SEC Info - United Natural Foods Inc - IPO: ‘424B4’ on 11/1/96

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United Natural Foods Inc – IPO: ‘424B4’ on 11/1/96

As of: Friday, 11/1/96 · Accession #: 927016-96-1479 · File #: 333-11349

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

11/01/96  United Natural Foods Inc          424B4                  1:271K                                   Donnelley R R & S… 07/FA

Initial Public Offering (IPO): Prospectus — Rule 424(b)(4)
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 424B4       Prospectus                                            84    470K

Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) Additional Information Balance Sheet Business Capitalization Certain Transactions Company, The Competition Consolidated Balance Sheets Consolidated Statements of Cash Flows Consolidated Statements of Income Consolidated Statements of Stockholders' Equity Delaware Law and Certain Charter and By-Law Provisions Description of Capital Stock Dilution Dividend Policy Employees Employee Stock Ownership Plan Employment Agreements Esop Executive Compensation Experts Gross profit Growth Strategy Income taxes Independent Auditors' Report Index to Financial Statements Legal Matters Liquidity and Capital Resources Management Management's Discussion and Analysis of Financial Condition and Results of Operations Net income Net sales Notes to Consolidated Financial Statements Notes to Financial Statements Offering, The Operating expenses Operating income Principal and Selling Stockholders Prospectus Summary Recent Acquisitions Registration Rights Regulation Report of Independent Public Accountants Risk Factors Selected Consolidated Financial Data Shares Eligible for Future Sale Statement of Cash Flows Statement of Income Statement of Stockholder's Investment Systems The Company The Offering Underwriting Use of Proceeds
1	1st Page - Filing Submission
"	Underwriting
5	Prospectus Summary
"	The Company
6	Growth Strategy
7	The Offering
8	Risk Factors
"	Competition
10	Dilution
12	Recent Acquisitions
"	Esop
14	Use of Proceeds
"	Dividend Policy
15	Capitalization
17	Selected Consolidated Financial Data
18	Management's Discussion and Analysis of Financial Condition and Results of Operations
20	Net sales
"	Gross profit
"	Operating expenses
"	Operating income
21	Income taxes
"	Net income
22	Liquidity and Capital Resources
25	Business
34	Systems
36	Regulation
37	Employees
38	Management
40	Executive Compensation
"	Employment Agreements
41	Employee Stock Ownership Plan
45	Certain Transactions
47	Principal and Selling Stockholders
49	Description of Capital Stock
50	Delaware Law and Certain Charter and By-Law Provisions
52	Shares Eligible for Future Sale
53	Registration Rights
55	Legal Matters
"	Experts
"	Additional Information
56	Index to Financial Statements
57	Independent Auditors' Report
58	Consolidated Balance Sheets
59	Consolidated Statements of Income
60	Consolidated Statements of Stockholders' Equity
61	Consolidated Statements of Cash Flows
63	Notes to Consolidated Financial Statements
73	Report of Independent Public Accountants
74	Balance Sheet
75	Statement of Income
76	Statement of Stockholder's Investment
77	Statement of Cash Flows
78	Notes to Financial Statements

424B4 1st Page of 84 TOC ↑Top Previous Next ↓Bottom Just 1st
Filed pursuant to Rule 424(b)(4)
Registration No. 333-11349

PROSPECTUS

2,900,000 SHARES

LOGO

COMMON STOCK

------------

All of the shares of Common Stock offered hereby (the "Offering") are being
sold by United Natural Foods, Inc. ("United Natural" or the "Company").

Prior to the Offering, there has not been a public market for the Common
Stock of the Company. See "Underwriting" for information relating to the
factors considered in determining the initial public offering price. The
Common Stock has been approved for quotation on The Nasdaq Stock Market's
National Market under the symbol "UNFI."

SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK
OFFERED HEREBY.

------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
--------------------------------------------------------------------------------

Per Share $13.50 $0.945 $12.555
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Total(3) $39,150,000 $2,740,500 $36,409,500

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(1) For information regarding indemnification of the Underwriters, see
"Underwriting."
(2) Before deducting expenses estimated at $758,000, all of which are payable
by the Company.
(3) The Selling Stockholders (as defined herein) have granted the Underwriters
a 30-day option to purchase up to 435,000 additional shares of Common
Stock solely to cover over-allotments, if any. See "Underwriting." If such
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Selling Stockholders will be
$45,022,500, $3,151,575 and $5,461,425, respectively.

------------

The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or about
November 6, 1996, at the office of Smith Barney Inc., 333 West 34th Street,
New York, New York 10001.

------------

SMITH BARNEY INC.
OPPENHEIMER & CO., INC.
ROBERTSON, STEPHENS & COMPANY

November 1, 1996

424B4 2nd Page of 84 TOC 1st Previous Next ↓Bottom Just 2nd
[Graphic consists of one photograph of a woman at a computer terminal and three
photographs of various marketing materials, including catalogs, flyers and
retail store shopping bags.]

Cape Cod Natural Foods, Cascade Baking Company, Guardian, Natural Food
Systems, Natural Sea, NATUREWORKS!, Railway Market, SunSplash Market and
Village Market Natural Grocer are trademarks of the Company. This Prospectus
also contains trademarks and registered trademarks of other companies.

----------------

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN
THE OVER-THE-COUNTER MARKET, OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.

----------------

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[Graphic consists of one photograph of the Company's headquarters and
distribution facility in Dayville, Connecticut, three photographs of trucks
bearing the logos of the Company's three operating regions and three photographs
of warehouse operations.]

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(ART)

424B4 5th Page of 84 TOC 1st Previous Next ↓Bottom Just 5th
PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and the Company's Consolidated Financial Statements and Notes
thereto appearing elsewhere in this Prospectus. Unless otherwise indicated,
such information assumes (i) the exercise in full immediately prior to the
commencement of the Offering of a warrant (the "Triumph Warrant") to purchase
1,166,660 shares of Common Stock, at an exercise price of $0.01 per share, by
Triumph-Connecticut Limited Partnership ("Triumph"), (ii) the exercise, upon
the repayment in full at the closing of the Offering of the outstanding
indebtedness under the Company's Senior Note (the "Triumph Note") issued to
Triumph in the principal amount of $6,500,000, of the Company's right to
purchase from Triumph 380,930 shares of Common Stock issuable upon the exercise
of the Triumph Warrant, and (iii) no exercise of the Underwriters' over-
allotment option. Unless the context otherwise requires, references herein to
the Company refer to United Natural Foods, Inc. and its wholly owned
subsidiaries. Prior to July 31, 1996, the Company's fiscal year ended on
October 31 of each year. The Company has changed its fiscal year end to July
31. References herein to "fiscal 1992," "fiscal 1993," "fiscal 1994" and
"fiscal 1995" refer to the Company's fiscal years ended October 31, 1992, 1993,
1994 and 1995, respectively.

THE COMPANY

United Natural Foods, Inc. ("United Natural" or "the Company") is one of only
two national distributors of natural foods and related products in the United
States. The Company currently serves more than 5,500 customers located in 43
states, including independent natural products stores, natural products
supermarket chains and conventional supermarkets. The Company distributes more
than 25,000 high-quality, national, regional and private label natural products
in six categories consisting of groceries and general merchandise, nutritional
supplements, bulk and foodservice products, personal care items, perishables
and frozen foods. United Natural's distribution operations are divided into
three principal regions: Cornucopia Natural Foods ("Cornucopia") in the eastern
United States, Mountain People's Warehouse Incorporated ("Mountain People's")
in the western United States and Rainbow Natural Foods, Inc. ("Rainbow") in the
Rocky Mountains and Plains regions. The Company operates five strategically
located distribution centers and two satellite staging facilities within these
regions to better serve its customers and realize operating efficiencies. The
Company also owns and operates eight retail natural products stores located in
the eastern United States that management believes complement its distribution
business.

BUSINESS STRATEGY

The Company's objective is to better meet the changing needs of both
suppliers and retailers and to be the leading national distributor of natural
products. Key elements of the Company's business strategy include:

. National Presence. With five distribution centers strategically located
in California, Colorado, Connecticut, Georgia and Washington and two
satellite staging facilities in Florida and Pennsylvania, the Company is
well positioned to provide distribution services to natural products
retailers and suppliers located across the United States.

. Integration of Recent Acquisitions. United Natural recently made three
strategic acquisitions and is currently in the process of integrating
these operations to increase the Company's overall efficiency by: (i)
eliminating geographic overlaps in distribution, (ii) integrating
administrative, finance and accounting functions, (iii) expanding
marketing and customer service programs and (iv) upgrading information
systems.

. Purchasing Power and Supplier Relationships. As a result of its size of
operations, national presence and access to retailers within the highly
fragmented natural products sector, the Company is able to supply a
superior selection of natural products at more competitive prices and on
better terms, including supplier-sponsored marketing dollars, than many
of its competitors.

. Diverse, High-Quality Product Line. The Company distributes a mix of
more than 25,000 national, regional and private label natural products,
which products are continually evaluated, updated and expanded to
satisfy the needs of its diverse customer base.

424B4 6th Page of 84 TOC 1st Previous Next ↓Bottom Just 6th
. Regional Responsiveness. By decentralizing the majority of its
purchasing, pricing, sales and marketing decisions at the regional
level, the Company is able to respond to regional and local customer
preferences, while taking advantage of the economies of scale associated
with its national operations.

. Customer Service and Marketing Programs. In addition to providing its
customers with delivery services which include next-day and more
frequent deliveries and an order fill rate in excess of 95% (excluding
products unavailable from the supplier), the Company offers its
customers a selection of inventory management, merchandising, marketing,
promotional and event management services to increase customer sales and
enhance customer satisfaction.

. Infrastructure. The Company recently made a significant investment in
designing its proprietary information systems and expanding its
distribution capacity to facilitate future growth and enhance operating
efficiency. The Company will continue to upgrade and expand its
infrastructure, as required.

GROWTH STRATEGY

. Expand customer base by continually cultivating relationships with new
customers for natural products, including traditional natural products
stores and natural products supermarkets, as well as conventional
supermarkets, mass market outlets, institutional foodservice providers,
hotels and gourmet stores.

. Increase sales to existing customers by (i) expanding the Company's role
as the primary supplier to the majority of its customers, (ii) expanding
the number of products and product categories offered and (iii)
providing pricing incentives and marketing support to generate higher
sales levels by its customers.

. Expand market penetration of existing and new markets by increasing the
distribution capacity of its existing facilities and by building new
distribution facilities. In addition, while the Company has no
agreements or understanding with regard to acquisitions at this time, it
will continue to selectively evaluate opportunities to acquire local
distributors to fill in existing markets and regional distributors to
expand into new markets.

Over the last four years, the Company's net sales grew at a compound annual
growth rate of 31.6% to $283.3 million in fiscal 1995. For the nine months
ended July 31, 1996, the Company's net sales increased by 51.9% over the
comparable prior year period to $286.4 million. This growth in net sales and
corresponding increase in market share resulted primarily from the Company's
acquisitions of large, regional natural products distributors, the development
of new and the expansion of existing distribution capacity and an increase in
product sales to existing and new customers, as well as continuing growth in
the natural products industry sector generally. According to The Natural Foods
Merchandiser, the natural products industry growth rate of 20.2% compounded
annually over the last four years, including 22.6% in 1995, is attributable to
consumer trends toward healthier eating habits, concern for food purity and
safety and greater environmental awareness. In addition to growth in net sales,
during the same period, the Company's operating income increased at a compound
annual growth rate of 46.6% to $10.4 million in fiscal 1995 (excluding a non-
recurring expense of $1.6 million relating to intangible assets in fiscal
1995). For the nine months ended July 31, 1996, the Company's operating income
grew by 62.5% over the comparable prior year period to $12.1 million (excluding
non-recurring expenses of $1.5 million incurred in connection with the merger
of the Company with Mountain People's and the grant of options under the
Company's 1996 Stock Option Plan). See "Management's Discussion and Analysis of
Financial Condition and Results of Operation" and Notes 1 and 3 of Notes to the
Company's Consolidated Financial Statements. The Company's growth in operating
income is attributable to increased efficiencies created by its higher net
sales levels, greater purchasing power, improved information and warehouse
management systems and expanded distribution capacity.

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THE OFFERING

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Common Stock being offered by the
Company........................... 2,900,000 shares
Common Stock to be outstanding
after the Offering................ 12,378,425 shares(1)(2)
Use of Proceeds................... To repay certain indebtedness, for working
capital and for general corporate purposes,
including the expansion of the Company's
distribution facilities.
Proposed Nasdaq National Market
symbol............................ UNFI

--------
(1) Includes 2,179,595 shares of Common Stock held in trust by the Company's
Employee Stock Ownership Trust as of July 31, 1996. See "Management--
Executive Compensation--Employee Stock Ownership Plan."
(2) Excludes 638,000 shares of Common Stock issuable upon exercise of options
outstanding under the Company's 1996 Stock Option Plan as of July 31, 1996
at a weighted average exercise price of $8.11 per share. See "Management--
Executive Compensation--Stock Option Plan."

SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

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NINE MONTHS ENDED
YEAR ENDED OCTOBER 31, JULY 31,
-------------------------------------- ------------------
1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- --------

CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Net sales............... $124,366 $153,636 $200,616 $283,323 $188,502 $286,448
Gross profit............ 24,942 32,488 44,118 59,841 40,796 59,966
Operating income........ 3,299 5,113 7,385 8,762(1) 7,453 10,609(2)
Net income.............. $ 1,488 $ 2,319 $ 3,017 $ 2,603 $ 3,232 $ 4,025
======== ======== ======== ======== ======== ========
Net income per
share(3)............... $ 0.17 $ 0.26 $ 0.30 $ 0.26 $ 0.32 $ 0.40
======== ======== ======== ======== ======== ========
Weighted average shares
of common stock and
common stock
equivalents(3)......... 8,982 8,982 10,094 10,148 10,148 10,144
======== ======== ======== ======== ======== ========
OPERATING DATA:
Operating income as a
percentage of net
sales.................. 2.7% 3.3% 3.7% 3.1%(1) 3.9% 3.7%(2)
======== ======== ======== ======== ======== ========

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JULY 31, 1996
----------------------
ACTUAL AS ADJUSTED(4)
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CONSOLIDATED BALANCE SHEET DATA:
Working capital........................................ $10,087 $34,117
Total assets........................................... 98,744 99,399
Long-term debt and capital leases, excluding current
installments.......................................... 23,019 12,496
Total stockholders' equity............................. 18,182 52,834

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(1) Operating income for fiscal 1995 includes a non-recurring expense of $1.6
million related to the write-off of intangible assets. Excluding the $1.6
million non-recurring expense, operating income would have been $10.4
million, or 3.7% of net sales, in fiscal 1995.
(2) Operating income for the nine months ended July 31, 1996 includes a non-
recurring expense of $1,056,100 related to the grant of options under the
Company's 1996 Stock Option Plan and a non-recurring expense of $458,000
representing costs associated with the Mountain People's merger. Excluding
the $1,514,100 of non-recurring expenses, operating income would have been
$12.1 million, or 4.2% of net sales, in the nine months ended July 31,
1996.
(3) Does not reflect the intended repurchase by the Company, upon the repayment
of the outstanding indebtedness under the Triumph Note, of 380,930 shares
of Common Stock issuable upon the exercise of the Triumph Warrant.
(4) As adjusted to give effect to the sale by the Company of 2,900,000 shares
of Common Stock offered hereby (after deducting the underwriting discounts
and commissions and estimated offering expenses) and the application of the
net proceeds therefrom. See "Use of Proceeds" and "Capitalization."

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RISK FACTORS

An investment in the Common Stock offered hereby involves a high degree of
risk. In addition to the other information in this Prospectus, the following
risk factors should be considered carefully in evaluating an investment in the
Common Stock offered hereby. This Prospectus contains forward-looking
statements which involve risks and uncertainties. The Company's actual results
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth in the
following risk factors and elsewhere in this Prospectus.

Integration of Recent Acquisitions. A significant portion of the Company's
historical growth has been achieved through acquisitions of or mergers with
other distributors of natural products. The Company recently acquired or
merged with three large regional distributors of natural products:
Nutrasource, Inc. ("Nutrasource") in May 1995, Rainbow in July 1995 and
Mountain People's in February 1996. The successful and timely integration of
these acquisitions and merger is critical to the future operating and
financial performance of the Company. While the integration of these
acquisitions and merger with the Company's existing operations has begun, the
Company believes that the integration will not be substantially completed
until the end of calendar 1997. The integration will require, among other
things, coordination of administrative, sales and marketing, distribution, and
accounting and finance functions and expansion of information and warehouse
management systems among the Company's regional operations. The integration
process could divert the attention of management, and any difficulties or
problems encountered in the transition process could have a material adverse
effect on the Company's business, financial condition or results of
operations. In addition, the process of combining the companies could cause
the interruption of, or a loss of momentum in, the activities of the
respective businesses, which could have an adverse effect on their combined
operations. The difficulty of combining the businesses may be increased by the
need to integrate personnel and the geographic distance separating the
organizations. There can be no assurance that the Company will retain key
employees or that the Company will realize any of the other anticipated
benefits of the acquisitions or merger. See "The Company--Recent Acquisitions"
and "Business--Systems."

Management of Growth. The Company is currently experiencing a period of
growth that could place a significant strain on its management and other
resources. The Company's business has grown significantly in size and
complexity over the past several years. Net sales increased from $124.4
million in fiscal 1992 to $283.3 million in fiscal 1995 and $286.4 million in
the nine months ended July 31, 1996. During this same period, the number of
the Company's employees increased from approximately 370 to approximately
1,190. The growth in the size of the Company's business and operations has
placed and is expected to continue to place a significant strain on the
Company's management. The Company's future growth is limited in part by the
size and location of its distribution centers. There can be no assurance that
the Company will be able to successfully expand its existing distribution
facilities or open new distribution facilities in new or existing markets to
facilitate growth. In addition, the Company's growth strategy to expand its
market presence includes possible additional acquisitions. To the extent the
Company's future growth includes acquisitions, there can be no assurance that
the Company will successfully identify suitable acquisition candidates,
consummate and integrate such potential acquisitions or expand into new
markets. The Company's ability to compete effectively and to manage future
growth, if any, will depend on its ability to continue to implement and
improve operational, financial and management information systems on a timely
basis and to expand, train, motivate and manage its work force. There can be
no assurance that the Company's personnel, systems, procedures and controls
will be adequate to support the Company's operations. The Company's inability
to manage its growth effectively could have a material adverse effect on its
business, financial condition or results of operations.

Competition. The Company operates in highly competitive markets, and its
future success will be largely dependent on its ability to provide quality
products and services at competitive prices. The Company's competition comes
from a variety of sources, including other distributors of natural products as
well as specialty grocery and mass market grocery distributors. There can be
no assurance that mass market grocery distributors will not increase their
emphasis on natural products and more directly compete with the Company or
that new

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competitors will not enter the market. These distributors may have been in
business longer than the Company, may have substantially greater financial and
other resources than the Company and may be better established in their
markets. There can be no assurance that the Company's current or potential
competitors will not provide services comparable or superior to those provided
by the Company or adapt more quickly than the Company to evolving industry
trends or changing market requirements. It is also possible that alliances
among competitors may develop and rapidly acquire significant market share.
Increased competition may result in price reductions, reduced gross margins
and loss of market share, any of which could materially adversely affect the
Company's business, financial condition or results of operations. There can be
no assurance that the Company will be able to compete effectively against
current and future competitors. See "Business--Competition."

Low Margin Business; Economic Sensitivity. The grocery distribution industry
generally is characterized by relatively high volume with relatively low
profit margins. The continuing consolidation of retailers in the natural
products industry and the emergence of natural products supermarket chains may
have an adverse effect on the Company's profit margins in the future as more
customers qualify for greater volume discounts offered by the Company. The
grocery industry is also sensitive to national and regional economic
conditions, and the demand for products supplied by the Company may be
adversely affected from time to time by economic downturns. In addition, the
Company's operating results are particularly sensitive to, and may be
materially adversely affected by, difficulties with the collectibility of
accounts receivable, inventory control, competitive pricing pressures and
unexpected increases in fuel or other transportation-related costs. There can
be no assurance that one or more of such factors will not materially adversely
affect the Company's business, financial condition or results of operations.

Dependence on Key Personnel. Management of the Company's business is
substantially dependent on the services of Norman A. Cloutier, the Company's
Chairman of the Board and Chief Executive Officer, Michael S. Funk, the
Company's Vice Chairman of the Board and President, Steven H. Townsend, the
Company's Chief Financial Officer, and other key management employees. Loss of
the services of such officers or any other key management employee could have
a material adverse effect on the Company's business, financial condition or
results of operations. The Company has entered into an employment agreement
with Mr. Funk, which includes a noncompetition covenant, and a noncompetition
agreement with Mr. Cloutier. The Company does not maintain a key man life
insurance policy on any of its executive officers other than Mr. Funk. See
"Management--Employment Agreements."

Fluctuations in Operating Results. The Company's net sales and operating
results may vary significantly from period to period due to factors such as
changes in the Company's operating expenses, management's ability to execute
the Company's business and growth strategies, personnel changes, demand for
natural products, supply shortages and general economic conditions. Both the
Company's distribution and retail businesses are dependent upon consumer
preferences and demands for natural products, including levels of enthusiasm
for health and fitness and environmental issues. Furthermore, the future
operating performance of the Company is directly influenced by natural product
prices, which can be volatile and fluctuate according to competitive
pressures. A lack of an adequate supply of high-quality agricultural products
or volatility in prices resulting from poor growing conditions, natural
disasters or otherwise, could have a material adverse effect on the Company's
business, financial condition or results of operations. In addition, there can
be no assurance that any future acquisitions by the Company will not have an
adverse effect upon the Company's business, financial condition or results of
operations, particularly in periods immediately following the consummation of
such transactions, while the operations of the acquired businesses are being
integrated into the Company's operations. Due to the foregoing factors, the
Company believes that period to period comparisons of its operating results
are not necessarily meaningful and that such comparisons cannot be relied upon
as indicators of future performance. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."

Governmental Regulation. The Company's business is highly regulated at the
federal, state and local levels and its products and distribution operations
require various licenses, permits and approvals. In particular, the Company's
products are subject to inspection by the U.S. Food and Drug Administration,
its warehouse and

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distribution facilities are subject to inspection by the U.S. Department of
Agriculture and state health authorities, and its trucking operations are
regulated by the U.S. Department of Transportation and the U.S. Federal
Highway Administration. The loss or revocation of any existing licenses,
permits or approvals or the failure to obtain any additional licenses, permits
or approvals in new jurisdictions where the Company intends to do business
could have a material adverse effect on the Company's business, financial
condition or results of operations. See "Business--Regulation."

Control by Officers, Directors and ESOT. Upon completion of the Offering,
the Company's officers and directors, and their affiliates, and the Company's
Employee Stock Ownership Trust will beneficially own in the aggregate
approximately 77% of the Company's outstanding Common Stock. Accordingly,
these stockholders, if acting together, would have the ability to elect the
Company's directors and may have the ability to determine the outcome of
corporate actions requiring stockholder approval, irrespective of how other
stockholders of the Company may vote. This concentration of ownership may have
the effect of delaying, deferring or preventing a change in control of the
Company. See "Management" and "Principal and Selling Stockholders."

Labor Relations. At July 31, 1996, approximately 75 employees, representing
approximately 6.3% of the Company's full-time employees and approximately
11.4% of the employees employed in the Company's warehouse and distribution
operations, were union members. The Company has in the past been the focus of
union-organizing efforts. As the Company increases its employee base and
broadens its distribution operations to new geographic markets, its increased
visibility could result in increased or expanded union-organizing efforts.
Although the Company has not experienced a work stoppage to date, if
additional employees of the Company were to unionize, the Company could be
subject to work stoppages and increases in labor costs, either of which could
materially adversely affect the Company's business, financial condition or
results of operations. See "Business--Employees."

Pledge of Assets. The Company has pledged all of its assets as collateral
for its obligations under its $50 million revolving line of credit agreement.
As of July 31, 1996, the Company's outstanding borrowings under the credit
agreement totalled $34.8 million. If the Company is unable to meet its
obligations to its bank under the credit agreement, the bank could foreclose
on all of the assets of the Company, which would have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."

No Prior Public Market; Possible Volatility of Stock Price; No
Dividends. Prior to the Offering, there has been no public market for the
Common Stock, and there can be no assurance that an active trading market will
develop or be sustained after the Offering or that the market price of the
Common Stock will not decline below the initial public offering price. The
initial public offering price was determined by negotiations between the
Company and the Representatives of the Underwriters. See "Underwriting" for a
discussion of the factors considered in determining the initial public
offering price. The market performance of the Common Stock could also be
subject to significant fluctuation in response to variations in results of
operations and various other factors. In addition, the stock market in recent
years has experienced extreme price and volume fluctuations that often have
been unrelated or disproportionate to the operating performance of companies.
These fluctuations, as well as general economic and market conditions, may
adversely affect the market price of the Common Stock. The Company has never
paid any cash dividends and does not anticipate paying cash dividends in the
foreseeable future. The Company's existing revolving line of credit agreement
prohibits the declaration or payment of cash dividends to the Company's
stockholders without the written consent of the bank during the term of the
credit agreement and until all obligations of the Company under the credit
agreement have been met. See "Dividend Policy."

Dilution. Purchasers of shares of Common Stock in the Offering will suffer
an immediate and substantial dilution in the net tangible book value per share
of the Common Stock from the initial public offering price. See "Dilution."

Shares Eligible for Future Sale; Registration Rights. Sales of substantial
amounts of shares of Common Stock in the public market following the Offering
could adversely affect the market price of the Common Stock. Upon completion
of the Offering, the 2,900,000 shares sold in the Offering will be freely
tradeable without

424B4 11th Page of 84 TOC 1st Previous Next ↓Bottom Just 11th
restriction or further registration under the Securities Act of 1933, as
amended (the "Securities Act"), except that any shares purchased by
"affiliates" of the Company, as that term is defined in Rule 144 ("Rule 144")
under the Securities Act ("Affiliates"), may generally only be sold in
compliance with the limitations of Rule 144 and the Lock-Up Agreements
described below. Holders of all of the remaining 9,478,425 shares of Common
Stock (as well as 434,500 shares of Common Stock that may be acquired pursuant
to the exercise of vested options held by them as of 180 days after the date
of this Prospectus) have agreed, pursuant to 180-day lock-up agreements (the
"Lock-Up Agreements"), not to offer, sell, contract to sell or otherwise
dispose of such shares for 180 days after the date of this Prospectus. Upon
expiration of the Lock-Up Agreements 180 days after the date of this
Prospectus, approximately 4,085,730 additional shares of Common Stock will be
available for sale in the public market, subject to the provisions of Rule 144
under the Securities Act. Promptly after the date of this Prospectus, the
Company intends to file one or more registration statements registering
approximately 3,654,595 shares of Common Stock issuable under its 1996 Stock
Option Plan, 1996 Employee Stock Purchase Plan and Employee Stock Ownership
Plan, which shares are, or when issued will be, freely tradeable without
restriction, subject to Rule 144 limitations applicable to Affiliates and the
Lock-Up Agreements. The Company is unable to predict the effect that sales
made under such registration statements, Rule 144 or otherwise may have on the
then prevailing market price of the Common Stock. Triumph is entitled to
certain piggyback and demand registration rights with respect to 785,730
shares of Common Stock. By exercising its registration rights, Triumph could
cause these shares to be registered and sold in the public market. All of such
shares are subject to a Lock-Up Agreement. Sales pursuant to Rule 144 or other
exemptions from registration, or pursuant to registration rights, may have an
adverse effect on the market price for the Common Stock and could impair the
Company's ability to raise capital through an offering of its equity
securities. See "Certain Transactions," "Description of Capital Stock,"
"Shares Eligible for Future Sale" and "Underwriting."

