Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period (12 weeks) ended September 9, 2017 .
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                      .
Commission File Number: 1-5418
 
SVUGRAPHICA02A08.JPG
SUPERVALU INC.
(Exact name of registrant as specified in its charter)
 
DELAWARE
 
41-0617000
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
11840 VALLEY VIEW ROAD
EDEN PRAIRIE, MINNESOTA
 
55344
(Address of principal executive offices)
 
(Zip Code)
(952) 828-4000
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x     No   ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes   x     No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer   x
 
Accelerated filer   ¨
 
Non-accelerated filer   ¨
 
Smaller reporting company ¨
 
Emerging growth company   ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨   
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes   ¨     No   x
As of October 13, 2017 , there were 38,408,397 shares of the issuer’s common stock outstanding.
 

Table of Contents

SUPERVALU INC. and Subsidiaries
Quarterly Report on Form 10-Q
TABLE OF CONTENTS
Item
 
Page
 
 
 
 
 
1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2.
 
 
 
3.
 
 
 
4.
 
 
 
 
 
 
 
 
1.
 
 
 
1A.
 
 
 
2.
 
 
 
3.
 
 
 
4.
 
 
 
5.
 
 
 
6.
 
 
 
 


Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SUPERVALU INC. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In millions, except per share data)
 
Second Quarter Ended
 
Year-To-Date Ended
 
September 9, 
 2017 
 (12 weeks)
 
September 10, 
 2016 
 (12 weeks)
 
September 9, 
 2017 
 (28 weeks)
 
September 10, 
 2016 
 (28 weeks)
Net sales
$
3,800

 
$
2,805

 
$
7,804

 
$
6,570

Cost of sales
3,372

 
2,409

 
6,825

 
5,625

Gross profit
428

 
396

 
979

 
945

Selling and administrative expenses
435

 
338

 
919

 
798

Operating (loss) earnings
(7
)
 
58

 
60

 
147

Interest expense, net
31

 
41

 
74

 
101

Equity in earnings of unconsolidated affiliates
—

 
(1
)
 
(2
)
 
(2
)
(Loss) earnings from continuing operations before income taxes
(38
)
 
18

 
(12
)
 
48

Income tax (benefit) provision
(13
)
 
6

 
1

 
16

Net (loss) earnings from continuing operations
(25
)
 
12

 
(13
)
 
32

Income from discontinued operations, net of tax
—

 
20

 
—

 
47

Net (loss) earnings including noncontrolling interests
(25
)
 
32

 
(13
)
 
79

Less net earnings attributable to noncontrolling interests
—

 
(1
)
 
(1
)
 
(2
)
Net (loss) earnings attributable to SUPERVALU INC.
$
(25
)
 
$
31

 
$
(14
)
 
$
77

 
 
 
 
 
 
 
 
Basic net (loss) earnings per share attributable to SUPERVALU INC.: (1)
Continuing operations
$
(0.65
)
 
$
0.30

 
$
(0.35
)
 
$
0.79

Discontinued operations
$
—

 
$
0.52

 
$
(0.01
)
 
$
1.24

Basic net (loss) earnings per share
$
(0.65
)
 
$
0.82

 
$
(0.36
)
 
$
2.04

Diluted net (loss) earnings per share attributable to SUPERVALU INC.: (1)
Continuing operations
$
(0.65
)
 
$
0.29

 
$
(0.35
)
 
$
0.79

Discontinued operations
$
—

 
$
0.52

 
$
(0.01
)
 
$
1.23

Diluted net (loss) earnings per share
$
(0.65
)
 
$
0.81

 
$
(0.36
)
 
$
2.02

Weighted average number of shares outstanding: (1)
 
 
 
 
 
 
 
Basic
38

 
38

 
38

 
38

Diluted
38

 
38

 
38

 
38

(1)
Per share and shares outstanding figures have been restated to give effect to the 1-for-7 reverse stock split effective on August 1, 2017. Refer to Note 8—Net (Loss) Earnings Per Share for additional information regarding the reverse stock split.

See Notes to Condensed Consolidated Financial Statements.

1
Table of Contents

SUPERVALU INC. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In millions)
 
Second Quarter Ended
 
Year-To-Date Ended
 
September 9, 
 2017 
 (12 weeks)
 
September 10, 
 2016 
 (12 weeks)
 
September 9, 
 2017 
 (28 weeks)
 
September 10, 
 2016 
 (28 weeks)
Net (loss) earnings including noncontrolling interests
$
(25
)
 
$
32

 
$
(13
)
 
$
79

Other comprehensive income:
 
 
 
 
 
 
 
Recognition of pension and other postretirement benefit obligations (1)
(1
)
 
5

 
(1
)
 
11

Recognition of interest rate swap cash flow hedge (2)
1

 
—

 
1

 
—

Total other comprehensive income
—

 
5

 
—

 
11

Comprehensive (loss) income including noncontrolling interests
(25
)
 
37

 
(13
)
 
90

Less comprehensive income attributable to noncontrolling interests
—

 
(1
)
 
(1
)
 
(2
)
Comprehensive (loss) income attributable to SUPERVALU INC.
$
(25
)
 
$
36

 
$
(14
)
 
$
88

(1)
Amounts are net of tax (benefit) expense of $0 , $2 , $(1) and $6 for the second quarters of fiscal 2018 and 2017 , and for fiscal 2018 and 2017 year-to-date, respectively.
(2)
Amounts are net of tax (benefit) expense of $(1) , $0 , $0 and $0 for the second quarters of fiscal 2018 and 2017 , and for fiscal 2018 and 2017 year-to-date, respectively.
See Notes to Condensed Consolidated Financial Statements.


2
Table of Contents

SUPERVALU INC. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions, except par value data)
 
September 9, 2017
 
February 25, 2017
ASSETS
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
209

 
$
332

Receivables, net
598

 
386

Inventories, net
1,057

 
764

Other current assets
140

 
59

Total current assets
2,004

 
1,541

Property, plant and equipment, net
1,246

 
1,004

Goodwill
740

 
710

Intangible assets, net
86

 
39

Deferred tax assets
157

 
165

Other assets
162

 
121

Total assets
$
4,395

 
$
3,580

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities
 
 
 
Accounts payable
$
1,252

 
$
881

Accrued vacation, compensation and benefits
222

 
150

Current maturities of long-term debt and capital lease obligations
34

 
26

Other current liabilities
149

 
172

Total current liabilities
1,657

 
1,229

Long-term debt
1,601

 
1,263

Long-term capital lease obligations
174

 
186

Pension and other postretirement benefit obligations
396

 
322

Long-term tax liabilities
64

 
63

Other long-term liabilities
130

 
134

Commitments and contingencies

 

Stockholders’ equity (1)
 
 
 
Common stock, $0.01 par value: 57 shares authorized; 38 and 38 shares issued, respectively
—

 
—

Capital in excess of par value
2,840

 
2,831

Treasury stock, at cost, 0 and 0 shares, respectively
(3
)
 
(2
)
Accumulated other comprehensive loss
(278
)
 
(278
)
Accumulated deficit
(2,189
)
 
(2,175
)
Total SUPERVALU INC. stockholders’ equity
370

 
376

Noncontrolling interests
3

 
7

Total stockholders’ equity
373

 
383

Total liabilities and stockholders’ equity
$
4,395

 
$
3,580

(1)
Per share and shares outstanding figures have been restated to give effect to the 1-for-7 reverse stock split effective on August 1, 2017. Refer to Note 8—Net (Loss) Earnings Per Share for additional information regarding the reverse stock split.

See Notes to Condensed Consolidated Financial Statements.


3
Table of Contents

SUPERVALU INC. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(In millions)
 
Common
Stock
 
Capital in Excess of Par Value
 
Treasury
Stock
 
Accumulated
Other
Comprehensive
Loss
 
Accumulated
Deficit
 
SUPERVALU INC.
Stockholders’
Equity
 
Non-controlling
Interests
 
Total
Stockholders’
Equity
Balances as of February 27, 2016
$
—

 
$
2,811

 
$
(5
)
 
$
(422
)
 
$
(2,825
)
 
$
(441
)
 
$
8

 
$
(433
)
Net earnings
—

 
—

 
—

 
—

 
77

 
77

 
2

 
79

Other comprehensive income, net of tax of $6
—

 
—

 
—

 
11

 
—

 
11

 
—

 
11

Sales of common stock under option plans
—

 
(1
)
 
1

 
—

 
—

 
—

 
—

 
—

Stock-based compensation
—

 
10

 
—

 
—

 
—

 
10

 
—

 
10

Restricted stock issued and vested
—

 
(4
)
 
4

 
—

 
—

 
—

 
—

 
—

Restricted stock forfeitures
—

 
3

 
(3
)
 
—

 
—

 
—

 
—

 
—

Distributions to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
(5
)
 
(5
)
Tax impact on stock-based awards, shares traded for taxes and other
—

 
(3
)
 
(2
)
 
—

 
—

 
(5
)
 
1

 
(4
)
Balances as of September 10, 2016
$
—

 
$
2,816

 
$
(5
)
 
$
(411
)
 
$
(2,748
)
 
$
(348
)
 
$
6

 
$
(342
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balances as of February 25, 2017
$
—

 
$
2,831

 
$
(2
)
 
$
(278
)
 
$
(2,175
)
 
$
376

 
$
7

 
$
383

Net (loss) earnings
—

 
—

 
—

 
—

 
(14
)
 
(14
)
 
1

 
(13
)
Other comprehensive income, net of tax of $0
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Stock-based compensation
—

 
11

 
—

 
—

 
—

 
11

 
—

 
11

Restricted stock issued and vested
—

 
(1
)
 
—

 
—

 
—

 
(1
)
 
—

 
(1
)
Restricted stock forfeitures
—

 
1

 
(1
)
 
—

 
—

 
—

 
—

 
—

Distributions to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
(3
)
 
(3
)
Acquisition of noncontrolling interests
—

 
(2
)
 
—

 
—

 
—

 
(2
)
 
(2
)
 
(4
)
Shares traded for taxes and other
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Balances as of September 9, 2017
$
—

 
$
2,840

 
$
(3
)
 
$
(278
)
 
$
(2,189
)
 
$
370

 
$
3

 
$
373

See Notes to Condensed Consolidated Financial Statements.


4
Table of Contents

SUPERVALU INC. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
 
Year-To-Date Ended
 
September 9, 
 2017 
 (28 weeks)
 
September 10, 
 2016 
 (28 weeks)
Cash flows from operating activities
 
 
 
Net (loss) earnings including noncontrolling interests
$
(13
)
 
$
79

Income from discontinued operations, net of tax
—

 
49

Net (loss) earnings from continuing operations
(13
)
 
30

Adjustments to reconcile Net (loss) earnings from continuing operations to Net cash provided by operating activities – continuing operations:
 
 
 
Asset impairment and other charges
40

 
1

Loss on debt extinguishment
5

 
7

Net gain on sale of assets and exits of surplus leases
(2
)
 
—

Depreciation and amortization
112

 
111

LIFO charge
3

 
2

Deferred income taxes
6

 
21

Stock-based compensation
11

 
8

Net pension and other postretirement benefit income
(29
)
 
(13
)
Contributions to pension and other postretirement benefit plans
(1
)
 
(2
)
Other adjustments
7

 
8

Changes in operating assets and liabilities, net of effects from business acquisitions
(23
)
 
35

Net cash provided by operating activities – continuing operations
116

 
208

Net cash (used in) provided by operating activities – discontinued operations
(56
)
 
72

Net cash (used in) provided by operating activities
60

 
280

Cash flows from investing activities
 
 
 
Proceeds from sale of assets
4

 
1

Purchases of property, plant and equipment
(117
)
 
(67
)
Payments for business acquisitions
(105
)
 
(3
)
Other
2

 
—

Net cash used in investing activities – continuing operations
(216
)
 
(69
)
Net cash provided by (used in) investing activities – discontinued operations
3

 
(46
)
Net cash used in investing activities
(213
)
 
(115
)
Cash flows from financing activities
 
 
 
Proceeds from revolving credit facility
80

 
1,669

Payments on revolving credit facility
(80
)
 
(1,707
)
Proceeds from issuance of debt
875

 
—

Payments of debt and capital lease obligations
(825
)
 
(115
)
Payments for shares traded for taxes
(3
)
 
(2
)
Payments for debt financing costs
(9
)
 
(5
)
Distributions to noncontrolling interests
(3
)
 
(5
)
Other
(5
)
 
—

Net cash provided by (used in) financing activities
30

 
(165
)
Net (decrease) increase in cash and cash equivalents
(123
)
 
—

Cash and cash equivalents at beginning of period
332

 
57

Cash and cash equivalents at the end of period
$
209

 
$
57

Less cash and cash equivalents of discontinued operations at end of period
—

 
(17
)
Cash and cash equivalents of continuing operations at end of period
$
209

 
$
40

SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash investing and financing activities were as follows:
 
 
 
Purchases of property, plant and equipment included in Accounts payable
$
21

 
$
21

Capital lease asset additions
$
1

 
$
7

Interest and income taxes paid:
 
 
 
Interest paid, net of amounts capitalized
$
63

 
$
79

Income taxes paid, net
$
48

 
$
6

See Notes to Condensed Consolidated Financial Statements.

