Exhibit 10.38



 


 


***CONFIDENTIAL TREATMENT REQUESTED**


ATTACHMENT 2 


Attached to March 10, 2004 Letter to the Securities and Exchange
Commission


AGREEMENT FOR DISTRIBUTION OF PRODUCTS


 


This Agreement for Distribution of Products, dated January 9, 2004, is
between Wild Oats Market, Inc. ("WO") and United Natural Foods, Inc. and its
subsidiaries and affiliates (collectively "UNFI"). 


RECITALS


A. WO operates certain retail supermarket stores in the United States
which are primarily engaged in the sale of natural and organic products (the
"Stores"). 


 


B. The parties desire to enter into an agreement pursuant to which UNFI
shall provide, sell and distribute to WO, its Stores and wholesale locations, and WO shall
buy, the goods and services specified below on the terms set forth below.


AGREEMENT


For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:


1. Agreement Term. (a) The Agreement shall have an initial term
of five years (the "Term") commencing as of the date hereof (the
"Commencement Date").


(b) After the expiration of the initial Term, the Term shall be
automatically renewed for successive two-year periods unless either party gives notice to
the other not less than 180 days prior to the end of the initial or any renewal Term. 


2. Distribution Arrangement. (a) Commencing April 1, 2004 (the
"Effective Date"), UNFI shall be the primary wholesale distributor to WO of WO
selected (i) specialty grocery items, (ii) natural and organic packaged grocery products,
(iii) frozen products (including certain grocery and meat), (iv) bulk products, (v)
vitamins, supplements, body care and other health and beauty aid products and (vi) dairy
products (but excluding produce, meat, seafood, cheese, food service products, mercantile
and other categories not specifically identified above) either (A) not purchased directly
from manufacturers or (B) for which WO currently does not have an existing contractual
obligation to purchase which continues after the Effective Date (the
"Products"), for all WO Stores, and all such new Stores acquired or opened by WO
during the Term, subject to the limitations set forth below. Produce and alcoholic
beverages are not included in Products for the purposes of this Agreement.


(b) "Primary" for purposes of this Agreement shall be defined
as purchasing from UNFI and its affiliates (i) a minimum of [CONFIDENTIAL](1) in
Products and (ii) a majority, in the aggregate by region, of the Natural and Organic
Products carried by the Stores (as defined in the Product Standards set forth on Exhibit
A attached hereto) purchased in the various categories under 2(a) above, with (i) and
(ii) calculated inclusive of orders for Products that are out of stock, during each
12-month period of the Term, commencing as of the Effective Date. 


 


 







(1)  Confidential treatment has been requested for the redacted portion. The
confidential, redacted portions have been filed separately with the SEC.






***CONFIDENTIAL TREATMENT REQUESTED**


 


(c) WO will purchase, and UNFI will sell Products at net prices,
quantities and upon the other terms and conditions set forth herein. 


 


3. Products. (a) Authorized List. (a) WO has provided to
UNFI an Authorized Product List ("APL"), DC by DC, which, as modified from time
to time, will be the complete list of the only Products authorized to be distributed to
the Stores by UNFI. WO shall have the obligation to purchase, on a monthly basis, not less
than (i) [CONFIDENTIAL](2) per DC for grocery, chilled and frozen Products, and
(ii) [CONFIDENTIAL](3) cases per DC for repack, health and beauty Products
(including all body care Products) and vitamins, minerals, supplements and homeopathic
remedies (the "Velocity Requirement") of each Product on the APL which is
carried by UNFI solely for distribution to WO Stores, exclusive of Private Label Products
(the "Exclusive Products"). Notwithstanding the foregoing, the parties agree
that the Velocity Requirement for Products purchased by WO from the New Oxford, PA and
Chesterfield, NH DCs shall be established by the parties six months after the Effective
Date, based upon a review of WO’s purchasing volumes and Product velocities during
the first six months’ purchasing from such DCs. Calculation whether a Product meets
the Velocity Requirement shall include all orders placed by WO, including those not filled
as a result of manufacturer or UNFI out-of-stocks ("OOS").


(b) WO shall have final determination of items on the APL; provided,
however, that the following Products shall not be included within the APL without
UNFI’s consent, not to be unreasonably withheld, conditioned or delayed: (i) Products
that do not meet the product standards set forth on Exhibit A (the "Product
Standards"); or (ii) SKUs of Exclusive Products and WO Private Label in excess of [CONFIDENTIAL](4)
(the "Exclusive/PL Product SKU limit"). 



  
    (c) APL Additions and Deletions. 

    (i) WO may require the addition of Products to the APL upon written
    notice to UNFI specifying the Products to be added, the Stores designated to purchase such
    Products and the estimated weekly purchases of the Products by the designated Stores;
    provided, however, that Products will not be added to the APL without UNFI’s consent,
    not to be unreasonably withheld: (i) if the Products do not meet the Product Standards;
    (ii) if the Exclusive/PL Product SKU limit will be exceeded; and (iii) until adequate
    inventory of the Product shall be available in all UNFI servicing divisions, as determined
    by UNFI, based on the estimated weekly purchases provided by WO. At the time WO gives
    notice to UNFI adding Products to the APL, UNFI shall notify WO if the added Products will
    be Exclusive Products. Notwithstanding the foregoing, all Products identified for addition
    to the APL that do not require consent pursuant to the criteria set forth above shall be
    added to the APL within 21 days after receipt of written notice of their addition from WO.
    If UNFI does not have such new Products available for distribution to WO Stores within 21
    days after addition to the APL for other than Force Majeure events, WO may include orders
    of the new Products for purposes of the calculation under Section 14 (Out of Stock
    Calculation) below and such other obligations of UNFI hereunder regarding delivery of
    Products. 

  




 






(2) Confidential treatment has been requested for the redacted portion. The
confidential, redacted portions have been filed separately with the SEC.



(3)  Ibid.


(4)  Ibid.






  
    ***CONFIDENTIAL TREATMENT REQUESTED**

     

    (ii) WO shall designate those Stores to purchase any item added to the
    APL in the notice described in (c)(i) above. 

    (iii) [CONFIDENTIAL](5),:

    
      
        (1) [CONFIDENTIAL](6), or

        (2) [CONFIDENTIAL](7), 

      

    

    WO shall have no obligation to purchase any of the foregoing Products
    which are deleted from the APL at UNFI’s request for reasons other than a failure of
    such Products to meet the Velocity Requirement, unless WO agrees to such purchase.

    (iv) If either party requests deletion from the APL of any Product and
    the other party agrees to deletion of such item, there shall be a 60-day notice period,
    after agreement of the parties as to deletion, prior to the actual deletion of the Product
    from the APL. Unless the deletion is made by UNFI for Products failing to meet the
    Velocity Requirement or because of excessive manufacturer OOS (as determined by UNFI based
    upon historic information), the requesting party shall indemnify the other party from the
    costs of the return to the manufacturer or failure to pay by the manufacturer of: (A) any
    bill backs (manufacturer direct rebate) or charge back issued by UNFI (contribution by the
    manufacturer to any ad costs, funds or campaigns for such Product); (B) coupons or rain
    checks issued by manufacturer or WO or UNFI; and (C) store credits (credits for damaged
    goods, out of stock Product, demonstration costs agreed to by the manufacturer) issued for
    the deleted Product; provided that, so long as the deleted Product is not an Exclusive
    Product, if the deleted Products are sold, or a sale is arranged, within 90 days to
    another customer, then the requesting party shall not have any indemnification or
    reimbursement obligation as specifically enumerated above under this Section 3(c)(iv) for
    the items identified above related to those deleted Products that have been sold. 