Antitakeover Provisions. The Company's Amended and Restated Certificate of
Incorporation (the "Restated Certificate of Incorporation") requires that any
action required or permitted to be taken by stockholders of the Company must
be effected at a duly called annual or special meeting of stockholders and may
not be effected by any consent in writing, and requires reasonable advance
notice by a stockholder of a proposal or director nomination which such
stockholder desires to present at any annual or special meeting of
stockholders. Special meetings of stockholders may be called only by the
Chairman of the Board, the Chief Executive Officer or, if none, the President
of the Company or by the Board of Directors. The Restated Certificate of
Incorporation provides for a classified Board of Directors, and members of the
Board of Directors may be removed only for cause upon the affirmative vote of
holders of at least two-thirds of the shares of capital stock of the Company
entitled to vote. In addition, shares of the Company's Preferred Stock may be
issued in the future without further stockholder approval and upon such terms
and conditions, and having such rights, privileges and preferences, as the
Board of Directors may determine. The rights of the holders of Common Stock
will be subject to, and may be adversely affected by, the rights of any
holders of Preferred Stock that may be issued in the future. The Company has
no present plans to issue any shares of Preferred Stock. These provisions, and
other provisions of the Restated Certificate of Incorporation, may have the
effect of deterring hostile takeovers or delaying or preventing changes in
control or management of the Company, including transactions in which
stockholders might otherwise receive a premium for their shares over then
current market prices. In addition, these provisions may limit the ability of
stockholders to approve transactions that they may deem to be in their best
interests. See "Description of Capital Stock--Delaware Law and Certain Charter
and By-Law Provisions."

424B4 12th Page of 84 TOC 1st Previous Next ↓Bottom Just 12th
THE COMPANY

HISTORY

The Company's predecessor entity, Cornucopia Natural Foods, Inc., was
incorporated as a Rhode Island corporation in 1978 as a natural products
retailer. In 1979, the Company changed its focus from retailing to the
distribution of natural products. In 1985, the Company purchased two
distributors, Harvest Provisions, Inc. (Boston, Massachusetts) and Earthly
Organics, Inc. (Philadelphia, Pennsylvania), to strengthen its position in the
New England market and to begin distribution to the Mid-Atlantic states. The
Company opened its distribution center in Georgia in 1991 to begin
distribution to the southeastern United States.

The Company has also acquired two specialty suppliers of natural products.
In 1988, the Company acquired substantially all of the assets of Natural Food
Systems, Inc., a distributor of seafood. In 1990, the Company acquired certain
assets of BGS Distributing Company, Inc., a regional distributor and
manufacturer of vitamins which also held distribution rights to several
additional product lines.

In 1993, the Company formed its Natural Retail Group, Inc. ("NRG") to
acquire, own and operate retail natural products stores. NRG currently owns
and operates eight natural products stores located in Connecticut, Florida,
Maryland, Massachusetts and New York ranging in size from approximately 4,000
square feet to approximately 12,000 square feet.

RECENT ACQUISITIONS

In February 1996, the Company merged with Mountain People's, the largest
distributor of natural products in the Western portion of the United States.
The merger was accounted for as a pooling of interests and, accordingly, all
financial information included in this Prospectus is reported as though the
companies had been combined for all periods reported. In May 1995, prior to
its merger with United Natural, Mountain People's acquired Nutrasource, a
distributor of natural products in the Pacific Northwest region. In July 1995,
the Company acquired Rainbow, the largest distributor of natural products in
the Rocky Mountains and Plains regions. The acquisitions of Nutrasource and
Rainbow were accounted for under the purchase method of accounting and,
accordingly, all of the financial information for Nutrasource and Rainbow has
been included in this Prospectus since their respective dates of acquisition.
The excess of the purchase price over the net assets acquired in each of these
acquisitions has been recorded as goodwill and will be amortized by the
Company over 30 years.

The Company currently serves more than 5,500 customers located in 43 states,
through its three principal regions: Cornucopia, which covers the eastern
United States; Mountain People's, which covers the western United States; and
Rainbow, which covers the Rocky Mountains and Plains regions.

ESOP

In November 1988, the Company adopted an Employee Stock Ownership Plan (the
"ESOP") for the benefit of eligible employees. In connection with the
formation of the ESOP, the Employee Stock Ownership Trust (the "ESOT")
acquired an aggregate of 2,200,000 shares of Common Stock from Norman A.
Cloutier, Steven H. Townsend, Daniel V. Atwood and Theodore Cloutier
(collectively, the "Initial Stockholders") in exchange for a promissory note
(the "ESOT Note") in the aggregate principal amount of $4,080,000, of which
$3,073,600 was outstanding as of July 31, 1996, exclusive of interest. The
ESOT Note bears interest at a rate of 10% per annum. As the ESOT Note is
repaid, shares held in the ESOT are released from a pledge to the Initial
Stockholders in proportion to the principal paid down on the ESOT Note during
the year. The released shares are allocated among the ESOP accounts of
eligible employees. As of July 31, 1996, approximately 550,000 shares have
been allocated or released for allocation to employees and allocations are
projected to continue at the rate of 88,000 shares per year. The shares in an
employee's ESOP account generally vest after five years of qualified
employment or upon death or disability. Vested ESOP benefits are distributable
following the death or termination of employment of a participating employee.

424B4 13th Page of 84 TOC 1st Previous Next ↓Bottom Just 13th
Participating employees can elect to receive their ESOP benefits in the form
of Common Stock. The Company has normally purchased from the ESOT the shares
allocated to former employees' ESOP accounts at their fair market value, and
then distributed cash to the employees. Common Stock distributed to former
employees from the ESOT is subject to a limited put option which allows the
holder to require the Company to repurchase the shares for a period of sixty
days at their appraised fair market value at the date of distribution, and for
another sixty days beginning after the appraised fair market value of the
Common Stock has been established for the Company's taxable year following the
year in which the distribution occurred. The put option ceases when Common
Stock distributed under the ESOP is (i) listed on a national securities
exchange or traded in the over-the-counter market and (ii) is freely
tradeable. Common Stock held in the ESOT is voted by the Trustee as directed
by the Company, except that ESOP participants are entitled to direct the
Trustee as to how to vote shares allocated to their ESOP accounts on any
matter which involves a corporate merger, consolidation, recapitalization,
reclassification, liquidation, sale of substantially all of the Company's
assets or other similar major corporate transactions.

The Company intends to amend the ESOP so that upon completion of the
Offering it will (i) provide that ESOP benefits may be paid only in the form
of Common Stock, (ii) eliminate the limited put option so long as the Common
Stock is publicly traded, (iii) provide for participants to direct the Trustee
as to how to vote shares of Common Stock allocated to their accounts, (iv)
direct the Trustee to vote unallocated shares of Common Stock, and allocated
shares for which no voting direction has been received, in the same proportion
as participants have directed the Trustee to vote their allocated shares of
Common Stock, (v) provide for transfers to the Company's 401(k) plan not more
frequently than once each five years of up to 50% of the vested account
balance of a non-highly compensated participant with 10 or more years of
service with the Company, (vi) provide for hardship distributions not more
frequently than once every five years of up to 50% of the vested account
balance of a participant with 10 or more years of service with the Company to
meet certain extraordinary expenses, and (vii) incorporate the ESOP and ESOT
into a single integrated document. See "Management -- Executive Compensation
-- Employee Stock Ownership Plan."

CORPORATE INFORMATION

The Company was incorporated in Rhode Island in 1978 and reincorporated in
Delaware in 1994. The Company's executive offices are located at 260 Lake
Road, Dayville, Connecticut 06241, and its telephone number is (860) 779-2800.

424B4 14th Page of 84 TOC 1st Previous Next ↓Bottom Just 14th
USE OF PROCEEDS

The net proceeds to be received by the Company from the Offering are
estimated to be $35,651,500 after deducting underwriting discounts and
commissions and estimated offering expenses. The Company intends to use such
proceeds to repay certain indebtedness, for working capital and for general
corporate purposes, including the expansion of the Company's distribution
facilities. The indebtedness to be repaid consists of (i) $20,663,710 due to
Fleet Capital Corporation under a revolving line of credit that matures on
July 31, 1998 and bears interest at a rate of 0.25% over New York Prime or
2.25% over LIBOR, or 8.0% at July 31, 1996; (ii) $6,500,000 due to Triumph
under a Senior Note that matures on October 31, 1998 and currently bears
interest at a rate of 10.0%; (iii) $4,702,381 due to Fleet Capital Corporation
under a term loan that matures on July 31, 1998 and bears interest at a rate
of 0.25% over New York Prime, or 8.5% at July 31, 1996; (iv) $2,785,409 due to
Prem Mark, Inc. under a term note issued in connection with the Rainbow
acquisition that matures July 1998 and bears interest at a rate of 10.0%; and
(v) approximately $1,000,000 due under certain notes maturing between 1998 and
2002 and bearing interest at rates ranging from 0.5% to 1.0% over New York
Prime issued by NRG in connection with the acquisition of certain retail
natural products stores. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Certain Transactions."

The Company will not receive any proceeds from the sale of Common Stock by
the Selling Stockholders in the event that the over-allotment option granted
to the Underwriters is exercised. See "Principal and Selling Stockholders."

The Company intends to seek acquisitions of businesses and products that are
complementary to those of the Company, and a portion of the net proceeds may
also be used for such acquisitions. While the Company engages from time to
time in discussions with respect to potential acquisitions, the Company has no
plans, commitments or agreements with respect to any such acquisitions as of
the date of this Prospectus, and there can be no assurance that any such
acquisitions will be made.

DIVIDEND POLICY

The Company has never declared or paid any cash dividends on its capital
stock. The Company anticipates that all of its earnings in the foreseeable
future will be retained to finance the continued growth and development of its
business and has no current intention to pay cash dividends. The Company's
future dividend policy will depend on the Company's earnings, capital
requirements and financial condition, requirements of the financing agreements
to which the Company is then a party and other factors considered relevant by
the Board of Directors. The Company's existing revolving line of credit
agreement prohibits the declaration or payment of cash dividends to the
Company's stockholders without the written consent of the bank during the term
of the credit agreement and until all obligations of the Company under the
credit agreement have been met.

424B4 15th Page of 84 TOC 1st Previous Next ↓Bottom Just 15th
CAPITALIZATION

The following table sets forth the Company's capitalization at July 31, 1996
(i) on an actual basis; (ii) on a pro forma basis to reflect the issuance of
1,166,660 shares of Common Stock upon the exercise of the Triumph Warrant, the
repurchase by the Company from Triumph of 380,930 such shares upon the
repayment of the outstanding indebtedness under the Triumph Note, which
includes a related extraordinary loss on repayment resulting from the
accelerated payment of the remaining original issue discount, and the
assumption that such repayment is being financed by another long-term debt
instrument; and (iii) as adjusted to reflect the issuance and sale by the
Company of 2,900,000 shares of Common Stock offered hereby and application of
the net proceeds therefrom, after deducting the underwriting discounts and
commissions and estimated offering expenses. See "Use of Proceeds." The
information set forth below should be read in conjunction with the Company's
Consolidated Financial Statements and the Notes thereto included elsewhere in
this Prospectus.

[Download Table]

JULY 31, 1996 (1)
-------------------------------
PRO PRO FORMA
ACTUAL FORMA AS ADJUSTED
------- ------- -----------
(IN THOUSANDS)

Short-term debt and current portion of capital
leases........................................ $34,557 $34,557 $11,183
------- ------- -------
Long-term debt and capital leases, excluding
current installments(2)....................... 23,019 24,774 12,496
------- ------- -------
Preferred stock, $.01 par value; 5,000,000
shares authorized; no shares issued or
outstanding (as adjusted)..................... -- -- --
Common stock, $.01 par value; 25,000,000 shares
authorized; 8,713,100 shares issued and
8,692,695 shares outstanding (actual);
9,879,760 shares issued and 9,478,425 shares
outstanding (pro forma); 12,779,760 shares
issued and 12,378,425 shares outstanding (pro
forma as adjusted)............................ 87 95 124
Additional paid-in-capital..................... 1,384 4,576 40,199
Stock warrants................................. 3,200 -- --
Unallocated shares of employee stock ownership
plan.......................................... (3,074) (3,074) (3,074)
Retained earnings.............................. 16,629 15,629(2) 15,629
Treasury stock, 20,405 shares at cost.......... (44) (44) (44)
------- ------- -------
Total stockholders' equity................... 18,182 17,182 52,834
------- ------- -------
Total capitalization (including short-term
debt)....................................... $75,758 $76,513 $76,513
======= ======= =======

--------
(1) The table gives effect to the filing of the Company's Amended and Restated
Certificate of Incorporation upon the closing of the Offering. The Amended
and Restated Certificate of Incorporation provides, among other things,
for an authorized capital stock of 25,000,000 shares of Common Stock and
5,000,000 shares of Preferred Stock. See "Description of Capital Stock."

(2) Long-term debt includes a note payable to Triumph with a balance of $4.7
million at July 31, 1996 and a face value of $6.5 million due in October
1998. The Company intends to prepay the note with a portion of the
proceeds of the Offering. In connection with the prepayment, the Company
will record an extraordinary expense of approximately $1.8 million ($1.0
million, net of taxes) reflecting the difference between the face amount
and the carrying value thereof on the Company's balance sheet on the date
of prepayment, as well as the write-off of related debt issuance costs.

424B4 16th Page of 84 TOC 1st Previous Next ↓Bottom Just 16th
DILUTION

The pro forma net tangible book value of the Company as of July 31, 1996 was
$7,543,925, or approximately $0.80 per outstanding share of Common Stock. Pro
forma net tangible book value per outstanding share is equal to the Company's
total tangible assets less total liabilities, divided by the number of shares
of Common Stock outstanding, assuming the issuance of 1,166,660 shares of
Common Stock upon the exercise of the Triumph Warrant and the repurchase by
the Company from Triumph of 380,930 such shares upon the repayment of the
outstanding indebtedness under the Triumph Note. After giving effect to the
sale by the Company of 2,900,000 shares of Common Stock offered hereby and
receipt and application of the net proceeds therefrom, the pro forma net
tangible book value of the Company at July 31, 1996 would have been
$43,195,425, or approximately $3.49 per share. This represents an immediate
increase in pro forma net tangible book value of $2.69 per share to existing
stockholders and an immediate dilution of $10.01 per share to new investors
purchasing shares in the Offering. Dilution is determined by subtracting pro
forma net tangible book value per share after the Offering from the amount
paid by a new investor for a share of Common Stock. The following table
illustrates the per share dilution:

[Download Table]

Initial public offering price per share........................ $13.50
Pro forma net tangible book value as of July 31, 1996........ $0.80
Increase attributable to new investors....................... 2.69
-----
Pro forma net tangible book value after the Offering........... 3.49
------
Dilution to new investors...................................... $10.01
======

The following table summarizes, on a pro forma basis as of July 31, 1996,
the differences between existing stockholders and new investors with respect
to the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average consideration paid per share
by the existing stockholders and by the new investors:

[Download Table]

SHARES PURCHASED TOTAL CONSIDERATION
------------------ ------------------- AVERAGE
NUMBER PERCENT AMOUNT PERCENT PRICE PER SHARE
---------- ------- ----------- ------- ---------------

Existing stockhold-
ers(1)................. 9,478,425 76.6% $ 3,614,542 8.5% $ 0.38
New investors........... 2,900,000 23.4 39,150,000 91.5 $13.50
---------- ----- ----------- -----
Total................. 12,378,425 100.0% $42,764,542 100.0%
========== ===== =========== =====

The foregoing table and calculations assume no exercise of outstanding
options. As of July 31, 1996, options to purchase 638,000 shares of Common
Stock were outstanding with a weighted average exercise price of $8.11 per
share. To the extent these options are exercised, there will be further
dilution to the new investors.
--------
(1) If the Underwriters' over-allotment option is exercised in full, sales by
the Selling Stockholders in the Offering will reduce the number of shares
held by existing stockholders to 9,043,425, or approximately 73.1% of the
total number of shares of Common Stock outstanding after the Offering, and
will increase the number of shares held by new investors to 3,335,000, or
approximately 26.9% of the total number of shares of Common Stock
outstanding after the Offering.

424B4 17th Page of 84 TOC 1st Previous Next ↓Bottom Just 17th
SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data presented below under the caption
Consolidated Statement of Income Data with respect to the fiscal years ended
October 31, 1994 and 1995 and the nine months ended July 31, 1996, and under
the caption Consolidated Balance Sheet Data at October 31, 1994 and 1995 and
July 31, 1996, are derived from the consolidated financial statements of the
Company, which financial statements have been audited by KPMG Peat Marwick
LLP, independent certified public accountants. The selected consolidated
financial data presented below under the caption Consolidated Statement of
Income Data with respect to the fiscal years ended October 31, 1992 and 1993
and the nine months ended July 31, 1995, and under the caption Consolidated
Balance Sheet Data at October 31, 1992 and 1993, are derived from the
unaudited consolidated financial statements of the Company that have been
prepared on the same basis as the audited financial statements and, in the
opinion of management, contain all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results for
such periods. The historical results are not necessarily indicative of results
to be expected for any future period. The following selected consolidated
financial data should be read in conjunction with and are qualified by
reference to "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Company's Consolidated Financial Statements and
Notes thereto included elsewhere in this Prospectus.

The merger with Mountain People's has been accounted for as a pooling of
interests and therefore the financial data below are presented as if Mountain
People's and the Company had been combined for all periods presented.

[Enlarge/Download Table]

NINE MONTHS ENDED
YEAR ENDED OCTOBER 31, JULY 31,
------------------------------------- ------------------
1992 1993 1994 1995 1995 1996
------------------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

CONSOLIDATED STATEMENT
OF INCOME DATA:
Net sales............... $ 124,366 $153,636 $200,616 $283,323 $188,502 $286,448
Cost of sales........... 99,424 121,148 156,498 223,482 147,706 226,482
--------- -------- -------- -------- -------- --------
Gross profit............ 24,942 32,488 44,118 59,841 40,796 59,966
Operating expenses...... 21,642 27,176 36,195 48,653 32,740 48,565(2)
Amortization of
intangibles............ 1 199 538 2,426(1) 603 792
--------- -------- -------- -------- -------- --------
Total operating
expenses............... 21,643 27,375 36,733 51,079 33,343 49,357
--------- -------- -------- -------- -------- --------
Operating income........ 3,299 5,113 7,385 8,762 7,453 10,609
--------- -------- -------- -------- -------- --------
Interest expense........ 983 1,078 2,275 3,403 2,184 3,943
Other, net.............. (154) 137 122 (173) (124) (137)
--------- -------- -------- -------- -------- --------
Total other expense..... 829 1,215 2,397 3,230 2,060 3,806
--------- -------- -------- -------- -------- --------
Income before income
taxes.................. 2,470 3,898 4,988 5,532 5,393 6,803
Income taxes............ 982 1,579 1,971 2,929 2,161 2,778
--------- -------- -------- -------- -------- --------
Net income.............. $ 1,488 $ 2,319 $ 3,017 $ 2,603 $ 3,232 $ 4,025
========= ======== ======== ======== ======== ========
Net income per share.... $ 0.17 $ 0.26 $ 0.30 $ 0.26 $ 0.32 $ 0.40
========= ======== ======== ======== ======== ========
Weighted average shares
of common stock and
common stock
equivalents(3)......... 8,982 8,982 10,094 10,148 10,148 10,144
========= ======== ======== ======== ======== ========
Pro forma net income per
share.................. $ 0.37(4)
========

OCTOBER 31,
-------------------------------------- JULY 31,
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
(IN THOUSANDS)

CONSOLIDATED BALANCE SHEET DATA:
Working capital................... $ 3,498 $ 3,895 $ 10,180 $ 8,583 $ 10,087
Total assets...................... 26,124 37,006 48,476 88,822 98,744
Long-term debt, excluding current
installments..................... 4,731 7,495 10,209 21,312 22,171
Stockholders' equity.............. 1,790 4,258 10,257 13,022 18,182

-------
(1) Operating income for fiscal 1995 includes a non-recurring expense of $1.6
million related to the write-off of intangible assets. Excluding the $1.6
million non-recurring expense, operating income would have been $10.4
million in fiscal 1995.
(2) Operating income for the nine months ended July 31, 1996 includes a non-
recurring expense of $1,056,100 related to the grant of options under the
Company's 1996 Stock Option Plan and a non-recurring expense of $458,000
representing costs associated with the Mountain People's merger. Excluding
the $1,514,100 of non-recurring expenses, operating income would have been
$12.1 million in the nine months ended July 31, 1996.
(3) Does not reflect the intended repurchase by the Company, upon the
repayment of the outstanding indebtedness under the Triumph Note, of
380,930 shares of Common Stock issuable upon the exercise of the Triumph
Warrant.
(4) The Company intends to use the estimated net proceeds from the Offering to
repay indebtedness. The pro forma net income of $4.6 million reflects the
reduction in interest expense (at an effective annual interest rate of
approximately 8%) resulting from the application of the estimated net
proceeds and the $1.0 million extraordinary loss (net of tax) which would
occur upon the repayment of the Triumph indebtedness as a result of the
accelerated payment of the remaining original issue discount. Such pro
forma net income was divided by 12.7 million pro forma weighted average
shares of Common Stock outstanding, which reflects the issuance of
2,900,000 shares of Common Stock offered hereby and the repurchase by the
Company of 380,930 shares of Common Stock upon repayment of the
outstanding indebtedness under the Triumph Note.

424B4 18th Page of 84 TOC 1st Previous Next ↓Bottom Just 18th
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

United Natural is one of only two national distributors of natural foods and
related products in the United States. The Company currently distributes more
than 25,000 natural products to more than 5,500 customers located in 43
states. United Natural's distribution operations are divided into three
principal regions: Cornucopia in the eastern United States; Mountain People's
in the western United States; and Rainbow in the Rocky Mountains and Plains
regions. Through its Natural Retail Group, the Company also owns and operates
eight retail natural products stores located in the eastern United States.

In recent years, the Company has increased sales to existing and new
customers through the acquisition of or merger with existing natural products
distributors, the opening of distribution centers in new geographic areas and
the expansion of existing distribution centers, as well as continuing growth
in the natural products industry generally. Management believes that through
these actions the Company has been able to broaden its geographical
penetration, increase its market share, expand its customer base and enhance
and diversify its product offerings.

The Company is currently in the process of integrating many of the operating
functions of its recent acquisitions to achieve operating efficiencies by
(i) eliminating geographic overlaps in distribution, (ii) integrating
administrative, finance and accounting functions of its three regions, (iii)
expanding marketing and customer service programs and (iv) expanding its
information and warehouse management systems to all of its facilities. In
addition, the Company's continuing growth has created the need for expansion
of existing facilities to achieve maximum operating efficiencies and to assure
adequate space for future needs. While operating margins may be affected in
periods in which expenses are incurred to support the Company's continued
growth, over the long term, the Company expects to benefit from increased
absorption of its expenses over a larger sales base. In recent years, the
Company has incurred significant expenditures in connection with the expansion
of its facilities, including the expansion of its distribution center and
headquarters in Connecticut and the expansion of refrigerated space in its
Georgia facility. The Company intends to build a new facility in Colorado,
which is expected to be operational during the second half of calendar 1997,
and to replace its auxiliary storage facility in Sacramento, California with a
larger facility adjacent to its Auburn, California distribution center, which
is expected to be substantially complete by late calendar 1997. The Company
depreciates its facilities over 40 years and its equipment over three to ten
years.

The Company has also made a significant investment in designing and
installing proprietary information and warehouse management systems in its
Connecticut and Georgia facilities. The Company intends to install its
information and warehouse management systems in other regions in stages, with
installation commencing in Colorado in early calendar 1997 and in California
and Washington in late calendar 1997.

The Company's retail strategy for NRG is to selectively acquire existing
natural products stores that meet the Company's strict criteria in categories
such as sales and profitability, growth potential, merchandising and
management. Management believes the Company's retail business serves as a
natural complement to its distribution business.

The Company's net sales consist primarily of sales of natural products to
retailers, after customer volume discounts, returns and allowances, and, to a
lesser extent, sales from its natural products retail stores. The principal
components of the Company's cost of sales include the amount paid to
manufacturers and growers for products sold plus the cost of transportation of
the product to the Company's distribution facilities. Generally, the Company
is able to pass along price increases and decreases to its customers. As a
result, the Company's net sales and profit levels may be negatively affected
during periods of food price deflation, even though the Company's gross profit
as a percentage of net sales may remain relatively constant. Operating
expenses include primarily labor-related expenses, employee benefits
(including payments under the Company's ESOP), selling, warehousing, delivery
and occupancy expenses, depreciation and other distribution and administrative
costs. Other expenses include interest payments on outstanding indebtedness,
miscellaneous expenses and other non-recurring expenses.

424B4 19th Page of 84 TOC 1st Previous Next ↓Bottom Just 19th
RECENT ACQUISITIONS

On February 20, 1996, a subsidiary of the Company merged with and into
Mountain People's, whereupon Mountain People's became a wholly owned
subsidiary of the Company. The merger with Mountain People's was accounted for
as a pooling of interests and, accordingly, all financial information included
in this Prospectus is reported as though the companies had been combined in
all periods reported. The Company acquired all of the outstanding capital
stock of Mountain People's in exchange for approximately 37% of the stock of
the Company after the merger. The consideration paid by the Company for
Mountain People's was established by the parties through arms-length
negotiations and was based on an estimate of the relative fair value of
Mountain People's as a going concern. See Note 2 of Notes to the Company's
Consolidated Financial Statements.

