantors
from time to time.
Guarantors shall mean each and every Person executing a guaranty from
time to time guaranteeing the Indebtedness of the Company owing from time to
time to the Banks pursuant to this Agreement or the Notes, including the Current
Guarantors.
Hazardous Substance shall mean any hazardous or toxic waste, substance
or product or material defined or regulated from time to time by any applicable
law, rule, regulation or order described in the definition of "Requirements of
Environmental Law," including solid waste (as defined under RCRA or its
regulations, as amended from time to time), petroleum and any fraction thereof,
any radioactive materials and waste.
Highest Lawful Rate shall mean the maximum nonusurious rate of interest
permitted by whichever of applicable federal or Texas law from time to time
permits the higher maximum nonusurious interest rate stated as a rate per annum.
On each day, if any, that applicable Texas law establishes the Highest Lawful
Rate, the Highest Lawful Rate shall be the "weekly ceiling" (as defined in
Chapter 1D and ss. 303 of the Texas Finance Code, as amended, respectively) for
that day. The Agent may from time to time, as to then-current and future
balances, implement any other ceiling under Chapter 1D and the Texas Finance
Code and/or revise the index, formula or provision of law used to compute the
rate on such obligation, if and to the extent permitted by, and in the manner
provided in, Chapter 1D and the Texas Finance Code.
Incidental Liens shall mean (i) Liens for taxes, assessments, levies or
other governmental charges (but not Liens for clean up expenses arising pursuant
to Requirements of Environmental Law) not yet due (subject to applicable grace
periods) or which are being contested in good faith and by appropriate
proceedings if adequate reserves with respect thereto are maintained on the
books of the Company in accordance with Generally Accepted Accounting
Principles; (ii) carriers', warehousemen's, mechanics', landlords', vendors',
materialmen's, repairmen's, sureties' or other like Liens (other than Liens for
clean up expenses arising pursuant to Requirements of Environmental Law) arising
in the ordinary course of business (or deposits to obtain the release of any
such Lien) and securing amounts not yet due or which are being contested in good
faith and by appropriate proceedings if, in the case of such contested Liens,
adequate reserves with respect thereto are maintained on the books of the
Company in accordance with Generally Accepted Accounting Principles; (iii)
pledges or deposits in connection with worker's compensation, unemployment
insurance and other social security legislation; (iv) deposits not in excess at
any time of $1,000,000 to secure insurance in the ordinary course of business,
the performance of bids, tenders, contracts (other than contracts for the
payment of money), leases, licenses, franchises, statutory obligations, surety
and appeal bonds and performance bonds and other obligations of a like nature
incurred in the ordinary course of business and Liens to secure progress or
partial payments made to the Company or any Subsidiary and other Liens of like
nature made in the ordinary course of business; (v) easements, rights-of-way,
covenants, reservations, exceptions, encroachments, zoning and similar
restrictions and other similar encumbrances or title defects incurred in the
ordinary course of business which, in the aggregate, are not substantial in
amount, and which do not in any case singly or in the aggregate materially
detract from the value or usefulness of the property subject thereto or
materially interfere with the ordinary conduct of the business of the Company
and its Subsidiaries, taken as a whole; (vi) bankers' liens arising by operation
of law; (vii) Liens arising pursuant to any order of attachment, distraint or
similar legal process arising in connection with any court proceeding the
payment of which is covered in full (subject to customary deductibles) by
insurance; (viii) inchoate Liens arising under ERISA to secure contingent
liabilities of the Company; and (ix) rights of lessees and sublessees in assets
leased by the Company or any Subsidiary not prohibited elsewhere herein.
Indebtedness shall mean, as to any Person, without duplication: (a) all
indebtedness (including principal, interest, fees and charges) of such Person
for borrowed money or for the deferred purchase price of Property or services;
(b) any other indebtedness which is evidenced by a promissory note, bond,
debenture or similar instrument; (c) any obligation under or in respect of
outstanding letters of credit (including without limitation, the Letters of
Credit), acceptances and similar obligations created for the account of such
Person; (d) all Capital Lease Obligations of such Person; (e) all indebtedness,
liabilities, and obligations secured by any Lien on any Property owned by such
Person even though such Person has not assumed or has not otherwise become
liable for the payment of any such indebtedness, liabilities or obligations
secured by such Lien; and (f) net liabilities of such Person under interest rate
cap agreements, interest rate swap agreements, foreign currency exchange
agreements and other hedging agreements or arrangements (calculated on a basis
satisfactory to the Agent and in accordance with accepted practice); provided,
that such term shall not mean or include any Indebtedness in respect of which
monies sufficient to pay and discharge the same in full (either on the expressed
date of maturity thereof or on such earlier date as such Indebtedness may be
duly called for redemption and payment) shall be deposited with a depository,
agency or trustee acceptable to the Agent in trust for the payment thereof.
Interest Option shall have the meaning ascribed to it in Section
2.10(a) hereof.
Interest Payment Dates shall mean (a) for Alternate Base Rate
Borrowings, (1) at all times while the Notes are outstanding, the last Business
Day of each March, June, September and December, and (2) the Maturity Date; and
(b) for LIBOR Rate Borrowings, (1) if the LIBOR Interest Period applicable to
such LIBOR Rate Borrowing is equal to or less than three (3) months, the end of
such LIBOR Interest Period, and (2) in all other cases, on that day which is
three (3) calendar months following the first day of the applicable LIBOR
Interest Period (or, if there be no corresponding day, on the next succeeding
day which is a Business Day) and at the end of such LIBOR Interest Period.
Investment shall mean the purchase or other acquisition of any
securities or Indebtedness of, or the making of any loan, advance, transfer of
Property or capital contribution to, or the incurring of any liability,
contingently or otherwise, in respect of the Indebtedness of, any Person.
Issuer shall mean any Bank which is an issuer of a Letter of Credit.
The initial Issuer will be Chase.
Joinder Agreement shall mean any agreement, in Proper Form, executed by
a Subsidiary of the Company from time to time, pursuant to which such Subsidiary
joins in the execution and delivery of a Guaranty and the Contribution
Agreement.
Legal Requirement shall mean any law, statute, ordinance, decree,
requirement, order, judgment, rule, regulation (or interpretation of any of the
foregoing) of, and the terms of any license or permit issued by, any
Governmental Authority.
Letter of Credit Advances shall mean all sums which may from time to
time be paid by any and all of the Banks pursuant to the Letters of Credit, or
any of them, together with all other sums, fees, reimbursements or other
obligations which may be due to any or all of the Banks pursuant to the Letters
of Credit, or any of them.
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Letter of Credit Exposure Amount shall mean at any time the sum of (i)
the aggregate undrawn amount of all Letters of Credit outstanding at such time
plus (ii) the aggregate amount of all Letter of Credit Advances for which the
Banks have not been reimbursed and which remain unpaid at such time.
Letter of Credit Fee Payment Date shall mean, with respect to any
Letter of Credit, the date of issuance thereof and the last day of each March,
June, September and December which occurs after the date of issuance, but prior
to the expiry date of said Letter of Credit.
Letter of Credit Termination Date shall mean a date which is three (3)
months prior to the Maturity Date.
Letters of Credit shall mean all irrevocable standby letters of credit
and all commercial letters of credit issued by the Issuer pursuant to the terms
set forth in this Agreement, including all outstanding letters of credit issued
by Chase prior to the date hereof for the account of the Company or any of its
Subsidiaries.
Leverage Ratio shall mean as of any day that the Leverage Ratio is
calculated, the ratio of Funded Indebtedness of the Company and its Subsidiaries
on a consolidated basis as of such day to EBITDA of the Company and its
Subsidiaries on a consolidated basis for the Rolling Four Quarters as of such
day.
LIBOR Business Day shall mean a Business Day on which transactions in
United States Dollar deposits between banks may be carried on in the London,
England interbank market.
LIBOR Interest Period shall mean, for each LIBOR Rate Borrowing, a
period commencing:
(a) on the date of such LIBOR Rate Borrowing, or
(b) on the last day of the immediately preceding LIBOR Interest
Period in the case of a roll-over to a successive LIBOR
Interest Period,
and ending on the numerically corresponding day one, two, three or (as
available) six months thereafter, as the Company shall elect in accordance
herewith; provided, (w) any LIBOR Interest Period which would otherwise end on a
day which is not a LIBOR Business Day shall be extended to the next succeeding
LIBOR Business Day, unless such LIBOR Business Day falls in another calendar
month, in which case such LIBOR Interest Period shall end on the next preceding
LIBOR Business Day; (x) any LIBOR Interest Period which begins on the last LIBOR
Business Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such LIBOR Interest
Period) shall end on the last LIBOR Business Day of the appropriate calendar
month; (y) no LIBOR Interest Period shall ever extend beyond the Maturity Date;
and (z) LIBOR Interest Periods shall be selected by the Company in such a manner
that the LIBOR Interest Period with respect to any portion of the Loans which
shall become due shall not extend beyond such due date.
LIBOR Rate shall mean, for the entire term of each LIBOR Interest
Period, a rate per annum equal to the lesser of (a) the sum of (1) the Adjusted
LIBOR Rate in effect on the first day of such LIBOR Interest Period plus (2) the
Applicable Margin from time to time in effect during such term, and (b) the
Highest Lawful Rate.
LIBOR Rate Borrowing shall mean each portion of the principal balance
of the Loans at any time bearing interest at the LIBOR Rate.
Lien shall mean any mortgage, pledge, charge, encumbrance, security
interest, collateral assignment or other lien or restriction of any kind,
whether based on common law, constitutional provision, statute or contract, and
shall include reservations, exceptions, encroachments, easements, rights of way,
covenants, conditions, restrictions, leases and other title exceptions.
Loan Documents shall mean this Agreement, the Notes, the Guaranties,
the Contribution Agreement, the Joinder Agreements, the Letters of Credit, the
Applications, all instruments, certificates and agreements now or hereafter
executed or delivered to the Agent and/or the Banks pursuant to any of the
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foregoing, and all amendments, modifications, renewals, extensions, increases
and rearrangements of, and substitutions for, any of the foregoing.
Loans shall mean the advances of funds described in Section 2.1 hereof.
Loan shall mean any one of the Loans.
London Interbank Rate shall mean, for each applicable LIBOR Interest
Period, the rate of interest per annum quoted by the Agent as the average of the
rates per annum offered to the Agent by one or more prime banks in the London,
England interbank market of deposits in U.S. Dollars for delivery on the first
day of the applicable Interest Period, maturing on the last day of the Interest
Period and in an amount equal (or as nearly as equal as practicable) to the
related LIBOR Rate Borrowing. The average of the rates quoted to the Agent will
be rounded to the next higher multiple of 1/16% to determine the London
Interbank Rate. The Agent will select the prime banks for determining the London
Interbank Rate in its sole discretion, and the Agent will request rate
quotations in accordance with the then existing practice in the London, England
interbank market. The Agent will determine the London Interbank Rate at or
before 10:00 a.m., two (2) LIBOR Business Days prior to the first day of the
applicable LIBOR Interest Period, and each determination by the Agent of the
London Interbank Rate will be conclusive and binding, absent manifest error, and
may be computed using any reasonable averaging and attribution method.
Majority Banks shall mean two (2) or more Banks having 66-2/3% or
greater of the Aggregate Commitment.
Material Adverse Effect shall mean a material adverse effect on the
assets, liabilities, financial condition, business or affairs of the Company and
its Subsidiaries on a consolidated basis.
Maturity Date shall mean the earlier of (a) the date three (3) years
from the date hereof, (b) the date the Company terminates the Commitment
pursuant to Section 2.2 hereof, and (c) the date specified by the Agent pursuant
to Section 7.1 hereof.
Net Income shall mean gross revenues and other proper income credits,
less all proper income charges, including taxes on income, all determined in
accordance with Generally Accepted Accounting Principles; provided, that there
shall not be included in such revenues (i) any income representing the excess of
equity in any Subsidiary at the date of acquisition over the investment in such
Subsidiary, (ii) any equity in the undistributed earnings of any Person which is
not a Subsidiary, (iii) any earnings of any Subsidiary for any period prior to
the date such Subsidiary was acquired, except as may be permitted under
Generally Accepted Accounting Principles in connection with the pooling of
interest method of accounting, and (iv) any gains resulting from the write-up of
assets. Net Income shall be determined on a consolidated basis.
Net Proceeds Amount shall mean, with respect to any Permitted Asset
Dispositions and Permitted Stock Dispositions by the Company and/or any of its
Subsidiaries, an amount equal to the difference between (a) the aggregate
consideration paid to or received by the Company and/or any of its Subsidiaries
in connection with such Permitted Asset Dispositions and Permitted Stock
Dispositions and (b) all ordinary and reasonable out of pocket expenses actually
incurred by the Company and/or any of its Subsidiaries in connection with such
Permitted Asset Dispositions and Permitted Stock Dispositions.
Notes shall mean the promissory notes, each substantially in the form
of Exhibit A attached hereto, of the Company evidencing the Loans, payable to
the order of the respective Banks in the amount of said Bank's Commitment, and
all renewals, extensions, modifications, rearrangements and replacements thereof
and substitutions therefor. Note shall mean any one of them.
Note Purchase Agreements shall have the meaning given to such term in
Section 6.1(l) hereof.
Notice of Assumption shall mean a Notice of Assumption in favor of the
Agent, substantially in the form of Exhibit B attached hereto and otherwise in
Proper Form.
Officer's Certificate shall mean a certificate substantially in the
form of Exhibit C attached hereto.
<PAGE>
Operating Lease Expense shall mean for any period for which Operating
Lease Expense is calculated, the aggregate amount of fixed and contingent
rentals (exclusive of payments of Capital Lease Obligations) payable by the
Company and its Subsidiaries for such period with respect to leases of Property.
Operating Lease Expense shall be determined for the Company and its Subsidiaries
on a consolidated basis in accordance with Generally Accepted Accounting
Principles, consistently applied.
Organizational Documents shall mean, with respect to a corporation, the
certificate of incorporation, articles of incorporation and bylaws of such
corporation; with respect to a partnership, the partnership agreement
establishing such partnership; with respect to a joint venture, the joint
venture agreement establishing such joint venture, and with respect to a trust,
the instrument establishing such trust; in each case including any and all
modifications thereof as of the date of the Loan Document referring to such
Organizational Document and any and all future modifications thereof which are
consented to by the Agent.
Parties shall mean all Persons other than the Agent, any Bank, or the
Issuer executing any Loan Document.
Past Due Rate shall mean, on any day, the Alternate Base Rate plus
three percent (3%), not to exceed the Highest Lawful Rate in effect on such day.
Permitted Asset Dispositions shall have the meaning attributed to such
terms in Section 6.4(z) hereof.
Permitted Investment Securities shall mean: (1) readily marketable
securities issued or fully guaranteed by the United States of America or any
agency or wholly owned corporation thereof; (2) commercial paper rated "Prime 1"
by Moody's Investors Service, Inc. or A-1 by Standard and Poor's Corporation
with maturities of not more than one hundred eighty (180) days and short term
notes payable of any Business Entity where said notes are rated at least "Prime
1" by Moody's Investors Service, Inc. or "A-1" by Standard & Poor's Corporation
with maturities of not more than ninety (90) days; (3) certificates of deposit
or repurchase certificates issued by any Bank or any other financial institution
acceptable to the Agent, all of the foregoing not having a maturity of more than
one (1) year from the date of issuance thereof; (4) securities issued by
municipalities rated AA or better by Standard & Poor's Corporation not having a
maturity of more than one (1) year from the date of issuance thereof; and (5)
money market mutual funds having capital surplus of at least $1,000,000,000 and
deemed acceptable by the Agent, substantially all of the assets of which are
comprised of securities, commercial paper, certificates of deposit or repurchase
certificates of the type described in subclauses (1) through (4) above.
Permitted Stock Dispositions shall have the meaning attributed to such
terms in Section 6.4(z) hereof.
Person shall mean any individual, corporation, trust, unincorporated
organization, Governmental Authority or any other form of entity.
Plan shall mean any plan subject to Title IV of ERISA and maintained
for employees of the Company or of any member of a "controlled group of
corporations", as such term is defined in the Code, of which the Company or any
of its Subsidiaries it may acquire from time to time is a part, or any such plan
to which the Company or any of its Subsidiaries it may acquire from time to time
is required to contribute on behalf of its employees.
Prime Rate shall mean, for any day, the prime rate as determined from
time to time by Chase as being its prime rate for that day. Without notice to
the Company or any other Person, the Prime Rate shall automatically fluctuate
upward and downward as and in the amount by which said Prime Rate fluctuates,
with each change to be effective as of the date of each change in said Prime
Rate. The Prime Rate is a reference rate and does not necessarily represent the
lowest or best rate actually charged to any customer, and Chase disclaims any
statement, representation, or warranty to the contrary. Chase may make
commercial loans or other loans at rates of interest at, above, or below the
Prime Rate.
<PAGE>
Principal Office shall mean the principal office of the Agent,
presently maintained at 712 Main Street, Houston, Texas, or at such other place
as the Agent may from time to time by notice to the Company designate.
Proper Form shall mean in form and substance satisfactory to the Agent.
Property shall mean any interest in any kind of property or asset,
whether real, personal or mixed, tangible or intangible.
Quarterly Unaudited Financial Statements shall mean, with respect to
each fiscal quarter of the Company (except for the last fiscal quarter), the
Company's 10-Q Report filed with the Securities Exchange Commission for such
fiscal quarter. All of the Quarterly Unaudited Financial Statements of the
Company are to be prepared in accordance with Generally Accepted Accounting
Principles and certified as true and correct by the chief executive officer,
president, chief operating officer or chief financial officer of the Company.
Ratable Portion shall mean an amount equal to the product of (a) the
Net Proceeds Amount attributable to the applicable Permitted Asset Dispositions
and Permitted Stock Dispositions multiplied by (b) a fraction, the numerator of
which is the outstanding principal balance of the Loans at such time and the
denominator of which is the aggregate principal amount of Funded Indebtedness
(including without limitation, the Notes) at such time of the Company and its
Subsidiaries on a consolidated basis.
Rate Selection Date shall mean that Business Day which is (a) in the
case of Alternate Base Rate Borrowings, the date of such borrowing or (b) in the
case of LIBOR Rate Borrowings, the date three (3) LIBOR Business Days preceding
the first day of any proposed LIBOR Interest Period.
Rate Selection Notice shall have the meaning ascribed to it in Section
2.10(b)(1) hereof.
Regulation D shall mean Regulation D of the Board of Governors of the
Federal Reserve System from time to time in effect and shall include any
successor or other regulation relating to reserve requirements applicable to
member banks of the Federal Reserve System.
Regulatory Change shall mean, with respect to any Bank, any change on
or after the date of this Agreement in any Legal Requirement (including
Regulation D) or the adoption or making on or after such date of any
interpretation, directive or request applying to a class of banks including such
Bank under any Legal Requirement (whether or not having the force of law) by any
Governmental Authority charged with the interpretation or administration
thereof.
Request for Extension of Credit and Certificate of No Default shall
mean a written request for extension of credit substantially in the form of
Exhibit D attached hereto.
Requirements of Environmental Law shall mean all requirements imposed
by any law (including The Resource Conservation and Recovery Act, The
Comprehensive Environmental Response, Compensation, and Liability Act, the Clean
Water Act, the Clean Air Act, and any state analogues of any of the foregoing),
rule, regulation, or order of any Governmental Authority now or hereafter in
effect which relate to (i) noise; (ii) pollution, protection or clean-up of the
air, surface water, ground water or land; (iii) solid, gaseous or liquid waste
or Hazard Substance generation, recycling, reclamation, release, threatened
release, treatment, storage, disposal or transportation; (iv) exposure of
Persons or property to Hazardous Substances; (v) the safety or health of
employees or other Persons or (vi) the manufacture, presence, processing,
distribution in commerce, use, discharge, releases, threatened releases,
emissions or storage of Hazardous Substances into the environment. Requirement
of Environmental Law shall mean any one of them.
Rolling Four Quarters shall mean the then most recently ended four (4)
consecutive fiscal quarters of the Company for which, as of such day, financial
statements are required to have been given to the Agent and Banks pursuant to
this Agreement.
<PAGE>
Stated Rate shall mean the effective weighted per annum rate of
interest applicable to the Loans.
Stock shall mean as to a Business Entity, all capital stock or other
indicia of equity rights issued by such Business Entity from time to time.
Subsidiary shall mean, as to a particular parent Business Entity, any
Business Entity of which more than fifty percent (50%) of the capital stock or
other indicia of equity rights issued by such Business Entity is at the time
directly or indirectly owned by, such parent Business Entity, or by one or more
of its Affiliates.
Taxes shall have the meaning ascribed to it in Section 2.11(b) hereof.
Unsecured Borrowed Debt shall mean all Indebtedness resulting from
borrowings of the Company (exclusive of intercompany borrowings) from time to
time owing to Persons which is not secured by any Liens (other than borrowings
from trade creditors in the ordinary course of business), including the
Indebtedness of the Company owing to the Banks or the Agent pursuant to this
Agreement.
Unused Commitment shall mean, as to a particular Bank, the daily
difference of such Bank's Commitment on such day less the Current Sum applicable
to such Bank on such day.
1.2. Accounting Terms and Determinations. Except where specifically
otherwise provided:
(a) The symbol "$" and the word "dollars" shall mean lawful money of
the United States of America.
<PAGE>
(b) Any accounting term not otherwise defined shall have the meaning
ascribed to it under Generally Accepted Accounting Principles.
(c) Unless otherwise expressly provided, any accounting concept and
all financial covenants shall be determined on a consolidated basis, and
financial measurements shall be computed without duplication.
(d) Wherever the term "including" or any of its correlatives appears
in the Loan Documents, it shall be read as if it were written "including
(by way of example and without limiting the generality of the subject or
concept referred to)".
(e) Wherever the word "herein" or "hereof" is used in any Loan
Document, it is a reference to that entire Loan Document and not just to
the subdivision of it in which the word is used.
(f) References in any Loan Document to Section numbers are references
to the Sections of such Loan Document.
(g) References in any Loan Document to Exhibits, Schedules, Annexes
and Appendices are to the Exhibits, Schedules, Annexes and Appendices to
such Loan Document, and they shall be deemed incorporated into such Loan
Document by reference.
(h) Any term defined in the Loan Documents which refers to a
particular agreement, instrument or document shall also mean, refer to and
include all modifications, amendments, supplements, restatements, renewals,
extensions and substitutions of the same; provided that nothing in this
subsection shall be construed to authorize any such modification,
amendment, supplement, restatement, renewal, extension or substitution
except as may be permitted by other provisions of the Loan Documents.
(i) All times of day used in the Loan Documents mean local time in
Houston, Texas.
(j) Defined terms may be used in the singular or plural, as the
context requires.
2. Loans; Letters of Credit; Payments; Prepayments; Interest Rates.
<PAGE>
2.1. Loans.
(a) Subject to the terms and conditions hereof, each Bank severally
agrees to make loans to the Company from time to time before the Maturity
Date, in an aggregate principal amount at any one time outstanding
(including its liability for the Letter of Credit Exposure Amount at such
time) up to but not exceeding such Bank's Commitment. Subject to the
conditions herein, any such Loan repaid prior to the Maturity Date may be
reborrowed pursuant to the terms of this Agreement. Each Loan which is not
made to repay a Letter of Credit Advance pursuant to Section 2.4 hereof
shall be in an amount of at least (i) $500,000 or (ii) the Unused
Commitment, whichever is less. Each repayment of the Loans shall be in an
amount of at least $500,000 or the principal balance of the Notes,
whichever is less. The Agent, the Banks and the Company agree that Chapter
346 of the Texas Finance Code shall not apply to this Agreement, any Note
or any Loan. The Loans shall be evidenced by the Notes.
(b) The Company shall give the Agent notice of a request for a Loan in
accordance with Section 3.1 hereof. Upon receipt of each such notice, the
Agent shall promptly give each of the Banks notice by telephone of receipt
thereof. Not later than 12:00 noon on the date specified for the making of
such Loan, each Bank shall make available to the Agent at the Principal
Office, such Bank's Commitment Percentage of such Loan in immediately
available funds for the account of the Company. The amount so received by
the Agent shall, subject to the terms and conditions of this Agreement, be
made available to the Company by depositing same, in immediately available
funds, in an account designated by the Company maintained with the Agent at
the Principal Office. If a requested Loan shall not occur on any date
specified by the Company as set forth in the applicable Request for
Extension of Credit and Certificate of No Default because all of the
conditions for such Loan set forth herein or in any of the other Loan
Documents shall have not been met, the Agent shall return the amounts so
received from the Banks in respect of such requested Loan to the applicable
Banks as soon as practicable; provided, however, if and to the extent that
the Agent fails to return any such amounts to any applicable Bank on the
date that the requested Loan was to have been made, the Agent shall pay
interest on such unreturned amounts for each date from such date that the
requested Loan was to have been made, to the date that such unreturned
amounts are returned to such Bank, such interest to accrue at the Federal
Funds Rate and to be payable upon written request from such Bank.
