Agreement For Distribution of Product

CONFIDENTIAL TREATMENT REQUESTED**

ATTACHMENT 2

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

AGREEMENT FOR DISTRIBUTION OF PRODUCTS



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

RECITALS

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



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

AGREEMENT

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

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

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

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

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








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




***CONFIDENTIAL TREATMENT REQUESTED**



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



3. Products. (a) Authorized List. (a) WO has provided to UNFI an Authorized Product List ("APL"), DC by DC, which, as modified from time to time, will be the complete list of the only Products authorized to be distributed to the Stores by UNFI. WO shall have the obligation to purchase, on a monthly basis, not less than (i) [CONFIDENTIAL] (2) per DC for grocery, chilled and frozen Products, and (ii) [CONFIDENTIAL] (3) cases per DC for repack, health and beauty Products (including all body care Products) and vitamins, minerals, supplements and homeopathic remedies (the "Velocity Requirement") of each Product on the APL which is carried by UNFI solely for distribution to WO Stores, exclusive of Private Label Products (the "Exclusive Products"). Notwithstanding the foregoing, the parties agree that the Velocity Requirement for Products purchased by WO from the New Oxford, PA and Chesterfield, NH DCs shall be established by the parties six months after the Effective Date, based upon a review of WO92s purchasing volumes and Product velocities during the first six months92 purchasing from such DCs. Calculation whether a Product meets the Velocity Requirement shall include all orders placed by WO, including those not filled as a result of manufacturer or UNFI out-of-stocks ("OOS").

(b) WO shall have final determination of items on the APL; provided, however, that the following Products shall not be included within the APL without UNFI92s consent, not to be unreasonably withheld, conditioned or delayed: (i) Products that do not meet the product standards set forth on Exhibit A (the "Product Standards"); or (ii) SKUs of Exclusive Products and WO Private Label in excess of [CONFIDENTIAL] (4) (the "Exclusive/PL Product SKU limit").

(c) APL Additions and Deletions .

(i) WO may require the addition of Products to the APL upon written notice to UNFI specifying the Products to be added, the Stores designated to purchase such Products and the estimated weekly purchases of the Products by the designated Stores; provided, however, that Products will not be added to the APL without UNFI92s consent, not to be unreasonably withheld: (i) if the Products do not meet the Product Standards; (ii) if the Exclusive/PL Product SKU limit will be exceeded; and (iii) until adequate inventory of the Product shall be available in all UNFI servicing divisions, as determined by UNFI, based on the estimated weekly purchases provided by WO. At the time WO gives notice to UNFI adding Products to the APL, UNFI shall notify WO if the added Products will be Exclusive Products. Notwithstanding the foregoing, all Products identified for addition to the APL that do not require consent pursuant to the criteria set forth above shall be added to the APL within 21 days after receipt of written notice of their addition from WO. If UNFI does not have such new Products available for distribution to WO Stores within 21 days after addition to the APL for other than Force Majeure events, WO may include orders of the new Products for purposes of the calculation under Section 14 (Out of Stock Calculation) below and such other obligations of UNFI hereunder regarding delivery of Products.






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

(3) Ibid.

(4) Ibid.




***CONFIDENTIAL TREATMENT REQUESTED**



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

(iii) [CONFIDENTIAL] (5),:

(1) [CONFIDENTIAL] (6), or

(2) [CONFIDENTIAL] (7),

WO shall have no obligation to purchase any of the foregoing Products which are deleted from the APL at UNFI92s request for reasons other than a failure of such Products to meet the Velocity Requirement, unless WO agrees to such purchase.

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






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

(6) Ibid

(7) Ibid.






***CONFIDENTIAL TREATMENT REQUESTED**



(d) Private Label Products.