On May 22, 1995, prior to its merger with United Natural, Mountain People's
acquired Nutrasource, a distributor of natural products in the Pacific
Northwest region. The total cash and debt issued to acquire Nutrasource was
approximately $2.8 million, which exceeded the fair value of the net assets
acquired by approximately $1.3 million. In addition, the Company paid $1.0
million to a stockholder of Nutrasource in consideration for a covenant not to
compete. On July 29, 1995, the Company acquired Rainbow, a distributor of
natural products in the Rocky Mountains and Plains regions. The total cash and
debt issued to acquire Rainbow was approximately $8.5 million, which exceeded
the fair value of the net assets acquired by approximately $4.5 million. The
acquisitions of Nutrasource and Rainbow were accounted for under the purchase
method of accounting, and, accordingly, all of the financial information for
Rainbow and Nutrasource have been included in this Prospectus since their
respective dates of acquisition. The excess of the purchase price over the net
assets acquired in each of these acquisitions has been recorded as goodwill
and will be amortized by the Company over 30 years.

The Company's fiscal years ended October 31, 1994 and 1995 are referred to
herein as "fiscal 1994" and "fiscal 1995," respectively. The Company has
changed its fiscal year end to July 31.

RESULTS OF OPERATIONS

The following table presents, for the periods indicated, certain income and
expense items expressed as a percentage of net sales:

[Download Table]

FISCAL YEAR ENDED NINE MONTHS
OCTOBER 31, ENDED JULY 31,
------------------ ----------------
1994 1995 1995 1996
-------- -------- ------- -------

Net sales................................ 100.0% 100.0 % 100.0% 100.0%
Cost of sales............................ 78.0 78.9 78.4 79.1
-------- -------- ------- -------
Gross profit........................... 22.0 21.1 21.6 20.9
-------- -------- ------- -------
Operating expenses....................... 18.0 17.1 17.4 17.0
Amortization of intangibles.............. 0.3 0.9 0.3 0.2
-------- -------- ------- -------
Total operating expenses................. 18.3 18.0 17.7 17.2
-------- -------- ------- -------
Operating income ...................... 3.7 3.1 3.9 3.7
-------- -------- ------- -------
Interest expense ...................... 1.1 1.2 1.2 1.3
Other, net ............................ 0.1 (0.1) (0.1) 0.0
-------- -------- ------- -------
Other expense, net .................... 1.2 1.1 1.1 1.3
-------- -------- ------- -------
Income before income taxes .............. 2.5 2.0 2.8 2.4
Income taxes .......................... 1.0 1.0 1.1 1.0
-------- -------- ------- -------
Net income............................... 1.5% 0.9% 1.7% 1.4%
======== ======== ======= =======

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NINE MONTHS ENDED JULY 31, 1996 COMPARED TO NINE MONTHS ENDED JULY 31, 1995

Net Sales. The Company's net sales increased 51.9%, or $97.9 million, to
$286.4 million in the nine months ended July 31, 1996 from $188.5 million in
the nine months ended July 31, 1995. The increase in net sales was primarily
due to additional sales of $74.5 million attributable to Nutrasource and
Rainbow, whose operations were included for the entire nine-month period in
1996. Sales of $6.5 million were attributable to two months of operations of
Nutrasource during the comparable 1995 period. The increase was also
attributable to increased sales by the Company to existing customers,
including net sales attributable to new products offered by the Company and
net sales to new customers in existing geographic distribution areas as well
as new geographic areas not formerly served by the Company.

Gross Profit. The Company's gross profit increased 47.0%, or $19.2 million,
to $60.0 million in the nine months ended July 31, 1996 from $40.8 million in
the nine months ended July 31, 1995. The Company's gross profit as a
percentage of net sales decreased to 20.9% for the nine months ended July 31,
1996 from 21.6% in the nine months ended July 31, 1995. The decrease in the
gross profit as a percentage of net sales was primarily due to the lower-
margin business of the Company's recently acquired distributors and to the
increase in net sales during fiscal 1996 attributable to natural products
supermarket chains, which tend to buy in larger quantities and to qualify for
greater volume discounts.

Operating Expenses. The Company's total operating expenses increased 48.3%,
or $16.1 million, to $49.4 million in the nine months ended July 31, 1996 from
$33.3 million in the nine months ended July 31, 1995. As a percentage of net
sales, operating expenses decreased to 17.2% in the nine months ended July 31,
1996 from 17.7% in the nine months ended July 31, 1995. Total operating
expenses in the nine months ended July 31, 1996 included a non-cash expense of
$1,056,100 related to the grant of options under the Company's 1996 Stock
Option Plan and a non-recurring expense of $458,000 representing costs
associated with the Mountain People's merger. Excluding the $1.5 million of
non-recurring expenses, the Company's total operating expenses would have been
$47.8 million, or 16.7% of net sales, for the nine months ended July 31, 1996.
The decrease in total operating expenses as a percentage of net sales was
primarily attributable to the Company's increased absorption of overhead and
fixed expenses over a larger sales base. In addition, the Company achieved
increased operating efficiencies through the implementation of new information
and warehouse management systems in its Connecticut and Georgia facilities.

Depreciation expense increased 91.7%, or $1.1 million, to $2.3 million in
the nine months ended July 31, 1996 from $1.2 million in the nine months ended
July 31, 1995, primarily due to the Company's purchase of its distribution
center and headquarters in Connecticut in August 1995 and the inclusion of a
full period of depreciation for Nutrasource and Rainbow in the nine months
ended July 31, 1996. The Company's amortization of intangible assets increased
31.5%, or $189,943, to $792,615 in the nine months ended July 31, 1996 from
$602,672 in the nine months ended July 31, 1995. This increase was primarily
attributable to the inclusion of amortization expense for Nutrasource and
Rainbow for the entire nine months ended July 31, 1996, compared with two
months of amortization expense for Nutrasource for the nine months ended July
31, 1995.

Operating Income. Operating income increased $3.1 million, or 42.3%, to
$10.6 million in the nine months ended July 31, 1996 from $7.5 million in the
nine months ended July 31, 1995. As a percentage of net sales, operating
income declined to 3.7% at the nine months ended July 31, 1996 from 3.9% in
the nine months ended July 31, 1995. Excluding the $1.5 million of non-
recurring expenses discussed above, operating income would have been $12.1
million, or 4.2% of net sales, in the nine months ended July 31, 1996.

Other Income (Expense). The $1.8 million increase in interest expense in the
nine months ended July 31, 1996 compared to the nine months ended July 31,
1995 was primarily attributable to the indebtedness incurred in connection
with the purchase of the Company's Connecticut facility in August 1995 and the
acquisitions of Nutrasource and Rainbow, along with an increase in borrowings
under the Company's revolving line of credit to fund increasing inventory and
accounts receivable balances related to the Company's increased sales.

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Income Taxes. The Company's effective income tax rates were 40.8% and 40.1%
for the nine months ended July 31, 1996 and 1995, respectively. The effective
rates were higher than the federal statutory rate due to nondeductible costs
associated with the merger with Mountain People's and state and local income
taxes.

Net Income. As a result of the foregoing, the Company's net income increased
by 24.5%, or $0.8 million, to $4.0 million in the nine months ended July 31,
1996 from $3.2 million in the nine months ended July 31, 1995. Excluding the
$1.5 million ($0.9 million net of taxes) non-recurring expenses related to the
granting of options under the 1996 Stock Option Plan and the costs associated
with the Mountain People's merger, net income would have been $4.9 million, or
1.7% of net sales, in the nine months ended July 31, 1996.

FISCAL 1995 TO FISCAL 1994

Net Sales. The Company's net sales increased 41.2%, or $82.7 million, to
$283.3 million in fiscal 1995 from $200.6 million in fiscal 1994. The increase
in net sales was primarily due to additional sales of $33.5 million
attributable to Nutrasource and Rainbow, whose operations were included in the
fiscal 1995 results for five months and three months, respectively. No
financial results of Nutrasource or Rainbow were included in the comparable
1994 period. The increase in net sales was also attributable to increased
sales by the Company to existing customers, the introduction of new products
not formerly carried by the Company and the inclusion of sales to new accounts
within existing geographic distribution areas.

Gross Profit. The Company's gross profit increased 35.6%, or $15.7 million,
to $59.8 million in fiscal 1995 from $44.1 million in fiscal 1994. The
Company's gross profit as a percentage of net sales decreased to 21.1% in
fiscal 1995 from 22.0% in fiscal 1994. The decrease in gross profit as a
percentage of net sales was primarily attributable to the lower-margin
business of the Company's recently acquired distributors and to the increase
in net sales during fiscal 1995 attributable to natural products supermarket
chains, which tend to buy in larger quantities and to qualify for greater
volume discounts. In addition, the Company's gross profit as a percentage of
net sales declined due to a smaller percentage of net sales represented by
sales from the Company's higher-margin NRG stores.

Operating Expenses. The Company's total operating expenses increased 39.1%,
or $14.4 million, to $51.1 million in fiscal 1995 from $36.7 million in fiscal
1994. As a percentage of net sales, total operating expenses decreased to
18.0% in fiscal 1995 from 18.3% in fiscal 1994. Total operating expenses in
fiscal 1995 included a non-recurring expense of $1.6 million related to the
write-off of intangible assets. Excluding the non-recurring expense of $1.6
million, total operating expenses would have been $49.5 million, or 17.5% of
net sales, in fiscal 1995. The decrease in total operating expenses as a
percentage of net sales was primarily attributable to the Company's increased
absorption of overhead and fixed expenses over a larger sales base.

Depreciation expense increased 61.5%, or $0.8 million, to $2.1 million in
fiscal 1995 from $1.3 million in fiscal 1994, primarily due to the Company's
purchase of its distribution center and headquarters in Connecticut in August
1995 and the inclusion of a partial year of depreciation for each of
Nutrasource and Rainbow in fiscal 1995 and no depreciation resulting from such
acquisitions in fiscal 1994. The Company's amortization of intangible assets
increased 450.9%, or $1.9 million, to $2.4 million, in fiscal 1995 from $0.5
million in fiscal 1994. This increase was attributable to higher goodwill
costs associated with the acquisitions of Nutrasource and Rainbow. In
connection with its on-going evaluation of intangible assets and in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of," the Company wrote off $1.6 million in intangible assets upon
evaluating the value of the underlying businesses of certain of its retail
operations. The impairment was indicated by projected cash flow losses caused
by increased competition at one location and a change in demographics for the
other affected location.

Operating Income. Operating income increased $1.4 million, or 18.7%, to $8.8
million in fiscal 1995 from $7.4 million in fiscal 1994. As a percentage of
net sales, operating income decreased to 3.1% in fiscal 1995 from 3.7% in
fiscal 1994. Excluding the $1.6 million non-recurring expense related to the
write-off of intangible assets, operating income would have been $10.4
million, or 3.7% of net sales, in fiscal 1995.

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Other Income (Expense). The $1.1 million increase in interest expense in
fiscal 1995 compared to fiscal 1994 was primarily attributable to the
indebtedness incurred in connection with the purchase of the Company's
Connecticut facility in August 1995 and the recent acquisitions of Nutrasource
and Rainbow. In addition, the Company experienced increased costs under its
revolving line of credit due to the higher borrowings required to fund the
increasing inventory and accounts receivable balances related to the Company's
increased sales.

Income Taxes. The Company's effective income tax rates were 52.9% and 39.5%
for fiscal 1995 and 1994, respectively. The effective rates were higher than
the federal statutory rate due to nondeductible goodwill amortization,
especially the write-off of the intangible assets in fiscal 1995, as well as
state and local income taxes.

Net Income. As a result of the foregoing, the Company's net income decreased
by 13.7%, or $0.4 million, to $2.6 million in fiscal 1995 from $3.0 million in
fiscal 1994. Excluding the $1.6 million non-recurring expense related to
write-off of intangible assets ($1.0 million net of taxes), net income would
have been $4.3 million, or 1.5% of net sales, in fiscal 1995.

LIQUIDITY AND CAPITAL RESOURCES

The Company historically has financed its operations and growth primarily
with cash flows generated from operations, borrowings under its credit
facility, seller financing of acquisitions, operating and capital leases and
normal trade credit terms. The Company finances its investment in inventory
and accounts receivable principally with its credit facility and trade
accounts payable.

The Company's cash provided (used) by operations was $1.5 million, $(0.9)
million and $(1.3) million in the nine months ended July 31, 1996, fiscal 1995
and fiscal 1994, respectively. The increase in cash generated from operations
in the nine months ended July 31, 1996 was primarily attributable to the
increase in net income. The decreases in cash generated from operations in
both fiscal 1995 and 1994 were primarily attributable to increases in accounts
receivable and inventory which resulted from the expansion of product lines
and growth of the business. The Company's working capital at July 31, 1996 was
$10.1 million.

Investing activities, consisting primarily of capital expenditures and the
purchase of subsidiaries, used cash of $7.0 million, $18.5 million and $3.7
million in the nine months ended July 31, 1996, fiscal 1995 and fiscal 1994,
respectively. The Company spent $7.1 million and $9.9 million in capital
expenditures in the nine months ended July 31, 1996 and fiscal 1995,
respectively, primarily to fund the acquisition and expansion of its
Connecticut distribution facility, the related purchase of material handling
equipment, tractors and trailers and the development and installation of new
management information systems. The capital expenditures were primarily funded
from senior bank indebtedness which is described below, capital and operating
leases, term loans and cash provided from operating activities.

The Company's cash flows generated from financing activities were $5.3
million, $19.4 million and $5.0 million in the nine months ended July 31,
1996, fiscal 1995 and fiscal 1994, respectively. During the nine months ended
July 31, 1996, net cash provided by financing activities included proceeds
from the re-financing of the Company's senior bank facility. During fiscal
1996, approximately $5.3 million in long-term debt was repaid with cash
proceeds from the re-financing and from cash provided from operating
activities.

On February 20, 1996, the Company entered into a credit agreement with its
bank to provide a $50 million facility for working capital, term loans and a
mortgage for its Connecticut facility. Interest under the credit agreement
accrues at the Company's option, at 0.25% above the New York Prime Rate or 2.25%
above the bank's London Interbank Offered Rate, and the Company has the option
to fix the rate for all or a portion of the debt for a period of up to 180 days.
The credit agreement imposes limitations on the incurrence of additional
indebtedness and requires the Company to satisfy certain financial tests,
including capital expenditures, a minimum working capital ratio, a minimum
adjusted tangible net worth, current ratio and cash flow tests. The Company has
pledged all of its assets as collateral for its obligations under the credit
agreement. As of July 31, 1996, the Company's outstanding borrowings under the
credit agreement totalled $34.8 million. The credit

424B4 23rd Page of 84 TOC 1st Previous Next ↓Bottom Just 23rd
agreement expires on July 31, 1998 and there can be no assurance that, upon
such expiration, the Company will be able to refinance the credit agreement on
terms satisfactory to the Company.

The Company currently expects to make aggregate capital expenditures of
approximately $13.0 million in fiscal 1997 and fiscal 1998 to fund the
expansion of its existing facilities, to continue to upgrade its information
systems and to update its material handling equipment.

Management believes that, following the consummation of the Offering, the
Company will have adequate capital resources and liquidity to meet its
borrowing obligations, fund all required capital expenditures and pursue its
business strategy, with the exception of any significant acquisitions which
may be made by the Company, through fiscal 1998. The Company's capital
resources and liquidity are expected to be provided by the net proceeds of the
Offering, as well as cash flow from operations and borrowings under the credit
facility and capital and operating leases. Substantially all of the net
proceeds of the Offering will be used to repay certain of the Company's
outstanding indebtedness. See "Use of Proceeds."

QUARTERLY RESULTS AND SEASONALITY

Generally, the Company's operating results have not reflected any material
seasonal variations, although the Company's sales and operating results may
vary significantly from quarter to quarter due to factors such as changes in
the Company's operating expenses, management's ability to execute the
Company's operating and growth strategies, personnel changes, demand for
natural products, supply shortages and general economic conditions.

The table below presents selected unaudited quarterly financial data for the
quarters indicated. The quarterly financial data reflect, in the opinion of
management, all adjustments (which include only normal or recurring
adjustments) necessary to present the selected financial results for such
periods. Results of any one or more quarters are not necessarily indicative of
annual results or continuing trends.

[Enlarge/Download Table]

QUARTER ENDED
---------------------------------------------------------------
OCTOBER 31, 1995 JANUARY 31, 1996 APRIL 30, 1996 JULY 31, 1996
---------------- ---------------- -------------- -------------
(IN THOUSANDS)

Net sales............... $94,821 $92,283 $96,432 $97,733
Gross profit............ 19,045 19,344 20,219 20,404
Gross margin.......... 20.1% 21.0% 21.0% 20.9%
Operating income........ $ 1,308(1) $ 3,100 $ 4,015(2) $ 3,494(3)
Operating margin...... 1.4%(1) 3.4% 4.2%(2) 3.6%(3)
Net income (loss)....... $ (631) $ 1,109 $ 1,552 $ 1,364

--------
(1) Operating income for the quarter ended October 31, 1995 includes a non-
recurring expense of $1.6 million related to the write-off of intangible
assets. Excluding the $1.6 million non-recurring expense, operating income
would have been $2.9 million, or 3.1% of net sales, for the quarter ended
October 31, 1995.
(2) Operating income for the quarter ended April 30, 1996 includes a non-
recurring expense of $458,000 representing costs associated with the
Mountain People's merger. Excluding the $458,000 non-recurring expense,
operating income would have been $4.5 million, or 4.6% of net sales, for
the quarter ended April 30, 1996.
(3) Operating income for the quarter ended July 31, 1996 includes a non-
recurring expense of $1,056,100 related to the grant of options under the
Company's 1996 Stock Option Plan. Excluding the $1,056,100 non-recurring
expense, operating income would have been $4.6 million, or 4.7% of net
sales, for the quarter ended July 31, 1996.

IMPACT OF INFLATION

Generally, the Company has been able to pass on inflation-related cost
increases; consequently, inflation has not had a material impact on the
Company's operations or profitability.

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RECENTLY ISSUED ACCOUNTING STANDARDS

The Financial Accounting Standards Board recently issued SFAS No. 123,
"Accounting for Stock-Based Compensation." This statement introduces a fair
value-based method of accounting for stock-based compensation. Under SFAS 123,
the Company may either adopt the new fair value based method or provide pro
forma disclosure of net income (loss) as if the accounting provisions of SFAS
123 had been adopted. The Company intends to retain the intrinsic method of
accounting for stock-based employee compensation plans under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
and provide the required pro forma disclosure in fiscal 1997. SFAS No. 123 is
not expected to have any effect on the Company's financial position or results
of operations.

The Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants issued Statement of Position 93-6, "Employers'
Accounting for Employee Stock Ownership Plans" in November 1993. This
statement provides guidance on employers' accounting for employee stock
ownership plans and is required to be applied to shares purchased by such
plans after December 31, 1992 that have not been committed to be released as
of the beginning of the year of adoption. SOP 93-6 requires, among other
things, that employers recognize compensation cost equal to the fair value of
the shares committed to be released rather than its original cost and that
ESOP shares that have not been committed to be released should not be
considered outstanding for purposes of computing earnings per share. As the
Company's ESOP was adopted in 1988, the Company will continue to adhere to the
guidance of SOP 76-3, "Accounting Practices for Certain Employee Stock
Ownership Plans," until such time as additional shares are purchased.
Management does not expect any such purchases to occur in the foreseeable
future.

EXTRAORDINARY LOSS

The Company intends to use a portion of the net proceeds of the Offering to
prepay the $6.5 million due to Triumph under a senior note due October 31,
1998. In connection with the prepayment, the Company will record an
extraordinary expense of approximately $1.8 million ($1.0 million, net of
taxes) reflecting the difference between the face amount of $6.5 million and
the carrying value thereof on the Company's balance sheet on the date of
prepayment, as well as the write-off of related debt issuance costs.

424B4 25th Page of 84 TOC 1st Previous Next ↓Bottom Just 25th
BUSINESS

United Natural Foods, Inc. is one of only two national distributors of
natural foods and related products in the United States. The Company currently
serves more than 5,500 customers located in 43 states, including independent
natural products stores, natural products supermarket chains and conventional
supermarkets. The Company distributes more than 25,000 high-quality, national,
regional and private label natural products in six categories consisting of
groceries and general merchandise, nutritional supplements, bulk and
foodservice products, personal care items, perishables and frozen foods.
United Natural's distribution operations are divided into three principal
regions: Cornucopia in the eastern United States, Mountain People's in the
western United States and Rainbow in the Rocky Mountains and Plains regions.
The Company operates five strategically located distribution centers and two
satellite staging facilities within these regions to better serve its
customers and realize operating efficiencies. The Company also owns and
operates eight retail natural products stores located in the eastern United
States that management believes complement its distribution business.

Over the last four years, the Company's net sales increased at a compound
annual growth rate of 31.6% to $283.3 million in fiscal 1995. For the nine
months ended July 31, 1996, the Company's net sales increased by 51.9% over
the comparable prior year period to $286.4 million. This growth in net sales
and corresponding increase in market share resulted primarily from the
Company's acquisitions of large, regional natural products distributors, the
development of new and the expansion of existing distribution capacity and an
increase in product sales to existing and new customers, as well as continuing
growth in the natural products industry sector generally. In addition to
growth in net sales, during the same period, the Company's operating income
increased at a compound annual growth rate of 46.6% to $10.4 million in fiscal
1995 (excluding a non-recurring expense of $1.6 million relating to intangible
assets in fiscal 1995). For the nine months ended July 31, 1996, the Company's
operating income increased by 62.5% over the comparable prior year period to
$12.1 million (excluding non-recurring expenses of $1.5 million incurred in
connection with the merger of the Company with Mountain People's and the grant
of options under the Company's 1996 Stock Option Plan). See "Management's
Discussion and Analysis of Financial Condition and Results of Operation" and
Notes 1 and 3 of Notes to the Company's Consolidated Financial Statements. The
Company's growth in operating income is attributable to increased efficiencies
created by its higher net sales levels, greater purchasing power, improved
information and warehouse management systems and expanded distribution
capacity.

NATURAL PRODUCTS INDUSTRY

Natural foods and related products are minimally processed, environmentally
friendly, largely or completely free from artificial ingredients,
preservatives and other non-naturally occurring chemicals and in general as
close to their natural state as possible. Although most natural products are
food products, including organic foods, the natural products industry
encompasses a number of other categories, including nutritional and herbal
supplements, toiletries and personal care items, naturally based cosmetics,
natural/homeopathic medicines and naturally based cleaning agents.

Although sales growth in the grocery products industry has been relatively
flat in recent years, according to The Natural Foods Merchandiser, a leading
industry publication, sales in the natural products industry have grown at a
20.2% compound annual growth rate in the last four years accelerating from a
13.8% increase in 1992 to a 22.6% increase in 1995, when total domestic sales
of natural products reached approximately $9.2 billion. This growth is being
propelled by several factors, including an increasing awareness of the link
between diet and health, consumer trends toward healthier eating habits,
concern regarding food purity and safety and greater environmental awareness.
Total sales of natural products represented less than 3.0% of the total
grocery industry sales in 1995, which management believes allows for
significant potential future sales growth.

According to The Natural Foods Merchandiser, the natural products retailing
sector is highly fragmented, with over 6,600 independent natural products
retailers in operation in 1995 and continuing to grow annually. Although the
natural products industry sector remains fragmented, natural products
supermarkets continue to increase their market share of total natural products
sales as they expand into additional geographic markets and acquire smaller
independent competitors. In addition, conventional supermarkets and mass
market outlets

424B4 26th Page of 84 TOC 1st Previous Next ↓Bottom Just 26th
have also begun to increase their emphasis on the sale of natural products as
the sector gains appeal. Moreover, as consumer demand for natural products has
grown, an increasing number of national, regional and local natural products
have become available as more suppliers and producers have entered the market.

The natural products distribution business involves the sourcing,
purchasing, warehousing, marketing and transportation of natural products from
suppliers to retailers. As the number of suppliers of and retail outlets for
natural products has continued to increase, the role of the distributor has
become increasingly important. Suppliers of natural products rely on
distributors to reach a fragmented customer base and to provide information on
consumer preferences at the retail level. At the same time, retailers are
placing increasing pressure on distributors for more frequent deliveries,
greater product selection, higher fill rates, more information on product
movement and additional specialized programs such as financing, merchandising
assistance, marketing support and assistance in consumer education. The
Company believes that in order to be successful in this market a distributor
must have access to capital to invest in systems, technology and warehouse
enhancements, broad product knowledge and the ability to provide value added
services designed to enable customers to become more efficient and profitable.
Management believes that the Company is well-positioned to meet the increasing
needs of both its suppliers and customers.

BUSINESS STRATEGY

The Company's objective is to better meet the changing needs of both
suppliers and retailers and to be the leading national distributor of natural
products. The key elements of the Company's business strategy include:

NATIONAL PRESENCE. With five distribution centers strategically located in
California, Colorado, Connecticut, Georgia and Washington and two satellite
staging facilities in Florida and Pennsylvania, the Company is well
positioned to provide distribution services to natural products retailers
and suppliers located across the United States. As a result, the Company is
able to (i) provide next-day delivery service to a majority of its active
customers, (ii) make multiple deliveries each week to its largest
customers, (iii) coordinate its inventory management with regional
purchasing patterns and (iv) achieve significant operating efficiencies.

INTEGRATION OF RECENT ACQUISITIONS. United Natural recently made three
strategic acquisitions and is currently in the process of integrating these
operations to increase the Company's overall efficiency by: (i) eliminating
geographic overlaps in distribution, (ii) integrating administrative,
finance and accounting functions, (iii) expanding marketing and customer
service programs and (iv) upgrading information systems. To preserve its
regional focus, the Company intends to keep the majority of the purchasing,
pricing, sales and marketing decisions at the regional level.

PURCHASING POWER AND SUPPLIER RELATIONSHIPS. As a result of its size of
operations, national presence and access to retailers within the highly
fragmented natural products sector, the Company is able to supply a
superior selection of natural products at more competitive prices and on
better terms, including supplier- sponsored marketing dollars, than many of
its smaller, regional competitors. These prices and marketing support are
then passed on to the Company's retail customers, thereby enhancing the
Company's reputation as a low-cost supplier that offers extensive marketing
programs. In addition, in order to increase its appeal to a number of
suppliers and to receive better pricing, the Company has recently
centralized the purchasing of specific products. For example, the Company
has positioned itself as the largest purchaser of bulk products in the
natural products industry by centralizing its purchase of nuts, seeds,
grains, flours and dried foods.

DIVERSE, HIGH-QUALITY PRODUCT LINE. The Company distributes a mix of more
than 25,000 national, regional and private label natural products, which
products are continually evaluated, updated and expanded to satisfy the
needs of its diverse customer base. The Company believes that its product
selections meet or exceed its regional competitors' selection in every
market that it serves. The Company continually updates its product mix by
evaluating more than 10,000 potential new products each year
and offering approximately 300 new products each month, while discontinuing
approximately 150 less

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successful products each month. In addition, the Company offers a selection
of private label products chosen to address customer preferences that are
not otherwise being met by other suppliers.