     

  








  
    (5)  Confidential treatment has been requested for the
    redacted portion. The confidential, redacted portions have been filed separately with the
    SEC.

    (6)  Ibid

    (7)  Ibid.

  








  
    ***CONFIDENTIAL TREATMENT REQUESTED**

     

    (d) Private Label Products.

    (i) [CONFIDENTIAL](8)

    (ii) UNFI will carry any WO Private Label Products requested by WO,
    provided that each WO Private Label Product sells well enough to turn one inventory turn:
    (A) [CONFIDENTIAL](9) for Products which are imported from outside of the
    continental United States, and (B) [CONFIDENTIAL](10) for Products which are
    shipped from manufacturers within the continental United States. At the end of the
    inventory turn periods specified in (A) and (B) above, UNFI shall notify WO of the amount
    of inventory of any Product not meeting the turn periods, and [CONFIDENTIAL](11).
    WO shall use its best efforts to sell through inventory remaining beyond the turn periods
    within CONFIDENTIAL](12) after the end of the applicable turn period (the
    "Sell Through Period") or may elect to have the inventory "plussed
    out" (shipped) to the Stores on a logistics schedule supplied by WO. If inventory not
    moving within the turn periods remains in the DCs for more than [CONFIDENTIAL](13)
    after the end of the turn periods, [CONFIDENTIAL](14). To the extent a Private
    Label Product does not sell within the foregoing turn periods, the parties shall review
    the Product on a case-by-case basis, and shall mutually determine whether to remove it
    from the APL. UNFI shall hold the inventories of WO Private Label in the three DCs listed
    on Exhibit C hereto, and in additional DCs as Private Label Product velocity may
    warrant. "WO Private Label Products" shall mean those products that Wild Oats
    offers from time to time in its Stores under Wild Oats’ proprietary labels (including
    "Wild Oats", "Henry’s", "Sun Harvest" and such other
    tradenames or marks used by WO from time to time). UNFI covenants not to sell, and to take
    commercially reasonable efforts to prevent the sale of any WO Private Label Products by
    UNFI to any distribution network, stores, or persons not approved in advance by WO. UNFI
    agrees to fully cooperate with WO in any investigation and litigation originated by WO
    over such unauthorized sales. UNFI shall bear the cost of retrieval of any WO Private
    Label Product sold in unauthorized sales by UNFI. 

  




4. Pricing. (a) Pricing of Products. Commencing as of the
Commencement Date, during the Term the UNFI pricing for Products shall be as follows:


 



  
    (i) As to all Products other than WO Private Label Products, [CONFIDENTIAL](15);
    and 

  




 






(8)  Confidential treatment has been requested for the redacted portion. The
confidential, redacted portions have been filed separately with the SEC.



(9)  Ibid.


(10)  Ibid.


(11)  Ibid.


(12)  Ibid.


(13)  Ibid.


(14)  Ibid.


(15)  Ibid.






  
     

    ***CONFIDENTIAL TREATMENT REQUESTED**

     

    (ii) As to WO Private Label Products, [CONFIDENTIAL](16)

    (b) At the end of each of WO’s fiscal quarters, [CONFIDENTIAL](17)

    (iii) For purposes of this Agreement, "Cost" shall be
    defined as [CONFIDENTIAL] (18)

    (iv) In the event of a partial Fiscal Quarter based on the Commencement
    Date or remaining at the end of the term hereof (whether by early termination or normal
    expiration of the term of this Agreement), the Quarterly Run Rate Volume shall be pro
    rated based on the percentage of the Fiscal Quarter at the Commencement Date or remaining
    at the end of the term of the Agreement. 

    (v) If there has been a Force Majeure event during any Fiscal Quarter
    that materially affects WO’s ability to purchase or UNFI’s ability to sell
    Products, the Quarterly Run Rate Volume shall not be reduced, but the [CONFIDENTIAL](19)
    minimum purchase level referenced under Section 2(b) above for any calendar year shall be
    reduced by an amount based on the purchases from those Stores impacted by the Force
    Majeure event from other distributors, or estimated purchases in the event the Stores are
    unable to operate and the length of time that the Force Majeure event continues to disrupt
    operations at such Stores or DCs. 

     

  




(c) Modification of Pricing. 



  
    (i) The parties agree to meet semiannually to review the freight
    delivery charges to the Stores as set forth in Exhibit E and, upon mutual agreement
    based on a modification in freight charges, shall modify the inbound freight charges as a
    component of Product cost.

    (ii) UNFI may only increase the prices for Products referenced in this
    Section 4 if there is an actual per item price increase from the manufacturer. Price
    increases shall only be effective after [CONFIDENTIAL](20) electronic notification
    to WO. UNFI shall reduce or increase the prices for Products if there is an actual per
    item price decrease or increase, as applicable, from the manufacturer in accordance with
    manufacturer deal periods. Price decreases shall be effective within [CONFIDENTIAL](21)
    from the reduction in pricing by the manufacturer to UNFI. All published vendor deals
    (advertised to wholesalers and retailers), pricing and promotional discounts, will be
    passed dollar for dollar directly to WO as and when received by UNFI as a reduction in
    pricing subject to vendor performance requirements being met. Notwithstanding the
    foregoing, UNFI’s or WO’s new item set up discounts and policies will be
    mutually supported. 

  




 






(16)  Confidential treatment has been requested for the redacted portion.
The confidential, redacted portions have been filed separately with the SEC.



(17)  Ibid.


(18)  Ibid.


(19)  Ibid.


(20)  Ibid.


(21)  Ibid.






  
     

    ***CONFIDENTIAL TREATMENT REQUESTED**

     

    (iii) WO may negotiate scan downs or off-invoice receiving allowances
    with manufacturers pursuant to which WO receives a rebate from the manufacturer based upon
    actual sales of goods. [CONFIDENTIAL](22). The total number of scan-downs
    per month that can be negotiated by WO shall not exceed [CONFIDENTIAL](23). The
    payment shall be accompanied by a copy of the manufacturer bill back documents sent to the
    manufacturer as part of the scan down or off-invoice arrangement.

  




(d) Freight Costs to the Stores. 



  
    (i) WO shall pay a freight charge for delivery of Product from each
    UNFI distribution center to the Stores. The freight charge shall be a percentage, as set
    forth on Exhibit E to this Agreement, of Product Cost. Freight will be shown
    separately on each Product invoice from the cost of the Product delivered. WO shall be
    under no obligation to pay higher net freight costs that result from UNFI’s election
    to close any distribution centers that were operating on the date of this Agreement, and
    any increase in freight charges resulting from such closure or reassignment of more Stores
    to other DCs shall be the responsibility of UNFI. In the event that federal or state
    regulations regarding hours of service for drivers are implemented that result in
    substantial increases in freight costs over those costs represented by the percentages set
    forth on Exhibit E, the parties shall review the actual costs and make such
    adjustments to Exhibit E to cover the incremental cost increases allocated to
    WO’s business as a result of such implementation.

