Agreement For Distribution Of Products

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VChP3Bsx+rbjoJk0dPa77imKgTBNN52v1h+2jwMZL0nIiWgAaAACYZcmWqD6Qvj/ ujsavd6ZjLxlYrOctuv0bg== 0001171520-05-000119.txt : 20050314 0001171520-05-000119.hdr.sgml : 20050314 20050314164623 ACCESSION NUMBER: 0001171520-05-000119 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20050131 FILED AS OF DATE: 20050314 DATE AS OF CHANGE: 20050314 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED NATURAL FOODS INC CENTRAL INDEX KEY: 0001020859 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-GROCERIES & GENERAL LINE [5141] IRS NUMBER: 050376157 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-15723 FILM NUMBER: 05678876 BUSINESS ADDRESS: STREET 1: PO BOX 999 STREET 2: 260 LAKE RD CITY: DAYVILLE STATE: CT ZIP: 06241 BUSINESS PHONE: 8607792800 MAIL ADDRESS: STREET 1: PO BOX 999 STREET 2: 260 LAKE RD CITY: DAYVILLE STATE: CT ZIP: 06241 10-Q 1 eps1764.txt UNITED NATURAL FOODS, INC. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended January 31, 2005 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 000-21531 UNITED NATURAL FOODS, INC. (Exact Name of Registrant as Specified in Its Charter) Delaware 05-0376157 (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 260 Lake Road Dayville, CT 06241 (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code: (860) 779-2800 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes |X| No |_| Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes |X| No |_| As of March 11, 2005, there were 40,863,678 shares of the Registrant's Common Stock, $0.01 par value per share, outstanding. UNITED NATURAL FOODS, INC. FORM 10-Q FOR THE QUARTER ENDED JANUARY 31, 2005 TABLE OF CONTENTS Part I. Financial Information Item 1. Financial Statements Condensed Consolidated Balance Sheets (unaudited) 3 Condensed Consolidated Statements of Income (unaudited) 4 Condensed Consolidated Statements of Cash Flows (unaudited) 5 Notes to Condensed Consolidated Financial Statements (unaudited) 6 Item 2. Management's Discussion and Analysis of Financial Condition 11 and Results of Operations Item 3. Quantitative and Qualitative Disclosure About Market Risk 25 Item 4. Controls and Procedures 25 Part II. Other Information Item 4. Submission of Matters to a Vote of Security Holders 26 Item 6. Exhibits and Reports on Form 8-K 26 Signatures 28 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements UNITED NATURAL FOODS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands, except per share amounts)

The accompanying notes are an integral part of the condensed consolidated financial statements. 3 UNITED NATURAL FOODS, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In thousands, except per share data)

The accompanying notes are an integral part of the condensed consolidated financial statements. 4 UNITED NATURAL FOODS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)

The accompanying notes are an integral part of the condensed consolidated financial statements. 5 UNITED NATURAL FOODS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 2005 (Unaudited) 1. BASIS OF PRESENTATION United Natural Foods, Inc. (the "Company") is a distributor and retailer of natural and organic products. The Company sells its products throughout the United States. The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. Certain prior year amounts have been reclassified to conform to the current year's presentation. The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to rules and regulations of the Securities and Exchange Commission for interim financial information, including the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally required in complete financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. In our opinion, these financial statements include all adjustments necessary for a fair presentation of the results of operations for the interim periods presented. The results of operations for interim periods, however, may not be indicative of the results that may be expected for a full year. These financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended July 31, 2004. Net sales consist primarily of sales of natural and organic products to retailers adjusted for customer volume discounts, returns and allowances. Net sales also consist of amounts paid to the Company by customers for shipping and handling. The principal components of cost of sales include the amount paid to manufacturers and growers for product sold, plus the cost of transportation necessary to bring the product to the Company's distribution facilities. Cost of sales also includes amounts paid by the Company for shipping and handling, depreciation for manufacturing equipment at the Company's manufacturing segment, Hershey Imports Company, Inc and consideration received from suppliers in connection with the purchase or promotion of the suppliers' products. Operating expenses include salaries and wages, employee benefits (including payments under our Employee Stock Ownership Plan), warehousing and delivery, selling, occupancy, insurance, administrative, and amortization expense. Operating expenses also includes depreciation expense related to the wholesale and retail segments. Other expenses (income) include interest on outstanding indebtedness, interest income, and the change in fair value of financial instruments and miscellaneous income and expenses. 2. STOCK OPTION PLANS The Company grants stock options for a fixed number of shares to employees and certain other individuals with exercise prices equal to the fair value of the shares at the dates of grant. The Company has adopted the disclosure only provisions of Statement of Financial Accounting Standards ("SFAS") No. 123 ("SFAS 123"), Accounting for Stock-based Compensation, and will continue to account for its stock option plans in accordance with the provisions of Accounting Principles Board Opinion 25, Accounting for Stock Issued to Employees. In addition, the Company has made the appropriate disclosures as required under SFAS No. 148 ("SFAS 148"), Accounting for Stock-Based Compensation--Transition and Disclosure--an amendment of FASB Statement No. 123. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provision of SFAS 123 and SFAS 148 to stock-based employee compensation:

The Company estimates the fair value of each option as of the date of grant using the Black-Scholes pricing model with the following weighted average assumptions used for grants in the quarters and the six months ended January 31, 2005 and 2004:

An average vesting period of four years was used for the assumption regarding stock options granted, except for options for 844,200 shares that were granted in the second quarter of fiscal 2005 that vested immediately. The after-tax effect of the accelerated vesting is included in stock-based employee compensation expense in the table above and amounted to $4.8 million, or $0.12 per pro-forma diluted share. Shares obtained upon the exercise of options issued under this grant become eligible to be sold in four equal annual installments, beginning on the first anniversary of the grant date. The Company took this as an opportunity to reduce costs in future periods as a result of SFAS 123R, which the Company is expected to adopt in the first quarter of fiscal 2006 (See Note 9). Generally, options granted to officers and other key employees become exercisable in one-quarter increments beginning on the first anniversary of the grant date. At January 31, 2005, the Company had two stock option plans: the 2002 Stock Incentive Plan and the 1996 Stock Option Plan (collectively, the "Plans"). The Plans provide for grants of stock options to employees, officers, directors and others. These options are intended to either qualify as incentive stock options within the meaning of section 422 of the Internal Revenue Code or be "non-statutory stock options." Vesting requirements for awards under the Plans are at the discretion of the Company's Board of Directors and are typically four years for employees and two years for non-employee directors. The maximum term of all incentive stock options granted under the Plans, and non-statutory stock options granted under the 2002 Stock Incentive Plan, is ten years. The maximum term for non-statutory stock options granted under the 1996 Stock Option Plan is at the discretion of the Company's Board of Directors, and all grants to date have had a term of ten years. In the six months ended January 31, 2005, the Company granted options for the purchase of 855,200 shares under the Plans. At January 31, 2005, the Company also had the 2004 Equity Incentive Plan (the "2004 Plan"). The 2004 Plan provides for the issuance of equity-based compensation awards other than stock options, such as restricted shares and units, performance shares and units, bonus shares and stock appreciation rights. In the six months ended January 31, 2005, the Company did not make any grants under the 2004 Plan. 3. RESTRUCTURING CHARGE In the first quarter of fiscal 2005, the Company's management approved and implemented plans to restructure certain of its operations at its Mounds View, Minnesota distribution facility, because the facility was not large enough to accommodate the needs of customers relative to product selection and availability. The $170,000 restructuring charge in the first quarter of fiscal 2005 is associated primarily with severance costs related to the termination of approximately 85 employees at this facility. This closing was completed in the second quarter of fiscal 2005. 7 4. EARNINGS PER SHARE Following is a reconciliation of the basic and diluted number of shares used in computing earnings per share:

There were 3,000 and 326 anti-dilutive stock options for the quarters ended January 31, 2005 and 2004, respectively. For the six months ended January 31, 2005 and 2004, there were 742,750 and 246,144 anti-dilutive stock options, respectively. These anti-dilutive stock options were excluded from the calculation of diluted earnings per share. 5. INTEREST RATE SWAP AGREEMENTS In October 1998, the Company entered into an interest rate swap agreement that provided for the Company to pay interest for a five-year period at a fixed rate of 5% on a notional principal amount of $60 million while receiving interest for the same period at the LIBOR rate on the same notional principal amount. This swap had been entered into as a hedge against LIBOR interest rate movements on current and anticipated variable rate indebtedness totaling $60 million at LIBOR plus 1.50%, thereby fixing the effective rate at 6.50%. In October 2003, the counter party exercised its option to extend the original five-year term of the swap agreement to seven years. The inclusion of this option prohibited accounting for the swap as an effective hedge under SFAS No. 133 ("SFAS 133"), Accounting for Derivative Instruments and Hedging Activities. The Company entered into an additional interest rate swap agreement effective August 2001. The additional agreement provided for the Company to pay interest for a four-year period at a fixed rate of 4.81% on a notional principal amount of $30 million while receiving interest for the same period at the LIBOR rate on the same notional principal amount. The four-year term of the swap agreement could have been extended to six years at the option of the counter party, which prohibited accounting for the swap as an effective hedge under SFAS 133. The swap had been entered into as a hedge against LIBOR interest rate movements on current and anticipated variable rate indebtedness totaling $30 million at LIBOR plus 1.50%, thereby fixing the effective rate on the notional amount at 6.31%. If LIBOR exceeded 6.0% in a given period, the agreement was suspended for that period. On December 29, 2003, the Company assigned and transferred all of its obligations of its two "ineffective" interest rate swaps to a third party at a cost of $5.4 million plus accrued interest. The Company recorded $0.4 million and $0.7 million of income in the statement of operations for the quarter ended January 31, 2004 and six months ended January 31, 2004, respectively, on these interest rate swap agreements and related option agreements to reflect the change in fair value of the financial instruments. The Company entered into an interest rate swap agreement effective May 2003. The agreement provides for the Company to pay interest for a seven-year period at a fixed rate of 3.68% on a notional principal amount of $30 million while receiving interest for the same period at the LIBOR rate on the same notional principal amount. The swap has been entered into as a hedge against LIBOR interest rate movements on current variable rate indebtedness totaling $30 million at LIBOR plus 1.50%, thereby fixing the Company's effective rate on the notional amount at 5.18%. The swap agreement qualifies as an "effective" hedge under SFAS 133. The Company recorded an asset of $0.2 million as of January 31, 2005, and a corresponding increase to accumulated other comprehensive income, net of taxes, in the condensed consolidated balance sheet to reflect the fair value of the instrument. 6. COMPREHENSIVE INCOME Total comprehensive income for the three-month period ended January 31, 2005 amounted to $9,457,000 as compared to $6,810,000 in the same period in the prior year. For the six months ended January 31, 2005 and 2004, comprehensive income amounted to $19,022,000 and $13,195,000, respectively. Comprehensive income is comprised of net income plus the increase/decrease in the fair value of the May 2003 swap agreement discussed in Note 5. 8 7. ACQUISITION On December 20, 2004, the Company acquired by merger privately held Select Nutrition Distributors, Inc. ("Select Nutrition"), distributor of health and beauty aids and vitamins, minerals and supplements, which serviced customers nationwide from two warehouse facilities in Philadelphia, Pennsylvania and Visalia, California, for cash consideration and debt assumed of approximately $12.6 million. The acquisition was financed by borrowings against the Company's line of credit. The operating results of Select Nutrition have been included in the consolidated financial statements of the Company beginning with the acquisition date. The acquisition resulted in goodwill (based on the preliminary allocation of the purchase price) of $9.7 million, none of which is expected to be deductible for tax purposes. Such goodwill was assigned to the Company's wholesale segment. 8. BUSINESS SEGMENTS The Company has several operating divisions aggregated under the wholesale segment, which is the Company's only reportable segment. These operating divisions have similar products and services, customer channels, distribution methods and historical margins. The wholesale segment is engaged in national distribution of natural foods, produce and related products in the United States. The Company has additional operating divisions that do not meet the quantitative thresholds for reportable segments. Therefore, these operating divisions are aggregated under the caption of "Other" with corporate operating expenses that are not allocated to operating divisions. "Other" includes a retail division, which engages in the sale of natural foods and related products to the general public through retail storefronts on the east coast of the United States, and a manufacturing division, which engages in importing, roasting and packaging of nuts, seeds, dried fruit and snack items. "Other" also includes corporate expenses, which consist of salaries, retainers, and other related expenses of officers, directors, corporate finance (including professional services), governance, human resources and internal audit that are necessary to operate the Company's headquarters located in Dayville, Connecticut. Non-operating expenses that are not allocated to the operating divisions are under the caption of "Unallocated Expenses." Following is business segment information for the periods indicated:

9. NEW ACCOUNTING PRONOUNCEMENTS In November 2004, the Financial Accounting Standards Board ("FASB") issued SFAS No. 151 ("SFAS 151"), Inventory Costs: an amendment of ARB No. 43, Chapter 4, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material. SFAS 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company does not believe that the adoption of SFAS 151 will have a material impact on its consolidated financial position or results of operations. In December 2004, the FASB issued SFAS No. 123R ("SFAS 123R"), Share-Based Payment, a revision of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS 123R will require the Company to, among other things, to measure all employee stock-based compensation awards using a fair value method and record such expense in the Company's consolidated financial statements. The provisions of SFAS 123R are effective for the first interim or annual reporting period beginning after June 15, 2005; therefore, the Company is expected to adopt SFAS 123R in its first quarter of fiscal 2006. Management is currently evaluating the specific impacts of adoption. 10. SUBSEQUENT EVENT On March 1, 2005, the Company announced the purchase of a new facility in Rocklin, California and its plans to move the Auburn, California operations to this facility by September 2005. The new facility is 487,000 square feet and will serve as a distribution hub for customers in northern California and surrounding states. The purchase of this facility was financed by borrowings against the Company's line of credit. 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview We are a leading national distributor of natural and organic foods and related products in the United States. We believe that we are the primary distributor of natural and organic products to a majority of our customers. We carry more than 40,000 high-quality natural and organic products, consisting of national brand, regional brand, private label and master distribution products in six product categories consisting of grocery and general merchandise, produce, perishables and frozen foods, nutritional supplements, bulk and food service products and personal care items. We serve more than 21,000 customers, including independently owned natural products retailers, supernatural chains, (which are comprised of large chains of natural foods supermarkets), and conventional supermarkets located across the United States. Our other distribution channels include food service, international customers and buying clubs. In recent years, our sales to existing and new customers have increased through the continued growth of the natural products industry in general, entry into new sales channels, the acquisition of or merger with natural products distributors and the expansion of our existing distribution centers. Through these efforts, we believe that we have been able to broaden our geographic penetration, expand our customer base, enhance and diversify our product selections and increase our market share. Through our subsidiary, the Natural Retail Group, Inc. ("NRG), we also own and operate 12 natural products retail stores located primarily in Florida. We believe that our retail business serves as a natural complement to our distribution business because it enables us to develop new marketing programs and improve customer service. In addition, our subsidiary, Hershey Imports Company, Inc. ("Hershey Imports"), specializes in the international importing, roasting and packaging of nuts, seeds, dried fruits and snack items. We have been the primary distributor to the largest supernatural chain in the United States, Whole Foods Market, Inc. ("Whole Foods Market") for more than 10 years. We renewed our primary distribution agreement with Whole Foods Market in December 2004 for an additional three years. During fiscal 2004, we also entered into and consummated a five-year primary distribution agreement with Wild Oats Markets, Inc. ("Wild Oats Markets"). We had previously served as primary distributor for Wild Oats Markets through August 2002. Since our formation, we have completed a number of acquisitions of distributors and suppliers, including Hershey Imports, Albert's Organics, Inc. ("Albert's Organics"), and NRG, all of which have expanded our distribution network, product offerings and customer base. In the second quarter of fiscal 2005, we acquired Select Nutrition Distributors, Inc. ("Select Nutrition"). Our operations are comprised of three principal divisions: o our Wholesale Division, which includes our Eastern Region, Western Region, Albert's Organics and Select Nutrition; o our Retail Division, which consists of 12 retail stores; and o our Manufacturing Division, which is comprised of Hershey Imports. In order to maintain our market leadership and improve our operating efficiencies, we are continually: o investing in people, facilities, equipment and technology; o entering into new channels of business o expanding marketing and customer service programs across the regions; o expanding national purchasing opportunities; o consolidating systems applications among physical locations and regions; o integrating administrative and accounting functions; and o reducing geographic overlap between regions. In addition, our continued growth has created the need for expansion of existing facilities to achieve maximum operating efficiencies and to assure adequate space for future needs. We have made considerable capital expenditures and incurred considerable expenses in connection with the expansion of our facilities, including the recent expansions of our facilities located in Iowa City, Iowa and Dayville, Connecticut in fiscal 2004. In November 2004, we announced our intention to expand our Midwest operations by opening a new distribution center in Greenwood, Indiana. The new 309,000 square foot facility is scheduled to commence operations in July 2005 and will serve as a distribution hub for our customers in Illinois, Indiana, Ohio and other Midwest states. In March 2005, we announced the purchase of a new facility in Rocklin, California and our plans to move our Auburn, California operations to this facility by September 2005. The new facility is 487,000 square feet and will serve as a distribution hub for customers in northern California and surrounding states. It will also be the largest facility in our nationwide distribution network. 11 The additional storage space in our Iowa City, Iowa and Dayville, Connecticut facilities allows for more product diversity and the elimination of outside storage expenses. We expect the efficiencies created by expanding our Iowa City and Dayville facilities to lower our expenses relative to sales over the long-term. Having completed the Iowa City and Dayville facilities expansion and with the new facilities in Greenwood, Indiana and Rocklin, California, we have now added approximately 1,556,000 square feet to our distribution centers since fiscal 2000, representing a 105% increase in our distribution capacity. Our current capacity utilization is 70%. In addition, we continue to increase our leading market share of the growing natural products industry by expanding our customer base, increasing our share of existing customers' business and continuing to expand and penetrate into new sales channels and new regions of distribution, particularly in the Midwest market. Our strategy is to continue to provide the leading distribution solution to the natural products industry through our national presence, regional responsiveness, high customer service focus and breadth of product offerings. Our net sales consist primarily of sales of natural and organic products to retailers adjusted for customer volume discounts, returns and allowances. Net sales also consist of amounts paid to us by customers for shipping and handling. The principal components of our cost of sales include the amount paid to manufacturers and growers for product sold, plus the cost of transportation necessary to bring the product to our distribution facilities. Cost of sales also includes amounts paid by us for shipping and handling, depreciation for manufacturing equipment at our manufacturing subsidiary, Hershey Imports and consideration received from suppliers in connection with the purchase or promotion of the suppliers' products. Operating expenses include salaries and wages, employee benefits (including payments under our Employee Stock Ownership Plan), warehousing and delivery, selling, occupancy, insurance, administrative, depreciation and amortization expense. Other expenses (income) include interest on outstanding indebtedness, interest income, the change in fair value of financial instruments and miscellaneous income and expenses. Our gross margin may not be comparable to other similar companies within our industry that may include all costs related to their distribution network in their costs of sales rather than as operating expenses. We include purchasing and outbound transportation expenses within our operating expenses rather than our cost of sales. Critical Accounting Policies The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The U.S. Securities and Exchange Commission has defined critical accounting policies as those that are both most important to the portrayal of our financial condition and results and require our most difficult, complex or subjective judgments or estimates. Based on this definition, we believe our critical accounting policies include the following: (i) determining our allowance for doubtful accounts, (ii) determining our reserve for the self-insured portion of our workers' compensation, health insurance and automobile liabilities and (iii) valuing goodwill and intangible assets. For all financial statement periods presented, there have been no material modifications to the application of these critical accounting policies. Allowance for doubtful accounts We analyze customer creditworthiness, accounts and notes receivable balances, payment history, payment terms and historical bad debt levels when evaluating the adequacy of our allowance for doubtful accounts. In instances where a reserve has been recorded for a particular customer, future sales to the customer are conducted using either cash-on-delivery terms, or the account is closely monitored so that as agreed upon payments are received, orders are released; a failure to pay results in held or cancelled orders. Our accounts receivable balance was $140.0 million and $106.2 million, net of the allowance for doubtful accounts of $5.2 million and $5.6 million, as of January 31, 2005 and July 31, 2004, respectively. Our notes receivable balance was $2.7 million and $2.4 million, net of the allowance of doubtful accounts of $4.5 million and $4.2 million, as of January 31, 2005 and July 31, 2004, respectively. 12 Insurance reserves It is our policy to record the self-insured portion of our workers' compensation, health insurance and automobile liabilities based upon actuarial methods of estimating the future cost of claims and related expenses that have been reported but not settled, and that have been incurred but not yet reported. Any projection of losses concerning workers' compensation and automobile liability is subject to a considerable degree of variability. Among the causes of this variability are unpredictable external factors affecting litigation trends, benefit level changes and claim settlement patterns. If actual claims incurred are greater than those anticipated, our reserves may be insufficient and additional costs could be recorded in the consolidated financial statements. Valuation of goodwill and intangible assets SFAS No. 142, Goodwill and Other Intangible Assets, requires that companies no longer amortize goodwill, but instead test goodwill for impairment at least annually and between annual tests if events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. We have elected to perform our annual tests for indications of goodwill impairment as of July 31 of each year. Impairment losses are determined based upon the excess of carrying amounts over discounted expected future cash flows of the underlying business. The assessment of the recoverability of long-lived assets will be impacted if estimated future cash flows are not achieved. For reporting units that indicated potential impairment, we determined the implied fair value of that reporting unit using a discounted cash flow analysis and compared such values to the respective reporting units' carrying amounts. Total goodwill was $67.2 million and $57.2 million, as of January 31, 2005 and July 31, 2004, respectively. Results of Operations The following table presents, for the periods indicated, certain income and expense items expressed as a percentage of net sales:

* Total reflects rounding 13 Quarter Ended January 31, 2005 Compared To Quarter Ended January 31, 2004 Net Sales Our net sales increased approximately 28.3%, or $111.5 million, to $504.7 million for the quarter ended January 31, 2005 from $393.2 million for the quarter ended January 31, 2004. This increase was due to organic growth in our wholesale segment of 14.5%, the implementation of our primary distribution agreement with Wild Oats Markets in the third quarter of fiscal 2004 and the inclusion of sales related to Select Nutrition that were not included in fiscal 2004. Our organic growth is due to the continued growth of the natural products industry in general, increased market share and the expansion of our existing distribution centers. For the quarter ended January 31, 2005, we experienced growth in all channels with the most significant growth in the supernatural chains distribution channel, which includes sales to Whole Foods Market and Wild Oats Markets. This was primarily due to the increase in sales to Wild Oats Markets discussed above. In the quarter ended January 31, 2005, Whole Foods Market comprised approximately 26.3% of net sales and Wild Oats Markets comprised approximately 11.6% of net sales. In the second quarter of fiscal 2004, Whole Foods Market comprised approximately 26.6% of net sales and was the only customer that accounted for more than 10% of net sales. In December 2004, we announced a definitive three-year distribution agreement with Whole Foods Market, which commenced on January 1, 2005, under which we will continue to serve as the primary U.S. distributor to it in the regions where we previously served. The following table lists the percentage of sales by customer channel for the quarters ended January 31, 2005 and 2004: Customer channel Percentage of Net Sales ---------------- ----------------------- 2005 2004 ---- ---- Independently owned natural products retailers 45% 51% Supernatural chains 38% 28% Mass Market 13% 15% Other 4% 6% The shift in our sales mix to supernatural chains from independently owned natural products retailers was the result of the implementation of our primary distribution agreement with Wild Oats Markets in the third quarter of fiscal 2004 and the continued strong growth in this channel. Gross Profit Our gross profit increased approximately 21.0%, or $16.5 million, to $95.3 million for the quarter ended January 31, 2005 from $78.8 million for the quarter ended January 31, 2004. Our gross profit as a percentage of net sales was 18.9% and 20.0% for the quarters ended January 31, 2005 and 2004, respectively. This decrease in gross profit as a percentage of net sales in comparison to the quarter ended January 31, 2004 was primarily the result of the change in our sales mix to supernatural chains, as we implemented our primary distribution agreement with Wild Oats Markets during the third quarter of fiscal 2004. In addition, we initiated an aggressive product rationalization program in the second quarter of fiscal 2005 which will continue through the third quarter. As our sales channel mix has shifted, we expect gross margins to be in the low 19 percent range in the future. Total Operating Expenses Total operating expenses, excluding special items, increased approximately 20.5%, or $13.3 million, to $78.4 million for the quarter ended January 31, 2005 from $65.1 million for the quarter ended January 31, 2004. As a percentage of net sales, total operating expenses, excluding special items, decreased to approximately 15.5% for the quarter ended January 31, 2005 from approximately 16.5% for the quarter ended January 31, 2004. The increase in total operating expenses, excluding special items, for the quarter ended January 31, 2005 was due to the increase in our infrastructure to support our continued sales growth, an increase in fuel costs as a percentage of sales of 25 basis points and the inclusion of approximately one and a half months of operating expenses related 14 to Select Nutrition that were not included in the quarter ended January 31, 2004. Total operating expenses for the quarter ended January 31, 2005 included a special item of $0.4 million for certain labor costs associated with the closing of our Mounds View, Minnesota facility. Total operating expenses for the quarter ended January 31, 2004 included a special item of $0.6 million in start-up and transition costs for certain equipment rental and labor costs incurred in connection with the implementation of our primary distribution agreement with Wild Oats Markets. Total operating expenses, including special items, increased approximately 20.0%, or $13.1 million, to $78.7 million from $65.6 million for the quarter ended January 31, 2004. As a percentage of sales, total operating expenses, including special items, decreased to 15.6% for the quarter ended January 31, 2005 from 16.7% for the quarter ended January 31, 2004. The decrease in total operating expenses as a percentage of net sales was primarily attributable to a decrease in salaries and wages as a percentage of sales due to improved operating efficiencies. The improved operating efficiencies were a result of our recent facility expansions and recent integration of management information systems following our fiscal 2003 acquisition of Blooming Prairie Cooperative. This improvement was partially offset by higher fuel costs and the inclusion of approximately one and a half months of operating expenses related to Select Nutrition that were not included in the quarter ended January 31, 2004. Operating Income Operating income, excluding special items, increased $3.2 million to $16.9 million for the quarter ended January 31, 2005 from $13.7 million for the quarter ended January 31, 2004. As a percentage of sales, operating income, excluding special items, decreased from 3.5% for the quarter ended January 31, 2004 to 3.4% for the quarter ended January 31, 2005. Operating income for the quarter ended January 31, 2005 included a special item of $0.4 million for certain labor costs associated with the closing of the Mounds View, Minnesota facility. Excluding the incremental fuel costs and Select Nutrition, operating income would have been approximately 3.7%. Operating income for the quarter ended January 31, 2004 included a special item of $0.6 million of start-up and transition costs for certain equipment rental and labor costs incurred in connection with the implementation of our primary distribution agreement with Wild Oats Markets. Operating income, including special items, was $16.6 million for the quarter ended January 31, 2005 and $13.2 million for the quarter January 31, 2004. Operating income, including special items, as a percentage of sales, remained consistent at 3.3% for the quarters ended January 31, 2005 and January 31, 2004. Other Expense (Income) Other expense, excluding special items, decreased $0.6 million to $1.5 million for the quarter ended January 31, 2005 from $2.0 million for the quarter ended January 31, 2004. Interest expense for the quarter ended January 31, 2005 was $1.6 million, $0.6 million lower than for the quarter ended January 31, 2004. The decrease in interest expense was due to the novation of two of our interest rate swap agreements in December 2003, which served to lower our effective interest rate, partially offset by higher average debt levels as a result of our acquisition of Select Nutrition in the second quarter of fiscal 2005, recent facility expansions and an increase in inventory levels to support the growth in our business. Other expense (income) for the quarter ended January 31, 2004 included a special item of $0.4 million in income related to the change in the fair value of financial instruments. In December 2003, we assigned and transferred all of our obligations of our two "ineffective" interest rate swaps to a third party. As a result of this assignment, these "ineffective" swaps will not be included as a special item for future fiscal periods. These "ineffective" swaps were included as a special item through the second quarter of fiscal 2004. Other expense including special items decreased $0.2 million from $1.6 million for the quarter ended January 31, 2004 to $1.5 million for the quarter ended January 31, 2005. The decrease in other expense including special items was primarily due to the decrease in interest expense discussed above and the novation of our two "ineffective" swap agreements. Income Taxes Our effective income tax rate was 39.0% for the quarters ended January 31, 2005 and 2004. The effective rate was higher than the federal statutory rate primarily due to state and local income taxes. 15 Net Income Net income, excluding special items, increased $2.3 million to $9.4 million, or $0.23 per diluted share, for the quarter ended January 31, 2005, compared to $7.1 million, or $0.18 per diluted share, for the quarter ended January 31, 2004. Net income, including special items, increased $2.2 million to $9.2 million, or $0.22 per diluted share, for the quarter ended January 31, 2005, compared to $7.0 million, or $0.17 per diluted share, for the quarter ended January 31, 2004. Special Items The following table presents, for the periods indicated, a reconciliation of income and per share amounts excluding special items to income and per share amounts including special items:

* Total reflects rounding The special item for the quarter ended January 31, 2005 included certain labor costs associated with the closing of the Mounds View, Minnesota facility. This closing was completed in the quarter ending January 31, 2005. Special items for the quarter ended January 31, 2004 included: (i) the start-up and transition costs of the new Wild Oats Markets primary distribution agreement consisting of certain equipment rental and labor costs and (ii) the non-cash items from the change in fair value on interest rate swap agreements which were caused by favorable changes in interest rate yield curves. In December 2003, we assigned and transferred all of our obligations of our two "ineffective" interest rate swaps to a third party. As a result of this novation, these "ineffective" swaps will no longer be included as a special item for future fiscal periods. These "ineffective" swaps were included as a special item through the second quarter of fiscal 2004. 16 We entered into interest rate swap agreements in October 1998, August 2001 and May 2003. The October 1998 and August 2001 agreements were "ineffective" hedges as a result of the options held by the counter parties that could extend the original term of the interest rate swap agreements. Applicable accounting treatment required that we record the changes in fair value of the October 1998 and August 2001 agreements in our consolidated statement of income, rather than within "accumulated other comprehensive income" in our statement of stockholders' equity. The changes in fair value are dependent upon the forward looking yield curves for each swap. The May 2003 agreement is an "effective" hedge and therefore does not require this treatment. We believe that our October 1998 and August 2001 agreements were special items that are excludable as non-recurring items. First, we only intend to enter into "effective" hedges going forward. This stated intention began with the May 2003 agreement. Second, we believe that the October 1998 and August 2001 agreements may distort and confuse investors if the change in fair value cannot be treated as a special item because their inclusion directly impacts our reported earnings per share. A change in fair value, whether positive or negative, can significantly increase or decrease our reported earnings per share. For example, we recorded a positive change in fair value for the second quarter of fiscal 2004 that increased our diluted earnings per share by $0.01, and in the first quarter of fiscal 2003, we recorded a negative change in fair value that decreased our diluted earnings per share by $0.03. Six Months Ended January 31, 2005 Compared To Six Months Ended January 31, 2004 Net Sales Our net sales increased approximately 26.8%, or $207.6 million, to $982.3 million for the six months ended January 31, 2005 from $774.6 million for the six months ended January 31, 2004. This increase was due to due to organic growth in our wholesale segment of 13.4%, the implementation of our primary distribution agreement with Wild Oats Markets in the third quarter of fiscal 2004, our organic growth and the inclusion of sales related to Select Nutrition that were not included in fiscal 2004. Our organic growth is due to the continued growth of the natural products industry in general, increased market share and the expansion of our existing distribution centers. For the six months ended January 31, 2005, we experienced growth in all channels with the most significant growth in the supernatural chains distribution channel, which includes sales to Whole Foods Market and Wild Oats Markets. This was primarily due to the increase in sales to Wild Oats Markets discussed above. In the six months ended January 31, 2005, Whole Foods Market comprised approximately 26.0% of net sales and Wild Oats Markets comprised approximately 11.7% of net sales. In the six months ended January 31, 2004, Whole Foods Market comprised approximately 26.4% of net sales and was the only customer that accounted for more than 10% of net sales. In December 2004, we announced a definitive three-year distribution agreement with Whole Foods Market, which commenced on January 1, 2005, under which we will continue to serve as the primary U.S. distributor to it in the regions where we previously served. The following table lists the percentage of sales by customer channel for the six months ended January 31, 2005 and 2004: Customer channel Percentage of Net Sales ---------------- ----------------------- 2005 2004 ---- ---- Independently owned natural products retailers 45% 50% Supernatural chains 38% 29% Mass Market 13% 15% Other 4% 5% The shift in our sales mix to supernatural chains from independently owned natural products retailers was the result of the implementation of our primary distribution agreement with Wild Oats Markets in the third quarter of fiscal 2004 and the continued strong growth in this channel. Gross Profit Our gross profit increased approximately 21.2%, or $32.8 million, to $187.8 million for the six months ended January 31, 2005 from $155.0 million for the six months ended January 31, 2004. Our gross profit as a percentage of net sales was 19.1% and 20.0% for the six months ended January 31, 2005 and 2004, respectively. The decrease in gross profit as a percentage of net sales in comparison to the six months ended January 31, 2004 was the result of an increase in the sales to supernaturals as part of our overall sales mix, as we implemented our primary distribution agreement with Wild Oats Markets during the third quarter of fiscal 2004. In addition, we initiated an aggressive product rationalization program in the second quarter of fiscal 2005 which will continue through the third quarter. As our sales channel mix has shifted, we expect gross margins to be in the low 19 percent range in the future. 17 Operating Expenses Total operating expenses, excluding special items, increased approximately 19.6%, or $25.1 million, to $153.3 million for the six months ended January 31, 2005 from $128.2 million for the six months ended January 31, 2004. As a percentage of net sales, total operating expenses, excluding special items, decreased to approximately 15.6% for the six months ended January 31, 2005 from approximately 16.6% for the six months ended January 31, 2004. The approximately $25.1 million increase in total operating expenses excluding special items for the six months ended January 31, 2005 was due to the increase in our infrastructure to support our continued sales growth, an increase in fuel costs as a percentage of sales of 18 basis points and the inclusion of approximately one and a half months of operating expenses related to Select Nutrition that were not included in the six months ended January 31, 2004. In addition, the hurricanes which devastated Florida in the first quarter of fiscal 2005 increased operating expenses by approximately $0.5 million and we recorded a $0.2 million restructuring charge in the first quarter of fiscal 2005 related to severance costs, which resulted from our plan to reduce operations at our Mounds View, Minnesota facility. Total operating expenses for the six months ended January 31, 2005 included a special item of $0.4 million for certain labor costs associated with the closing of the Mounds View, Minnesota facility. Total operating expenses for the six months ended January 31, 2004 included a special item of $0.6 million in start-up and transition costs for certain equipment rental and labor costs incurred in connection with the implementation of our primary distribution agreement with Wild Oats Markets. Total operating expenses, including special items, increased approximately 19.3%, or $24.9 million, to $153.7 million for the six months ended January 31, 2005 from $128.8 million for the six months ended January 31, 2004. As a percentage of sales, total operating expenses, including special items, decreased to 15.6% for the six months ended January 31, 2005 from 16.6% for the six months ended January 31, 2004 as operating expenses grew at a slower rate than sales. Operating Income Operating income, excluding special items, increased $7.9 million to $34.6 million for the six months ended January 31, 2005 from $26.7 million for the six months ended January 31, 2004. As a percentage of sales, operating income, excluding special items, remained consistent at 3.5% for the six months ended January 31, 2005 and 2004. Operating income for the six months ended January 31, 2005 included a special item of $0.4 million for certain labor costs associated with the closing of the Mounds View, Minnesota facility. Excluding the incremental fuel costs and Select Nutrition, operating income would have been approximately 3.7%. Operating income for the six months ended January 31, 2004 included a special item of $0.6 million in start-up and transition costs for certain equipment rental and labor costs incurred in connection with the implementation of our primary distribution agreement with Wild Oats Markets. Operating income, including special items, was $34.1 million for the six months ended January 31, 2005 and $26.2 million for the six months ended January 31, 2004. Operating income, including special items, as a percentage of sales, increased to 3.5% for the six months ended January 31, 2005 compared to 3.4% for the six months ended January 31, 2004. Other Expense (Income) Other expense, excluding special items, decreased $1.4 million to $2.8 million for the six months ended January 31, 2005 from $4.2 million for the six months ended January 31, 2004. Interest expense for the six months ended January 31, 2005 was $3.0 million compared to $4.5 million for the six months ended January 31, 2004. The decrease in interest expense was due to the novation of two of our interest rate swap agreements in December 2003, which served to lower our effective interest rate, partially offset by higher average debt levels as a result of our acquisition of Select Nutrition in the second quarter of fiscal 2005, recent facility expansions and an increase in inventory levels to support the growth in our business. Other expense (income), including special items, decreased by $0.7 million resulting in expense of $2.8 million for the six months ended January 31, 2005 compared to expense of $3.5 million for the six months ended January 31, 2004. This decrease was due to the novation of our "ineffective" swap agreements and decreased interest expense as discussed above. These "ineffective" swaps were included as a special item for the six months ended January 31, 2004. Income Taxes Our effective income tax rate was 39.0% for the six months ended January 31, 2005 and 2004. The effective rates were higher than the federal statutory rate primarily due to state and local income taxes. 18 Net Income Net income, excluding special items, increased $5.6 million to $19.3 million, or $0.47 per diluted share, for the six months ended January 31, 2005, compared to $13.7 million, or $0.34 per diluted share, for the six months ended January 31, 2004. Net income, including special items, increased $5.3 million to $19.1 million, or $0.46 per diluted share, for the six months ended January 31, 2005, compared to $13.8 million, or $0.34 per diluted share, for the six months ended January 31, 2004. Special Items The following table presents, for the periods indicated, a reconciliation of income and per share amounts excluding special items to income and per share amounts including special items:

The special item for the six months ended January 31, 2005 included certain labor costs associated with the closing of the Mounds View, Minnesota facility. This closing was completed in the quarter ending January 31, 2005. Special items for the six months ended January 31, 2004 included: (i) the start-up and transition costs of the new Wild Oats Markets primary distribution agreement consisting of certain equipment rental and labor costs and (ii) the non-cash items from the change in fair value on interest rate swap agreements which were caused by favorable changes in interest rate yield curves. In December 2003, we assigned and transferred all of our obligations of our two "ineffective" interest rate swaps to a third party. As a result of this novation, these "ineffective" swaps will no longer be included as a special item for future fiscal periods. These "ineffective" swaps were included as a special item through the second quarter of fiscal 2004. We entered into interest rate swap agreements in October 1998, August 2001 and May 2003. The October 1998 and August 2001 agreements were "ineffective" hedges as a result of the options held by the counter parties that could extend the original term of the interest rate swap agreements. Applicable accounting treatment required that we record the changes in fair value of the October 1998 and August 2001 agreements in our consolidated statement of income, rather than within "accumulated other comprehensive income" in our statement of stockholders' equity. The changes in fair value are dependent upon the forward looking yield curves for each swap. The May 2003 agreement is an "effective" hedge and therefore does not require this treatment. We believe that our October 1998 and August 2001 agreements were special items that are excludable as non-recurring items. First, we only intend to enter into "effective" hedges 19 going forward. This stated intention began with the May 2003 agreement. Second, we believe that the October 1998 and August 2001 agreements may distort and confuse investors if the change in fair value cannot be treated as a special item because their inclusion directly impacts our reported earnings per share. A change in fair value, whether positive or negative, can significantly increase or decrease our reported earnings per share. For example, we recorded a positive change in fair value for the second quarter of fiscal 2004 that increased our diluted earnings per share by $0.01, and in the first quarter of fiscal 2003, we recorded a negative change in fair value that decreased our diluted earnings per share by $0.03. If we were prohibited from excluding this item as a special item, it would artificially inflate our reported earnings per share and thereby mislead investors as to our results of operations and our financial condition. Liquidity and Capital Resources We finance operations and growth primarily with cash flows from operations, borrowings under our credit facility, operating leases, trade payables, bank indebtedness and the sale of equity and debt securities. On April 30, 2004, we entered into an amended and restated four-year $250 million revolving credit facility with a bank group that was led by Bank of America Business Capital (formerly Fleet Capital Corporation) as the administrative agent. The amended and restated credit facility provides for improved terms and conditions that provide us with more financial and operational flexibility, reduced costs and increased liquidity. The amended and restated credit facility replaced an existing $150 million revolving credit facility. Our amended and restated secured revolving credit facility allows for borrowing up to $250 million, on which interest accrues at LIBOR plus 0.90%. The $250 million credit facility matures on March 31, 2008. This increased credit facility will support our working capital requirements in the ordinary course of business and provide capital to grow our business organically or through acquisitions. As of January 31, 2005, our borrowing base, based on accounts receivable and inventory levels, was $245.9 million, with remaining availability of $105.1 million. In April 2003, we executed a term loan agreement in the principal amount of $30 million secured by the real property that was released in accordance with an amendment to the loan and security agreement related to the revolving credit facility. The $30 million term loan is repayable over seven years based on a fifteen-year amortization schedule. Interest on the term loan accrues at LIBOR plus 1.50%. In December 2003, we amended this term loan agreement by increasing the principal amount from $30 million to $40 million under the existing terms and conditions. We believe that our capital requirements for fiscal 2005 will be in the $35 to $38 million range, and that we will finance these requirements with cash generated from operations and the use of our existing credit facilities. These projects will provide both new facilities and technology that will provide us with the capacity to continue to support the growth and expansion of our customers. We believe that our future capital requirements will be similar to our anticipated fiscal 2005 requirements, as we continue to invest in our growth by upgrading our infrastructure and expanding our facilities. Future investments in acquisitions will be financed through either equity or long term debt negotiated at the time of the potential acquisition. Net cash used in operations was $12.8 million for the six months ended January 31, 2005 and was the result of net income and the change in cash collected from customers net of cash paid to vendors and a $14.4 million investment in inventory. The increase in inventory levels relate to supporting increased sales with wider product assortment and availability. Days in inventory improved to 48 days at January 31, 2005 compared to 51 days at July 31, 2004. Days sales outstanding increased to 25 days at January 31, 2005 from 24 days at July 31, 2004. Net cash used in operations was $5.9 million for the six months ended January 31, 2004 and was due to the change in cash collected from customers, net of cash paid to vendors, partially offset by increased inventory levels of $17.2 million as a result of increased sales. Working capital increased by $9.9 million, or 9.0%, to $119.1 million at January 31, 2005, compared to working capital of $109.2 million at July 31, 2004. Net cash used in investing activities increased $5.9 million to $15.1 million for the six months ended January 31, 2005 compared to $9.2 million for the same period last year. The increase was due to the acquisition of Select Nutrition in December 2004. Net cash provided by financing activities was $18.5 million for the six months ended January 31, 2005 primarily due to $17.1 million in borrowings under our $250 million secured revolving credit facility and proceeds from the exercise of stock options, partially offset by repayments of long-term debt. Net cash provided by financing activities was $20.4 million for the six months ended January 31, 2004, due to the $10.0 million in additional long-term debt and borrowings under our secured revolving credit facility, and proceeds from the exercise of stock options, partially offset by $2.1 million in repayments of our long-term debt. 20 In May 2003, we entered into an interest rate swap agreement. The agreement provides for us to pay interest for a seven-year period at a fixed rate of 3.68% on a notional principal amount of $30 million while receiving interest for the same period at the LIBOR rate on the same notional principal amount. The swap has been entered into as a hedge against LIBOR interest rate movements on current variable rate indebtedness totaling $30 million at LIBOR plus 1.50%, thereby fixing our effective rate on the notional amount at 5.18%. The swap agreement qualifies as an "effective" hedge under SFAS No. 133. There have been no material changes to our commitments and contingencies from those disclosed in our Annual Report on Form 10-K for the year ended July 31, 2004. IMPACT OF INFLATION Historically, we have been able to pass along inflation-related increases to our customers. Consequently, inflation has not had a material impact upon the results of our operations or profitability. SEASONALITY Generally, we do not experience any material seasonality. However, our sales and operating results may vary significantly from quarter to quarter due to factors such as changes in our operating expenses, management's ability to execute our operating and growth strategies, personnel changes, demand for natural products, supply shortages and general economic conditions. RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS In November 2004, the Financial Accounting Standards Board ("FASB") issued SFAS No. 151 ("SFAS 151"), Inventory Costs: an amendment of ARB No. 43, Chapter 4, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material. SFAS 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. We do not believe that the adoption of SFAS 151 will have a material impact on our consolidated financial position or results of operations. In December 2004, the FASB issued SFAS No. 123R ("SFAS 123R"), Share-Based Payment, a revision of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS 123R will require the Company to, among other things, measure all employee stock-based compensation awards using a fair value method and record such expense in the Company's consolidated financial statements. The provisions of SFAS 123R are effective for the first interim or annual reporting period that begins after June 15, 2005; therefore, we will adopt SFAS 123R in our first quarter of fiscal 2006. Management is currently evaluating the specific impacts of adoption. Use of Non-GAAP Results Financial measures included in this Management's Discussion and Analysis of Financial Condition and Results of Operations that are not in accordance with generally accepted accounting principles ("GAAP") are referred to as non-GAAP financial measures. To supplement our financial statements presented on a GAAP basis, we use non-GAAP additional measures of operating results, net earnings and earnings per share adjusted to exclude special items. We believe that the use of these additional measures is appropriate to enhance an overall understanding of our past financial performance and also our prospects for the future as these special items are not expected to be part of our ongoing business. The adjustments to our GAAP results are made with the intent of providing both management and investors with a more complete understanding of the underlying operational results and trends and its marketplace performance. For example, these adjusted non-GAAP results are among the primary indicators management uses as a basis for our planning and forecasting of future periods. The presentation of this additional information is not meant to be considered in isolation or as a substitute for net earnings or diluted earnings per share prepared in accordance with generally accepted accounting principles in the United States. A comparison and reconciliation from non-GAAP to GAAP results is included in the table under "Special Items" above. Certain Factors That May Affect Future Results This Form 10-Q and the documents incorporated by reference in this Form 10-Q contain forward-looking statements that involve substantial risks and uncertainties. In some cases you can identify these statements by forward-looking words such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "should," "will," and "would," or similar words. You should read statements that contain these words carefully because they discuss future expectations, contain projections of future results of operations or of financial position or state other "forward-looking" information. The important factors listed below as well as any cautionary language in this Form 10-Q provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations described in these forward-looking statements. You should be aware that the occurrence of the events described in the risk factors below and elsewhere in this Form 10-Q could have an adverse effect on our business, results of operations and financial position. 21 Any forward-looking statements in this Form 10-Q and the documents incorporated by reference in this Form 10-Q are not guarantees of future performance, and actual results, developments and business decisions may differ from those envisaged by such forward-looking statements, possibly materially. We do not undertake to update any information in the foregoing reports until the effective date of our future reports required by applicable laws. Any projections of future results of operations should not be construed in any manner as a guarantee that such results will in fact occur. These projections are subject to change and could differ materially from final reported results. We may from time to time update these publicly announced projections, but we are not obligated to do so. Acquisitions We continually evaluate opportunities to acquire other companies. We believe that there are risks related to acquiring companies including overpaying for acquisitions, losing key employees of acquired companies and failing to achieve potential synergies. Additionally, our business could be adversely affected if we are unable to integrate our acquisitions and mergers. A significant portion of our historical growth has been achieved through acquisitions of or mergers with other distributors of natural products. Successful integration of mergers is critical to our future operating and financial performance. Integration requires, among other things: o maintaining the customer base; o optimizing of delivery routes; o coordinating administrative, distribution and finance functions; and o integrating management information systems and personnel. The integration process has and could divert the attention of management and any difficulties or problems encountered in the transition process could have a material adverse effect on our business, financial condition or results of operations. In addition, the process of combining companies has and could cause the interruption of, or a loss of momentum in, the activities of the respective businesses, which could have an adverse effect on their combined operations. There can be no assurance that we will realize any of the anticipated benefits of mergers. We may have difficulty in managing our growth The growth in the size of our business and operations has placed and is expected to continue to place a significant strain on our management. Our future growth is limited in part by the size and location of our distribution centers. There can be no assurance that we will be able to successfully expand our existing distribution facilities or open new distribution facilities in new or existing markets to facilitate growth. In addition, our growth strategy to expand our market presence includes possible additional acquisitions. To the extent our future growth includes acquisitions, there can be no assurance that we will successfully identify suitable acquisition candidates, consummate and integrate such potential acquisitions or expand into new markets. Our ability to compete effectively and to manage future growth, if any, will depend on our ability to continue to implement and improve operational, financial and management information systems on a timely basis and to expand, train, motivate and manage our work force. There can be no assurance that our personnel, systems, procedures and controls will be adequate to support our operations. Our inability to manage our growth effectively could have a material adverse effect on our business, financial condition or results of operations. We have significant competition from a variety of sources We operate in competitive markets, and our future success will be largely dependent on our ability to provide quality products and services at competitive prices. Our competition comes from a variety of sources, including other distributors of natural products as well as specialty grocery and mass market grocery distributors. There can be no assurance that mass market grocery distributors will not increase their emphasis on natural products and more directly compete with us or that new competitors will not enter the market. These distributors may have been in business longer than us, may have substantially greater financial and other resources than us and may be better established in their markets. There can be no assurance that our current or potential competitors will not provide services comparable or superior to those provided by us or adapt more quickly than we do to evolving industry trends or changing market requirements. It is also possible that alliances among competitors may develop and rapidly acquire significant market share or that certain of our customers will increase distribution to their own retail facilities. Increased competition may result in price reductions, reduced gross margins and loss of market share, any of which could materially adversely affect our business, financial condition or results of operations. There can be no assurance that we will be able to compete effectively against current and future competitors. 22 We depend heavily on our principal customers Our ability to maintain close, mutually beneficial relationships with our two largest customers, Whole Foods Market and Wild Oats Markets, is an important element to our continued growth. In December 2004, we announced a definitive three-year distribution agreement with Whole Foods Market, which commenced on January 1, 2005, under which we will continue to serve as the primary U.S. distributor to it in the regions where we previously served. Whole Foods Market accounted for approximately 26.3% and 26.6% of our net sales during the quarters ended January 31, 2005 and 2004, respectively, and 26.0% and 26.4% of our net sales for the six months ended January 31, 2005 and 2004, respectively. In January 2004, we entered into a five-year distribution agreement, as primary distributor, with Wild Oats Markets. For the quarter and six months ended January 31, 2005, Wild Oats Markets accounted for approximately 11.6% and 11.7% of our net sales, respectively. As a result of this concentration of our customer base, the loss or cancellation of business from either of these customers including from increased distribution to their own facilities, could materially and adversely affect our business, financial condition or results of operations. We sell products under purchase orders, and we generally have no agreements with or commitments from our customers for the purchase of products. No assurance can be given that our customers will maintain or increase their sales volumes or orders for the products supplied by us or that we will be able to maintain or add to our existing customer base. Our profit margins may decrease due to consolidation in the grocery industry The grocery distribution industry generally is characterized by relatively high volume with relatively low profit margins. The continuing consolidation of retailers in the natural products industry and the growth of supernatural chains may reduce our profit margins in the future as more customers qualify for greater volume discounts, and we experience pricing pressures from both ends of the supply chain. Our operations are sensitive to economic downturns The grocery industry is also sensitive to national and regional economic conditions and the demand for our products may be adversely affected from time to time by economic downturns. In addition, our operating results are particularly sensitive to, and may be materially adversely affected by: o difficulties with the collectibility of accounts receivable; o difficulties with inventory control; o competitive pricing pressures; and o unexpected increases in fuel or other transportation-related costs. There can be no assurance that one or more of such factors will not materially adversely affect our business, financial condition or results of operations. We are dependent on a number of key executives Management of our business is substantially dependent upon the services of Richard Antonelli (President of United Distribution), Daniel V. Atwood (Senior Vice President of Marketing and Secretary), Michael D. Beaudry (Vice President of Distribution), Barclay Hope (President of Albert's Organics), Rick D. Puckett (Chief Financial Officer and Treasurer), Steven H. Townsend (Chairman, President and Chief Executive Officer), and other key management employees. Loss of the services of any officers or any other key management employee could have a material adverse effect on our business, financial condition or results of operations. 23 Our operating results are subject to significant fluctuations Our net sales and operating results may vary significantly from period to period due to: o demand for natural products; o changes in our operating expenses, including in fuel and insurance; o management's ability to execute our business and growth strategies; o changes in customer preferences and demands for natural products, including levels of enthusiasm for health, fitness and environmental issues; o fluctuation of natural product prices due to competitive pressures; o personnel changes; o supply shortages; o general economic conditions; o lack of an adequate supply of high-quality agricultural products due to poor growing conditions, natural disasters or otherwise; o volatility in prices of high-quality agricultural products resulting from poor growing conditions, natural disasters or otherwise; and o future acquisitions, particularly in periods immediately following the consummation of such acquisition transactions while the operations of the acquired businesses are being integrated into our operations. Due to the foregoing factors, we believe that period-to-period comparisons of our operating results may not necessarily be meaningful and that such comparisons cannot be relied upon as indicators of future performance. We are subject to significant governmental regulation Our business is highly regulated at the federal, state and local levels and our products and distribution operations require various licenses, permits and approvals. In particular: o our products are subject to inspection by the U.S. Food and Drug Administration; 24 o our warehouse and distribution facilities are subject to inspection by the U.S. Department of Agriculture and state health authorities; and o the U.S. Department of Transportation and the U.S. Federal Highway Administration regulate our trucking operations. The loss or revocation of any existing licenses, permits or approvals or the failure to obtain any additional licenses, permits or approvals in new jurisdictions where we intend to do business could have a material adverse effect on our business, financial condition or results of operations. Union-organizing activities could cause labor relations difficulties As of January 31, 2005, we had approximately 4,000 full and part-time employees. An aggregate of approximately 420, or 10.5%, of the employees at our Auburn, Washington, Iowa City, Iowa and Edison, New Jersey facilities are covered by collective bargaining agreements. These agreements expire in March 2006, June 2006 and June 2005, respectively. We have in the past been the focus of union-organizing efforts. As we increase our employee base and broaden our distribution operations to new geographic markets, our increased visibility could result in increased or expanded union-organizing efforts. Although we have not experienced a work stoppage to date, if additional employees were to unionize, we could be subject to work stoppages and increases in labor costs, either of which could materially adversely affect our business, financial condition or results of operations. Access to capital and the cost of that capital We have a secured revolving credit facility, with available credit under it of $250 million at an interest rate of LIBOR plus 0.90% maturing on March 31, 2008. As of January 31, 2005, our borrowing base, based on accounts receivable and inventory levels, was $245.9 million, with remaining availability of $105.1 million. In April 2003, we executed a term loan agreement in the principal amount of $30 million secured by the real property that was released in accordance with an amendment to the loan and security agreement related to the revolving credit facility. The $30 million term loan is repayable over seven years based on a fifteen-year amortization schedule. Interest on the term loan accrues at LIBOR plus 1.50%. In December 2003, we amended this term loan agreement by increasing the principal amount from $30 million to $40 million under the existing terms and conditions. In order to maintain our profit margins, we rely on strategic investment buying initiatives, such as discounted bulk purchases, which require spending significant amounts of working capital. In the event that our cost of capital increases or our ability to borrow funds or raise equity capital is limited, we could suffer reduced profit margins and be unable to grow our business organically or through acquisitions, which could have a material adverse effect on our business, financial condition or results of operations. Item 3. Quantitative and Qualitative Disclosure About Market Risk Our exposure to market risks results primarily from fluctuations in interest rates on our borrowings. As more fully described in the notes to the condensed consolidated financial statements, we use interest rate swap agreements to modify variable rate obligations to fixed rate obligations for a portion of our debt. There have been no material changes to our exposure to market risks from those disclosed in our Annual Report on Form 10-K for the year ended July 31, 2004. Item 4. Controls and Procedures (a) Evaluation of disclosure controls and procedures. We carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this quarterly report on Form 10-Q (the "Evaluation Date"). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in timely reporting material information required to be included in our periodic reports filed with the Securities and Exchange Commission. 25 (b) Changes in internal controls. There has been no change in the Company's internal control over financial reporting that occurred during the fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. PART II. OTHER INFORMATION Items 1, 2, 3 and 5 are not applicable and have been omitted. Item 4. Submission of Matters to a Vote of Security Holders At the Annual Meeting of Stockholders of the Company held on December 1, 2004, the stockholders of the Company considered and voted on three proposals: 1. Election of Directors. The stockholders elected Gordon D. Barker, Gail A. Graham and Thomas B. Simone, to serve as Class II directors for the ensuing three years. The terms of office as directors of Steven Townsend, Joseph M. Cianciolo, Michael S. Funk and James P. Heffernan continued after the Annual Meeting. The stockholders voted in the following manner: - ------------------------------------------------------------------------ Name Votes "FOR" Votes "WITHHELD" - ------------------------------------------------------------------------ - ------------------------------------------------------------------------ Gordon D. Barker 36,840,328 1,349,472 - ------------------------------------------------------------------------ Gail A. Graham 36,944,090 1,245,710 - ------------------------------------------------------------------------ Thomas B. Simone 35,698,032 2,491,768 - ------------------------------------------------------------------------ 2. Adoption and approval of the 2004 Equity Incentive Plan. The stockholders voted in the following manner: (i) 23,700,284 votes were cast "FOR" the proposal; (ii) 9,380,697 votes were cast "AGAINST" the proposal; and (iii) 19,865 votes were cast to "ABSTAIN" from the proposal. 3. Independent Auditor. The stockholders ratified the appointment of KPMG LLP as the Company's independent registered public accounting firm for the year ended July 31, 2005. The stockholders voted in the following manner: (i) 38,078,804 votes were cast "FOR" the proposal; (ii) 101,570 votes were cast "AGAINST" the proposal; and (iii) 9,426 votes were cast to "ABSTAIN" from the proposal. Item 6. Exhibits and Reports on Form 8-K Exhibits - -------------------------------------------------------------------------------- Exhibit No. Description - -------------------------------------------------------------------------------- 3.1 Amended and Restated Certificate of Incorporation - -------------------------------------------------------------------------------- 3.2 Certificate of Amendment to the Amended and Restated Certificate of Incorporation - -------------------------------------------------------------------------------- 10.1 (1) Distribution Agreement between the Registrant and Whole Foods Market, Inc. dated January 1, 2005 - -------------------------------------------------------------------------------- 10.2 First Amendment to Amended and Restated Loan and Security Agreement dated December 30, 2004 - -------------------------------------------------------------------------------- 31.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - CEO - -------------------------------------------------------------------------------- 31.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - CFO - -------------------------------------------------------------------------------- 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - CEO - -------------------------------------------------------------------------------- 32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - CFO - -------------------------------------------------------------------------------- (1) Certain confidential portions of this exhibit were omitted by means of redacting a portion of the text. This exhibit has been filed separately with the Securities and Exchange Commission accompanied by a confidential treatment request pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. 