(c) The obligations of the Banks hereunder are several and not joint;
therefore, notwithstanding anything herein to the contrary, (i) no Bank
shall be required to make Loans at any one time outstanding in excess of
such Bank's Commitment Percentage, (ii) if a Bank fails to make a Loan as
and when required hereunder and the Company subsequently makes a repayment
on the Loans, such repayment shall be split among the non-defaulting Banks
in accordance with their respective Commitment Percentages until each Bank
has its Commitment Percentage of all of the outstanding Loans, then the
balance of such repayment shall be divided among all of the Banks in
accordance with their respective Commitments (it being understood that any
such repayment to a defaulting Bank shall not be deemed to relieve such
defaulting Bank from any liability to the Company resulting from such
defaulting Bank's failure to make a Loan as and when required hereunder)
and (iii) the failure of any Bank to make any Loan shall not in itself
relieve any other Bank of its obligation to lend hereunder (provided, that
no Bank shall be responsible for the failure of any other Bank to make a
Loan such other Bank is obligated to make hereunder).
2.2. Commitment Fees; Termination and Reductions. In consideration of
each Bank's Commitment, the Company agrees to pay to the Agent for the account
of each Bank a commitment fee (each a "Commitment Fee") (computed on the basis
of the actual number of days elapsed in a year composed of 360 days, subject to
the terms of Section 9.6 hereof) in an amount equal to the product of (A) the
Applicable Commitment Fee Percentage in effect for the period for which the
Commitment Fee is being computed times (B) such Bank's Unused Commitment. The
Commitment Fee shall be due and payable in arrears on the last Business Day of
each March, June, September and December prior to the Maturity Date and on the
Maturity Date, with each Commitment Fee to commence as of the date hereof and to
be effective as to any reduction in the Commitment or change in the Applicable
Commitment Fee Percentage as of the date of any such decrease or change, and
each Commitment Fee shall cease to accrue (except with respect to past due
interest on any unpaid portion thereof) on the Maturity Date. All past due
Commitment Fees shall bear interest at the Past Due Rate and shall be payable
upon demand by the Agent. The Aggregate Commitment may be permanently terminated
or reduced as follows, which such reductions shall be applied prorata:
<PAGE>
(a) the Company may, upon ten (10) Business Days' prior written notice to
the Agent, permanently terminate or reduce the Aggregate Commitment in
an amount of at least $5,000,000 or the amount of the Aggregate
Commitment at such time, whichever is less;
(b) any prepayment of the Loans and Letter of Credit Advances in accordance
with the provisions of Section 2.3(c)(3) hereof shall permanently and
automatically reduce the Aggregate Commitment in an amount equal to any
such prepayment; and
(c) if the ten percent (10%) of Consolidated Net Worth threshold discussed
in Section 2.3(c) hereof shall be reached in any fiscal year with
respect to Permitted Asset Dispositions and Permitted Stock
Dispositions, the Banks may, with the unanimous written consent of all
of the Banks, unilaterally reduce the Aggregate Commitment by an
amount up to, but not in excess of, the difference between (1) the
aggregate consideration paid to or received by the Company and/or its
Subsidiaries with respect to Permitted Assets Dispositions and
Permitted Stock Dispositions in excess of such ten percent (10%) of
Consolidated Net Worth threshold and (2) the amount that the Aggregate
Commitment is permanently reduced in accordance with the provisions of
subparagraph (b) above (with the effective date of any such permanent
reduction of the Aggregate Commitment in accordance with this
subparagraph (c) being the date upon which the Agent has provided the
Company with written notice of such permanent reduction of the
Commitment).
2.3 Mandatory Prepayments.
(a) If the Current Sum applicable to a Bank at any time exceeds such
Bank's Commitment, the Agent shall notify the Company in writing of the
deficiency by overnight priority delivery service provided by a nationally
recognized delivery service or, if the officer of the Agent providing such
notice to the Company is located in Austin, Texas, by hand delivery confirmed by
written receipt. Within three Business Days after the actual receipt of such
notice, the Company shall make a prepayment on such Bank's Note or otherwise
reimburse the Agent for Letter of Credit Advances or cause the one or more
Letters of Credit to be canceled and surrendered in an amount sufficient to
reduce such Current Sum to an amount no greater than such Commitment.
(b) If the aggregate consideration paid to the Company and/or any of
its Subsidiaries from all Permitted Asset Dispositions and all Permitted Stock
Dispositions during any fiscal year exceeds $20,000,000, but is less than or
equal to ten percent (10%) of the Consolidated Net Worth of the Company
determined as of the end of the Company's preceding fiscal year, within three
(3) Business Days after the consummation of the applicable Permitted Asset
Dispositions or Permitted Stock Dispositions, the Company shall make a
prepayment against the Loans and Letter of Credit Advances then outstanding in
an amount equal to the Net Proceeds Amount attributable to Permitted Asset
Dispositions and Permitted Stock Dispositions in excess of such $20,000,000
threshold.
(c) If the aggregate consideration paid to the Company and/or any of
its Subsidiaries from all Permitted Asset Dispositions and all Permitted Stock
Dispositions during any fiscal year exceeds ten percent (10%) of the
Consolidated Net Worth of the Company determined as of the end of the Company's
preceding fiscal year, the Company shall fully comply with each of the
following:
(1) within three (3) Business Days after the consummation of
Permitted Asset Dispositions and Permitted Stock Dispositions
in excess of the $20,000,000 threshold described in
subparagraph (b) above, but less than or equal to such ten
percent (10%) of Consolidated Net Worth threshold, the Company
shall make a prepayment against the Loans and Letter of Credit
Advances then outstanding in an amount equal to the Net
Proceeds Amount attributable to such Permitted Asset
Dispositions and Permitted Stock Dispositions;
(2) within six (6) months after the consummation of Permitted
Asset Dispositions and Permitted Stock Dispositions in excess
of the above-described ten percent (10%) of Consolidated Net
Worth threshold, the Company shall apply all of the Net
Proceeds Amount attributable to such Permitted Asset
Dispositions and Permitted Stock Dispositions as required
under Section 10.6 of the Note Purchase Agreements (including
without limitation, any prepayment of the Loans and Letter of
Credit Advances required pursuant to subparagraph (3) below);
and
<PAGE>
(3) within the six (6) month period described in subparagraph (2)
above, the Company shall make a prepayment against the Loans
and the Letter of Credit Advances then outstanding in an
amount equal to the Ratable Portion for such Loans and Letter
of Credit Advances outstanding hereunder (unless all of the
Banks elect in writing to not require any such prepayment
against the Loans and Letter of Credit Advances then
outstanding).
(d) If the Net Proceeds Amount otherwise payable to the Agent for the
ratable benefit of the Banks pursuant to Sections 2.3(b) or (c) above
exceeds the amount of Loans and Letter of Credit Advances then
outstanding, the Company shall be entitled to retain for its
unrestricted use any portion of such Net Proceeds Amount remaining
after the outstanding Loans and Letter of Credit Advances have been
fully paid.
(e) The Company shall have the right to extend for up to six months any
mandatory prepayment date provided for in Sections 2.3(b) and (c) as
necessary to avoid payment of any Consequential Loss, but only for the
applicable portion of any such prepayment that would otherwise be
applied to one or more LIBOR Rate Borrowings then outstanding as of the
date that such prepayment is otherwise required hereunder.
2.4. Letters of Credit.
(a) Subject to the terms and conditions contained herein, the
Company shall have the right to utilize the Aggregate Commitment from time to
time prior to the Letter of Credit Termination Date, by obtaining from the
Issuer one or more Letters of Credit for the account of the Company or any of
its Subsidiaries (with the Company being jointly and severally liable under the
terms of the applicable Application for any Letter of Credit issued for the
account of any of the Company's Subsidiaries) in such amounts and in favor of
such beneficiaries as the Company from time to time shall request; provided,
that in no event shall the Issuer have any obligation to issue any Letter of
Credit if (i) the face amount of such Letter of Credit plus the Letter of Credit
Exposure Amount at such time would exceed $10,000,000, (ii) the face amount of
such Letter of Credit plus the aggregate of each Bank's Current Sum at such
time, would exceed the Aggregate Commitment, (iii) such Letter of Credit would
have an expiry date later than the Maturity Date, (iv) either such Letter of
Credit is not in such form and does not contain such terms as shall be
satisfactory to the Agent and the Banks in their respective sole and absolute
discretion or the Company has not executed and delivered such Applications and
other instruments and agreements relating to such Letter of Credit as the Agent
shall have requested or (v) an event has occurred and is continuing which
constitutes a Default as provided in Section 7 of this Agreement. The Company
promises to pay to the order of the Issuer the amount of all Letter of Credit
Advances, together with accrued interest thereon (if any). Each Letter of Credit
Advance shall be considered for all purposes as a demand obligation owing by the
Company to the Issuer of the Letter of Credit to which it relates, and each
Letter of Credit Advance shall bear interest from the date thereof at the Past
Due Rate, without notice of presentment, demand, protest or other formalities of
any kind (said past due interest on such Letter of Credit Advance being payable
on demand). To effect repayment of any such Letter of Credit Advance and any
interest accrued thereon, the Agent may, but shall not be obligated to, at any
time deem that the Company has requested an Alternate Base Rate Borrowing under
the Notes to be made to satisfy such Letter of Credit Advance and any interest
accrued thereon (if any), and if the Agent deems that the Company has requested
an Alternate Base Rate Borrowing under the Notes to be made to satisfy such
letter of Credit Advance and any interest accrued thereon (if any), the Banks
shall satisfy such Letter of Credit Advance and any interest accrued thereon (if
any) by (subject to the terms and conditions of Section 2.1 hereof) making an
Alternate Base Rate Borrowing under the Notes, if such Letter of Credit Advance
is (and such Loan is to be) made prior to the Maturity Date. The Issuer will pay
to each Bank such Bank's Commitment Percentage of all amounts received from the
Company by the Issuer, if any, for application, in whole or in part, against the
Letter of Credit Advances in respect to any Letter of Credit, but only to the
extent such Bank has made its full pro rata payment of each drawing under the
Letter of Credit to which such Letter of Credit Advance relates. All rights,
powers, benefits and privileges of this Agreement with respect to the Notes, all
security therefor and guaranties thereof (including the Guaranties) and all
restrictions, provisions for repayment or acceleration and all other covenants,
warranties, representations and agreements of the Company contained in this
Agreement with respect to the Notes shall apply to each such Letter of Credit
Advance.
(b) In consideration of the issuance of each Letter of Credit
pursuant to the provisions of this Section 2.4, the Company agrees to pay
(subject to Section 9.6 hereof) to the Issuer a letter of credit fee in arrears
on each Letter of Credit Fee Payment Date equal to the product of (A) the
Applicable Margin then in effect for LIBOR Rate Borrowings times (B) the amount
available for drawings under such Letter of Credit on such Letter of Credit Fee
<PAGE>
Payment Date times (C) the number of days from, but not including, such Letter
of Credit Fee Payment Date through and including the next to occur Letter of
Credit Fee Payment Date (or expiry date, if sooner) applicable to such Letter of
Credit divided by 360; provided, that in no event shall the fee to be paid on
any Letter of Credit Fee Payment Date for any such Letter of Credit ever be less
than $500. In addition, with respect to each Letter of Credit, the Company shall
pay to the Issuer, for the benefit of the Issuer only, a fronting fee, in
advance, on such Letter of Credit, which shall be due and payable on each Letter
of Credit Fee Payment Date. The fronting fee amount so payable shall be equal to
the product of (A) one-eighth of one percent (1/8%) times (B) the amount
available for drawings under such Letter of Credit on such Letter of Credit Fee
Payment Date times (C) the number of days from, but not including, such Letter
of Credit Fee Payment Date through and including the next to occur Letter of
Credit Fee Payment Date (or expiry date, if sooner) applicable to such Letter of
Credit divided by 360.
The Issuer will pay to each Bank, as soon as practicable after receiving any
payment of letter of credit fees (other than any fronting fee payable only for
the benefit of the Issuer), an amount equal to the product of (A) such Bank's
Commitment Percentage times (B) the amount of such fees received (other than any
fronting fee payable only for the benefit of the Issuer). If the Issuer fails to
send to any Bank such Bank's pro-rata portion of any payment of letter of credit
fees timely received by the Issuer hereunder by the close of business on the
Business Day such payment was received by the Issuer, the Issuer shall pay to
such Bank interest on such Bank's pro-rata portion of the letter of credit fees
timely received by the Issuer from such date of receipt by the Issuer to the
date that such Bank receives its pro-rata portion of such payment, such interest
to accrue at the Federal Funds Rate and to be payable upon written request from
such Bank. The obligations of the Company under this Agreement in respect of the
Letters of Credit and Letter of Credit Advances shall be absolute, unconditional
and irrevocable, and shall be paid strictly in accordance with the terms of this
Agreement, under all circumstances whatsoever, including the following
circumstances:
(1) any lack of validity or enforceability of this Agreement, any
Letter of Credit or any Loan Document;
(2) any amendment or waiver of default under or any consent to
departure from the terms of this Agreement or any Letter of
Credit without the express prior written consent of the Agent and
the Issuer of such Letter of Credit;
(3) the existence of any claim, set-off, defense or other right which
any beneficiary or any transferee of any Letter of Credit (or any
entities for whom any such beneficiary or any such transferee may
be acting), or any Person (other than the Agent or the Banks) may
have, whether in connection with this Agreement, the Letters of
Credit, the transactions contemplated hereby or any unrelated
transaction;
(4) any statement, draft, certificate, or any other document
presented under any Letter of Credit proving to be forged,
fraudulent, invalid or insufficient in any respect or any
statement therein being untrue or inaccurate in any respect
whatsoever; provided that the Issuer will examine each document
presented under each Letter of Credit to ascertain that such
document appears on its face to comply with the terms thereof;
and
(5) any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing.
In the event that any restriction or limitation is imposed upon or determined or
held to be applicable to the Agent, any Bank or the Company by, under or
pursuant to any Legal Requirement now or hereafter in effect or by reason of any
interpretation thereof by any Governmental Authority, which in the respective
sole judgment of the Agent or any Bank would prevent any Bank from legally
incurring liability under a Letter of Credit issued or proposed to be issued
hereunder, then the Agent shall give prompt written notice thereof to the
Company, whereupon the Banks shall have no obligation to issue any additional
Letters of Credit then or at any time thereafter. In addition, if as a result of
any Regulatory Change which imposes, modifies or deems applicable (x) any tax,
reserve, special deposit or similar requirement against letters of credit issued
or participated to by any Bank; (y) any fee, expense or assessment against
<PAGE>
Letters of Credit issued by the Issuer, the Agent or any Bank for deposit
insurance, or (z) any other charge, expense or condition which increases the
actual cost to the Issuer, the Agent or any Bank of issuing or maintaining the
Letters of Credit, or reduces any amount receivable by the Agent or any Bank
hereunder in respect of any Letter of Credit or any participation therein (which
increase in cost, or reduction in amount receivable, shall be the result of the
Issuer's, the Agent's or such Bank's reasonable allocation of the aggregate of
such increases or reductions resulting from such event), then the Company
(subject to Section 9.6 hereof) shall pay to the Issuer, the Agent or such Bank,
upon demand and from time to time, amounts sufficient to compensate such Person
for each such increase from the effective date of such increase to the date of
demand therefor. Each such demand shall be accompanied by a certificate setting
forth in reasonable detail the calculation of the amount then being demanded in
accordance with the preceding sentence and each such certificate shall be
conclusive absent manifest error.
<PAGE>
(c) THE COMPANY HEREBY INDEMNIFIES AND HOLDS HARMLESS THE
ISSUER, EACH BANK AND THE AGENT FROM AND AGAINST ANY AND ALL CLAIMS AND DAMAGES,
LOSSES, LIABILITIES, COSTS OR EXPENSES WHICH THE ISSUER, SUCH BANK OR THE AGENT
MAY INCUR (OR WHICH MAY BE CLAIMED AGAINST THE ISSUER, SUCH BANK OR THE AGENT BY
ANY PERSON WHATSOEVER) IN CONNECTION WITH THE EXECUTION AND DELIVERY OR TRANSFER
OF OR PAYMENT OR FAILURE TO PAY UNDER ANY LETTER OF CREDIT, INCLUDING ANY
CLAIMS, DAMAGES, LOSSES, LIABILITIES, COSTS OR EXPENSES WHICH THE ISSUER, THE
AGENT OR SUCH BANK, AS THE CASE MAY BE, MAY INCUR (WHETHER INCURRED AS A RESULT
OF ITS OWN NEGLIGENCE OR OTHERWISE) BY REASON OF OR IN CONNECTION WITH THE
FAILURE OF ANY OTHER BANK (WHETHER AS A RESULT OF ITS OWN NEGLIGENCE OR
OTHERWISE) TO FULFILL OR COMPLY WITH ITS OBLIGATIONS TO THE ISSUER, THE AGENT OR
SUCH BANK, AS THE CASE MAY BE, HEREUNDER (BUT NOTHING HEREIN CONTAINED SHALL
AFFECT ANY RIGHTS THE COMPANY MAY HAVE AGAINST SUCH DEFAULTING BANK); PROVIDED,
THAT THE COMPANY SHALL NOT BE REQUIRED TO INDEMNIFY THE ISSUER, ANY BANK OR THE
AGENT FOR ANY CLAIMS, DAMAGES, LOSSES, LIABILITIES, COSTS OR EXPENSES TO THE
EXTENT, BUT ONLY TO THE EXTENT, CAUSED BY (I) THE WILLFUL MISCONDUCT OR GROSS
NEGLIGENCE OF THE PARTY SEEKING INDEMNIFICATION OR (II) THE ISSUER'S, SUCH
BANK'S OR THE AGENT'S (AS THE CASE MAY BE) FAILURE TO PAY UNDER ANY LETTER OF
CREDIT AFTER THE PRESENTATION TO IT OF A REQUEST REQUIRED TO BE PAID UNDER
APPLICABLE LAW. NOTHING IN THIS SECTION 2.4(C) IS INTENDED TO LIMIT THE
OBLIGATIONS OF THE COMPANY UNDER ANY OTHER PROVISION OF THIS AGREEMENT.
(d) The Company shall give the Agent the Application for a
Letter of Credit in accordance with the terms of Section 3.1 hereof. Upon
receipt of any such Application (which such Application, when so received by the
Agent, shall be deemed received by the Issuer), the Agent shall promptly notify
each Bank that a Letter of Credit has been requested in the amount reflected in
such Application and inform such Bank of the amount of its pro-rata portion of
such proposed Letter of Credit (based upon such Bank's Commitment Percentage).
(e) If at any time the Issuer shall have made a payment to a
beneficiary of a Letter of Credit in respect of a drawing or in respect of an
acceptance created in connection with a drawing under such Letter of Credit,
each other Bank will pay to the Issuer immediately upon demand by the Issuer at
any time during the period commencing after such payment until reimbursement
thereof in full by the Company, an amount equal to the product of (A) such
Bank's Commitment Percentage times (B) the amount of such payment made by the
Issuer to a beneficiary under such Letter of Credit, together with interest on
such amount for each day from the date of demand by the Issuer for such payment
(or, if such demand is made after 11:00 a.m. on such date, from the next
succeeding Business Day) to the date of payment by such Bank to the Issuer of
such amount at a rate of interest per annum equal to the Federal Funds Rate for
such period. Nothing herein shall be deemed to require any Bank to pay to the
Issuer any amount as reimbursement for any payment made by the Issuer to acquire
(discount) for its own account prior to maturity thereof any acceptance created
under a Letter of Credit.
(f) Simultaneously with the Issuer's issuance and delivery of
any Letter of Credit, the Issuer shall be deemed, without further action, to
have sold to each other Bank, and such other Bank shall be deemed, without
<PAGE>
further action by any party hereto, to have purchased from the Issuer, a
participation interest equal to such other Bank's Commitment Percentage at such
time in such Letter of Credit and all of the Letter of Credit Exposure Amount
related to such Letter of Credit; provided, that no such Bank shall be obligated
to participate in a particular Letter of Credit if such Letter of Credit was
issued or honored solely as a result of the Issuer's gross negligence or wilful
misconduct.
2.5. Payments. All sums payable by the Company to the Agent or the
Issuer hereunder or pursuant to Notes for its own account or the account of the
Banks shall be payable in United States dollars in immediately available funds
not later than 12:00 noon on the date such payment or prepayment is due and
shall be made without set-off, counterclaim or deduction of any kind. Any such
payment received and accepted by the Agent or the Issuer after such time shall
be considered for all purposes (including the payment of interest, to the extent
permitted by law) as having been made on the next succeeding Business Day. All
such payments shall be made at the Principal Office. If any payment or
prepayment becomes due and payable on a day which is not a Business Day, then
the date for the payment thereof shall be extended to the next succeeding
Business Day and interest shall be payable thereon at the then applicable rate
per annum during such extension.
44
<PAGE>
2.6. Prepayments of Loans.
(a) In addition to the mandatory prepayments required by
Section 2.3 hereof, the Company shall have the right, at its option, to prepay
the Loans in whole at any time or in part from time to time, without premium or
penalty, except as provided in this Section or subsections (a), (b) or (c) of
Section 2.11 hereof. Each partial prepayment under this subsection shall be an
integral multiple of $500,000. Each prepayment under this subsection shall be
applied to the prepayment of the aggregate unpaid principal amount of the Notes.
Prepayments under this Agreement shall be subject to the following additional
conditions:
(1) In giving notice of prepayment as hereinafter
provided, the Company shall specify, for the purpose
of paragraphs (2) and (3) immediately following, the
manner of application of such prepayment as between
any outstanding Alternate Base Rate Borrowings and
LIBOR Rate Borrowings; provided, that in no event
shall any LIBOR Rate Borrowing be partially prepaid.
(2) Prepayments applied to any LIBOR Rate Borrowing may
be made on any LIBOR Business Day, provided, that (i)
the Company shall have given the Agent at least five
(5) LIBOR Business Days' prior irrevocable written or
telecopied notice of such prepayment, specifying the
principal amount of the LIBOR Rate Borrowing to be
prepaid, the particular LIBOR Rate Borrowing to which
such prepayment is to be applied and the prepayment
date; and (ii) if such prepayment is made on any day
other than the last day of the LIBOR Interest Period
corresponding to the LIBOR Rate Borrowing to be
prepaid, the Company shall pay directly to the Agent
for the account of the Banks, on the last day of such
LIBOR Interest Period, the Consequential Loss as a
result of such prepayment.
(3) Prepayments applied to any Alternate Base Rate
Borrowing may be made on any Business Day, provided
that the Company shall have given the Agent at least
five (5) Business Days prior irrevocable written
notice or notice by telephone (which is to be
promptly confirmed in writing) of such prepayment,
specifying the principal amount of the Alternate Base
Rate Borrowing to be prepaid and the prepayment date.
(b) Notice of any prepayment having been given, the principal
amount specified in such notice, together with (in the case of any prepayment of
a LIBOR Rate Borrowing) interest thereon to the date of prepayment, shall be due
and payable on such prepayment date.
(c) Any Bank may, if it so elects, fulfill its obligation as
to any LIBOR Rate Borrowing by causing a branch, foreign or otherwise, or
Affiliate of such Bank to make such Loans and may transfer and carry such Loans
at, to or for the account of any branch office or Affiliate of such Bank;
provided, that in such event for the purposes of this Agreement such Loans shall
be deemed to have been made by such Bank and the obligation of the Company to
repay such Loans shall nevertheless be to such Bank and shall be deemed held by
it, to the extent of such portions of the Loan, for the account of such branch
or affiliate.
(d) Notwithstanding any provision of this Agreement to the
contrary, each Bank shall be entitled to fund and maintain its funding of all or
any part of the Loans hereunder in any manner it sees fit, it being understood,
however, that for the purposes of this Agreement all determinations hereunder
shall be made as if such Bank had actually funded and maintained its portion of
each LIBOR Rate Borrowing during each LIBOR Interest Period for the Loans
through the purchase of deposits having a maturity corresponding to such LIBOR
Interest Period and bearing an interest rate equal to the London Interbank Rate
for such LIBOR Interest Period.
(e) The Company's obligation to pay increased costs and
Consequential Loss with regard to each LIBOR Rate Borrowing as specified in this
Section 2.6 hereof shall survive termination of this Agreement.
2.7. Application of Payments and Prepayments. Prepayments on the Notes
shall be applied first to principal, the balance to accrued interest. Regular
payments on each Note shall be applied first to accrued interest, the balance to
<PAGE>
the principal. If the Agent receives funds on a date when payments are due under
the Notes and such funds are not sufficient to pay all of the obligations of the
Company hereunder then due, then such funds shall be applied (a) first to the
accrued interest on and, to the extent then due, principal of the Notes then
outstanding, and (b) then to the unpaid expenses of the Agent and the Banks
which are to be paid by the Company. Each payment received by the Agent
hereunder or under any Note for the account of a Bank shall be paid promptly to
such Bank, in immediately available funds. If the Agent fails to send to any
Bank the product of such Bank's Commitment Percentage times the aggregate amount
of any such payment timely received by the Agent for the account of all the
Banks by the close of business on the date such payment was received by the
Agent, the Agent shall pay to such Bank interest on such Bank's pro-rata portion
of such payment timely received by the Agent from such date of receipt by the
Agent to the date that such Bank receives its pro-rata portion of such payment,
such interest to accrue at the Federal Funds Rate and to be payable upon written
request from such Bank.
2.8. Pro Rata Treatment. Except to the extent otherwise provided
herein: (a) each borrowing from the Banks under Section 2.1 hereof shall be
made, each payment of commitment fees shall be made and applied for the account
of the Banks, and each termination or reduction of the Commitments of the Banks
under Section 2.2 hereof shall be applied, pro rata, according to each Bank's
Commitment Percentage; (b) each payment by the Company of principal of or
interest on Loans shall be made to the Agent for the account of the Banks pro
rata in accordance with the respective unpaid principal amounts of such Loans
held by the Banks; (c) each Letter of Credit will be issued for the account of
the Banks severally and ratably among the Banks in accordance with which their
respective Commitment Percentages, and (d) the Banks (other than the Issuer)
shall purchase from the Issuer participations in the Letters of Credit, to the
extent their respective Commitment Percentages.