    (ii) In the event that fuel costs average in excess of [CONFIDENTIAL](24)
    over the prior three-month period, UNFI shall be entitled to charge WO a surcharge for
    fuel used in delivery of Product equal to the actual average and [CONFIDENTIAL](25),
    and such surcharge shall be charged for the following three-month period as set forth on Exhibit
    F attached hereto.

  




(e) Inclusions of Items on Invoices. WO shall send its suggested
specific Store retail pricing for the Products to UNFI in a
mutually agreeable format at mutually agreed times. UNFI will print such pricing on all
appropriate WO documents. The mechanics of such arrangement are set forth in Exhibit G
attached to this Agreement. Each invoice from UNFI for Product delivered to the Stores
shall show the cost of the item per unit specified, the freight costs and, to the extent
UNFI’s computer systems may include such information, the retail price at which WO
sells the Product and margin received at such price, as reflected in WO’s data. UNFI
shall have no liability to WO hereunder for loss arising out of errors in WO’s data. 






(22)  Confidential treatment has been requested for the redacted portion.
The confidential, redacted portions have been filed separately with the SEC.



(23)  Ibid.


(24)  Ibid.


(25)  Ibid.





 



***CONFIDENTIAL TREATMENT REQUESTED**


 


(f) Conflict with Purchase Orders and Other Documents. The terms
and conditions of the Agreement shall govern any purchase order and shall supersede any
additional or contrary terms set forth in any WO purchase order or any UNFI acceptance,
confirmation, invoice or other similar document.


(g) Cross-Dock Billing. UNFI will, from time to time, and based
on UNFI space availability, ship non-APL Product, for pallet and shipper displays only, on
a cross-dock basis (as opposed to "bill to, ship to") for WO. UNFI shall charge
WO [CONFIDENTIAL](26) shipped on a cross-dock basis, and [CONFIDENTIAL](27).
UNFI shall not unreasonably withhold its consent to cross-dock arrangements established by
WO, based on space availability per DC. WO shall give UNFI 45-day prior notice of any
proposed cross-dock arrangement. Within 15 days prior to the actual shipment pursuant to
the cross dock arrangement, WO shall provide the weight, volume and pallet count of the
cross-docked Products per Store. All cross-docked Products received from the manufacturer
shall be accompanied by a bill of lading, shall identify that the shipment is for WO, and
shall identify the Store to which the Product is to be shipped. UNFI shall deliver the
cross-docked Products on the next scheduled shipment to the Store, space permitting but,
as to Wild Oats Stores only (not as to Henry’s or Sun Harvest Stores) shall not ship
cross-docked Products in the first week of any WO promotional period. 


 


5. Placement of Personnel and Equipment. (a) On Site
Personnel. UNFI shall commit to providing, at its cost, the following personnel at WO
Headquarters in Boulder, Colorado, during the Term of this Agreement: [CONFIDENTIAL](28).
In addition, UNFI will provide [CONFIDENTIAL](29).


(b) Transition Personnel. As part of the transition of
distribution purchasing from WO’s current primary distributor to UNFI, UNFI and WO
recognize that certain existing shelf tags for certain items on the APL must be replaced. [CONFIDENTIAL](30).
The timetable for the completion of all retagging, and the process by which retagging will
proceed, will occur over a nine-month period on a timetable mutually agreeable to the
parties. 


(c) Replacement of Personnel. All personnel supplied by UNFI
under (a) and (b) above shall be reasonably satisfactory to WO. If WO requests the
replacement of any UNFI personnel for any non-discriminatory reason, UNFI shall use
commercially reasonable efforts to promptly replace such individuals with new, competent
personnel reasonably satisfactory to WO.






(26)  Confidential treatment has been requested for the redacted portion.
The confidential, redacted portions have been filed separately with the SEC.


(27)  Ibid.


(28)  Ibid.


(29)  Ibid.


(30)  Ibid





 



***CONFIDENTIAL TREATMENT REQUESTED**


 


(d) Electronic Ordering Equipment. As part of the retagging
process of existing Stores, UNFI shall loan to each Store three electronic store order
units, and shall train all department managers, the scanning coordinator and the
designated person for order placement at Store level on the use of the equipment. Upon
full implementation of WO’s backdoor receiving project, WO shall return to UNFI two
of the three electronic ordering units provided by UNFI at each Store. Any malfunctioning
units shall be repaired or replaced, at UNFI’s sole election, within 72 hours after
UNFI’s receipt of notification by WO, provided that WO shall provide UNFI with
specific information as to any malfunctioning. WO shall be responsible for malfunctioning
caused by the gross negligence of WO employees. UNFI shall provide three, or more based on
Store size if requested by WO, units to each new Store, and shall train the aforesaid new
Store personnel in the use of the equipment, within 21 days prior to the opening of the
new Store; provided that WO shall have given UNFI 90 days’ prior written notice of
new Store openings to facilitate the programming of the equipment and the training of
personnel and WO makes such personnel available to UNFI at mutually agreed upon dates,
times and places. WO is currently testing and plans to implement in the future a new order
taking technology as part of its back door receiving program. 


(e) [CONFIDENTIAL](31) 


6. Product Quantity: (a) Quantities. UNFI agrees to sell
to WO and supply WO with APL Products, throughout the Term of the Agreement, in the
quantities ordered by WO in its sole discretion. The parties have established two [CONFIDENTIAL](32)
  minimum order quantities for each Store based on Store volume, frequency of
delivery, etc., as set forth on Exhibit H attached hereto. The parties shall review
the schedule semi-annually and shall move Stores’ minimum order quantities from one
order quantity category to the other based on market conditions and competitive impacts.
WO may be charged a [CONFIDENTIAL](33) charge for deliveries not meeting the
minimum order requirement size.


(b) Shipment of Booked Orders. If WO has (i) pre-ordered
specified quantities of Product for a promotional event and has given UNFI 45 days notice,
or (ii) completed a forward buy negotiation with a manufacturer for Product meeting the
requirements set forth in (c) below, and UNFI has accepted the orders, UNFI shall deliver
the booked quantities of Products to the WO Stores per WO’s Product orders. For
inventory not falling within the definitions of (i) and (ii) above, if UNFI has stocking
issues, UNFI will ship all customers on an equal first come, first serve basis. 


(c) [CONFIDENTIAL](34) . 


 






(31)  Confidential treatment has been requested for the redacted portion.
The confidential, redacted portions have been filed separately with the SEC.


(32)  Ibid.


(33)  Ibid.


(34)  Ibid.