26 Reports on Form 8-K November 23, 2004 The Company announced plans to open a new distribution facility in Greenwood, Indiana. December 1, 2004 The Company announced its financial results for the fiscal quarter ended October 31, 2004. December 7, 2004 The Company announced certain appointments to the Company's Board of Directors and the results of the Company's annual meeting of stockholders. December 8, 2004 The Company announced certain appointments to the Company's Board of Directors and the results of the Company's annual meeting of stockholders. December 23, 2004 The Company announced the acquisition of Select Nutrition Distributors, Inc. December 29, 2004 The Company announced the definitive three-year distribution agreement with Whole Foods Market. * * * We would be pleased to furnish a copy of this Form 10-Q to any stockholder who requests it by writing to: United Natural Foods, Inc. Investor Relations 260 Lake Road Dayville, CT 06241 27 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. UNITED NATURAL FOODS, INC. /s/ Rick D. Puckett ----------------------------------- Rick D. Puckett Chief Financial Officer (Principal Financial and Accounting Officer) Dated: March 14, 2005 28 EX-3.1 2 ex3-1.txt Exhibit 3.1 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF UNITED NATURAL FOODS, INC. United Natural Foods, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), does hereby certify as follows: 1. The Corporation filed its original Certificate of Incorporation under the name "Cornucopia Natural Foods, Inc." with the Secretary of State of Delaware on February 11, 1994, which Certificate of Incorporation was amended by a Certificate of Merger filed on November 1, 1994, a Certificate of Amendment of Certificate of Incorporation filed on February 20, 1996, and a Second Certificate of Amendment of Certificate of Incorporation filed an September 3, 1996. 2. The Board of Directors of the Corporation, at a meeting of the Board of Directors held on October 9, 1996, duly adopted resolutions, pursuant to Sections 242 and 245 of the General Corporation Law of the State of Delaware, setting forth an Amended and Restated Certificate of Incorporation of the Corporation and declaring said Amended and Restated Certificate of Incorporation advisable. The stockholders of the Corporation duly approved said proposed Amended and Restated Certificate of Incorporation by written consent in accordance with Sections 228, 242 and 245 of the General Corporation Law of the State of Delaware, and written notice of such consent has been given to all stockholders who have not consented in writing to said amendment and restatement. The resolution setting forth the Amended and Restated Certificate of Incorporation is as follows: RESOLVED: That the Certificate of Incorporation of the Corporation, as amended, be and hereby is amended and restated in its entirety so that the same shall read as follows: FIRST. The name of the Corporation is: United Natural Foods, Inc. SECOND. The address of its registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. THIRD. The nature of the business or purposes to be conducted or promoted by the Corporation is as follows: To engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. FOURTH. The total number of shares of all classes of stock which the Corporation shall have authority to issue is (i) Twenty-Five Million (25,000,000) shares of Common Stock, $.01 par value per share ("Common Stock"), and (ii) Five Million ($5,000,000) shares of Preferred Stock, $.01 par value per share ("Preferred Stock"), which may be issued from time to time in one or more series as set forth in Part B of this Article FOURTH. The following is a statement of the designations and the powers, privileges and rights, and the qualifications, limitations or restrictions thereof in respect of each class of capital stock of the Corporation. A. COMMON STOCK. 1. General. The voting, dividend and liquidation rights of the holders of the Common Stock are subject to and qualified by the rights of the holders of the Preferred Stock of any series as may be designated by the Board of Directors upon any issuance of the Preferred Stock of any series. 2. Voting. The holders of the Common Stock are entitled to one vote for each share held at all meetings of stockholders. There shall be no cumulative voting. The number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the -2- affirmative vote of the holders of a majority of the stock of the Corporation entitled to vote, irrespective of the provisions of Section 242(b)(2) of the General Corporation Law of Delaware. 3. Dividends. Dividends may be declared and paid on the Common Stock from funds lawfully available therefor as and when determined by the Board of Directors and subject to any preferential dividend rights of any then outstanding Preferred Stock. 4. Liquidation. Upon the dissolution or liquidation of the Corporation, whether voluntary or involuntary, holders of Common Stock will be entitled to receive all assets of the Corporation available for distribution to its stockholders, subject to any preferential rights of any then outstanding Preferred Stock. B. PREFERRED STOCK. Preferred Stock may be issued from time to time in one or more series, each of such series to have such terms as stated or expressed herein and in the resolution or resolutions providing for the issue of such series adopted by the Board of Directors of the Corporation as hereinafter provided. Any shares of Preferred Stock which may be redeemed, purchased or acquired by the Corporation may be reissued except as otherwise provided by law. Different series of Preferred Stock shall not be construed to constitute different classes of shares for the purposes of voting by classes unless expressly provided. Authority is hereby expressly granted to the Board of Directors from time to time to issue the Preferred Stock in one or more series, and in connection with the creation of any such series, by resolution or resolutions providing for the issue of the shares thereof, to determine and fix such voting powers, full or limited, or no voting powers, and such designations, preferences and relative participating, optional or other special rights, and qualifications, limitations or restrictions thereof, including without limitation thereof, dividend rights, conversion rights, redemption privileges and liquidation preferences, as shall be stated and expressed in such resolutions, all to the full extent now or hereafter permitted by the General Corporation Law of Delaware. Without limiting the generality of the foregoing, the resolutions providing for issuance of any series of Preferred Stock may provide that such series shall be superior or rank equally or be junior to the Preferred Stock of any other series to the extent permitted by law. Except as otherwise specifically provided in this Certificate of Incorporation, no vote of the holders of the Preferred Stock or Common Stock shall be a prerequisite to the issuance of any shares of any series of the Referred Stock authorized by and complying with the conditions of the Certificate of Incorporation, the right to have such vote being expressly waived by all present and future holders of the capital stock of the Corporation. FIFTH. The Corporation shall have a perpetual existence. -3- SIXTH. In furtherance of and not in limitation of powers conferred by statute, it is further provided that the Board of Directors is expressly authorized to adopt, amend or repeal the By-Laws of the Corporation. SEVENTH. Whenever a compromise or arrangement is proposed between this corporation and its creditors or any class of them and/or between this corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this corporation or of any creditor or stockholder thereof, or on the application of any receiver or receivers appointed for this corporation under the provisions of section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this corporation under the provisions of section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this corporation, as the case may be, agree to any compromise or arrangement and to any promise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this corporation, as the case may be, and also on this corporation. EIGHTH. Except to the extent that the General Corporation Law of the State of Delaware prohibits the elimination or limitation of liability of directors for breaches of fiduciary duty, no director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty as a director, notwithstanding any provision of law imposing such liability. No amendment to or repeal of this provision shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment. NINTH. 1. Action, Suits and Proceedings Other than by or in the Right of the Corporation. The Corporation shall indemnify each person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation), by reason of the fact that he is or was, or has agreed to become, a director or officer of the Corporation, or is or was serving, or has agreed to serve, at the request of the Corporation, as a director, officer or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise (including any employee benefit plan) (all such persons being referred to hereafter as an "Indemnitee"), or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including attorneys' fees) judgment, fines and amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with such action, suit -4- or proceeding and any appeal therefrom, if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. Notwithstanding anything to the contrary in this Article, except as set forth in Section 7 below, the Corporation shall not indemnify an Indemnitee seeking indemnification in connection with a proceeding (or part thereof) initiated by the Indemnitee unless the initiation thereof was approved by the Board of Directors of the Corporation. Notwithstanding anything to the contrary in this Article, the Corporation shall not indemnify an Indemnitee to the extent such Indemnitee is reimbursed from the proceeds of insurance, and in the event the Corporation makes any indemnification payments to an Indemnitee and such Indemnitee is subsequently reimbursed from the proceeds of insurance, such Indemnitee shall promptly refund such indemnification payments to the Corporation to the extent of such insurance reimbursement. 2. Actions or Suits by or in the Right of the Corporation. The Corporation shall indemnify any Indemnitee who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was, or has agreed to become, a director or officer of the Corporation, or is or was serving, or has agreed to serve, at the request of the Corporation, as a director, officer or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise (including any employee benefit plan), or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including attorneys' fees) and amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with such action, suit or proceeding and any appeal therefrom, if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery of Delaware shall determine upon application that, despite the adjudication of such liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses (including attorneys' fees) which the Court of Chancery of Delaware shall deem proper. 3. Indemnification for Expenses of Successful Party. Notwithstanding the other provisions of this Article, to the extent that an Indemnitee has been successful, on the merits or otherwise, in defense of any action, suit or proceeding referred to in Sections 1 and 2 of this Article, or in defense of any claim, issue or matter therein, or -5- on appeal from any such action, suit or proceeding, he shall be indemnified against all expenses (including attorneys' fees) actually and reasonably incurred by him or on his behalf in connection therewith. Without limiting the foregoing, if any action, suit or proceeding is disposed of, on the merits or otherwise (including a disposition without prejudice), without (i) the disposition being adverse to the Indemnitee, (ii) an adjudication that the Indemnitee was liable to the Corporation, (iii) a plea of guilty or nolo contendere by the Indemnitee, (iv) an adjudication that the Indemnitee did not act in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and (v) with respect to any criminal proceeding, an adjudication that the Indemnitee had reasonable cause to believe his conduct was unlawful, the Indemnitee shall be considered for the purposes hereof to have been wholly successful with respect thereto. 4. Notification and Defense of Claim. As a condition precedent to his right to be indemnified, the Indemnitee must notify the Corporation in writing as soon as practicable of any action, suit, proceeding or investigation involving him for which indemnity will or could be sought. With respect to any action, suit, proceeding or investigation of which the Corporation is so notified, the Corporation will be entitled to participate therein at its own expense and/or to assume the defense thereof at its own expense, with legal counsel reasonably acceptable to the Indemnitee. After notice from the Corporation to the Indemnitee of its election so to assume such defense, the Corporation shall not be liable to the Indemnitee for any legal or other expenses subsequently incurred by the Indemnitee in connection with such claim, other than as provided below in this Section 4. The Indemnitee shall have the right to employ his own counsel in connection with such claim, but the fees and expenses of such counsel incurred after notice from the Corporation of its assumption of the defense thereof shall be at the expense of the Indemnitee unless (i) the employment of counsel by the Indemnitee has been authorized by the Corporation, (ii) counsel to the Indemnitee shall have reasonably concluded that there may be a conflict of interest or position on any significant issue between the Corporation and the Indemnitee in the conduct of the defense of such action or (iii) the Corporation shall not in fact have employed counsel to assume the defense of such action, in each of which cases the fees and expenses of counsel for the Indemnitee shall be at the expense of the Corporation, except as otherwise expressly provided by this Article. The Corporation shall not be entitled, without the consent of the Indemnitee, to assume the defense of any claim brought by or in the right of the Corporation or as to which counsel for the Indemnitee shall have reasonably made the conclusion provided for in clause (ii) above. 5. Advance of Expenses. Subject to the provisions of Section 6 below, in the event that the Corporation does not assume the defense pursuant to Section 4 of this Article of any action, suit, proceeding or investigation of which the Corporation receives notice under this Article, any reasonable expenses (including reasonable attorneys' fees) incurred by an Indemnitee in defending a civil or criminal action, suit, proceeding or investigation or any appeal therefrom shall be paid by the Corporation in advance of the final disposition of such matter; provided, however, that the -6- payment of such expense incurred by an Indemnitee in advance of the final disposition of such matter shall be made only upon receipt of an undertaking by or on behalf of the Indemnitee to repay all amounts so advanced in the event that it shall ultimately be determined that the Indemnitee is not entitled to be indemnified by the Corporation as authorized in this Article. Such undertaking shall be accepted without reference to the financial ability of the Indemnitee to make such repayment. 6. Procedure for Indemnification. In order to obtain indemnification or advancement of expenses pursuant to Section 1, 2, 3 or 5 of this Article, the Indemnitee shall submit to the Corporation a written request, including in such request such documentation and information as is reasonably available to the Indemnitee and is reasonably necessary to determine whether and to what extent the Indemnitee is entitled to indemnification or advancement of expenses. Any such indemnification or advancement of expenses shall be made promptly, and in any event within 60 days after receipt by the Corporation of the written request of the Indemnitee, unless with respect to requests under Section 1, 2 or 5 the Corporation determines within such 60-day period that the Indemnitee did not meet the applicable standard of conduct set forth in Section 1 or 2, as the case may be. Such determination shall be made in each instance by (a) a majority vote of the directors of the Corporation consisting of persons who are not at that time parties to the action, suit or proceeding in question ("disinterested directors"), even though less than a quorum, (b) a majority vote of a quorum of the outstanding shares of stock of all classes entitled to vote for directors, voting as a single class, which quorum shall consist of stockholders who are not at that time parties to the action, suit or proceeding in question, (c) independent legal counsel (who may be regular legal counsel to the Corporation), or (d) a court of competent jurisdiction. 7. Remedies. The right to indemnification or advances as granted by this Article shall be enforceable by the Indemnitee in any court of competent jurisdiction if the Corporation denies such request, in whole or in part, or if no disposition thereof is made within the 60-day period referred to above in Section 6. Unless otherwise provided by law, the burden of proving that the Indemnitee is not entitled to indemnification or advancement of expenses under this Article shall be on the Corporation. Neither the failure of the Corporation to have made a determination prior to the commencement of such action that indemnification is proper in the circumstances because the Indemnitee has met the applicable standard of conduct, nor an actual determination by the Corporation pursuant to Section 6 that the Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the Indemnitee has not met the applicable standard of conduct. The Indemnitee's reasonable expenses (including reasonable attorneys' fees) incurred in connection with successfully establishing his right to indemnification, in whole or in part, in any such proceeding shall also be indemnified by the Corporation. 8. Subsequent Amendment. No amendment, termination or repeal of this Article or of the relevant provisions of the General Corporation Law of Delaware or -7- any other applicable laws shall affect or diminish in any way the rights of any Indemnitee to indemnification under the provisions hereof with respect to any action, suit, proceeding or investigation arising out of or relating to any actions, transactions or facts occurring prior to the final adoption of such amendment, termination or repeal. 9. Other Rights. The indemnification and advancement of expenses provided by this Article shall not be deemed exclusive of any other rights to which an Indemnitee seeking indemnification or advancement of expenses may be entitled under any law (common or statutory), agreement or vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in any other capacity while holding office for the Corporation, and shall continue as to an Indemnitee who has ceased to be a director or officer, and shall inure to the benefit of the estate, heirs, executors and administrators of the Indemnitee. Nothing contained in this Article shall be deemed to prohibit, and the Corporation is specifically authorized to enter into, agreements with officers and directors providing indemnification rights and procedures different from those set forth in this Article. In addition, the Corporation may, to the extent authorized from time to time by its Board of Directors, grant indemnification rights to other employees or agents of the Corporation or other persons serving the Corporation and such rights may be equivalent to, or greater or less than, those set forth in this Article. 10. Partial Indemnification. If an Indemnitee is entitled under any provision of this Article to indemnification by the Corporation for some or a portion of the expenses (including attorneys' fees), judgments, fines or amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with any action, suit, proceeding or investigation and any appeal, therefrom but not, however, for the total amount thereof, the Corporation shall nevertheless indemnify the Indemnitee for the portion of such expenses (including attorneys' fees), judgments, fines or amounts paid in settlement to which the Indemnitee is entitled. 11. Insurance. The Corporation may purchase and maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise (including any employee benefit plan) against any expense, liability or loss incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the General Corporation law of Delaware. 12. Merger or Consolidation. If the Corporation is merged into or consolidated with another corporation and the Corporation is not the surviving corporation, the surviving corporation shall assume the obligations of the Corporation under this Article with respect to any action, suit, proceeding or investigation arising out of or relating to any actions, transactions or facts occurring prior to the date of such merger or consolidation. -8- 13. Savings Clause. If this Article or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each Indemnitee as to any expenses (including attorneys' fees) judgments, fines and amounts paid in settlement in connection with any action, suit, proceeding or investigation, whether civil, criminal or administrative, including an action by or in the right of the Corporation, to the fullest extent permitted by any applicable portion of this Article that shall not have been invalidated and to the fullest extent permitted by applicable law. 14. Definitions. Terms used herein and defined in Section 145(h) and Section 145(i) of the General Corporation Law of Delaware shall have the respective meanings assigned to such terms in such Section 145(h) and Section 145(i). 15. Subsequent Legislation. If the General Corporation Law of Delaware is amended after adoption of this Article to expand further the indemnification permitted to Indemnitees, then the Corporation shall indemnify such persons to the fullest extent permitted by the General Corporation Law of Delaware, as so amended. TENTH. The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute and this Certificate of Incorporation, and all rights conferred upon stockholders herein are granted subject to this reservation. ELEVENTH. This Article is inserted for the management of the business and for the conduct of the affairs of the Corporation. 1. Number of Directors. The number of directors of the Corporation shall not be less than three. The exact number of directors within the limitations specified in the preceding sentence shall be fixed from time to time by, or in the manner provided in, the Corporation's By-Laws. 2. Classes of Directors. The Board of Directors shall be and is divided into three classes: Class I, Class II and Class III. No one class shall have more than one director more than any other class. If a fraction is contained in the quotient arrived at by dividing the designated number of directors by three, then, if such fraction is one-third, the extra director shall be a member of Class I, and if such fraction is two-thirds, one of the extra directors shall be a member of Class I and one of the extra directors shall be a member of Class II, unless otherwise provided from time to time by resolution adopted by the Board of Directors. 3. Election of Directors. Elections of directors need not be by written ballot except as and to the extent provided in the By-Laws of the Corporation 4. Terms of Office. Each director shall serve for a term ending on the date of the third annual meeting Following the annual meeting at which such director was -9- elected; provided, that each initial director in Class I shall serve for a term ending on the date of the annual meeting in 1997; each initial director in Class II shall serve for a term ending on the date of the annual meeting in 1998; and each initial director in Class III shall serve for a term ending on the date of the annual meeting in 1999; and provided further, that the term of each director shall be subject to the election and qualification of his successor and to his earlier death, resignation or removal. 5. Allocation of Directors Among Classes in the Event of Increases or Decreases in the Number of Directors. In the event of any increase or decrease in the authorized number of directors, (i) each director then serving as such shall nevertheless continue as a director of the class of which he is a member and (ii) the newly created or eliminated directorships resulting from such increase or decrease shall be apportioned by the Board of Directors among the three classes of directors so as to ensure that no one class has more than one director more than any other class. To the extent possible, consistent with the foregoing rule, any newly created directorships shall be added to those classes whose terms of office are to expire at the latest dates following such allocation, and any newly eliminated directorships shall be subtracted from those classes whose terms of offices are to expire at the earliest dates following such allocation, unless otherwise provided from time to time by resolution adopted by the Board of Directors. 6. Quorum; Action at Meeting. A majority of the directors at any time in office shall constitute a quorum for the transaction of business. In the event one or more of the directors shall be disqualified to vote at any meeting, then the required quorum shall be reduced by one for each director so disqualified, provided that in no case shall less than one-third of the number of directors fixed pursuant to Section 1 above constitute a quorum. If at any meeting of the Board of Directors there shall be less than such a quorum, a majority of those present may adjourn the meeting from time to time. Every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the Board of Directors unless a greater number is required by law, by the By-Laws of the Corporation or by this Certificate of Incorporation. 7. Removal. Directors of the Corporation may be removed only for cause by the affirmative vote of the holders of at least two-thirds of the shares of the capital stock of the Corporation issued and outstanding and entitled to vote. 8. Vacancies. Any vacancy in the Board of Directors, however occurring, including a vacancy resulting from an enlargement of the board, shall be filled only by a vote of a majority of the directors then in office, although less than a quorum, or by a sole remaining director. A director elected to fill a vacancy shall be elected to hold office until the next election of the class for which such director shall have been chosen, subject to the election and qualification of his successor and to his earlier death, resignation or removal. -10- 9. Stockholder Nominations and Introduction of Business, Etc. Advance notice of stockholder nominations for election of directors and other business to be brought by stockholders before a meeting of stockholders shall be given in the manner provided by the By-Laws of the Corporation. 10. Amendments to Article. Notwithstanding any other provisions of law, this Amended and Restated Certificate of Incorporation or the By-Laws of the Corporation, and notwithstanding the fact that a lesser percentage may be specified by law, the affirmative vote of the holders of at least two-thirds of the shares of capita1 stock of the Corporation issued and outstanding and entitled to vote shall be required to amend or repeal, or to adopt any provision inconsistent with, this Article ELEVENTH. TWELFTH. Stockholders of the Corporation may not take any action by written consent in lieu of a meeting. Notwithstanding any other provisions of law, this Amended and Restated Certificate of Incorporation or the By-Laws of the Corporation, and notwithstanding the fact that a lesser percentage may be specified by law, the affirmative vote of the holders of at least two-thirds of the shares of capital stock of the Corporation issued and outstanding and entitled to vote shall be required to amend or repeal, or to adopt any provision inconsistent with, this Article TWELFTH. THIRTEENTH. Special meetings of stockholders may be called at any time by only the Chairman of the Board of Directors, the Chief Executive Officer (or if there is no Chief Executive Officer, the President) or the Board of Directors. Business transacted at any special meeting of stockholders shall be limited to matters relating to the purpose or purposes stated in the notice of meeting. Notwithstanding any other provisions of law, this Amended and Restated Certificate of Incorporation or the By-Laws of the Corporation, and notwithstanding the fact that a lesser percentage may be specified by law, the affirmative vote of the holders of at least two-thirds of the shares of capital stock of the Corporation issued and outstanding and entitled to vote shall be required to amend or repeal, or to adopt any provision inconsistent with, this Article THIRTEENTH. -11- IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be affixed hereto and this Amended and Restated Certificate of Incorporation to be signed by its Chairman of the Board this 6th day of November, 1996. UNITED NATURAL FOODS, INC. By: /s/ Norman A. Cloutier ----------------------- Norman A. Cloutier Chairman of the Board -12- EX-3.2 3 ex3-2.txt Exhibit 3.2 CERTIFICATE OF AMENDMENT OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF UNITED NATURAL FOODS, INC. Pursuant to Section 242 of the General Corporation Law of the State of Delaware, United Natural Foods, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Corporation"), does hereby certify: FIRST: That the Board of Directors of the Corporation, by unanimous written action dated as of November 6, 1998, duly adopted resolutions proposing and declaring advisable the following amendment to the Amended and Restated Certificate of Incorporation of the Corporation: RESOLVED: That the Amended and Restated Certificate of Incorporation of the Corporation be amended by deleting the first paragraph of Article FOURTH in its entirety and inserting the following in lieu thereof: "FOURTH. The total number of shares of all classes of stock which the Corporation shall have authority to issue is (i) Fifty Million (50,000,000) shares of Common Stock, $.01 par value per share ("Common Stock"), and (ii) Five Million (5,000,000) shares of Preferred Stock, $.01 par value per share ("Preferred Stock"), which may be issued from time to time in one or more series as set forth in Part B of this Article FOURTH." SECOND: That the stockholders of the Corporation, at the 1998 Annual Meeting of Stockholders held on December 18, 1998, duly approved said proposed Certificate of Amendment of Amended and Restated Certificate of Incorporation in accordance with Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be signed by its Chief Executive Officer on this 18th day of December, 1998. UNITED NATURAL FOODS, INC. By: /s/ Norman A. Cloutier ----------------------- Norman A. Cloutier Chief Executive Officer -2- EX-10.1 4 ex10-1.htm Agreement For Distribution Of Products