5
Table of Contents

SUPERVALU INC. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars and shares in millions, except per share data)

NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Statement of Registrant
The accompanying Condensed Consolidated Financial Statements of SUPERVALU INC. (“Supervalu”, the “Company”, “we”, “us”, or “our”) for the second quarters ended September 9, 2017 and September 10, 2016 are unaudited and, in the opinion of management, contain all adjustments that are of a normal and recurring nature necessary to present fairly the financial condition, results of operations and cash flows for such periods. The Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and related notes in Supervalu’s Annual Report on Form 10-K for the fiscal year ended February 25, 2017 . The results of operations for the second quarter ended September 9, 2017 are not necessarily indicative of the results expected for the full year.
Accounting Policies
The summary of significant accounting policies is included in the Notes to Consolidated Financial Statements set forth in Supervalu’s Annual Report on Form 10-K for the fiscal year ended February 25, 2017 .
Fiscal Year
Supervalu operates on a 52/53 week fiscal year basis, with its fiscal year ending on the last Saturday in February. References to the second quarters of fiscal 2018 and 2017 relate to the 12 week fiscal quarters ended September 9, 2017 and September 10, 2016 , respectively. References to fiscal 2018 and 2017 year-to-date relate to the 28 week fiscal periods ended September 9, 2017 and September 10, 2016 , respectively.
Use of Estimates
The preparation of Supervalu’s Condensed Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Supervalu considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. Supervalu’s banking arrangements allow Supervalu to fund outstanding checks when presented to the financial institution for payment. Supervalu funds all intraday bank balance overdrafts during the same business day. Checks outstanding in excess of bank balances create net book overdrafts, which are recorded in Accounts payable in the Condensed Consolidated Balance Sheets and are reflected as an operating activity in the Condensed Consolidated Statements of Cash Flows. As of September 9, 2017 and February 25, 2017 , Supervalu had net book overdrafts of $166 and $91 , respectively.
Inventories, Net
Inventories are valued at the lower of cost or market. Substantially all of Supervalu’s inventories consist of finished goods and a substantial portion of Supervalu’s inventories have a last-in, first-out (“LIFO”) reserve applied. Interim LIFO calculations are based on Supervalu’s estimates of expected year-end inventory levels and costs, as the actual valuation of inventory under the LIFO method is computed at the end of each year based on the inventory levels and costs at that time. If the first-in, first-out method had been used, Inventories, net would have been higher by approximately $218 at September 9, 2017 and $216 at February 25, 2017 . Supervalu recorded a LIFO charge of $1 and $1 for the second quarters ended September 9, 2017 and September 10, 2016 , respectively. Supervalu recorded a LIFO charge of $3 and $2 for fiscal 2018 and 2017 year-to-date, respectively.

6

Recently Adopted Accounting Standards
In March 2016, the Financial Accounting Standards Board (the "FASB") issued authoritative guidance under Accounting Standards Update ("ASU") 2016-09,  Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting . ASU 2016-09 provides for simplification of several aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. Supervalu adopted this guidance in the first quarter of fiscal 2018, which resulted in $5 of additional income tax expense that would have been recorded as an adjustment to Additional paid-in-capital under previous authoritative guidance. The adoption resulted in the presentation of payments for shares traded for taxes within financing activities, which resulted in the retrospective revision of the Condensed Consolidated Statements of Cash Flows. In addition, estimated forfeitures continued to be recorded as stock-based compensation expense.
Recently Issued Accounting Standards
In March 2017, the FASB issued authoritative guidance under ASU 2017-07, Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. ASU 2017-07 changes how benefit plan costs for defined benefit pension and other postretirement benefit plans are presented in the statement of operations. Supervalu is required to adopt this new guidance in the first quarter of fiscal 2019. Early adoption is permitted as of the beginning of an annual period for which financial statements (interim or annual) have not been issued or made available for issuance. Supervalu is currently evaluating the potential impact of adoption of this standard on its consolidated financial statements.
In August 2016, the FASB issued authoritative guidance under ASU 2016-15, Statement of Cash Flows (Topic 320): Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 clarifies how certain cash receipts and payments should be presented in the statement of cash flows. Supervalu is required to adopt this new guidance in the first quarter of fiscal 2019. Supervalu is currently evaluating the potential impact of adoption of this standard on its consolidated financial statements.
In June 2016, the FASB issued authoritative guidance under ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a new forward-looking “expected loss” model that will replace today’s “incurred loss” model and generally will result in the earlier recognition of allowances for losses. For available-for-sale debt securities with unrealized losses, entities will measure credit losses in a manner similar to current practice, except that the losses will be recognized as an allowance. Supervalu is required to adopt this new guidance in the first quarter of fiscal 2021. Supervalu is currently evaluating the potential impact of adoption of this standard on its consolidated financial statements.
In February 2016, the FASB issued authoritative guidance under ASU 2016-02, Leases (Topic 842) . ASU 2016-02 provides new comprehensive lease accounting guidance that supersedes existing lease guidance. Upon adoption of ASU 2016-02, Supervalu will be required to recognize most leases on its balance sheet at the beginning of the earliest comparative period presented with a corresponding adjustment to stockholders’ equity (deficit). ASU 2016-02 requires Supervalu to capitalize most current operating lease obligations as right-of-use assets with a corresponding liability based on the present value of future operating leases. Criteria for distinguishing leases between finance and operating are substantially similar to criteria for distinguishing between capital leases and operating leases in existing lease guidance. Supervalu is required to adopt this new guidance in the first quarter of fiscal 2020. Supervalu is currently evaluating the potential impact of adoption of this standard on its consolidated financial statements. For a quantification of Supervalu’s off-balance sheet operating leases subject to capitalization under ASU 2016-02, other than those reserved for as a closed property and certain agreements that may be deemed leases under the new authoritative guidance, refer to total operating lease obligations within  Note 9—Leases in the Notes to Consolidated Financial Statements included in Part II, Item 8 of Supervalu's Annual Report on Form 10-K for the fiscal year ended February 25, 2017 .
In January 2016, the FASB issued authoritative guidance under ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities . ASU 2016-01 revises the classification, measurement and disclosure of investments in equity securities. Supervalu is required to adopt this new guidance in the first quarter of fiscal 2019. Supervalu is currently evaluating the potential impact of adoption of this standard on its consolidated financial statements.
In May 2014, the FASB issued authoritative guidance under ASU 2014-09, Revenue from Contracts with Customers (Topic 606): Revenue from Contracts with Customers . ASU 2014-09 supersedes existing revenue recognition requirements and provides a new comprehensive revenue recognition model that requires entities to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or

7

services. The new guidance will be adopted by Supervalu during the first quarter of fiscal 2019, as permitted by ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date . The adoption will include updates as provided under ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net); ASU 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing; ASU 2016-12, Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients; and ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. Adoption is allowed by either the full retrospective or modified retrospective approach.
Supervalu is currently evaluating which of the alternative approaches it will apply and the potential impact of adoption of the revised revenue standards on its consolidated financial statements. Supervalu believes that there will be few, if any, substantial changes to its Retail segment. Arrangements where Supervalu has determined it was a principal versus an agent are expected to remain relatively unchanged. Distribution contracts within Wholesale contain certain immaterial promises for goods or services that Supervalu believes will be immaterial in the context of the contracts. Supervalu expects to complete its evaluation in fiscal 2018. Upon conclusion of the revised revenue assessment, Supervalu will determine whether to adopt the guidance under the full retrospective or modified retrospective approach.

NOTE 2—BUSINESS ACQUISITIONS
Unified
On June 23, 2017, Supervalu completed the acquisition of Unified Grocers, Inc. (“Unified”) pursuant to the terms of an Agreement and Plan of Merger dated April 10, 2017 (the “Merger Agreement”) by and among Supervalu, West Acquisition Corporation, a then wholly owned subsidiary of Supervalu (“Merger Sub”), and Unified. Supervalu acquired Unified in a transaction valued at $390 , comprised of $114 in cash for 100 percent of the outstanding stock of Unified plus the assumption and payoff of Unified’s net debt of $276 at closing. The acquisition brings together two complementary companies that uniquely positions Supervalu to efficiently serve a broad range of independent customers and offer a diverse array of value added services, helping customers compete in an increasingly demanding grocery environment. In addition, the acquisition provides opportunities across multiple geographies and is an important part of Supervalu’s ongoing growth effort, including the expansion of Unified’s Market Centre division, a growing business providing specialty and ethnic products to independent customers.
At the closing of the transaction, Merger Sub merged with and into Unified. As a result of the transaction, Unified became a wholly owned subsidiary of Supervalu and the shares of Unified were converted into the right to receive from Supervalu $114  in cash in the aggregate.
Supervalu incurred merger and integration costs of $27 in fiscal 2018 year-to-date related to the Unified acquisition.
The table immediately below summarizes the preliminary fair values assigned to the Unified net assets acquired. As of September 9, 2017, the fair value allocation for the acquisition is preliminary and will be finalized when the valuation is completed. Differences between the preliminary and final allocation could be material. Supervalu’s estimates and assumptions are subject to change during the measurement period (up to one year from the acquisition date), as Supervalu finalizes the valuations of certain tangible and intangible assets acquired and liabilities assumed in connection with the acquisition. The primary areas of the purchase price allocation that are not yet finalized relate to real and personal property, identifiable intangible assets, goodwill, income taxes and deferred taxes.

8

 
Amounts as of the Acquisition Date
Cash and cash equivalents
$
8

Accounts receivable
176

Inventories
237

Other current assets
31

Property, plant and equipment
285

Goodwill
30

Intangible assets
54

Deferred tax assets
(19
)
Other assets
65

Accounts payable
(255
)
Other current liabilities
(89
)
Long-term debt and capital lease obligations
(270
)
Pension and other postretirement benefit obligations
(103
)
Other liabilities assumed
(36
)
Total fair value of net assets acquired
114

Less cash acquired
(9
)
Total consideration for acquisition, less cash acquired
$
105

Recognized goodwill is primarily attributable to expected synergies from combining operations, as well as intangible assets that do not qualify for separate recognition. Recognized intangible assets primarily reflect customer relationship intangible assets, which have a weighted average useful life of 15 years .
The following unaudited pro forma information presents the combined results of Supervalu and Unified as if Supervalu had completed the acquisition of Unified on February 27, 2016. As required by GAAP, these unaudited pro forma results do not reflect any cost saving synergies from operating efficiencies. Accordingly, these unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations of the combined companies would have been had the acquisition occurred at the beginning of the period being presented, nor are they indicative of future results of operations.
 
Second Quarter Ended
 
Year-To-Date Ended
 
September 9, 
 2017 
 (12 weeks)
 
September 10, 
 2016 
 (12 weeks) (1)
 
September 9, 
 2017 
 (2 8 weeks)
 
September 10, 
 2016 
 (28 weeks) (1)
Net sales
$
3,872

 
$
3,680

 
$
9,028

 
$
8,603

Net (loss) earnings from continuing operations attributable to SUPERVALU INC.
$
(21
)
 
$
8

 
$
(12
)
 
$
24

Basic net (loss) earnings from continuing operations per share attributable to SUPERVALU INC.
$
(0.54
)
 
$
0.21

 
$
(0.30
)
 
$
0.63

Diluted net (loss) earnings from continuing operations per share attributable to SUPERVALU INC.
$
(0.54
)
 
$
0.21

 
$
(0.30
)
 
$
0.62

(1)
The unaudited pro forma financial information of Unified included in these results reflects the 12 and 28 week fiscal periods ended August 27, 2016.
Cub Franchised Stores
In the second quarter of fiscal 2018, Supervalu paid $5 to acquire the minority equity interests of three limited liability companies that own and operate three Cub stores. Supervalu now owns 100 percent of these companies. The results from these companies will continue to be consolidated in Supervalu's financial statements.