 



***CONFIDENTIAL TREATMENT REQUESTED**


 


7. UNFI Covenants Concerning Facilities; Delivery Standards. 


(a) Standards for Facilities. UNFI warrants and covenants that
all UNFI participating distribution centers will be maintained and operated in all
material respects in accordance with UNFI warehousing and delivery standards, which will
be available for review upon request by WO. WO may inspect the physical plant 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. With WO’s consent, not to be unreasonably withheld, UNFI shall have the right
to move service for groups of Stores from one facility to another, provided the new
facility has the ability to adequately service the Stores, UNFI has given WO at least 60
days notice of the proposed modification and obtained WO’s consent, such move shall
not result in an incremental increase in cost to WO, and the parties have had the
opportunity to prepare and implement a plan for transition to the new DC.


(b) Covenants for Delivery. UNFI shall:



  
    (i) receive and process WO orders only from the WO Stores or designated
    home office personnel and no other WO personnel or manufacturers, brokers or other third
    parties. Notwithstanding anything to the contrary, UNFI shall be entitled to rely upon the
    list of authorized persons in accepting orders from personnel identifying themselves as on
    such list. If orders are transmitted by MSI, then UNFI may rely upon orders received from
    a Store; and

    (ii) at UNFI’s election, transport ordered Product on UNFI fleet
    or WO approved carriers to individual Stores. UNFI shall comply with any regional or
    national, as applicable, limitations or guidelines regarding deliveries (e.g., municipal,
    residential or property owner imposed restrictions on delivery hours, parking of trucks,
    unacceptable levels of noise in residential areas, etc.) of which WO has provided notice. 

    (iii) maintain adequate stock at each DC to meet WO Store requirements
    on an individual store basis [CONFIDENTIAL](35).

  




(c) Delivery Windows. Exhibit I sets forth the following
information per Store: (a) estimated shipment volumes per delivery location; (b)
municipal, residential or property owner imposed restrictions on delivery hours, parking
of trucks, delivery routes, curfews, noise ordinances, lease covenants, neighborhood
covenants and operating hours. In the event of changes in these restrictions, WO shall
provide updated information and the parties shall evaluate such information and make such
scheduling changes as necessary to comply with any restrictions so imposed. UNFI will
apply its routing system to prepare a routing and constraint analysis, taking into
account, in order of priority, (a) Store delivery restrictions such as curfews,
ordinances, neighborhood covenants, landlord regulations, (b) WO desired delivery times,
(c) UNFI’s route departure schedule, (d) UNFI warehouse and transportation operating
constraints such as shift schedules. The routing schedule






(35)  Confidential treatment has been requested for the redacted portion.
The confidential, redacted portions have been filed separately with the SEC.





 



***CONFIDENTIAL TREATMENT REQUESTED**


 


(the "Delivery Schedule") adopted based on the routing and
constraint analysis will define the following: (1) each Store’s days of delivery per
week, (2) the hours of the delivery window for each store delivery, (3) delivery days and
delivery windows per day for special promotional events, and (4) delivery days and
delivery windows for holiday week shipments. After the initial development of the Delivery
Schedule, a designated WO employee and UNFI will meet monthly, if requested by WO or UNFI,
or quarterly, if no monthly meetings are held, to review the Schedule and make any
necessary modifications. [CONFIDENTIAL](36). 


 


(d) Code Date Policy; Inventory Management. Products shall be
distributed to WO Stores in compliance with the Code Date Policy attached as Exhibit J
to this Agreement 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 the Stores. Product delivered with less than the minimum code date shall be
deemed an out-of-stock for purposes of performance hereunder. UNFI agrees to deliver all
Product (including WO Exclusive and Private Label Product) on a "first-in,
first-out" inventory management basis, to ensure proper inventory turns and maximize
available Product Code Dates.


 


(e) Quality Standards. Products will be delivered palletized and
shrink-wrapped and meet WO's Quality Standards as to damage, rodent or insect presence,
and other quality standards attached as Exhibit K to this Agreement. The parties
will comply with the mutually agreeable pallet exchange program described on Exhibit L.
In the event that any Product is recalled or withdrawn (the "Recalled Product"),
UNFI will use its personnel (or a third party retrieval service if UNFI reasonably
believes the recall or withdrawal will be achieved faster, at less expense or more
efficient) to remove any Recalled Product from the WO Stores and shall dispose of or
return any Recalled Products as required. In addition to the foregoing responsibilities,
UNFI shall use its reasonable commercial efforts to cooperate with WO in removing the
Recalled Product that UNFI has delivered from the WO Stores and replenishing the Store
with replacement Products.


 


(f) Store Receiving. All Product shipments by UNFI to the Stores
must be evidenced by an invoice, in the form attached hereto as Exhibit G.
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 Store). WO will not be
responsible for paying any invoice for a shipment not complying with the foregoing
conditions of receipt. 


 


(g) Passage of Title and Risk of Loss. Title and risk of loss
shall pass upon delivery to WO Stores when delivered by UNFI fleet. Risk of loss upon
delivery by independent carriers shall be governed by such arrangements as are made
between UNFI, WO and the independent carrier at the time of shipment.






(36)  Confidential treatment has been requested for the redacted portion.
The confidential, redacted portions have been filed separately with the SEC..





 



***CONFIDENTIAL TREATMENT REQUESTED**


 


8. Certain Wild Oats Ordering Responsibilities. (a) WO shall
place phone orders only by designated WO personnel. To enable timely delivery of Products,
WO shall place orders in a timely manner in accordance with Exhibit M. WO shall
give UNFI a minimum 45-day written lead time on promotion orders. No third party orders
will be honored by UNFI.


(b) The parties agree to establish an electronic data interchange
capability ("EDI")between WO and UNFI in a mutually agreed upon format by
December 31, 2004. The EDI shall be used both for the placement of orders and the movement
of other data used in the ordering and payment for Products. 


(c) The average minimum order size for each Store delivery shall be as
set forth on Exhibit H per Store per placed order (inclusive of OOS and Private
Label Product, whether caused by the manufacturer, UNFI or promotional OOS, that is
ordered but not delivered). Any order placed of less than the minimum order size shall
incur [CONFIDENTIAL](37).


(d) To the extent that WO forecasts Product sales for a WO promotion
(other than WO Private Label promotions), and the Stores do not order the aggregate amount
forecasted to UNFI, then within [CONFIDENTIAL](38) following completion of the
promotion, UNFI shall notify WO of the amount of promotional Product remaining in
inventory, and shall commence charging WO a pallet charge of [CONFIDENTIAL](39) for
any of such inventory remaining at the DCs on the [CONFIDENTIAL](40) after
completion of the promotion. WO shall use its best efforts to sell through the remaining
promotional inventory within [CONFIDENTIAL](41) after completion of the promotion
or may elect to have the inventory "plussed out" (shipped) to the Stores on a
logistics schedule supplied by WO. If promotional inventory remains in the DCs for more
than [CONFIDENTIAL](42) after the completion of the promotion, [CONFIDENTIAL](43).
The foregoing shall not apply to purchases of "Wild Buys" as defined in Section
6(c) above. 


9. Promotional and Marketing Funds. UNFI will assist WO in the
solicitation of vendor funding for new and remodeled Stores and acquired Stores (except as
and to the extent excluded under Section 2 above) at levels requested by WO, unless such
levels are deemed unreasonable by UNFI. 