Exhibit 10.1

NOTE: A request for confidential treatment has been made with respect to the portions of the following document that are marked with [*CONFIDENTIAL*]. The redacted portions have been filed separately with the SEC.

AGREEMENT FOR DISTRIBUTION OF PRODUCTS

This Agreement for Distribution of Products is entered into to be effective as of January 1, 2005 (the “Effective Date”), by and between Whole Foods Market Distribution, Inc., a Delaware corporation having an address at 550 Bowie Street, Austin, Texas 78703 (“WFM”) and United Natural Foods, Inc. and its subsidiaries and affiliates having an address at 260 Lake Road, Dayville, Connecticut 06241 (collectively “UNFI”).

RECITALS

A. WFM and its affiliates (the “WFM Affiliates”) operate certain retail supermarket stores, bakeries and other facilities in the United States which are primarily engaged in the sale of natural and organic products (the “WFM Stores”).

B. The parties desire to enter into an agreement pursuant to which UNFI shall sell and distribute to WFM facilities, including WFM Stores, WFM bakeries, WFM distribution centers and other WFM facilities (together the “WFM Facilities”) the goods and services specified below on the terms set forth below.

NOW THEREFORE, the parties agree as follows:

1. Term. Subject to earlier termination as set forth herein, this Agreement shall commence on January 1, 2005 (the “Effective Date”) and expire on December 31, 2007.

2. Distribution

(a) UNFI shall be the Primary Distributor to WFM for the following types of products (the “Product Categories”): (i) natural foods/grocery items, (ii) organic packaged grocery products, (iii) frozen products (including certain grocery and meats), (iv) branded bulk products, (v) vitamins, supplements, body care and other health and beauty aid products, (vi) dairy products and (vii) selected specialty items (but excluding produce, mercantile and other categories not specifically identified above). The foregoing products, along with any other products provided hereunder, are hereinafter defined individually as a “Product” and collectively as the “Products”). Produce, non-branded bulk items and alcoholic beverages are not included in the Products for purposes of this Agreement.