2.9. Interest Payment Dates on the Loans. Subject to Section 9.6
hereof, accrued interest on the unpaid balance of the Loans shall be payable on
the Interest Payment Dates and at the Maturity Date, commencing with the first
of such dates to occur after the date hereof. After the Maturity Date, accrued
interest on the Loans shall be payable on demand.
2.10. Interest Options for Loans.
(a) Options Available. Subject to Section 9.6 hereof, the
Notes shall bear interest on their respective outstanding principal balances at
the Alternate Base Rate; provided, that (1) all past due principal and interest
shall bear interest at the Past Due Rate which shall be payable on demand, and
(2) subject to the provisions hereof, the Company shall have the option of
having all or any portion of the principal balance from time to time outstanding
under the Notes bear interest until their respective maturities at a rate per
annum equal to the LIBOR Rate (together with the Alternate Base Rate,
individually herein called an "Interest Option" and collectively called
"Interest Options"). The records of the Agent with respect to Interest Options,
LIBOR Interest Periods and the amounts of Loans to which they are applicable
shall be binding and conclusive, absent manifest error. Interest on the Loans
shall be calculated at the Alternate Base Rate except where it is expressly
provided pursuant to this Agreement that the LIBOR Rate is to apply.
(b) Designation and Conversion. The Company shall have the
right to designate or convert its Interest Options in accordance with the
provisions hereof. Provided no Default has occurred and is continuing and
subject to the provisions of the last sentence of Subsection 2.10(a) hereinabove
and of Section 2.11 hereof, the Company may elect to have the LIBOR Rate apply
or continue to apply to all or any portion of the principal balance of the
Notes. Each change in Interest Options shall be a conversion of the rate of
interest applicable to the specified portion of the Loans, but such conversion
alone shall not change the outstanding principal balance of the Notes and such
conversion alone shall not be construed to make this Agreement a revolving
credit facility. The Interest Options shall be designated or converted in the
manner provided below:
(1) The Company shall give the Agent notice by telephone,
promptly confirmed by written notice (the "Rate
Selection Notice") substantially in the form of
Exhibit E hereto. Each such telephone and written
notice shall specify the amount and type of
borrowings which are the subject of the designation,
<PAGE>
if any; the amount and type of borrowings into which
such borrowings are to be converted or for which an
Interest Option is designated; the proposed date for
the designation or conversion (which, in the case of
conversion of LIBOR Rate Borrowings, shall be the
last day of the LIBOR Interest Period applicable
thereto) and the LIBOR Interest Period or Periods, if
any, selected by the Company. Such notice by
telephone shall be irrevocable and shall be given to
the Agent no later than the applicable Rate Selection
Date. If (a) a new Loan is to be a LIBOR Rate
Borrowing, (b) an existing LIBOR Rate Borrowing is
maturing at the time that a new Loan is being
requested and the Company is electing to have such
existing portion of the outstanding principal balance
of the Notes going forward bear interest at the same
Interest Option and for the same LIBOR Interest
Period as the new Loan, or (c) a portion of the
Alternate Rate Borrowing is to be converted so as to
bear interest at the same Interest Option and for the
same LIBOR Interest Period as the new Loan, then the
Rate Selection Notice shall be included in the
Request for Extension of Credit and Certificate of No
Default applicable to the new Loan, which shall be
given to the Agent no later than the applicable Rate
Selection Date.
(2) No more than five (5) LIBOR Interest Periods shall be
in effect at any one time. Each LIBOR Rate Borrowing
shall be in the amount of at least $500,000.
(3) Principal included in any borrowing shall not be
included in any other borrowing which exists at the
same time.
(4) Each designation or conversion shall occur on a
Business Day (and, for LIBOR Rate Borrowings, on a
LIBOR Business Day).
(5) Except as provided in Section 2.11 hereof, no LIBOR
Rate Borrowing shall be converted on any day other
than the last day of the applicable LIBOR Interest
Period.
(c) Computations. Interest based on the Alternate Base Rate,
to the extent determined by reference to the Prime Rate, will be computed on the
basis of 365 (or 366) days and actual days elapsed (including the first day but
excluding the last day) occurring in the period for which payable. All other
interest and fees shall be computed on the basis of a year of 360 days and
actual days elapsed (including the first day but excluding the last day)
occurring in the period for which payable, unless the effect of so computing
shall be to cause the rate of interest to exceed the Highest Lawful Rate.
2.11. Special Provisions Applicable to LIBOR Rate Borrowings.
(a) Options Unlawful. If, after the date of this Agreement,
the adoption of any applicable Legal Requirement or any change in any applicable
Legal Requirement or in the interpretation or administration thereof by any
Governmental Authority or compliance by the Agent or any Bank with any request
or directive (whether or not having the force of law) of any Governmental
Authority shall at any time make it unlawful or impossible for any Bank to
permit the establishment of or to maintain any LIBOR Rate Borrowing, the
commitment of the Banks to establish or maintain the LIBOR Rate affected by such
adoption or change shall forthwith be canceled and the Company shall forthwith,
upon demand by the Agent to the Company, (1) convert the LIBOR Rate with respect
to which such demand was made to the Alternate Base Rate; (2) pay all accrued
and unpaid interest to date on the amount so converted; and (3) pay any amounts
required to compensate the Agent and the Banks for any additional cost or
expense which the Agent or any Bank may incur as a result of such adoption of or
change in such Legal Requirement or in the interpretation or administration
thereof and any Consequential Loss which the Agent or any Bank may incur as a
result of such conversion to the Alternate Base Rate. If, when the Agent so
notifies the Company, the Company has given a Rate Selection Notice specifying
one or more borrowings of the type with respect to which such demand was made
but the selected LIBOR Interest Period or LIBOR Interest Periods has not yet
<PAGE>
begun, such Rate Selection Notice shall be deemed to be of no force and effect,
as if never made, and the balance of the Loans specified in such Rate Selection
Notice shall bear interest at the Alternate Base Rate until a different
available Interest Option shall be designated in accordance herewith.
(b) Increased Cost of Borrowings. If the adoption of any
applicable Legal Requirement or any change in any applicable Legal Requirement
or in the interpretation or administration thereof by any Governmental Authority
or compliance by the Agent or any Bank with any request or directive (whether or
not having the force of law) from any Governmental Authority shall at any time
as a result of any portion of the principal balance of the Notes being
maintained on the basis of the LIBOR Rate:
(1) subject any Bank (or make it apparent that any Bank
is subject) to any tax (including any United States
interest equalization tax), levy, impost, duty,
charge, fee (collectively, "Taxes"), or any deduction
or withholding for any Taxes on or from the payment
due under any LIBOR Rate Borrowing or other amounts
due hereunder, other than income and franchise taxes
of the United States and its political subdivisions;
or
(2) change the basis of taxation of payments due from the
Company to the Agent or any Bank under any LIBOR Rate
Borrowing (otherwise than by a change in the rate of
taxation of the overall net income of the Agent or
any Bank); or
(3) impose, modify, increase or deem applicable any
reserve requirement (excluding that portion of any
reserve requirement included in the calculation of
the Eurocurrency Reserve Requirement, special deposit
requirement or similar requirement (including state
law requirements and Regulation D) imposed, modified,
increased or deemed applicable by any Governmental
Authority against assets held by the Agent or any
Bank, or against deposits or accounts in or for the
account of the Agent or any Bank, or against loans
made by the Agent or any Bank, or against any other
funds, obligations or other Property owned or held by
the Agent or any Bank; or
(4) impose on the Agent or any Bank any other condition
regarding any LIBOR Rate Borrowing;
and the result of any of the foregoing is to increase the cost to any Bank of
agreeing to make or of making, renewing or maintaining such borrowing on the
basis of the LIBOR Rate, or reduce the amount of principal or interest received
by any Bank, then, upon demand by the Agent, the Company shall pay to the Agent,
from time to time as specified by the Agent, additional amounts which shall
compensate such Bank for such increased cost or reduced amount. The Agent will
promptly notify the Company in writing of any event, upon becoming actually
aware of it, which will entitle any Bank to additional amounts pursuant to this
paragraph. The Agent's determination of the amount of any such increased cost,
increased reserve requirement or reduced amount shall be conclusive and binding,
absent manifest error, provided that the calculation thereof is set forth in
reasonable detail in such notice.
The Company shall have the right, if it receives from the Agent any
notice referred to in the preceding paragraph, upon three (3) Business Days'
notice to the Agent, either (i) to repay in full (but not in part) any borrowing
with respect to which such notice was given, together with any accrued interest
thereon, or (ii) to convert the LIBOR Rate in effect with respect to such
borrowing to the Alternate Base Rate; provided, that any such repayment or
conversion shall be accompanied by payment of (x) the amount required to
compensate the appropriate Bank or Banks for the increased cost or reduced
amount referred to in the preceding paragraph; (y) all accrued and unpaid
interest to date on the amount so repaid or converted, and (z) any Consequential
Loss which may be incurred as a result of such repayment or conversion.
(c) Inadequacy of Pricing and Rate Determination. If for any
reason with respect to any LIBOR Interest Period the Agent shall have determined
(which determination shall be conclusive and binding upon the Company) that: (1)
the Agent is unable through its customary general practices to determine a rate
at which Chase is offered deposits in United States dollars by prime banks in
the interbank market in London, England in the appropriate amount for the
appropriate period, or by reason of circumstances affecting the interbank market
<PAGE>
in London, England, generally, prime banks are not being offered deposits in
United States dollars in the interbank market in London, England, for the
applicable LIBOR Interest Period and in an amount equal to the amount of the
LIBOR Rate Borrowing requested by the Company, or (2) the LIBOR Rate will not
adequately and fairly reflect the cost to any Bank of making and maintaining any
LIBOR Rate Borrowing hereunder for any proposed LIBOR Interest Period, then the
Agent shall give the Company notice thereof and thereupon, (A) any Rate
Selection Notice previously given by the Company designating a LIBOR Rate which
has not commenced as of the date of such notice from the Agent shall be deemed
for all purposes hereof to be of no force and effect, as if never given, and (B)
until the Agent shall notify the Company that the circumstances giving rise to
such notice from the Agent no longer exist, each Rate Selection Notice
requesting a LIBOR Rate shall be deemed a request for an Alternate Base Rate
Borrowing, and each outstanding LIBOR Rate Borrowing then in effect shall be
converted, without any notice to or from the Company, upon the termination of
the LIBOR Interest Period then in effect, to an Alternate Base Rate Borrowing.
(d) Indemnification. The Company shall indemnify the Agent and
each of the Banks against and hold each of them harmless from any loss or
expense which it may incur or sustain as a consequence of any untimely payment
(mandatory or optional) or default by the Company in the payment of any
principal amount of or interest on each Note, or any failure by the Company to
convert or to borrow any LIBOR Rate Borrowing on the date specified by the
Company, in each case including any interest payable by any Bank to the lenders
of the funds obtained by it in order to make or maintain any LIBOR Rate
Borrowing (or any portion thereof), and, to the extent not covered above, any
Consequential Loss. This agreement shall survive the payment of each Note. A
certificate as to any additional amounts payable pursuant to this paragraph
submitted by the Agent to the Company shall be conclusive and binding upon the
Company, absent manifest error, provided the calculation thereof is set forth in
reasonable detail in such notice.
(e) Rate Quotes and Lists of Business Days. If the Company
requests quotes of the LIBOR Rate for different LIBOR Interest Periods being
considered for election by the Company, the Agent will use reasonable efforts to
provide such quotes to the Company promptly. However, all such quotes provided
shall be representative only and shall not be binding on the Agent or any Bank,
nor shall they be determinative, directly or indirectly, of any LIBOR Rate or
any component of any such rate, nor will the Company's failure to receive or the
Agent's failure to provide any requested quote or quotes either (1) excuse or
extend the time for performance of any obligation of the Company or for exercise
of any right, option or election of the Company or (2) impose any duty or
liability on the Agent or any Bank. If the Company requests a list of the
Business Days or LIBOR Business Days in any calendar month, the Agent will use
reasonable efforts to provide such list promptly. However, any such list
provided shall be understood to identify only those days which the Agent
believes in good faith at the time such list is prepared will be the Business
Days or LIBOR Business Days for such month. The Agent shall have no liability
for any failure to provide, delay in providing, error or mistake in or omission
from, any such quote or list.
2.12. Recapture. If on any Interest Payment Date the Agent does not
receive for the account of the Banks payment in full of interest computed at the
Stated Rate (computed without regard to any limitation by the Highest Lawful
Rate) because the Stated Rate (so computed) exceeds or has exceeded the Highest
Lawful Rate, the Company shall pay to the Agent for the account of the Banks, in
addition to interest otherwise required, on each Interest Payment Date
thereafter, the Excess Interest Amount (calculated as of each such subsequent
Interest Payment Date); provided that in no event shall the Company be required
to pay, for any computation period, interest at a rate exceeding the Highest
Lawful Rate applicable to and effective during such period. As used herein, the
term "Excess Interest Amount" shall mean, on any day, the amount by which (a)
the amount of all interest which would have accrued prior to such day on the
outstanding principal of the Notes (had the Stated Rate at all times been in
effect without limitation by the Highest Lawful Rate) exceeds (b) the aggregate
amount of interest actually paid to the Agent for the account of the Banks on
the Notes on or prior to such day.
2.13. Payment Dates. Whenever any payment to be made hereunder or under
any Note shall be stated to be due on a day which is neither a Business Day nor
a LIBOR Business Day, such payment may be made on the next succeeding Business
Day, or, subject to the definition of LIBOR Interest Period in the case of any
payment of the Notes to which the LIBOR Rate applies, on the next succeeding
LIBOR Business Day, and such extension of time shall in each such case be
included in computing interest and commitment fees in connection with such
payment.
<PAGE>
2.14. Sharing of Payments, Etc. The Company agrees that, in addition to
(and without limitation of) any right of set-off, bankers' lien or counterclaim
a Bank may otherwise have, upon the occurrence and during the continuance of any
Event of Default, each Bank shall be entitled, at its option, to offset balances
held by it for the account of the Company at any of its offices against any
principal of or interest on any of such Bank's Loans to the Company hereunder,
such Bank's Commitment Percentage of the Letter of Credit Exposure Amount or any
other obligation of the Company hereunder, which is not paid (regardless of
whether such balances are then due to the Company), in which case it shall
promptly notify the Company and the Agent thereof, provided that such Bank's
failure to give such notice shall not affect the validity thereof. If a Bank
shall obtain payment of any principal of or interest on any Loan made by it
under this Agreement, any Letter of Credit Exposure Amount or other obligation
then due to such Bank hereunder, through the exercise of any right of set-off
(including, without limitation, any right of setoff or lien granted under
Section 9.19 hereof), banker's lien, counterclaim or similar right, or
otherwise, it shall promptly purchase from the other Banks participations in the
Loans made by, the Letter of Credit Exposure Amount of, or the other obligations
of the Company hereunder of, the other Banks in such amounts, and make such
other adjustments from time to time as shall be equitable to the end that all
the Banks shall share the benefit of such payment (net of any expenses which may
be incurred by such Bank in obtaining or preserving such benefit) pro rata in
accordance with their respective Commitment Percentages. To such end all the
Banks shall make appropriate adjustments among themselves (by the resale of
participations sold or otherwise) if such payment is rescinded or must otherwise
be restored. The Company agrees, to the fullest extent it may effectively do so
under applicable law, that any Bank so purchasing a participation in the Loans
made by, Letter of Credit Exposure Amount of, or other obligations hereunder of,
the other Banks may exercise, upon the occurrence and during the continuance of
any Event of Default, all rights of set-off, bankers' lien, counterclaim or
similar rights with respect to such participation as fully as if such Bank were
a direct holder of said Loans, Letter of Credit Exposure Amount or other
obligations in the amount of such participation. Nothing contained herein shall
require any Bank to exercise any such right or shall affect the right of any
Bank to exercise, and retain the benefits of exercising, any such right with
respect to any other indebtedness or obligation of the Company.
3. Conditions.
3.1. All Loans. The obligation of each Bank to make any Loan or issue
any Letter of Credit is subject to the accuracy of all representations and
warranties of the Company on the date of such Loan or issuance of such Letter of
Credit, to the performance by the Company of its obligations under the Loan
Documents and to the satisfaction of the following further conditions:
(a) the Agent shall have received the following, all of which
shall be duly executed and in Proper Form: (1) in the case of a Loan, other than
a Loan to be made to repay a Letter of Credit Advance pursuant to Section 2.4
hereof,
(A) by no later than 9:00 a.m. on the applicable
Rate Selection Date, notice by telephone
from the Company of the proposed date and
amount of such Loan, and
(B) no later than 11:00 a.m. on the applicable
Rate Selection Date, a Request for Extension
of Credit and Certificate of No Default,
signed by the chief executive officer,
president, chief operating officer or chief
financial officer of the Company,
or, in the case of issuance of a Letter of Credit, a completed Application (as
may be required by the Agent and Banks) signed by the chief executive officer,
president, chief operating officer or chief financial officer of the Company by
10:00 a.m. five (5) Business Days prior to the proposed date of issuance of such
Letter of Credit and payment of the first quarterly letter of credit fee as and
by the time required in Section 2.4(b) of this Agreement, along with, in each
case, such financial information as the Agent may reasonably require to
substantiate compliance with all financial covenants contained herein by the
Company; and (2) such other Applications, certificates and other documents as
the Agent may reasonably require;
<PAGE>
(b) prior to the making of such Loan or the issuance of such
Letter of Credit, there shall have occurred no material adverse change in the
assets, liabilities, financial condition, business or affairs of the Company or
the Company and its Subsidiaries on a consolidated basis since the date hereof;
(c) no Default shall have occurred and be continuing;
(d) the making of such Loan or the issuance of such Letter of
Credit, shall not be prohibited by, or subject the Agent or any Bank to any
penalty or onerous condition under, any Legal Requirement;
(e) the Company shall have paid all legal fees and expenses of
the type described in Section 9.9 hereof through the date of such Loan or the
issuance of such Letter of Credit; and
(f) prior to the making of any such Loan or the issuance of
any such Letter of Credit at any time after July 28, 1999, Biosmart Direct,
Inc., a Colorado corporation which is a Subsidiary, shall have become a
Guarantor in compliance with the provisions of Section 5.10 hereof.
3.2. First Loan. In addition to the matters described in Section 3.1
hereof, the obligation of any Bank to make the initial Loan or issue the first
Letter of Credit is subject to the receipt by the Agent of each of the
following, in Proper Form:
(a) the Notes, executed by the Company;
(b) an Officer's Certificate, executed by the chief executive
officer, president, chief operating officer or chief financial officer of the
Company and dated as of the date of this Agreement;
(c) a certificate executed by the secretary or assistant
secretary of the Company dated as of the date thereof, substantially in the form
attached hereto as Exhibit F;
(d) a Guaranty and the Contribution Agreement (or if
applicable, a Joinder Agreement), each executed by each of the Current
Guarantors;
(e) certificates executed by the secretary or assistant
secretary of each of the Current Guarantors, substantially in the form attached
hereto as Exhibit G;
(f) a certificate from the Secretary of State or other
appropriate public official of the State of Texas as to the continued existence
of the Company in the State of Texas;
(g) a certificate from the Office of the Comptroller of the
State of Texas as to the good standing of the Company in the State of Texas;
(h) with respect to each Current Guarantor, certificates from
the appropriate public officials of the state of incorporation of such Current
Guarantor and of those jurisdictions where the nature of such Current
Guarantor's business makes it necessary or desirable to be qualified to do
business as a foreign corporation, as to the existence, good standing and
qualification as a foreign corporation (as may be appropriate) of such Current
Guarantor in such jurisdictions;
(i) a legal opinion from Crouch & Hallett, L.L.P., the
independent counsel for the Company and the Current Guarantors, acceptable to
the Agent in its sole and absolute discretion; and to the further condition
that, at the time of the initial Loan, all legal matters incident to the
transactions herein contemplated shall be satisfactory to counsel for the Agent
and respective counsel for each of the Banks;
<PAGE>
(j) any and all existing Indebtedness of the Company which is
outstanding under the Company's discretionary line of credit with Chase shall be
simultaneously paid in full at the time of the initial Loan; and
(k) the Company shall pay all closing, structuring and other
invoiced fees owed as of the date of the initial Loan to the Agent and the Banks
by the Company under this Agreement or any other written agreement between the
Company and the Agent or the applicable Bank.
4. Representations and Warranties.
To induce the Agent and the Banks to enter into this Agreement, the
Company represents and warrants to the Agent and the Banks as follows:
4.1. Organization. Each of the Company and its Subsidiaries is duly
organized, validly existing and in good standing under the laws of the state of
its incorporation; has all power and authority to conduct its business as
presently conducted; and is duly qualified to do business and in good standing
in each and every state in the United States of America where its business
requires such qualification, except where failure to qualify would not have a
material adverse effect on the Company and its Subsidiaries on a consolidated
basis.
4.2. Financial Statements. The financial statements of the Company and
its Subsidiaries on a consolidated basis delivered to the Agent and the Banks in
connection with this Agreement fairly present, in accordance with Generally
Accepted Accounting Principles, the financial condition and the results of
operations of the Company and its Subsidiaries as of the dates and for the
periods indicated. No material adverse change has occurred in the assets,
liabilities, financial condition, business or affairs of the Company and its
Subsidiaries on a consolidated basis since the dates of such financial
statements.
4.3. Enforceable Obligations; Authorization. The Loan Documents are
legal, valid and binding obligations of the Company and the Guarantors,
enforceable in accordance with their respective terms, except as may be limited
by bankruptcy, insolvency and other similar laws affecting creditors rights
generally and by general equitable principles. The execution, delivery and
performance of the Loan Documents have all been duly authorized by all necessary
action; are within the power and authority of the Company and the Guarantors; do
not and will not contravene or violate any Legal Requirement or the
Organizational Documents of the Company or any Guarantors; do not and will not
result in the breach of, or constitute a default under, any agreement or
instrument by which the Company or any Guarantors or any of their respective
Property may be bound or affected; and do not and will not result in the
creation of any Lien upon any Property of the Company or any Guarantors except
as expressly contemplated therein. All necessary permits, registrations and
consents for such making and performance have been obtained.
4.4. Other Debt. Neither the Company nor any of its Subsidiaries is in
default in the payment of any other Indebtedness or under any agreement,
mortgage, deed of trust, security agreement or lease to which it is a party, the
result of which has, would or could have a material adverse affect on the
financial condition or operations of the Company and its Subsidiaries on a
consolidated basis.
4.5. Litigation. There is no litigation or administrative proceeding
pending or, to the knowledge of the Company, threatened against, nor any
outstanding judgment, order or decree affecting, the Company or any of its
Subsidiaries before or by any Governmental Authority or arbitral body which in
the aggregate have, or if adversely determined, could have a material adverse
effect on the business, condition (financial or otherwise), operations, Property
or prospects of the Company and its Subsidiaries on a consolidated basis or on
its ability to perform any of their respective obligations under any Loan
Document to which it is a party. Neither the Company nor any of its Subsidiaries
is in default with respect to any material judgment, order or decree of any
Governmental Authority.
<PAGE>
4.6. Title. Each of the Company and its Subsidiaries has good and
marketable title to its Property (other than negligible assets not material to
the operations of the Company or any of its Subsidiaries), free and clear of all
Liens except for Incidental Liens.
4.7. Taxes. Each of the Company and its Subsidiaries has filed all tax
returns required to have been filed and paid all taxes shown thereon to be due,
except those for which extensions have been obtained and except for those which
are being contested in good faith and by appropriate proceedings if adequate
reserves with respect thereto are maintained in accordance with Generally
Accepted Accounting Principles.
4.8. Subsidiaries. As of the date hereof, the Company has no
Subsidiaries other than as listed on Schedule II attached hereto. Except as
expressly indicated on Schedule II attached hereto, each of the Company's
Subsidiaries is wholly owned by the Company.
4.9. Representations by Others. All representations and warranties made
by or on behalf of the Company or any of its Subsidiaries in any Loan Document
shall constitute representations and warranties of the Company hereunder.
4.10. Permits, Licenses, Etc. The Company and each of its Subsidiaries
possess all permits, licenses, patents, patent rights or licenses, trademarks,
trademark rights, trade names, trade name rights and copyrights which are
required to conduct its business, and which the failure of the Company or any of
its Subsidiaries to so possess would or could have a material adverse affect on
the financial condition or operations of the Company and its Subsidiaries on a
consolidated basis.
4.11. ERISA. No Reportable Event (as defined in Section 4043(b) of
ERISA but excluding those events as to which the 30-day notice period is waived
by applicable regulations) has occurred with respect to any Plan. Each Plan
complies in all material respects with all applicable provisions of ERISA, and
the Company and each of its Subsidiaries have filed all reports required by
ERISA and the Code to be filed with respect to each Plan. The Company has no
knowledge of any event which could result in a liability of the Company or any
of its Subsidiaries to the Pension Benefit Guaranty Corporation other than for
applicable premiums. No accumulated funding deficiency (as defined in Section
302 of ERISA and Section 412 of the Code), whether or not waived, exists with
respect to any Plan. No event has occurred and no condition exists that might
reasonably be expected to constitute grounds for a Plan to be terminated under
circumstances which would cause the lien provided under Section 4068 of ERISA to
attach to any Property of the Company or any of its Subsidiaries. No event has
occurred and no condition exists that might reasonably be expected to cause the
lien provided under Section 302 of ERISA or Section 412 of the Code to attach to
any Property of the Company or any of its Subsidiaries.