(37)  Confidential treatment has been requested for the redacted portion.
The confidential, redacted portions have been filed separately with the SEC.



(38)  Ibid.


(39)  Ibid.


(40)  Ibid.


(41)  Ibid. 



(42)  Ibid.


(43)  Ibid.





 



***CONFIDENTIAL TREATMENT REQUESTED**


 


10. Hold Harmless.


(a) UNFI Indemnity. It is expressly understood and agreed that
WO shall not be liable for, and UNFI shall hold WO harmless from, any obligations, claims,
demands, losses, costs, damages, suits, judgments, penalties, expenses and liabilities of
any kind or nature to a person not a party to this Agreement ("Third Party")
arising out of or in connection with this Agreement caused by UNFI’s negligence,
willful misconduct or contractual breach, including but not limited to any costs,
expenses, court costs and reasonable attorneys’ fees incurred by WO by reason of any
defense to any claims or lawsuits to which WO has been named a party.


(b) WO Indemnity. It is expressly understood and agreed that
UNFI shall not be liable for and WO shall hold UNFI harmless from any obligations, claims,
demands, losses, costs, damages, suits, judgments, penalties, expenses and liabilities of
any kind or nature to a Third Party arising out of or in connection with this Agreement
caused by WO’s negligence, willful misconduct or contractual breach, including but
not limited to any costs, expenses, court costs and reasonable attorneys’ fees
incurred by the UNFI by reason of any defense to any claims or lawsuits to which UNFI has
been named a party. WO agrees to indemnify UNFI for any loss, cost or damage resulting
from any claim brought against UNFI by TOL and relating to WO’s termination of a
distribution agreement with TOL.


 


(c) Third Person Claims. Promptly after a party has received
notice of or has actual knowledge of any claim against it covered by Section 10 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 by the Third Person, then the Indemnitor shall have the right
to assume and control the defense of the claim by appropriate proceedings with counsel
reasonably acceptable to Indemnitee, provided that the assumption of such defense by the
Indemnitor shall constitute an acknowledgment of the obligation to indemnify the
Indemnitee hereunder. 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 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 the Products or other items being sold to WO by UNFI under this Agreement. UNFI agrees
to indemnify and hold harmless WO for any liability arising from Products sold to WO by
UNFI, without regard to any negligence by UNFI related to such Products. UNFI’s
obligation to indemnify WO for any liability arising from any Products sold to WO shall
exist regardless of the existence or nonexistence of any such indemnification agreements
from Product manufacturers. 


 





 



***CONFIDENTIAL TREATMENT REQUESTED**


 


(e) Insurance. UNFI agrees that all material properties and
risks of UNFI 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 UNFI and the industry, but in
no event less than $2 million aggregate general liability coverage. WO shall be named as
an additional insured and certificates of insurance evidencing the renewal of insurance
shall be delivered by UNFI to WO from time to time. WO agrees that all material properties
and risks of WO and any third party providing transportation services to WO 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 companies engaged in businesses and operations
similar to those of WO.


11. [CONFIDENTIAL](44)


12. Audits. (a) General. WO and its independent auditors
will have the right to perform the following audits of UNFI’s compliance with the
terms of the Agreement:



  
    (i) Financial – WO sales data, WO cost data, WO promotions data,
    and WO discounts, [CONFIDENTIAL](45);

    (ii) Quality Assurance - audits of distribution facilities and
    transportation equipment;

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

    (iv) Vendors – invoices from vendors to UNFI.

  




(b) Cost of Audit: All audits will be performed at WO’s
cost, using auditors of its choice, unless any audit of financial compliance discloses an
aggregate over-billing to WO or an aggregate underreporting by UNFI under the terms of the
Agreement of [CONFIDENTIAL](46) of the total billed/reported, in which case UNFI
shall reimburse WO for the reasonable cost of the audit. If any audit shows any
overpayment by WO or an underreported amount by UNFI, UNFI shall promptly refund any
over-billed amount or credit any underreported amount to WO, plus interest at the rate of
1% per month from the earliest date of error until paid. WO shall provide UNFI promptly
with copies of all audits before any adjustment may occur. If any audit shows any
under-payment by WO or an over-reported amount to WO, WO shall promptly refund the
deficiency or overpayment to UNFI, plus interest at 1% per month from the earliest date of
error until paid. Any audit may be done by an audit of a statistically significant
sampling of the data being audited, in accordance with generally recognized auditing
practices, and such sampling shall be deemed representative of all data in that category. 






 



***CONFIDENTIAL TREATMENT REQUESTED**


 


(44)  Confidential treatment has been requested for the redacted portion. The
confidential, redacted portions have been filed separately with the SEC.



(45)  Ibid.


(46)  Ibid.





(c) Cooperation. UNFI shall cooperate with WO and its auditors
in the performance of all audits by delivering such documents and other information, and
making its personnel and facilities available for inspection, as WO shall reasonably
request. WO shall provide to UNFI a list of all information required to perform its audit.
WO agrees to maintain as confidential any information obtained during any audit regarding
any other customer or vendor of UNFI, unless required to disclose such information by
subpoena, by process of law, or by rules or regulations of any governmental agency which
may require disclosure of information, but only upon first promptly notifying UNFI of such
requirement and permitting reasonable opportunity to UNFI to seek a protective order. Any
disclosure which, in the legal opinion of outside counsel is nevertheless necessary, shall
be made only to the extent necessary and WO shall use its best efforts to obtain
confidential treatment of the information. 


 


(d) Any audit under this Section or payments made by UNFI to WO in
connection with any audit shall not affect WO’s right to terminate the Agreement, and
rights to audit shall survive termination of this Agreement.


(e) In the event of a dispute as to the amount of any adjustment
required as a result of any audit, the parties shall use their best reasonable efforts to
reach agreement within 15 days, and, failing such agreement, either party may submit the
dispute to a nationally recognized accounting firm (the "Auditor"), selected
upon mutual agreement of the parties, which shall resolve the dispute within 30 days or as
soon thereafter as reasonably practicable. The decision of the Auditor shall be final and
binding on the parties. The cost and expense of the Auditor shall be paid one-half by each
party. The parties shall make available to the Auditor all relevant books, records and
material reasonably requested by the Auditor.


 


 


13. Compliance with Laws. (a) Each party covenants and
agrees during that 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. UNFI
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 the necessary precautions to prevent product compromise. UNFI shall
provide all documentation relating to the foregoing to WO at WO’s request.


 





 



***CONFIDENTIAL TREATMENT REQUESTED**


 


14. [CONFIDENTIAL](47)


 


15. Payment Terms. (a) WO shall pay for all Product purchases,
subject to deductions for amounts owed by UNFI to WO hereunder, by wire transfer of
immediately available funds to UNFI within [CONFIDENTIAL](48) from the date of the
UNFI invoice, which is dated no earlier than the date the Product is shipped to the Store
(and a copy of such invoice accompanies the Product). In the event receipt of a shipment
is substantially delayed (delay of 24 hours or greater), payment shall be due [CONFIDENTIAL](49)
following actual receipt of the shipment. Invoices shall be on a Store by Store basis. A
finance charge of [CONFIDENTIAL](50) monthly on any delinquent balance not paid
within [CONFIDENTIAL](51) may be assessed monthly. 