(b) For purposes of this Agreement, “Primary” shall mean that: (i) WFM Facilities in all regions other than in [*CONFIDENTIAL*], shall purchase a majority of the products they purchase in the Product Categories from UNFI, and (ii) WFM shall purchase a minimum of $[*CONFIDENTIAL*] million in Products (inclusive of orders for Products that are out of stock, hereinafter occasionally defined as “OOS Products”) during each 12-month period of the Term, commencing as of the Effective Date.

3. Pricing, Adjustments, Minimum Orders, Fuel Adjustments

(a) During the Term, UNFI Base Pricing not including freight charges from UNFI distribution centers to WFM Facilities (the “Freight Up Charge”) for Products (other than produce, wine, non-branded bulk products and products purchased through Select Nutrition Distributors, Inc.) will be priced based upon UNFI’s “Cost” plus a percentage as set forth as follows: [*CONFIDENTIAL*]. Pricing shall be set based on [*CONFIDENTIAL*].

(b) If WFM maintains a higher Cost plus percentage than is applicable, UNFI agrees to rebate the difference based on the actual amount charged and the actual earned by WFM based on its volume in a manner consistent with the parties’ past pricing adjustments.

(d) UNFI will look to put on-line new facilities in both [*CONFIDENTIAL*] and in [*CONFIDENTIAL*] during the next 18 months depending on site and economic viability. In addition, UNFI will look at the feasibility of [*CONFIDENTIAL*]. These initiatives will be done in conjunction with WFM.

(e) [*CONFIDENTIAL*] Products on promotion will be priced at [*CONFIDENTIAL*]. WFM will work with UNFI and vendors to improve the pre-order process. In addition, [*CONFIDENTIAL*]. These Products will be priced at [*CONFIDENTIAL*].

(f) Drop Charge for Less than Minimum Orders. WFM and UNFI anticipate that the average minimum dollar amount per order taking into account all WFM Facilities shall be approximately $[*CONFIDENTIAL*]. If any WFM Facility places an order for Products and the total aggregate dollar amount of all Products included in the delivery is less than $[*CONFIDENTIAL*], UNFI shall charge an additional $[*CONFIDENTIAL*] drop charge for the order. This drop charge for orders that are less than $[*CONFIDENTIAL*] shall not apply to any orders placed by any new WFM Facility within the first [*CONFIDENTIAL*] days of such WFM Facility’s opening date. For WFM Facilities that frequently fall below the $[*CONFIDENTIAL*] level, UNFI shall notify WFM of the issue and propose a reduction in the number of regularly scheduled deliveries to such WFM Facilities. After receipt of the UNFI’s notice and proposal, WFM will reduce the number of deliveries to such WFM Facilities, unless the cause for such orders being below the $[*CONFIDENTIAL*] level is due to size of the WFM Facility or backroom issues. Nothing in the two preceding sentences shall affect UNFI’s right to charge and WFM’s obligation to pay the above-referenced drop charge.

(g) In the event diesel fuel cost weekly average is in excess of $[*CONFIDENTIAL*] per gallon during any three month period during the Term (the “Base Fuel Price”), UNFI shall be entitled to charge WFM an energy surcharge as defined below for Products delivered during the following three month period. The energy surcharge shall be calculated by taking [*CONFIDENTIAL*]. In the event that the weekly average price for diesel fuel exceeds $[*CONFIDENTIAL*] per gallon, the parties agree to negotiate in good faith the allocation of cost between them in excess of the $[*CONFIDENTIAL*] threshold. UNFI and WFM shall develop billing procedures to implement this provision. If the parties cannot agree on an adjustment, [*CONFIDENTIAL*]. Should the price fall below $[*CONFIDENTIAL*] per gallon, UNFI will provide a fuel adjustment credit to WFM calculated the same as above.

(h) Cross-Dock Billing. UNFI will, from time to time, and based on UNFI space availability, ship pallets and shipper displays on a cross-dock basis (as opposed to “bill to, ship to”) for WFM at a rate of $[*CONFIDENTIAL*] per pallet.

(i) Payment Terms. WFM shall send a wire transfer every [*CONFIDENTIAL*] as payment for all acceptable invoices received by WFM the preceding [*CONFIDENTIAL*]. A finance charge of [*CONFIDENTIAL*] per month shall be assessed on any delinquent balance.

4. Placement of Personnel and Transfer of Pricing Information

(a) UNFI shall provide, at its cost, a [*CONFIDENTIAL*] at WFM Headquarters in Austin, Texas. In addition, UNFI will provide [*CONFIDENTIAL*].

(b) WFM agrees to assume responsibility for disseminating product pricing information to the regions, stores and departments based on a mutually agreed upon transition schedule. This is presently work being done by UNFI but now that UNFI is electronically transmitting the 889 and 879 files, WFM has all the information necessary to disseminate this information.

(c) In addition, UNFI agrees that it will accept electronic files from WFM on its National and Regional Promotions in a file lay-out acceptable to both parties based on a mutually agreed upon transition schedule. The goal is to streamline and have consistent formats for mutually agreed data related to promotions.

5. Promotional and Marketing Funds. UNFI will provide assistance to WFM in the solicitation of vendor funding for new, remodeled stores and acquired stores at levels requested by WFM.

6. Out of Stock Performance Criteria

(a) UNFI and WFM will work together to create an approved product list (“APL”) beginning with the Northeast Region of WFM. An evaluation of this program will be made with the parties Joint OOS Committee.

(b) UNFI agrees, on a local regional DC by DC basis, to maintain minimum fill rates of [*CONFIDENTIAL*]% for WFM Facility orders which means that the UNFI portion of OOS Product’s should not exceed [*CONFIDENTIAL*]%. In the event that UNFI OOS Product’s exceed [*CONFIDENTIAL*]% for more than [*CONFIDENTIAL*] consecutive weeks, UNFI shall pay WFM a credit (the “OOS Credit”) equal to [*CONFIDENTIAL*]. UNFI shall pay the affected WFM Region(s) the OOS Product Credit every week until such time as UNFI fill rates for the applicable DC equal or exceed [*CONFIDENTIAL*]% for a week. UNFI shall issue a weekly check to each affected WFM Region for its prorated share of such OOS Product Credit.

7. Audits WFM and its designated agents shall have the right to perform the following audits of UNFI’s compliance with the terms of the Agreement. [*CONFIDENTIAL*]. The parties anticipate that this will involve the review of [*CONFIDENTIAL*].

(a) Financial – WFM sales, cost, promotions, performance metrics and discounts;

(b) Freight - freight costs, rates, transportation costs;

8. Private Label. UNFI will purchase and carry Private Label Products requested by WFM subject to space and slot availability pursuant to the terms set forth on Exhibit B. “Private Label Products” shall mean those products that WFM offers from time to time in WFM Facilities under WFM proprietary labels.

9. Termination

(a) WFM may terminate this Agreement immediately upon written notice to UNFI (unless otherwise provided below) for cause if:

(i) UNFI fails to make any payment, credit, rebate or other remittance of monetary consideration provided for herein on the date due, other than as to payments regarding which UNFI has given WFM notice of good faith dispute, and fails to remedy any delinquent payment, credit, rebate or other remittance within fifteen business days after notice thereof from WFM;

(ii) UNFI breaches any non-monetary obligations under the Agreement not specifically referenced above in this Section, and fails to cure such breach after 30 days’ prior written notice of breach;

(iii) Regulatory violations by UNFI where the violations or the corrective action required materially and adversely affect the continued ability of UNFI to perform all or any material portion of the Agreement; or

(iv) [*CONFIDENTIAL*].

(b) UNFI may terminate the Agreement immediately for cause upon written notice to WFM if:

(i) WFM fails to make any payment, credit, rebate or other remittance of monetary consideration provided for herein on the date due, other than payments regarding which WFM has given UNFI notice of a good faith dispute, and fails to remedy any delinquent payment within five business days after notice thereof from UNFI (which failure to cure shall be an event of default), or if such breach occurs more than twice in any given calendar year;

(ii) WFM fails to purchase $[*CONFIDENTIAL*] of Products in any calendar year during the Term other than where such failure is caused by a Force Majeure event or WFM’s failure is due to UNFI or manufacturer OOS Products; or

(iii) WFM materially breaches any non-monetary obligations under the Agreement not specifically referenced above in this Section, and fails to cure such breach after 30 days’ prior written notice of breach.

10. Facilities; Delivery Standards.

(a) Standards for Facilities. UNFI represents, warrants and covenants that all UNFI distribution centers will be maintained and operated in all material respects in accordance with all applicable laws, in compliance with industry standards and with UNFI warehousing and delivery standards, which will be available for review upon request by WFM. WFM may inspect the physical plant and inventory of any distribution center during normal business hours upon reasonable advance notice to the designated UNFI personnel, but shall not impair or impede the business operations of the center. UNFI shall give at least 60 days notice of its intent to move service for any WFM Store from one facility to another facility. The proposed move shall not result in any increase in cost to WFM, and the parties will have had the opportunity to prepare and implement a plan for a transition to any new distribution facility.

(b) Departure Windows. Unless otherwise provided in this Agreement, UNFI agrees to maintain the existing departure windows for scheduled departures from distribution centers for delivery to WFM Facilities. If changes are required by municipal, residential or property owners on delivery hours, parking of trucks, delivery routes, curfews, noise ordinances, lease covenants, neighborhood covenants and/or operating hours, then WFM and UNFI will work together to make the scheduling changes necessary to comply with such restrictions.

(c) Code Date Policy; Inventory Management. Products shall be distributed to WFM Facilities in compliance with the Code Date Policy attached as Exhibit D related to the minimum number of days prior to expiration of the final code date, for perishable Products, under which such Products will be accepted upon delivery to WFM Facilities. Product delivered with less than the minimum code date shall be deemed out-of-stock for purposes of this Agreement. UNFI agrees to deliver all Products on a “first-in, first-out” inventory management basis, to ensure proper inventory turns and maximize available Product Code Dates.

(d) Quality Standards. Products will be delivered palletized and shrink-wrapped and meet WFM’s quality standards and be free from damage including but not limited to temperature damage and be free from evidence of rodents or insects. The parties will develop a mutually agreeable pallet and tote exchange program. In the event that any product is recalled or withdrawn (the “Recalled Product”), UNFI or its designee will pick up the Recalled Product in order to remove any Recalled Product from WFM Facilities and shall dispose of or return any Recalled Products as required. In addition to the foregoing responsibilities, UNFI shall use its best reasonable efforts to cooperate with WFM in removing the Recalled Product and replenishing WFM Facilities with replacement products.

(e) Store Receiving. All product shipments by UNFI to WFM Facilities shall be evidenced by an invoice and signed by both parties. Shipments of product shall be acknowledged as received by execution by store personnel of the delivered invoice a copy of which shall be left with the WFM Facility.

(f) Passage of Title and Risk of Loss. Title and risk of loss shall pass upon delivery to WFM Facilities when delivered by UNFI fleet or by independent carrier.

11. Indemnification

(a) UNFI Indemnity. UNFI shall indemnify, defend and hold harmless WFM and its parent and affiliates, together with their stockholders, general and limited partners, members, managers, directors, officers, employees, agents, representatives, successors and assigns from and against any and all demands, claims, liabilities, losses, costs, expenses (including but not limited to reasonable attorney fees), injuries and damages of any kind (together “Claims”) incurred or suffered by or asserted against any of them, arising out of or relating to (i) any actual or alleged violation by UNFI of any federal, state or local law, including any statute, ordinance, administrative order, rule or regulation; (ii) any negligence or willful misconduct on the part of UNFI or any of its employees or agents; (iii) any breach of any term of this Agreement; and/or (iv) the employment, presence or activities of any UNFI applicant, employee or contractor on any premises of WFM or any WFM Affiliates for any purpose related to this Agreement, including but not limited to all personal injury, wage and hour, wrongful termination, harassment, discrimination, workers compensation or disability claims or demands.

(b) WFM Indemnity. WFM shall indemnify, defend and hold harmless UNFI and its parent and affiliates, together with their stockholders, general and limited partners, members, managers, directors, officers, employees, agents, representatives, successors and assigns from and against any and all Claims incurred or suffered by or asserted against any of them, arising out of or relating to (i) any actual or alleged violation by WFM of any federal, state or local law, including any statute, ordinance, administrative order, rule or regulation; (ii) any negligence or willful misconduct on the part of WFM or any of its employees or agents; (iii) any breach of any term of this Agreement; and/or (iv) the employment, presence or activities of any WFM applicant, employee or contractor on any premises of UNFI for any purpose related to this Agreement, including but not limited to all personal injury, wage and hour, wrongful termination, harassment, discrimination, workers compensation or disability claims or demands.

(c) Third Person Claims. Promptly after a party has received notice of or has actual knowledge of any Claim against it covered by a third party or the commencement of any action or proceeding by a third person with respect to any such Claim, such party (sometimes referred to as the “Indemnitee”) shall give the other party (sometimes referred to as the “Indemnitor”) written notice of such claim or commencement of such action or proceeding; provided, however, that the failure to give such notice will not affect the right to indemnification hereunder with respect to such Claim, action or proceeding, except to the extent that the other party has been actually prejudiced as a result of such failure. If the Indemnitor has notified the Indemnitee within thirty (30) days from the receipt of the foregoing notice that it wishes to defend against the Claim, unless there exists a potential conflict of interest between the parties, then the Indemnitor shall have the right to assume and control the defense of the Claim by appropriate proceedings with counsel reasonably acceptable to the Indemnitee. The Indemnitee may participate in the defense, at its sole expense, of any such Claim for which the Indemnitor shall have assumed the defense pursuant to the preceding sentence, provided, however, that counsel for the Indemnitor shall act as lead counsel in all matters pertaining to the defense or settlement of such Claims, suit or proceeding other than Claims that in the Indemnitee’s reasonable judgment could have a material and adverse effect on Indemnitee’s business apart from the payment of money damages. The Indemnitee shall be entitled to indemnification for the reasonable fees and expenses of its counsel for any period during which the Indemnitor has not assumed the defense of any claim. The Indemnitor may not settle any Claim without obtaining a release for the benefit of the Indemnitee, unless the consent of the Indemnitee is obtained.

(d) Product Liability. UNFI acknowledges that it generally obtains indemnification agreements from the various manufacturers, vendors or distributors of products it purchases and sells. UNFI agrees to indemnify and hold harmless WFM for any liability arising from any product (other than private label products below) sold to WFM by UNFI, without regard to any negligence by UNFI related to such product, except where the loss is determined to have arisen out of the negligence of WFM. UNFI’s obligation to indemnify WFM for any liability arising from any such products

sold to WFM shall exist regardless of the existence or nonexistence of any such indemnification agreements from product manufacturers. Indemnification under this section does not extend to claims arising out of any WFM private label products, except where the liability or loss is attributable to the negligence or intentional acts or omissions of UNFI. Except as otherwise provided hereinabove, all demands, claims, liabilities, losses, costs, injuries and damages of any kind related to private label products are the responsibility of WFM.

(e) Insurance. At all times during the Term and for a one year period after its termination or expiration, UNFI and WFM agree that all material properties and risks of such party shall at all times be covered by valid and currently effective insurance policies or binders of insurance or programs of self-insurance in such types and amounts as are consistent with customary practices and standards of the industry, but in no event less than the amounts set forth on Exhibit C. Each of UNFI’s insurance policies shall, at UNFI’s sole expense, name “Whole Foods Market Distribution, Inc., a Delaware corporation, together with its parent and affiliates” as additional insureds to the extent of the respective parties’ obligations herein. Each of WFM’s insurance policies shall, at WFM’s sole expense, name United Natural Foods, Inc. together with its parent, affiliates,” as additional insureds to the extent of the respective parties’ obligations herein. Certificates of insurance evidencing the renewal of insurance shall be exchanged by the parties from time to time. The certificates of insurance shall provide that: (a) such insurance shall not be materially modified or cancelled unless the other party has been given at least thirty (30) days’ advance written notice thereof; and (b) such certificates shall be renewed annually or as policy renewals occur. None of the required coverage amounts shall be construed as a limitation on a party’s potential liability.

12. Compliance with Laws.

(a) General. Each party covenants and agrees during the Term it will fully comply with all applicable laws, ordinances, regulations, licenses and permits of or issued by any federal, state or local government entity, agency or instrumentality applicable to its responsibilities hereunder. Each party agrees that it shall comply with all certification procedures and regulations. Each party shall promptly notify the other party after it becomes aware of any material adverse proposed law, regulation or order that, to its knowledge, may or does conflict with the parties’ obligations under this Agreement. The parties will then use reasonable efforts to promptly decide whether a change may be made to the terms of this Agreement to eliminate any such conflict or impracticability.

(b) Organic Documentation. In connection with any organic products, UNFI shall take all such actions as required by any federally recognized certifying organization (or as required by law) in order for such products to be certified as organic, including, without limitation, the maintenance of any required documentation and the taking of all reasonably necessary precautions to prevent product compromise. UNFI shall provide all documentation relating to the foregoing to WFM at WFM’s request. WFM acknowledges that UNFI’s facilities in Iowa City and Indiana are in the process of obtaining such certifications and UNFI agrees to use its commercially reasonable efforts to expedite such certifications.