REGIONAL RESPONSIVENESS. By decentralizing the majority of its purchasing,
pricing, sales and marketing decisions at the regional level, the Company
is able to respond to regional and local customer preferences, while taking
advantage of the economies of scale associated with the Company's national
operations. Each of the Company's three regional operations (Cornucopia,
Rainbow and Mountain People's) has extensive knowledge of the local and
regional taste preferences in a particular marketplace and has the ability
to provide products to accommodate local trends. In addition, the Company
is able to customize services, respond quickly with pricing decisions to
meet local competition and rapidly accommodate customer requirements, as
necessary.

CUSTOMER SERVICE AND MARKETING PROGRAMS. In addition to providing its
customers with delivery services which include next-day and more frequent
deliveries and an order fill rate in excess of 95% (excluding products
unavailable from the supplier), the Company offers its customers a
selection of inventory management, merchandising, marketing, promotional
and event management services to increase customer sales and enhance
customer satisfaction. The Company attributes its high fill rates and
timely deliveries to its experienced purchasing department and
sophisticated warehousing, inventory control and distribution systems. The
Company offers its customers a broad range of marketing services, many of
which are supplier-sponsored, including monthly and seasonal flier
programs, in-store signage and assistance in product display, all in order
to assist its customers in increasing sales.

INFRASTRUCTURE AND MANAGEMENT. The Company recently made a significant
investment in designing its proprietary, sophisticated information and
warehouse management systems and recently expanded its Connecticut
distribution facility from 165,000 to 245,000 square feet to achieve
additional operating efficiencies and cost reductions. The Company's
warehouse management systems incorporate an efficient method of storing,
locating and rotating incoming and outgoing merchandise. The Company is
planning on installing its information systems and expanding its
distribution capacity in its Colorado and California facilities. The
Company continually evaluates and upgrades its management information
systems based on the best practices at its regional operations in order to
make the systems more efficient, cost effective and responsive to customer
needs. Overseeing the Company's operations are eight senior managers with
an average of over 15 years of experience in the natural products industry.
More than 85 of the Company's employees have over ten years of experience
in the industry.

GROWTH STRATEGY

Key elements of the Company's growth strategy include:

EXPAND CUSTOMER BASE. While continuing to focus on maintaining
relationships with its existing natural products retail customers, the
Company's goal is to expand its customer base to keep up with increasing
demand for natural products. The Company is continually cultivating
relationships with new customers for natural products, such as natural
products supermarket chains, as well as conventional supermarkets, other
mass market outlets, institutional foodservice providers, hotels and
gourmet stores which are increasing their natural product offerings.

INCREASE SALES TO EXISTING CUSTOMERS. The Company believes that a
significant opportunity exists to increase its sales penetration of its
existing retail customer base by (i) expanding the Company's role as the
primary supplier to the majority of its customers, (ii) expanding the
number of products and product categories offered and (iii) providing
pricing incentives and marketing support to generate higher sales levels by
its customers.

EXPAND MARKET PRESENCE. The Company intends to expand its market
penetration of existing and new markets by increasing the distribution
capacity of its existing facilities and by building new distribution
facilities. In addition, while the Company has no agreements or
understandings with regard to acquisitions

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at this time, it will continue to selectively evaluate opportunities to
acquire local distributors to fill in existing markets and regional
distributors to expand into new markets.

PRODUCTS

CURRENT PRODUCTS

The Company's extensive selection of high-quality natural products enables
it to provide a primary source of supply to a diverse base of customers whose
product needs vary significantly. The Company distributes over 25,000
products, consisting of national brand, regional brand, private label and
master distribution products in six product categories consisting of grocery
and general merchandise, nutritional supplements, bulk and foodservice
products, personal care items, perishables and frozen foods.

The approximate percentage of the Company's sales represented by each of the
six major product categories during fiscal 1995 are as follows:

[Download Table]

PERCENTAGE
CATEGORY OF SALES
-------- ----------

Grocery and General Merchandise........ 46.1%
Nutritional Supplements................ 13.4
Bulk and Foodservice Products.......... 12.9
Personal Care Items.................... 11.1
Perishables............................ 9.4
Frozen Foods........................... 7.1
-----
100.0%

NATIONAL BRANDS. National brand products are recognized and distributed
throughout the United States and typically possess features, including taste
and packaging, that are recognizable and appeal to a large and diverse
customer base. With five distribution centers and two satellite staging
facilities, the Company is well positioned to distribute national brand
products across the United States. The Company has secured the distribution
rights to more than 1,000 brands of nationally known products, including:

-- Arrowhead Mills cereals and mixes
-- Celestial Seasoning teas
-- Hain rice cakes
-- Imagine Foods Rice Dream non-dairy beverages
-- Knudsen and After the Fall juices
-- Stonyfield Farm yogurts
-- Tom's of Maine toothpaste
-- Twin Lab vitamins
-- Wholesome and Hearty Gardenburger frozen patties

REGIONAL BRANDS. Regional brand products are recognized by and distributed
in selected areas of the country to satisfy the demands of consumers in
specific geographic regions. In addition, the short shelf life of many
regional brands makes national distribution impracticable. The Company's
decentralized purchasing practices enable regional buyers familiar with
consumer demand to offer products that have a particular appeal to consumers
in that region. The Company distributes over 800 regional brands to its
customers, including:

--Guisto's products (West Coast)
--Montana Moon (Rocky Mountains)
--Mountain High yogurt (Rocky Mountains)
--Nancy's Creamery products (West Coast)
--New England Natural Bakers (East Coast)
--Seven Stars Dairy (East Coast)

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PRIVATE LABEL PRODUCTS. The Company also offers private label products to
address certain preferences of customers that are not otherwise being met by
other suppliers. The Company's private label program is designed to take
advantage of market opportunities created by a lack of supply of a type of
product. The Company currently offers the following private label products:

--Clear Spring waters
--Farmer's Pride eggs
--Guardian vitamins and supplements
--Natural Sea fish products

The Company believes that, through private label brands, it is able further
to differentiate itself from its competitors and earn higher margins compared
to its branded product offerings. The Company has achieved significant
geographic distribution of its private label products due to its immediate
access to its national customer base and the effectiveness of its marketing
programs. As a result, the Company intends to broaden its private label
offerings and has recently hired a senior executive to direct its private
label product operations. In the future, the Company expects to continue to
outsource the manufacturing, packing and labeling of its private label
products and believes that the success of its private label program will
depend on widespread distribution of its products along with effective
marketing programs that ensure continued shelf placement. Sales of private
label products represented less than 1% of the Company's total net sales in
fiscal 1995. Over time, the Company intends to increase the proportion these
higher margin products represent of its overall sales.

MASTER DISTRIBUTION PRODUCTS. Master distribution products are products that
are available exclusively through the Company as master distributor which
enables smaller manufacturers to more efficiently access the market. All
competing distributors must purchase such products from the Company. The
Company has the master distribution rights for the following brands:

--Cornucopia pet foods
--Dal Raccolto imported Italian oils and vinegars
--Living Foods nutritional supplements
--Purdey's nutritionally enhanced beverages
--Rudi's Bakery specialty breads
--Wolfgang Puck frozen pizzas and entrees

NEW PRODUCTS

The Company evaluates more than 10,000 potential new products each year
based on existing and anticipated trends in consumer preferences and buying
patterns. Since 1992, the Company has introduced an average of 300 new
products each month, while discontinuing approximately 150 less successful
products. The Company's buyers regularly attend regional natural, organic,
specialty, ethnic and gourmet products shows to review the latest product
introductions that are likely to be of interest to retailers and consumers.
The Company also actively solicits suggestions for new products from its
customers. For example, each month the Company distributes postage-paid
postcards to its customers to encourage them to provide suggestions. The
Company makes the majority of its new product decisions at the regional level.
The Company believes that its decentralized purchasing practices allow its
regional purchasers to react quickly to changing consumer preferences and to
evaluate new products and new product categories regionally. In addition, many
of the new products offered by the Company are marketed on a regional basis or
in the Company's own retail stores prior to being offered nationally, which
enables the Company to evaluate local consumer reaction to the products
without incurring significant inventory risk.

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CUSTOMERS

The Company markets its products to more than 5,500 customers located in 43
states. The Company maintains long-standing customer relationships with
independent natural products stores and has continued to emphasize its
relationships with new customers, including natural products supermarket
chains, as well as conventional supermarkets and other mass market outlets,
institutional foodservice providers, hotels and gourmet stores, all of which
are continually increasing their natural product offerings. Management
believes that the Company is the primary supplier to the majority of its
customers. No customer accounted for more than 9% of the Company's net sales
in fiscal 1995. Among the Company's wholesale customers are leading natural
products supermarket operators doing business as Alfalfa's, Fresh Fields
Markets, Nature's Fresh, Northwest!, Whole Foods Market and Wild Oats Markets,
and conventional supermarket chains such as Carr's, City Market, Genuardis,
Harris Teeter, King Soopers, Kroger, Quality Food Centers (QFC) and Tops
Markets.

The following table sets forth the types of customers served by the Company
and the approximate percentage of its net sales generated by each category in
fiscal 1995 and for the nine months ended July 31, 1996:

[Download Table]

PERCENTAGE OF
NET SALES
--------------
TYPE OF CUSTOMER 1995 1996
---------------- ------ ------

Independent Natural Products Stores...................... 61.3% 60.5%
Natural Products Supermarket Chains...................... 22.7 24.3
Conventional Supermarkets................................ 8.5 8.6
Miscellaneous/Other...................................... 7.5 6.6
------ ------
100.0% 100.0%

CUSTOMER SERVICE

The Company believes that customer loyalty is dependent upon outstanding
customer service to ensure accurate fulfillment of orders, timely product
delivery, low prices and a high level of product marketing support.

SALES

The Company maintains an order fill rate that exceeds 95% (excluding
products unavailable from the supplier), which the Company believes is one of
the highest order fill rates in the natural products distribution industry.
The Company believes that its high fill rates can be attributed to its
experienced purchasing department and sophisticated warehousing, inventory
control and distribution systems. The Company offers next-day delivery service
to a majority of its active customers and offers multiple deliveries each week
to its largest customers.

The Company's staff of approximately 35 account representatives cultivates
partnership relationships with the Company's customers by emphasizing
communication and responsiveness. The primary function of the account
representatives is to help customers grow their businesses, thereby increasing
the Company's own sales. Each account representative is assigned stores in a
designated geographic area and is responsible for assisting the retailer in
inventory management, merchandising, marketing, promotional and event
management and store openings. The Company's staff of approximately 81
customer service representatives regularly contacts customers by telephone to
ensure that customer needs are met quickly and efficiently. In addition to
processing orders, the customer service representatives respond to customer
inquiries concerning the Company's services and product availability. While
the customer service representatives contact all customers, approximately 80%
of the Company's sales volume is ordered electronically. The Company
distributes shelf identification tags which can be scanned to facilitate this
electronic ordering by the customer. The Company's account representatives and
customer service representatives regularly exchange information to facilitate
better knowledge of, and more effective response to, customer needs.

To assist customers in making purchasing decisions, each of the Company's
regions produces a quarterly catalog containing a description of all products
that are currently in stock. Each product description includes the

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vendor's name, product number, price per unit, price per case, suggested
retail price and UPC bar code. The quarterly catalog also contains a variety
of information on product ordering, delivery options and vendor advertising.
In addition, each region produces a monthly specials catalog with its latest
pricing promotions and new products. Approximately 20% of the Company's
products are offered to its retail customers on special at any given time.

In addition, the Company's senior executives attend major specialty food
trade shows and personally meet with numerous retailers each year to solicit
their comments. The Company's commitment to service is further reflected in
the focus groups conducted annually by the Company's senior executives with a
representative sampling of the Company's customers which allows customers to
evaluate the Company's services, products and programs.

MARKETING

The Company has developed a variety of marketing services, many of which are
supplier-sponsored, that cater to a broad range of retail formats in which
retailers may participate for a nominal fee. These programs are designed to
increase sales and are attractive to retailers who often do not have the
resources necessary to conduct such marketing programs independently. Most of
these programs are now being offered in the Company's eastern United States
and Rocky Mountains and Plains regions and are expected to begin being offered
in the western United States region in late calendar 1996.

The Company offers a monthly flier program featuring the logo and address of
the participating retailer imprinted on a flier advertising approximately 200
sale items which is distributed by the retailer to its customers. The color
fliers are designed by the Company's in-house marketing department utilizing
modern digital photography and contain detailed product descriptions and
pricing information. In addition, each flier generally includes detailed
information on selected vendors, recipes, product features and a comparison of
the characteristics of a natural product with a similar mass market product.
The monthly flier program is structured to pass through to the retailer the
benefit of lower costs on certain products, allowing stores to earn an
improved profit margin on sale items as a result of the Company's ability to
negotiate favorable terms with the suppliers of these items. The program also
provides retailers with posters and window banners to coincide with each
month's promotions.

In addition to its monthly flier program, the Company offers six thematic
and seasonal consumer fliers that are used to promote items associated with a
particular cause or season, such as environmentally sensitive products for
Earth Day or foods and gifts particularly popular during the holiday season.
The Company also (i) offers in-store signage and promotional materials,
including shopping bags and end-cap displays, (ii) provides assistance with
planning and setting up product displays and (iii) advises on pricing
decisions to enable its customers to respond to local competition.

In 1995, the Company received two prestigious ADMark advertising awards
given annually by the North American Wholesale Grocers Association in
recognition of excellence in retail advertising. The Company was chosen "best"
out of over 200 entries for its paper bags in the category of non-price print
advertising, and the Company's Natural Retail Group was awarded a first place
for its store-wide introductory brochure.

SUPPLIERS

The Company purchases its products from approximately 1,500 active
suppliers, many of which have had relationships with the Company for more than
ten years. Management believes that natural products suppliers seek
distribution of their products through the Company because it distributes the
majority of the supplier's products, provides access to a large and growing
customer base and supports the supplier's marketing programs. Substantially
all product categories distributed by the Company are available from a number
of suppliers and the Company is not dependent on any single source of supply
for any product category. The Company's largest supplier accounted for
approximately 4.5% of total purchases in fiscal 1995.

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The Company has positioned itself to respond to regional and local customer
preferences for natural products by decentralizing the majority of its
purchasing decisions for all products except bulk commodities. The Company
believes that regional buyers are best suited to identify and to respond to
local demands and preferences. Although each of the Company's regions is
responsible for placing its own orders and can select the products that it
believes will most appeal to its customers, each region is required to
participate in Company-wide purchasing programs that enable it to take
advantage of the Company's consolidated purchasing power. For example, the
Company has positioned itself as the largest purchaser of bulk products in the
natural products industry by centralizing its purchase of nuts, seeds, grains,
flours and dried foods.

The Company's purchasing staff of approximately 44 employees cooperates
closely with suppliers to provide new and existing products. The suppliers
assist in training the Company's account and customer service representatives
in marketing new products, identifying industry trends and coordinating
advertising and other promotions.

The Company maintains a comprehensive quality control assurance program. All
products sold by the Company and represented as "organic" are required to be
certified as such by an independent third-party agency. The Company maintains
current certification affidavits on all organic commodities and produce in
order to verify the authenticity of the product. All potential vendors of
organic products are required to provide such third-party certification before
they are approved as a supplier to the Company. In addition, the Company has
secured the services of FDA counsel to audit all labels, packaging, ingredient
lists and product claims relating to products offered by the Company to ensure
that all products meet current FDA requirements. The Company believes that it
is the only natural products distributor which has performed such an audit to
date.

DISTRIBUTION

The Company maintains five distribution centers located in Auburn,
California; Denver, Colorado; Dayville, Connecticut; Atlanta, Georgia; and
Seattle, Washington. The Company has recently expanded its Connecticut
headquarters from 165,000 to 245,000 square feet and significantly expanded
its capacity to store frozen foods. The Company is planning to build a new
facility in Colorado which, at 200,000 square feet, will be twice the size of
its current facility and which is expected to be operational during the second
half of calendar 1997. The Company intends to replace its 40,000 square foot
auxiliary storage facility in Sacramento, California with an 80,000 square
foot storage facility located adjacent to its Auburn, California distribution
center, which is expected to be substantially complete by late calendar 1997.
In addition, the Company operates satellite staging facilities in the
Philadelphia, Pennsylvania and greater Jacksonville, Florida areas. These
satellite facilities serve as transfer points for products, trucks and drivers
and ensure faster service to markets located more than five hours driving
distance from the Georgia and Connecticut distribution centers.

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[Graphic consists of a map of the United States which indicates the geographic
areas served by Cornucopia, Dayville; Cornucopia, Atlanta; Rainbow, Denver;
Mountain People's, Seattle; and Mountain People's, Auburn.]

The five distribution centers, two satellite staging facilities and one
auxiliary storage facility have a total of approximately 805,000 square feet
of space. Each distribution center contains dry, refrigerated and frozen
storage areas as well as office space. In total, the Company's facilities
encompass approximately 652,200 square feet of dry storage space, 40,700
square feet of refrigerated space and 44,700 square feet of frozen storage
space, with the remainder used as office space for the Company's regional
purchasing, sales and administrative operations. The Company believes that it
will be able to expand or replace its facilities as and when needed to
accommodate the Company's growth. The Company has a staff of approximately 662
persons engaged in operations.

The Company has carefully chosen the sites for its distribution centers to
provide direct access to its regional markets. This proximity allows the
Company to reduce its transportation costs compared to competitors that seek
to service their customers from locations that are often hundreds of miles
away. The Company believes that it incurs lower inbound freight expense than
its regional competitors because its national presence allows it to buy full
and partial truckloads of products which, if necessary, it can backhaul using
the Company's own trucks between its distribution centers and satellite
staging facilities. Many of the Company's competitors must employ outside
consolidation services and pay higher carrier transportation fees to move
products from other regions. In addition, overstocks and inventory inbalances
at one distribution center may be redistributed by the Company to another
distribution center where products may be sold prior to their expiration date.

Products are delivered to the Company's distribution centers primarily by
its leased fleet of trucks, contract carriers and the suppliers themselves.
The Company leases most of its trucks from Ryder Truck Leasing, which
maintains facilities on some of the Company's premises for the maintenance and
service of these vehicles, and a lesser number of its trucks from regional
firms that offer competitive services.

The Company ships orders for supplements or for items that are destined for
areas outside regular delivery routes through the United Parcel Service and
other independent carriers. Deliveries to areas outside the continental United
States are shipped by ocean-going containers on a weekly basis.

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SYSTEMS

The Company has made a significant investment in designing its proprietary
information and warehouse management systems. The Company continually
evaluates and upgrades its management information systems based on the best
practices at its regional operations in order to make the systems more
efficient, cost effective and responsive to customer needs. The Company has
installed its warehouse management systems at its Connecticut and Georgia
facilities. These systems include radio frequency-based inventory control,
paperless receiving, engineered labor standards, computer-assisted order
processing and slot locator/retrieval assignment systems. At the receiving
docks, warehouse workers attach computer-generated, preprinted locator tags to
all inbound products. These tags contain the expiration date, location,
quantity, lot number and other information in bar code format. To process
customer orders, warehouse workers use hand-held radio frequency devices to
scan the UPC bar code as a product is removed from its assigned slot.
Similarly, customer returns are processed by scanning the UPC bar codes. The
Company also employs a management information system that enables it to lower
its inbound transportation costs by making optimum use of its own fleet of
trucks or by consolidating deliveries into full truckloads. Orders from
multiple suppliers and multiple distribution centers are consolidated into
single truckloads for efficient use of available vehicle capacity and return-
haul trips.

The Company is presently reviewing the warehouse management systems in
operation in its Colorado, California and Washington facilities in a
continuing effort to improve its operations. The Company intends to install
its information and warehouse management system in stages, with installation
commencing at its Colorado facility in early calendar 1997 and at its
California and Washington facilities in late calendar 1997.

RETAIL OPERATIONS

The Company's Natural Retail Group ("NRG") currently owns and operates eight
retail natural food stores located in Connecticut, Florida, Maryland,
Massachusetts and New York. The Company's retail strategy is to selectively
acquire existing stores that meet the Company's strict criteria in categories
such as sales and profitability, growth potential, merchandising and
management. Generally, the Company will not purchase stores that directly
compete with primary retail customers of its distribution business. The
Company believes its retail stores have a number of advantages over their
competitors, including the financial strength and marketing expertise provided
by the Company, the purchasing power resulting from group purchasing by stores
within NRG and the breadth of their product selection. The Company's strategy
for future retail growth is to identify and acquire additional retail stores
as opportunities arise and to focus on increased sales of higher margin
nutritional supplements while maintaining emphasis on the sale of organic
produce and delicatessen and bakery products and consumer education.

The Company's retail stores offer products in each of the six categories
offered by the Company's distribution business as well as produce, meat,
poultry, fresh seafoods, baked goods and other prepared foods. These
additional product offerings range between 20% to 40% of the total sales of a
typical NRG store. NRG focuses its marketing efforts on consumer education and
store promotion. NRG provides consumer education through informational
brochures, promotional flyers, seminars, workshops, cooking classes and
product samplings. In its image advertising, NRG emphasizes its knowledgeable
and courteous staff, broad selection of natural products, environmental
stewardship and frequent price promotions.

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The name and location of each of NRG's stores and their approximate square
feet and lease expiration dates are as follows:

[Download Table]

STORE/LOCATION DATE OF ACQUISITION SQUARE FEET LEASE EXPIRATION
-------------- ------------------- ----------- ----------------

Health Hut..................... April 1993 4,100 May 2000
Valley Stream, NY
Cheese and Stuff............... May 1993 10,000 March 2005
Hartford, CT
Food for Thought............... July 1993 12,000 November 2005
Norwalk, CT
Village Market................. November 1993 5,875 May 2001
Pikesville, MD
Natureworks.................... January 1994 8,500 December 2001
Melbourne, FL
Railway Market................. April 1994 5,000 March 1999
Easton, MD
Cape Cod Natural Foods......... July 1994 4,500 December 2002
Centerville, MA
SunSplash Market............... April 1995 5,750 July 1999
Naples, FL

As both a distributor to its retail stores and a retailer, a number of
advantages are made available to the Company, including the ability to: (i)
control the purchases made by these stores; (ii) expand the distribution of
and marketing for its private label products within these stores; (iii) expand
the number of high-growth, high-margin product categories such as produce and
prepared foods within these stores; and (iv) keep current with the retail
marketplace which allows it to better serve its distribution customers. In
addition, as the primary natural products distributor to its retail locations,
the Company expects to realize significant economies of scale and operating
and buying efficiencies. As an operator of retail stores, the Company also has
the ability to test market select products prior to offering them nationally,
which allows the Company to evaluate consumer reaction to the product without
incurring significant inventory risk. The Company is able to test new
marketing and promotional programs within its stores prior to offering them to
a broader customer base.

COMPETITION

The natural products distribution industry is highly competitive. The
industry has been characterized in recent years by significant consolidation
and the emergence of large competitors. The Company's major national
competitor is Tree of Life Distribution, Inc. (a subsidiary of Koninklijke
Bolswessanen N.V.) and its major regional competitors are Stow Mills, Inc. in
the eastern United States and Nature's Best, Inc. in the western United
States. The Company also competes with numerous smaller regional, local and
specialty distributors of natural products. In addition, the Company competes
with national, regional and local distributors of conventional groceries and,
to a lesser extent, companies which distribute to their own retail facilities.
There can be no assurance that distributors of conventional groceries will not
increase their emphasis on natural products and more directly compete with the
Company or that new competitors will not enter the market. Many of these
distributors may have been in business longer, may have substantially greater
financial and other resources than the Company and may be better established
in their markets. There can be no assurance that the Company's current or
potential competitors will not provide services comparable or superior to
those provided by the Company or adapt more quickly than the Company to
evolving industry trends or changing market requirements. It is also possible
that alliances among competitors may emerge and rapidly acquire significant
market share. Increased competition may result in price reductions, reduced
gross margins and loss of market share, any of which could materially
adversely affect the Company's business, financial condition or results of
operations.

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The Company believes that distributors in the natural products industry
compete principally on product quality and depth of inventory selection, price
and quality of customer service. Although the Company believes it currently
competes effectively with respect to each of these factors, there can be no
assurance that the Company will be able to maintain its competitive position
against current and potential competitors.

The Company's retail stores compete against other natural products outlets,
conventional supermarkets and specialty stores. The Company believes that
retailers of natural products compete principally on product quality and
selection, price, knowledge of personnel and convenience of location.

REGULATION

The Company's operations and products are subject to regulation by state and
local health departments, the U.S. Department of Agriculture and the Food and
Drug Administration, which generally impose standards for product quality and
sanitation. The Company's facilities generally are inspected at least once a
year by state or federal authorities. The Company's trucking operations are
also subject to regulation by the U.S. Department of Transportation and the
U.S. Federal Highway Administration.

Federal, state and local provisions which have been enacted or adopted
regulating the discharge of materials into the environment, or otherwise
relating to the protection of the environment, generally are not directly
applicable to the Company. Certain of the Company's distribution facilities
have above-ground storage tanks for diesel fuel and other petroleum products,
which are subject to laws regulating such storage tanks.

The Company believes that it is in compliance in all material respects with
all applicable government regulations.

PROPERTIES AND EQUIPMENT

The Company owns its corporate offices and distribution center in Dayville,
Connecticut which was recently expanded from 165,000 to 245,000 square feet.

The Company leases its remaining distribution centers, two satellite staging
areas and one auxiliary storage facility. Each distribution center contains
dry, refrigerated and frozen storage areas and office space for the
purchasing, sales and administrative operations of the facility. The following
chart provides information on the approximate square footage of each of the
Company's distribution centers and staging facilities and the expiration date
of the lease for the facility (other than Dayville, Connecticut, which is
owned by the Company):

[Download Table]

SIZE (IN LEASE
LOCATION SQUARE FEET) EXPIRATION
-------- ------------ --------------

Atlanta, Georgia.................................. 175,000 March 1999
Auburn, California................................ 150,000 May 2008
Dayville, Connecticut............................. 245,000 Not Applicable
Denver, Colorado.................................. 91,000 July 2000
Seattle, Washington............................... 100,000 February 2001
Jacksonville, Florida............................. 3,000 December 1996
Philadelphia, Pennsylvania........................ 2,800 December 1996
Sacramento, California............................ 40,000 October 1996

The Company plans to build a new facility in Denver which, at 200,000 square
feet, will be twice the size of its current facility. The new Denver facility
is expected to be operational in the second half of calendar 1997. The Company
intends to replace its 40,000 square foot auxiliary storage facility in
Sacramento, California with an 80,000 square foot storage facility located
adjacent to its Auburn, California distribution center. Construction of the
new leased space is expected to be substantially complete by late calendar
1997. The Company believes that it will be able to continue to expand or
replace its facilities as and when needed to accommodate the Company's future
growth.

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Equipment and machinery owned by the Company and used in its operations
consist primarily of electronic data processing and material handling
equipment, racking, coolers and freezers. The Company leases a majority of its
trucks and trailers under master lease agreements with Ryder Truck Leasing.
Ryder is responsible for all truck maintenance costs.