 


(b) If UNFI fails to make any payment due hereunder, after 10
days’ prior written notice by WO by the due date specified by WO, and provided that
UNFI has not given WO notice of a good faith dispute with the amount due by the due date,
WO may, at its election, deduct or offset from any invoice owed to UNFI, those amounts due
from UNFI under this Agreement as a reimbursement, payment or credit. WO shall notify UNFI
at the time of payment of the deduction or offset.


 


(c) All monetary obligations under this Agreement will survive
termination of the Agreement.


 


(d) [CONFIDENTIAL](52).


 


16. Credits. 


(a) Product Credit. WO or its Stores may email notification, in
accordance with UNFI’s standard notification process, of credits for damaged Product,
miss-picks of goods not on the APL and for short-dated/out-of-code Product received on
delivery from UNFI in accordance to WO Code Date Policy attached as Exhibit J
hereto, provided the total amount of the credit per Store is $25 or greater. The cost of
miss-picks received at Store level of Products on the APL shall be debited to WO, assuming
WO can use the Products based on the quantity delivered and remaining code dates on such
Products. UNFI and WO shall discuss the disposition of miss-picks.






(47)  Confidential treatment has been requested for the redacted portion.
The confidential, redacted portions have been filed separately with the SEC.


(48)  Ibid.


(49)  Ibid.


(50)  Ibid.


(51)  Ibid.


(52)  Ibid.





 



***CONFIDENTIAL TREATMENT REQUESTED**


 


(b) Shortage Credit. UNFI will credit WO [CONFIDENTIAL](53)
for delivery shortages, calculated on Total Purchases by each Store on a monthly
basis, which will be deducted through a credit memo by UNFI issued to each WO Store on a
monthly basis. UNFI shall audit shortage levels on a quarterly basis using its internal
audit teams, and shall provide the results thereof to WO each quarter. If UNFI’s
audit shows a lesser or greater than [CONFIDENTIAL](54) shortage, then the credit
shall be decreased or increased, accordingly, to the level shown by audit, effective
immediately. The shortage credit shall also be adjusted immediately in the event that any
WO audit shows a lower or higher shortage. WO may audit at any time, provided that changes
to the shortage credit shall be effected not more frequently than quarterly. WO shall
provide a report to UNFI on the results of WO’s audits with the notice of adjustment.
Both parties shall audit using audit procedures to be mutually agreed to after good faith
negotiation within 60 days after execution of this Agreement. Any disputes regarding audit
results shall be resolved using the procedures set forth in Section 12(e) above.


 


(c) Processing of Credits. UNFI agrees that it shall receive and
process credit requests within five business days from receipt of the request from WO by
email. WO agrees that it will provide notice of credits to UNFI within 48 hours of Product
receipt.


 


17. Termination Provisions. (a) Either party may terminate this
Agreement at the end of any initial or renewal term upon [CONFIDENTIAL](55) or more
prior written notice.


 


(b) WO may terminate the Agreement on immediate written notice (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 WO 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 WO (which failure to cure shall be an event of default), or if such
    breach occurs more than twice in any calendar year (in which case, for such second breach
    WO may elect not to provide a cure period);

    (ii) [CONFIDENTIAL] (56)

    (iii) UNFI breaches any other 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; 

  








(53)  Confidential treatment has been requested for the redacted portion.
The confidential, redacted portions have been filed separately with the SEC.



(54)  Ibid.


(55)  Ibid.


(56)  Ibid.






  
     

    ***CONFIDENTIAL TREATMENT REQUESTED**

     

    (iv) The results of any audit conducted by WO or UNFI of any data
    points set forth the Agreement prove deliberate fraud or gross misconduct of UNFI of a
    nature that is material in either dollar amounts or percentages to total amounts or to the
    operational units affected, or that could reasonably result in a material impact to the
    reputation or operational performance of WO. WO may also terminate if it is determined by
    any regulatory agency, or UNFI publicly announces that any certification given by officers
    of UNFI relating to internal controls or fraud were materially incorrect. UNFI agrees that
    notwithstanding the amount of any fraud discovered, UNFI will take prompt steps to rectify
    any damage caused by the fraud and will implement controls designed to deter such fraud in
    the future; 

    (v) 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;

    (vi) UNFI [CONFIDENTIAL](57), and UNFI has failed to remedy [CONFIDENTIAL](58),
    of breach by WO; provided, however, that UNFI shall not be entitled to a cure period upon
    the second breach of this provision in any running 12-month period and WO may, upon notice
    to UNFI of such second breach, immediately terminate this Agreement on a nationwide or
    regional basis;

    (vii) The quality of service provided by UNFI is below the level as
    required herein, and UNFI has failed to remedy service problems within 30 days after
    written notice of breach by WO. For purposes hereof, quality of service issues shall
    include, but not be limited to, the following:

    
      
        (A) UNFI is unable, after 10 days’ written notice and opportunity
        to cure, to meet regional or national, as applicable, delivery windows to the Stores as
        set forth in this Agreement, including on Exhibit I attached hereto, as such may be
        amended by mutual agreement of the parties from time to time, including but not limited to
        hours and days of delivery, delivery routes, condition of Products, or execution of
        invoices at the Store, provided it has been given reasonable advance notice of any unusual
        requirements; or

        (B) Products delivered by UNFI fail to meet the quality standards and
        specifications set forth herein, including Code Date policies, temperature control limits
        or arrive in damaged, infested, or adulterated conditions, or the BNRs as shown by an
        audit by either party exceed [CONFIDENTIAL](59).

      

    

  




 






(57)  Confidential treatment has been requested for the redacted portion.
The confidential, redacted portions have been filed separately with the SEC.


(58)  Ibid.


(59)  Ibid.






 



***CONFIDENTIAL TREATMENT REQUESTED**


 


Notwithstanding the foregoing, WO shall not have the right to terminate
the Agreement for cause if noncompliance by UNFI with any of the foregoing results from
intentional sabotage by WO employees, Force Majeure events (as defined below), or the
negligent or intentional acts or omissions of WO. Nothing herein shall prohibit WO from
ceasing to purchase Products under Section 2 above without notifying UNFI of a breach
hereunder.


 


(c) UNFI may terminate the Agreement for cause on immediate written
notice if:


 



  
    (i) WO 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 WO 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) Regulatory violations by WO where the violations or the corrective
    action required materially and adversely affect the continued ability of WO to perform
    under the Agreement beyond 30 days; 

    (iii) WO fails to purchase [CONFIDENTIAL](60) during the Term
    hereof, commencing as of the Effective Date) during the Term of this Agreement, other than
    where such failure is caused by Force Majeure or UNFI or manufacturer OOS; and

    (iv) WO materially breaches any other 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; 

    (v) The results of any audit conducted by UNFI of any data points set
    forth the Agreement prove deliberate fraud or gross misconduct of WO of
    a nature that is material in either dollar amounts or percentages to total amounts or to
    the operational units affected, or that could reasonably result in a material impact to
    the reputation or operational performance of WO. UNFI agrees that notwithstanding the
    amount of any fraud discovered, UNFI will take prompt steps to rectify any damage caused
    by the fraud and will implement controls designed to deter such fraud in the future. UNFI
    may also terminate if it is determined by any regulatory agency, or WO publicly announces
    that any certification given by officers of WO relating to internal controls or fraud were
    materially incorrect. 