4.12. Condition of Property. The Property used or to be used in the
continuing operations of the Company and its Subsidiaries, when taken as a
whole, is in good repair, working order and condition.
4.13. Assumed Names. Neither the Company nor any of its Subsidiaries is
currently conducting its business under any assumed name or names, except as set
forth on Schedule III attached hereto.
4.14. Investment Company Act. Neither the Company nor any of its
Subsidiaries is an investment company within the meaning of the Investment
Company Act of 1940, as amended, or, directly or indirectly, controlled by or
acting on behalf of any Person which is an investment company, within the
meaning of said Act.
4.15. Public Utility Holding Company Act. The Company is not a "public
utility company", or an "affiliate" or a "subsidiary company" of a "public
utility company", or a "holding company", or a "subsidiary company" of a
"registered holding company", or an "affiliate" of a "registered holding
company" or of a "subsidiary company" of a "registered holding company", as such
terms are defined in the Public Utility Holding Company Act of 1935, as amended
("PUHCA"). To the best of the Company's knowledge, the Company is not an
<PAGE>
"affiliate" or a "subsidiary company" of an unregistered, non-exempt "holding
company" as such terms are defined in PUHCA.
4.16. Agreements. Schedule I attached hereto is a complete and correct
list of (i) all credit agreements for borrowed money (other than the
indebtedness governed hereby or by the Note Purchase Agreements), indentures and
capitalized leases and all Property subject to any Lien securing such
Indebtedness or lease obligation, (ii) each letter of credit and guaranty for
which the liability or potential liability of the Company and its Subsidiaries
on a consolidated basis is in excess of $50,000, (iii) all other letters of
credit and guaranties if the aggregate of liability and potential liability of
the Company and its Subsidiaries on a consolidated basis thereunder is in excess
of $250,000, (iv) all other material instruments in effect as of the date hereof
providing for, evidencing, securing or otherwise relating to any indebtedness
for borrowed money of the Company or any of its Subsidiaries (other than the
Indebtedness hereunder and Indebtedness secured by Incidental Liens), and (v)
all obligations of the Company or any of its Subsidiaries to issuers of appeal
bonds issued for account of the Company or any of its Subsidiaries. The Company
shall, upon request by the Agent, deliver to the Agent and the Banks a complete
and correct copy of all such credit agreements, indentures, capitalized leases,
letters of credit, guarantees and other instruments or leases described in
Schedule I or arising after the date hereof, including any modifications or
supplements thereto, as in effect on the date hereof.
4.17. Environmental Matters. No activity of the Company or any of its
Subsidiaries requires any Environmental Permit which has not been obtained and
which is not now in full force and effect, except to the extent failure to have
any such Environmental Permit could not reasonably be expected to have a
material adverse effect on the Company and Subsidiaries on a consolidated basis.
The Company and its Subsidiaries are in compliance with all limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in any applicable Requirement of
Environmental Law or Environmental Permit, except where failure to be in such
compliance could not reasonably be expected to have a material adverse effect on
the Company and its Subsidiaries on a consolidated basis. The Company and its
Subsidiaries (and, to the best knowledge of the Company, each of the prior
owners or operators and predecessors in interest with respect to any of its or
its Subsidiaries' Property) (i) have obtained and maintained in effect all
Environmental Permits, the failure to obtain which could reasonably be expected
to have a material adverse effect on the Company and its Subsidiaries on a
consolidated basis, (ii) along with their respective Property have been and are
in compliance with all applicable Requirements of Environmental Law and
Environmental Permits where such failure to comply therewith could reasonably be
expected to have a material adverse effect on the Company and its Subsidiaries
on a consolidated basis, (iii) along with their Property are not subject to any
(A) Environmental Claims or (B) Environmental Liabilities, in either case direct
or contingent, and whether known or unknown, arising from or based upon any act,
omission, event, condition or circumstance occurring or existing on or prior to
the date hereof which could reasonably be expected to have a material adverse
effect on the Company and its Subsidiaries on a consolidated basis, and (iv)
have not received individually or collectively any notice of any violation or
alleged violation of any Requirements of Environmental Law or Environmental
Permit or any Environmental Claim in connection with their respective Property
which could reasonably be expected to have a material adverse effect on the
Company and its Subsidiaries on a consolidated basis. The present and future
liability (including any Environmental Liability and any other damage to Persons
or Property), if any, of the Company and with respect to the Property of any of
the Company or any of its Subsidiaries which is reasonably expected to arise in
connection with Requirements of Environmental Law, Environmental Permits and
other environmental matters will not have a material adverse effect on the
Company and its Subsidiaries on a consolidated basis.
4.18. Year 2000 Reprogramming. Any reprogramming required to permit the
proper functioning, in and following the year 2000, of (a) the Company's and its
Subsidiaries' computer systems, and (b) equipment containing embedded microchips
(including systems and equipment supplied by others or with which the Company's
or any of its Subsidiary's systems interface), and the testing of all such
systems and equipment as so reprogrammed, will be completed by September 30,
1999; provided, however, that the reprogramming and testing of immaterial
computer systems and other immaterial equipment not critical or necessary for
the day-to-day operations of the Company and/or any of its Subsidiaries may be
completed after September 30, 1999 at times deemed reasonable by the Company
based on the applicable circumstances. The cost to the Company and its
Subsidiaries of such reprogramming and testing of the reasonably foreseeable
consequences of year 2000 to the Company and its Subsidiaries (including,
without limitation, reprogramming errors and the failure of others' systems or
equipment) will not result in a Default, an Event of Default, or a Material
Adverse Effect. Except for such of the reprogramming referred to in the
<PAGE>
preceding sentence as may be necessary, the computer and management information
systems of the Company and its Subsidiaries are and, with ordinary course
upgrading and maintenance, will continue to be, sufficient to permit the Company
and its Subsidiaries to conduct their respective business without any Material
Adverse Effect.
5. Affirmative Covenants.
The Company covenants and agrees with the Agent and the Banks that
prior to the termination of this Agreement it will do, cause each of its
Subsidiaries to do, and if necessary cause to be done, each and all of the
following:
5.1. Taxes, Existence, Regulations, Property, Etc. At all times (a) pay
when due all taxes and governmental charges of every kind upon it or against its
income, profits or property, unless and only to the extent that the same shall
be contested in good faith and reserves deemed adequate by the Agent have been
established therefor; (b) do all things necessary to preserve its corporate
existence, qualifications, rights and franchises in all States where such
qualification is necessary or desirable; (c) comply in all material respects
with all applicable Legal Requirements (including all applicable Requirements of
Environmental Laws) in respect of the conduct of its business and the ownership
of its Property; and (d) cause its Property to be protected, maintained and kept
in good repair and make all replacements and additions to its Property as may be
reasonably necessary to conduct its business properly and efficiently.
5.2. Financial Statements and Information. Furnish to the Agent and
each Bank two copies of each of the following: (a) as soon as available and in
any event within ninety (90) days after the end of each fiscal year of the
Company, Annual Audited Financial Statements of the Company and its
Subsidiaries, prepared on a consolidated basis; (b) as soon as available and in
any event within forty-five (45) days after the end of each quarter (excluding
the fourth quarter) of each fiscal year of the Company, Quarterly Unaudited
Financial Statements of the Company and its Subsidiaries, prepared on a
consolidated basis; (c) concurrently with the financial statements provided for
in Subsections 5.2(a) and (b) hereof, (i) such schedules, computations and other
information, in reasonable detail, as may be reasonably required by the Agent or
any Bank to demonstrate compliance with the covenants set forth herein or
reflecting any non-compliance therewith as of the applicable date, all certified
as true, correct and complete by the chief executive officer, president, chief
operating officer or chief financial officer of the Company, and (ii) an
Officer's Certificate, signed by the chief executive officer, president, chief
operating officer or chief financial officer of the Company; (d) promptly upon
their becoming available, all financial statements (other than the Annual
Audited Financial Statements and Quarterly Unaudited Financial Statements),
registration statements, reports and proxy statements which the Company or any
of its Subsidiaries may file with the Securities and Exchange Commission, and
(e) such other information relating to the financial condition and affairs of
the Company and any of its Subsidiaries as from time to time may be reasonably
requested by the Agent or any Bank. In addition to the financial information and
reports to be delivered in accordance with the prior sentence, if the most
recent Annual Audited Financial Statements or Quarterly Unaudited Financial
Statements of the Company, as applicable, demonstrate that the financial
condition of the Company and its Subsidiaries, on a consolidated basis, has been
negatively impacted as at the end of the immediately preceding fiscal quarter or
fiscal year represented by such Annual Audited Financial Statements or Quarterly
Unaudited Financial Statements, as applicable, for one or more reasons (said
determination of negative impact to be made by the Agent in its reasonable
discretion), or if at any time Loans have been outstanding hereunder for longer
than ninety (90) consecutive days, upon the periodic request of the Agent (until
the conditions attributable to such negative impact have been addressed and
rectified to the reasonable satisfaction of the Agent or until all Loans
outstanding hereunder have been paid in full, whichever is applicable), the
Company agrees that it shall promptly provide the Agent and the Banks with
additional information relating to the financial condition and affairs of the
Company and its Subsidiaries as may be reasonably requested by the Agent,
including, but not limited to, reports setting out in sufficient detail the
financial performance of each retail location for any and all stores and
operations maintained by the Company and/or any of its Subsidiaries.
5.3. Financial Tests. (a) Have at all times a FIXED CHARGE COVERAGE
RATIO of not less than 1.50 to 1.00; and (b) have at all times a LEVERAGE RATIO
of not more than 3.00 to 1.00.
<PAGE>
5.4. Inspection. Permit the Agent and the Banks to inspect its
Property, to examine its files, books and records and make and take away copies
thereof, and to discuss its affairs with its officers and accountants, all at
such times and intervals and to such extent as the Agent or any Bank may
reasonably desire.
5.5. Further Assurances. Promptly execute and deliver any and all
other and further instruments which may be requested by the Agent or any Bank to
cure any defect in the execution and delivery of any Loan Document or more fully
to describe particular aspects of the Company's agreements set forth in the Loan
Documents or so intended to be.
5.6. Books and Records. Maintain books of record and account in
accordance with Generally Accepted Accounting Principles.
5.7. Insurance. Maintain at all times insurance with such insurers,
on such of its Property, officers, directors and employees, in such amounts and
against such risks as is customarily maintained by other Persons of similar size
and engaged in businesses substantially similar to its businesses, and furnish
the Agent satisfactory evidence thereof promptly upon request.
5.8. ERISA. At all times: (a) make contributions to each Plan in a
timely manner and in an amount sufficient to comply with the minimum funding
standards requirements of ERISA; (b) immediately upon acquiring knowledge of (i)
any Reportable Event in connection with any Plan for which no administrative or
statutory exemption exists or (ii) any "prohibited transaction", as such term is
defined in Section 4975 of the Code, in connection with any Plan, that could
result in the imposition of material damages or a material excise tax on the
Company, furnish the Agent a statement executed by the chief executive officer,
president, chief operating officer or chief financial officer of the Company
setting forth the details thereof and the action which the Company or any such
Subsidiary proposes to take with respect thereto and, when known, any action
taken by the Internal Revenue Service with respect thereto; (c) notify the Agent
promptly upon receipt by the Company or any of its Subsidiaries of any notice of
the institution of any proceedings or other actions which may result in the
termination of any Plan by the Pension Benefit Guaranty Corporation and furnish
the Agent with copies of such notice; (d) pay when due all required premium
payments to the Pension Benefit Guaranty Corporation; (e) furnish the Agent with
copies of the annual report for each Plan filed with the Internal Revenue
Service not later than ten (10) days after the Agent requests such report; (f)
furnish the Agent with copies of any request for waiver of the funding standards
or extension of the amortization periods required by Sections 303 and 304 of
ERISA or Section 412 of the Code promptly after the request is submitted to the
Secretary of the Treasury, the Department of Labor or the Internal Revenue
Service, as the case may be; and (g) pay when due all installment contributions
required under Section 302 of ERISA or Section 412 of the Code or within 10 days
of a failure to make any such required contributions furnish the Agent with
written notice of such failure.
5.9. Use of Proceeds. Subject to the terms and conditions contained
herein, use the proceeds of the Loans for general corporate purposes of the
Company and its Subsidiaries not otherwise prohibited herein, to finance
acquisitions of assets used in and Investments in Persons engaged in similar
businesses to those businesses of the Company and its Subsidiaries not otherwise
prohibited herein and/or pay the Indebtedness arising pursuant to the Letters of
Credit, as provided in this Agreement; provided, that no proceeds of any Loan
shall be used (a) for the purpose of purchasing or carrying directly or
indirectly any margin stock as defined in Regulation U ("Reg U") of the Board of
Governors of the Federal Reserve System, (b) for the purpose of reducing or
retiring any Indebtedness which was originally incurred to purchase or carry any
such margin stock and (c) for any other purpose which constitute any Loan a
"purpose credit" within the meaning of Reg U. No proceeds of the Loans shall be
used in violation of Reg U or any successor regulation thereof or of any other
rule, statute or regulation governing margin stock from time to time.
5.10. Additional Guaranties. Notify the Agent promptly upon creation or
acquisition by the Company or any of its Subsidiaries of any additional
Subsidiary of the Company after the date hereof, and in connection therewith,
furnish the Agent with the Organizational Documents of such newly acquired or
created Subsidiary and sufficient information to disclose to the Agent in
reasonable detail the ownership structure and capitalization of such Subsidiary,
and if thereafter requested in writing by the Agent or the Majority Banks,
promptly cause such newly created or acquired Subsidiary of the Company to
<PAGE>
execute and deliver to the Agent for the benefit of the Banks a Joinder
Agreement, together with such related certificates, opinions, and documents as
the Agent or any Bank may reasonably require; provided, however, that any
foreign Subsidiary shall not be required to become a Guarantor hereunder (if
requested by the Agent or the Majority Banks) if the Agent receives for the
benefit of the Banks a first priority pledge of no less than sixty-five percent
(65%) of all issued and outstanding indicia of equity rights (including capital
stock) in such foreign Subsidiary.
5.11. Notice of Events. Notify the Agent immediately upon acquiring
knowledge of the occurrence of, or if the Company or any of its Subsidiaries
causes or intends to cause, as the case may be: (1) the institution of any
lawsuit or administrative proceeding affecting the Company or any of its
Subsidiaries, the adverse determination under which could have a material
adverse effect on the business, condition (financial or otherwise), operations,
Property or prospects of the Company and its Subsidiaries on a consolidated
basis or on its ability to perform any of their respective obligations under any
Loan Document to which it is a party; (2) any material adverse change, either in
any case or in the aggregate, in the assets, liabilities, business, condition
(financial or otherwise), operations, Property or prospects of the Company and
its Subsidiaries on a consolidated basis; (3) any Event of Default or any
Default, together with a detailed statement by an appropriate officer or other
responsible party acceptable to the Agent on behalf of the Company of the steps
being taken to cure the effect of such Event of Default or Default; (4) the
occurrence of a default or event of default by the Company or any of its
Subsidiaries under any agreement or series of related agreements to which it is
a party, which default or event of default could reasonably be expected to have
a material adverse effect on the business, condition (financial or otherwise),
operations, Property or prospects of the Company and its Subsidiaries on a
consolidated basis; and (5) any change in the accuracy of the representations
and warranties of the Company or any of any of its Subsidiaries in this
Agreement or any other Loan Document. The Company will notify, or cause each
Guarantor to notify, the Agent in writing within 30 days prior to the date that
the Company or any Guarantor changes its name or the location of its chief
executive office or principal place of business or the place where it keeps its
books and records. Any notice of a name change delivered to the Agent shall be
accompanied by such certificates of Governmental Authorities as the Agent or any
Bank may require substantiating such name change.
5.12. Environmental Matters. Without limiting the generality of Section
5.1(c) hereof, (a) comply in all material respects with all limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in any applicable Requirement of
Environmental Law or Environmental Permit; (b) obtain and maintain in effect all
Environmental Permits, the failure to obtain which could reasonably be expected
to have a material adverse effect on the Company and its Subsidiaries on a
consolidated basis; and (c) keep its Property free of any Environmental Claims
or Environmental Liabilities which could reasonably be expected to have a
material adverse effect on the Company and its Subsidiaries on a consolidated
basis.
5.13. End of Fiscal Years and Fiscal Quarters. The Company shall cause
(a) each of its fiscal years and each of its Subsidiaries' fiscal years to end
on the last Sunday of each September, (b) each of its first fiscal quarters and
each of its Subsidiaries' first fiscal quarters to end on the Sunday which is
sixteen weeks after the end of the preceding fiscal year and (c) each of its
second and third fiscal quarters to end on the Sunday which is twelve weeks
after the end of the preceding fiscal quarter.
6. Negative Covenants.
The Company covenants and agrees with the Agent and the Banks that
prior to the termination of this Agreement it will not, and will not suffer or
permit any of its Subsidiaries to, do any of the following:
6.1. Indebtedness. Create, incur, suffer or permit to exist, or assume
or guarantee, directly or indirectly, or become or remain liable with respect to
any Indebtedness, whether direct, indirect, absolute, contingent or otherwise,
except the following:
(a) Indebtedness to the Banks and the Agent pursuant hereto;
<PAGE>
(b) in addition to and cumulative of any other Indebtedness permitted
in this Section 6, in the case of the Company only, Unsecured Borrowed
Debt;
(c) Indebtedness secured by Liens permitted by Section 6.2 hereof;
(d) Indebtedness of any one or more of the Company's Subsidiaries,
provided, that the aggregate amount of all such Indebtedness outstanding at
any time (exclusive of Indebtedness permitted in Section 6.1(h) hereof) may
not exceed $10,000,000;
(e) other liabilities existing on the date of this Agreement and set
forth on Schedule I attached hereto, and all renewals and extensions (but
not increases) thereof;
(f) current accounts payable and unsecured current liabilities, not
the result of borrowings, to vendors, suppliers and persons providing
services, for expenditures on ordinary trade terms for goods and services
normally required by the Company or any of its Subsidiaries in the ordinary
course of its business;
(g) agreements of intent to acquire a Person issued by the Company or
any of its Subsidiaries in anticipation of acquiring such Person if such
acquisition is permitted under the terms and conditions of this Agreement;
(h) the Indebtedness of any Subsidiary of the Company to the Company
or to any Guarantor, as permitted in Section 6.7(f) of this Agreement;
(i) guarantees by the Company or any of its Subsidiaries of the
Indebtedness of any of their respective Subsidiaries permitted to be
incurred, created or existing pursuant to Section 6.3, provided, that such
guarantees are not directly or indirectly secured by any Liens;
(j) current and deferred taxes;
(k) any obligation under or in respect of outstanding letters of
credit (including without limitation, the Letters of Credit), acceptances
and similar obligations created for the account of the Company or any of
its Subsidiaries, provided that the sum of (i) the aggregate amount of such
Indebtedness and (ii) the aggregate amount of Contingent Obligations
outstanding at any time for the Company and its Subsidiaries, on a
consolidated basis, may not exceed $10,000,000;
(l) Indebtedness of the Company in an original principal amount not to
exceed $40,000,000 in the aggregate privately placed with investors by
Chase Securities Inc. in accordance with the terms and conditions set forth
in those certain Note Purchase Agreements (the "Note Purchase Agreements")
dated May 16, 1996, by and between the Company and the various investors
purchasing all or any portion of such Indebtedness, together with
guaranties of such Indebtedness by any or all Subsidiaries of the Company
now or hereafter existing;
(m) Indebtedness or other obligations of the Company under Capital
Lease Obligations for equipment for use in new retail locations hereafter
opened and operated by the Company or any of its Subsidiaries, so long as
the capitalized amount of such obligations hereafter entered into does not
to exceed $30,000,000 in the aggregate, together with guaranties of such
obligations by any or all Subsidiaries of the Company now or hereafter
existing; and
(n) Indebtedness evidenced by those certain zero coupon convertible
subordinated debentures of the Company due 2018 which are governed by that
certain Indenture dated March 2, 1998, by and among the Company and Chase
Bank of Texas, National Association, Trustee, accreting to a $308,807,000
face amount at maturity.
<PAGE>
The Company, the Agent, the Banks and each Guarantor (by its execution
of a Guaranty or a Joinder Agreement) agree that, notwithstanding anything
contained in this Section 6.1, in Section 6.7(f) or in any other provision
contained in this Agreement which may appear to be to the contrary, any and all
Indebtedness of (i) the Company from time to time owed to any other Subsidiary
of the Company or of (ii) any Subsidiary of the Company from time to time owed
to the Company or to any Guarantor (together with any and all Liens from time to
time securing the same as permitted by Section 6.2[f] hereof) is hereby made and
at all times hereafter shall be inferior and subordinate in all respects to the
Indebtedness from time to time owing to the Agent or any Bank pursuant hereto
and to any Lien, if any from time to time hereafter securing any of such
Indebtedness pursuant to the terms hereof.
6.2. Liens. Create or suffer to exist any Lien upon any of its Property
now owned or hereafter acquired, or acquire any Property upon any conditional
sale or other title retention device or arrangement or any purchase money
security agreement; or in any manner directly or indirectly sell, assign, pledge
or otherwise transfer any of its accounts or contract rights; provided, however,
that the Company and its Subsidiaries (or any of them) may create or suffer to
exist:
(a) Liens in effect on the date hereof and which are described on
Schedule I attached hereto, provided, that the Property covered thereby
does not increase either in quantity or value;
(b) Liens securing any Indebtedness otherwise permitted pursuant to
Sections 6.1(b) and (d) hereof, provided that the aggregate amount of all
such secured Indebtedness outstanding at any time may not exceed
$10,000,000.00;
(c) Liens in favor of the Agent for the benefit of the Banks;
(d) Incidental Liens;
(e) purchase money security interests and liens in Equipment and/or
real property of the Company or any of its Subsidiaries in favor of the
seller or sellers of such Equipment and/or real property or their
successors and assigns, or purchase money security interests and liens in
favor of any third-party lender which loaned the money to purchase any such
Equipment and/or real property to the Company or such Subsidiary, provided,
that neither the sales price of, nor the amount of any loan made to acquire
any of, such Equipment and/or real property is greater than the fair value
of such Equipment and/or real property so acquired;
(f) Liens in favor of the Company or any Guarantor securing any
Indebtedness owed by a Subsidiary of the Company permitted pursuant to
Section 6.1(h) hereof; and
(g) informational filings of financing statements against the Company
or any of its Subsidiaries by lessors under any operating lease or any
permitted Capital Lease Obligation now or hereafter entered into by the
Company or any of its Subsidiaries with any lessor, so long as the
applicable financing statement covers only the asset or assets leased
pursuant to the applicable operating lease or Capital Lease Obligation.
Provided, however, that, notwithstanding anything contained above in this
Section 6.2 to the contrary, in no event may the Company or any Subsidiary of
the Company (i) ever create or suffer to exist any Lien upon any of the Stock of
any of its Subsidiaries, directly or indirectly, in favor of any Person other
than the Agent for the benefit of the Banks, or (ii) except for the equal and
ratable lien provisions of Section 9.7 of the Note Purchase Agreements and the
negative pledge provisions of Section 10.3 of the Note Purchase Agreements,
create or suffer to exist any agreement, whether oral or in writing, with any
Person other than the Agent and the Banks pursuant to this Section 6.2, which
would or could prohibit the Company or any of its Subsidiaries from creating or
permitting to exist any Lien in favor of the Agent or the Banks for the benefit
of all of the Banks for Indebtedness from time to time arising under this
Agreement.
<PAGE>
6.3. Contingent Obligations. Except for guaranties by Subsidiaries of
the Company which are otherwise permitted by Sections 6.1(l) and 6.1(m) hereof,
create, incur, suffer or permit to exist, directly or indirectly, any Contingent
Obligations if such Contingent Obligations would cause the sum of (a) the
aggregate amount of Contingent Obligations outstanding for the Company and its
Subsidiaries, and (b) the aggregate amount of outstanding Indebtedness permitted
by Section 6.1(k), on a consolidated basis, to exceed $10,000,000 (it being
agreed that any Contingent Obligations of the Subsidiaries allowed by Sections
6.1(l) and 6.1(m) hereof shall not be included for purposes of determining
compliance with the other provisions of this Section 6.3).