EMPLOYEES

As of July 31, 1996, the Company had approximately 1,188 full-time
employees, including approximately 80 in finance and administration, 102 in
sales and marketing, 81 in customer service, 263 in the retail stores and 662
in operations. Approximately 75 of these employees are covered by a collective
bargaining agreement with Teamsters Local 117, Seattle, Washington which will
expire in July 1997. The Company has never experienced a work stoppage by its
unionized employees. The Company believes that its relationships with its
employees are good.

LEGAL PROCEEDINGS

From time to time, the Company is involved in routine litigation which
arises in the ordinary course of its business. There are no pending material
legal proceedings to which the Company is a party or to which the property of
the Company is subject.

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MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company and their ages as of
July 31, 1996 are as follows:

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NAME AGE POSITION
---- --- --------

42 Chairman of the Board and Chief Executive
Norman A. Cloutier(1)(2).... Officer
Michael S. Funk(2).......... 42 Vice Chairman of the Board and President
Chief Financial Officer, Director, Treasurer
Steven H. Townsend.......... 43 and Secretary
Daniel V. Atwood............ 38 President of NRG, Vice President, Assistant
Treasurer, Assistant Secretary and Director
of the Company
Andrea R. Hendricks......... 36 Director of Purchasing of Mountain People's
and Director of the Company
Kevin T. Michel............. 38 Chief Financial Officer of Mountain People's
and Director of the Company
Richard J. Williams(1)(3)... 35 Director
Thomas B. Simone(1)(3)...... 54 Director

--------
(1) Member of the Audit Committee.
(2) Member of the Nominating Committee.
(3) Member of the Compensation Committee.

NORMAN A. CLOUTIER founded the Company in 1978. Mr. Cloutier has been
Chairman of the Board and Chief Executive Officer of the Company since its
inception. Mr. Cloutier served as President of the Company from its inception
until October 1996. Mr. Cloutier previously operated a natural products retail
store in Coventry, Rhode Island from 1977 to 1978.

MICHAEL S. FUNK has been Vice Chairman of the Board of the Company since
February 1996 and President of the Company since October 1996. Mr. Funk served
as Executive Vice President of the Company from February 1996 until October
1996. Since its inception in July 1976, Mr. Funk has been President of
Mountain People's. Mr. Funk has served on the Board of Directors since
February 1996.

STEVEN H. TOWNSEND has been Vice President-Finance and Administration of the
Company since 1983 and Chief Financial Officer of the Company since August
1988. From 1980 to 1983, Mr. Townsend was Director of Finance for the Town of
Mansfield, Connecticut. From 1976 to 1980, Mr. Townsend was an Accounting
Supervisor at Harris Corporation, a manufacturer of printing presses and
related products. Mr. Townsend has served on the Board of Directors since
August 1988.

DANIEL V. ATWOOD has been President of NRG and Vice President of the Company
since August 1995. Mr. Atwood was Vice President-Marketing of the Company from
January 1984 to August 1995. From 1979 to 1982, Mr. Atwood was a Store Manager
at Bread & Circus Supermarkets, a chain of independent natural products
stores. Mr. Atwood has served on the Board of Directors since August 1988.

ANDREA R. HENDRICKS has been Director of Purchasing for Mountain People's
since January 1990. Ms. Hendricks oversees the purchasing, pricing and
promotional departments for the Company's western region. Ms. Hendricks has
served on the Board of Directors since February 1996.

KEVIN T. MICHEL has been the Chief Financial Officer of Mountain People's
since January 1995. From January 1992 until January 1995, Mr. Michel held
several different accounting and finance positions at Mountain People's. From
March 1991 until December 1991, Mr. Michel was the sole proprietor of a
restaurant. Mr. Michel has served on the Board of Directors since February
1996.

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RICHARD J. WILLIAMS has been a Managing Director of Triumph Capital Group,
Inc. since March 1990. Mr. Williams has served on the Board of Directors since
November 1993.

THOMAS B. SIMONE has served on the Board of Directors since October 1996.
Since April 1994, Mr. Simone has served as President and Chief Executive
Officer of Simone & Associates, a healthcare and natural products investment
and consulting company. From February 1991 to April 1994, Mr. Simone was
President of McKesson Drug Company. Mr. Simone also serves on the Board of
Directors of ECO-DENT International, Inc. and IBV Technologies, Inc.

The Board of Directors is divided into three classes, each of whose members
serves for a staggered three-year term. The Board consists of three Class I
Directors (Daniel V. Atwood, Kevin T. Michel and Thomas B. Simone), two Class
II Directors (Steven H. Townsend and Andrea R. Hendricks) and three Class III
Directors (Norman A. Cloutier, Michael S. Funk and Richard J. Williams). At
each annual meeting of stockholders, a class of directors is elected for a
three-year term to succeed the directors or director of the same class whose
terms are then expiring. The terms of the Class I Directors, Class II
Directors and Class III Directors will expire upon the election and
qualification of successor directors at the annual meeting of stockholders to
be held during the calendar years 1997, 1998 and 1999, respectively.

Under a Note and Warrant Purchase Agreement, dated November 17, 1993 (the
"Warrant Agreement"), between the Company and Triumph, Triumph loaned
$6,500,000 to the Company and received a warrant to purchase 1,166,660 shares
of the Company's Common Stock at an exercise price of $0.01 per share, subject
to certain repurchase rights held by the Company. Mr. Williams, a Managing
Director of Triumph, was elected to the Company's Board of Directors pursuant
to the Warrant Agreement. The provisions of the Warrant Agreement relating to
the election of a director nominated by Triumph will terminate upon the
closing of the Offering. See "Certain Transactions."

Michael S. Funk, Andrea R. Hendricks and Kevin T. Michel were elected to the
Company's Board of Directors in connection with the Company's merger with
Mountain People's in February 1996.

Each officer serves at the discretion of the Board of Directors. There are
no family relationships among any of the directors and executive officers of
the Company.

BOARD COMMITTEES

The Board of Directors has a Compensation Committee, which consists of
Thomas B. Simone and Richard J. Williams, which makes recommendations
concerning salaries and incentive compensation for employees of and
consultants to the Company and administers and grants stock options pursuant
to the Company's 1996 Stock Option Plan, and, an Audit Committee, which
consists of Norman A. Cloutier, Thomas B. Simone and Richard J. Williams,
which reviews the results and scope of the audit and other services provided
by the Company's independent public accountant. The Board of Directors also
has a Nominating Committee, consisting of Norman A. Cloutier and Michael S.
Funk, which nominates candidates for election to the Board of Directors. Until
the earlier to occur of (i) the day after the first annual meeting of
stockholders of the Company held after the Offering or (ii) the date on which
either Mr. Cloutier or Mr. Funk beneficially owns less than fifteen percent
(15%) of the Company's outstanding Common Stock, each member of the Nominating
Committee will have the power to nominate three persons, one of whom may be
himself, for election as directors. Thereafter, the members of the Nominating
Committee will jointly nominate persons who are acceptable to both members.

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DIRECTOR COMPENSATION

The directors are reimbursed for expenses incurred in connection with their
attendance at Board and committee meetings but do not receive any other cash
compensation in connection with their services on the Board.

In July 1996, the Board of Directors awarded a non-statutory stock option
under the Company's 1996 Stock Option Plan to Richard J. Williams to purchase
16,500 shares of Common Stock in consideration for his services on the
Company's Board of Directors. The option has an exercise price of $9.64 per
share and vests fully three years from the date of grant.

EXECUTIVE COMPENSATION

The following table sets forth the compensation for the twelve months ended
July 31, 1996 of the Company's Chief Executive Officer and its next three most
highly compensated executive officers during the twelve months ended July 31,
1996 (the Chief Executive Officer and such other executive officers are
hereinafter referred to as the "Named Executive Officers"):

SUMMARY COMPENSATION TABLE

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LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------- ------------
AWARDS
------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS COMPENSATION(1)
--------------------------- ---------- --------- ------------ ---------------

Norman A. Cloutier........... $ 135,460 $ 28,750 178,750 $26,616
Chairman of the Board and
Chief Executive Officer
Michael S. Funk.............. 98,750 0 115,500 1,013
President
Steven H. Townsend........... 91,175 19,170 96,250 17,574
Chief Financial Officer,
Treasurer and Secretary
Daniel V. Atwood............. 93,040 17,300 66,000 15,106
President of NRG, Vice
President, Assistant
Treasurer and Assistant
Secretary

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(1) Includes the value of Company contributions to the 401(k) accounts of the
Named Executive Officers ($1,995 for Mr. Cloutier, $1,013 for Mr. Funk and
$1,340 for Mr. Townsend) as well as the value of the shares allocated to
the accounts of the Named Executive Officers under the Company's Employee
Stock Ownership Plan at a fair market value per share of $9.64 on July 31,
1996 (approximately 2,554 shares for Mr. Cloutier, 1,684 shares for Mr.
Townsend and 1,567 shares for Mr. Atwood).

EMPLOYMENT AGREEMENTS

The Company is a party to an employment agreement with Mr. Funk covering the
period commencing February 20, 1996 and ending December 31, 2000, subject to
extension for another five-year term at the election of Mr. Funk. The
agreement provides for Mr. Funk to serve as President of Mountain People's,
Executive Vice President of the Company and Vice Chairman of the Company's
Board of Directors. In October 1996, the Board of Directors elected Mr. Funk
to serve as President of the Company. Under the employment agreement, Mr. Funk
is entitled to base compensation at least equal to that paid to the Chief
Executive Officer of the Company and other compensation in an amount such that
Mr. Funk's total annual compensation is at least equal to 90% of the Chief
Executive Officer's total annual compensation. In addition, in no event can
Mr. Funk's annual compensation be less than $130,000.

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Mr. Funk may terminate the agreement upon 90 days' written notice to the
Company. The Company may terminate the agreement only for cause or in the
event of Mr. Funk's death or disability. The agreement includes a non-
competition clause under which Mr. Funk agreed that during the term of the
agreement and for three years thereafter he will not, directly or indirectly,
participate in (i) a wholesale distribution business in competition with the
Company or Mountain People's or (ii) a retail business in competition with the
Company or any of its subsidiaries which is located within 15 miles of a
retail store owned by the Company or one of its subsidiaries; provided,
however, that Mr. Funk's management and ownership of an equity interest in
Mountain People's Wine Distributing, Inc. ("MPWD") will not be deemed a breach
of this covenant unless MPWD distributes products east of the Mississippi
River or engages in a business other than the distribution and sale of wine
and alcoholic beverages.

The Company is also a party to a non-competition agreement with Mr.
Cloutier. The non-competition agreement is effective until the earliest to
occur of: (i) November 16, 1998, (ii) the termination of Mr. Cloutier's
employment by the Company without cause or (iii) the first anniversary of (A)
Mr. Cloutier's voluntary termination of employment with the Company or (B) the
termination of Mr. Cloutier's employment by the Company for cause. During the
effective period of this agreement, Mr. Cloutier may not: (i) within 25 miles
of any location in which the Company, or one of its affiliates, is doing
business, operate or participate in any business involving the retail or
wholesale distribution of natural food items or (ii) induce any employee of
the Company to terminate employment with the Company or to engage in a
business which competes with the Company.

EMPLOYEE STOCK OWNERSHIP PLAN

In November 1988, the Company adopted an ESOP for the benefit of eligible
employees. Employees who have attained the age of 21 and have completed 1,000
hours of service within one year are eligible to participate in the ESOP. In
connection with the formation of the ESOP, the ESOT acquired an aggregate of
2,200,000 shares of Common Stock from the Initial Stockholders in exchange for
the ESOT Note in the aggregate principal amount of $4,080,000, of which
$3,073,600 was outstanding as of July 31, 1996, exclusive of interest. The
ESOT Note bears interest at a rate of 10% per annum. Under the ESOT Note, the
ESOT is required to pay interest and repay principal to the Initial
Stockholders on a monthly basis through May 2015, the maturity date of the
ESOT Note. The Company makes monthly contributions to the ESOT in amounts
determined by the Board, and such contributions are used to repay the
principal and interest due under the ESOT Note. The ESOT Note is secured by a
pledge of the shares held by the ESOT and guaranteed by the Company. Each year
shares held in the ESOT are released from the pledge in proportion to the
principal paid down on the ESOT Note during the year. The released shares are
allocated among the ESOP accounts of eligible employees, including employees
of the Company's subsidiaries which have adopted the ESOP, in proportion to
their covered compensation. To date, approximately 550,000 shares have been
allocated or released for allocation to employees, and allocations are
projected to continue at the rate of 88,000 shares per year. The shares in an
employee's account generally vest after five years of qualified employment or
upon death or disability. Vested ESOP benefits are distributable following the
death or termination of employment of a participating employee.

Participating employees can elect to receive their ESOP benefits in the form
of Common Stock. The Company has normally purchased from the ESOT the shares
allocated to former employees' ESOP accounts at their fair market value, and
then distributed cash to the employees. Common Stock distributed to former
employees from the ESOT is subject to a limited put option which allows the
holder to require the Company to repurchase the shares for a period of sixty
days at their appraised fair market value at the date of distribution, and for
another sixty days beginning after the appraised fair market value of the
Common Stock has been established for the Company's taxable year following the
year in which the distribution occurred. The put option ceases when Common
Stock distributed under the ESOP is (i) listed on a national securities
exchange or traded in the over-the-counter market and (ii) is freely
tradeable. Common Stock held in the ESOT is voted by the Trustee as directed
by the Company, except that ESOP participants are entitled to direct the
Trustee as to how to vote shares allocated to their ESOP accounts on any
matter which involves a corporate merger, consolidation, recapitalization,
reclassification, liquidation, sale of substantially all of the Company's
assets or other similar major corporate transactions. Since November 1993, the
Trustee of the ESOT has been Robert G. Huckins, an independent trustee and
financial consultant with Smith Barney Inc., one of the underwriters
participating in the Offering.

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The Company intends to amend the ESOP so that upon completion of the
Offering it will (i) provide that ESOP benefits may be paid only in the form
of Common Stock, (ii) eliminate the limited put option so long as the Common
Stock is publicly traded, (iii) provide for participants to direct the Trustee
as to how to vote shares of Common Stock allocated to their accounts, (iv)
direct the trustee to vote unallocated shares of Common Stock, and allocated
shares for which no voting direction has been received, in the same proportion
as participants have directed the Trustee to vote their allocated shares of
Common Stock, (v) provide for transfers to the Company's 401(k) plan not more
frequently than once each five years of up to 50% of the vested account
balance of a non-highly compensated participant with 10 or more years of
service with the Company, (vi) provide for hardship distributions not more
frequently than once every five years of up to 50% of the vested account
balance of a participant with 10 or more years of service with the Company to
meet certain extraordinary expenses, and (vii) incorporate the ESOP and ESOT
into a single integrated document.

1996 STOCK OPTION PLAN

The Company's 1996 Stock Option Plan (the "1996 Option Plan") was adopted by
the Board of Directors on July 29, 1996 and approved by the stockholders of
the Company on July 31, 1996. The 1996 Option Plan provides for the grant of
stock options to employees, officers and directors of, and consultants or
advisers to, the Company and its subsidiaries. Under the 1996 Option Plan, the
Company may grant options that are intended to qualify as incentive stock
options within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code") ("incentive stock options"), or options not
intended to qualify as incentive stock options ("non-statutory options").
Incentive stock options may only be granted to employees of the Company. A
total of 1,375,000 shares of Common Stock may be issued upon the exercise of
options granted under the 1996 Option Plan. The maximum number of shares with
respect to which options may be granted to any participant under the 1996
Option Plan may not exceed 500,000 shares of Common Stock during any calendar
year.

The 1996 Option Plan is administered by the Compensation Committee of the
Board of Directors. Subject to the provisions of the 1996 Option Plan, the
Compensation Committee has the authority to select the employees to whom
options are granted and determine the terms of each option, including (i) the
number of shares of Common Stock subject to the option, (ii) when the option
becomes exercisable, (iii) the option exercise price, which, in the case of
incentive stock options, must be at least 100% (110% in the case of incentive
stock options granted to a stockholder owning in excess of 10% of the
Company's Common Stock) of the fair market value of the Common Stock as of the
date of grant, and (iv) the duration of the option (which, in the case of
incentive stock options, may not exceed ten years).

Payment of the option exercise price may be made in cash, shares of Common
Stock, a combination of cash or stock or by any other method (including
delivery of a promissory note payable on terms specified by the Compensation
Committee) approved by the Compensation Committee consistent, as applicable,
with Section 422 of the Code and Rule 16b-3 ("Rule 16b-3") under the
Securities Exchange Act of 1934, as amended. Incentive stock options are not
assignable or transferable except by will or the laws of descent and
distribution.

The Compensation Committee may, in its sole discretion, include additional
provisions in any option or award granted or made under the 1996 Option Plan,
including without limitation restrictions on transfer, repurchase rights,
commitments to pay cash bonuses, to make, arrange for or guaranty loans or to
transfer other property to optionees upon exercise of options, or such other
provisions as shall be determined by the Compensation Committee, so long as
not inconsistent with the 1996 Option Plan or applicable law. The Compensation
Committee may also, in its sole discretion, accelerate or extend the date or
dates on which all or any particular option or options granted under the 1996
Option Plan may be exercised.

1996 EMPLOYEE STOCK PURCHASE PLAN

The Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board of Directors and approved by the stockholders of the
Company in October 1996 and becomes effective upon the closing of the
Offering. The Purchase Plan authorizes the issuance of up to a total of
100,000 shares of Common Stock to participating employees.

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All employees of the Company, including directors of the Company who are
employees, and all employees of any participating subsidiaries whose customary
employment is more than 20 hours per week and for more than five months in any
calendar year, and who have been employed by the Company or a participating
subsidiary for at least three months prior to enrolling in the Purchase Plan,
are eligible to participate in the Purchase Plan. Employees who would
immediately after the grant own 5% or more of the total combined voting power
or value of the stock of the Company or any subsidiary are not eligible to
participate.

On the first day of a designated payroll deduction period (the "Offering
Period"), the Company will grant to each eligible employee who has elected to
participate in the Purchase Plan an option to purchase shares of Common Stock
as follows: the employee may authorize an amount (a percentage from 1% to 10%
of such employee's regular pay) to be deducted by the Company from such pay
during the Offering Period. On the last day of the Offering Period, the
employee is deemed to have exercised the option, at the option exercise price,
to the extent of accumulated payroll deductions. Under the terms of the
Purchase Plan, the option price is an amount equal to 85% of the fair market
value per share of the Common Stock on either the first day or the last day of
the Offering Period, whichever is lower. In no event may an employee purchase
in any one Offering Period a number of shares which is more than 15% of the
employee's base pay for the Offering Period divided by 85% of the market value
of a share of Common Stock on the commencement date of the Offering Period.
The Compensation Committee may, in its discretion, choose an Offering Period
of 12 months or less for each of the Offerings and choose a different Offering
Period for each Offering.

If an employee is not a participant on the last day of the Offering Period,
such employee is not entitled to exercise any option, and the amount of such
employee's accumulated payroll deductions will be refunded. An employee's
rights under the Purchase Plan terminate upon voluntary withdrawal from the
Purchase Plan at any time, or when such employee ceases employment for any
reason, except that upon termination of employment because of death, the
employee's beneficiary has certain rights to elect to exercise the option to
purchase the shares which the accumulated payroll deductions in the
participant's account would purchase at the date of death.

Because participation in the Purchase Plan is voluntary, the Company cannot
now determine the number of shares of Common Stock to be purchased by any
particular current executive officer, by all current executive officers as a
group or by non-executive employees as a group.

OPTION GRANTS IN THE TWELVE MONTHS ENDED JULY 31, 1996 AND PERIOD OPTION
VALUES

The following table sets forth for the Named Executive Officers certain
information concerning stock options granted during the twelve months ended
July 31, 1996. The Company has never granted any stock appreciation rights
("SARs").

[Enlarge/Download Table]

OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
---------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(3)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ------------------------------
NAME GRANTED(1) FISCAL YEAR SHARE(2) DATE 0% 5% 10%
---- ---------- ------------- --------- ---------- -------- ---------- ----------

Norman A. Cloutier...... 137,500 21.6% $ 6.38 7/31/2006 $448,250 $1,283,315 $2,555,795
41,250 6.5 10.60 7/31/2006 0 210,788 592,763
Michael S. Funk......... 74,250 11.6 6.38 7/31/2006 242,055 692,753 1,380,308
41,250 6.5 10.60 7/31/2006 0 210,788 592,763
Steven H. Townsend...... 68,750 10.8 6.38 7/31/2006 224,125 641,438 1,278,063
27,500 4.3 9.64 7/31/2006 0 166,925 421,575
Daniel V. Atwood........ 44,000 6.9 6.38 7/31/2006 143,440 410,520 817,960
22,000 3.5 9.64 7/31/2006 0 133,540 337,260

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(1) All options vested in full upon the date of grant except for the grant of
an option for 22,000 shares to Mr. Atwood which vests 60% on July 31, 1999
and an additional 20% on each of July 31, 2000 and July 31, 2001.

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(2) The Board of Directors of the Company determined that the fair market
value of the Common Stock was $9.64 per share on the date of grant. The
Board of Directors determined the fair market value based on various
factors, including the illiquid nature of an investment in the Company's
Common Stock, the Company's historical financial performance, the
Company's future prospects and the price paid for securities of the
Company in arms-length transactions with third parties. The Company
currently has no plans to grant additional options at less than 85% of the
fair value of the Common Stock.
(3) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 0%, 5% and 10%
compounded annually from the date the respective options were granted to
their expiration date. These assumptions are not intended to forecast
future appreciation of the Company's stock price. The potential realizable
value computation does not take into account federal or state income tax
consequences of option exercises or sales of appreciated stock.

The following table sets forth certain information concerning the number and
value of unexercised options held by each of the Named Executive Officers on
July 31, 1996. No options or SARs were exercised during the twelve months
ended July 31, 1996 by any of the Named Executive Officers.

FISCAL YEAR-END OPTION VALUES

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NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR-END AT FISCAL YEAR-END(1)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ------------------------- -------------------------

Norman A. Cloutier......... 178,750/0 $448,250/$0
Michael S. Funk............ 115,500/0 242,055/ 0
Steven H. Townsend......... 96,250/0 224,125/ 0
Daniel V. Atwood........... 44,000/22,000 143,440/ 0

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(1) Based on the fair market value of the Common Stock as of July 31, 1996
($9.64 per share), as determined by the Board of Directors, less the
option exercise price.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The members of the Company's Compensation Committee are Richard J. Williams
and Thomas B. Simone. No executive officer of the Company has served as a
director or member of the Compensation Committee (or other committee serving
an equivalent function) of any other entity, whose executive officers served
as a director of, or a member of, the Compensation Committee of the Company.
Prior to the formation of the Compensation Committee in October 1996,
decisions relating to executive compensation were made by the Company's Board
of Directors.

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CERTAIN TRANSACTIONS

In connection with the establishment of the ESOP in November 1988, Norman A.
Cloutier, Steven H. Townsend, Daniel V. Atwood and Theodore Cloutier
contributed an aggregate of 2,200,000 shares of the Company's Common Stock to
the ESOT in exchange for a note (the "ESOT Note") from the ESOT in the
original amount of $4,080,000, the largest amount of indebtedness outstanding
under the ESOT Note. The ESOT Note is secured by a pledge of the shares. The
Company guarantees payment by the ESOT of the ESOT Note. The ESOT Note is
payable in equal monthly installments of principal and interest from December
1988 to May 2015. Interest is charged on the ESOT Note at a rate of 10% per
annum. The amount outstanding on the ESOT Note as of July 31, 1996 was
$3,073,600.

Under a Note and Warrant Purchase Agreement, dated November 17, 1993 (the
"Warrant Agreement"), Triumph loaned $6,500,000, evidenced by the Triumph
Note, to the Company. The aggregate indebtedness under the Triumph Note was
$6,500,000 on July 31, 1996, which is the largest outstanding indebtedness
ever on the Triumph Note. The Triumph Note matures on October 31, 1998. The
current interest rate on the Triumph Note is 10% and will increase 1% on each
November 1 through the maturity date of the note. Under the Warrant Agreement,
Triumph has the option, which it has exercised, to have a portion of the
proceeds of the Offering designated to repay the Triumph Note. The Company's
obligations under the Triumph Note are guaranteed by NRG. In connection with
this financing, Triumph received a warrant to purchase 1,166,660 shares, as
adjusted for stock splits, distributions and other dilutive actions taken by
the Company, of the Company's Common Stock at an exercise price of $0.01 per
share. The warrant may be exercised until the later of (i) repayment of the
Triumph Note or (ii) October 31, 2000. Triumph currently intends to exercise
the warrant in full prior to the commencement of the Offering. If the Company
completes the Offering and repays the Triumph Note before November 17, 1996,
the Company has the right to repurchase from Triumph an aggregate of 380,930
shares of Common Stock at a purchase price of $0.01 per share. If the Offering
is completed after November 17, 1996 but before November 17, 1997, this right
of repurchase will cover 196,075 shares of Common Stock. The Company currently
intends to exercise this repurchase right upon the closing of the Offering.
Mr. Williams, a Managing Director of Triumph, was elected to the Company's
Board of Directors pursuant to the Warrant Agreement. The provisions of the
Warrant Agreement relating to the election of a director nominated by Triumph
will terminate upon the closing of the Offering. The Company intends to use a
portion of the net proceeds of the Offering to repay in full the outstanding
indebtedness underlying the Triumph Note. See "Use of Proceeds" and "Shares
Eligible for Future Sale--Registration Rights."

Under a Distribution Agreement, dated August 23, 1994, between Mountain
People's and Mountain People's Wine Distributing, Inc. ("MPWD"), of which
Michael S. Funk is a 55% stockholder, Mountain People's distributes wine and
beer for MPWD. Since the effective date of this agreement, MPWD has paid
Mountain People's approximately $45,000 per year under the agreement.

In connection with the organization of MPWD, Mountain People's loaned
$46,000 to MPWD in October 1994. The loan bears interest at a rate of 8% per
annum and the outstanding indebtedness under this loan as of July 31, 1996 was
$46,000, the largest amount of indebtedness outstanding under this loan. This
loan was repaid in full on October 7, 1996.

In July 1995, the Company paid Triumph $100,000 for financial advisory
services rendered by Triumph in connection with the Company's acquisition of
Rainbow.

In November 1995, Mountain People's loaned $150,000 to Michael S. Funk. The
loan was not made in connection with a particular transaction. The loan is
payable in 130 equal monthly installments of principal and interest beginning
in February 1996. The largest amount of indebtedness outstanding under the
loan was $150,000 and as of July 31, 1996 the indebtedness outstanding under
the loan was $140,330. This loan is evidenced by a promissory note and bears
interest at the rate of 7% per annum.