9

NOTE 3—RESERVES FOR CLOSED PROPERTIES AND PROPERTY, PLANT AND EQUIPMENT-RELATED IMPAIRMENT CHARGES
Reserves for Closed Properties
Changes in Supervalu’s reserves for closed properties consisted of the following:
 
September 9, 
 2017 
 (2 8 weeks)
Reserves for closed properties at beginning of the fiscal year
$
22

Additions
2

Payments
(4
)
Adjustments
(1
)
Reserves for closed properties at the end of period
$
19

Property, Plant and Equipment-Related Impairment Charges
The following table presents impairment charges related to property, plant and equipment measured at fair value on a non-recurring basis:
 
Second Quarter Ended
 
Year-To-Date Ended
 
September 9, 
 2017 
 (12 weeks)
 
September 10, 
 2016 
 (12 weeks)
 
September 9, 
 2017 
 (28 weeks)
 
September 10, 
 2016 
 (28 weeks)
Property, plant and equipment:
 
 
 
 
 
 
 
Carrying value
$
98

 
$
1

 
$
98

 
$
3

Fair value measured using Level 3 inputs
56

 
—

 
56

 
2

Impairment charge
$
42

 
$
1

 
$
42

 
$
1


Supervalu monitors its long-lived assets for recoverability for indicators of impairment on an on-going basis and evaluates their carrying value for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be fully recoverable. In the second quarter of fiscal 2018, two Retail asset groups, which consisted of two separate Retail banners, indicated a decline in their results of operations and the cash flow projections of these two Retail asset groups declined compared to prior projections. As a result, the two Retail asset groups were selected for an undiscounted cash flow review. One of these Retail asset groups failed the long-lived asset recoverability test. Accordingly, a fair value assessment using the income approach was performed over that Retail group's long-lived assets. The carrying value of the assets within this asset group were determined to exceed their estimated fair value. The carrying values of these assets were reduced until such long-lived assets were recorded at the lower of their carrying value or fair value, resulting in an impairment charge of  $42 , which was recorded within Selling and administrative expenses in the Retail segment. The remaining carrying value of the long-lived assets in this asset group is $56 . Significant judgments are required in measuring the fair value of asset groups, including the fair value of business, the fair value of the underlying individual assets, and cash flow projections of revenues and earnings.


10

NOTE 4—GOODWILL AND INTANGIBLE ASSETS
Changes in Supervalu’s Goodwill and Intangible assets, net consisted of the following:
 
February 25,
2017
 
Additions
 
Impairments
 
Other net
adjustments
 
September 9,
2017
Wholesale goodwill
$
710

 
$
30

 
$
—

 
$
—

 
$
740

 
 
 
 
 
 
 
 
 
 
Intangible assets:
 
 
 
 
 
 
 
 
 
Customer lists, favorable operating leases, prescription files and other
$
141

 
$
54

 
$
—

 
$
—

 
$
195

Trademarks and tradenames – indefinite useful lives
5

 
—

 
—

 
—

 
5

Total intangible assets
146

 
54

 
—

 
—

 
200

Accumulated amortization
(107
)
 
(7
)
 
—

 
—

 
(114
)
Total intangible assets, net
$
39

 
 
 
 
 
 
 
$
86

Amortization of intangible assets with definite useful lives was $7 and $6 for fiscal 2018 and 2017 year-to-date, respectively. Future amortization expense is anticipated to be approximately $4 , and $9 , $8 , $8 , $6 and $6 for the remainder of fiscal 2018, and for fiscal 2019, 2020, 2021, 2022 and 2023, respectively.

NOTE 5—FAIR VALUE MEASUREMENTS
Recurring fair value measurements were as follows:
 
 
 
September 9, 2017
 
Balance Sheet Location
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
 
 
Deferred compensation
Other assets
 
$
4

 
$
—

 
$
—

 
$
4

Total
 
 
$
4

 
$
—

 
$
—

 
$
4

 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
Interest rate swap derivative
Other current liabilities
 
$
—

 
$
2

 
$
—

 
$
2

Interest rate swap derivative
Other long-term liabilities
 
—

 
1

 
—

 
1

Total
 
 
$
—

 
$
3

 
$
—

 
$
3


 
 
 
February 25, 2017
 
Balance Sheet Location
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
 
 
Deferred compensation
Other assets
 
$
5

 
$
—

 
$
—

 
$
5

Total
 
 
$
5

 
$
—

 
$
—

 
$
5

 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
Interest rate swap derivative
Other current liabilities
 
$
—

 
$
2

 
$
—

 
$
2

Interest rate swap derivative
Other long-term liabilities
 
—

 
1

 
—

 
1

Total
 
 
$
—

 
$
3

 
$
—

 
$
3

Diesel Fuel Derivatives
Fuel derivative gains (losses) are included within Cost of sales in the Condensed Consolidated Statements of Operations and were $0 and $0 for the second quarters of fiscal 2018 and 2017 , respectively, and $0 and $0 for fiscal 2018 and 2017 year-to-date, respectively.

11

Interest Rate Swap Derivatives
Interest rate swap derivative reclassifications from Accumulated other comprehensive loss into earnings are recorded within Interest expense, net in the Condensed Consolidated Statements of Operations and were $1 and $0 in the second quarters of fiscal 2018 and 2017 , respectively, and $2 and $1 for fiscal 2018 and 2017 year-to-date, respectively. No amounts were reclassified related to hedging ineffectiveness.
As of September 9, 2017 , a 100 basis point increase in forward LIBOR interest rates would increase the fair value of the interest rate swap by approximately $4 and a 100 basis point decrease in forward LIBOR interest rates would decrease the fair value of the interest rate swap by approximately $2 .
Non-recurring Fair Value Measurements
Acquired net assets related to Unified discussed in Note 2—Business Acquisitions and impairment charges related to goodwill and intangible assets discussed in Note 4—Goodwill and Intangible Assets and to property, plant and equipment discussed in Note 3—Reserves for Closed Properties and Property, Plant and Equipment-related Impairment Charges were measured at fair value using Level 3 inputs.
Fair Value Estimates
For certain of Supervalu’s financial instruments, including cash and cash equivalents, receivables, accounts payable, accrued salaries and other current assets and liabilities, the fair values approximate carrying amounts due to their short maturities.
The estimated fair value of notes receivable was greater than their carrying amount by approximately $0 and $0 as of September 9, 2017 and February 25, 2017 , respectively. Notes receivable are valued based on a discounted cash flow approach applying a market rate for similar instruments that is determined using Level 3 inputs.
The estimated fair value of Supervalu’s long-term debt was lower than the carrying amount, excluding debt financing costs, by approximately $57 as of September 9, 2017 and equal to the carrying amount, excluding debt financing costs, as of February 25, 2017 . The estimated fair value was based on market quotes, where available, or market values for similar instruments, using Level 2 and Level 3 inputs.

NOTE 6—LONG-TERM DEBT
Supervalu’s long-term debt consisted of the following:
 
September 9,
2017
 
February 25,
2017
4.74% Secured Term Loan Facility due June 2024
$
838

 
$
—

5.54% Secured Term Loan Facility due March 2019
—

 
524

6.75% Senior Notes due June 2021
400

 
400

7.75% Senior Notes due November 2022
350

 
350

4.50% Revolving ABL Credit Facility due February 2021
—

 
—

Other
37

 
—

Debt financing costs, net
(14
)
 
(10
)
Original issue discount on debt
(3
)
 
(1
)
Total debt
1,608

 
1,263

Less current maturities of long-term debt
(7
)
 
—

Long-term debt
$
1,601

 
$
1,263

Supervalu’s credit facilities and certain long-term debt agreements have restrictive covenants and cross-default provisions, which generally provide, subject to Supervalu’s right to cure, for the acceleration of payments due in the event of a breach of a covenant or a default in the payment of a specified amount of indebtedness due under certain other debt agreements. Supervalu was in compliance with all such covenants and provisions for all periods presented.
Senior Secured Credit Agreements
During the first quarter of fiscal 2018, Supervalu entered into a fourth amendment agreement (the “Fourth Term Loan Amendment”) amending and restating its Secured Term Loan Facility due March 2019 (the “Secured Term Loan Facility due March 2019” and as amended and restated, the “Secured Term Loan Facility”). The Secured Term Loan Facility provides for (i)

12

an initial term loan facility of $525 , which was drawn down in full to refinance outstanding loans under the Secured Term Loan Facility due March 2019, and (ii) a delayed draw term loan facility of $315 , which was drawn down in full in the second quarter of fiscal 2018 for the purpose of consummating the acquisition of Unified. Borrowings under the Secured Term Loan Facility bear interest at the rate of LIBOR plus 3.50 percent with a floor on LIBOR set at 1.00 percent , compared to the rate under the Secured Term Loan Facility due March 2019 of LIBOR plus 4.50 percent with a floor of 1.00 percent . The Secured Term Loan Facility will mature on June 8, 2024. However, if Supervalu has not repaid its 6.75 percent Senior Notes due June 2021 or its 7.75 percent Senior Notes due November 2022 by the date that is 91 days prior to the respective maturity date of such notes, the Secured Term Loan Facility will mature on the date that is 91 days prior to the maturity date of such notes. During the first quarter of fiscal 2018, in connection with the completion of the Fourth Term Loan Amendment, Supervalu paid debt financing costs of approximately $8 , of which $5 was capitalized and $3 was expensed, and paid original issue discount of approximately $2 , all of which was capitalized, and recognized a non-cash charge of approximately $2 for the write-off of existing unamortized debt financing costs. On June 23, 2017, in connection with the closing of the acquisition of Unified, Supervalu executed the delayed draw under the Secured Term Loan Facility and increased the outstanding borrowings under the facility to $840 .
The Secured Term Loan Facility is secured by substantially all of Supervalu’s real estate, equipment and certain other assets. The Secured Term Loan Facility is guaranteed by Supervalu’s material subsidiaries (together with Supervalu, the “Term Loan Parties”). To secure their obligations under the Secured Term Loan Facility, the Term Loan Parties have granted a perfected first-priority security interest in substantially all of their intellectual property and a first-priority mortgage lien and security interest in certain owned or ground-leased real estate and associated equipment pledged as collateral. As of September 9, 2017 and February 25, 2017, there was $707 and $520 , respectively, of owned or ground-leased real estate and associated equipment pledged as collateral, which was included in Property, plant and equipment, net in the Condensed Consolidated Balance Sheets. In addition, the obligations of the Term Loan Parties under the Secured Term Loan Facility are secured by second-priority security interests in the collateral securing Supervalu’s $1,000 asset-based revolving credit facility (the “Revolving ABL Credit Facility”). As of September 9, 2017 and February 25, 2017 , $8 and $0 of the Secured Term Loan Facility was classified as current, respectively, excluding debt financing costs and original issue discount.
The loans under the Secured Term Loan Facility may be voluntarily prepaid in certain minimum principal amounts, subject to the payment of breakage or similar costs and, in certain circumstances, a prepayment fee. Pursuant to the Secured Term Loan Facility, Supervalu must, subject to certain exceptions and certain customary reinvestment rights, apply 100 percent of Net Cash Proceeds (as defined in the facility) from certain types of asset sales (excluding proceeds of the collateral security of the Revolving ABL Credit Facility and other secured indebtedness) to prepay the loans outstanding under the Secured Term Loan Facility. Supervalu must also prepay loans outstanding under the facility no later than 90 days after the fiscal year end in an aggregate principal amount equal to a percentage (which percentage ranges from 0 to 50 percent depending on Supervalu’s Total Secured Leverage Ratio (as defined in the facility) as of the last day of such fiscal year) of Excess Cash Flow (as defined in the facility) for the fiscal year then ended, minus any voluntary prepayments made during such fiscal year with Internally Generated Cash (as defined in the facility). Based on Supervalu’s Total Secured Leverage Ratio (as defined in the facility) as of the last day of fiscal 2017, no prepayment from Excess Cash Flow in fiscal 2017 was required in the second quarter of fiscal 2018. The potential amount of prepayment from Excess Cash Flow that may be required for fiscal 2018 is not reasonably estimable as of September 9, 2017 .
The revolving loans under the Revolving ABL Credit Facility may be voluntarily prepaid in certain minimum principal amounts, in whole or in part, without premium or penalty, subject to breakage or similar costs. Supervalu and those subsidiaries named as borrowers under the Revolving ABL Credit Facility are required to repay the revolving loans in cash and provide cash collateral under this facility to the extent that the revolving loans and letters of credit exceed the lesser of the borrowing base then in effect or the aggregate amount of the lenders’ commitments under the Revolving ABL Credit Facility. Certain of Supervalu’s material subsidiaries are co-borrowers under the Revolving ABL Credit Facility, and this facility is guaranteed by the rest of Supervalu’s material subsidiaries (Supervalu and those subsidiaries named as borrowers and guarantors under the Revolving ABL Credit Facility, the “ABL Loan Parties”). To secure their obligations under this facility, the ABL Loan Parties have granted a perfected first-priority security interest for the benefit of the facility lenders in their present and future inventory, credit card, wholesale trade, pharmacy and certain other receivables, prescription files and related assets. In addition, the obligations under the Revolving ABL Credit Facility are secured by second-priority liens on and security interests in the collateral securing the Secured Term Loan Facility, subject to certain limitations to ensure compliance with Supervalu’s outstanding debt instruments and leases.
As of September 9, 2017 and February 25, 2017 , there were no outstanding borrowings under the Revolving ABL Credit Facility. The assets included in the Condensed Consolidated Balance Sheets securing the outstanding borrowings under the Revolving ABL Credit Facility on a first-priority basis, and the unused available credit and fees under the Revolving ABL Credit Facility, were as follows:

13

Assets securing the Revolving ABL Credit Facility (1) :
 
September 9, 2017
 
February 25, 2017
Certain inventory assets included in Inventories, net
 
$
1,249

 
$
949

Certain receivables included in Receivables, net
 
416

 
228

Certain amounts included in Cash and cash equivalents
 
20

 
19

(1)
The Revolving ABL Credit Facility is also secured by all of Supervalu's pharmacy scripts included in Intangible assets, net.
Unused available credit and fees under the Revolving ABL Credit Facility:
 
September 9, 2017
 
February 25, 2017
Outstanding letters of credit
 
$
51

 
$
53

Letters of credit fees
 
1.375
%
 
1.375
%
Unused available credit
 
790

 
748

Unused facility fees
 
0.25
%
 
0.25
%
Both the Secured Term Loan Facility and the Revolving ABL Credit Facility limit Supervalu’s ability to make Restricted Payments (as defined in both the Secured Term Loan Facility and the Revolving ABL Credit Facility), which include dividends to stockholders. The Secured Term Loan Facility caps the aggregate amount of Restricted Payments that may be made over the life of the Secured Term Loan Facility. That aggregate cap can fluctuate over time and the cap could be reduced by certain other actions taken by Supervalu, including certain debt prepayments and Permitted Investments (as defined in the Secured Term Loan Facility). As of September 9, 2017 , the aggregate cap on Restricted Payments was approximately $502 . The Revolving ABL Credit Facility permits dividends up to $75 per fiscal year, not to exceed $175 in the aggregate over the life of the Revolving ABL Credit Facility as long as no Cash Dominion Event (as defined in the Revolving ABL Credit Facility) exists. Those caps could be reduced by certain debt prepayments made by Supervalu. The Revolving ABL Credit Facility permits other Restricted Payments as long as the Payment Conditions (as defined in the Revolving ABL Credit Facility) are met.
Debentures
The $400 of 6.75 percent Senior Notes due June 2021 and the $350 of 7.75 percent Senior Notes due November 2022 contain operating covenants, including limitations on liens and on sale and leaseback transactions. Supervalu was in compliance with all such covenants and provisions for all periods presented.

NOTE 7—BENEFIT PLANS
Net periodic benefit income and contributions for defined benefit pension and other postretirement benefit plans consisted of the following:
 
Second Quarter Ended
Pension Benefits
 
Other Postretirement Benefits
September 9, 
 2017 
 (12 weeks)
 
September 10, 
 2016 
 (12 weeks)
 
September 9, 
 2017 
 (12 weeks)
 
September 10, 
 2016 
 (12 weeks)
Interest cost
$
20

 
$
20

 
$
1

 
$
—

Expected return on assets
(33
)
 
(33
)
 
—

 
—

Amortization of prior service benefit
3

 
—

 
(3
)
 
(3
)
Amortization of net actuarial loss
—

 
10

 
—

 
—

Net periodic benefit income
$
(10
)
 
$
(3
)
 
$
(2
)
 
$
(3
)
Contributions to benefit plans
$
—

 
$
(1
)
 
$
—

 
$
—


14

 
Year-To-Date Ended
Pension Benefits
 
Other Postretirement Benefits
September 9, 
 2017 
 (28 weeks)
 
September 10, 
 2016 
 (28 weeks)
 
September 9, 
 2017 
 (28 weeks)
 
September 10, 
 2016 
 (28 weeks)
Interest cost
$
44

 
$
46

 
$
1

 
$
1

Expected return on assets
(73
)
 
(77
)
 
—

 
—

Amortization of prior service benefit
6

 
—

 
(8
)
 
(8
)
Amortization of net actuarial loss
—

 
24

 
1

 
1

Net periodic benefit income
$
(23
)
 
$
(7
)
 
$
(6
)
 
$
(6
)
Contributions to benefit plans
$
(1
)
 
$
(2
)
 
$
—

 
$
—

Multiemployer Pension Plans
During fiscal 2018 and 2017 year-to-date, Supervalu contributed $21 and $21 , respectively, to various multiemployer pension plans, primarily defined benefit pension plans, under collective bargaining agreements. As part of the acquisition of Unified, Supervalu assumed the off-balance sheet multiemployer pension plan obligations of Unified.
Pension Contributions
No minimum contributions are required to Supervalu's pension plans in fiscal 2018 in accordance with the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). Supervalu anticipates fiscal 2018 discretionary pension contributions and required minimum other postretirement benefit plan contributions will be approximately $5 to $10 .

NOTE 8—NET (LOSS) EARNINGS PER SHARE
Basic net (loss) earnings per share is calculated using net (loss) earnings attributable to SUPERVALU INC. divided by the weighted average number of shares outstanding during the period. Diluted net (loss) earnings per share is similar to basic net (loss) earnings per share except that the weighted average number of shares outstanding is computed after giving effect to the dilutive impacts of stock-based awards, if any.
The following table reflects the calculation of basic and diluted net (loss) earnings per share:
 
Second Quarter Ended
 
Year-To-Date Ended
 
September 9, 
 2017 
 (12 weeks)
 
September 10, 
 2016 
 (12 weeks)
 
September 9, 
 2017 
 (28 weeks)
 
September 10, 
 2016 
 (28 weeks)
Net (loss) earnings from continuing operations
$
(25
)
 
$
12

 
$
(13
)
 
$
32

Less net earnings attributable to noncontrolling interests
—

 
(1
)
 
(1
)
 
(2
)
Net (loss) earnings from continuing operations attributable to SUPERVALU INC.
(25
)
 
11

 
(14
)
 
30

Income from discontinued operations, net of tax
—

 
20

 
—

 
47

Net (loss) earnings attributable to SUPERVALU INC.
$
(25
)
 
$
31

 
$
(14
)
 
$
77

 
 
 
 
 
 
 
 
Weighted average number of shares outstanding—basic
38

 
38

 
38

 
38

Dilutive impact of stock-based awards
—

 
—

 
—

 
—

Weighted average number of shares outstanding—diluted
38

 
38

 
38

 
38

 
 
 
 
 
 
 
 
Basic net (loss) earnings per share attributable to SUPERVALU INC.:
Continuing operations
$
(0.65
)
 
$
0.30

 
$
(0.35
)
 
$
0.79

Discontinued operations
$
—

 
$
0.52

 
$
(0.01
)
 
$
1.24

Basic net (loss) earnings per share
$
(0.65
)
 
$
0.82

 
$
(0.36
)
 
$
2.04

Diluted net (loss) earnings per share attributable to SUPERVALU INC.:
Continuing operations
$
(0.65
)
 
$
0.29

 
$
(0.35
)
 
$
0.79

Discontinued operations
$
—

 
$
0.52

 
$
(0.01
)
 
$
1.23

Diluted net (loss) earnings per share
$
(0.65
)
 
$
0.81

 
$
(0.36
)
 
$
2.02


15

Stock-based awards of 2 and 2 that were outstanding during the second quarters of fiscal 2018 and 2017 , respectively, were excluded from the calculation of diluted net earnings per share from continuing operations for the periods because their inclusion would be antidilutive. Stock-based awards of 2 and 2 that were outstanding during fiscal 2018 and 2017 year-to-date, respectively, were excluded from the calculation of diluted net earnings per share from continuing operations for the periods because their inclusion would be antidilutive.
Reverse Stock Split
At the close of business on August 1, 2017, a 1-for-7 reverse split of Supervalu’s common stock became effective and the number of authorized shares of Supervalu’s common stock decreased to approximately 57 , while the number of issued and outstanding shares was reduced from approximately 269 to 38 . Supervalu's common stock began trading on a split-adjusted basis when the market opened on August 2, 2017. No fractional shares were issued from the reverse stock split. In lieu of any fractional shares, any holder of less than one share of common stock was entitled to receive cash for such holder’s fractional share. The reverse stock split did not impact the authorized number of shares of preferred stock of Supervalu, none of which were outstanding. The reverse stock split reduced the number of shares of common stock available for issuance under Supervalu’s equity compensation plans in proportion to the reverse stock split ratio. The reverse stock split caused a reduction in the number of shares of common stock issuable upon exercise or vesting of equity awards in proportion to the reverse stock split ratio and caused a proportionate increase in any exercise price of such awards. Supervalu’s common stock continues to trade on the NYSE under the symbol “SVU.”

NOTE 9—COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE LOSS
Supervalu reports comprehensive income in the Condensed Consolidated Statements of Comprehensive Income. Comprehensive income includes all changes in stockholders’ equity during the reporting period, other than those resulting from investments by and distributions to stockholders. Supervalu’s comprehensive income is calculated as net (loss) earnings including noncontrolling interests, plus or minus adjustments for pension and other postretirement benefit obligations, net of tax, and changes in the fair value of cash flow hedges, net of tax, less comprehensive income attributable to noncontrolling interests.
Accumulated other comprehensive loss represents the cumulative balance of other comprehensive income (loss), net of tax, as of the end of the reporting period and relates to pension and other postretirement benefit obligation adjustments, net of tax, and unrealized losses on cash flow hedges, net of tax.
Changes in Accumulated other comprehensive loss by component for fiscal 2018 year-to-date are as follows:
 
Benefit Plans
 
Interest Rate Swap
 
Total
Accumulated other comprehensive loss at beginning of the fiscal year, net of tax
$
(276
)
 
$
(2
)
 
$
(278
)
Other comprehensive income (loss) before reclassifications (1)
—

 
—

 
—

Amortization of amounts included in net periodic benefit income (2)
(1
)
 
—

 
(1
)
Amortization of cash flow hedge (3)
—

 
1

 
1

Net current-period Other comprehensive income (loss) (4)
(1
)
 
1

 
—

Accumulated other comprehensive loss at the end of period, net of tax
$
(277
)
 
$
(1
)
 
$
(278
)
(1) Amount is net of tax (benefit) expense of $0 , $0 and $0 , respectively.
(2) Amount is net of tax (benefit) expense of $(1) , $0 and $(1) , respectively.
(3) Amount is net of tax (benefit) expense of $0 , $1 and $1 , respectively.
(4) Amount is net of tax (benefit) expense of $(1) , $1 and $0 , respectively.
Changes in Accumulated other comprehensive loss by component for fiscal 2017 year-to-date are as follows:
 
Benefit Plans
 
Interest Rate Swap
 
Total
Accumulated other comprehensive loss at beginning of the fiscal year, net of tax
$
(418
)
 
$
(4
)
 
$
(422
)
Other comprehensive loss before reclassifications (1)
—

 
(1
)
 
(1
)
Amortization of amounts included in net periodic benefit income (2)
11

 
—

 
11

Amortization of cash flow hedge (3)
—

 
1

 
1

Net current-period Other comprehensive income (4)
11

 
—

 
11

Accumulated other comprehensive loss at the end of period, net of tax
$
(407
)
 
$
(4
)
 
$
(411
)