(i) [CONFIDENTIAL] (8)

(ii) UNFI will carry any WO Private Label Products requested by WO, provided that each WO Private Label Product sells well enough to turn one inventory turn: (A) [CONFIDENTIAL] (9) for Products which are imported from outside of the continental United States, and (B) [CONFIDENTIAL] (10) for Products which are shipped from manufacturers within the continental United States. At the end of the inventory turn periods specified in (A) and (B) above, UNFI shall notify WO of the amount of inventory of any Product not meeting the turn periods, and [CONFIDENTIAL] (11). WO shall use its best efforts to sell through inventory remaining beyond the turn periods within CONFIDENTIAL] (12) after the end of the applicable turn period (the "Sell Through Period") or may elect to have the inventory "plussed out" (shipped) to the Stores on a logistics schedule supplied by WO. If inventory not moving within the turn periods remains in the DCs for more than [CONFIDENTIAL] (13) after the end of the turn periods, [CONFIDENTIAL] (14). To the extent a Private Label Product does not sell within the foregoing turn periods, the parties shall review the Product on a case-by-case basis, and shall mutually determine whether to remove it from the APL. UNFI shall hold the inventories of WO Private Label in the three DCs listed on Exhibit C hereto, and in additional DCs as Private Label Product velocity may warrant. "WO Private Label Products" shall mean those products that Wild Oats offers from time to time in its Stores under Wild Oats92 proprietary labels (including "Wild Oats", "Henry92s", "Sun Harvest" and such other tradenames or marks used by WO from time to time). UNFI covenants not to sell, and to take commercially reasonable efforts to prevent the sale of any WO Private Label Products by UNFI to any distribution network, stores, or persons not approved in advance by WO. UNFI agrees to fully cooperate with WO in any investigation and litigation originated by WO over such unauthorized sales. UNFI shall bear the cost of retrieval of any WO Private Label Product sold in unauthorized sales by UNFI.

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



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






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

(9) Ibid.

(10) Ibid.

(11) I bid.

(12) Ibid.

(13) Ibid.

(14) Ibid.

(15) Ibid.






***CONFIDENTIAL TREATMENT REQUESTED**



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

(b) At the end of each of WO92s fiscal quarters, [CONFIDENTIAL] (17)

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

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

(v) If there has been a Force Majeure event during any Fiscal Quarter that materially affects WO92s ability to purchase or UNFI92s ability to sell Products, the Quarterly Run Rate Volume shall not be reduced, but the [CONFIDENTIAL] (19) minimum purchase level referenced under Section 2(b) above for any calendar year shall be reduced by an amount based on the purchases from those Stores impacted by the Force Majeure event from other distributors, or estimated purchases in the event the Stores are unable to operate and the length of time that the Force Majeure event continues to disrupt operations at such Stores or DCs.



(c) Modification of Pricing.

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

(ii) UNFI may only increase the prices for Products referenced in this Section 4 if there is an actual per item price increase from the manufacturer. Price increases shall only be effective after [CONFIDENTIAL] (20) electronic notification to WO. UNFI shall reduce or increase the prices for Products if there is an actual per item price decrease or increase, as applicable, from the manufacturer in accordance with manufacturer deal periods. Price decreases shall be effective within [CONFIDENTIAL] (21) from the reduction in pricing by the manufacturer to UNFI. All published vendor deals (advertised to wholesalers and retailers), pricing and promotional discounts, will be passed dollar for dollar directly to WO as and when received by UNFI as a reduction in pricing subject to vendor performance requirements being met. Notwithstanding the foregoing, UNFI92s or WO92s new item set up discounts and policies will be mutually supported.






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

(17) Ibid.

(18) Ibid.

(19) Ibid.

(20) Ibid.

(21) Ibid.






***CONFIDENTIAL TREATMENT REQUESTED**



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

(d) Freight Costs to the Stores.

(i) WO shall pay a freight charge for delivery of Product from each UNFI distribution center to the Stores. The freight charge shall be a percentage, as set forth on Exhibit E to this Agreement, of Product Cost. Freight will be shown separately on each Product invoice from the cost of the Product delivered. WO shall be under no obligation to pay higher net freight costs that result from UNFI92s election to close any distribution centers that were operating on the date of this Agreement, and any increase in freight charges resulting from such closure or reassignment of more Stores to other DCs shall be the responsibility of UNFI. In the event that federal or state regulations regarding hours of service for drivers are implemented that result in substantial increases in freight costs over those costs represented by the percentages set forth on Exhibit E , the parties shall review the actual costs and make such adjustments to Exhibit E to cover the incremental cost increases allocated to WO92s business as a result of such implementation.