6.4. Mergers, Consolidations and Dispositions and Acquisitions of
Assets. In any single transaction or series of related transactions, directly or
indirectly:
(a) Wind up its affairs, liquidate or dissolve;
(b) Be a party to any merger or consolidation;
(c) Sell, convey, lease or otherwise dispose of all or
any material part of the assets (except for the sale of inventory in the
ordinary course of business) of the Company and/or its Subsidiaries, or agree to
take any such action, if such sale, lease or conveyance of assets is not
otherwise permitted for the applicable fiscal year by Section 6.4(z) hereof;
(d) Sell, assign, pledge, transfer or otherwise dispose
of, or in any way part with control of, any Stock of any of its Subsidiaries or
any Indebtedness or obligations of any character of any of its Subsidiaries, or
permit any such Subsidiary so to do with respect to any Stock of any other
Subsidiary or any Indebtedness or obligations of any character of the Company or
any of its other Subsidiaries, or permit any of its Subsidiaries to issue any
additional Stock other than (i) to the Company or any of its Subsidiaries or
(ii) to purchase or acquire for a consideration any Stock of the Company or any
of its other Subsidiaries to the extent permitted under Section 6.11(a) hereof;
(e) Take any action with a view toward dissolution,
liquidation or termination; or
(f) Purchase or otherwise acquire, directly or
indirectly, in a single transaction or a series of related transactions, all or
substantially all of the assets of any Person or such Person and its Affiliates,
or any shares of Stock of, or similar interest in, any Person or such Person and
its Affiliates, if the total value of the cash consideration (exclusive of
stock, warrants, options and other non-cash consideration) given or paid by the
Company and its Subsidiaries in connection with such acquisition and in
connection with prior acquisitions, if any, during the fiscal year of such
acquisition exceeds in the aggregate the greater of (i) $50,000,000 or (ii)
fifteen percent (15%) of Consolidated Net Worth; provided, however, that so long
as the provisions of clause (f) above are not violated:
(g) Any of the Company's Subsidiaries may merge or
consolidate with any one or more of the Company's other Subsidiaries, or with
any other Business Entity or Business Entities provided that each surviving
Business Entity after any such merger or consolidation shall be a wholly-owned
Subsidiary of the Company or of a wholly-owned Subsidiary of the Company, and,
provided, further, that the surviving Business Entity shall simultaneously with
such merger, execute and deliver to the Agent a Notice of Assumption,
appropriately completed;
(h) Any of the Company's Subsidiaries may (i) sell,
transfer or otherwise dispose of any Stock of the Company or any of its
Subsidiaries to the Company or another Subsidiary of the Company or (ii) sell,
lease, transfer or otherwise dispose of any of its assets to another Subsidiary
of the Company; provided that if all or substantially all of the transferring
Subsidiary's assets are being sold, leased, transferred or otherwise disposed
<PAGE>
of, then the Subsidiary to whom the sale, lease, transfer or disposition was
made must, unless it is already a Guarantor, simultaneously execute and deliver
to the Agent a Notice of Assumption. If such transferring Subsidiary is a
wholly-owned Subsidiary of the Company, it may wind up its affairs, liquidate or
dissolve following the consummation of any such sale, lease, transfer or
disposal of all or substantially all of its assets; and
(i) Subject to the limitations set forth below, (i) a
proposed sale, lease or conveyance of assets of one or more of the Subsidiaries
of the Company (a "Permitted Asset Disposition") or (ii) a proposed sale of the
Stock of one or more Subsidiaries of the Company (a "Permitted Stock
Disposition"), in a single transaction or series of related transactions, to a
Person or Persons which is not or are not an Affiliate or Affiliates of the
Company or any of its Subsidiaries, on an arms-length basis, may occur in any
fiscal year of the Company so long as the aggregate consideration paid by such
acquiring Person or Persons (inclusive of the fair value of any non-cash
Property received as consideration) from all Permitted Asset Dispositions and
all Permitted Stock Dispositions which occur during such fiscal year does not
exceed $20,000,000; provided, however, that no Permitted Asset Disposition or
Permitted Stock Disposition may occur if a Default shall have then occurred and
is then continuing or would be caused by such proposed Permitted Asset
Disposition or Permitted Stock Disposition if consummated.
6.5. Nature of Business. Materially change the nature of its business
or enter into any business which is substantially different from the business in
which it is presently engaged; provided, however, that vertical integration
within the natural foods industry shall not be deemed to be a violation of this
Section 6.5.
6.6. Transactions with Related Parties. Enter into any transaction,
contract or agreement of any kind with any officer, director or holder of any of
the outstanding Stock of the Company or any of its Subsidiaries (or any
Affiliate of such Person), unless such transaction, contract or agreement is
made upon terms and conditions not less favorable to such Person than those
which could have been obtained from wholly independent and unrelated sources.
The Company will not permit the compensation of any officer, stockholder,
director, partner or proprietor of the Company or any of its Subsidiaries to be
excessive, taking into consideration the financial circumstances of the Company
or such Subsidiary and the position and qualifications of such Person.
6.7. Loans and Investments. Make, directly or indirectly, any loan or
advance to or have any Investment in any Person, or make any commitment to make
such loan, advance or Investment, except:
(a) Stock of any Subsidiary;
(b) Permitted Investment Securities;
(c) Stock received in the settlement of debts (created in the
ordinary course of business);
(d) travel advances in the ordinary course of business to officers
and employees;
(e) customer obligations and receivables owing to the Company and
arising out of sales or leases made or the rendering of services by the Company
in the ordinary course of business;
(f) so long as no Default shall have occurred and is then continuing,
and subject to the terms of Section 6.2 hereof, loans by the Company or any
Guarantor to any Subsidiary of the Company; and
(g) so long as no Default has occurred and is then continuing, loans
to any Person which is not a Subsidiary of the Company or of any of the
Company's Subsidiaries, provided, that the aggregate of all of such loans does
not exceed at any time $10,000,000 on a consolidated basis.
<PAGE>
6.8. ERISA Compliance. At any time permit any Plan to engage in any
"prohibited transaction" as defined in ERISA; incur any "accumulated funding
deficiency" as defined in ERISA; or be terminated in a manner which could result
in the imposition of a Lien on any Property of the Company or any of its
Subsidiaries pursuant to ERISA.
6.9. Credit Extensions. Extend credit other than normal and prudent
extensions of credit to customers for goods and services in the ordinary course
of business.
6.10. Change in Accounting Method. Make any material change in
accounting method except as may be required by Generally Accepted Accounting
Principles as they are from time to time in effect.
6.11. Redemption, Dividends and Distributions. At any time:
(a) Redeem, retire or otherwise acquire, directly or
indirectly, any shares of its Stock if such redemption or repurchase would cause
the aggregate cost paid by the Company for such Stock so redeemed or repurchased
since January 1, 1999, as shown on the consolidated financial statements of the
Company and its Subsidiaries to be delivered pursuant to Sections 5.2(a) and (b)
hereof, to ever exceed (i) $50,000,000 until and including the end of the
Company's fiscal year ending in September of 2000 or (ii) twenty percent (20%)
of Consolidated Net Worth at all times after the end of the Company's fiscal
year ending in September of 2000;
(b) Pay any dividend except (i) dividends paid to the Company
or any Subsidiary of the Company which is a direct parent of the Subsidiary
paying a dividend, and (ii) dividends payable in Stock or in rights or warrants
to purchase Stock; or
(c) Make any other distribution of any Property or cash to
stockholders as such.
7. Events of Default and Remedies.
7.1. Events of Default. If any of the following events shall occur,
then the Agent may, unless directed to the contrary by the Majority Banks in
writing actually received by the Agent prior to the Agent doing so (and, if
directed by the Majority Banks, shall), do any or all of the following: (1)
without notice to the Company or any other Person, declare the Notes then
outstanding to be, and thereupon the Notes shall forthwith become, immediately
due and payable, together with all accrued interest thereon, the Commitment Fees
and all other fees then payable hereunder, without notice of any kind, notice of
acceleration or of intention to accelerate, presentment and demand or protest,
or other notice of any kind all of which are hereby expressly WAIVED by the
Company; (2) without notice to the Company, terminate the Commitments and
thereupon all of the Banks shall be relieved of any obligation to issue any
additional Letters of Credit or make any additional Loans; (3) by notice in
writing to the Company, accelerate the Maturity Date to a date as early as the
date of the notice, and (4) exercise any and all other rights pursuant to the
Loan Documents:
(a) The Company shall fail to pay or prepay any principal of
or interest on any Note, the Commitment Fees or any other obligation hereunder
or under any Applications as and when due and such failure remains uncured after
five (5) Business Days from such due date; or
(b) The Company or any of its Subsidiaries (i) shall fail to
pay at maturity, or within any applicable period of grace, any principal of or
interest on any other borrowed money obligation in excess of $100,000 in
principal amount (unless such payment is being contested in good faith by
appropriate proceedings and adequate reserves have been provided therefor), (ii)
shall otherwise be in default under the provisions of any instrument or document
evidencing, securing or guaranteeing any other borrowed money obligation of the
Company or any of its Subsidiaries in excess of $100,000 in principal amount if
such default continues beyond any applicable grace or curative period, if any,
and such default would entitle the holder of such borrowed money obligation to
<PAGE>
declare such obligation to be due prior to its stated maturity, or (iii) is in
default under or in violation of any Legal Requirement, which failure could or
does have a material adverse effect on the Company and its Subsidiaries on a
consolidated basis; or
(c) Any representation or warranty made in connection with any
Loan Document shall prove to have been materially incorrect, false or misleading
when made or deemed to have been made; or
(d) Default shall occur in the punctual and complete
performance of (i) any of the affirmative covenants contained in Section 5
(other than Section 5.3) and such default shall not be cured within ten (10)
days after the Agent has given written notice to the Company that such default
has occurred, (ii) any of the negative covenants contained in Section 6 and such
default shall not be cured within five (5) days after the Agent has given
written notice to the Company that such default has occurred, or (iii) any
covenant contained in Section 5.3 or any other covenant of the Company or any
other Person contained in any Loan Document; or
(e) Final judgment or judgments in the aggregate for the
payment of money in excess of (1) $10,000,000 shall be rendered against the
Company or any of its Subsidiaries at any time, regardless of whether the same
is being appealed or reserves established therefor or paid in full, or (2)
$5,000,000 shall be rendered against the Company or any of its Subsidiaries and
the same shall remain undischarged for a period of thirty (30) days during which
execution shall not be effectively stayed; or
(f) The Company or any Subsidiary of the Company shall claim,
or any court shall find or rule, that the Agent for the benefit of the Banks
does not have a valid Lien on any Stock which may have been provided to secure
the Indebtedness arising pursuant hereto from time to time by the Company or any
of its Subsidiaries pursuant to Section 5.10 above; or
(g) Any order shall be entered in any proceeding against the
Company or any of its Subsidiaries decreeing the dissolution, liquidation or
split-up thereof, and such order shall remain in effect for thirty (30) days;
provided, however, the provisions of this subparagraph (g) shall not apply to
any divestiture by the Company or any of its Subsidiaries of any Subsidiary
acquired after the effective date of this Agreement as a result of anti-trust
issues or concerns; or
(h) The occurrence of an event of default or default under any
Loan Document other than this Agreement; or
(i) The Company or any of its Subsidiaries shall have
concealed, removed, or permitted to be concealed or removed, any part of its
Property, with intent to hinder, delay or defraud its creditors or any of them,
or made or suffered a transfer of any of its Property which may be fraudulent
under any bankruptcy, fraudulent conveyance or similar law; or shall have made
any transfer of its Property to or for the benefit of a creditor at a time when
other creditors similarly situated have not been paid; or
(j) A change shall occur in the assets, liabilities, financial
condition, business or affairs of the Company or any of its Subsidiaries which,
in the reasonable opinion of the Majority Banks, would or does have a Material
Adverse Effect; provided, however, the occurrence of any such Material Adverse
Effect shall not be deemed to be an Event of Default hereunder until the Agent
shall have provided the Company with written notice that the Majority Banks have
determined that such a Material Adverse Effect has occurred; or
(k) A Change of Control shall occur. In addition, if any of
the following events shall occur, then the Notes together with all accrued
interest thereon, the Commitment Fees and all other fees then payable hereunder
shall automatically, without demand, presentment, protest, notice of intent to
accelerate, notice of acceleration or other notice to any Person of any kind,
all of which are hereby expressly WAIVED by the Company, become immediately due
<PAGE>
and payable and all Commitments shall be immediately and automatically
terminated and the Maturity Date shall immediately and automatically be
accelerated to the date of such occurrence:
(l) The Company or any of its Subsidiaries shall make a
general assignment for the benefit of creditors or shall petition or apply to
any tribunal for the appointment of a trustee, custodian, receiver or liquidator
of all or any substantial part of its business, estate or assets or shall
commence any proceeding under any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution or liquidation law of any
jurisdiction, whether now or hereafter in effect; or
(m) Any such petition or application shall be filed or any
such proceeding shall be commenced against the Company or any of its
Subsidiaries and the Company or such Subsidiary by any act or omission shall
indicate approval thereof, consent thereto or acquiescence therein, or an order
shall be entered appointing a trustee, custodian, receiver or liquidator of all
or any substantial part of the assets of the Company or any of its Subsidiaries
or granting relief to the Company or any of its Subsidiaries or approving the
petition in any such proceeding, and such order shall remain in effect for more
than sixty (60) days; or
(n) The Company or any of its Subsidiaries shall admit in
writing its inability to pay its debts as they become due or fail generally to
pay its debts as they become due or suffer any writ of attachment or execution
or any similar process to be issued or levied against it or any substantial part
of its Property which is not released, stayed, bonded or vacated within thirty
(30) days after its issue or levy.
7.2. Remedies Cumulative. No remedy, right or power conferred upon the
Agent or any Bank is intended to be exclusive of any other remedy, right or
power given hereunder or now or hereafter existing at law, in equity, or
otherwise, and all such remedies, rights and powers shall be cumulative.
8. The Agent and the Issuer.
8.1. Appointment, Powers and Immunities. Each Bank hereby irrevocably
appoints and authorizes the Agent to act as its agent hereunder and under the
Letters of Credit and the other Loan Documents with such powers as are
specifically delegated to the Agent by the terms hereof and thereof, together
with such other powers as are reasonably incidental thereto. Each Bank hereby
irrevocably appoints and authorizes the Issuer to act as its agent under the
Letters of Credit which the Issuer has issued with such powers as are
specifically delegated to the Issuer by the terms hereof and thereof, together
with such other powers as are reasonably incidental thereto. Neither the Agent
nor the Issuer (which such terms as used in this Section 8, shall, in each case,
include reference to its Affiliates and its own and its Affiliates' officers,
directors, employees and agents) (a) shall have duties or responsibilities
except those expressly set forth in this Agreement, the Letters of Credit and
the other Loan Documents, and shall not by reason of this Agreement or any other
Loan Document be a trustee for any Bank; (b) shall be responsible to any Bank
for any recitals, statements, representations or warranties contained in this
Agreement, the Letters of Credit or any other Loan Document, or in any
certificate or other document referred to or provided for in, or received by any
of them under, this Agreement, the Letters of Credit or any other Loan Document,
or for the value, validity, effectiveness, genuineness, enforceability or
sufficiency of this Agreement, the Letters of Credit or any other Loan Document
or any other certificate or document referred to or provided for herein or
therein or any property covered thereby or for any failure by any Party or any
other Person (other than the Agent or, in the case of a Letter of Credit, Agent
and the Issuer of such Letter of Credit) to perform any of its obligations
hereunder or thereunder; (c) shall be required to initiate or conduct any
litigation or collection proceedings hereunder or under the Letters of Credit or
any other Loan Document except to the extent requested by the Majority Banks,
and (d) shall be responsible for any action taken or omitted to be taken by it
hereunder or under the Letters of Credit or any other Loan Document or any other
document or instrument referred to or provided for herein or therein or in
connection herewith or therewith, INCLUDING PURSUANT TO ITS OWN NEGLIGENCE,
except for its own gross negligence or willful misconduct. The Agent and the
Issuer may employ agents and attorneys-in-fact and shall not be responsible for
the negligence or misconduct of any such agents or attorneys-in-fact selected by
them with reasonable care. Without in any way limiting any of the foregoing,
each Bank acknowledges that neither the Agent nor the Issuer shall have any
greater responsibility in the operation of the Letters of Credit than is
specified in the Uniform Customs and Practice for Documentary Credits (1993
Revision, International Chamber of Commerce Publication No. 500 or any successor
<PAGE>
publication). In any foreclosure proceeding concerning any collateral for the
Notes, each holder of a Note if bidding for its own account or for its own
account and the accounts of other Banks is prohibited from including in the
amount of its bid an amount to be applied as a credit against its Note or the
Notes of the other Banks, instead such holder must bid in cash only. However, in
any such foreclosure proceeding, the Agent may (but shall not be obligated to)
submit a bid for all Banks (including itself) in the form of a credit against
the Notes of all of the Banks, and the Agent or its designee may (but shall not
be obligated to), with the consent of the Majority Banks, accept title to such
collateral for and on behalf of all Banks.
8.2. Reliance. The Agent and the Issuer shall be entitled to rely upon
any certification, notice or other communication (including any thereof by
telephone, telex, telegram or cable) believed by it to be genuine and correct
and to have been signed or sent by or on behalf of the proper Person or Persons,
and upon advice and statements of legal counsel (which may be counsel for the
Company), independent accountants and other experts selected by the Agent or the
Issuer (as the case may be). As to any matters not expressly provided for by
this Agreement, the Letters of Credit or any other Loan Document, the Agent and
the Issuer shall in all cases be fully protected in acting, or in refraining
from acting, hereunder and thereunder in accordance with instructions of the
Majority Banks, and any action taken or failure to act pursuant thereto shall be
binding on all of the Banks.
8.3. Defaults. The Agent shall not be deemed to have knowledge of the
occurrence of a Default (other than the non-payment of principal of or interest
on Loans or reimbursements of Letters of Credit Advances) unless it has received
notice from a Bank or the Company specifying such Default and stating that such
notice is a "Notice of Default." In the event that the Agent receives such a
notice of the occurrence of a Default, the Agent shall give prompt notice
thereof to the Banks (and shall give each Bank prompt notice of each such
non-payment). The Agent shall (subject to Section 8.7 hereof) take such action
with respect to such Default as shall be directed by the Majority Banks and
within its rights under the Loan Documents and at law or in equity, provided
that, unless and until the Agent shall have received such directions, the Agent
may (but shall not be obligated to) take such action, or refrain from taking
such action, permitted hereby with respect to such Default as it shall deem
advisable in the best interests of the Banks and within its rights under the
Loan Documents, at law or in equity.
8.4. Rights as a Bank. With respect to its Commitment and the Loans
made and otherwise any Letter of Credit Exposure Amount, Chase in its capacity
as a Bank hereunder shall have the same rights and powers hereunder as any other
Bank and may exercise the same as though it were not acting as the Agent, and
the term "Bank" or "Banks" shall, unless the context otherwise indicates,
includes the Agent in its individual capacity. The Agent may (without having to
account therefor to any Bank) accept deposits from, lend money to and generally
engage in any kind of banking, trust, letter of credit, agency or other business
with the Company (and any of its Affiliates) as if it were not acting as the
Agent, and the Agent may accept fees and other consideration from the Company
(in addition to the fees heretofore agreed to between the Company and the Agent)
for services in connection with this Agreement or otherwise without having to
account for the same to the Banks.
8.5. Indemnification. The Banks agree to indemnify the Agent and the
Issuer (to the extent not reimbursed under Section 2.4[c], Section 9.9 or
Section 9.10 hereof, but without limiting the obligations of the Company under
said Sections 2.4[c], 9.9 and 9.10), ratably in accordance with their respective
Commitments, for any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind and nature whatsoever (INCLUDING THE CONSEQUENCES OF THE NEGLIGENCE OF SUCH
INDEMNIFIED PERSON, but excluding the gross negligence or willful misconduct of
such indemnified person) which may be imposed on, incurred by or asserted
against the Agent or any Bank acting in its capacity as the Issuer in any way
relating to or arising out of this Agreement, the Letters of Credit or any other
Loan Document or any other documents contemplated by or referred to herein or
therein or the transactions contemplated hereby or thereby (including the costs
and expenses which the Company is obligated to pay under Sections 2.4[c], 9.9
and 9.10 hereof but excluding, unless a Default has occurred and is continuing,
normal administrative costs and expenses incident to the performance of its
agency duties hereunder) or the enforcement of any of the terms hereof or
thereof or of any such other documents, INCLUDING THE NEGLIGENCE OF SUCH
INDEMNIFIED PERSON, but excluding the gross negligence or willful misconduct of
such indemnified person. The obligations of the Banks under this Section 8.5
shall survive the termination of this Agreement and the repayment of the
Indebtedness arising in connection with this Agreement.
<PAGE>
8.6. Non-Reliance on Agent and Other Banks. Each Bank agrees that it
has received current financial information with respect to the Company and the
other Parties and that it has, independently and without reliance on the Agent
or any other Bank and based on such documents and information as it has deemed
appropriate, made its own credit analysis of the Company and the other Parties
and decision to enter into this Agreement and that it will, independently and
without reliance upon the Agent or any other Bank, and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own analysis and decisions in taking or not taking action under this Agreement
or any of the other Loan Documents. Neither the Agent nor any Bank acting in its
capacity as the Issuer shall be required to keep itself informed as to the
performance or observance by any Party of this Agreement, the Letters of Credit
or any of the other Loan Documents or any other document referred to or provided
for herein or therein or to inspect the properties or books of the Company or
any Party. Except for notices, reports and other documents and information
expressly required to be furnished to the Banks by the Agent or the Issuer
hereunder, under the Letters of Credit or the other Loan Documents, neither the
Agent nor the Issuer shall have any duty or responsibility to provide any Bank
with any credit or other information concerning the affairs, financial condition
or business of the Company or any other Party (or any of their Affiliates) which
may come into the possession of the Agent or the Issuer.
8.7. Failure to Act. Except for action expressly required of the Agent
or the Issuer hereunder, under the Letters of Credit and under the other Loan
Documents, the Agent and such Issuer shall in all cases be fully justified in
failing or refusing to act hereunder and thereunder unless it shall receive
further assurances to its satisfaction by the Banks of their indemnification
obligations under Section 8.5 hereof against any and all liability and expense
which may be incurred by it by reason of taking or continuing to take any such
action.
8.8. Resignation or Removal of Agent. Subject to the appointment and
acceptance of a successor Agent as provided below, the Agent may resign at any
time by giving notice thereof to the Banks and the Company, and the Agent may be
removed at any time with or without cause by the Majority Banks. Upon any such
resignation or removal, the Majority Banks shall have the right to appoint a
successor Agent reasonably acceptable to the Company, provided deposits with
such successor Agent shall be insured by the Federal Deposit Insurance
Corporation or its successor. If no successor Agent shall have been so appointed
by the Majority Banks and shall have accepted such appointment within 30 days
after the retiring Agent's giving of notice of resignation or the Majority
Banks' removal of the retiring Agent, then the retiring Agent may, on behalf of
the Banks, appoint a successor Agent reasonably acceptable to the Company. Any
successor Agent shall be a bank which has an office in the United States with a
combined capital and surplus of at least $1,000,000,000. Upon the acceptance of
any appointment as Agent hereunder by a successor Agent, such successor Agent
shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Agent, and the retiring Agent shall be
discharged from its duties and obligations hereunder. Such successor Agent shall
promptly specify by notice to the Company and the Banks its office for the
purpose of any notices and payments hereunder. After any retiring Agent's
resignation or removal hereunder as Agent, the provisions of this Section 8
shall continue in effect for its benefit in respect of any actions taken or
omitted to be taken by it while it was acting as the Agent.
9. Miscellaneous.
9.1. No Waiver. No waiver of any Default shall be deemed to be a waiver
of any other Default. No failure to exercise and no delay on the part of the
Agent or any Bank in exercising any right or power under any Loan Document or at
law or in equity shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right or power, or the abandonment or
discontinuance of steps to enforce any such right or power, preclude any further
or other exercise thereof or the exercise of any other right or power. No course
of dealing between the Company and the Agent or any Bank shall operate as a
waiver of any right or power of the Agent or any Bank. No amendment,
modification or waiver of any provision of this Agreement or any other Loan
Document nor any consent to any departure therefrom shall be effective unless
the same is in writing and signed by the Person against whom it is sought to be
enforced, and then it shall be effective only in the specific instance and for
the purpose for which given. No notice to or demand on the Company or any other
Person shall entitle the Company or any other Person to any other or further
notice or demand in similar or other circumstances.
<PAGE>
9.2. Notices. All notices under the Loan Documents shall be in writing
and either (i) delivered against receipt therefor, (ii) mailed by registered or
certified mail, return receipt requested, or (iii) sent by telex, telecopy
(promptly confirmed by mail) or telegram, in each case to the intended recipient
at the "Address for Notices" specified below its name on the signature pages
hereof; or, as to any Bank who is a signatory hereto, at such other address as
shall be designated by such Bank in a notice to the Company and the Agent given
in accordance with this Section 9.2. or to such other address as a party may
designate. Notices shall be deemed to have been given (whether actually received
or not) when delivered (or, if mailed, on the next Business Day); however, the
notices required or permitted by Sections 2.1 and 3.1(a) hereof shall be
effective only when actually received by the Agent.
9.3. Governing Law. UNLESS OTHERWISE SPECIFIED THEREIN, EACH LOAN
DOCUMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF TEXAS AND THE UNITED STATES OF AMERICA. Company hereby irrevocably
agrees that, provided that the Company can obtain personal jurisdiction over and
service of process upon the Agent or the applicable Bank, any legal proceeding
against the Agent or any Bank arising out of or in connection with this
Agreement or the other Loan Documents shall be brought in the district courts of
Travis County, Texas, or in the United States District Court for the Western
District of Texas, Austin Division. Nothing contained in this Section or in any
other provision of any Loan Document (unless expressly provided otherwise) shall
be deemed or construed as an agreement by any Bank to be subject to the
jurisdiction of such courts.