16

(1) Amount is net of tax expense of $0 , $0 and $0 , respectively.
(2) Amount is net of tax expense of $6 , $0 and $6 , respectively.
(3) Amount is net of tax expense of $0 , $0 and $0 , respectively.
(4) Amount is net of tax expense of $6 , $0 and $6 , respectively.
Items reclassified out of Accumulated other comprehensive loss had the following impact on the Condensed Consolidated Statements of Operations:
 
Second Quarter Ended
 
Year-To-Date Ended
 
 
 
September 9, 
 2017 
 (12 weeks)
 
September 10, 
 2016 
 (12 weeks)
 
September 9, 
 2017 
 (28 weeks)
 
September 10, 
 2016 
 (28 weeks)
 
Affected Line Item on Condensed Consolidated Statements of Operations
Pension and postretirement benefit plan obligations:
 
 
 
 
 
 
 
 
 
Amortization of amounts included in net periodic benefit income (1)
$
(1
)
 
$
7

 
$
(2
)
 
$
16

 
Selling and administrative expenses
Amortization of amounts included in net periodic benefit income (1)
—

 
—

 
—

 
1

 
Cost of sales
Total reclassifications
(1
)
 
7

 
(2
)
 
17

 
 
Income tax (benefit) expense
—

 
(2
)
 
1

 
(6
)
 
Income tax (benefit) provision
Total reclassifications, net of tax
$
(1
)
 
$
5

 
$
(1
)
 
$
11

 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swap cash flow hedge:
 
 
 
 
 
 
 
 
 
Reclassification of cash flow hedge
$
1

 
$
—

 
$
2

 
$
1

 
Interest expense, net
Income tax benefit
—

 
—

 
(1
)
 
—

 
Income tax (benefit) provision
Total reclassifications, net of tax
$
1

 
$
—

 
$
1

 
$
1

 
 
(1)
Amortization of amounts included in net periodic benefit income include amortization of prior service benefit and amortization of net actuarial loss as reflected in Note 7—Benefit Plans .
As of September 9, 2017 , Supervalu expects to reclassify $2 out of Accumulated other comprehensive loss into Interest expense, net during the following twelve-month period.

NOTE 10—STOCK-BASED AWARDS
Supervalu recognized pre-tax stock-based compensation expense (included primarily in Selling and administrative expenses in the Condensed Consolidated Statements of Operations) related to stock options, restricted stock units, restricted stock awards and performance share units (collectively referred to as “stock-based awards”) of $5 , $4 , $11 and $8 for the second quarters of fiscal 2018 and 2017 , and for fiscal 2018 and 2017 year-to-date, respectively. The following information on the stock-based awards gives effect to the reverse stock split.
Stock Options
In the first quarter of fiscal 2018 and 2017 , Supervalu granted 36 thousand and 114 thousand non-qualified stock options, respectively, to certain employees under Supervalu’s 2012 Stock Plan with weighted average grant date fair values of $13.92 per share and $18.68 per share, respectively. The stock options vest over a period of three years and were awarded as part of a broad-based employee incentive program designed to retain and motivate employees across Supervalu. Supervalu used the Black-Scholes option pricing model to estimate the fair value of the options at grant date based upon the following assumptions:
 
Year-To-Date Ended
 
September 9, 
 2017 
 (28 weeks)
 
September 10, 
 2016 
 (28 weeks)
Dividend yield
—
%
 
—
%
Volatility rate
53.7
%
 
54.2
%
Risk-free interest rate
1.8
%
 
1.3
%
Expected life
5.0 years

 
5.0 years


17

Restricted Stock and Restricted Stock Units
In fiscal 2018 year-to-date, Supervalu granted 880 thousand restricted stock units (“RSUs”) to certain employees under the 2012 Stock Plan. The RSUs vest over a three -year period from the date of the grant and were granted at a fair value ranging from $25.06 to $29.19 per unit. In fiscal 2017 year-to-date, Supervalu granted 494 thousand RSUs to certain employees under the 2012 Stock Plan. The RSUs vest over a three -year period from the date of grant and were granted at a fair value ranging from $31.78 to $39.48 per unit.
Performance Share Units
In fiscal 2018 year-to-date, Supervalu granted 178 thousand performance share units (“PSUs”) to certain employees under the 2012 Stock Plan. The PSUs have a fiscal 2018-2020 performance period and settle in shares of Supervalu's common stock. In April 2016, Supervalu granted 180 thousand PSUs to certain employees under the 2012 Stock Plan. The PSUs have a fiscal 2017-2019 performance period and settle in shares of Supervalu’s common stock. Supervalu used the Monte Carlo method to estimate the fair value of the PSUs at grant date based upon the following assumptions:
 
Year-To-Date Ended
 
September 9, 
 2017 
 (28 weeks)
September 10, 
 2016 
 (28 weeks)
Dividend yield
—
%
—
%
Volatility rate
44.3
%
41.3
%
Risk-free interest rate
1.41
%
0.9
%
Expected life
2.8 years

2.8 years


NOTE 11—INCOME TAXES
Fiscal 2018 and 2017 year-to-date tax provision included $5 and $0 of discrete tax expense, respectively. The increase in the discrete tax expense in fiscal 2018 is primarily due to excess tax expense related to the adoption of ASU 2016-09.

NOTE 12—SEGMENT INFORMATION
Summary operating results by reportable segment consisted of the following:
 
Second Quarter Ended September 9, 2017
 
Year-To-Date Ended September 9, 2017
 
Wholesale
 
Retail
 
Corporate
 
Total
 
Wholesale
 
Retail
 
Corporate
 
Total
Net sales
$
2,738

 
$
1,022

 
$
40

 
$
3,800

 
$
5,294

 
$
2,415

 
$
95

 
$
7,804

Cost of sales
2,620

 
752

 
—

 
3,372

 
5,053

 
1,772

 
—

 
6,825

Gross profit
118

 
270

 
40

 
428

 
241

 
643

 
95

 
979

Selling and administrative expenses
57

 
328

 
50

 
435

 
118

 
705

 
96

 
919

Operating earnings (loss)
$
61

 
$
(58
)
 
$
(10
)
 
$
(7
)
 
$
123

 
$
(62
)
 
$
(1
)
 
$
60

Interest expense, net
 
 
 
 
 
 
31

 
 
 
 
 
 
 
74

Equity in earnings of unconsolidated affiliates
 
 
 
 
 
 
—

 
 
 
 
 
 
 
(2
)
(Loss) from continuing operations before income taxes
 
 
 
 
 
 
$
(38
)
 

 

 

 
$
(12
)
 
Second Quarter Ended September 10, 2016
 
Year-To-Date Ended September 10, 2016
 
Wholesale
 
Retail
 
Corporate
 
Total
 
Wholesale
 
Retail
 
Corporate
 
Total
Net sales
$
1,731

 
$
1,033

 
$
41

 
$
2,805

 
$
4,006

 
$
2,464

 
$
100

 
$
6,570

Cost of sales
1,652

 
758

 
(1
)
 
2,409

 
3,818

 
1,808

 
(1
)
 
5,625

Gross profit
79

 
275

 
42

 
396

 
188

 
656

 
101

 
945

Selling and administrative expenses
21

 
287

 
30

 
338

 
66

 
660

 
72

 
798

Operating earnings (loss)
$
58

 
$
(12
)
 
$
12

 
$
58

 
$
122

 
$
(4
)
 
$
29

 
$
147

Interest expense, net
 
 
 
 
 
 
41

 
 
 
 
 
 
 
101

Equity in earnings of unconsolidated affiliates
 
 
 
 
 
 
(1
)
 
 
 
 
 
 
 
(2
)
Earnings from continuing operations before income taxes
 
 
 
 
 
 
$
18

 
 
 
 
 
 
 
$
48



18

NOTE 13—COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET ARRANGEMENTS
Guarantees and Contingent Liabilities
Supervalu has outstanding guarantees related to certain leases, fixture financing loans and other debt obligations of various retailers as of September 9, 2017 . These guarantees were generally made to support the business growth of Wholesale customers. The guarantees are generally for the entire terms of the leases, fixture financing loans or other debt obligations with remaining terms that range from less than one year to fourteen years, with a weighted average remaining term of approximately eight years. For each guarantee issued, if the Wholesale customer or other third party defaults on a payment, Supervalu would be required to make payments under its guarantee. Generally, the guarantees are secured by indemnification agreements or personal guarantees of the Wholesale customer.
Supervalu reviews performance risk related to its guarantee obligations based on internal measures of credit performance. As of September 9, 2017 , the maximum amount of undiscounted payments Supervalu would be required to make in the event of default of all guarantees was $66 ( $50 on a discounted basis). Based on the indemnification agreements, personal guarantees and results of the reviews of performance risk, Supervalu believes the likelihood that it will be required to assume a material amount of these obligations is remote. Accordingly, no amount has been recorded in the Condensed Consolidated Balance Sheets for these contingent obligations under Supervalu’s guarantee arrangements as the fair value has been determined to be de minimis.
Supervalu is contingently liable for leases that have been assigned to various third parties in connection with facility closings and dispositions. Supervalu could be required to satisfy the obligations under the leases if any of the assignees are unable to fulfill their lease obligations. Due to the wide distribution of Supervalu’s lease assignments among third parties, and various other remedies available, Supervalu believes the likelihood that it will be required to assume a material amount of these obligations is remote. No amount has been recorded in the Consolidated Balance Sheets for these contingent obligations under Supervalu’s guarantee arrangements as the fair value has been determined to be de minimis.
Supervalu is a party to a variety of contractual agreements under which it may be obligated to indemnify the other party for certain matters in the ordinary course of business, which indemnities may be secured by operation of law or otherwise. These agreements primarily relate to Supervalu’s commercial contracts, service agreements, contracts entered into for the purchase and sale of stock or assets, operating leases and other real estate contracts, financial agreements, agreements to provide services to Supervalu and agreements to indemnify officers, directors and employees in the performance of their work. While Supervalu’s aggregate indemnification obligations could result in a material liability, Supervalu is not aware of any matters that are expected to result in a material liability. No amount has been recorded in the Condensed Consolidated Balance Sheets for these contingent obligations as the fair value has been determined to be de minimis.
Following the sale of New Albertson’s, Inc. (“NAI”) on March 21, 2013, Supervalu remains contingently liable with respect to certain self-insurance commitments and other guarantees as a result of parental guarantees issued by Supervalu with respect to the obligations of NAI that were incurred while NAI was a subsidiary of Supervalu. As of September 9, 2017 , using actuarial estimates as of December 31, 2016, the total undiscounted amount of all such guarantees was estimated at $88 ( $79 on a discounted basis). Based on the expected settlement of the self-insurance claims that underlie Supervalu’s commitments, Supervalu believes that such contingent liabilities will continue to decline. Subsequent to the sale of NAI, NAI collateralized most of these obligations with letters of credit and surety bonds to numerous states. Because NAI remains a primary obligor on these self-insurance and other obligations and has collateralized most of the self-insurance obligations for which Supervalu remains contingently liable, Supervalu believes that the likelihood that it will be required to assume a material amount of these obligations is remote. Accordingly, no amount has been recorded in the Condensed Consolidated Balance Sheets for these guarantees.
Agreements with Save-A-Lot and Onex
The Agreement and Plan of Merger pursuant to which Supervalu sold the Save-A-Lot business (the “SAL Merger Agreement”) contains customary indemnification obligations of each party with respect to breaches of their respective representations, warranties and covenants, and certain other specified matters, on the terms and subject to the limitations set forth in the SAL Merger Agreement. Similarly, the Separation Agreement between Supervalu and Moran Foods (the “Separation Agreement”) contains indemnification obligations and covenants related to the separation of the assets and liabilities of the Save-A-Lot business from Supervalu. Pursuant to the Services Agreement between Supervalu and Moran Foods (the “Services Agreement”), Supervalu is providing Save-A-Lot various technical, human resources, finance and other operational services for a term of five years, subject to termination provisions that can be exercised by each party. Save-A-Lot paid Supervalu $30 upon entry into the Services Agreement, which is being credited against fees due under the Services Agreement. The initial annual base charge under the Services Agreement is $30 , subject to adjustments. The Services Agreement generally requires each party to indemnify the other party against third-party claims arising out of the performance of or the provision or receipt