13. Representations and Warranties of UNFI. UNFI represents and warrants to WFM as follows, and such representations and warranties shall survive the Effective Date:

(a) Sufficient Personnel to Perform Obligations. UNFI represents that it has sufficient personnel with adequate training and expertise to perform its obligations as contemplated hereunder in the time frames contemplated herein.

(b) National Organic Standards. UNFI represents and warrants that it has adequate processes and systems in place, and has adequately educated its personnel, and that it will fully comply with all federal, state and local regulations relating to handling and labeling of organic products, including but not limited to the National Organic Standards as promulgated by the U.S. Department of Agriculture and as such applies to UNFI as a handler or processor of organic foods. UNFI acknowledges that WFM has placed substantial reliance on UNFI to handle various foods for human consumption so as to not invalidate any “organic” designation of such foods. UNFI agrees to use its commercially reasonable efforts to expedite such certifications.

(c) Computer Systems. UNFI has proper security safeguards in place to ensure the confidentiality of all of WFM’s data as contained in UNFI’s computer systems. All such systems will perform without material defect or error in compliance with the performance standards set forth in this Agreement. UNFI has a disaster recovery program in place to ensure that, in the event of a catastrophic destruction of any portion of UNFI’s computer systems, wherever located, UNFI will be able to recover all necessary data to continue to perform its obligations hereunder in substantially the time frames contemplated herein.

(d) Facilities’ Condition and Capacity. All of the distribution centers servicing WFM will be maintained and operated in accordance with UNFI warehousing and delivery standards. Such facilities have the operational systems required to support the obligations of UNFI as set forth in this Agreement, and all such facilities have adequate capacity to order, store and deliver products in accordance with the terms of this Agreement and in the amounts contemplated by WFM. All the distribution centers shall have sufficient security measures in place prior to receipt of products for WFM to ensure that such products are not tampered with or adulterated in any manner, and that all such products shall be maintained at temperatures and other storage conditions necessary to preserve the freshness and integrity of the Products.

(e) Information Provided to Auditors. All information that shall be provided by UNFI to WFM and/or its designated auditors shall be provided in the format in which such information is maintained in the normal course of UNFI’s business, and to UNFI’s knowledge, all such information shall be true and correct in all material respects, except as otherwise disclosed to WFM and/or its designated auditors at the time of disclosure.

14. Representations and Warranties of WFM. WFM represents and warrants to UNFI as follows, and such representations and warranties shall survive the Effective Date:

(a) Sufficient Personnel to Perform Obligations. WFM represents that it has sufficient personnel with adequate training and expertise to perform its obligations as contemplated hereunder in the time frames contemplated herein.

(b) Computer Systems. WFM has proper security safeguards in place to ensure the confidentiality of all of UNFI’s data as contained in WFM’s computer systems. All such systems will perform without material defect or error in compliance with the performance standards set forth in this Agreement. WFM has a disaster recovery program in place to ensure that, in the event of a catastrophic destruction of any portion of WFM’s computer systems, wherever located, WFM will be able to recover all necessary data to continue to perform its obligations hereunder in substantially the time frames contemplated herein.

15. Miscellaneous

(a) Binding Effect. This Agreement is a binding obligation between the parties hereto for the sale by UNFI and purchase by WFM for the products referenced at the prices and other terms set out in or referenced herein, and may be enforced by either party in accordance with its terms. This Agreement supersedes all previous agreements between the parties.

(b) Force Majeure. “Force Majeure” events shall be events beyond the reasonable control of a party (and not through the fault or negligence of such party) that make timely performance of an obligation not possible. Force Majeure events are those that are not reasonably foreseeable with the exercise of reasonable care, nor avoidable through the payment of nonmaterial additional sums. In addition, Force Majeure events are not due to the negligence, inattention, misconduct or inexperience of the party affected. In the event of a Force Majeure, the party so affected shall give prompt written notice to the other party of the cause and shall take whatever reasonable steps are necessary to relieve the effect of such cause as rapidly as possible.

(c) Governing Law; Forum and Jurisdiction; Waiver of Punitive and Similar Types of Damages. The relationship of the parties hereto and all claims arising out of or related to that relationship, including, but not limited to, the construction and interpretation of any written agreements, including this Agreement, shall be governed by the substantive laws of the State of Delaware (without regard to conflicts of law principles). The parties agree and consent to the jurisdiction of the state and federal courts located in Chicago, Illinois and acknowledge that such courts are proper and convenient forums for the resolution of any actions between the parties with respect to

the subject matter of this Agreement, and agree that, in such case, these courts shall be the sole and exclusive forums for the resolution of any actions between the parties with respect to the subject matter hereof. The parties hereby waive any right and all right to a jury trial under any applicable law. The parties also waive any and all right to punitive, incidental or consequential damages, except to the extent such damages are included in any award for which indemnification is sought pursuant to the terms of this Agreement or an action is brought for breach of provisions relating to confidential information. Each party herein shall be responsible for their own attorneys’ fees, costs and expenses.

(d) Confidentiality. The parties to this Agreement shall maintain as confidential the specific terms hereof (“Confidential Information”), and shall not disclose such terms to any third party (other than to its own outside legal, accounting, insurance or financial advisors as necessary) without the other party’s prior written consent. “Confidential Information” about a party learned under this Agreement shall not be used during or after the term of this Agreement except in connection with the party’s obligations hereunder, and without limiting the foregoing, such information as to WFM may not be used by UNFI in connection with the marketing, distribution or sale of UNFI’s products other than to WFM. The term “Confidential Information” shall include computer software, source code, object code, hardware configurations and all other information relating to a party, its business and prospects, learned by the other party or disclosed by such party from time to time to the other party in any manner, whether orally, visually or in tangible form (including, without limitation, documents, devices and computer readable media) and all copies, improvements, derivatives and designs thereof, created by either party whether owned by or licensed to such party. The term “Confidential Information” shall also be deemed to include all notes, analyses, compilations, studies, interpretations or other documents prepared by a party that contain, reflect or are based upon the information furnished to such party by the other party pursuant hereto. Confidential Information shall not include any information that:

(i) was in a party’s possession prior to disclosure by the other party hereunder, provided such information is not known by such party to be subject to another confidentiality agreement with or secrecy obligation to the other party;

(ii) was generally known in the grocery industry at the time of disclosure to a party hereunder, or becomes so generally known after such disclosure, through no act of such party;

(iii) has come into the possession of a party from a third party who is not known by such party to be under any obligation to the other party to maintain the confidentiality of such information; or

(iv) was independently developed by a party without the use of any Confidential Information of the other party, to the extent that such independent development is reasonably established by such first party to the other party.

Notwithstanding the foregoing, nothing herein shall prevent the filing of a copy of this Agreement as an exhibit to any filing required by a regulatory agency having jurisdiction over either party, provided that a party required to file a copy hereof shall notify the other party of the filing and request and use its best efforts to obtain confidential treatment of all financial terms of this Agreement prior to the filing thereof. In addition, either party may disclose the terms of this Agreement pursuant to a valid subpoena, provided such party gives the other party reasonable prior notice of the service of any subpoena to permit the other party to seek a protective order, and seeks confidential treatment of all financial terms hereof.

The parties acknowledge and agree that the non-breaching party’s remedy at law is inadequate in the event of any breach or threatened breach by the other party of its agreements set forth in this Section. In the event of such breach or threatened breach, in addition to any other remedy which may be available to the non-breaching party, the non-breaching party shall be entitled to seek, without posting a bond, preliminary or permanent injunctive and/or other equitable relief restraining the breaching party, or any of its agents or employees, from breaching or acting in any manner inconsistent with the conduct or performance required by this Section.

(e) Amendment; Assignment. This Agreement may not be amended or modified except by an instrument in writing signed by an authorized officer of each party. It is agreed that neither party shall transfer or assign this Agreement or any part hereof or any right arising hereunder, by operation of law or otherwise, to a third party without the prior written consent of the other party, which shall not be unreasonably withheld or delayed. Any purported assignment without consent shall be void and of no force or effect or, at the other party’s option, shall terminate this Agreement. Subject to the foregoing, this Agreement shall be binding on the respective parties and their permitted successors and assigns. Notwithstanding anything to the contrary stated above, both parties may assign this Agreement to any direct or indirect affiliate without obtaining the consent of the other party; provided, however, that the assignor shall continue to be liable for any failure by the assignee to perform.

(f) Entire Agreement; Survival. All exhibits to this Agreement are incorporated by reference herein. This Agreement (and any documents referred to herein or therein) represents the entire agreement and understanding of the parties with respect to the matters set forth herein, and there are no representations, warranties or conditions or agreements (other than implementing invoices, purchase orders and the like necessary to implement this Agreement) not contained herein (or in any documents not referred to herein) that constitute any part hereof or that are being relied upon by any party hereunder. Notwithstanding any termination of this Agreement, all claims arising prior to such termination for any breach of or for any amount due under this Agreement (excluding any such claims that have been satisfied, waived or released prior to such termination) under this Agreement, shall survive such termination, and in addition, the following sections shall survive any such termination: Sections 7 through 15.

(g) Severability. If any provision of this Agreement is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remaining provisions shall nevertheless continue in full force without being impaired or invalidated in any way.

(h) Publicity. Subsection 15(d) notwithstanding, both parties shall agree on a joint initial press release on the entering into of this Agreement; provided, however, that either party may issue releases as deemed necessary by their respective securities counsel under applicable laws governing the release of information.

(i) Notices. Any notices to be given by either party to the other shall be in writing by personal delivery or by mail, registered or certified, postage prepaid with return receipt requested, or by facsimile (only with receipt confirmed). Notices shall be addressed to the parties at the addresses set forth below or to such other address as shall have been so notified to the other party in accordance with this Section. Notices to UNFI shall be addressed to: Steven Townsend, UNFI, 260 Lake Road, Dayville, CT 06241, FAX: 860-779-0746, with a copy, which shall not constitute notice, to E. Colby Cameron, Esq., Cameron & Mittleman LLP, 56 Exchange Terrace, Providence, RI 02903, FAX: 401-331-5787. Notices to WFM shall be addressed to: VP Purchasing, Whole Foods Market Distribution, Inc., 550 Bowie Street, Austin, Texas 78703 with a copy to WFM’s General Counsel at the same address.

(j) No Third Party Beneficiaries. Nothing in this Agreement, whether expressed or implied, is intended to confer on any person other than the parties to this Agreement or their respective successors or permitted assigns, any rights, remedies, obligations or liabilities.

(k) Independent Contractors. In all matters relating to this Agreement both parties shall be acting solely as independent contractors and shall be solely responsible for the acts of their respective employees, contractors and agents. Employees, agents or contractors of one party shall not be considered employees, agents or contractors of the other party. Nothing contained in this Agreement shall be deemed or construed to create a partnership or joint venture, to create the relationship of an employer-employee or principal-agent, or to otherwise create any liability for or obligation of either party whatsoever with respect to the indebtedness, liabilities, and obligations of the other party. Neither UNFI nor any employee or representative of UNFI shall at any time wear a “Whole Foods Market” (Registered Trademark) uniform or in any way hold himself out to be an employee of WFM or any WFM Affiliate. The parties specifically agrees that this Agreement shall not be deemed to grant or imply that either party or any employee of either party is authorized to sign, contract, deal, or otherwise act in the name of or on behalf of the other party.

(l) Titles and Headings; Counterparts; Facsimile Signature. The titles and headings to Sections herein are inserted for the convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. This Agreement may be executed in one or more counterparts, all of which will be considered one and the same agreement, and will become a binding agreement when one or more

counterparts have been signed by each party and delivered to the other party. Electronic or facsimile signatures shall be deemed original signatures for purposes of execution of this document. This Agreement, including its attachments, supersedes all prior agreements between UNFI and WFM or any WFM Affiliate and is the only agreement between WFM and UNFI, either oral or in writing, relating to the matters set forth herein.

(m) Negotiation of Agreement, Each party and its counsel have cooperated in the drafting and preparation of this Agreement and the documents referred to herein, and any drafts relating thereto shall be deemed the work product of the parties and may not be construed against any party by reason of its preparation. Any rule of law or any legal decision that would require interpretation of any ambiguities in this Agreement against the party that drafted it is of no application and is hereby expressly waived.

[Signature Page to Follow]

WHEREAS, the parties hereto have entered into this Agreement as of the Effective Date.


Whole Foods Market Distribution, Inc., a Delaware corporation

By:
Name Printed:
Title:

UNITED NATURAL FOODS, INC.

By:
Name Printed:
Title:

List of Exhibits:

1. Exhibit A – UNFI Freight Delivery Charge Schedule

2. Exhibit B – Private Label Points

3. Exhibit C – Minimum Insurance Requirements

4. Exhibit D – Code Date Policy

[Signature Page to UNFI/WFMDI Agreement]

Exhibit A

Freight Delivery Charge Schedule

[*CONFIDENTIAL*]

Exhibit B

WFM Private Label Points

[*CONFIDENTIAL*]

Exhibit C

Minimum Insurance Requirements


Policy		Minimum Amount
Comprehensive General Liability and Contractual Liability		$[CONFIDENTIAL] per occurrence/$[CONFIDENTIAL] aggregate
Product Liability		$[CONFIDENTIAL] per occurrence
Automobile (combined bodily injury/property damage		$[CONFIDENTIAL] per occurrence
Umbrella (Excess) Insurance		$[CONFIDENTIAL] per occurrence
Worker’s Compensation		Statutory

Exhibit D

Code Date Policy

[*CONFIDENTIAL*]