9.4. Survival; Parties Bound. All representations, warranties,
covenants and agreements made by or on behalf of the Company in connection
herewith shall survive the execution and delivery of the Loan Documents, shall
not be affected by any investigation made by any Person, and shall bind the
Company and its successors, trustees, receivers and assigns and inure to the
benefit of the successors and assigns of the Agent and the Banks, provided that
the undertaking of the Banks hereunder to make Loans to the Company and to issue
Letters of Credit for the account of the Company shall not inure to the benefit
of any successor or assign of the Company. The term of this Agreement shall be
until the final maturity of each Note and the payment of all amounts due under
the Loan Documents.
9.5. Counterparts. This Agreement may be executed in several identical
counterparts, and by the parties hereto on separate counterparts, and each
counterpart, when so executed and delivered, shall constitute an original
instrument, and all such separate counterparts shall constitute but one and the
same instrument.
9.6. Limitation of Interest. The Company and the Banks intend to
strictly comply with all applicable laws, including applicable usury laws.
Accordingly, the provisions of this Section 9.6 shall govern and control over
every other provision of this Agreement or any other Loan Document which
conflicts or is inconsistent with this Section, even if such provision declares
that it controls. As used in this Section, the term "interest" includes the
aggregate of all charges, fees, benefits or other compensation which constitute
interest under applicable law, provided that, to the maximum extent permitted by
applicable law, (a) any non-principal payment shall be characterized as an
expense or as compensation for something other than the use, forbearance or
detention of money and not as interest, and (b) all interest at any time
contracted for, reserved, charged or received shall be amortized, prorated,
allocated and spread, in equal parts during the full term of the Loans and the
Commitments. In no event shall the Company or any other Person be obligated to
pay, or the Agent or any Bank have any right or privilege to reserve, receive or
retain, (Y) any interest in excess of the maximum amount of nonusurious interest
permitted under the laws of the State of Texas or the applicable laws (if any)
of the United States or of any other state, or (Z) total interest in excess of
the amount which the Agent or such Bank could lawfully have contracted for,
reserved, received, retained or charged had the interest been calculated for the
full term of the Loans at the Highest Lawful Rate. On each day, if any, that the
Stated Rate or such other rate, respectively, or any rate called for under any
other Loan Document exceeds the Highest Lawful Rate, the rate at which interest
shall accrue shall automatically be fixed by operation of this sentence at the
Highest Lawful Rate for that day, and shall remain fixed at the Highest Lawful
Rate for each day thereafter until the total amount of interest accrued equals
the total amount of interest which would have accrued if there were no such
ceiling rate as is imposed by this sentence. Thereafter, interest shall accrue
at the Stated Rate or such other rate, respectively, unless and until the Stated
Rate or such other rate again exceeds the Highest Lawful Rate when the
provisions of the immediately preceding sentence shall again automatically
<PAGE>
operate to limit the interest accrual rate. The daily interest rates to be used
in calculating interest at the Highest Lawful Rate shall be determined by
dividing the applicable Highest Lawful Rate per annum by the number of days in
the calendar year for which such calculation is being made. None of the terms
and provisions contained in this Agreement or in any other Loan Document which
directly or indirectly relate to interest shall ever be construed without
reference to this Section 9.6, or be construed to create a contract to pay for
the use, forbearance or detention of money at an interest rate in excess of the
Highest Lawful Rate. If the term of any Loans or the Notes is shortened by
reason of acceleration of maturity as a result of any Default or by any other
cause, or by reason of any required or permitted prepayment, and if for that (or
any other) reason any Bank at any time, including the stated maturity, is owed
or receives (and/or has received) interest in excess of interest calculated at
the Highest Lawful Rate, then and in any such event all of any such excess
interest shall be canceled automatically as of the date of such acceleration,
prepayment or other event which produces the excess, and, if such excess
interest has been paid to such Bank, it shall be credited pro tanto against the
then-outstanding principal balance of the Company's obligations to the Agent or
such Bank, effective as of the date or dates when the event occurs which causes
it to be excess interest, until such excess is exhausted or all of such
principal has been fully paid and satisfied, whichever occurs first, and any
remaining balance of such excess shall be promptly refunded to its payor.
9.7. Survival. The obligations of the Company under Sections 2.4(c),
2.7, 9.9, 9.10 and 9.17 hereof shall survive the repayment of the Loans and the
termination of the Commitments and the Letters of Credit.
9.8. Captions. The headings and captions appearing in the Loan
Documents have been included solely for convenience and shall not be considered
in construing the Loan Documents.
9.9. Expenses, Etc. Whether or not any Loan is ever made or any Letter
of Credit ever issued, the Company shall pay or reimburse on demand each of the
Banks and the Agent for paying: (a) the reasonable fees and expenses of Locke
Liddell & Sapp LLP, counsel to the Agent or any other legal counsel engaged by
the Agent, in connection with (i) the preparation, execution and delivery of
this Agreement (including the exhibits and schedules hereto) and the Loan
Documents and the making of the Loans and the issuance of Letters of Credit
hereunder and (ii) any modification, supplement or waiver of any of the terms of
this Agreement, the Letters of Credit or any other Loan Document made as a
result of any request by the Company; (b) all reasonable costs and expenses
(including reasonable attorneys' fees) of the Banks and the Agent in connection
with the enforcement of this Agreement, the Letters of Credit or any other Loan
Document; (c) all transfer, stamp, documentary or other similar taxes,
assessments or charges levied by any governmental or revenue authority after the
effective date hereof in respect of this Agreement, any Letter of Credit or any
other Loan Document or any other document referred to herein or therein; (d) all
costs, expenses, taxes, assessments and other charges incurred after the
effective date hereof in connection with any filing, registration, recording or
perfection of any security interest contemplated by Section 5.10 of this
Agreement; and (e) expenses of mutually agreed due diligence and syndication.
9.10. Indemnification. The Company shall indemnify the Agent, the Banks
and each Affiliate thereof and their respective directors, officers, employees,
counsel and agents from, and hold each of them harmless against, any and all
losses, liabilities (including Environmental Liabilities), claims (including
Environmental Claims) or damages to which any of them may become subject,
insofar as such losses, liabilities, claims or damages arise out of or result
from any (a) actual or proposed use by the Company of the proceeds of any
extension of credit (whether a Loan or a Letter of Credit) by any Bank
hereunder, (b) breach by the Company of this Agreement or any other Loan
Document, (c) violation by the Company or any of its Subsidiaries of any law,
rule, regulation or order including any Requirements of Environmental Law, (d)
Liens or security interests granted on any Property pursuant to or under the
Loan Documents, to the extent resulting from any Hazardous Substance, petroleum,
petroleum product or petroleum waste located in, on or under any such property,
(e) ownership by the Banks or the Agent of any Property following foreclosure
under the Loan Documents, to the extent such losses, liabilities, claims or
damages arise out of or result from any Hazardous Substance, petroleum,
petroleum product or petroleum waste located in, on or under such Property,
including losses, liabilities, claims or damages which are imposed upon Persons
under laws relating to or regulating Hazardous Substances, petroleum, petroleum
products or petroleum wastes solely by virtue of ownership, (f) any Bank or the
Agent being deemed an operator of any such Property by a court or other
regulatory or administrative agency or tribunal or other third party, to the
<PAGE>
extent such losses, liabilities, claims or damages arise out of or result from
any Hazardous Substance, petroleum, petroleum product or petroleum waste located
in on or under such Property, or (g) investigation, litigation or other
proceeding (including any threatened investigation or proceeding) relating any
of to the foregoing, and the Company shall reimburse the Agent and each Bank,
and each Affiliate thereof and their respective directors, officers, employees,
counsel and agents, upon demand for any expenses (including legal fees) incurred
in connection with any such investigation or proceeding, AND WHETHER ANY SUCH
LOSS, LIABILITY, CLAIM OR DAMAGE RESULTS FROM THE NEGLIGENCE OF ANY SUCH
INDEMNIFIED PERSON; but excluding any such losses, liabilities, claims, damages
or expenses incurred by a Person or any Affiliate thereof or their respective
directors, officers, employees, counsel or agents by reason of the gross
negligence or willful misconduct of such Person, affiliate, director, officer,
employee or agent. Promptly after receipt by an indemnified person of notice of
any claim or the commencement of any action, such indemnified person shall, if
any claim in respect thereof is to be made against the Company under this
Section 9.10, notify the Company in writing of the claim or the commencement of
that action. The Company shall not be liable for any settlement of any such
claim or action involving the payment of monetary damages effected without its
written consent not to be unreasonably withheld. If any such claim or action
shall be brought against an indemnified person and it shall notify the Company
thereof, the Company shall be entitled to participate in the joint defense
thereof.
9.11. Amendments, Etc. No amendment or waiver of any provision of this
Agreement, the Notes or any other Loan Document, nor any consent to any
departure by the Company therefrom, shall in any event be effective unless the
same shall be agreed or consented to by the Majority Banks and the Company, and
each such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given; provided, that no amendment, waiver or
consent shall, unless in writing and signed by each Bank, do any of the
following: (a) increase other than as increased pursuant to Section 9.12 hereof,
any Commitment of any of the Banks or subject the Agent or any of the Banks to
any additional obligations; (b) reduce the principal of, or interest on, any
Loan, any Letter of Credit Exposure Amount or any fee hereunder; (c) waive or
postpone any scheduled date fixed for any payment of principal of, or interest
on, any Loan, any Letter of Credit Exposure Amount or any fee or other sum to be
paid hereunder; (d) change the percentage of any of the Commitments or of the
aggregate unpaid principal amount of any of the Loans, any Letter of Credit
Exposure Amount, or the number of Banks, which shall be required for the Banks
or any of them to take any action under this Agreement; (e) change any provision
contained in Sections 2.4(c), 2.7, 9.9 or 9.10 hereof or this Section 9.11 or
Sections 9.16 or 9.19 hereof; (f) release all or any substantial part of the
security for the obligations of the Company under this Agreement, any
Application or any Note; (g) release any Guarantor from any Guaranty (except for
Guarantors sold by the Company or any of its Subsidiaries pursuant to the terms
of Section 6.4(y) hereof); (h) change the definition of "Majority Banks"
contained herein (i) modify the requirement of unanimous written approval by the
Banks of any unilateral reduction by the Banks of the Aggregate Commitment as
provided for in Section 2.2 of the Credit Agreement; or (j) waive or postpone
any prepayment required by Section 2.3(c)(3) of the Credit Agreement. Anything
in this Section 9.11 to the contrary, no amendment, waiver or consent shall be
made with respect to Section 8 without the consent of the Agent.
9.12. Successors and Assigns.
(a) This Agreement shall be binding upon and inure to the
benefit of the Company, the Agent and the Banks and their respective successors
and assigns. The Company may not assign or transfer any of its rights or
obligations hereunder without the prior written consent of all of the Banks.
(b) Each Bank may sell participations to any Person in all or
part of any Loan, or all or part of its Notes, the Letter of Credit Exposure
Amount or Commitments, to another bank or other entity, in which event, without
limiting the foregoing, the provisions of Sections 2.12, 9.10 and 9.16 shall
inure to the benefit of each purchaser of a participation and the pro rata
treatment of payments, as described in Section 2.9, shall be determined as if
such Bank had not sold such participation. In the event any Bank shall sell any
participation, (i) the Company, the Agent and the other Banks shall continue to
deal solely and directly with such selling Bank in connection with such selling
Bank's rights and obligations under the Loan Documents (including the Note held
by such selling Bank), (ii) such Bank shall retain the sole right and
responsibility to enforce the obligations of the Company relating to the Loans
and Letter of Credit Exposure Amount, including the right to approve any
<PAGE>
amendment, modification or waiver of any provision of this Agreement other than
(and then only if expressly permitted by the applicable participation agreement)
amendments, modifications or waivers with respect to (A) any fees payable
hereunder to the Banks and (B) the amount of principal or the rate of interest
payable on, or the dates fixed for the scheduled repayment of principal of, the
Loans and other sums to be paid to the Banks hereunder, and (iii) the Company
agrees, to the fullest extent it may effectively do so under applicable law,
that any participant of a Bank may exercise all rights of set-off, bankers'
lien, counterclaim or similar rights with respect to such participation as fully
as if such participant were a direct holder of Loans if such Bank has previously
given notice of such participation to the Company.
(c) Each Bank may assign to one or more Banks or Eligible
Assignees all or a portion of its interests, rights and obligations under this
Agreement (including all or a portion of its Commitment and the same portion of
the related Loans at the time owing to it, the related Note or Notes held by it
and its Letter of Credit Exposure Amount) (a "Ratable Assignment"); provided,
however, that, (i) the Agent and the Company must give their respective prior
written consent, which consent will not be unreasonably withheld; provided,
however, that if a Default or an Event of Default shall have occurred and is
then continuing, such consent of the Company shall not be required; (ii) the
aggregate amount of the Commitment, Loans and Letter of Credit Exposure Amount
(without duplication) of the assigning Bank subject to each such assignment
(determined as of the date the Assignment and Acceptance (as defined below) with
respect to such assignment is delivered to the Agent) shall in no event be less
than $5,000,000 (except for certain exceptions approved by the Company and the
Agent) and shall be in an amount that is an integral multiple of $1,000,000
(unless all of the assigning Bank's Commitment, Loans and Letter of Credit
Exposure Amount is being assigned); (iii) the aggregate amount of the Commitment
and/or Loans of the assigning Bank immediately after each partial assignment
must be at least $5,000,000 (except for certain exceptions approved by the
Company and the Agent) and shall be in an amount which is an integral multiple
of $1,000,000; and (iv) the parties to each such assignment shall execute and
deliver to the Agent, for its acceptance and recording in its records, an
Assignment and Acceptance in the form of Exhibit H attached hereto (each an
"Assignment and Acceptance") with blanks appropriately completed, together with
any Note or Notes subject to such assignment and a processing and recordation
fee of $2,500 (for which the Company shall have no liability). Upon such
execution, delivery, acceptance and recording, from and after the effective date
specified in each Assignment and Acceptance, which effective date shall be at
least five Business Days after the execution thereof, unless a shorter period of
time may be agreed to by the Agent in its sole and absolute discretion, (A) the
assignee thereunder shall be a party hereto and, to the extent provided in such
Assignment and Acceptance, have the rights and obligations of a Bank hereunder
and (B) the Bank thereunder shall, to the extent provided in such assignment, be
released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of an assigning
Bank's rights and obligations under this Agreement, such Bank shall cease to be
a party hereto).
(d) By executing and delivering an Assignment and Acceptance,
the Bank assignor thereunder and the assignee thereunder confirm to and agree
with each other and the other parties hereto as follows: (i) other than the
representation and warranty that it is the legal and beneficial owner of the
interest being assigned thereby free and clear of any adverse claim, such Bank
assignor makes no representation or warranty and assumes no responsibility with
respect to any statements, warranties or representations made in or in
connection with any Loan Document or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of any Loan Document or any
other instrument or document furnished pursuant thereto; (ii) such assignor Bank
makes no representation or warranty and assumes no responsibility with respect
to the financial condition of the Company or any of its Subsidiaries or the
performance or observance by the Company of any of its obligations hereunder;
(iii) such assignee confirms that it has received a copy of this Agreement and
the other Loan Documents, together with copies of the financial statements of
the Company previously delivered in accordance herewith and such other documents
and information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Acceptance; (iv) such assignee will,
independently and without reliance upon the Agent, such assignor Bank or any
other Bank and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under the Loan Documents; (v) such assignee appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers under the Loan Documents as are delegated to the Agent by the terms
hereof, together with such powers as are reasonably incidental thereto; and (vi)
such assignee agrees that it will perform in accordance with their terms all
obligations that by the terms of the Loan Documents are required to be performed
by it as a Bank.
<PAGE>
(e) The Agent shall maintain at its office a copy of each
Assignment and Acceptance delivered to it and a record of the names and
addresses of the Banks and the Commitments of, and principal amount of the Loans
owing to, and the Letter of Credit Exposure Amount of, each Bank from time to
time. The entries in the register shall be conclusive, in the absence of
manifest error, and the Company, the Agent and the Banks may treat each person
the name of which is recorded therein as a Bank hereunder for all purposes of
the Loan Documents. Such records shall be available for inspection by the
Company or any Bank at any reasonable time and from time to time upon reasonable
prior notice.
(f) Upon its receipt of an Assignment and Acceptance executed
by an assigning Bank and the assignee thereunder together with the Note subject
to such assignment, the written consent to such assignment and the fee payable
in respect thereto, the Agent shall, if such Assignment and Acceptance has been
completed with blanks appropriately filled, (i) accept such Assignment and
Acceptance, (ii) record the information contained therein in the Register and
(iii) give prompt notice thereof to the Company and the Banks. Contemporaneously
with the receipt by the Company of such Assignment and Acceptance, the Company,
at its own expense, shall execute and deliver to the Agent in exchange for the
surrendered Note a new Note payable to the order of such assignee in an amount
equal to the Commitment, Loans and Letter of Credit Exposure Amount (without
duplication) assumed by it pursuant to such Assignment and Acceptance and, if
the assigning Bank has retained Commitments, Loans and/or Letters of Credit
hereunder, a new Note to the order of the assigning Bank in an amount equal to
the Commitment, Loans and/or Letters of Credit retained by it hereunder. Such
new Notes shall be in an aggregate principal amount equal to the aggregate
principal amount of such surrendered Note, shall be dated the effective date of
such Assignment and Acceptance and shall otherwise be in substantially the form
of the surrendered Note. Thereafter, such surrendered Note shall be marked
canceled and returned to the Company.
(g) Any Bank may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
9.12, disclose to the assignee or participant or proposed assignee or
participant, any information relating to the Company furnished to such Bank by
or on behalf of the Company.
(h) Each Bank agrees that, in connection with any assignment
or participation or proposed assignment or participation pursuant to this
Section 9.12, the Company will not be responsible for the accuracy and
completeness of any written materials furnished by such Bank to any actual or
prospective assignee or participant, other than copies of (i) documents
furnished to such Bank pursuant to clause (a), (b), (c) or (d) of Section 5.2
hereof, and (ii) any other documents which are prepared by the Company for use
in such connection and which contain a statement to such effect.
(i) Notwithstanding anything herein to the contrary, each Bank
may pledge and assign all or any portion of its rights and interests under the
Loan Documents to any Federal Reserve Bank.
9.13. Entire Agreement. This Agreement embodies the entire agreement
and understanding among the Company, the Agent and the Banks relating to the
subject matter hereof and supersedes all prior proposals, agreements and
understandings relating to the subject matter hereof. The Company certifies that
it is relying on no representation, warranty, covenant or agreement except for
those set forth in this Agreement and the other Loan Documents of even date
herewith.
9.14. Severability. If any provision of any Loan Documents shall be
invalid, illegal or unenforceable in any respect under any applicable law, the
validity, legality and enforceability of the remaining provisions shall not be
affected or impaired thereby.
9.15. Disclosures. Every reference in the Loan Documents to disclosures
of the Company to the Agent and the Banks in writing, to the extent that such
references refer to disclosures at or prior to the execution of this Agreement,
shall be deemed strictly to refer only to written disclosures delivered to the
Agent and the Banks in an orderly manner concurrently with the execution hereof.
<PAGE>
9.16. Capital Adequacy.
(a) If after the date of this Agreement, any Bank shall have
determined that the adoption or effectiveness (regardless of whether previously
announced) of any applicable Legal Requirement or treaty regarding capital
adequacy, or any change therein, or any change in the interpretation or
administration thereof by any Governmental Authority or comparable agency
charged with the interpretation or administration thereof, or compliance by any
Bank with any request or directive regarding capital adequacy (whether or not
having the force of law) of any such Governmental Authority, has or would have
the effect of increasing the cost of, or reducing the rate of return on the
capital of such Bank (or any holding company of which such Bank is a part) as a
consequence of its obligations hereunder or under any Letter of Credit or its
Note to a level below that which such Bank or holding company could have
achieved but for such adoption, change or compliance by an amount deemed by such
Bank to be material, then from time to time, upon written demand to the Company
by such Bank (with a copy to the Agent), the Company (subject to Section 9.6
hereof) shall pay to such Bank, but only with respect to periods arising after
such demand by such Bank and applicable periods prior to such demand by such
Bank if such adoption, change or compliance is retroactive in application, such
additional amount or amounts as will compensate such Bank or holding company for
such reduction.
(b) The certificate of any Bank setting forth such amount or
amounts as shall be necessary to compensate such Bank or its holding company as
specified in Subsection 9.16(a) above (and setting forth the calculation thereof
in reasonable detail) shall be delivered as soon as practicable to the Company
and shall be conclusive and binding, absent manifest error. The Company shall
pay such Bank the amount shown as due on any such certificate within five days
after such Bank delivers such certificate. In preparing such certificate, such
Bank may employ such assumptions and allocations of costs and expenses as it
shall in good faith deem reasonable and may use any reasonable averaging and
attribution method.
9.17. Withholding Tax.
(a) As used in this Section 9.17, the following terms shall
have the following meanings:
(i) "Indemnifiable Tax" means any Tax, but excluding, in
any case, any Tax that (a) would not be imposed in
respect of a payment to a holder of any of the Notes
under this Agreement, under the Notes held by such
holder or under any of the other Loan Documents except
for a present or former connection between the
jurisdiction of the Governmental Authority imposing
such Tax and such holder (or a shareholder or other
Person with an interest in such holder), including a
connection arising from such holder's (or shareholder
of such holder or such other Person) being or having
been a citizen or resident of such jurisdiction, or
being or having been organized, present or engaged in a
trade or business in such jurisdiction, or having or
having had a permanent establishment or fixed place of
business in such jurisdiction, but excluding a
connection arising solely from such holder having
executed, delivered, performed its obligations or
received a payment under, or enforced, this Agreement,
the Notes held by such holder or any other Loan
Documents, or (b) is imposed under United States
federal income tax law.
(ii) "Tax" means any present or future tax, levy, impost,
duty, charge, assessment or fee of any nature
(including interest thereon and penalties and additions
thereto) that is imposed by any Governmental Authority
in respect of a payment to a holder of any of the Notes
under this Agreement, under the Notes or under any of
the other Loan Documents.
(b) If the Company is required by any applicable Legal
Requirement to make any deduction or withholding for or on account of any Tax
from any payment to be made by it under this Agreement, under the Notes or under
any other Loan Documents, then the Company shall (i) promptly notify the holder
of Notes hereunder that is entitled to such payment of such requirement to so
deduct or withhold such Tax, (ii) pay to the relevant authorities the full
amount required to be so deducted or withheld, (iii) promptly forward to such
holder an official receipt (or certified copies thereof), or other documentation
reasonably acceptable to such holder, evidencing such payment to such
<PAGE>
Governmental Authorities and (iv) if such Tax is an Indemnifiable Tax, pay, to
the extent permitted by law, to such holder, in addition to whatever net amount
of such payment is paid to such holder, such additional amount as is necessary
to ensure that the total amount actually received by such holder (free and clear
of Indemnifiable Tax) will equal the full amount of the payment such holder
would have received had no such deduction or withholding been required. If the
Company pays any additional amount to a holder pursuant to the preceding
sentence and such holder shall receive a refund of an Indemnifiable Tax with
respect to which, in the good faith opinion of such holder, such payment was
made, such holder shall pay to the Company the amount of such refund promptly
upon receipt thereof.
(c) In the event that any Governmental Authority notifies the
Company that it has improperly failed to withhold or deduct any Tax from a
payment received by any holder of Notes under this Agreement, under the Notes
held by such holder or under any other Loan Documents, the Company shall timely
and fully pay such Tax to such Governmental Authority and such holder shall,
upon receipt of written notice of such payment, immediately pay to the Company,
an amount necessary in order that the amount of such payment to the Company
after payment of all Taxes with respect to such payment, shall equal the amount
that the Company paid to such Governmental Authority pursuant to this clause
(c).
(d) Each holder of a Note shall, upon request by the Company,
take requested measures to mitigate the amount of Indemnifiable Tax required to
be deducted or withheld from any payment made by the Company under this
Agreement, under the Notes or under any other Loan Documents if such measures
can, in the sole and absolute opinion of such holder, be taken without such
holder suffering any economic, legal, regulatory or other disadvantage
(provided, however, that no such holder shall be required to designate a funding
office that is not located in the United States of America).
(e) Notwithstanding the foregoing, in no event shall the
amount payable under this Section 9.17 (to the extent, if any, constituting
interest under applicable laws) together with all amounts constituting interest
under applicable laws and payable in connection with this Agreement or the
Notes, exceed the Highest Lawful Rate or the maximum amount of interest
permitted to be charged by applicable laws.
9.18. Waiver of Claims. The Company hereby waives and releases the
Agent and all Banks from any and all claims or causes of action which the
Company may own, hold or claim in respect of any of them as of the date hereof.
9.19. Right of Setoff. Upon the occurrence and during the continuance
of any Event of Default, the Banks each are hereby authorized at any time and
from time to time, without notice to the Company or any of the Guarantors (any
such notice being expressly waived by the Company and by the Guarantors by their
execution of a Guaranty or a Joinder Agreement), to setoff and apply any and all
deposits (general or special, time or demand, provisional or final, whether or
not such setoff results in any loss of interest or other penalty, and including
without limitation all certificates of deposit) at any time held, and any other
funds or property at any time held, and other Indebtedness at any time owing by
such Bank to or for the credit or the account of the Company or any such
Guarantor against any and all of the Indebtedness arising in connection with
this Agreement irrespective of whether or not such Bank will have made any
demand under this Agreement, the Notes or any other Loan Document. Each of the
Company and the Guarantors (by their execution of a Guaranty or a Joinder
Agreement) also hereby grants to each of the Banks a security interest in and
hereby transfers, assigns, sets over, and conveys to each of the Banks, as
security for payment of all Loans and Letter of Credit Exposure Amount, all such
deposits, funds or property of the Company or any such Guarantor or Indebtedness
of any Bank to the Company or any such Guarantor. Should the right of any Bank
to realize funds in any manner set forth hereinabove be challenged and any
application of such funds be reversed, whether by court order or otherwise, the
Banks shall make restitution or refund to the Company pro rata in accordance
with their respective Commitment Percentages. Each Bank agrees to promptly
notify the Company and the Agent after any such setoff and application, provided
that the failure to give such notice will not affect the validity of such setoff
and application. The rights of the Agent and the Banks under this Section are in
addition to other rights and remedies (including without limitation other rights
of setoff) which the Agent or the Banks may have. This Section is subject to the
terms and provisions of Section 2.14 hereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth above.