19

of services under the Services Agreement. While Supervalu’s aggregate indemnification obligations to Save-A-Lot and Onex could result in a material liability, Supervalu is not aware of any matters that are expected to result in a material liability. Supervalu has recorded the fair value of the guarantee in the Condensed Consolidated Balance Sheets.
Agreements with AB Acquisition LLC and Affiliates
In connection with the sale of NAI, Supervalu entered into various agreements with AB Acquisition LLC and its affiliates related to on-going operations, including a Transition Services Agreement with each of NAI and Albertson’s LLC (collectively, the “TSA”). Supervalu is now providing services to NAI and Albertson's LLC to transition and wind down the TSA. In exchange for these transition and wind down services, Supervalu is entitled to receive aggregate fees of $50 that are being paid in eight $6 increments from April 2015 through October 2018. These payments are separate from and incremental to the fixed and variable fees Supervalu receives under the TSA. On October 17, 2017, Supervalu entered into a letter agreement with each of Albertson’s LLC and NAI pursuant to which the parties agreed that the TSA would expire on September 21, 2018 as to those services that Supervalu is providing to Albertson’s LLC and NAI, other than with respect to certain limited services. See Note 15—Subsequent Events for additional details. In addition, Supervalu operates a distribution center in Lancaster, Pennsylvania that is owned by NAI. In March 2017, Supervalu acquired a distribution center in Harrisburg, Pennsylvania that will eventually replace the Lancaster facility.
Haggen
In connection with Haggen's bankruptcy process, Haggen has now closed or sold all 164 of its stores. The transition and wind down of the Haggen transition services agreement occurred in the second quarter of fiscal 2017, with Supervalu now providing limited services in connection with the wind down of the Haggen estate. Supervalu filed approximately $2 of administrative 503(b)(9) priority claims and approximately $8 of unsecured claims with the bankruptcy court, including a number of contingent claims. On September 30, 2016, the bankruptcy court approved settlement agreements resolving Supervalu’s unsecured claims against Haggen. In accordance with the terms of the settlement agreements, Supervalu received approximately $3 from Haggen on October 11, 2016, and Haggen is obligated to make further payments of approximately $2 on account of Supervalu’s claims. Pursuant to the settlement agreement, Haggen has agreed not to pursue claw-backs of any transfers made to Supervalu. Supervalu could be exposed to claims from third parties from which Supervalu sourced products, services, licenses and similar benefits on behalf of Haggen. Supervalu has reserved for possible losses related to a portion of these third-party claims. It is reasonably possible that Supervalu could experience losses in excess of the amount of such reserves; however, at this time Supervalu cannot reasonably estimate a range of such excess losses because of the factual and legal issues related to whether Supervalu would have liability for any such third-party claims, if such third-party claims were asserted against Supervalu.
Pursuant to a trade agreement that Unified entered into with Haggen, Haggen paid a substantial portion of Unified's prepetition receivables in exchange for certain shipping terms from Unified, and Haggen also agreed to stipulate to an allowed administrative 503(b)(9) priority claim for the balance of Unified's prepetition claim for goods shipped to Haggen. Accordingly, Unified filed a proof of claim asserting an administrative expense priority claim in the amount of $6 . Unified also filed a proof of claim against Haggen for breach of contract damages related to the termination of its supply agreement and various ancillary agreements. If allowed, such claim would be treated as a general unsecured claim in the Haggen bankruptcy cases. Relatedly, on September 7, 2016, the Official Committee of Unsecured Creditors (the "Committee") filed a complaint against Comvest Group Holdings, LLC, the private equity owner of Haggen ("Comvest"), certain of Haggen's non-debtor affiliates, and certain of their respective officers, directors and managers (collectively the "Defendants") in the bankruptcy court. On December 9, 2016, the Defendants filed their answer to the Committee's complaint generally denying the allegations asserted therein. The Committee and the Defendants have agreed to a scheduling order with a trial currently scheduled for October 2017. The Committee litigation seeks to recover additional funds for Haggen's bankruptcy estate for the benefit of creditors, including the potential payment of Unified's claims.
Information Technology Intrusions
Computer Network Intrusions – In fiscal 2015, Supervalu announced it had experienced two separate criminal intrusions into the portion of its computer network that processes payment card transactions for some of its owned and franchised retail stores, including some of its associated stand-alone liquor stores.
Some stores owned and operated by Albertson's LLC and NAI experienced related criminal intrusions. Supervalu provides information technology services to these Albertson's LLC and NAI stores pursuant to the TSA. Supervalu believes that any losses incurred by Albertson's LLC or NAI as a result of the intrusions affecting their stores would not be Supervalu's responsibility.

20

Investigations and Proceedings – As a result of the criminal intrusions, the payment card brands are conducting investigations and, although Supervalu’s network has previously been found to be compliant with applicable data security standards, the forensic investigator working on behalf of the payment card brands has concluded that Supervalu was not in compliance at the time of the intrusions and that the alleged non-compliance caused at least some portion of the compromise of payment card data that allegedly occurred during the intrusions. On August 1, 2016, MasterCard provided notice of its assessment of non-ordinary course expenses and incremental counterfeit fraud losses allegedly incurred by it or its issuers as a result of the criminal intrusions. On September 1, 2016, Supervalu submitted an appeal of the assessment to MasterCard and on December 5, 2016, MasterCard denied the appeal and imposed a reduced assessment. Supervalu expects the other payment card brands to also allege that Supervalu was not compliant with the applicable data security standards at the time of the intrusions and that such alleged non-compliance caused the compromise of payment card data during the intrusions. Supervalu believes these payment card brands will also make claims against Supervalu for non-ordinary course operating expenses and incremental counterfeit fraud losses allegedly incurred by them or their issuers by reason of the intrusions and Supervalu expects to dispute those claims. While Supervalu does not believe that a loss is probable by reason of these as yet unasserted claims, Supervalu believes that a loss in connection with these claims, should they be asserted, is reasonably possible; however, at this time Supervalu cannot reasonably estimate a range of possible losses because the payment card brands’ investigation is ongoing and the payment card brands have not alleged what payment cards they consider to have been compromised, what data from those cards they consider to have been compromised, or the amount of their and/or their issuers' claimed losses. Similar to the assessment imposed by MasterCard, Supervalu does not currently believe that any amount that may be paid for other payment card brand claims that might be asserted will be material to Supervalu’s consolidated results of operations, cash flows or financial condition. In addition, one payment card brand has placed Supervalu in a “probationary status” for a period of two years following Supervalu's re-validation as PCI-DSS compliant, during which time Supervalu's failure to comply with the probationary requirements set forth by the payment card brand could result in the imposition of further conditions, including but not limited to disqualification from the payment system. Supervalu does not anticipate material costs to comply with the probationary requirements.
On October 23, 2015, Supervalu received a letter from a multistate group of Attorneys General seeking information regarding the intrusions. Supervalu is cooperating with the request. To date, no claims have been asserted against Supervalu related to this inquiry. If any claims are asserted, Supervalu expects to dispute those claims.
As discussed in more detail below in this Note 13 under Legal Proceedings , four class action complaints related to the intrusions have been filed against Supervalu and consolidated into one action and are currently pending. As indicated below, Supervalu believes that the likelihood of a material loss from the four class actions is remote. It is possible that other similar complaints by consumers, banks or others may be filed against Supervalu in connection with the intrusions.
Insurance Coverage and Expenses – Supervalu had $50 of cyber threat insurance above a per incident deductible of $1 at the time of the intrusions, which it believes should mitigate the financial effect of these intrusions, including claims made or that might be made against Supervalu based on these intrusions. Supervalu now maintains $90 of cyber threat insurance above a per incident deductible of approximately $3 , in each case subject to certain sublimits.
Other Contractual Commitments
In the ordinary course of business, Supervalu enters into supply contracts to purchase products for resale and purchase and service contracts for fixed asset and information technology commitments. These contracts typically include either volume commitments or fixed expiration dates, termination provisions and other standard contractual considerations. As of September 9, 2017 , Supervalu had approximately $424 of non-cancelable future purchase obligations.
Legal Proceedings
Supervalu is subject to various lawsuits, claims and other legal matters that arise in the ordinary course of conducting business. In the opinion of management, based upon currently available facts, the likelihood that the ultimate outcome of any lawsuits, claims and other proceedings will have a material adverse effect on the overall results of Supervalu’s operations, its cash flows or its financial position is remote.
In September 2008, a class action complaint was filed against Supervalu, as well as International Outsourcing Services, LLC (“IOS”); Inmar, Inc.; Carolina Manufacturer’s Services, Inc.; Carolina Coupon Clearing, Inc. and Carolina Services in the United States District Court in the Eastern District of Wisconsin. The plaintiffs in the case are a consumer goods manufacturer, a grocery co-operative and a retailer marketing services company that allege on behalf of a purported class that Supervalu and the other defendants (i) conspired to restrict the markets for coupon processing services under the Sherman Act and (ii) were part of an illegal enterprise to defraud the plaintiffs under the Federal Racketeer Influenced and Corrupt Organizations Act. The plaintiffs seek monetary damages, attorneys’ fees and injunctive relief. All proceedings had been stayed in the case pending the result of the criminal prosecution of certain former officers of IOS. The final criminal trial concluded in December 2016. The

21

District Court has indicated that it will release the stay of the civil case and issue a scheduling order. At a mediation on May 22, 2017, Supervalu reached a preliminary settlement for a nominal amount and on September 5, 2017, entered into a final settlement agreement.
In December 2008, a class action complaint was filed in the United States District Court for the Western District of Wisconsin against Supervalu alleging that a 2003 transaction between Supervalu and C&S Wholesale Grocers, Inc. (“C&S”) was a conspiracy to restrain trade and allocate markets. In the 2003 transaction, Supervalu purchased certain assets of the Fleming Corporation as part of Fleming Corporation’s bankruptcy proceedings and sold certain assets of Supervalu to C&S that were located in New England. Three other retailers filed similar complaints in other jurisdictions and the cases were consolidated and are proceeding in the United States District Court in Minnesota. The complaints allege that the conspiracy was concealed and continued through the use of non-compete and non-solicitation agreements and the closing down of the distribution facilities that Supervalu and C&S purchased from each other. Plaintiffs are seeking monetary damages, injunctive relief and attorneys’ fees. On July 5, 2011, the District Court granted Supervalu’s Motion to Compel Arbitration for those plaintiffs with arbitration agreements and plaintiffs appealed. On July 16, 2012, the District Court denied plaintiffs’ Motion for Class Certification and on January 11, 2013, the District Court granted Supervalu’s Motion for Summary Judgment and dismissed the case regarding the non-arbitration plaintiffs. On February 12, 2013, the 8th Circuit reversed the District Court decision requiring plaintiffs with arbitration agreements to arbitrate and remanded to the District Court. On October 30, 2013, the parties attended a District Court ordered mandatory mediation, which was not successful in resolving the matter. On May 21, 2014, the 8th Circuit (1) reversed the District Court’s decision granting summary judgment in favor of Supervalu, and (2) affirmed the District Court’s decision denying class certification of a class consisting of all retailers located in the States of Illinois, Indiana, Iowa, Michigan, Minnesota, Ohio and Wisconsin that purchased wholesale grocery products from Supervalu between December 31, 2004 and September 13, 2008, but remanded the case for the District Court to consider whether to certify a narrower class of purchasers supplied from Supervalu’s Champaign, Illinois distribution center and potentially other distribution centers. On June 19, 2015, the District Court Magistrate Judge entered an order that decided a number of matters including granting plaintiffs' request to seek class certification for certain Midwest Distribution Centers and denying plaintiffs' request to add an additional New England plaintiff and denying plaintiffs’ request to seek class certification for a group of New England retailers. On August 20, 2015, the District Court affirmed the Magistrate Judge’s order. In September 2015, the plaintiffs appealed to the 8th Circuit the denial of the request to add an additional New England plaintiff and to seek class certification for a group of New England retailers and the hearing before the 8th Circuit occurred on May 17, 2016. On March 1, 2016, the plaintiffs filed a class certification motion seeking to certify five District Court classes of retailers in the Midwest and Supervalu filed its response on May 6, 2016. On September 7, 2016, the District Court granted plaintiffs’ motion to certify five Midwest distribution center classes, only one of which is suing Supervalu (the non-arbitration Champaign distribution center class). On March 1, 2017, the 8th Circuit denied plaintiffs' appeals seeking to join an additional New England plaintiff and the appeal seeking the ability to move for class certification of a smaller New England class. At a mediation on May 25, 2017, Supervalu reached a settlement with the non-arbitration Champaign distribution center class, which is the one Midwest class suing Supervalu. Supervalu and the plaintiffs have executed a final settlement agreement and on August 10, 2017, the court granted preliminary approval of the settlement. The hearing on final court approval is scheduled for November 15, 2017. The material terms of the settlement include: (1) denial of wrongdoing and liability by Supervalu; (2) release of all claims against Supervalu related to the allegations and transactions at issue in the litigation that were raised or could have been raised by the non-arbitration Champaign distribution center class; and (3) payment by Supervalu of $9 . There is no contribution between C&S and Supervalu, and C&S did not settle the claims alleged against them. The New England Village Markets plaintiff is not a party to the settlement and is pursuing its individual claims and potential class action claims against Supervalu, which at this time are determined as remote.
In August and November 2014, four class action complaints were filed against Supervalu relating to the criminal intrusions into its computer network announced by Supervalu in fiscal 2015 (the “Criminal Intrusion”). The cases were centralized in the Federal District Court for the District of Minnesota under the caption In Re: SUPERVALU Inc. Customer Data Security Breach Litigation . On June 26, 2015, the plaintiffs filed a Consolidated Class Action Complaint. Supervalu filed a Motion to Dismiss the Consolidated Class Action Complaint and the hearing took place on November 3, 2015. On January 7, 2016, the District Court granted the Motion to Dismiss and dismissed the case without prejudice, holding that the plaintiffs did not have standing to sue as they had not met their burden of showing any compensable damages. On February 4, 2016, the plaintiffs filed a motion to vacate the District Court's dismissal of the complaint or in the alternative to conduct discovery and file an amended complaint, and Supervalu filed its response in opposition on March 4, 2016. On April 20, 2016, the District Court denied plaintiffs' motion to vacate the District Court's dismissal or in the alternative to amend the complaint. On May 18, 2016, plaintiffs appealed to the 8th Circuit and on May 31, 2016, Supervalu filed a cross-appeal to preserve its additional arguments for dismissal of the plaintiffs' complaint. On August 30, 2017, the 8th Circuit affirmed the dismissal for 14 out of the 15 plaintiffs finding they had no standing. The 8th Circuit did not consider Supervalu's cross-appeal and remanded the case back for consideration of Supervalu's additional arguments for dismissal against the one remaining plaintiff.