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On February 20, 1996, the Company acquired Mountain People's through the
merger of a wholly owned subsidiary of the Company with and into Mountain
People's, whereupon Mountain People's became a wholly owned subsidiary of the
Company. In connection with the merger with Mountain People's, the Company
issued 3,213,100 shares of its Common Stock to the Funk Family 1992 Revocable
Living Trust, dated August 17, 1992, in exchange for all of the outstanding
stock of Mountain People's. Michael S. Funk, President and a director of the
Company, and his wife, Judith A. Funk, are the trustees of the Funk Family
1992 Revocable Living Trust. The consideration paid by the Company for
Mountain People's was established by the parties through arms-length
negotiations and was based on an estimate of the relative fair value of
Mountain People's as a going concern.

Steven H. Townsend is a stockholder in three natural products retail stores
Food Farmacy, Ltd. (45% stockholder), Food Farmacy, Inc. (75% stockholder),
and The Farmacy, Inc. (50% stockholder) which, in the aggregate, purchased
approximately $350,000 of natural products from the Company in each of the
past three years at published catalog prices.

The Company has adopted a policy providing that all material transactions
between the Company and its officers, directors and other affiliates must (i)
be approved by a majority of the members of the Company's Board of Directors
and by a majority of the disinterested members of the Company's Board of
Directors and (ii) be on terms no less favorable to the Company than could be
obtained from unaffiliated third parties. In addition, this policy will
require that any loans by the Company to its officers, directors or other
affiliates be for bona fide business purposes only.

424B4 47th Page of 84 TOC 1st Previous Next ↓Bottom Just 47th
PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of July 31, 1996, and as
adjusted to reflect the sale of the shares of Common Stock offered hereby, by
(i) each person or entity known to the Company to own beneficially more than
5% of the Company's Common Stock, (ii) each of the Company's directors, (iii)
each of the Named Executive Officers and (iv) all directors and executive
officers as a group.

[Download Table]

PERCENTAGE OF SHARES
SHARES BENEFICIALLY OWNED (1)(2)
BENEFICIALLY ------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED BEFORE OFFERING AFTER OFFERING
------------------------------------ ------------ --------------- --------------

5% STOCKHOLDERS
Norman A. Cloutier(3).............. 3,391,850 35.1% 27.0%
c/o United Natural Foods, Inc.
260 Lake Road
Dayville, CT 06241
Michael S. Funk(2)(4).............. 3,328,600 34.7% 26.6%
c/o Mountain People's Warehouse
Incorporated
12745 Earhart Avenue
Auburn, CA 95602
Funk Family 1992 Revocable Living 3,213,100 33.9% 26.0%
Trust(2)(5)........................
c/o Michael S. Funk
Mountain People's Warehouse
Incorporated
12745 Earhart Avenue
Auburn, CA 95602
Employee Stock Ownership Trust(6).. 2,179,595 23.0% 17.6%
Robert G. Huckins, Trustee
c/o Smith Barney Inc.
700 Fleet Center
50 Kennedy Plaza
Providence, RI 02903-2396
Triumph-Connecticut Limited 785,730 8.3% 6.3%
Partnership(7).....................
60 State Street
21st Floor
Boston, MA 02109
Richard J. Williams(8)............. 785,730 8.3% 6.3%
c/o Triumph-Connecticut Limited
Partnership
60 State Street
21st Floor
Boston, MA 02109
OTHER NAMED EXECUTIVE OFFICERS AND
OTHER DIRECTORS
Steven H. Townsend(9).............. 151,250 1.6% 1.2%
Daniel V. Atwood(10)............... 75,900 * *
Andrea R. Hendricks................ 0 0 0
Kevin T. Michel.................... 0 0 0
Thomas B. Simone................... 0 0 0
All executive officers and
directors, as a group
(8 persons)(11)................... 7,733,330 78.0% 60.4%

424B4 48th Page of 84 TOC 1st Previous Next ↓Bottom Just 48th
--------
* Less than 1%
(1) The number of shares beneficially owned by each stockholder is determined
under rules promulgated by the Securities and Exchange Commission, and
the information is not necessarily indicative of beneficial ownership for
any other purpose. Under such rules, beneficial ownership includes any
shares as to which the individual has sole or shared voting power or
investment power and also any shares which the individual has the right
to acquire within 60 days after July 31, 1996 through the exercise of any
stock option or other right. The inclusion herein of such shares,
however, does not constitute an admission that the named stockholder is a
direct or indirect beneficial owner of such shares. Unless otherwise
indicated, each person or entity named in the table has sole voting power
and investment power (or shares such power with his or her spouse) with
respect to all shares of capital stock listed as owned by such person or
entity.
(2) Assumes no exercise of the Underwriters' over-allotment option to
purchase up to an aggregate of 435,000 shares of Common Stock from
Triumph (375,000 shares) and the Funk Family 1992 Revocable Living Trust
(60,000 shares) ("Selling Stockholders") which are to be offered for the
account of each such Selling Stockholder. If the Underwriters' over-
allotment is exercised in full, Triumph and the Funk Family 1992
Revocable Living Trust will beneficially hold 410,730 and 3,153,100
shares, or approximately 3.3% and 25.5% of the shares outstanding after
the Offering, respectively. If the Underwriters' over-allotment option is
exercised only in part, it shall be exercised first with respect to
shares held by Triumph and then with respect to shares held by the Funk
Family 1992 Revocable Living Trust.
(3) Includes 178,750 shares issuable within the 60-day period following July
31, 1996 pursuant to the exercise of stock options. Does not include
30,085 shares held by the ESOT and allocated to Mr. Cloutier under the
ESOP.
(4) Includes 3,213,100 shares held by the Funk Family 1992 Revocable Living
Trust, of which Michael and Judith Funk are the Co-Trustees. Includes
115,500 shares issuable within the 60-day period following July 31, 1996
pursuant to the exercise of stock options.
(5) Michael S. Funk and his wife Judith A. Funk are Co-Trustees of the Funk
Family 1992 Revocable Living Trust and share investment and voting
control of the shares held by the trust.
(6) Common Stock held by the ESOT is voted by the Trustee of the ESOT (the
"Trustee"), except that participants in the ESOP are entitled to direct
the Trustee as to how to vote shares allocated to their ESOP accounts on
any matter which involves a corporate merger, consolidation, liquidation,
sale of substantially all of the Company's assets or other similar major
corporate transactions.
(7) The sole general partner of Triumph is Triumph-Connecticut Capital
Advisors, L.P. ("Capital Advisors"). The six general partners of Capital
Advisors, who share voting and investment control with respect to the
stockholdings of Triumph, are Frederick W. McCarthy, Frederick S.
Moseley, E. Mark Noonan, Thomas W. James, John M. Chapman and Richard J.
Williams. The general partners of Capital Advisors disclaim beneficial
ownership of all the shares, except to the extent of their proportionate
pecuniary interests therein.
(8) Consists of the 785,730 shares held by Triumph, of which Mr. Williams is
a general partner of its general partner. Mr. Williams disclaims
beneficial ownership of these shares except to the extent of his
proportionate pecuniary interest therein.
(9) Includes 96,250 shares issuable within the 60-day period following July
31, 1996 pursuant to the exercise of stock options. Does not include
20,955 shares held by the ESOT and allocated to Mr. Townsend under the
ESOP.
(10) Includes 44,000 shares issuable within the 60-day period following July
31, 1996 pursuant to the exercise of stock options. Does not include
20,350 shares held by the ESOT and allocated to Mr. Atwood under the
ESOP.
(11) Includes 434,500 shares issuable within the 60-day period following July
31, 1996 pursuant to the exercise of stock options.

424B4 49th Page of 84 TOC 1st Previous Next ↓Bottom Just 49th
DESCRIPTION OF CAPITAL STOCK

After giving effect to the amendment and restatement of the Company's
Certificate of Incorporation (the "Restated Certificate of Incorporation") to
be effected upon the closing of the Offering, the authorized capital stock of
the Company will consist of 25,000,000 shares of Common Stock, $.01 par value
per share, and 5,000,000 shares of Preferred Stock, $.01 par value per share.
As of July 31, 1996, there were outstanding (i) 9,478,425 shares of Common
Stock held by six stockholders of record and (ii) stock options for the
purchase of a total of 638,000 shares of Common Stock.

The following summary of certain provisions of the Company's Common Stock,
Preferred Stock, Restated Certificate of Incorporation and Amended and
Restated By-laws (the "Restated By-laws") is not intended to be complete and
is qualified by reference to the provisions of applicable law and to the
Company's Restated Certificate of Incorporation and Restated By-laws included
as exhibits to the Registration Statement of which this Prospectus is a part.
See "Additional Information."

COMMON STOCK

Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefor, subject to any preferential dividend rights
of outstanding Preferred Stock. Upon the liquidation, dissolution or winding
up of the Company, the holders of Common Stock are entitled to receive ratably
the net assets of the Company available after the payment of all debts and
other liabilities and subject to the prior rights of any outstanding Preferred
Stock. Holders of Common Stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of Common Stock are, and the shares
offered by the Company in the Offering will be, when issued and paid for,
fully paid and nonassessable. The rights, preferences and privileges of
holders of Common Stock are subject to, and may be adversely affected by, the
rights of the holders of shares of any series of Preferred Stock which the
Company may designate and issue in the future. Certain holders of Common Stock
have the right to require the Company to effect the registration of their
shares of Common Stock in certain circumstances. See "Shares Eligible for
Future Sale."

PREFERRED STOCK

Under the terms of the Restated Certificate of Incorporation to be filed
upon the closing of the Offering, the Board of Directors will be authorized,
subject to any limitations prescribed by law, without stockholder approval, to
issue such shares of Preferred Stock in one or more series at any time or from
time to time. Each such series of Preferred Stock shall have such rights,
preferences, privileges and restrictions, including voting rights, dividend
rights, conversion rights, redemption privileges and liquidation preferences,
as shall be determined by the Board of Directors.

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The purpose of authorizing the Board of Directors to issue Preferred Stock
and determine its rights and preferences is to eliminate delays associated
with a stockholder vote on specific issuances. The issuance of Preferred
Stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from acquiring, a majority of the outstanding voting stock of the Company. The
Company has no present plans to issue any shares of Preferred Stock.

DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS

The Company is subject to the provisions of Section 203 of the General
Corporation Law of Delaware. Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the interested stockholder. Subject to certain exceptions, an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of the
corporation's voting stock.

The Restated Certificate of Incorporation provides for the division of the
Board of Directors into three classes as nearly equal in size as possible with
staggered three-year terms. See "Management." In addition, the Restated
Certificate of Incorporation provides that directors may be removed only for
cause by the affirmative vote of the holders of two-thirds of the shares of
capital stock of the corporation entitled to vote. Under the Restated
Certificate of Incorporation, any vacancy on the Board of Directors, however
occurring, including a vacancy resulting from an enlargement of the Board, may
only be filled by vote of a majority of the directors then in office. The
classification of the Board of Directors and the limitations on the removal of
directors and filling of vacancies could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
acquiring, control of the Company.

The Restated Certification of Incorporation also provides that after the
closing of the Offering, any action required or permitted to be taken by the
stockholders of the Company at an annual meeting or special meeting of
stockholders may only be taken if it is properly brought before such meeting
and may not be taken by written action in lieu of a meeting. The Restated
Certificate of Incorporation further provides that special meetings of the
stockholders may only be called by the Chairman of the Board of Directors, the
Chief Executive Officer or, if none, the President of the Company, or by the
Board of Directors. Under the Restated By-Laws, in order for any matter to be
considered "properly brought" before a meeting, a stockholder must comply with
certain requirements regarding advance notice to the Company. The foregoing
provisions could have the effect of delaying until the next stockholders
meeting stockholder actions which are favored by the holders of a majority of
the outstanding voting securities of the Company. These provisions may also
discourage another person or entity from making a tender offer for the
Company's Common Stock, because such person or entity, even if it acquired a
majority of the outstanding voting securities of the Company, would be able to
take action as a stockholder (such as electing new directors or approving a
merger) only at a duly called stockholders meeting, and not by written
consent.

The General Corporation Law of Delaware provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or by-laws,
unless a corporation's certificate of incorporation or by-laws, as the case
may be, requires a greater percentage. The Restated Certificate of
Incorporation and the By-Laws require the affirmative vote of the holders of
at least two-thirds of the shares of capital stock of the Company issued and
outstanding and entitled to vote to amend or repeal any of the provisions
described in the prior two paragraphs.

The Restated Certificate of Incorporation contains certain provisions
permitted under the General Corporation Law of Delaware relating to the
liability of directors. The provisions eliminate a director's liability for
monetary damages for a breach of fiduciary duty, except in certain
circumstances involving wrongful acts, such as the breach of a director's duty
of loyalty or acts or omissions which involve intentional misconduct or a

424B4 51st Page of 84 TOC 1st Previous Next ↓Bottom Just 51st
knowing violation of law. Further, the Restated Certificate of Incorporation
contains provisions to indemnify the Company's directors and officers to the
fullest extent permitted by the General Corporation Law of Delaware. The
Company believes that these provisions will assist the Company in attracting
and retaining qualified individuals to serve as directors.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is Continental Stock
Transfer & Trust Company.

424B4 52nd Page of 84 TOC 1st Previous Next ↓Bottom Just 52nd
SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, based upon the number of shares outstanding
at July 31, 1996, there will be 12,378,425 shares of Common Stock of the
Company outstanding (exclusive of 638,000 shares covered by options
outstanding at July 31, 1996). Of these shares, the 2,900,000 shares sold in
the Offering will be freely tradeable without restriction or further
registration under the Securities Act of 1933, as amended (the "Securities
Act"), except that any shares purchased by "affiliates" of the Company, as
that term is defined in Rule 144 ("Rule 144") under the Securities Act
("Affiliates"), may generally only be sold in compliance with the limitations
of Rule 144 described below.

SALES OF RESTRICTED SHARES

The remaining 9,478,425 shares of outstanding Common Stock are deemed
"restricted securities" under Rule 144. All of these restricted securities are
subject to the 180-day lock-up agreements (the "Lock-Up Agreements") with the
Representatives of the Underwriters. Upon expiration of the Lock-Up
Agreements, excluding the 2,179,595 shares held by the ESOT, approximately
4,085,730 of these shares of Common Stock will be available for sale in the
public market, subject to the provisions of Rule 144 under the Securities Act.
The remaining 3,213,100 shares of Common Stock will be eligible for resale
under Rule 144 in February 1998.

Upon expiration of the Lock-Up Agreements, the 1,629,595 unreleased and
unallocated shares held by the ESOT may be sold by the Trustee of the ESOT,
subject to the provisions of Rule 144 under the Securities Act, and the
550,000 shares held by the ESOT and allocated to the accounts of employees to
be distributed upon the employee's death or termination of employment with the
Company will be eligible for resale in the public market without restriction,
subject only to Rule 144 limitations applicable to employees who are
Affiliates of the Company.

The executive officers and directors of the Company, and certain
securityholders, which executive officers, directors and securityholders in
the aggregate hold all of the aforementioned 9,478,425 shares of Common Stock
on the date of this Prospectus (as well as 434,500 shares of Common Stock that
may be acquired pursuant to the exercise of vested options held by them as of
180 days after the date of this Prospectus), have agreed that, for a period of
180 days after the date of this Prospectus, they will not sell, offer to sell,
solicit an offer to buy, contract to sell, grant any option to purchase,
pledge or otherwise transfer or dispose of, any shares of Common Stock, or any
securities convertible into or exercisable or exchangeable for shares of
Common Stock, without the prior written consent of Smith Barney Inc.

In general, under Rule 144 as currently in effect, beginning 90 days after
the effective date of the Registration Statement of which this Prospectus is a
part, a stockholder, including an Affiliate, who has beneficially owned his or
her restricted securities (as that term is defined in Rule 144) for at least
two years from the later of the date such securities were acquired from the
Company or, if applicable, the date they were acquired from an Affiliate, is
entitled to sell, within any three-month period, a number of such shares that
does not exceed the greater of 1% of the then outstanding shares of Common
Stock (approximately 123,784 shares immediately after the Offering) or the
average weekly trading volume in the Common Stock during the four calendar
weeks preceding the date on which notice of such sale was filed under Rule
144, provided certain requirements concerning availability of public
information, manner of sale and notice of sale are satisfied. In addition,
under Rule 144(k), if a period of at least three years has elapsed between the
later of the date restricted securities were acquired from the Company or, if
applicable, the date they were acquired from an Affiliate of the Company, a
stockholder who is not an Affiliate of the Company at the time of sale and has
not been an Affiliate of the Company for at least three months prior to the
sale is entitled to sell the shares immediately without compliance with the
foregoing requirements under Rule 144.

The Securities and Exchange Commission has proposed an amendment to Rule 144
which would reduce the holding period for shares subject to Rule 144 to become
eligible for resale in the public market. If this proposal is adopted, an
additional 3,213,100 shares will become eligible for resale under Rule 144 180
days after the date of this Prospectus.

424B4 53rd Page of 84 TOC 1st Previous Next ↓Bottom Just 53rd
REGISTRATION STATEMENTS ON FORM S-8

The Company intends to file one or more registration statements on Form S-8
under the Securities Act to register approximately 3,654,595 shares of Common
Stock issuable under the Company's ESOP, 1996 Option Plan and Purchase Plan.
The registration statements are expected to be filed shortly after the
effective date of the Registration Statement of which this Prospectus is a
part and will be effective upon filing.

Shares issued under the ESOP or the Purchase Plan, or upon the exercise of
stock options granted under the 1996 Option Plan after the effective date of
the Form S-8 registration statement will be eligible for resale in the public
market without restriction, subject to Rule 144 limitations applicable to
Affiliates and the Lock-Up Agreements noted above. See "Management--Board
Compensation" and "--Executive Compensation."

REGISTRATION RIGHTS

Triumph is entitled to certain rights, under an agreement between Triumph
and the Company (the "Registration Rights Agreement"), with respect to the
registration under the Securities Act of 785,730 shares of the Company's
Common Stock (the "Registrable Shares"). All of these shares are subject to a
Lock-Up Agreement. Triumph has the right under the Registration Rights
Agreement, at any time after 180 days from the date of this Prospectus, to
require the Company to prepare and file from time to time registration
statements under the Securities Act with respect to its Registrable Shares (a
"Demand Registration"); provided, however, that (i) such demand requests the
registration of Registrable Shares representing at least a majority of the
outstanding Registrable Shares and (ii) the Company need only effect two
Demand Registrations. The Registration Rights Agreement also provides that in
the event the Company proposes to file a registration statement under the
Securities Act with respect to an offering by the Company for its own account
or the account of another person, or both, Triumph shall be entitled to
include Registrable Shares in such registration, subject to the right of the
managing underwriter of any such offering to exclude some of such Registrable
Shares from such registration if and to the extent that inclusion of such
Shares would adversely affect the marketing of the shares to be sold by the
Company. In such event, the amount of Registrable Shares to be offered for the
account of Triumph shall be reduced pro rata among Triumph and any other
requesting rightsholders based upon the number of shares requested to be
included in such registration by all requesting rightsholders. The Company is
generally required to bear the expenses of all registrations, except
underwriting discounts and commissions. All of the obligations of the Company
to register the Registrable Shares terminate on the earlier of November 17,
2000 or the date on which the Registrable Shares are no longer restricted
under the Securities Act.

EFFECT OF SALES OF SHARES

Prior to the Offering, there has been no public market for the Common Stock
of the Company, and no prediction can be made as to the effect, if any, that
market sales of shares of Common Stock or the availability of shares for sale
will have on the market price of the Common Stock prevailing from time to
time. Nevertheless, sales of significant numbers of shares of the Common Stock
in the public market could adversely affect the market price of the Common
Stock and could impair the Company's future ability to raise capital through
an offering of its equity securities.

424B4 54th Page of 84 TOC 1st Previous Next ↓Bottom Just 54th
UNDERWRITING

Upon the terms and subject to the conditions stated in the Underwriting
Agreement dated the date hereof, each Underwriter named below has severally
agreed to purchase, and the Company has agreed to sell to such Underwriter,
the number of shares of Common Stock set forth opposite the name of such
Underwriter below.

[Download Table]

NUMBER OF
NAME SHARES
---- ---------

Smith Barney Inc. ............. 604,000
Oppenheimer & Co., Inc. ....... 603,000
Robertson, Stephens & Company
LLC........................... 603,000
Adams, Harkness & Hill, Inc. .. 50,000
Advest, Inc. .................. 50,000
Bear, Stearns & Co. Inc. ...... 90,000
Alex. Brown & Sons
Incorporated.................. 90,000
The Chicago Corporation........ 50,000
Cleary Gull Reiland & McDevitt
Inc. ......................... 50,000
Hanifen, Imhoff Inc. .......... 50,000
[Download Table]

NUMBER OF
NAME SHARES
---- ---------

Merrill Lynch, Pierce, Fenner
& Smith Incorporated......... 90,000
Montgomery Securities......... 90,000
Murphey, Marseilles, Smith &
Nammack, Inc. ............... 50,000
PaineWebber Incorporated...... 90,000
Prudential Securities
Incorporated................. 90,000
Raymond James & Associates,
Inc. ........................ 50,000
The Robinson-Humphrey Company,
Inc. ........................ 50,000
Rodman & Renshaw, Inc. ....... 50,000
Sutro & Co. Incorporated...... 50,000
Tucker Anthony Incorporated... 50,000
---------
Total....................... 2,900,000
=========

The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares are subject to
approval of certain legal matters by counsel and to certain other conditions.
The Underwriters are obligated to take and pay for all shares of Common Stock
offered hereby (other than those covered by the over-allotment option
described below) if any such shares are taken.

The Underwriters, for whom Smith Barney Inc., Oppenheimer & Co., Inc. and
Robertson, Stephens & Company LLC are acting as Representatives, propose to
offer part of the shares directly to the public at the initial public offering
price set forth on the cover page of this Prospectus and part of the shares to
certain dealers at a price that represents a concession not in excess of $0.55
per share under the public offering price. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of $0.10 per share to
certain other dealers. After the initial offering of the shares to the public,
the public offering price and such concessions may be changed by the
Representatives. The Representatives of the Underwriters have advised the
Company that the Underwriters do not intend to confirm any Shares to any
accounts over which they exercise discretionary authority.

The Selling Stockholders have granted the Underwriters an option,
exercisable for thirty days from the date of this Prospectus, to purchase up
to 435,000 additional shares of Common Stock at the price to the public set
forth on the cover page of this Prospectus minus the underwriting discounts
and commissions. See Note 2 of "Principal and Selling Stockholders." The
Underwriters may exercise such option solely for the purpose of covering over-
allotments, if any, in connection with the offering of the shares offered
hereby. To the extent such option is exercised, each Underwriter will be
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number of shares set forth
opposite each Underwriter's name in the preceding table bears to the total
number of shares listed in such table.

The Company, its executive officers and directors and certain stockholders
of the Company designated by the Representatives have agreed that, for a
period of 180 days from the date of this Prospectus, they will not, without
the prior consent of Smith Barney Inc., sell, offer to sell, solicit an offer
to buy, contract to sell, grant any option to purchase, pledge or otherwise
transfer or dispose of, any shares of Common Stock of the Company or any
securities convertible into, or exercisable or exchangeable for Common Stock
of the Company.

Prior to the Offering, there has not been any public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
shares of Common Stock included in the Offering was determined by negotiations
between the Company and the Representatives. Among the factors considered in
determining such price were the history of, and prospects for, the Company's
business and the industry in which it competes, an assessment of the Company's
management and the present state of the Company's development,

424B4 55th Page of 84 TOC 1st Previous Next ↓Bottom Just 55th
the past and present revenues and earnings of the Company, the prospects for
growth of the Company's revenues and earnings, the current state of the
economy in the United States and the current level of economic activity in the
industry in which the Company competes and in related or comparable
industries, and currently prevailing conditions in the securities markets,
including current market valuations of publicly traded companies which are
comparable to the Company.

Since November 1993, the Trustee of the ESOT has been Robert G. Huckins, a
financial consultant with Smith Barney Inc.

The Company, the Selling Stockholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.

LEGAL MATTERS

The validity of the shares of Common Stock being offered hereby will be
passed upon for the Company by Hale and Dorr, Boston, Massachusetts. Certain
legal matters in connection with the Offering will be passed upon for the
Underwriters by Goodwin, Procter & Hoar LLP, Boston, Massachusetts.

EXPERTS

The consolidated financial statements of the Company as of October 31, 1995
and July 31, 1996 and for each of the two years in the period ended October
31, 1995 and the nine months ended July 31, 1996 and the related financial
statement schedule have been included herein and in the Registration Statement
in reliance upon the reports of KPMG Peat Marwick LLP, independent certified
public accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing.

The financial statements of Prem Mark, Inc. (the predecessor of Rainbow) as
of December 31, 1994 and for the fifty-three weeks then ended included herein
and in the Registration Statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm
as experts in giving said report.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (which term shall include all
amendments, exhibits, schedules and supplements thereto) on Form S-1 under the
Securities Act with respect to the shares of Common Stock offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and
regulations of the Commission, to which Registration Statement reference is
hereby made. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily
complete. With respect to each such contract, agreement or other document
filed as an exhibit to the Registration Statement, reference is made to the
exhibit for a more complete description of the matter involved, and each such
statement shall be deemed qualified in its entirety by such reference. The
Registration Statement and the exhibits thereto may be inspected and copied at
prescribed rates at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the regional offices of the Commission located at Seven
World Trade Center, 13th Floor, New York, New York 10048 and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. In addition, the Company is
required to file electronic versions of these documents with the Commission
through the Commission's Electronic Data Gathering, Analysis and Retrieval
(EDGAR) system. The Commission maintains a World Wide Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.

The Company intends to distribute to its stockholders annual reports
containing audited consolidated financial statements and will make available
copies of quarterly reports for the first three quarters of each fiscal year
containing unaudited consolidated financial information.

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INDEX TO FINANCIAL STATEMENTS

[Download Table]

PAGE
----

UNITED NATURAL FOODS, INC. AND SUBSIDIARIES:
Independent Auditors' Report............................................. F-2
Consolidated Balance Sheets.............................................. F-3
Consolidated Statements of Income........................................ F-4
Consolidated Statements of Stockholders' Equity.......................... F-5
Consolidated Statements of Cash Flows.................................... F-6
Notes to Consolidated Financial Statements............................... F-8
PREM MARK, INC.*:
Report of Independent Public Accountants................................. F-18
Balance Sheet............................................................ F-19
Statement of Income...................................................... F-20
Statement of Stockholder's Investment.................................... F-21
Statement of Cash Flows.................................................. F-22
Notes to Financial Statements............................................ F-23
Unaudited Statement of Income for the Period from January 1, 1995 to July
29, 1995................................................................ F-27

--------
* These financial statements reflect the predecessor of Rainbow Natural Foods,
Inc. and are included in this Prospectus to comply with Rule 3-05 of
Regulation S-X.