EX-10.2 5 ex10-2.txt Exhibit 10.2 December 30, 2004 United Natural Foods, Inc. as Agent and Representative of the Borrowers 260 Lake Road Dayville, CT 06241 Attention: Rick Puckett, Chief Financial Officer RE: First Amendment to Amended and Restated Loan and Security Agreement Dear Rick: Reference is made to the Amended and Restated Loan and Security Agreement dated as of April 30, 2004 ("Loan Agreement") among United Natural Foods, Inc. ("UNF"), Mountain People's Warehouse Incorporated ("MPW"), Nutrasource, Inc. ("Nutrasource"), Rainbow Natural Foods, Inc. ("Rainbow"), Stow Mills, Inc. ("SMI"), United Natural Foods Pennsylvania, Inc. ("UNFPA"), United Northeast LLC ("UNLLC") and United Natural Trading Co. ("UNT" and together with UNF, MPW, Nutrasource, Rainbow, SMI, UNFPA and UNLLC, collectively, the "Borrowers") each of the Lenders identified under the caption "Lenders" on the signature pages thereto and Fleet Capital Corporation as administrative and collateral agent for the Lenders (the "Agent"), Citizens Bank of Massachusetts (the "Syndication Agent"), U.S. Bank National Association (the "Documentation Agent") and Fleet Capital Corporation (the "Arranger"). Capitalized terms not defined herein shall have the meanings ascribed thereto in the Loan Agreement. Background. Borrowers have requested the consent of the Lenders to a change to the Applicable Libor Margin and to certain other modifications to Loan Agreement and to the acquisition of Select Nutritions and the Lenders have agreed to consent thereto, subject to the terms and conditions set forth herein. Accordingly, the parties hereto hereby agree as follows: 1. Amendments. a. Section 2.4 of the Loan Agreement is deleted in its entirety and replaced with the following: "2.4 Unused Line Fee. Borrowers shall pay to Agent for the Pro Rata account of each Lender a fee equal to one eighth of one percent (.125%) of the average daily amount by which the Total Credit Facility exceeds the sum of the outstanding principal balance of the Revolving Credit Loans plus the LC Amount. The unused line fee shall be payable monthly in arrears on the first day of each calendar month." b. Section 3.1.1 of the Loan Agreement is deleted in its entirety and replaced with the following: "3.1.1 Loan Requests. Subject to Section 3.1.6, a request for a Revolving Credit Loan shall be made, or shall be deemed to be made, in the following manner: (i) Borrowers may give Agent notice of their intention to borrow, in which notice Borrowers shall specify the amount of the proposed borrowing and the proposed borrowing date, no later than 1:00 p.m. (Eastern Time) on the Business Day of the proposed borrowing date (any request received after 1:00 p.m. (Eastern Time) shall be deemed to be made on the next Business Day thereafter) and Agent will promptly advise Lenders of such notice, provided, however, that no such request may be made at a time when there exists a Default or an Event of Default; and (ii) the becoming due of any amount required to be paid under this Agreement, whether as interest or for any other Obligation, shall be deemed irrevocably to be a request for a Revolving Credit Loan on the due date in the amount required to pay such interest or other Obligation. As an accommodation to Borrowers, Agent may permit telephonic or electronic requests for loans and electronic transmittal of instructions, authorizations, agreements or reports to Agent by Borrowers. Unless Borrowers specifically direct Agent in writing not to accept or act upon telephonic or electronic communications from Borrowers, neither Agent nor any Lender shall have any liability to Borrowers for any loss or damage suffered by Borrowers as a result of Agent's or any Lender's honoring of any requests, execution of any instructions, authorizations or agreements or reliance on any reports communicated to it telephonically or electronically and purporting to have been sent to Agent or Lenders by Borrowers unless it is determined by a final and nonappealable judgment or court order binding on the Agent and such Lender that such loss or damage was solely the result of the gross negligence or willful misconduct of Agent or such Lender. Neither Agent nor any Lender shall have any duty to verify the origin of any such communication or the authority of the person sending it." c. Section 3.1.2 of the Loan Agreement is deleted in its entirety and replaced with the following: "3.1.2 Fundings by Lenders. Subject to its receipt of notice from Agent of a borrowing notice as provided in Sections 3.1.1 or 3.1.6 (except in the case of a deemed request by Borrowers for a Revolving Credit Loan as provided in Sections 3.1.1(ii) or 3.1.3(ii) hereof, in which event no borrowing notice need be submitted), each Lender shall timely honor its Commitment by funding its Pro Rata share of each borrowing of Revolving Credit Loans that is properly requested by a Borrower and that such Borrower is entitled to receive under this Agreement. Agent shall notify Lenders of each borrowing notice by 3:00 p.m. (Eastern Time) on the Business Day of the proposed funding date (in the case of Base Rate Advances) or by 12:00 p.m. (noon) (Eastern Time) at least two (2) Business Days before the proposed funding date (in the case of LIBOR Advances). Each Lender shall deposit with Agent an amount equal to its Pro Rata share -2- of the Revolving Credit Loan requested by such Borrower at Agent's designated account in immediately available funds not later than 5:00 p.m. (Eastern Time) on the date of the funding of such Revolving Credit Loan, unless, with respect to a Base Rate Advance, Agent's notice to Lenders is received after 3:00 p.m. (Eastern Time) on the proposed funding date, in which event Lenders shall deposit with Agent their respective Pro Rata shares of the requested Loan on or before 11:00 a.m. (Eastern Time) on the Business Day following the date of the funding of such Revolving Credit Loan. Subject to its receipt of such amounts from Lenders, Agent shall, provided it has not received notice from a Lender that one or more of the applicable conditions set forth in Section 10 is not satisfied, make the proceeds of the Revolving Credit Loans received by it available to Borrowers by disbursing such proceeds as provided in Section 3.1.4 hereof. Unless Agent shall have been notified in writing by a Lender prior to the proposed time of funding that such Lender does not intend to deposit with Agent an amount equal such Lender's Pro Rata share of the requested Revolving Credit Loan, Agent may assume that such Lender has deposited or promptly will deposit its share with Agent and Agent may in its discretion disburse a corresponding amount to such Borrower on the applicable funding date. If a Lender's Pro Rata share of such Revolving Credit Loan is not in fact deposited with Agent, then, if Agent has disbursed to such Borrower an amount corresponding to such share, then such Lender agrees to pay, and in addition Borrowers jointly and severally agree to repay, to Agent forthwith on demand such corresponding amount, together with interest thereon, for each day from the date such amount is disbursed by Agent to or for the benefit of Borrowers until the date such amount is paid or repaid to Agent, (a) in the case of Borrowers, at the interest rate applicable to such Loan and (b) in the case of such Lender, at the Federal Funds Rate (as published by the Federal Reserve Bank of New York). If such Lender repays to Agent such corresponding amount, such amount so repaid shall constitute a Revolving Credit Loan, and if both such Lender and Borrowers shall have repaid such corresponding amount, Agent shall promptly return to Borrowers such corresponding amount. Notwithstanding the foregoing, if a funding date of a Revolving Credit Loan is a legal holiday under the laws of the state where a Lender has its principal lending office or a day on which banking institutions located in such state are closed, such Lender shall fund its Pro Rata share of the requested Revolving Credit Loan on the next Business Day thereafter." d. Section 3.1.6 of the Loan Agreement is deleted in its entirety and replaced with the following: "3.1.6 LIBOR Advances. Notwithstanding the provisions of subsection 3.1.1, in the event Borrowers desire to obtain a LIBOR Advance, Borrowers shall give Agent prior, written, irrevocable notice no later than 11:00 A.M. Eastern Time on the second (2nd) Business Day prior to the requested borrowing date specifying (i) Borrowers' election to obtain a LIBOR Advance, (ii) the date of the proposed borrowing (which shall be a Business Day) and (iii) the requested Interest Period and amount to be borrowed, which amount shall be in a minimum principal amount of $500,000 and may increase in integral multiples of $500,000. In no event shall Borrowers be permitted to have outstanding at any one time LIBOR Advances with more than twelve (12) different Interest Periods." -3- e. Section 3.1.7 of the Loan Agreement is deleted in its entirety and replaced with the following: "3.1.7 Conversion of Base Rate Advances. Provided that no Default or Event of Default has occurred which is then continuing, Borrowers may, on any Business Day, convert any Base Rate Advance into a LIBOR Advance. If Borrowers desire to convert a Base Rate Advance, Borrowers shall give Agent not less than two (2) Business Days' prior written notice (prior to 11:00 A.M. Eastern Time on such Business Day), specifying the date of such conversion, the requested Interest Period and the amount to be converted. Each conversion into a LIBOR Advance shall be in a minimum principal amount of $500,000 and may increase in integral multiples of $500,000 in excess thereof. After giving effect to any conversion of Base Rate Advances to LIBOR Advances, Borrowers shall not be permitted to have outstanding at any one time LIBOR Advances with more than twelve (12) different Interest Periods." f. Section 9.1.3(i) of the Loan Agreement is deleted in its entirety and replaced with the following: "(i) not later than ninety (90) days after the close of each fiscal year of Borrowers, the Form 10-K of UNF as of the end of such fiscal year, as filed with the Securities and Exchange Commission, which shall contain the unqualified, audited financial statements of Borrowers and their Subsidiaries as of the end of such year, on a Consolidated basis, certified by a firm of independent certified public accountants of recognized standing selected by Borrowers but acceptable to Lenders (except for a qualification for a change in accounting principles with which the accountant concurs) together with consolidating financial statements prepared by management of Borrowers in accordance with GAAP;" g. Section 9.1.3(ii) of the Loan Agreement is deleted in its entirety and replaced with the following: "(ii) not later than forty-five (45) days after the end of each fiscal quarter of Borrowers, including the last fiscal quarter of Borrowers' fiscal year, the Form 10-Q of UNF as of the end of such fiscal quarter and the fiscal year to date, as filed with the Securities and Exchange Commission, which shall contain unaudited, interim financial statements of Borrowers and their Subsidiaries as of the end of such fiscal quarter and of the portion of Borrowers' fiscal year then elapsed, on a Consolidated and consolidating basis, certified by the principal financial officer of Borrowers as prepared in accordance with GAAP and fairly presenting the Consolidated financial position and results of operations of Borrowers and their Subsidiaries for such quarter and period subject only to changes from audit and year-end adjustments and except that such statements need not contain notes;" -4- h. Section 9.1.6 of the Loan Agreement is deleted in its entirety and replaced with the following: "9.16 Projections. No later than the first day of each fiscal year of Borrowers, deliver to Agent and Lenders Projections of Borrowers for the forthcoming three (3) years, year by year, and for the forthcoming fiscal year, fiscal quarter by fiscal quarter." i. Effective on December 1, 2004, the definition of "Applicable Base Rate Margin; Applicable LIBOR Margin" in Appendix A to the Loan Agreement is deleted in its entirety and replaced with the following: "Applicable Base Rate Margin; Applicable LIBOR Margin - determined by reference to the average Availability of the Borrowers during the preceding calendar month as follows: Applicable LIBOR Applicable Base Rate Average Availability Margin Margin -------------------- ------ ------ Greater than or equal to $25 million .90% 0.00% Less than $25 million 1.00% 0.00% 2. Select Nutrition Acquisition. The Agent and Lenders consent to the acquisition by Borrowers of Select Nutrition Distributors, Inc. for an aggregate purchase price $7 million in cash and $6 million in assumption of liabilities; provided, that, within thirty (30) days from the date of this First Amendment (a) Borrowers shall furnish to Agent copies of all purchase documents relating to this acquisition, which shall be in form and substance reasonably satisfactory to Agent, and such other information concerning Select Nutritions and/or the transaction as Agent may reasonably request, (b) the entity acquired or Subsidiary formed to make such acquisition, if any, shall enter into a joinder agreement or guaranty (as determined by Agent) and grant to Agent, for the benefit of Agent and Lenders, a first priority (subject to Permitted Liens) security interest in its assets constituting Collateral, all in form and substance reasonably satisfactory to Agent, and (c) Borrowers shall have otherwise complied with the provisions of Section 9.2.1 of the Loan Agreement with respect to such acquisition as reasonably required by the Agent. 3. Sovereign Bank Take-Out. It is anticipated that on or before January 31, 2005, Sovereign Bank ("Sovereign Bank"), a Lender, shall assign its rights and obligations with respect to the Loans to one or more of the other Lenders. Not withstanding the amendment to the definition of "Applicable Base Rate Margin; Applicable LIBOR Margin" described above, Borrowers shall pay interest at the rates provided by the Loan Agreement prior to such amendment, on account of any Obligations owing to Sovereign through and until such time as the assignment is completed, if such assignment is completed. -5- 4. Representations and Warranties. The Borrowers hereby represent and warrant as follows: a. Power, Authority, Etc. The Borrowers have the power and authority for the making and performing of this First Amendment. This First Amendment has been duly executed and delivered by or on behalf of the Borrowers pursuant to authority legally adequate therefor, and this First Amendment is in full force and effect and is a legal, valid and binding obligation of the Borrowers enforceable in accordance with its terms subject to applicable bankruptcy, reorganization, insolvency, moratorium or similar laws and equitable principles affecting the enforcement of creditors' rights generally. b. Incorporation of Representations and Warranties. The representations and warranties of the Borrowers contained in the Loan Agreement, after giving effect to the amendments thereto contemplated hereby, and except for any changes resulting only from the passage of time which do not otherwise constitute a Default or an Event of Default, are true and correct on and as of the date hereof as though made on and as of the date hereof and such representations and warranties are hereto incorporated in this First Amendment as though fully set forth herein. 5. Conditions Precedent. This First Amendment and the Lenders' obligations hereunder shall not be effective until each of the following conditions are satisfied (the "Amendment Effective Date"): a. Borrowers shall have duly executed and delivered this First Amendment; b. All requisite corporate action and proceedings of the Borrowers in connection with this First Amendment and all documentation and certificates required by Agent and/or its counsel in connection therewith shall be satisfactory in form and substance to Agent; c. No Default or Event of Default shall exist; and d. All the Lenders shall have executed this First Amendment. 6. Miscellaneous. a. Counterparts. This First Amendment may be executed in any number of counterparts, all of which taken together shall constitute one agreement, and any of the parties hereto may execute this First Amendment by signing any such counterpart. b. Force and Effect. The Loan Agreement and each other Loan Document, as amended or modified by this First Amendment, are hereby ratified, confirmed and approved and shall continue in full force or effect. -6- c. Loan Document. This First Amendment and all other documents executed in connection herewith are "Loan Documents" as such term is defined in the Loan Agreement. This First Amendment shall be governed by the laws of the State of Connecticut. This First Amendment and the other documents executed and delivered in connection herewith set forth the entire agreement of the parties with respect to the subject matter thereof and supersede any prior agreement and contemporaneous oral agreements of the parties concerning their subject matter. [remainder of page intentionally left blank] -7- Signature Page to First Amendment to Amended and Restated Loan and Security Agreement IN WITNESS WHEREOF, the parties have executed this First Amendment as of the date first above written. BORROWERS: UNITED NATURAL FOODS, INC. By: /s/ Rick D. Puckett ------------------------------ Name: Rick D. Puckett Title: Vice President MOUNTAIN PEOPLE'S WAREHOUSE INCORPORATED By: /s/ Rick D. Puckett ------------------------------ Name: Rick D. Puckett Title: Vice President NUTRASOURCE, INC. By: /s/ Rick D. Puckett ------------------------------ Name: Rick D. Puckett Title: Vice President RAINBOW NATURAL FOODS, INC. By: /s/ Rick D. Puckett ------------------------------ Name: Rick D. Puckett Title: Vice President STOW MILLS, INC. By: /s/ Rick D. Puckett ------------------------------ Name: Rick D. Puckett Title: Vice President UNITED NATURAL FOODS PENNSYLVANIA, INC. By: /s/ Rick D. Puckett ------------------------------ Name: Rick D. Puckett Title: Vice President -8- UNITED NORTHEAST LLC By: /s/ Rick D. Puckett ------------------------------ Name: Rick D. Puckett Title: Vice President UNITED NATURAL TRADING CO. By: /s/ Rick D. Puckett ------------------------------ Name: Rick D. Puckett Title: Vice President GUARANTORS: NATURAL RETAIL GROUP, INC. By: /s/ Rick D. Puckett ------------------------------ Name: Rick D. Puckett Title: Vice President ALBERT'S ORGANICS, INC. By: /s/ Rick D. Puckett ------------------------------ Name: Rick D. Puckett Title: Vice President AGENT: FLEET CAPITAL CORPORATION, as Administrative Agent By: /s/ Kim B. Bushey ------------------------------ Name: Kim B. Bushey Title: Senior Vice President -9- LENDERS: FLEET CAPITAL CORPORATION, as a Lender By: /s/ Kim B. Bushey -------------------------- Name: Kim B. Bushey Title: Senior Vice President CITIZENS BANK OF MASSACHUSETTS, as a Lender By: /s/ Paul R. Crimlisk -------------------------- Name: Paul R. Crimlisk Title: Vice President U.S. BANK NATIONAL ASSOCIATION, as a Lender By: /s/ James A. Bosco -------------------------- Name: James A. Bosco Title: Senior Vice President PNC BANK, NATIONAL ASSOCIATION, a Lender By: /s/ Jack Braha ----------------------- Name: Jack Braha Title: Associate Vice President -10- FIRST PIONEER FARM CREDIT, ACA, a Lender By: /s/ Carol L. Sobson -------------------------- Name: Carol L. Sobson Title: Vice President WEBSTER BANK, a Lender By: /s/ John H. Frost -------------------------- Name: John H. Frost Title: Vice President SOVEREIGN BANK, a Lender By: /s/ Christopher T. Phelan -------------------------- Name: Christopher T. Phelan Title: Senior Vice President ISRAEL DISCOUNT BANK OF NEW YORK, a Lender By: /s/ Amir Barash -------------------------- Name: Amir Barash Title: First Vice President By: /s/ Kevin Lord -------------------------- Name: Kevin Lord Title: Vice President ROYAL BANK OF CANADA, a Lender By: /s/ Evan Glass -------------------------- Name: Evan Glass Title: Authorized Signatory HARRIS TRUST AND SAVINGS BANK, a Lender By: /s/ Michael Johns -------------------------- Name: Michael Johns Title: Vice President -11- EX-31.1 6 ex31-1.txt Exhibit 31.1 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Steven H. Townsend, in my capacity as the Chief Executive Officer of United Natural Foods, Inc. (the "Company"), hereby certify that: 1. I have reviewed this quarterly report on Form 10-Q of the Company; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; and 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this quarterly report. 4. The Company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) for the Company and we have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and (c) disclosed in this quarterly report any change in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. 5. The Company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the audit committee of the Company's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting. /s/ Steven H. Townsend ----------------------------------- Steven H. Townsend Chief Executive Officer March 14, 2005 Note: A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. EX-31.2 7 ex31-2.txt Exhibit 31.2 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Rick D. Puckett, in my capacity as the Chief Financial Officer of United Natural Foods, Inc. (the "Company"), hereby certify that: 1. I have reviewed this quarterly report on Form 10-Q of the Company; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; and 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this quarterly report. 4. The Company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) for the Company and we have: 1. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; 2. evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and 3. disclosed in this quarterly report any change in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. 5. The Company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the audit committee of the Company's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting. /s/ Rick D. Puckett ---------------------------------- Rick D. Puckett Chief Financial Officer March 14, 2005 Note: A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. EX-32.1 8 ex32-1.txt Exhibit 32.1 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 The undersigned, in his capacity as the Chief Executive Officer of United Natural Foods, Inc., a Delaware corporation (the "Company"), hereby certifies that the Quarterly Report of the Company on Form 10-Q for the period ended January 31, 2005 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of the Company. /s/ Steven H. Townsend ---------------------------------- Steven H. Townsend Chief Executive Officer March 14, 2005 Note: A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. EX-32.2 9 ex32-2.txt Exhibit 32.2 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 The undersigned, in his capacity as the Chief Financial Officer of United Natural Foods, Inc., a Delaware corporation (the "Company"), hereby certifies that the Quarterly Report of the Company on Form 10-Q for the period ended January 31, 2005 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of the Company. /s/ Rick D. Puckett ---------------------------------- Rick D. Puckett Chief Financial Officer March 14, 2005 Note: A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----