22

On June 30, 2015, Supervalu received a letter from the Office for Civil Rights of the U.S. Department of Health and Human Services (“OCR”) seeking documents and information regarding Supervalu’s HIPAA breach notification and reporting from 2009 to the present. The letter indicates that the OCR Midwest Region is doing a compliance review of Supervalu’s alleged failure to report small breaches of protected health information related to its pharmacy operations (e.g., any incident involving less than 500 individuals). On September 4, 2015, Supervalu submitted its response to OCR’s letter. While Supervalu does not believe that a loss is probable by reason of the compliance review, Supervalu believes that a loss is reasonably possible; however, at this time Supervalu cannot estimate a range of possible losses because the OCR's review is at the early stages and Supervalu does not know if OCR will find a violation(s) and, if so, what violation(s) and whether OCR will proceed with corrective action, issuance of penalties or monetary settlement. The potential penalties related to the issues being investigated are up to $50 thousand per violation (which can be counted per day) with a $1.5 per calendar year maximum for multiple violations of a single provision (with the potential for finding violations of multiple provisions each with a separate $1.5 per calendar year maximum); however, as noted above, any actual penalties will be determined only after consideration by OCR of various factors, including the nature of any violation, remedial actions taken by Supervalu and other factors determined relevant by OCR.
On September 21, 2016, Supervalu received an administrative subpoena issued by the Drug Enforcement Administration (“DEA”) on September 9, 2016. In addition to requesting information on Supervalu's pharmacy policies and procedures generally, the subpoena also requested the production of documents that are required to be kept and maintained by Supervalu pursuant to the Controlled Substances Act and its implementing regulations. On November 23, 2016, Supervalu responded to the subpoena and is cooperating fully with DEA's additional requests for information. While Supervalu cannot predict the outcome of this matter at this time, Supervalu does not believe that a monetary loss is probable. However, Supervalu believes that a monetary loss is reasonably possible, but cannot estimate the amount of any such loss as Supervalu does not know what violation(s) the DEA will find and whether the DEA will pursue corrective action or monetary penalties.
Predicting the outcomes of claims and litigation and estimating related costs and exposures involves substantial uncertainties that could cause actual outcomes, costs and exposures to vary materially from current expectations. Supervalu regularly monitors its exposure to the loss contingencies associated with these matters and may from time to time change its predictions with respect to outcomes and its estimates with respect to related costs and exposures.
With respect to the C&S, Criminal Intrusion and OCR matters discussed above, Supervalu believes the chance of a material loss is remote. It is possible, although management believes that the likelihood is remote, that material differences in actual outcomes, costs and exposures relative to current predictions and estimates, or material changes in such predictions or estimates, could have a material adverse effect on Supervalu’s financial condition, results of operations or cash flows.

NOTE 14—DISCONTINUED OPERATIONS
Supervalu determined that the Save-A-Lot business met the criteria to be held-for-sale and classified as a discontinued operation during the third quarter of fiscal 2017. The Save-A-Lot business was previously disclosed as a separate reporting segment of Supervalu. The assets, liabilities, operating results, and cash flows of the Save-A-Lot business have been presented separately as discontinued operations in the Condensed Consolidated Financial Statements for all periods presented. In addition, discontinued operations include the results of operations and cash flows attributed to the assets and liabilities of the NAI business.
The major classes of operating results classified as discontinued operations within the Condensed Consolidated Statements of Operations were as follows:

23

 
Second Quarter Ended
 
Year-To-Date Ended
 
September 9, 
 2017 
 (12 weeks)
 
September 10, 
 2016 
 (12 weeks)
 
September 9, 
 2017 
 (28 weeks)
 
September 10, 
 2016 
 (28 weeks)
Net sales
$
—

 
$
1,060

 
$
—

 
$
2,491

Cost of sales
—

 
893

 
—

 
2,095

Gross profit
—

 
167

 
—

 
396

Selling and administrative expenses
—

 
135

 
1

 
319

Operating earnings (loss)
—

 
32

 
(1
)
 
77

Interest expense, net
—

 
—

 
—

 
1

Earnings (loss) from discontinued operations before income taxes
—

 
32

 
(1
)
 
76

Income tax provision (benefit)
—

 
12

 
(1
)
 
29

Income from discontinued operations, net of tax
$
—

 
$
20

 
$
—

 
$
47


NOTE 15—SUBSEQUENT EVENTS
On September 14, 2017, Supervalu paid $61 to acquire the land and building for a distribution center located in Joliet, Illinois.
On October 17, 2017, Supervalu entered into a letter agreement with each of Albertson’s LLC and NAI pursuant to which the parties agreed that the TSA would expire on September 21, 2018 as to those services that Supervalu is providing to Albertson’s LLC and NAI. Supervalu will continue to provide transition and wind down services as previously agreed. In addition, Supervalu will provide services to Albertson’s LLC for one distribution center until at least October 2018, and NAI may notify Supervalu that it requires services for certain stores beyond September 21, 2018. The fees for these extended services, if any, will be the same per-store weekly fee (subject to a minimum fee) and the same weekly fee for the distribution center that Albertson’s LLC and NAI pay to Supervalu currently. The parties do not expect any of these services, or any of the transition and wind down services, to extend beyond April 2019. Supervalu also agreed that Albertson’s would no longer provide services to Supervalu after September 21, 2019.
On October 17, 2017, Supervalu, a newly formed wholly owned subsidiary of Supervalu (“AG Merger Sub”), and Associated Grocers of Florida, Inc. (“AG Florida”) entered into an Agreement and Plan of Merger (the “AG Merger Agreement”) pursuant to which Supervalu agreed to acquire AG Florida in a transaction valued at approximately $180 . Founded in 1945, AG Florida is a retailer-owned cooperative that distributes full lines of grocery and general merchandise to independent retailers, primarily in South Florida, the Caribbean, Central and South America and Asia and had annual sales of approximately $650 in its last fiscal year, which ended on July 29, 2017, estimated by Supervalu under its accounting policies. Supervalu expects to use cash on hand and available liquidity under its Revolving ABL Credit Facility to fund the acquisition.
On the terms and subject to the conditions set forth in the AG Merger Agreement, at the closing of the transactions contemplated thereby (the “AG Closing”), AG Merger Sub will merge with and into AG Florida (the “AG Merger”) with AG Florida surviving the AG Merger as a wholly owned subsidiary of Supervalu, and the shares of AG Florida will be converted into the right to receive cash consideration from Supervalu at the AG Closing.
As further provided in the AG Merger Agreement, the consummation of the transactions contemplated by the AG Merger Agreement is subject to certain closing conditions, including (i) approval of the AG Merger by the shareholders of AG Florida, (ii) any applicable waiting periods (or extensions thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 having expired or been terminated, (iii) the absence of any action or order by any governmental entity that restrains, conditions, challenges the legality or validity of, or otherwise prohibits the AG Merger, (iv) the accuracy of the representations and warranties of the parties (generally subject to a material adverse effect standard), (v) material compliance by the parties with their respective obligations under the AG Merger Agreement, (vi) no material adverse effect having occurred with respect to the AG Florida business after entry into the AG Merger Agreement and no Supervalu bankruptcy, and (vii) other customary closing conditions. The transaction is currently expected to be completed by the end of calendar year 2017.
Under the terms of the AG Merger Agreement, Supervalu will be entitled to receive a termination fee of $7 , plus reimbursement of up to $500 thousand in costs and expenses, in the event that the AG Merger Agreement is terminated under certain circumstances, including as a result of a change in the recommendation of the board of directors of AG Florida. In addition, a reverse termination fee of $9 may be payable by Supervalu to AG Florida upon termination of the AG Merger Agreement under certain circumstances, including if Supervalu is unable to obtain antitrust approval before June 14, 2018.

24

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars and shares in millions, except per share data)
This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the unaudited Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q, the information contained under the caption “Cautionary Statements for Purposes of the Safe Harbor Provisions of the Private Securities Litigation Reform Act” in this Quarterly Report on Form 10-Q and the information in Supervalu’s Annual Report on Form 10-K for the fiscal year ended February 25, 2017 .
EXECUTIVE OVERVIEW
Business Strategies and Initiatives
Wholesale:
•
Retaining existing customers by differentiating Supervalu through its service levels, pricing, product offerings and growing professional service offerings
•
Growing Supervalu’s business with existing customers by marketing its fresh product offerings, such as produce, and its professional service offerings, including retail store support, advertising, couponing, e-commerce, network and data hosting solutions, training and certifications classes, as well as administrative back-office solutions, and supporting its customers in growing their businesses
•
Targeting sales growth by affiliating new customers, including larger chain businesses, and aggressively pursuing external growth and market opportunities
•
Integrating and realizing synergies from the acquisition of Unified Grocers, and expanding the Market Centre product offerings into Supervalu’s supply chain
•
Improving the efficiency and optimization of Supervalu’s operations, including its real estate and, information technology infrastructure, and maximizing the use of trucking miles and warehouse capacity
•
Strengthening core merchandising and marketing programs, including leveraging Supervalu’s private-label programs, such as the Essential Everyday ® and Equaline ® labels, while marketing and adding depth to the Wild Harvest ® and Culinary Circle ® brands
Retail:
•
Driving profitable sales by investing in price and promotions, and enhancing merchandising displays and product offerings such as Quick and Easy meal solutions including meal kits and grab ‘n go options for Retail stores and Wholesale customers
•
Driving improved store performance, including reducing inventory shrink rates and levels of out-of-stocks, through standardizing certain store processes
•
Continued development and introduction of Supervalu’s private-label products, including organic products, by providing innovative products in multiple channels across Retail and Wholesale
•
Targeted capital investments into new stores, relocations and store remodels
Corporate:
•
Continued management of Supervalu’s overhead cost structure to enable investments in lower prices to customers
•
Providing high-quality administrative support services by enhancing Supervalu’s service offerings and information technology systems
•
Leveraging Supervalu’s professional services capabilities to grow its services business
Recent Developments
Acquisition of Unified Grocers
On June 23, 2017, Supervalu completed the acquisition of Unified Grocers, Inc. (“Unified”) pursuant to the terms of an Agreement and Plan of Merger dated April 10, 2017 (the “Merger Agreement”) by and among Supervalu, West Acquisition Corporation, a then wholly owned subsidiary of Supervalu (“Merger Sub”), and Unified. Supervalu acquired Unified in a transaction valued at $390 , comprised of $114 in cash for 100 percent of the outstanding stock of Unified plus the assumption and payoff of Unified’s net debt of $276 at closing. The acquisition brings together two complementary companies that uniquely positions Supervalu to efficiently serve a broad range of independent customers and offer a diverse array of value added services, helping customers compete in an increasingly demanding grocery environment. In addition, the acquisition provides opportunities across multiple geographies and is an important part of Supervalu’s ongoing growth effort, including the