WHOLE FOODS MARKET, INC.,
a Texas corporation
By: /s/ Glenda Flanagan
--------------------
Glenda Flanagan, Secretary
Addresses for Notices:
Whole Foods Market, Inc.
601 N. Lamar Boulevard, Suite 300
Austin, Texas 78703-5413
Attention: Ms. Glenda Flanagan
<PAGE>
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, a
national banking association, as a Bank and as
Agent
Commitment: By: /s/ Cindy M. Matula
--------------------------
Cindy M. Matula, President
$20,000,000
Address for Notices:
Chase Bank of Texas,
National Association
700 Lavaca, 2nd Floor
Post Office Box 550
Austin, Texas 78789
Attention: Manager/Commercial Lending Group
with copies to:
Chase Bank of Texas,
National Association
1111 Fannin, 9th Floor
Houston, Texas 77002
Attention: Manager/Loan Syndication Services
<PAGE>
WELLS FARGO BANK (TEXAS), N. A., a national
banking association
Commitment: By: /s/ Susan L. Coulter
--------------------
Name: Susan L. Coulter
$20,000,000 Title: Vice President
Address for Notices:
Wells Fargo Bank (Texas), N.A.
111 Congress, Suite 300
Austin, Texas 78701
Attention: Ms. Susan Coulter
<PAGE>
FIRST UNION NATIONAL BANK, a national banking
association
Commitment: By: /s/ Randal D. Southern
----------------------
Randal D. Southern, Vice President
$20,000,000
Address for Notices:
First Union National Bank
1345 Chestnut Street, PA 4821
Philadelphia, Pennsylvania 19107
Attention: Mr. Randal D. Southern
and Ms. Irene Marks
<PAGE>
BANKBOSTON, N.A., a national banking
association
Commitment: By: /s/ Judith C.E. Kelly
---------------------
Judith C.E. Kelly, Vice President
$12,500,000
Address for Notices:
BankBoston, N.A.
100 Federal Street, 01-09-05
Boston, Massachusetts 02110
Attention: Ms. Judith C.E. Kelly
<PAGE>
GUARANTY FEDERAL BANK, F.S.B.
By: /s/ Chris D. Harkrider
----------------------
Chris D. Harkrider, Vice President
Commitment:
$10,000,000
Address for Notices:
Guaranty Federal Bank, F.S.B.
301 Congress Avenue, Suite 1500
Austin, Texas 78701
Attention: Mr. Jason C. Qunell
<PAGE>
LASALLE BANK NATIONAL ASSOCIATION,
a national banking association
By: /s/ Thomas J. Ranville
----------------------
Thomas J. Ranville, First Vice President
Commitment:
$17,500,000
Address for Notices:
LaSalle Bank National Association
125 Ottawa NW, Suite 270
Grand Rapids, Michigan 49503
Attention: Mr. Thomas J. Ranville
<PAGE>
<TABLE>
<CAPTION>
Index to Credit Agreement
-------------------------
Page
<S> <C> <C>
1. Definitions..............................................................................................1
-----------
1.1. Certain Defined Terms............................................................................1
Accounts.........................................................................................1
Adjusted LIBOR Rate..............................................................................1
Affiliate 1
Aggregate Commitment.............................................................................1
Aggregate Unused Commitment......................................................................1
Alternate Base Rate..............................................................................2
Alternate Base Rate Borrowing....................................................................2
Annual Audited Financial Statements..............................................................2
Applicable Commitment Fee Percentage.............................................................2
Applicable Margin................................................................................3
Applications.....................................................................................5
Business Day.....................................................................................5
Business Entity..................................................................................5
Capital Lease Obligations........................................................................5
Cash Capital Expenditures........................................................................5
Change of Control................................................................................5
Beneficially Own.................................................................................5
34 Act 5
Group 5
Unrelated Person.................................................................................5
Related Person...................................................................................5
Voting Stock.....................................................................................5
Chapter One......................................................................................6
Closing Fee......................................................................................6
Code 6
Commitment.......................................................................................6
Commitment Fee...................................................................................6
Commitment Percentage............................................................................6
Consequential Loss...............................................................................6
Contingent Obligations...........................................................................7
Contribution Agreement...........................................................................7
Current Guarantors...............................................................................7
Current Ratio....................................................................................7
Current Sum......................................................................................7
Debt Coverage Ratio..............................................................................7
Discontinued Operations..........................................................................8
EBITDA 8
Eligible Assignee................................................................................8
Environmental Claim..............................................................................8
Environmental Liabilities........................................................................8
Environmental Permit.............................................................................9
Equipment 9
ERISA 9
LIBOR Business Day...............................................................................9
London Interbank Rate............................................................................9
LIBOR Interest Period............................................................................9
LIBOR Rate......................................................................................10
LIBOR Rate Borrowing............................................................................10
Eurocurrency Reserve Requirement................................................................10
Event of Default................................................................................10
<PAGE>
Excess Interest Amount..........................................................................11
Extension Approval..............................................................................11
Extension Request...............................................................................11
Extension Request Periods.......................................................................11
FDIC Percentage.................................................................................11
Federal Funds Rate..............................................................................11
Fixed Charge Coverage Ratio.....................................................................11
Funded Indebtedness.............................................................................11
Generally Accepted Accounting Principles........................................................12
Governmental Authority..........................................................................12
Guaranties......................................................................................12
Guarantors......................................................................................12
Hazardous Substance.............................................................................12
Highest Lawful Rate.............................................................................12
Incidental Liens................................................................................13
Indebtedness....................................................................................13
Interest Option.................................................................................14
Interest Payment Dates..........................................................................14
Investment......................................................................................14
Issuer 14
Joinder Agreement...............................................................................14
Legal Requirement...............................................................................14
Letter of Credit Advances.......................................................................14
Letter of Credit Exposure Amount................................................................14
Letter of Credit Fee Payment Date...............................................................14
Letter of Credit Termination Date...............................................................15
Letters of Credit...............................................................................15
Leverage Ratio..................................................................................15
Lien 15
Loan Documents..................................................................................15
Loans 15
Majority Banks..................................................................................15
Maturity Date...................................................................................15
Net Income......................................................................................15
Notes 16
Notice of Assumption............................................................................16
Officer's Certificate...........................................................................16
Organizational Documents........................................................................16
Parties 16
Past Due Rate...................................................................................16
Permitted Asset Dispositions....................................................................16
Permitted Investment Securities.................................................................16
Permitted Stock Dispositions....................................................................16
Person 17
Plan 17
Prime Rate......................................................................................17
Principal Office................................................................................17
Principal Payment Date..........................................................................17
Proper Form.....................................................................................17
Property 17
Quarterly Unaudited Financial Statements........................................................17
Rate Selection Date.............................................................................18
Rate Selection Notice...........................................................................18
Reference Bank..................................................................................18
Regulation D....................................................................................18
Regulatory Change...............................................................................18
Request for Extension of Credit and Certificate of No Default...................................18
<PAGE>
Requirements of Environmental Law...............................................................18
Rolling Four Quarters...........................................................................18
Stated Rate.....................................................................................19
Stock 19
Subsidiary......................................................................................19
Tangible Net Worth..............................................................................19
Tangible Net Worth Floor........................................................................19
Tangible Net Worth Floor Adjustment.............................................................19
Taxes 19
Termination Date................................................................................20
Unsecured Borrowed Debt.........................................................................20
Unused Commitment...............................................................................20
1.2. Accounting Terms and Determinations.............................................................20
2. Loans; Letters of Credit; Payments; Prepayments; Interest Rates.........................................21
---------------------------------------------------------------
2.1. Loans...........................................................................................21
2.2. Commitment Fees; Termination and Reductions.....................................................22
2.3. Mandatory Prepayments...........................................................................22
2.4. Letters of Credit...............................................................................23
2.5. Amortization of Notes...........................................................................27
Amortized Principal.............................................................................27
2.6. Payments........................................................................................27
2.7. Prepayments of Loans............................................................................27
2.8. Application of Payments and Prepayments.........................................................29
2.9. Pro Rata Treatment..............................................................................29
2.10. Interest Payment Dates on the Loans.............................................................30
2.11. Interest Options for Loans......................................................................30
2.12. Special Provisions Applicable to LIBOR Rate Borrowings..........................................31
2.13. Recapture.......................................................................................34
2.14. Payment Dates...................................................................................35
2.15. Sharing of Payments, Etc........................................................................35
3. Conditions..............................................................................................35
----------
3.1. All Loans...............................................................................................35
3.2. First Loan......................................................................................36
4. Representations and Warranties..........................................................................37
------------------------------
4.1. Organization....................................................................................37
4.2. Financial Statements............................................................................38
4.3. Enforceable Obligations; Authorization..........................................................38
4.4. Other Debt......................................................................................38
4.5. Litigation......................................................................................38
4.6. Title...........................................................................................38
4.7. Taxes...........................................................................................39
4.8. Subsidiaries....................................................................................39
4.9. Representations by Others.......................................................................39
4.10. Permits, Licenses, Etc..........................................................................39
4.11. ERISA...........................................................................................39
4.12. Condition of Property...........................................................................39
4.13. Assumed Names...................................................................................39
4.14. Investment Company Act..........................................................................40
4.15. Public Utility Holding Company Act..............................................................40
PUHCA...........................................................................................40
4.16. Agreements......................................................................................40
4.17. Environmental Matters...........................................................................40
<PAGE>
5. Affirmative Covenants...................................................................................41
---------------------
5.1. Taxes, Existence, Regulations, Property, Etc....................................................41
5.2. Financial Statements and Information............................................................41
5.3. Financial Tests.................................................................................42
5.4. Inspection......................................................................................42
5.5. Further Assurances..............................................................................42
5.6. Books and Records...............................................................................42
5.7. Insurance.......................................................................................42
5.8. ERISA...........................................................................................42
5.9. Use of Proceeds.................................................................................43
Reg U 43
5.10. Additional Guaranties...........................................................................43
5.11. Notice of Events................................................................................43
5.12. Environmental Matters...........................................................................44
5.13. End of Fiscal Years and Fiscal Quarters.........................................................44
6. Negative Covenants......................................................................................44
------------------
6.1. Indebtedness....................................................................................44
6.2. Liens...........................................................................................46
6.3. Contingent Obligations..........................................................................47
6.4. Mergers, Consolidations and Dispositions and Acquisitions of Assets.............................47
Permitted Asset Disposition.....................................................................48
Permitted Stock Disposition.....................................................................48
6.5. Nature of Business..............................................................................48
6.6. Management......................................................................................48
6.7. Transactions with Related Parties...............................................................49
6.8. Loans and Investments...........................................................................49
6.9. ERISA Compliance................................................................................49
6.10. Credit Extensions...............................................................................50
6.11. Change in Accounting Method.....................................................................50
6.12. Redemption, Dividends and Distributions.........................................................50
6.13. Capital Expenditures............................................................................50
7. Events of Default and Remedies..........................................................................50
------------------------------
7.1. Events of Default...............................................................................50
7.2. Remedies Cumulative.............................................................................53
8. The Agent and the Issuer................................................................................53
------------------------
8.1. Appointment, Powers and Immunities..............................................................53
8.2. Reliance........................................................................................54
8.3. Defaults........................................................................................54
8.4. Rights as a Bank................................................................................54
8.5. Indemnification.................................................................................55
8.6. Non-Reliance on Agent and Other Banks...........................................................55
8.7. Failure to Act..................................................................................55
8.8. Resignation or Removal of Agent.................................................................56
9. Miscellaneous...........................................................................................56
-------------
9.1. No Waiver.......................................................................................56
9.2. Notices.........................................................................................56
9.3. Governing Law...................................................................................57
9.4. Survival; Parties Bound.........................................................................57
9.5. Counterparts....................................................................................57
9.6. Limitation of Interest..........................................................................57
9.7. Survival........................................................................................58
9.8. Captions........................................................................................58
9.9. Expenses, Etc...................................................................................58
9.10. Indemnification.................................................................................59
9.11. Amendments, Etc.................................................................................60
9.12. Successors and Assigns..........................................................................60
Ratable Assignment..............................................................................61
Assignment and Acceptance.......................................................................61
9.13. Entire Agreement................................................................................63
9.14. Severability....................................................................................63
9.15. Disclosures.....................................................................................63
9.16. Capital Adequacy................................................................................63
9.17. Withholding Tax.................................................................................64
Indemnifiable Tax...............................................................................64
Tax 65
9.18. Waiver of Claims................................................................................66
9.19. Request for Extension...........................................................................66
9.20. Right of Setoff.................................................................................67
</TABLE>
<PAGE>
EXHIBITS
- --------
A - Note Form (ss.1.1)
B - Notice of Assumption (ss.1.1)
C - Officer's Certificate (ss.1.1)
D - Request for Extension of Credit
and Certificate of No Default (ss.1.1)
E - Rate Selection Notice (ss.2.11[b][1])
F - Secretary's Certificate (ss.3.2[b])
G - Form of Guarantors' Secretary's Certificates (ss.3.2[d])
H - Assignment and Acceptance (ss.9.12[c])
I - Extension Approval Form (ss.1.1)
J - Extension Request Form (ss.1.1)
SCHEDULES
- ---------
I - List of Existing Liens (ss.4.6),
List of Existing Liabilities (ss.4.16),
Other Permitted Liabilities (ss.6.1)
II - List of Subsidiaries (ss.4.8)
III - Assumed Names (ss.4.13)
<PAGE>
AMENDED AND RESTATED
CREDIT AGREEMENT
($100,000,000 Revolving Credit Facility)
made and entered into
as of June 28, 1999
by and among
WHOLE FOODS MARKET, INC.,
a Texas corporation,
EACH OF THE FINANCIAL INSTITUTIONS WHICH IS
A SIGNATORY HERETO OR
WHICH MAY FROM TIME TO TIME
BECOME A PARTY HERETO,
and
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION,
a national banking association
as Agent for such Financial Institutions
<PAGE>
Houston, Texas
$
_____________________________________ _________, 1999
FOR VALUE RECEIVED, WHOLE FOODS MARKET, INC. (herein called "Company"),
a Texas corporation, promises to pay to the order of
_______________________________________ (herein called "Payee"), a national
banking association, at the banking house of CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION, a national banking association acting in its capacity as Agent
under the Credit Agreement (together with its successors in such capacity being
herein called "Agent"), at 712 Main Street in the City of Houston, Texas, or at
such other place as the Agent may hereafter designate in writing, in immediately
available funds and in lawful money of the United States of America, the
principal sum of Dollars ($ ) (or the unpaid balance of all principal advanced
against this note, if that amount is less), together with interest on the unpaid
principal balance of this note from time to time outstanding until maturity at
the rate or rates provided for in the Credit Agreement and interest on all past
due amounts, both principal and accrued interest, at the Past Due Rate;
provided, that for the full term of this note the interest rate produced by the
aggregate of all sums paid or agreed to be paid to the holder of this note for
the use, forbearance or detention of the debt evidenced hereby shall not exceed
the Highest Lawful Rate.
If, for any reason whatever, the interest paid or received on this note
during its full term produces a rate which exceeds the Highest Lawful Rate, the
holder of this note shall refund to the payor or, at the holder's option, credit
against the principal of this note such portion of said interest as shall be
necessary to cause the interest paid on this note to produce a rate equal to the
Highest Lawful Rate. All sums paid or agreed to be paid to the holder of this
note for the use, forbearance or detention of the indebtedness evidenced hereby
shall, to the extent permitted by applicable law, be amortized, prorated,
allocated and spread in equal parts throughout the full term of this note, so
that the interest rate is uniform throughout the full term of this note.
This note has been issued pursuant to the terms of an Amended and
Restated Credit Agreement (which, as it may have been or may be amended,
restated, modified or supplemented from time to time, is herein called the
"Credit Agreement") of even effective date herewith, by and among Company,
Agent, Payee and certain other signatory financial institutions named therein or
which may be a party thereto from time to time, to which reference is made for
all purposes. Advances against this note by Payee or other holder hereof,
payments and prepayments hereunder and acceleration hereof shall be governed by
the Credit Agreement. Capitalized words and phrases used herein and not defined
herein and which are defined in the Credit Agreement shall have the same
meanings herein as are ascribed to them in the Credit Agreement.
The unpaid principal balance of this note at any time shall be the
total of all principal lent or advanced against this note less the sum of all
principal payments and permitted prepayments made on this note by or for the
account of Company. All loans and advances and all payments and permitted
prepayments made hereon may be endorsed by the holder of this note on the
schedule which is attached hereto (and hereby made a part hereof for all
purposes) or otherwise recorded in the holder's records; provided, that any
failure to make notation of (a) any advance shall not cancel, limit or otherwise
affect Company's obligations or any holder's rights with respect to that
advance, or (b) any payment or permitted prepayment of principal shall not
cancel, limit or otherwise affect Company's entitlement to credit for that
payment as of the date received by the holder.
Company and any and all co-makers, endorsers, guarantors and sureties
severally waive notice (including, but not limited to, notice of intent to
accelerate and notice of acceleration, notice of protest and notice of
dishonor), demand, presentment for payment, protest, diligence in collecting and
the filing of suit for the purpose of fixing liability and consent that the time
of payment hereof may be extended and re-extended from time to time without
notice to any of them. Each such person agrees that his, her or its liability on
or with respect to this note shall not be affected by any release of or change
in any guaranty or security at any time existing or by any failure to perfect or
maintain perfection of any lien against or security interest in any such
security or the partial or complete unenforceability of any guaranty or other
surety obligation, in each case in whole or in part, with or without notice and
before or after maturity.
SIGNED FOR IDENTIFICATION:
WHOLE FOODS MARKET, INC.
a Texas corporation
By: ______________________________
Name: ______________________________
Title: ______________________________
Page 1 of 3 Pages
<PAGE>
EXHIBIT A
This note shall be governed by and construed in accordance with the
laws of the State of Texas and the United States of America from time to time in
effect. Travis County, Texas shall be a proper place of venue for suit hereon.
Company and any and all co-makers, endorsers, guarantors and sureties
irrevocably agree that any legal proceedings in respect of this note or any loan
agreement, security agreement, guaranty or other writing relating hereto shall
be brought in the district courts of Travis County, Texas, or the United States
District Court for the Western District of Texas, Austin Division.
WHOLE FOODS MARKET, INC.
a Texas corporation
By: ____________________________
Name: ____________________________
Title: ____________________________
Page 2 of 3 Pages
<PAGE>
EXHIBIT B
NOTICE OF ASSUMPTION
Reference is made to that certain Amended and Restated Credit Agreement
dated as of ________ , 1999, by and among Whole Foods Market, Inc., certain
financial institutions from time to time a party thereto and Chase Bank of
Texas, National Association, in its capacity as agent on behalf of said
financial institutions, as the same may have heretofore been amended, restated,
modified and supplemented from time to time (collectively, the "Credit
Agreement"). Terms used herein and not defined herein shall have the same
meanings herein as are ascribed to them in the Credit Agreement.
[The undersigned Subsidiary hereby gives notice to the Agent that [the
corporations listed on Exhibit A attached hereto and incorporated herein by
reference (the "Merged Guarantors") have] [ (the "Merged Guarantor"), a
corporation, has] been merged into the undersigned Subsidiary effective as of ,
and the undersigned Subsidiary is the surviving Business Entity. The undersigned
Person is liable for, and does hereby assume all of, the obligations of the
Merged Guarantor[s] under the Guaranties and the Contribution Agreement and
shall be a "Guarantor" thereunder for all purposes.]
EXECUTED the _______ day of ______________, ________________.
By: _________________________
Name: _________________________
Title: _________________________
[Attachment: Exhibit A - List of Merged Guarantors]
<PAGE>
EXHIBIT C
OFFICER'S CERTIFICATE
Date:
[Name and address of Bank
or Agent, as the case may be]
Attention: __________________
Re: Financial Statements Required under Amended and Restated Credit
Agreement (as the same may have been amended, modified and restated
from time to time, the "Credit Agreement") dated as of _____________,
1999, by and among Whole Foods Market, Inc., the financial
institutions or party thereto from time to time and Chase Bank of
Texas, National Association, as Agent
Gentlemen:
Capitalized words and phrases used herein and not defined herein and
defined in the Credit Agreement are used herein with the same meanings as are
assigned to them in the Credit Agreement.
The undersigned hereby certifies, warrants and represents to the
addressee named above that:
(1) He or she is the duly appointed and acting * _______________ of the
Company;
(2) The attached financial statements dated as of ________________ were
prepared in conformity with Generally Accepted Accounting Principles
consistently applied and present fairly the financial position of the
Company and its Subsidiaries on a consolidated basis as of the date
thereof and the results of its operations for the period covered
thereby.
(3) As of the end of the period covered by the attached financial
statements:
(a) LEVERAGE RATIO:
(i) Funded Indebtedness: $_______________
* Must be the chief executive officer, president, chief operating officer or
chief financial officer of the Company.
<PAGE>
<TABLE>
<S> <C> <C> <C>
(ii) EBIT of
the Company and its
Subsidiaries for the
Rolling Four Quarters: $ _________
(iii) Depreciation, depletion,
obsolescence and
amortization of the
Company and its Sub-
sidiaries for the Rolling
Four Quarters: $ _________
(iv) EBITDA for the Rolling
Four Quarters [the sum
of (ii) plus (iii)]: $ _________
(v) Required Leverage Ratio
(not more than): 3.00 to 1.00
(vi) Actual Leverage Ratio: ____ to 1.00
[(i) to (iv)]
(b) FIXED CHARGE COVERAGE RATIO:
(i) EBIT for the Rolling Four
Quarters [see a(ii) above]: $ _________
(ii) Operating Lease Expense for
the Rolling Four Quarters: $ _________
(iii) (i) plus (ii) = $ _________
(iv) Interest expense for
the Rolling Four
Quarters: $ _________
(v) Operating Lease
Expense for the
Rolling Four
Quarters: $ _________
(vi) Fixed Charge Coverage
Ratio [(iii) to the sum
of (iv) and (v)]: ____ to 1.00
(vii) Required Fixed Charge
Coverage Ratio for the
Rolling Four Quarters
(not less than): 1.50 to 1.00
(4) Based on 3(a)(vi) above:
(a) Applicable Commitment Fee Percentage is ______ %; and
(b) Applicable Margin for LIBOR Rate Borrowings is _____%.
Page 2
</TABLE>
<PAGE>
(5) (Check either (a) or (b))
[ ] (a) The Company has kept, observed, performed and
fulfilled each and every one of its obligations under
the Credit Agreement during the period covered by the
attached financial statements.
[ ] (b) The Company has kept, observed, performed and
fulfilled each and every one of its obligations under
the Credit Agreement during the period covered by the
attached financial statements except for the following
matters: [Describe all such defaults, specifying the
nature, duration and status thereof and what action the
Company has taken or proposes to take with respect
thereto.]
__________________________________
Name: ___________________________
Page 3
<PAGE>
EXHIBIT D
[Company Letterhead]
REQUEST FOR EXTENSION OF CREDIT
AND CERTIFICATE OF NO DEFAULT
Date:
Chase Bank of Texas,
National Association
712 Main Street
Houston, Texas 77002
Attention:
Re: Loan under Amended and Restated Credit Agreement dated as of
______________, 1999, by and among Whole Foods Market, Inc., a Texas
corporation, the financial institutions a party thereto from time to
time, and Chase Bank of Texas, National Association, a national
banking association, as Agent (as the same may have been amended,
modified and/or restated from time to time, the "Credit Agreement")
Gentlemen:
Capitalized words and phrases used herein but not defined herein which are
defined in the Credit Agreement are used herein with the same meanings as are
ascribed to them in the Credit Agreement.
The Company requests that a Loan be made under the Credit Agreement in the
amount of $___________ and that such Loan be made on ________, 19__ , which is a
Business Day, or in the case of a LIBOR Rate Borrowing, a LIBOR Business Day
(unless this request for a Loan is received by the Agent after 12:00 noon in
which case, then on the next to occur Business Day, or in the case of a LIBOR
Rate Borrowing, the next to occur LIBOR Business Day, hereafter).
The Loan is to be an (check one) [ ] Alternate Base Rate Borrowing [ ]
LIBOR Rate Borrowing. If the Loan is to be a LIBOR Rate Borrowing, the LIBOR
Interest Period is to be (check one) [ ] one [ ] two [ ] three [ ] six months.
[The Company further requests that simultaneously with the making of the
Loan described above, the current LIBOR Rate Borrowing which matures on the same
day that said Loan is to be made (i) be converted to a LIBOR Rate Borrowing with
the same Interest Period selected for such Loan and (ii) have its unpaid
principal balance be combined with the new Loan so that the aggregate thereof is
treated as a single LIBOR Rate Borrowing for the LIBOR Interest Period
designated for the new Loan above and for all other purposes in the Credit
Agreement.]