F-1

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INDEPENDENT AUDITORS' REPORT

The Board of Directors
United Natural Foods, Inc. and Subsidiaries:

We have audited the accompanying consolidated balance sheets of United
Natural Foods, Inc. and subsidiaries as of October 31, 1995 and July 31, 1996
and the related consolidated statements of income, stockholders' equity and
cash flows for the years ended October 31, 1994 and 1995, and for the nine
months ended July 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of United
Natural Foods, Inc. and subsidiaries as of October 31, 1995 and July 31, 1996
and the results of their operations and their cash flows for the years ended
October 31, 1994 and 1995, and for the nine months ended July 31, 1996, in
conformity with generally accepted accounting principles.

KPMG Peat Marwick LLP
Providence, Rhode Island
August 30, 1996

F-2

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UNITED NATURAL FOODS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

[Download Table]

OCTOBER 31, JULY 31,
1995 1996
----------- -----------

ASSETS
Current assets:
Cash................................................ $ 228,791 $ 51,255
Accounts receivable, net of allowance for doubtful
accounts of $1,274,602 in 1995 and
$1,277,755 in 1996................................. 24,306,540 25,657,156
Notes receivable, trade............................. 679,362 360,137
Inventories......................................... 35,464,371 38,667,548
Prepaid expenses.................................... 983,009 1,691,548
Deferred income taxes (note 10)..................... 480,754 796,216
----------- -----------
Total current assets................................ 62,142,827 67,223,860
----------- -----------
Property and equipment, net (note 6)................. 15,348,686 20,603,663
----------- -----------
Other assets:
Notes receivable, trade............................. 544,842 1,067,697
Goodwill, net of accumulated amortization of
$395,214 in 1995 and $556,345 in 1996 (note 2)..... 8,284,365 8,096,395
Covenants not to compete, net of accumulated
amortization of $263,672 in 1995 and
$711,737 in 1996 (note 2).......................... 1,565,299 1,117,234
Other, net.......................................... 935,543 635,290
----------- -----------
11,330,049 10,916,616
----------- -----------
Total assets........................................ $88,821,562 $98,744,139
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable (note 4).............................. $25,190,408 $30,112,868
Current installments of long-term debt (note 5)..... 3,774,198 4,086,795
Current installments of obligations under capital
leases (note 7).................................... 420,677 357,404
Accounts payable.................................... 20,010,640 17,139,406
Accrued expenses.................................... 3,482,447 4,978,331
Income taxes payable................................ 108,181 303,513
Other............................................... 573,142 158,149
----------- -----------
Total current liabilities........................... 53,559,693 57,136,466
Long-term debt, excluding current installments (note
5).................................................. 21,312,113 22,170,855
Deferred income taxes (note 10)...................... 362,138 407,346
Obligations under capital leases, excluding current
installments (note 7)............................... 565,407 847,918
----------- -----------
Total liabilities................................... 75,799,351 80,562,585
----------- -----------
Stockholders' equity (note 13):
Common stock, $.01 par value, authorized 25,000,000
shares;
issued 8,713,100 shares and outstanding 8,713,100
shares in 1995 and 8,692,695 shares in 1996........ 87,131 87,131
Additional paid-in capital.......................... 327,411 1,383,511
Stock warrants (note 5)............................. 3,200,000 3,200,000
Unallocated shares of employee stock ownership plan
(note 11).......................................... (3,196,000) (3,073,600)
Retained earnings................................... 12,603,669 16,628,966
Treasury stock, 20,405 shares at cost............... -- (44,454)
----------- -----------
Total stockholders' equity.......................... 13,022,211 18,181,554
----------- -----------
Commitments (notes 8, 9 and 12)
Total liabilities and stockholders' equity.......... $88,821,562 $98,744,139
=========== ===========

See accompanying notes to consolidated financial statements.

F-3

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UNITED NATURAL FOODS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

[Download Table]

NINE
YEARS ENDED OCTOBER 31, MONTHS ENDED
------------------------- JULY 31,
1994 1995 1996
------------ ------------ ------------

Net sales............................ $200,616,451 $283,323,435 $286,448,399
Cost of sales........................ 156,498,812 223,482,549 226,481,766
------------ ------------ ------------
Gross profit..................... 44,117,639 59,840,886 59,966,633
------------ ------------ ------------
Operating expenses................... 36,195,056 48,653,214 48,564,649
Amortization of intangibles (note
1(f))............................... 538,040 2,425,618 792,615
------------ ------------ ------------
Total operating expenses......... 36,733,096 51,078,832 49,357,264
------------ ------------ ------------
Operating income................. 7,384,543 8,762,054 10,609,369
------------ ------------ ------------
Other expense (income):
Interest expense................... 2,275,100 3,403,009 3,942,820
Other, net......................... 121,655 (173,312) (136,869)
------------ ------------ ------------
Total other expense.............. 2,396,755 3,229,697 3,805,951
------------ ------------ ------------
Income before income taxes....... 4,987,788 5,532,357 6,803,418
Income taxes (note 10)............... 1,970,584 2,929,856 2,778,121
------------ ------------ ------------
Net income....................... $ 3,017,204 $ 2,602,501 $ 4,025,297
============ ============ ============
Net income per share of common
stock............................... $ 0.30 $ 0.26 $ 0.40
============ ============ ============
Weighted average shares of common
stock............................... 10,094,036 10,148,374 10,143,809
============ ============ ============

See accompanying notes to consolidated financial statements.

F-4

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UNITED NATURAL FOODS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

[Enlarge/Download Table]

UNALLOCATED
OUTSTANDING ADDITIONAL SHARES OF TOTAL
NUMBER COMMON PAID-IN STOCK EMPLOYEE STOCK RETAINED TREASURY STOCKHOLDERS'
OF SHARES STOCK CAPITAL WARRANTS OWNERSHIP PLAN EARNINGS STOCK EQUITY
----------- ------- ---------- ---------- -------------- ----------- -------- -------------

Balances November 1,
1993................... 8,713,100 $87,131 $ 327,411 -- $(3,522,400) $ 6,983,964 -- $ 3,876,106
Issuance of stock
warrants (note 5)..... -- -- -- $3,200,000 -- -- -- 3,200,000
Allocation of shares to
ESOP.................. -- -- -- -- 163,200 -- -- 163,200
Net income............. -- -- -- -- -- 3,017,204 -- 3,017,204
--------- ------- ---------- ---------- ----------- ----------- -------- -----------
Balances October 31,
1994................... 8,713,100 87,131 327,411 3,200,000 (3,359,200) 10,001,168 -- 10,256,510
Allocation of shares of
ESOP.................. -- -- -- -- 163,200 -- -- 163,200
Net income............. -- -- -- -- -- 2,602,501 -- 2,602,501
--------- ------- ---------- ---------- ----------- ----------- -------- -----------
Balances October 31,
1995................... 8,713,100 87,131 327,411 3,200,000 (3,196,000) 12,603,669 -- 13,022,211
Allocation of shares to
ESOP.................. -- -- -- -- 122,400 -- -- 122,400
Purchase of treasury
stock................. (20,405) -- -- -- -- -- $(44,454) (44,454)
Stock options (note
3).................... -- -- 1,056,100 -- -- -- -- 1,056,100
Net income............. -- -- -- -- -- 4,025,297 -- 4,025,297
--------- ------- ---------- ---------- ----------- ----------- -------- -----------
Balances July 31, 1996.. 8,692,695 $87,131 $1,383,511 $3,200,000 $(3,073,600) $16,628,966 $(44,454) $18,181,554
========= ======= ========== ========== =========== =========== ======== ===========

See accompanying notes to consolidated financial statements.

F-5

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UNITED NATURAL FOODS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

[Download Table]

YEARS ENDED OCTOBER 31, NINE MONTHS
------------------------- ENDED JULY 31,
1994 1995 1996
----------- ------------ --------------

Cash flows from operating activities:
Net income.......................... $ 3,017,204 $ 2,602,501 $ 4,025,297
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation, amortization and
write-off of intangibles.......... 1,920,474 4,273,244 3,012,061
Loss (gain) on disposals of
property and equipment............ 239,842 (123,583) 24,441
Accretion of original issue
discount.......................... 456,000 530,004 458,541
Compensation expense related to
stock options..................... -- -- 1,056,100
Deferred income taxes.............. 162,125 330,158 (270,254)
Provision for doubtful accounts.... 148,724 762,764 646,828
Increase in accounts receivable.... (4,371,301) (5,544,515) (1,997,444)
Increase in inventory.............. (4,356,554) (9,989,327) (3,203,177)
Decrease (increase) in prepaid
expenses.......................... 544,396 (228,391) (708,539)
Decrease (increase) in refundable
income taxes...................... 451,191 -- --
Decrease (increase) in other
assets............................ (46,468) 2,025,426 300,253
Decrease (increase) in notes
receivable, trade................. (562,513) (265,113) (203,630)
Increase (decrease) in accounts
payable........................... 1,602,631 4,488,652 (2,871,234)
Increase in accrued expenses....... 195,600 503,467 1,080,891
Increase (decrease) in income taxes
payable........................... (742,287) (220,989) 195,332
----------- ------------ -----------
Net cash provided by (used in)
operating activities............ (1,340,936) (855,702) 1,545,466
----------- ------------ -----------
Cash flows from investing activities:
Proceeds from disposals of property
and equipment...................... 210,574 147,666 43,021
Capital expenditures................ (2,678,696) (9,934,590) (7,091,280)
Payments for purchases of
subsidiaries, net of cash
acquired........................... (1,267,841) (8,672,834) --
----------- ------------ -----------
Net cash used in investing
activities...................... (3,735,963) (18,459,758) (7,048,259)
----------- ------------ -----------
Cash flows from financing activities:
Net borrowings under note payable... 783,478 12,388,997 4,922,460
Repayments of long-term debt........ (3,319,793) (2,046,824) (5,349,788)
Proceeds from long-term debt........ 4,651,884 9,604,443 6,184,986
Principal payments of capital lease
obligations........................ (269,294) (251,632) (387,947)
Payment of financing costs.......... -- (321,044) --
Issuance of stock warrants.......... 3,200,000 -- --
Purchase of treasury stock.......... -- -- (44,454)
----------- ------------ -----------
Net cash provided by financing
activities...................... 5,046,275 19,373,940 5,325,257
----------- ------------ -----------
Net increase (decrease) in cash...... (30,624) 58,480 (177,536)
Cash at beginning of year............ 200,935 170,311 228,791
----------- ------------ -----------
Cash at end of year.................. $ 170,311 $ 228,791 $ 51,255
=========== ============ ===========
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest........................... $ 1,588,000 $ 2,638,000 $ 2,120,000
=========== ============ ===========
Income taxes....................... $ 1,962,000 $ 2,838,000 $ 2,467,000
=========== ============ ===========

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UNITED NATURAL FOODS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)

Supplemental schedule of non-cash investing and financing activities:

In 1994, the Company purchased all of the capital stock of one retail
store and substantially all of the assets of three additional stores for
$1,374,000. In conjunction with the acquisitions, liabilities were assumed
as follows:

[Download Table]

Fair value of assets acquired.................................. $2,974,000
Cash paid...................................................... 1,374,000
----------
Liabilities assumed and debt issued.......................... $1,600,000
==========

In 1995, the Company purchased substantially all of the assets of one
retail store, substantially all of the assets of one wholesale distributor
and the capital stock of another wholesale distributor for $6,725,000. In
conjunction with the acquisitions, liabilities were assumed as follows:

[Download Table]

Fair value of assets acquired................................. $21,315,000
Cash paid..................................................... 6,725,000
-----------
Liabilities assumed and debt issued......................... $14,590,000
===========

In 1995 and 1996, the Company incurred capital lease obligations of
approximately $580,000 and $582,000, respectively for equipment.

See accompanying notes to consolidated financial statements.

F-7

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UNITED NATURAL FOODS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

OCTOBER 31, 1994, 1995 AND JULY 31, 1996

(1) SIGNIFICANT ACCOUNTING POLICIES

(a) Nature of Business

United Natural Foods, Inc. and Subsidiaries (the Company) is a distributor
and retailer of natural products. The Company sells its products throughout
the United States. For purposes of segment reporting, the Company considers
its operations to be within a single industry.

(b) Basis of Consolidation

The accompanying financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany transactions
and balances have been eliminated in consolidation. Certain prior period
balances have been reclassified to conform to the 1996 presentation.

Inventories are stated at the lower of cost or market, with cost being
determined using the first-in, first-out (FIFO) method.

(d) Property and Equipment

Property and equipment are stated at cost. Equipment under capital leases is
stated at the present value of minimum lease payments at the inception of the
lease. Depreciation and amortization are principally provided under the
straight-line method over the following estimated useful lives:

[Download Table]

Building.......................................................... 40 years
Leasehold improvements............................................ 10 years
Warehouse equipment............................................... 5-10 years
Office equipment.................................................. 3-5 years
Motor vehicles.................................................... 3 years
Equipment under capital lease..................................... 5 years

(e) Income Taxes

The Company accounts for income taxes under the asset and liability method.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.

(f) Intangible Assets

Intangible assets consist principally of goodwill and covenants not to
compete. Goodwill represents the excess purchase price over fair value of net
assets acquired in connection with purchase business combinations and is being
amortized on the straight line method over thirty years. Covenants not to
compete are stated at cost and are amortized using the straight-line method
over the lives of the respective agreements, generally five years.

The Company adopted Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of, during fiscal 1995.

F-8

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UNITED NATURAL FOODS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The Company evaluates impairment of intangible assets on an annual basis, or
more frequently if events or changes in circumstances indicate that carrying
amounts may no longer be recoverable. Impairment losses are determined based
upon the excess of carrying amounts over expected future cash flows
(undiscounted) of the underlying business. The assessment of the
recoverability of intangible assets will be impacted if estimated future cash
flows are not achieved.

In fiscal 1995, the Company wrote off approximately $1,564,000 in intangible
assets, primarily goodwill, upon evaluating impairment of the underlying
business of certain of its retail operations. The impairment was indicated by
projected cash flow losses caused by increased competition at one location and
a change in demographics for the other affected location. This amount is
included in "Amortization of Intangibles" in the 1995 Consolidated Statement
of Income.

(g) Revenue Recognition

The Company records revenue upon shipment of products. Revenues are recorded
net of applicable sales discounts.

(h) Fair Value of Financial Instruments

The carrying amounts of the Company's financial instruments including cash,
accounts receivable, accounts payable, and accrued expenses approximate fair
value due to the short term nature of these instruments. The carrying value of
notes receivable, long term debt and capital lease obligations approximate
fair value based on the instruments' interest rate, terms, maturity date, and
collateral, if any, in comparison to the Company's incremental borrowing rate
for similar financial instruments.

(i) Change in Fiscal Year

The Company elected to change its fiscal year end from October 31 to July
31. The consolidated results of operations and cash flows for the nine months
ended July 31, 1996 are not necessarily indicative of results that would be
expected for a full year.

(j) Accounting Changes

Effective November 1, 1995, the Company changed its method of accounting for
certain inventories from the last-in, first-out (LIFO) method to the first-in,
first-out (FIFO) method. Due to a number of recent acquisitions, the Company's
subsidiaries were accounting for inventories on varying methods (LIFO, FIFO)
and using different calculation methodologies for LIFO. In order to conform
all the Company's inventories to the same valuation method and to enhance the
comparability of the Company's financial results with other publicly traded
entities, the conforming change to FIFO was made, which was deemed preferable
for these reasons. In accordance with provisions of Accounting Principles
Board Opinion No. 20, concerning an initial public offering of securities,
this change has been applied retroactively and financial statements of prior
periods have been restated.

(k) Use of Estimates

Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.

(l) Notes Receivable, trade

The Company issues notes receivable, trade to certain customers under two
basic circumstances, inventory purchases for initial store openings and
overdue accounts receivable. Initial store opening notes are generally
receivable over a period not to exceed twelve months. The overdue accounts
receivable notes may extend for periods greater than one year. All notes are
issued at a market interest rate and contain certain guarantees and collateral
assignments in favor of the Company.

F-9

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UNITED NATURAL FOODS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(m) Net Income Per Share

Net income per share is computed by dividing net income by the weighted
average number of shares of Common Stock and dilutive common stock
equivalents. For purposes of this calculation, outstanding stock options and
stock warrants are considered common stock equivalents and totaled
approximately 1.8 million shares for all periods presented (approximately 1.4
million incremental shares under the treasury stock method). Pursuant to
Securities and Exchange Commission Staff Accounting Bulletin No. 83, common
and common equivalent shares issued during the twelve month period prior to
the date of the initial filing of the Company's Registration Statement have
been included in the calculation, using the treasury stock method, as if they
were outstanding for all periods presented. Fair market value for the purpose
of this calculation was assumed to be approximately $14.00 per share, the
assumed initial public offering price. The number of shares used in all
calculations has been adjusted to reflect a fifty-five-for-one stock split
(see note 13).

(2) ACQUISITIONS

In February 1996, Cornucopia Natural Foods, Inc. (CNF) and Mountain People's
Warehouse, Inc. (MPW) merged in a business combination accounted for as a
pooling of interests. CNF issued 3,213,100 shares, which represented
approximately 37% of the common stock of CNF after the merger, in exchange for
all of the outstanding common stock of MPW. The combined entity changed its
name to United Natural Foods, Inc. The financial statements for all periods
presented reflect the merger. Net sales for fiscal 1994, fiscal 1995 and the
quarter ended January 31, 1996 for CNF were $113.2 million, $145.6 million and
$48.7 million (unaudited), respectively. Net income for fiscal 1994, fiscal
1995 and the quarter ended January 31, 1996 for CNF was $1.8 million, $0.9
million and $1.0 million (unaudited), respectively. Net sales for fiscal 1994,
fiscal 1995 and the quarter ended January 31, 1996 for MPW were $87.4 million,
$137.7 million and $43.6 million (unaudited), respectively. Net income for
fiscal 1994, fiscal 1995 and the quarter ended January 31, 1996 for MPW was
$1.3 million, $1.7 million and $0.1 million (unaudited), respectively.

During fiscal 1995, the Company acquired substantially all of the assets of
one natural products retailer, SunSplash Market, Inc. (in April 1995), one
wholesale distributor, Prem Mark, Inc. (the predecessor business to Rainbow
Natural Foods, Inc.) (in July 1995) and the capital stock of another wholesale
distributor, Nutrasource, Inc. (in May 1995) in business combinations
accounted for as purchases. The results of operations of these acquisitions
have been included in the accompanying financial statements since the dates of
the acquisitions. The total cash paid and debt issued for these acquisitions
was approximately $12,470,000, which exceeded the fair value of the net assets
acquired by approximately $6,329,000. This excess for purchase price over the
net assets acquired has been recorded as goodwill, and is being amortized over
thirty years.

During fiscal 1994, the Company acquired 100% of the common stock of one
natural products retailer, Natureworks, Inc., and substantially all of the
assets of three additional retailers, Village Natural Grocers, Inc., Down Home
Natural Foods, Inc., and Railway Market, Inc., in business combinations
accounted for as purchases. The results of operations of these retailers were
included in the accompanying financial statements since the dates of the
acquisitions. The total cash paid and debt issued for these acquisitions was
approximately $2,974,000 which exceeded the fair value of the net assets
acquired by approximately $1,437,000. The excess has been recorded as goodwill
and is being amortized on the straight-line method over thirty years.

In connection with these acquisitions, the Company executed covenants not to
compete and consulting agreements totaling $505,000 to be amortized using the
straight-line method over the lives of the respective agreements, generally
five years.

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UNITED NATURAL FOODS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Pro Forma Results (Unaudited)

The following represents the unaudited pro forma results of operations for
fiscal 1995 as if the acquisitions of Nutrasource, Inc. and Prem Mark, Inc.
had occurred as of November 1, 1994:

[Download Table]

Net sales.................................................... $345,381,000
Income before income taxes................................... 5,217,000
Net income................................................... 2,410,000
Net income per share of common stock......................... $ 0.24

The pro forma operating results include results of operations for the
periods prior to the acquisitions and include additional amortization of
intangible assets and interest expense on acquisition borrowings as if the
acquisitions occurred on November 1, 1994.

The pro forma information given above does not purport to be indicative of
the results that actually would have been obtained if the operations were
combined during the period presented and is not intended to be a projection of
future results or trends.

(3) STOCK OPTION PLAN

On July 29, 1996, the Board of Directors adopted, and on July 31, 1996 the
stockholders approved, the 1996 Stock Option Plan which provides for grants of
stock options to employees, officers, directors and others. These options are
intended to qualify as incentive stock options within the meaning of Section
422 of the Internal Revenue Code or options not intended to qualify as
incentive stock options ("non-statutory options"). A total of 1,375,000 shares
of common stock may be issued upon the exercise of options granted under the
1996 Stock Option Plan.

In consideration for their services on the Company's Board of Directors,
four employee-directors were awarded a total of 324,500 non-statutory stock
options under the Company's 1996 Stock Option Plan at an exercise price of
$6.38 per share which vested immediately. In addition, one non-employee
director was awarded a total of 16,500 non-statutory stock options under the
1996 Stock Option Plan at an exercise price of $9.64 per share which vest
after three years. Incentive stock options to purchase an aggregate of 297,000
shares of common stock were also granted to several employees at not less than
the fair value at the date of grant, with vesting at various rates generally
over the next five years. Compensation expense of $1,056,100 was charged to
operations in fiscal 1996 related to the employee-director stock options. In
accordance with SEC regulations, all options have been included in earnings
per share calculations for all periods presented.

(4) NOTES PAYABLE

The Company entered into a line of credit and term loan agreement (see note
5) with a bank effective February 1996. The line of credit agreement permits
the Company to borrow up to a maximum of $50,000,000. The amount of borrowing
is based upon the sum of 90% of eligible accounts receivable and 55% of
eligible inventory. Interest on the loans is at 0.25% above the New York prime
interest rate or 2.25% above the LIBOR rate. The bank's prime rate was 8.75%
and 8.25% at October 31, 1995 and July 31, 1996, respectively. The line of
credit agreement, which terminates July 1998, is secured by all assets of the
Company and contains certain restrictive covenants. The Company was in
compliance with its restrictive covenants at July 31, 1996.

F-11

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UNITED NATURAL FOODS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(5) LONG-TERM DEBT

Long-term debt consisted of the following:

[Download Table]

OCTOBER 31, JULY 31,
1995 1996
----------- -----------

Note payable to limited partnership, secured, with
interest ranging from 8% to 12% per annum payable
quarterly, maturing October 1998.................. $ 4,286,004 $ 4,744,545
Term loan for employee stock ownership plan,
secured by stock of the corporation, due $13,600
monthly plus interest at 10%, balance due May 1,
2015.............................................. 3,196,000 3,073,600
Real estate term loan payable to bank, secured by
land and building, with principal repayments of
$25,000 monthly through July 1998 plus interest at
7.5%, all remaining principal due August 1998..... 6,000,000 5,775,000
Term loan payable to former owners of acquired
business, secured by substantially all assets of
subsidiary with principal repayments of $695,353
semi-annually through July 1998, with interest
ranging from 8-10% through maturity............... 4,178,114 2,785,409
Term loan payable to bank, secured by substantially
all assets of a subsidiary, refinanced in February
1996.............................................. 976,190 --
Term loan payable to bank, secured by substantially
all assets of the Company, refinanced in February
1996.............................................. 425,080 --
Term loan payable to bank, secured by substantially
all assets of the Company, with monthly principal
payments of $59,524 through July 1998 and the re-
maining principal due on July 31, 1998, interest
at prime plus 0.25% above the bank's prime rate or
at 2.25% above the LIBOR rate..................... -- 4,702,381
Installment notes secured by equipment, payable in
monthly installments through 2002 at interest
rates ranging from 7.43% to 11.82%................ 2,061,640 1,958,257
Other notes payable to former owners of acquired
businesses and former stockholders of
subsidiaries, maturing at various dates through
February 2002 at interest rates ranging from 6 to
10%............................................... 3,878,355 3,164,835
Notes payable to bank, secured by automobiles,
including interest ranging from 6.25% to 7.25%,
primarily due over three years.................... 84,928 53,623
----------- -----------
Total long-term debt............................. 25,086,311 26,257,650
Less: current installments......................... 3,774,198 4,086,795
----------- -----------
Long-term debt, excluding current installments..... $21,312,113 $22,170,855
=========== ===========

The Company entered into a Note and Warrant Purchase Agreement (the
Agreement) with a limited partnership (the Purchaser) on November 17, 1993.
Under the Agreement, the Company issued to the Purchaser a Senior Note in the
principal amount of $6,500,000 and a Common Stock Purchase Warrant for
1,166,660 shares of the common stock of the Company. Interest on the Senior
Note ranges from 8% to 12% per annum and is payable quarterly. The Senior Note
matures October 31, 1998. The Common Stock Purchase Warrant is exercisable
from November 17, 1993 through October 31, 2000, at a price of $0.01 per
share.

F-12

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UNITED NATURAL FOODS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The $6,500,000 proceeds were recorded as $3,300,000 in long-term debt with
the remaining $3,200,000 recorded as issuance of stock warrants representing
the estimated fair value of the warrants issued. The original issue discount
on the debt will accrete over the life of the loan so that the principal
balance will be $6,500,000 at maturity. The total effective interest rate
including the accretion of the original issue discount is approximately 28%.

The Agreement, as amended, also contains certain restrictive covenants. The
Company was in compliance with these covenants at July 31, 1996.

Aggregate maturities of long-term debt for the next five years and
thereafter are as follows at July 31, 1996:

[Download Table]

1997............................. $ 4,086,795
1998............................. 14,385,413
1999............................. 4,370,979
2000............................. 728,390
2001............................. 398,510
Thereafter....................... 2,287,563
-----------
$26,257,650
===========

(6) PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at:

[Download Table]

OCTOBER 31, JULY 31,
1995 1996
----------- -----------

Land................................................ $ 266,870 $ 266,870
Building............................................ 5,990,939 11,043,261
Leasehold improvements.............................. 2,180,127 1,814,142
Warehouse equipment................................. 3,627,330 5,454,745
Office equipment.................................... 3,217,656 4,075,772
Motor vehicles...................................... 3,985,097 4,669,065
Equipment under capital leases...................... 1,091,979 1,769,139
Construction in progress............................ 874,603 337,507
----------- -----------
21,234,601 29,430,501
Less accumulated depreciation and amortization...... 5,885,915 8,826,838
----------- -----------
Net property and equipment........................ $15,348,686 $20,603,663
=========== ===========

(7) CAPITAL LEASES

The Company leases computer, office and warehouse equipment under capital
leases expiring in various years through 2001. The assets and liabilities
under capital leases are recorded at the lower of the present value of the
minimum lease payments or the fair value of the assets. The assets are
depreciated over the lower of their related lease terms or their estimated
productive lives.