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

(e) Inclusions of Items on Invoices. WO shall send its suggested specific Store retail pricing for the Products to UNFI in a mutually agreeable format at mutually agreed times. UNFI will print such pricing on all appropriate WO documents. The mechanics of such arrangement are set forth in Exhibit G attached to this Agreement. Each invoice from UNFI for Product delivered to the Stores shall show the cost of the item per unit specified, the freight costs and, to the extent UNFI92s computer systems may include such information, the retail price at which WO sells the Product and margin received at such price, as reflected in WO92s data. UNFI shall have no liability to WO hereunder for loss arising out of errors in WO92s data.




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

(23) Ibid.

(24) Ibid.

(25) Ibid.






***CONFIDENTIAL TREATMENT REQUESTED**



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

(g) Cross-Dock Billing. UNFI will, from time to time, and based on UNFI space availability, ship non-APL Product, for pallet and shipper displays only, on a cross-dock basis (as opposed to "bill to, ship to") for WO. UNFI shall charge WO [CONFIDENTIAL] (26) shipped on a cross-dock basis, and [CONFIDENTIAL] (27). UNFI shall not unreasonably withhold its consent to cross-dock arrangements established by WO, based on space availability per DC. WO shall give UNFI 45-day prior notice of any proposed cross-dock arrangement. Within 15 days prior to the actual shipment pursuant to the cross dock arrangement, WO shall provide the weight, volume and pallet count of the cross-docked Products per Store. All cross-docked Products received from the manufacturer shall be accompanied by a bill of lading, shall identify that the shipment is for WO, and shall identify the Store to which the Product is to be shipped. UNFI shall deliver the cross-docked Products on the next scheduled shipment to the Store, space permitting but, as to Wild Oats Stores only (not as to Henry92s or Sun Harvest Stores) shall not ship cross-docked Products in the first week of any WO promotional period.



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

(b) Transition Personnel . As part of the transition of distribution purchasing from WO92s current primary distributor to UNFI, UNFI and WO recognize that certain existing shelf tags for certain items on the APL must be replaced. [CONFIDENTIAL] (30). The timetable for the completion of all retagging, and the process by which retagging will proceed, will occur over a nine-month period on a timetable mutually agreeable to the parties.

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




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

(27) Ibid.

(28) Ibid.

(29) Ibid.

(30) Ibid






***CONFIDENTIAL TREATMENT REQUESTED**



(d) Electronic Ordering Equipment . As part of the retagging process of existing Stores, UNFI shall loan to each Store three electronic store order units, and shall train all department managers, the scanning coordinator and the designated person for order placement at Store level on the use of the equipment. Upon full implementation of WO92s backdoor receiving project, WO shall return to UNFI two of the three electronic ordering units provided by UNFI at each Store. Any malfunctioning units shall be repaired or replaced, at UNFI92s sole election, within 72 hours after UNFI92s receipt of notification by WO, provided that WO shall provide UNFI with specific information as to any malfunctioning. WO shall be responsible for malfunctioning caused by the gross negligence of WO employees. UNFI shall provide three, or more based on Store size if requested by WO, units to each new Store, and shall train the aforesaid new Store personnel in the use of the equipment, within 21 days prior to the opening of the new Store; provided that WO shall have given UNFI 90 days92 prior written notice of new Store openings to facilitate the programming of the equipment and the training of personnel and WO makes such personnel available to UNFI at mutually agreed upon dates, times and places. WO is currently testing and plans to implement in the future a new order taking technology as part of its back door receiving program.

(e) [CONFIDENTIAL] (31)

6. Product Quantity: (a) Quantities. UNFI agrees to sell to WO and supply WO with APL Products, throughout the Term of the Agreement, in the quantities ordered by WO in its sole discretion. The parties have established two [CONFIDENTIAL] (32) minimum order quantities for each Store based on Store volume, frequency of delivery, etc., as set forth on Exhibit H attached hereto. The parties shall review the schedule semi-annually and shall move Stores92 minimum order quantities from one order quantity category to the other based on market conditions and competitive impacts. WO may be charged a [CONFIDENTIAL] (33) charge for deliveries not meeting the minimum order requirement size.