[The Company further requests that simultaneously with the making of the
Loan described above, a portion of the current Alternate Rate Borrowing in the
amount of $___________ be converted to a LIBOR Rate Borrowing with the same
LIBOR Interest Period selected for such Loan and that such portion of the
Alternate Base Rate and the new Loan be combined and treated as a single LIBOR
Rate Borrowing for the LIBOR Interest Period designated above for all purposes
in the Credit Agreement.]
The Company hereby represents and warrants as follows:
(i) each representation or warranty of the Company contained in the
Credit Agreement is true in all material respects on and as of
the date hereof with the same effect as though such
representations and warranties had been made on and of this date;
<PAGE>
(ii) no Event of Default or Default under the Credit
Agreement has occurred and is still continuing (except
for any event of default or default which may have
been expressly waived in writing by the Banks);
(iii) the Company is not in default in the due performance
of any covenant on its part in the Credit Agreement;
(iv) so far as is known to or is ascertainable after a
reasonable and diligent investigation by the officers
of the Company and its Subsidiaries, the business and
operations of the Company and all of its Subsidiaries
as conducted at all times relevant to the transactions
contemplated by the Credit Agreement to and including
the close of business on the date hereof have been and
are in compliance with all applicable Legal
Requirements materially affecting the business and
operations of the Company and its Subsidiaries on a
consolidated basis.
The undersigned person executing this Request for Extension of Credit on
behalf of the Company is the duly elected, qualified and acting * _________ .
WHOLE FOODS MARKET, INC., a Texas corporation
By: ________________________________
Name: ________________________________
Title:________________________________
* ____________ Must be the chief executive officer, president, chief
operating officer or chief financial officer of the Company.
RATE SELECTION NOTICE
---------------------
Whole Foods Market, Inc., a Texas corporation, certain financial
institutions signatory thereto (collectively, the "Banks") and Chase Bank of
Texas, National Association, a national banking association, as agent for and on
behalf of the Banks, executed and delivered that certain Amended and Restated
Credit Agreement (as amended, supplemented and restated, the "Credit Agreement")
dated as of _______________, 1999. Any term used herein and not otherwise
defined herein shall have the meaning herein ascribed to it in the Credit
Agreement.
In accordance with the Credit Agreement, the Company hereby notifies the
Agent of the exercise of an Interest Option.
A. Current borrowing
1. Interest Option now in effect: ___________
2. Amount: $___________
3. Expiration of current Interest
Period, if applicable: ________, 199__
B. Proposed borrowing
1. Amount: $___________
2. Date Interest Option is to
be effective: ________, 199__
3. Interest Option to be applicable (check one):
[ ] Alternate Base Rate
[ ] LIBOR Rate
4. LIBOR Interest Period (check one if applicable):
[ ] 1 month [ ] 3 months
[ ] 2 months [ ] 6 months
Page 2
<PAGE>
EXHIBIT E
The Company represents and warrants that the Interest Option and the LIBOR
Interest Period (if applicable) selected above comply with all provisions of the
Credit Agreement and that there exists no Event of Default or any event which,
with the passage of time, the giving of notice or both, would be an Event of
Default.
WHOLE FOODS MARKET, INC., a Texas corporation
By: ___________________________________
Date: ____________, 199___ Name: ___________________________________
Title: ___________________________________*
* ________ Must be the chief executive officer, president, chief operating
officer or chief financial officer of the Company.
Page 3
<PAGE>
EXHIBIT F
SECRETARY'S CERTIFICATE
I, the undersigned, do hereby certify that I am the duly elected and acting
Secretary of WHOLE FOODS MARKET, INC. (the "Corporation"), a Texas corporation;
that, by unanimous written consent by all members of the Board of Directors of
the Corporation, the following resolutions have been duly adopted; that said
resolutions have been recorded in the minute books of the Corporation kept by
me, are in accord with and pursuant to the Certificate of Incorporation and
Bylaws of the Corporation, have not been amended, modified, superseded or
revoked, and are now in full force and effect, to-wit:
RESOLVED: That this Corporation enter into an Amended and Restated Credit
Agreement with such financial institutions (together with all other
financial institutions which may become a party thereto pursuant to the
terms of the Credit Agreement, the "Banks" and each of the Banks being a
"Bank herein) as the officer of this Corporation executing the same may in
his or her discretion approve, and with CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION, a national banking association, in its capacity as Agent for
and on behalf of the Banks (in such capacity, the "Agent"), substantially
in the form of the draft of ________ , 1999, presented to this meeting,
together with such changes as the officer of this Corporation executing the
same may in his or her discretion approve, such Credit Agreement, together
with such changes, being herein called the "Credit Agreement";
RESOLVED, FURTHER: That pursuant to the Credit Agreement, this Corporation
execute and deliver to each Bank a promissory note (each a "Note") in an
original principal amount equal to such Bank's Commitment (as that term is
defined in the Credit Agreement), payable to the order of such Bank, such
Note to bear interest on the unpaid principal balance thereof at the rates
provided in the Credit Agreement, this Corporation to have the right
pursuant to the terms of the Credit Agreement to borrow, repay and reborrow
prior to the Maturity Date (as that term is defined in the Credit
Agreement), with accrued interest on each Note being due and payable on the
dates set forth in the Credit Agreement;
RESOLVED, FURTHER: That pursuant to the Credit Agreement, this corporation
enter with the guarantors under the Credit Agreement into a Contribution
Agreement (the "Contribution Agreement") of even date with the Credit
Agreement, pursuant to which this Corporation agrees, among other things,
to indemnify each guarantor from time to time a party thereto against any
losses incurred thereby under the guaranty being executed thereby pursuant
to the Credit Agreement;
RESOLVED, FURTHER: That the Credit Agreement, each Note, the Contribution
Agreement, and other instruments as the Agent and the Banks may reasonably
require in connection with the same shall be in form and substance
satisfactory to the Agent and the Banks and in form and substance approved
by the officer of this Corporation executing the same, his or her approval
of each such instrument to be conclusively evidenced by the execution
thereof;
RESOLVED, FURTHER: That the Chief Executive Officer, the President, any
Vice President, the Treasurer, any Assistant Treasurer, the Secretary or
any Assistant Secretary of this Corporation be and each acting alone hereby
is severally authorized and directed for and on behalf, and as the act and
deed, of this Corporation to execute and deliver to the Agent and the Banks
the Credit Agreement, each Note (including, without limitation, each new
Note executed from time to time hereafter, as contemplated in the Credit
Agreement), the Contribution Agreement and such other instruments as the
Agent or any Bank may require in its sole and absolute discretion and to
take such other action in the consummation of the transaction herein
contemplated as the officer acting shall deem to be necessary or desirable,
and any and all acts heretofore taken by the Chief Executive Officer, the
President, any Vice President, the Treasurer, any Assistant Treasurer, the
Secretary or any Assistant Secretary of this Corporation to such end are
hereby expressly ratified and confirmed as the acts and deeds of this
Corporation; and
Page 1
<PAGE>
RESOLVED, FURTHER: That the Chief Executive Officer, the President, any
Vice President, the Treasurer, any Assistant Treasurer, the Secretary or
any Assistant Secretary of this Corporation be and each acting alone hereby
is severally authorized and directed for and on behalf, and as the act and
deed, of this Corporation to negotiate and agree to on terms acceptable to
such officer any and all renewals, extensions, increases, modifications and
amendments to the Credit Agreement, any Note, the Contribution Agreement,
or any other document executed in connection with the transactions
contemplated in any of the foregoing, and to execute and deliver to the
Agent and the Banks such documents as the Agent or any Bank shall require
to evidence any such renewal, extension, increase, modification or
amendment and to take such other action in the consummation of the
transactions therein contemplated as the officer acting shall deem to be
necessary or desirable.
I further certify that_________________ is a duly elected and incumbent
______________of the Corporation, that his true and correct signature is set
forth below and that the seal affixed hereto is the authentic seal of the
Corporation:
____________________________.
(Signature of ______________)
I further certify that attached hereto as Annex I is a true, correct and
complete copy of the Certificate of Incorporation of the Corporation, together
with all amendments thereto; and that attached hereto as Annex II is a true,
correct and complete copy of the Bylaws of the Corporation, together with all
amendments thereto.
IN TESTIMONY WHEREOF, I have hereunto subscribed my name by order of the
Board of Directors thereof on this ___ day of _____________ , 1999.
___________________________________
Name: ____________________________
[SEAL]
I do hereby certify that I am the duly elected and acting ______________
[Vice President] of Whole Foods Market, Inc. and that ____________ is the duly
elected and acting Secretary of Whole Foods Market, Inc.
__________________________________
Name: ___________________________
Page 2
<PAGE>
EXHIBIT G
SECRETARY'S CERTIFICATE
I, the undersigned, do hereby certify that I am the duly elected Secretary
of each of the corporations listed on Annex I attached hereto and incorporated
herein by reference for all purposes (collectively, the "Corporations"); that,
by unanimous written consent by all members of the Board of Directors of each of
the Corporations, the following resolutions have been duly adopted; that said
resolutions have been recorded in the minute books of each of the Corporations
kept by me, are in accord with and pursuant to the corporate charter and Bylaws
of each of the Corporations, have not been amended, modified, superseded or
revoked, and are now in full force and effect, to-wit:
RESOLVED: That this Corporation, jointly and severally, execute and deliver
to CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, a national banking
association, in its capacity as Agent (in such capacity, the "Agent") on
behalf of the Banks (as that term is hereafter defined), a guaranty (the
"Guaranty") whereby this Corporation jointly and severally guarantees
payment of any and all indebtedness of WHOLE FOODS MARKET, INC. (the
"Company"), a Texas corporation, to the Banks and the Agent now or
hereafter existing, arising out of or in connection with that certain
Amended and Restated Credit Agreement executed or to be executed by and
among the Company, the Agent and such financial institutions which the
Company and the Agent may approve or which otherwise may be made a party
thereto pursuant to the terms thereof (collectively, the "Banks"), as the
same may be amended, supplemented or restated from time to time
(collectively, the "Credit Agreement") and under the Notes (as defined in
the Credit Agreement); the Guaranty to cover interest on the principal
amount of said indebtedness and all expenses of the Agent and the Banks in
collecting said indebtedness or enforcing the Guaranty, or both, and
certain other costs and expenses more fully described in the Guaranty;
RESOLVED, FURTHER: That this Corporation enter with the other guarantors
(together with any other party which becomes a guarantor under the Guaranty
from time to time, the "Other Guarantors"), under the Guaranty into a
Contribution Agreement (the "Contribution Agreement") pursuant to which,
among other things, this Corporation agrees to pay to any of the Other
Guarantors on which demand for payment of any of the indebtedness
guaranteed by the Guaranty and payment has been made, this Corporation's
Proportionate Share (as defined in the Contribution Agreement) of the
payment made under the Guaranty by such Other Guarantor;
RESOLVED, FURTHER: That the form and content of the Guaranty, the
Contribution Agreement and the Notice be substantially in the forms of the
drafts of , 1999, submitted to this meeting, together with such changes as
the officer of this Corporation executing the same may in his or her
discretion, approve;
RESOLVED, FURTHER: That the execution and delivery of the Guaranty, and the
Contribution Agreement will benefit, directly or indirectly, this
Corporation and its shareholders;
RESOLVED, FURTHER: That the Guaranty, the Contribution Agreement and other
instruments as the Agent and the Banks may reasonably require in connection
with the Guaranty and the Contribution Agreement shall be in form and
substance satisfactory to the Agent and the Banks and in form and substance
approved by the officer of this Corporation executing the same, his or her
approval of each such instrument to be conclusively evidenced by the
execution thereof; and
RESOLVED, FURTHER: That the Chief Executive Officer, the President, any
Vice President, the Treasurer, any Assistant Treasurer, the Secretary or
any Assistant Secretary of this Corporation be and each acting alone hereby
is severally authorized and directed for and on behalf, and as the act and
deed, of this Corporation to execute and deliver to the Agent and the Banks
said Guaranty, Contribution Agreement and such other instruments as the
Page 1
<PAGE>
Agent and the Banks may require, and to take such other action in the
consummation of the transaction herein contemplated as the officer acting
shall deem necessary or desirable, and any and all acts heretofore taken by
the Chief Executive Officer, the President, any Vice President, the
Treasurer, any Assistant Treasurer, the Secretary or any Assistant
Secretary of this Corporation to such end are hereby expressly ratified and
confirmed as the acts and deeds of this Corporation; and
RESOLVED, FURTHER: That the Chief Executive Officer, the President, any
Vice President, the Treasurer, any Assistant Treasurer, the Secretary or
any Assistant Secretary of this Corporation be and each acting alone hereby
is severally authorized and directed for and on behalf, and as the act and
deed, of this Corporation to negotiate and agree to on terms acceptable to
such officer any and all renewals, extensions, increases, modifications and
amendments to the Guaranty the Contribution Agreement, or any other
document executed in connection with the transactions contemplated in any
of the foregoing, and to execute and deliver to the Agent and the Banks
such documents as the Agent or any Bank shall require to evidence any such
renewal, extension, increase, modification or amendment and to take such
other action in the consummation of the transactions therein contemplated
as the officer acting shall deem to be necessary or desirable.
I further certify that__________ is the duly elected and incumbent
_____________ of the Corporation, that the true and correct signature of such
officer is as set forth below:
______________________ .
I further certify that true, correct and complete copies of the Certificate
of Incorporation and Articles of Incorporation of the Corporation, together with
all amendments thereto have been delivered, or simultaneously herewith are being
delivered, to Chase Bank of Texas, National Association, as Agent; and true,
correct and complete copies of the Bylaws of the Corporation, together with all
amendments thereto have been delivered, or simultaneously herewith are being
delivered, to Chase Bank of Texas, National Association, as Agent.
IN WITNESS WHEREOF, I have hereunto subscribed my hand by order of the
Board of Directors of the Corporation thereof on this day of ___________, 1999.
_____________________________________
Name: _______________________________
Page 2
<PAGE>
I do hereby certify that I am the duly elected and acting of each of
the corporations listed on Annex I attached hereto, and that is a duly elected
and acting _________________ Secretary of each of the corporations listed on
Annex I attached hereto.
______________________________________
Name: ________________________________
Page 3
<PAGE>
EXHIBIT H
ASSIGNMENT AND ACCEPTANCE
Dated: ___________ , 199
Reference is made to the Amended and Restated Credit Agreement dated
as of __________________, 1999 (as restated, amended, modified, supplemented and
in effect from time to time, the "Credit Agreement"), among Whole Foods Market,
Inc., a Texas corporation (the "Company"), the financial institutions from time
to time a party thereto, and Chase Bank of Texas, National Association, as agent
(the "Agent"). Capitalized terms used herein and not otherwise defined herein
shall have the meanings assigned to such terms in the Credit Agreement. This
Assignment and Acceptance, between the Assignor (as set forth on Schedule I
attached hereto and made a part hereof by reference for all purposes) and the
Assignee (as set forth on Schedule I hereto and made a part hereof), is dated as
of the Effective Date (as set forth on Schedule I hereto attached).
1. The Assignor hereby irrevocably sells and assigns to the Assignee
without recourse to the Assignor, and the Assignee hereby irrevocably purchases
and assumes from the Assignor without recourse to the Assignor, as of the
Effective Date, an undivided interest (the "Assigned Interest") in and to all
the Assignor's rights and obligations under the Credit Agreement respecting the
credit facility and only the credit facility provided for in the Credit
Agreement (the "Facility"), in a principal amount as set forth on Schedule I.
2. The Assignor (i) makes no representation or warranty and assumes
no responsibility with respect to any statements, warranties or representations
made in or in connection with the Credit Agreement or any other Loan Document or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of the Credit Agreement, any other Loan Document or any other instrument
or document furnished pursuant thereto, other than that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (ii) makes no representation or
warranty and assumes no responsibility with respect to the financial condition
of the Company or its Subsidiaries or the performance or observance by the
Company or its Subsidiaries of any of its respective obligations under the
Credit Agreement, any other Loan Document or any other instrument or document
furnished pursuant thereto; and (iii) attaches the Note held by it and requests
that the Agent exchange such Note for a new Note payable to the Assignor (if the
Assignor has retained any interest in the Facility) and a new Note payable to
the Assignee in the respective amounts which reflect the assignment being made
hereby (and after giving effect to any other assignments which have become
effective on the Effective Date).
3. The Assignee (i) represents and warrants that it is legally
authorized to enter into this Assignment and Acceptance and that it is an
Eligible Assignee (as that term is defined in the Credit Agreement); (ii)
confirms that it has received a copy of the Credit Agreement, together with
copies of the financial statements referred to in Section 4.2 thereof, or if
later the most recent financial statements delivered pursuant to Section 5.2
thereof, and such other documents and information as it has deemed appropriate
to make its own credit analysis; (iii) agrees that it will, independently and
without reliance upon the Agent, the Assignor or any other Bank and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
the Credit Agreement; (iv) appoints and authorizes the Agent to take such action
as agent on its behalf and to exercise such powers under the Credit Agreement as
are delegated to the Agent by the terms thereof, together with such powers as
are reasonably incidental thereto; (v) agrees that it will be bound by the
provisions of the Credit Agreement and will perform in accordance with its terms
all the obligations which by the terms of the Credit Agreement are required to
be performed by it as a Bank; (vi) if the Assignee is organized under the laws
of a jurisdiction outside the United States, attaches the forms prescribed by
the Internal Revenue Service of the United States certifying as to the
Assignee's exemption from United States withholding taxes with respect to all
payments to be made to the Assignee under the Credit Agreement or such other
documents as are necessary to indicate that all such payments are subject to
such tax at a rate reduced by an applicable tax treaty, and (vii) has supplied
the information requested on the administrative questionnaire attached hereto as
Exhibit A.
4. Following the execution of this Assignment and Acceptance, it will
be delivered to the Agent, together with a processing and recordation fee of
$2,500, for acceptance by it and the Company and recording by the Agent pursuant
to Section 9.12 of the Credit Agreement, effective as of the Effective Date
Page 1
<PAGE>
(which Effective Date shall, unless otherwise agreed to by the Agent in it sole
and absolute discretion, be at least five Business Days after the execution of
this Assignment and Acceptance).
5. Upon such acceptance and recording, from and after the Effective
Date, the Agent shall make all payments in respect of the Assigned Interest
(including payments of principal, interest, fees and other amounts) to the
Assignee, whether such amounts have accrued prior to the Effective Date or
accrue subsequent to the Effective Date. The Assignor and Assignee shall make
all appropriate adjustments in payments for periods prior to the Assignment
Effective Date by the Agent or with respect to the making of this assignment
directly between themselves.
6. From and after the Effective Date, (i) the Assignee shall be a
party to the Credit Agreement and, to the extent provided in this Assignment and
Acceptance, have the rights and obligations of a Bank thereunder, and (ii) the
Assignor shall, to the extent provided in this Assignment and Acceptance,
relinquish its rights and be released from its obligations under the Credit
Agreement provided that Assignor hereby represents and warrants that
restrictions set forth in Section 9.12 of the Credit Agreement pertaining to the
minimum amount of assignments has been satisfied.
7. This Assignment and Acceptance shall be governed by, and construed
in accordance with, the laws of the State of Texas.
IN WITNESS WHEREOF, the parties hereto have caused this Assignment
and Acceptance to be executed by their respective duly authorized officers on
Schedule I attached hereto.
Schedule I to Assignment and Acceptance
Respecting the Amended and Restated Credit Agreement,
dated as of _________, 1999, among
Whole Foods Market, Inc.,
the financial institutions named therein,
and Chase Bank of Texas,
National Association, as Agent
Legal Name of Assignor:
Legal Name of Assignee:
Effective Date of Assignment: ________________ , 199
Percentage Assigned of the
Facility (to at least 8
decimals) (Shown as a
Principal percentage of aggregate
Amount Assigned principal amount of all Banks)
--------------- -----------------------------
$ __________ ___________%
Accepted:
CHASE BANK OF TEXAS, NATIONAL _____________________________
ASSOCIATION, as Agent _________________, as Assignor
By: By:
Name: Name:
Title: Title:
WHOLE FOODS MARKET, INC. ________________, ___________, as Assignee
By: By:
Name: Name:
Title: Title:
Page 2
<PAGE>
<TABLE>
<CAPTION>
Exhibit 12.1
Whole Foods Market, Inc.
Computation of Ratio of Earnings to Fixed Charges
Sept 26 Sept 27 Sept 28 Sept 29 Sept 24
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings:
Income (loss) before income taxes 69,106 72,056 39,368 (14,119) 11,083
Interest expense 8,248 7,685 6,044 4,671 2,368
Rental expense representative of interest 12,957 11,727 9,620 8,145 6,370
---------------------------------------------------------------
Total Earnings 90,311 91,468 55,032 (1,303) 19,821
---------------------------------------------------------------
Fixed charges
Interest, including capitalized interest 10,007 8,420 6,813 5,854 3,177
Rental expense representative of interest 12,957 11,727 9,620 8,145 6,370
---------------------------------------------------------------
Total fixed charges 22,964 20,147 16,433 13,999 9,547
---------------------------------------------------------------
Ratio of earnings to fixed charges 3.93x 4.54x 3.35x - 2.08x
===============================================================
</TABLE>
Page 3
<TABLE>
<CAPTION>
SUBSIDIARIES OF WHOLE FOODS MARKET, INC.
Name State of Incorporation or Organization
- ---- --------------------------------------
<S> <C>
Whole Foods Market Services, Inc. Delaware
WFM Beverage Corp. Texas
Whole Foods Market Southwest I, Inc. Delaware
Whole Foods Market Southwest Investments, Inc. Delaware
Whole Foods Market California, Inc. California
Mrs. Gooch's Natural Foods Markets, Inc. California
Amrion, Inc. Colorado
Whole Foods Market Group, Inc. Delaware
Allegro Coffee Company Colorado
Whole Foods Market Distribution, Inc. Delaware
wholefoods.com Delaware
WholePeople.com, Inc. Texas
SUBSIDIARIES OF WHOLE FOODS MARKET SERVICES, INC.
Name State of Incorporation or Organization
- ---- --------------------------------------
Whole Foods Market Brand 365, LLC (52% member) California
SUBSIDIARIES OF AMRION, INC.
Name State of Incorporation or Organization
- ---- --------------------------------------
Natrix International, LLC (90%) Colorado
Australian Natural Care Products (82.5%) N/A
Amrion New Zeland United (100%) N/A
SUBSIDIARIES OF WHOLE FOODS MARKET SOUTHWEST I, INC.
Name State of Incorporation or Organization
- ---- --------------------------------------
Whole Foods Market Southwest, L.P. (1% GP) Texas
SUBSIDIARIES OF WHOLE FOODS MARKET SOUTHWEST INVESTMENTS, INC.
Name State of Incorporation or Organization
- ---- --------------------------------------
Whole Foods Market Southwest, L.P. (99% LP) Texas
Whole Food Company, Inc. (100%) Louisiana
The Sourdough: A European Bakery (83.33%) Texas
Also Doing Business As Sourdough
SUBSIDIARIES OF WHOLE FOODS MARKET GROUP, INC.
Name State of Incorporation or Organization
- ---- --------------------------------------
Nature's Heartland, Inc. Massachusetts
</TABLE>
Page 4
Independent Auditors' Consent
The Board of Directors
Whole Foods Market, Inc.:
We consent to incorporation by reference in the registration statements (No.
333-11271, No. 333-11273, No. 333-35809, No. 33-79072 and No. 33-48392) on Form
S-8, and the registration statements (No. 333-51419, No. 333-00968, No.
333-43555, No. 333-27745 and No. 33-68362) on Form S-3 of Whole Foods Market,
Inc. of our report dated November 15, 1999, relating to the consolidated balance
sheets of Whole Foods Market, Inc. and subsidiaries as of September 26, 1999 and
September 27, 1998, and the related consolidated statements of operations,
shareholders' equity and comprehensive income, and cash flows for each of the
fiscal years in the three year period ended September 26, 1999, which report
appears in the September 26, 1999 annual report on Form 10-K of Whole Foods
Market, Inc.
/s/ KPMG LLP
- -------------
Austin, Texas
December 21, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE WHOLE FOODS MARKET 1999 FORM 10-K
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<CIK> 0000865436
<NAME> Whole Foods Market, Inc.
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-26-1999
<PERIOD-START> SEP-27-1998
<PERIOD-END> SEP-26-1999
<EXCHANGE-RATE> 1
<CASH> 9,019
<SECURITIES> 0
<RECEIVABLES> 19,578
<ALLOWANCES> 0
<INVENTORY> 93,452
<CURRENT-ASSETS> 140,625
<PP&E> 407,204
<DEPRECIATION> (172,121)
<TOTAL-ASSETS> 659,735
<CURRENT-LIABILITIES> 121,355
<BONDS> 124,419
0
0
<COMMON> 211,192
<OTHER-SE> 100,028
<TOTAL-LIABILITY-AND-EQUITY> 659,735
<SALES> 1,567,879
<TOTAL-REVENUES> 1,567,879
<CGS> 1,031,830
<TOTAL-COSTS> 1,031,830
<OTHER-EXPENSES> 458,695
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,248
<INCOME-PRETAX> 69,106
<INCOME-TAX> 26,951
<INCOME-CONTINUING> 42,155
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42,155
<EPS-BASIC> 1.60
<EPS-DILUTED> 1.54
</TABLE>