  




(d) Not earlier than [CONFIDENTIAL](61), UNFI may give WO notice
that UNFI [CONFIDENTIAL](62) from the business relationship evidenced by this






(60)  Confidential treatment has been requested for the redacted portion.
The confidential, redacted portions have been filed separately with the SEC. 


(61)  Ibid.


(62)  Ibid.






***CONFIDENTIAL TREATMENT REQUESTED**


 


 


Agreement. The parties shall then negotiate in good faith, [CONFIDENTIAL](63)
following WO’s receipt of such notice, such modifications of this Agreement as may be
necessary to allow UNFI [CONFIDENTIAL](64). If after, [CONFIDENTIAL](65) the
parties are unable to reach agreement on modifications sufficient to allow UNFI [CONFIDENTIAL](66),
then UNFI may give WO notice of termination of this Agreement [CONFIDENTIAL](67)
after WO’s receipt of the termination notice. Such termination right shall not be
deemed a default hereunder. [CONFIDENTIAL](68).


 


(e) Notwithstanding anything to the contrary in this Agreement, the
following will apply in a Force Majeure event:


 



  
    (i) If the Force Majeure event affects, for a period of at least 10
    consecutive days, in any material manner the operations in any DC or any region served
    primarily by one DC, as the case may be, of the party who is not claiming the benefit of
    the Force Majeure provision (the "Non-Affected Party"), then the Non-Affected
    Party may on written notice to the Affected Party suspend its obligations hereunder
    (including without limitation Section 2(a)), other than the payment of sums due unless the
    Force Majeure event relates to the operation of the banking system, with respect to such
    DC or region until such time that the Affected Party is able to resume its obligations in
    full with respect to such DC or region. The parties agree that [CONFIDENTIAL](69)
    of Buyer. 

    (ii) In the event that Force Majeure continues for more than 60
    consecutive days, and the Affected Party has not provided an acceptable alternative remedy
    to fully mitigate the disruption, the Non-Affected Party may terminate the Agreement or
    Definitive Agreement as to the DC or region affected by the Force Majeure event, on 30
    days written notice to the Affected Party provided that the Force Majeure event exists on
    the date of the notice of termination.

  




18. Representations and Warranties of UNFI. UNFI represents and
warrants to WO as follows, and such representations and warranties shall survive the
Commencement Date: 


 


(a) Corporate Organization and Authority. UNFI (i) is a
corporation duly organized, validly existing and in good standing under the laws of the
State of Delaware, and is authorized to transact business in each State in which such
authority is required by law; and (ii) has the corporate power and authority to own and
operate its properties and to carry on its business as now conducted and as proposed to be
conducted.


 






(63)  Confidential treatment has been requested for the redacted portion.
The confidential, redacted portions have been filed separately with the SEC. 


(64)  Ibid.


(65)  Ibid.


(66)  Ibid.


(67)  Ibid.


(68)  .Ibid.


(69)  Ibid.





 



***CONFIDENTIAL TREATMENT REQUESTED**


 


(b) Authorization. UNFI has the corporate power and authority to
execute, deliver and perform its obligations under this Agreement and has taken all
necessary corporate action to authorize its execution, delivery and performance of this
Agreement. This Agreement has been duly executed and delivered on behalf of UNFI and
constitutes the legal, valid and binding obligation of UNFI, enforceable in accordance
with its terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization or other similar laws affecting creditors’ rights
generally and by general equitable principles (regardless of whether the issue of
enforceability is considered in a proceeding in equity or at law).


 


(c) No Consents; Conflicts. No consent, authorization by,
approval of or other action by, and no notice to, or filing or registration with, any
governmental authority, agency, regulatory body, lender, lessor, franchisee or other
person is required for the execution, delivery or performance of this Agreement by UNFI,
other than those that have been obtained and are in full force and effect. The execution,
delivery and performance of this Agreement will not result (with or without due notice or
lapse of time or both) in any violation or breach of any provision of the charter or
by-laws of UNFI, any judgment, decree or order to which UNFI is a party or by which it is
bound, any indenture, mortgage or other agreement or instrument to which UNFI is a party
or by which it is bound or any statute, rule or regulation applicable to UNFI.


 


(d) Sufficient Personnel to Perform Obligations. UNFI
represents that as of the execution of this Agreement, UNFI has sufficient personnel with
adequate training and expertise to perform its obligations as contemplated hereunder in
the time frames contemplated herein.


 


(e) National Organic Standards. UNFI represents that it has
adequate processes and systems in place, and has adequately educated its personnel, to
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 WO has placed substantial reliance
on UNFI to handle various foods for human consumption so as to not invalidate any
"organic" designation of such foods.


 


(f) Computer Systems. As of the date of this Agreement, UNFI has
proper security safeguards in place to ensure the confidentiality of all of WO’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.


 


(g) Facilities’ Condition and Capacity. All of the DCs
participating in this Agreement 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






***CONFIDENTIAL TREATMENT REQUESTED**


 


 


facilities have adequate capacity to order, store and deliver Products
in accordance with the terms of this Agreement and in the amounts contemplated by WO. All
the DCs participating in this Agreement shall have sufficient security measures in place
prior to receipt of Products for WO 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.


 


(h) Ownership of UNFI. No entity constituting a competitor to
WO, which for purposes of this paragraph includes all conventional and natural food
grocery store chains, owns more than a 5% equity interest in UNFI. No such entity has any
rights to purchase, through warrants, options, rights of first refusal, preemptive rights
or any other legal right or obligation, any equity interest in UNFI which, together with
any existing interest, would aggregate more than 5% if fully exercised (other than
purchases made on the open market).


 


(i) Litigation. There is no pending nor, to UNFI’s
knowledge, threatened litigation, governmental action, action for injunctive or other
equitable relief or other threatened or outstanding claims of any nature which could
reasonably (i) interfere with UNFI’s performance of its obligations hereunder, or
(ii) have a material or detrimental impact on UNFI’s assets or operations as such
exist as of the Effective Date.


 


(j) Information Provided to Auditors. All information that shall
be provided by UNFI to auditors retained by WO 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 WO and the auditors at the time of disclosure.


 


19. Representations and Warranties of WO. WO hereby represents
and warrants to UNFI as follows, and such representations and warranties shall survive the
Commencement Date: 


 


(a) Corporate Organization and Authority. WO (i) is a
corporation duly organized, validly existing and in good standing under the laws of the
State of Delaware; and (ii) has the corporate power and authority to own and operate its
properties and to carry on its business as now conducted and as proposed to be conducted.