F-13

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UNITED NATURAL FOODS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Minimum future lease payments under capital leases as of July 31, 1996 for
each of the next five fiscal years and in the aggregate are:

[Download Table]

YEAR ENDED JULY 31 AMOUNT
------------------ ----------

1997............................................................. $ 454,217
1998............................................................. 380,220
1999............................................................. 251,894
2000............................................................. 215,915
2001............................................................. 141,116
----------
Total minimum lease payments................................... 1,443,362
Less: Amount representing interest............................... 238,040
----------
Present value of net minimum lease payments.................... 1,205,322
Less: current installments....................................... 357,404
----------
Capital lease obligations, excluding current installments...... $ 847,918
==========

(8) OPERATING LEASES

The Company leases various facilities under operating lease agreements with
varying terms. Most of the leases contain renewal options and purchase options
at several specific dates throughout the terms of the leases.

The Company also leases equipment under master lease agreements. Payment
under these agreements will continue for a period of four years. The equipment
lease agreements contain covenants concerning the maintenance of certain
financial ratios. The Company was in compliance with its covenants at July 31,
1996.

Future minimum annual fixed payments required under non-cancelable operating
leases having an original term of more than one year as of July 31, 1996 are
as follows:

[Download Table]

1997............................. $ 4,352,000
1998............................. 3,980,000
1999............................. 3,648,000
2000............................. 3,020,000
2001............................. 1,764,000
Thereafter....................... 7,313,000
-----------
$24,077,000
===========

Rent and other lease expense for the years ended October 31, 1994 and 1995
totaled approximately $5,207,000 and $5,441,000, respectively. Rent and other
lease expense for the nine months ended July 31, 1996 totaled approximately
$4,667,000.

(9) SALARY REDUCTION/PROFIT SHARING PLANS

The Company has several salary reduction/profit sharing plans, generally
called "401(k) Plans" (the Plan), covering various employee groups. Under this
type of Plan the employees may choose to reduce their compensation and have
these amounts contributed to the Plan on their behalf. In order to become a
participant in the Plan, the employee must meet certain eligibility
requirements as described in the plan document. In addition to amounts
contributed to the Plan by employees, the Company makes contributions to the
Plan on behalf of the employees. The Company contributions to the Plan were
not material for the years ended October 31, 1994 and 1995, and for the nine
months ended July 31, 1996.

F-14

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UNITED NATURAL FOODS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(10) INCOME TAXES

Total Federal and state income tax expense consists of the following:

[Download Table]

CURRENT DEFERRED TOTAL
---------- --------- ----------

Fiscal year ended October 31, 1994:
U.S. Federal............................. $1,452,429 $ 138,000 $1,590,429
State and local.......................... 356,030 24,125 380,155
---------- --------- ----------
$1,808,459 $ 162,125 $1,970,584
========== ========= ==========
Fiscal year ended October 31, 1995:
U.S. Federal............................. $2,079,758 $ 302,052 $2,381,810
State and local.......................... 519,940 28,106 548,046
---------- --------- ----------
$2,599,698 $ 330,158 $2,929,856
========== ========= ==========
Nine months ended July 31, 1996:
U.S. Federal............................. $2,427,429 $(254,587) $2,172,842
State and local.......................... 620,946 (15,667) 605,279
---------- --------- ----------
$3,048,375 $(270,254) $2,778,121
========== ========= ==========

Total income tax expense was different than the amounts computed using the
United States statutory income tax rate applied to income before income taxes
as a result of the following:

[Download Table]

OCTOBER 31,
---------------------- JULY 31,
1994 1995 1996
---------- ---------- ----------

Computed "expected" tax expense......... $1,695,848 $1,881,001 $2,313,162
State and local income tax net of
Federal income tax benefit............. 250,902 361,710 399,484
Merger related expenses................. -- -- 155,743
Non-deductible expenses................. 14,275 20,240 69,871
Non-deductible amortization............. 20,912 478,623 4,714
Other, net.............................. (11,353) 188,282 (164,853)
---------- ---------- ----------
$1,970,584 $2,929,856 $2,778,121
========== ========== ==========

F-15

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UNITED NATURAL FOODS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The tax effects of temporary differences that give rise to significant
portions of the net deferred tax assets and deferred tax liabilities at
October 31, 1995 and July 31, 1996 are presented below:

[Download Table]

OCTOBER 31, JULY 31,
1995 1996
----------- ---------

Deferred tax assets:
Inventories, principally due to additional costs
inventoried for tax purposes..................... $ 402,168 $ 421,099
Rents deducted for book purposes in excess of
tax.............................................. 28,586 27,732
Financing costs................................... 33,244 24,662
Intangible assets................................. 258,905 221,242
Deferred compensation............................. -- 400,896
Accrued vacation.................................. 50,000 59,048
Accounts receivable, principally due to allowances
for uncollectible accounts....................... 280,000 280,693
Other............................................. 125,545 165,141
--------- ---------
Total gross deferred tax assets................. 1,178,448 1,600,513
Less valuation allowance............................ -- --
--------- ---------
Net deferred tax assets......................... 1,178,448 1,600,513
--------- ---------
Deferred tax liability:
Plant and equipment, principally due to
differences in depreciation...................... 491,889 536,295
Reserve for LIFO inventory method................. 507,018 675,348
Other............................................. 60,925 --
--------- ---------
Total deferred tax liabilities.................. 1,059,832 1,211,643
--------- ---------
Net deferred tax assets............................. $118,616 $388,870
========= =========
Current deferred income tax assets.................. $ 480,754 $ 796,216
Non-current deferred income tax liability........... (362,138) (407,346)
--------- ---------
$ 118,616 $ 388,870
========= =========

In assessing the recoverability of deferred tax assets, the Company
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Due to the fact that the Company has
sufficient taxable income in the federal carryback period and anticipates
sufficient future taxable income over the periods which the deferred tax
assets are deductible, the ultimate realization of deferred tax assets for
federal and state tax purposes appears more likely than not.

(11) EMPLOYEE STOCK OWNERSHIP PLAN

The Company adopted the Cornucopia Natural Foods, Inc. (predecessor company)
Employee Stock Ownership Plan (the Plan) for the purpose of acquiring
outstanding shares of the Company for the benefit of eligible employees. The
Plan was effective as of November 1, 1988 and has received notice of
qualification by the Internal Revenue Service.

In connection with the adoption of the Plan, a Trust was established to hold
the shares acquired. On November 1, 1988, the Trust purchased 40% of the
outstanding Common Stock of the Company at a price of $4,080,000. The trustees
funded this purchase by issuing promissory notes to the initial stockholders,
with the ESOT shares pledged as collateral. These notes bear interest at 10%
and are payable through May 2015. As the debt is repaid, shares are released
from collateral and allocated to active employees, based on the proportion of
debt service paid in the year.

F-16

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UNITED NATURAL FOODS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants issued Statement of Position 93-6, "Employers'
Accounting for Employee Stock Ownership Plans," in November 1993. The
statement provides guidance on employers' accounting for ESOPs and is required
to be applied to shares purchased by ESOPs after December 31, 1992, that have
not been committed to be released as of the beginning of the year of adoption.
In accordance with SOP 93-6, the Company elected not to adopt the guidance in
SOP 93-6 for the shares held by the ESOP, all of which were purchased prior to
December 31, 1992. The debt of the ESOP is recorded as debt and the shares
pledged as collateral are reported as unearned ESOP shares in the Consolidated
Balance Sheets. During 1994, 1995 and 1996, contributions totaling
approximately $509,000, $492,000 and $358,000, respectively, were made to the
Trust. Of these contributions, approximately $346,000, $328,000 and $235,000,
respectively, represented interest.

The ESOP shares were classified as follows:

[Download Table]

OCTOBER 31, JULY 31,
1995 1996
----------- ---------

Allocated shares...................................... 396,000 484,000
Shares released for allocation........................ 88,000 66,000
Shares distributed to employees....................... -- (20,405)
Unreleased shares..................................... 1,716,000 1,650,000
--------- ---------
Total ESOP shares................................... 2,200,000 2,179,595
========= =========

The fair value of unreleased shares was approximately $15,900,000 at July
31, 1996. Employees have the option of putting their shares back to the
Company upon leaving employment.

(12) LITIGATION

The Company may from time to time be involved in various claims and legal
actions arising in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will not have a material
adverse effect on the Company's consolidated financial position or results of
operations.

(13) INITIAL PUBLIC OFFERING

In connection with a proposed initial public offering of shares of Common
Stock, on August 30, 1996, the Board of Directors adopted, and the
stockholders approved, an amendment to the Company's certificate of
incorporation increasing the number of authorized shares of Common Stock from
200,000 to 25,000,000 and stating the par value of such shares as $0.01, and
the Company effected a fifty-five-for-one split of its issued and outstanding
Common Stock. All share, option and warrant and per share data presented in
the accompanying consolidated financial statements have been restated to
reflect the increased number of authorized and outstanding shares of Common
Stock.

F-17

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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of
Prem Mark, Inc.:

We have audited the accompanying balance sheet of Prem Mark, Inc. as of
December 31, 1994 and the related statements of income, stockholder's
investment and cash flows for the fifty-three weeks then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Prem Mark, Inc. as of
December 31, 1994 and the results of its operations and its cash flows for the
fifty-three weeks then ended in conformity with generally accepted accounting
principles.

ARTHUR ANDERSEN LLP

Denver, Colorado
March 9, 1995

F-18

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PREM MARK, INC.

BALANCE SHEET
DECEMBER 31, 1994

[Download Table]

ASSETS
Current assets:
Cash............................................................ $ 850
Accounts receivable, net of allowance for uncollectible accounts
of approximately $58,000....................................... 2,415,608
Inventories..................................................... 4,002,266
Prepaid expenses and other current assets....................... 109,542
Current portion of notes receivable (note 3).................... 54,620
-----------
Total current assets.......................................... 6,582,886
-----------
Property and equipment:
Land............................................................ 361,425
Buildings....................................................... 1,600,939
Equipment, furniture and fixtures............................... 1,501,022
Equipment and vehicles under capital leases (note 4)............ 100,069
Motor vehicles.................................................. 109,376
-----------
3,672,831
Less--accumulated depreciation and amortization................. (1,067,265)
-----------
2,605,566
-----------
Notes receivable (note 3)......................................... 52,870
Other assets...................................................... 8,844
-----------
$ 9,250,166
===========
LIABILITIES AND STOCKHOLDER'S INVESTMENT
Current liabilities:
Accounts payable and accrued expenses........................... $ 3,110,193
Current portion of obligations under capital leases (note 4).... 23,934
Current portion of related party notes payable (note 5)......... 247,906
Current portion of line of credit and other (note 5)............ 867,053
-----------
Total current liabilities..................................... 4,249,086
Obligations under capital leases (note 4)......................... 18,029
Related party notes payable (note 5).............................. 2,342,317
Line of credit and other (note)................................... 62,017
-----------
Total liabilities............................................. 6,671,449
-----------
Stockholder's investment (note 6):
Common stock, $1 par value; 5,000 shares authorized; 1,000
shares issued; 264 shares outstanding.......................... 1,000
Additional paid-in capital...................................... 270,693
Retained earnings............................................... 3,689,278
-----------
3,960,971
Less--Treasury stock, 736 shares, at cost......................... (1,382,254)
-----------
Total stockholder's investment................................ 2,578,717
-----------
$ 9,250,166
===========

The accompanying notes are an integral part of this financial statement.

F-19

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PREM MARK, INC.

STATEMENT OF INCOME
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994

[Download Table]

Net sales (note 8)................................................. $47,068,475
Cost of sales...................................................... 38,564,949
-----------
Gross profit................................................... 8,503,526
-----------
Operating expenses:
Salaries and benefits............................................ 4,709,735
Occupancy........................................................ 262,141
Vehicle.......................................................... 840,976
Legal and professional........................................... 61,875
Advertising and promotion........................................ 119,414
Depreciation and amortization.................................... 319,907
Maintenance and repairs.......................................... 122,930
Postage and supplies............................................. 147,465
Travel........................................................... 80,685
Equipment rental................................................. 7,974
Other............................................................ 219,599
-----------
Total operating expenses....................................... 6,892,701
-----------
Operating income............................................... 1,610,825
-----------
Nonoperating income (expense):
Interest expense, net............................................ (280,723)
Other............................................................ 162,764
-----------
Total nonoperating expense..................................... (117,959)
-----------
Net income..................................................... $ 1,492,866
===========

The accompanying notes are an integral part of this financial statement.

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PREM MARK, INC.

STATEMENT OF STOCKHOLDER'S INVESTMENT
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994

[Enlarge/Download Table]

COMMON STOCK ADDITIONAL TREASURY STOCK
------------- PAID-IN RETAINED ------------------
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT TOTAL
------ ------ ---------- ----------- ------ ----------- -----------

Balances, December 25,
1993................... 1,000 $1,000 $270,693 $ 3,196,412 (736) $(1,382,254) $ 2,085,851
Net income............. -- -- -- 1,492,866 -- -- 1,492,866
Distributions to
stockholder........... -- -- -- (1,000,000) -- -- (1,000,000)
----- ------ -------- ----------- ---- ----------- -----------
Balances, December 31,
1994................... 1,000 $1,000 $270,693 $ 3,689,278 (736) $(1,382,254) $ 2,578,717
===== ====== ======== =========== ==== =========== ===========

The accompanying notes are an integral part of this financial statement.

F-21

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PREM MARK, INC.

STATEMENT OF CASH FLOWS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994

[Download Table]

Cash flows from operating activities:
Cash received from customers.................................... $ 46,902,709
Cash paid to suppliers and employees............................ (45,957,900)
Interest received............................................... 14,566
Interest paid................................................... (295,289)
------------
Net cash provided by operating activities.................... 664,086
------------
Cash flows from investing activities:
Capital expenditures............................................ (300,980)
Proceeds from sales of assets................................... 2,274
Collection of notes receivable.................................. 88,674
------------
Net cash used in investing activities........................ (210,032)
------------
Cash flows from financing activities:
Borrowing from line of credit................................... 939,171
Principal payments on line of credit............................ (200,000)
Principal payments on notes payable, primarily related party.... (224,941)
Principal payments on capital lease obligations................. (21,941)
Distributions to stockholder.................................... (1,000,000)
------------
Net cash used in financing activities........................ (507,711)
------------
Net decrease in cash and cash equivalents........................ (53,657)
Cash and cash equivalents, at beginning of year.................. 54,507
------------
Cash and cash equivalents, at end of year........................ $ 850
============
Reconciliation of net income to net cash provided by operating
activities:
Net income...................................................... $ 1,492,866
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.................................. 319,907
Loss on sales of assets........................................ 1,464
Change in operating assets and liabilities:
Increase in accounts receivable, net.......................... (480,703)
Increase in inventories....................................... (561,358)
Increase in prepaid expenses and other current assets......... (36,092)
Decrease in other assets...................................... 11,000
Decrease in accounts payable and accrued expenses............. (82,998)
------------
Net cash provided by operating activities.................... $ 664,086
============

The accompanying notes are an integral part of this financial statement.

F-22

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PREM MARK, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1994

(1) CORPORATION ORGANIZATION

Prem Mark, Inc. (the "Company"), is wholly owned by The Onae Trust (a
Qualified Subchapter S Trust). The Company operates as a distributor of health
foods and related products.

The Company's fiscal year end is the last Saturday of each calendar year.
Fiscal 1994 is fifty-three weeks in duration.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Cash and Cash Equivalents

The Company considers all highly liquid instruments with original maturities
of three months or less to be cash equivalents.

(b) Inventories

Inventories consist primarily of food inventory held by the Company for
resale in the normal course of business and are valued at the lower of cost
(first-in, first-out basis) or market.

Land, buildings and equipment are stated at cost or, in the case of assets
under capital leases, at the lower of the present value of future minimum
lease payments or fair market value. Depreciation is provided using the
straight-line method. All equipment, furniture, fixtures and vehicles are
depreciated over a useful life of two to ten years except for buildings which
are depreciated over thirty years.

(d) Income Taxes

The Company has elected to be taxed under Subchapter S of the Internal
Revenue Code. Taxable income is the responsibility of the Company's
stockholder. Accordingly, no provision has been made for federal or state
income taxes in the accompanying financial statements. Additionally, the book
and tax bases of the assets are not substantially different at December 31,
1994.

(e) Risk Concentration

The accounts receivable potentially subject the Company to concentrations of
credit risk. The Company's customers include major natural food grocery stores
and other large food chain stores as well as smaller, local natural food
stores. The Company continuously evaluates the credit worthiness of its
customers' financial condition.

(f) Use of Estimates

F-23

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PREM MARK, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(3) NOTES RECEIVABLE

Notes receivable consist of the following at December 31, 1994:

[Download Table]

Note receivable from sale of retail store, at 9%, receivable in
monthly installments, maturing February 1, 1997, secured by
substantially all operating assets related to
the store........................................................ $ 93,988
Note receivable from sale of retail store, at 9%, receivable in
monthly installments, maturing March 1, 1995, secured by
substantially all operating assets related to the store.......... 13,502
--------
107,490
Less current maturities........................................... (54,620)
--------
$ 52,870
========

The following is a schedule of maturities for fiscal years ending after
December 31, 1994:

[Download Table]

1995................................ $ 54,620
1996................................ 44,975
1997................................ 7,895
--------
$107,490
========

(4) LEASES

(a) Capital Leases

The Company has leased certain equipment and vehicles under capital leases.
The leases provide for payment of fixed monthly rentals over various lease
terms. The Company's obligations under these leases are secured by the related
assets.

The December 31, 1994, future minimum payments under capital lease
obligations were as follows:

[Download Table]

FUTURE
MINIMUM
LEASE
PRINCIPAL INTEREST PAYMENTS
--------- -------- --------

1995............................................. $23,934 $3,285 $27,219
1996............................................. 18,029 621 18,650
------- ------ -------
$41,963 $3,906 $45,869
======= ====== =======

(b) Operating Leases

The Company leases significantly all its distribution fleet vehicles under
operating leases. The leases expire at various times between 1995 and 2003.
Total lease expense was $555,590 in fiscal year 1994.

At December 31, 1994, future minimum lease payments under operating leases
were as follows:

[Download Table]

1995.............................. $ 281,736
1996.............................. 213,126
1997.............................. 183,888
1998.............................. 176,352
1999.............................. 138,672
Thereafter........................ 376,504
----------
$1,370,278
==========

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PREM MARK, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(5) RELATED PARTY NOTES PAYABLE, LINE OF CREDIT AND OTHER

On March 14, 1994 and May 9, 1994, the Company borrowed $13,342 and $10,880,
respectively, from a commercial lender for the purpose of purchasing two
Company vehicles. The notes payable, which are secured by the vehicles
purchased, each require monthly payments of principal and interest at a rate
of 7.5% and 8.25% per annum, respectively. The amount borrowed must be paid in
full five and four years, respectively, from the date of borrowing.

On September 30, 1994, the Company entered into a $1,000,000 revolving line
of credit and a $500,000 term facility loan with a bank to fund working
capital and purchase equipment, respectively. Draws under the line of credit
are limited to the lesser of $1,000,000 or the amount of eligible accounts
receivable, as defined. The line of credit accrues interest on the principal
amount outstanding at the bank's prime rate (8.5% at December 31, 1994) plus
1% and is payable monthly. The line of credit facility expires on September
30, 1995, and amounts drawn must be repaid on that date. The line of credit is
secured by accounts receivable. The term facility loan accrues interest at the
same rate as the line of credit. The Company may borrow under this loan until
September 30, 1995. As of December 31, 1994, $908,305 was outstanding on the
line of credit and term facility loan.

At December 31, 1994, notes payable and line of credit consisted of the
following:

[Download Table]

Stock redemption notes payable (note 6):
Notes payable to a related trust dated April 30, 1986,
interest at 10%, monthly payments applied first to interest
and then to principal, maturity May 1, 2006.................. $ 276,079
Notes payable to the trustee of a trust related to The Onae
Trust dated April 30, 1986, interest at 10%, monthly payments
applied first to interest and then to principal, maturity May
1, 2006...................................................... 333,612
-----------
609,691
-----------
Building and equipment notes payable:
Note payable to the chairman of the board dated September 30,
1991, interest at 9% (after April 1, 1997, note holder may
increase the interest rate up to 10%), payable in monthly
installments, maturity at December 1, 2008, collateralized by
deed of trust on the warehouse facility...................... 1,436,736
Note payable to the chairman of the board dated March 31,
1992, interest at 9% (after April 1, 1997, note holder may
increase the interest rate up to 10%), payable in monthly
installments, maturity at March 30, 1999, collateralized by
related warehouse equipment financed......................... 543,796
-----------
1,980,532
-----------
Vehicle loans.................................................. 20,765
Line of credit................................................. 908,305
-----------
Total notes payable and line of credit....................... 3,519,293
Less current maturities...................................... (1,114,959)
-----------
$ 2,404,334
===========

F-25

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PREM MARK, INC.

NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)

The following is a schedule of maturities of long-term debt for fiscal years
ending after December 31, 1994:

[Download Table]

1995.............................. $1,114,959
1996.............................. 306,094
1997.............................. 328,231
1998.............................. 353,030
1999.............................. 250,713
Thereafter........................ 1,166,266
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$3,519,293
==========

(6) RELATED PARTY TRANSACTIONS

In connection with a stock redemption agreement entered into effective April
30, 1986, the Company acquired 736 shares of its outstanding common stock in
exchange for the notes payable discussed above. The reacquired common stock is
reflected in the accompanying balance sheets as treasury stock and is stated
at its cost of $1,382,254. Interest paid to these former shareholders totaled
$62,995 in fiscal 1994.

In fiscal years 1992 and 1991, the Company borrowed certain amounts from the
chairman of the Company's board of directors to finance the acquisition of a
warehouse and related equipment and for working capital purposes. Interest
paid by the Company to this individual totaled $187,088 in fiscal year 1994.

(7) 401(K) PLAN

Beginning January 1, 1992, the Company adopted a 401(k) retirement and
savings plan (the "Plan"). The Plan is a defined contribution plan covering
all employees with over 1,000 hours of annual service with the Company. The
Company is not required to contribute to the Plan. In fiscal 1994, the Company
expensed an estimated contribution of $57,826. In order to share in the
Company's contribution, an employee need not make any cash or deferred
contributions.

(8) MAJOR CUSTOMERS

The Company has two major retail customers which comprised more than 10% of
sales each. Sales to these two customers were $11,705,806 and $9,119,177 in
fiscal 1994. Related accounts receivable to these two customers were $637,321
and $672,993 at December 31, 1994.

F-26

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PREM MARK, INC.

STATEMENT OF INCOME

FOR THE PERIOD FROM JANUARY 1, 1995 TO JULY 29, 1995
UNAUDITED

[Download Table]

Net sales............................................................... $29,253,287
Cost of sales........................................................... 24,121,108
----------
Gross Profit....................................................... 5,132,179
----------
Operating expenses:
Salaries and benefits.................................................. 3,017,778
Occupancy.............................................................. 152,426
Vehicle................................................................ 532,383
Legal and professional................................................. 369,713
Advertising and promotion.............................................. 81,743
Depreciation........................................................... 202,324
Maintenance and repairs................................................ 75,021
Postage and supplies................................................... 116,105
Travel................................................................. 50,515
Equipment rental....................................................... 13,662
Other.................................................................. 96,607
----------
Total operating expenses........................................... 4,708,277
----------
Operating income................................................... 423,902
----------
Nonoperating income (expense):
Interest expense, net.................................................. (173,058)
Other, net............................................................. 8,107
----------
Total nonoperating expense......................................... (164,951)
----------
Net income.............................................................. $ 258,951
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F-27

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[Graphic consists of six photographs depicting a sampling of the more than
25,000 products offered by United Natural Foods, including grocery and general
merchandise, personal care, frozen foods, beverages, perishables and nutritional
supplements.]

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NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RE-
LATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THOSE TO WHICH
IT RELATES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OF-
FER IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY
THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.

---------------

TABLE OF CONTENTS

[Download Table]

PAGE
----

Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
The Company.............................................................. 10
Use of Proceeds.......................................................... 12
Dividend Policy.......................................................... 12
Capitalization........................................................... 13
Dilution................................................................. 14
Selected Consolidated Financial Data..................................... 15
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 16
Business................................................................. 23
Management............................................................... 36
Certain Transactions..................................................... 43
Principal and Selling Stockholders....................................... 45
Description of Capital Stock............................................. 47
Shares Eligible for Future Sale.......................................... 50
Underwriting............................................................. 52
Legal Matters............................................................ 53
Experts.................................................................. 53
Additional Information................................................... 53
Index to Financial Statements............................................ F-1

UNTIL NOVEMBER 26, 1996 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPAT-
ING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

2,900,000 SHARES

LOGO

COMMON STOCK

-------

P R O S P E C T U S

November 1, 1996

-------

SMITH BARNEY INC.

OPPENHEIMER & CO., INC.

ROBERTSON, STEPHENS & COMPANY

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--------------------------------------------------------------------------------
LOGO
LOGO

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Dates Referenced Herein and Documents Incorporated by Reference

		Referenced-On Page
This ‘424B4’ Filing	Date	First	Last	Other Filings

	5/1/15	67
	12/1/08	80
	5/1/06	80
	7/31/01	43		10-K
	12/31/00	40
	11/17/00	53
	10/31/00	45	67	10-Q
	7/31/00	43		10-K, 10-K/A
	7/31/99	43		10-K
	3/30/99	80
	11/16/98	41
	10/31/98	14	67	10-Q
	7/31/98	14	67	10-K
	11/17/97	45
	4/1/97	80
	2/1/97	79
	11/26/96	84
	11/17/96	45
	11/6/96	1
Filed on:	11/1/96	1	84
	10/7/96	45
	8/30/96	57	72
	7/31/96	5	72
	7/29/96	42	66
	4/30/96	23
	2/20/96	19	46
	1/31/96	23	65
	11/1/95	64
	10/31/95	5	71
	9/30/95	80
	7/31/95	17	21
	7/29/95	19	82
	5/22/95	19
	3/9/95	73
	3/1/95	79
	1/1/95	56	82
	12/31/94	55	81
	11/1/94	66
	10/31/94	5	70
	9/30/94	80
	8/23/94	45
	5/9/94	80
	3/14/94	80
	12/25/93	76
	11/17/93	39	67
	11/1/93	60
	10/31/93	5	17
	12/31/92	24	72
	10/31/92	5	17
	8/17/92	46
	3/31/92	80
	1/1/92	81
				List all Filings

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Filing Submission 0000927016-96-001479 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

United Natural Foods Inc – IPO: ‘424B4’ on 11/1/96

As of: Friday, 11/1/96 · Accession #: 927016-96-1479 · File #: 333-11349

Initial Public Offering (IPO): Prospectus — Rule 424(b)(4)Filing Table of Contents

Document Table of Contents

Dates Referenced Herein and Documents Incorporated by Reference

Initial Public Offering (IPO): Prospectus — Rule 424(b)(4)
Filing Table of Contents