(b) Shipment of Booked Orders. If WO has (i) pre-ordered specified quantities of Product for a promotional event and has given UNFI 45 days notice, or (ii) completed a forward buy negotiation with a manufacturer for Product meeting the requirements set forth in (c) below, and UNFI has accepted the orders, UNFI shall deliver the booked quantities of Products to the WO Stores per WO92s Product orders. For inventory not falling within the definitions of (i) and (ii) above, if UNFI has stocking issues, UNFI will ship all customers on an equal first come, first serve basis.

(c) [CONFIDENTIAL] (34) .






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

(32) Ibid.

(33) Ibid.

(34) Ibid.






***CONFIDENTIAL TREATMENT REQUESTED**



7. UNFI Covenants Concerning Facilities; Delivery Standards.

(a) Standards for Facilities. UNFI warrants and covenants that all UNFI participating distribution centers will be maintained and operated in all material respects in accordance with UNFI warehousing and delivery standards, which will be available for review upon request by WO. WO may inspect the physical plant of any distribution center during normal business hours upon reasonable advance notice to the designated UNFI personnel, but shall not impair or impede the business operations of the center. With WO92s consent, not to be unreasonably withheld, UNFI shall have the right to move service for groups of Stores from one facility to another, provided the new facility has the ability to adequately service the Stores, UNFI has given WO at least 60 days notice of the proposed modification and obtained WO92s consent, such move shall not result in an incremental increase in cost to WO, and the parties have had the opportunity to prepare and implement a plan for transition to the new DC.

(b) Covenants for Delivery. UNFI shall:

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

(ii) at UNFI92s election, transport ordered Product on UNFI fleet or WO approved carriers to individual Stores. UNFI shall comply with any regional or national, as applicable, limitations or guidelines regarding deliveries (e.g., municipal, residential or property owner imposed restrictions on delivery hours, parking of trucks, unacceptable levels of noise in residential areas, etc.) of which WO has provided notice.

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

(c) Delivery Windows . Exhibit I sets forth the following information per Store: (a) estimated shipment volumes per delivery location; (b) municipal, residential or property owner imposed restrictions on delivery hours, parking of trucks, delivery routes, curfews, noise ordinances, lease covenants, neighborhood covenants and operating hours. In the event of changes in these restrictions, WO shall provide updated information and the parties shall evaluate such information and make such scheduling changes as necessary to comply with any restrictions so imposed. UNFI will apply its routing system to prepare a routing and constraint analysis, taking into account, in order of priority, (a) Store delivery restrictions such as curfews, ordinances, neighborhood covenants, landlord regulations, (b) WO desired delivery times, (c) UNFI92s route departure schedule, (d) UNFI warehouse and transportation operating constraints such as shift schedules. The routing schedule




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








***CONFIDENTIAL TREATMENT REQUESTED**



(the "Delivery Schedule") adopted based on the routing and constraint analysis will define the following: (1) each Store92s days of delivery per week, (2) the hours of the delivery window for each store delivery, (3) delivery days and delivery windows per day for special promotional events, and (4) delivery days and delivery windows for holiday week shipments. After the initial development of the Delivery Schedule, a designated WO employee and UNFI will meet monthly, if requested by WO or UNFI, or quarterly, if no monthly meetings are held, to review the Schedule and make any necessary modifications. [CONFIDENTIAL] (36).



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



(e) Quality Standards. Products will be delivered palletized and shrink-wrapped and meet WO's Quality Standards as to damage, rodent or insect presence, and other quality standards attached as Exhibit K to this Agreement. The parties will comply with the mutually agreeable pallet exchange program described on Exhibit L . In the event that any Product is recalled or withdrawn (the "Recalled Product"), UNFI will use its personnel (or a third party retrieval service if UNFI reasonably believes the recall or withdrawal will be achieved faster, at less expense or more effic ...