 


(b) Authorization. WO has the corporate power and authority to
execute, deliver and perform its obligations under this Agreement and has taken all
necessary corporate action to authorize its execution, delivery and performance of this
Agreement. This Agreement has been duly executed and delivered on behalf of WO and
constitutes the legal, valid and binding obligation of WO, enforceable in accordance with
its terms except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws affecting creditors’ rights generally and by
general equitable principles (regardless of whether the issue of enforceability is
considered in a proceeding in equity or at law). 





 



***CONFIDENTIAL TREATMENT REQUESTED**


 


(c) No Consents; Conflicts. No consent, authorization by,
approval of or other action by, and no notice to, or filing or registration with, any
governmental authority, agency, regulatory body, lender, lessor, franchisee or other
person is required for the execution, delivery or performance of this Agreement by WO,
other than those that have been obtained and are in full force and effect. The execution,
delivery and performance of this Agreement will not result in (with or without due notice
or lapse of time or both) any violation or breach of any provision of the charter or
by-laws of WO, any judgment, decree or order to which WO is a party or by which it is
bound, any indenture, mortgage or other agreement.


(d) Litigation. There is no pending nor, to WO’s knowledge,
threatened litigation, governmental action, action for injunctive or other equitable
relief or other threatened or outstanding claims of any nature which could reasonably (i)
interfere with WO’s performance of its obligations hereunder, or (ii) have a material
detrimental impact on WO’s assets or operations as such exist as of the Effective
Date.


 


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


 


(f) Sufficient Personnel to Perform Obligations. As of the
execution of this Agreement, WO has sufficient personnel to perform its obligations as
contemplated hereunder in timeframes contemplated herein.


 


(g) Ownership of WO. No entity constituting a competitor to
UNFI, which for purposes of this paragraph includes other distributors with gross revenues
of more than $100 million, owns more than a 5% equity interest in WO. No such entity has
any rights to purchase, through warrants, options, rights of first refusal, preemptive
rights or any other legal right or obligation, any equity interest in WO which, together
with any existing interest, would aggregate more than 5% if fully exercised (other than
purchases made on the open market).


 


 


20. Binding Effect. This Agreement is a binding obligation
between the parties hereto for the sale by UNFI and purchase by WO 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.





 



***CONFIDENTIAL TREATMENT REQUESTED**


 


21. Miscellaneous. (a) 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. Without limiting the generality of the foregoing, vehicle
breakdowns due to a party’s failure to properly maintain a vehicle, or inclement
weather not of unusual severity or in which vehicles similar to those of the party
claiming Force Majeure are traveling, do not constitute Force Majeure events. A Force
Majeure event is not reasonably foreseeable with the exercise of reasonable care, nor
avoidable through the payment of nonmaterial additional sums. 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. No finance charge will be assessed on either party for late
payments due to Force Majeure events.


(b) Governing Law, etc. Each of the parties hereto irrevocably
waives all rights to a trial by jury with respect to any dispute relating to this
Agreement, the subject matter hereof or the entering into or termination of this Agreement
(a "Dispute"). This Agreement and all actions related hereto shall be
governed by, and any dispute shall be resolved in accordance with, the laws of the State
of Colorado, excluding its internal choice of law principles.


 


In the event of any Dispute, such Dispute, if not resolved promptly in
the ordinary course between representatives of the parties, shall be submitted for
settlement negotiation between the Chief Executive Officer of UNFI and Chief Executive
Officer of WO, and if such procedure does not resolve such Dispute within 30 days after a
request for such settlement negotiation to the other party, then and only then shall all
such Disputes be resolved exclusively by the process of litigation in accordance with this
Section. The parties agree that all disputes shall be brought either in Federal District
Court for the Southern District of New York, and if Federal District Court is not
available to the parties because of a lack of diversity jurisdiction, then in the Supreme
Court for the State of New York, County of New York.


(c) Recovery of Fees and Costs. In the event of a dispute, the
prevailing party shall be entitled to recovery of reasonable attorneys’ fees and
costs (including costs of appeal).


(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






***CONFIDENTIAL TREATMENT REQUESTED**


 


 


with the party’s obligations hereunder, and without limiting the
foregoing, such information as to WO may not be used by UNFI in connection with the
marketing, distribution or sale of UNFI’s products other than to WO. 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 an 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, without the






***CONFIDENTIAL TREATMENT REQUESTED**


 


 


prior written consent of the other, which consent will not be
unreasonably withheld. A party may reasonably withhold its consent if, in such party's
good faith judgment, the proposed assignee: (i) does not have sufficient financial
resources or assets to perform its obligations under the Agreement; (ii) does not have
sufficient experience or expertise in the distribution and supply of food products in the
case of an assignment by UNFI or its direct or indirect parent, or grocery retail business
in the case of an assignment by WO, unless the existing operations management personnel
prior to the assignment remain in control of the daily operations of the assignor after
such assignment; (iii) is engaged in the same business as the non-assigning party; (iv)
does not deliver its written commitment to carry out the Agreement at the same level of
business being conducted by the assigning party immediately prior to the proposed
assignment; or (v) is a competitor of the non-assigning party. This Agreement shall be
assigned to and binding upon any purchaser of all or substantially all of the assets of
either party hereto. 


 


In the event a party requests such consent to such a transfer, such
party shall meet with the other party to provide any information reasonably requested by
the other party regarding the proposed transferee. 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.


CONFIDENTIAL](70).


(f) Entire Agreement; Survival. 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:
10, 12 (for not more than 120 days following termination), 14(b), 15, 16, 21(b) – (d)
, (f), (g), (i), (j).


 


(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. 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.


 






(70)  Confidential treatment has been requested for the redacted portion.
The confidential, redacted portions have been filed separately with the SEC. 





 



***CONFIDENTIAL TREATMENT REQUESTED**


 


(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: Steve 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 WO shall be addressed to: Chief Executive Officer,
Wild Oats Markets, Inc., 3375 Mitchell Lane, Boulder, CO 80301-2244, Fax: (303) 402-9920,
with a copy to Freya Brier, Esq., General Counsel, Wild Oats Markets, Inc., 3375 Mitchell
Lane, Boulder, CO 80301-2244, FAX: (303) 440-7316.


 


(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) Alliance. WO and UNFI agree that an objective of the parties
is to establish during the Term of this Agreement, a mutually supportive alliance with
respect to the Products and the unified supply chain management concept relating to the
purchase and sale of the Products which is embodied in the Agreement.


 


(l) Authority. WO and UNFI each represent and warrant to the
other that the individual executing this Agreement has full authority to execute this
Agreement, and when executed this Agreement is a binding obligation of the party.


 


(m) Expenses. Except as otherwise provided herein, all costs and
expenses (including legal and accounting fees) incurred in connection with this Agreement
and the transactions contemplated hereby shall be borne by the party incurring such
expense.


 


(n) 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.


 


 


(o) 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.
Facsimile signatures shall be deemed original signatures for purposes of execution of this
document.





 



***CONFIDENTIAL TREATMENT REQUESTED**


 


(p) 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.


Executed as of the date first set forth above.


 


	WILD OATS MARKETS, INC.	UNITED NATURAL FOODS, INC.
	 By: Freya Brier, Vice President, Legal 
	 By: Steve Townsend, President