25
Table of Contents

expansion of Unified’s Market Centre division, a growing business providing specialty and ethnic products to independent customers.
At the closing of the transaction, Merger Sub merged with and into Unified. As a result of the transaction, Unified became a wholly owned subsidiary of Supervalu and the shares of Unified were converted into the right to receive from Supervalu $114  in cash in the aggregate.
Supervalu incurred merger and integration costs of $27 in fiscal 2018 year-to-date related to the Unified acquisition. Supervalu estimates it will incur an additional $2 to $12 of merger and integration costs for Unified in the remainder of fiscal 2018.
Refer to Note 2—Business Acquisitions for additional information regarding the acquisition of Unified, including the preliminary purchase price allocation and pro forma results of operations for the comparative statements of operations presented in the results of operations discussion.
Agreement to Acquire Associated Grocers of Florida, Inc.
On October 17, 2017, Supervalu, a newly formed wholly owned subsidiary of Supervalu (“AG Merger Sub”), and Associated Grocers of Florida, Inc. (“AG Florida”) entered into an Agreement and Plan of Merger (the “AG Merger Agreement”) pursuant to which Supervalu agreed to acquire AG Florida in a transaction valued at approximately $180. Founded in 1945, AG Florida is a retailer-owned wholesale grocery distribution cooperative that distributes full lines of grocery and general merchandise to independent retailers, primarily in South Florida, the Caribbean, Central and South America and Asia and had annual sales of approximately $650 in its last fiscal year, which ended on July 29, 2017, estimated by Supervalu under its accounting policies. Supervalu expects to use cash on hand and available liquidity under its Revolving ABL Credit Facility to fund the acquisition. Refer to Note 15—Subsequent Events for additional terms and conditions of the agreement.
New Customers
In the first quarter of fiscal 2018, Supervalu completed the transition of and is now supplying over 170 stores operated by The Fresh Market under the long-term supply agreement that Supervalu entered into with The Fresh Market in August 2016.
In the fourth quarter of fiscal 2017, Supervalu completed the transition of and is now supplying over 45 America’s Food Basket neighborhood stores, located primarily in New York and parts of New England, through a long-term supply agreement.
Retail Asset Impairment
In the second quarter of fiscal 2018, two Retail asset groups, which consisted of two separate Retail banners, indicated a decline in their results of operations and the cash flow projections of these two Retail asset groups declined compared to prior projections. As a result, the two Retail asset groups were selected for an undiscounted cash flow review. One of these Retail asset groups failed the long-lived asset recoverability test. Accordingly, a fair value assessment using the income approach was performed over that Retail asset group's long-lived assets. The carrying value of the assets within this Retail asset group were determined to exceed their estimated fair value.
As a result, in the second quarter of fiscal 2018, Supervalu recorded a long-lived asset impairment charge to reduce the long-lived asset carrying values in that Retail asset group from $98 to their fair value of $56, resulting in an impairment charge of $42. As of the end of the second quarter of fiscal 2018, two of Supervalu's six geographic market groups composed of individual Retail stores have been impaired and written down to their fair value within the last twelve months. Supervalu continues to monitor two of its other four geographic market groups for potential future impairment based on Supervalu's impairment evaluation as of the second quarter of fiscal 2018. These two geographic market groups have long-lived asset carrying values of approximately $133.
Sale of Save-A-Lot
In connection with the completion of the sale of Save-A-Lot, on December 5, 2016, Supervalu and Moran Foods entered into a Services Agreement whereby Supervalu is providing certain technical, human resources, finance and other operational services to Save-A-Lot for a term of five years, on the terms and subject to the conditions set forth therein. Moran Foods paid Supervalu $30 upon entry into the Services Agreement, which is being credited against fees due under the Services Agreement. The initial annual base charge under the Services Agreement is $30 , subject to adjustments. Pursuant to this Services Agreement, Save-A-Lot may also request new services through the “change control” procedures described therein, and Supervalu may also agree to conduct non-recurring projects for Save-A-Lot pursuant to project orders.

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Transition Services Agreements with New Albertson’s, Inc. and Albertson’s LLC
Supervalu continues to provide services to transition and wind down the transition services agreements with New Albertson’s, Inc. (“NAI”) and Albertson’s LLC (collectively, the “TSA”). On October 17, 2017, Supervalu entered into a letter agreement with each of Albertson’s LLC and NAI pursuant to which the parties agreed that the TSA would expire on September 21, 2018 as to those services that Supervalu is providing to Albertson’s LLC and NAI. Supervalu will continue to provide transition and wind down services as previously agreed. In addition, Supervalu will provide services to Albertson’s LLC for one distribution center until at least October 2018, and NAI may notify Supervalu that it requires services for certain stores beyond September 21, 2018. The fees for these extended services, if any, will be the same per-store weekly fee (subject to a minimum fee) and the same weekly fee for the distribution center that Albertson’s LLC and NAI pay to Supervalu currently. The parties do not expect any of these services, or any of the transition and wind down services, to extend beyond April 2019. Supervalu also agreed that Albertson’s would no longer provide services to Supervalu after September 21, 2019. Supervalu expects the revenue that it will receive under the TSA will be approximately $125 in fiscal 2018, $55 in fiscal 2019, and $0 in fiscal 2020.  With this revenue decline, adjusted EBITDA with respect to the TSA is expected to decline by up to $50 in fiscal 2019 and by up to another $40 in fiscal 2020.

Second Quarter of Fiscal 2018 Highlights
•
Net sales were $3,800 , an increase of $995 or 35.5 percent , primarily due to sales from the acquired Unified business, higher sales from new Wholesale customers and stores, and acquired Retail stores, offset in part by lower identical store sales in the Retail business, lower sales due to Wholesale customers lost last year that are no longer supplied by Supervalu, lower sales from closed Retail stores and lower military sales.
•
Gross profit was $428 , an increase of $32 or 8.1 percent , which primarily reflects increases in gross margins from increased net sales and higher Wholesale gross profit from the acquired Unified business, offset in part by higher Wholesale trucking costs and employee-related costs driven by higher sales volumes, and lower Retail gross margins from higher promotional activities and decreased sales.
•
Operating loss was $7 , a decrease in operating earnings of $65 or 112.1 percent , which primarily reflects a Retail asset impairment charge, higher employee-related costs primarily from the acquired Unified business and incentive compensation, and merger and integration costs, offset in part by increases in gross margins from increased net sales and higher Wholesale gross profit from the acquired Unified business.
Year-To-Date Fiscal 2018 Highlights
•
Net sales were $7,804 , an increase of $1,234 or 18.8 percent , primarily due to sales from the acquired Unified business, higher sales from new Wholesale customers and stores, and acquired Retail stores, offset in part by lower identical store sales in the Retail business, lower sales due to Wholesale customers lost last year that are no longer supplied by Supervalu, lower sales from closed Retail stores and lower military sales.
•
Gross profit was $979 , an increase of $34 or 3.6 percent , which primarily reflects increases in gross margins from increased net sales and higher Wholesale gross profit from the acquired Unified business, offset in part by higher Wholesale trucking costs and employee-related costs driven by higher sales volumes, and lower Retail gross margins from higher promotional activities and decreased sales.
•
Operating earnings were $60 , a decrease of $87 or 59.2 percent , which primarily reflects a Retail asset impairment charge, higher employee-related costs from the acquired Unified business and incentive compensation, merger and integration costs, a legal reserve charge during fiscal 2018 year-to-date and a supply agreement termination fee received in fiscal 2017 year-to-date, offset in part by increases in gross profit discussed above and lower pension expense.
•
Interest expense, net was $74 , a decrease of $27 , primarily due to lower average outstanding debt balances.
•
Net loss from continuing operations was $13 , a decrease in net earnings of $45 , and diluted net earnings per share from continuing operations decreased $1.14 , in each case, primarily due to the Retail asset impairment charge and other items described above.
•
Net cash provided by operating activities of continuing operations was $116 , a decrease of $92 , primarily due to cash utilized for working capital and other assets and liabilities to support higher Wholesale sales volumes and lower cash generated from earnings.
•
Net cash used in investing activities of continuing operations was $216 , an increase of $147 , primarily due to cash paid to acquire Unified and a distribution center in Harrisburg, Pennsylvania, both in fiscal 2018 year-to-date.
•
Net cash provided by financing activities of continuing operations was $30 , an increase of $195 , primarily due to debt repayments of $99 made in the first quarter of fiscal 2017 that were not required in the first quarter of fiscal 2018 and new debt in the first quarter of fiscal 2018 in the form of a mortgage to finance the Harrisburg, Pennsylvania distribution center acquisition, partially offset by lower net borrowings under the Revolving ABL Credit Facility in the first quarter of fiscal 2018. In addition, in fiscal 2018 year-to-date, Supervalu acquired long-term debt associated with the Unified acquisition of $285 and borrowed $315 on the Secured Term Loan Facility to acquire Unified and repay the Unified debt.

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Impact of Inflation and Deflation
Supervalu monitors product cost inflation and deflation and evaluates whether to absorb cost increases or decreases, or pass on pricing changes. Supervalu has experienced a mix of inflation and deflation across product categories within its business segments during the second quarter of fiscal 2018.
In aggregate across all of Supervalu’s businesses and taking into account the mix of products, management estimates Supervalu’s businesses experienced slightly positive cost inflation in the second quarter of fiscal 2018. The Wholesale and Retail business segments experienced cost inflation within the produce product category and deflation within the meat product categories. Cost inflation and deflation estimates are based on individual like items sold by Supervalu during the periods being compared.
Changes in merchandising, customer buying habits and competitive pressures create inherent difficulties in measuring the impact of inflation and deflation on Net sales and Gross profit. Absent any changes in units sold or the mix of units sold, deflation has the effect of decreasing sales.
Competitive Environment
The United States grocery business is highly competitive, and management expects operating results will continue to be impacted by the effects of operating in a highly competitive and price-sensitive marketplace. Supervalu’s Retail segment continues to be impacted by price competition, competitive store openings and a challenging sales and operating environment. This environment contributes to lower sales from identical retail stores, which impacts Gross profit and Operating earnings. These factors affecting the Retail segment are expected to continue to impact fiscal 2018.


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Table of Contents

RESULTS OF OPERATIONS

The following table summarizes operating data Supervalu believes is important to its business:
 
Second Quarter Ended
 
Year-To-Date Ended
Results of Operations
September 9, 
 2017 
 (12 weeks)
 
September 10, 
 2016 
 (12 weeks)
 
September 9, 
 2017 
 (28 weeks)
 
September 10, 
 2016 
 (28 weeks)
Net sales
$
3,800

 
$
2,805

 
$
7,804

 
$
6,570

Cost of sales
3,372

 
2,409

 
6,825

 
5,625

Gross profit
428

 
396

 
979

 
945

Selling and administrative expenses
435

 
338

 
919

 
798

Operating (loss) earnings
(7
)
 
58

 
60

 
147

Interest expense, net
31

 
41

 
74

 
101

Equity in earnings of unconsolidated affiliates
—

 
(1
)
 
(2
)
 
(2
)
(Loss) earnings from continuing operations before income taxes
(38
)
 
18

 
(12
)
 
48

Income tax (benefit) provision
(13
)
 
6

 
1

 
16

Net (loss) earnings from continuing operations
(25
)
 
12

 
(13
)
 
32

Income from discontinued operations, net of tax
—

 
20

 
—

 
47

Net (loss) earnings including noncontrolling interests
(25
)
 
32

 
(13
)
 
79

Less net earnings attributable to noncontrolling interests
—

 
(1
)
 
(1
)
 
(2
)
Net (loss) earnings attributable to SUPERVALU INC.
$
(25
)
 
$
31

 
$
(14
)
 
$
77

Diluted continuing operations net (loss) earnings per share attributable to SUPERVALU INC.
$
(0.65
)
 
$
0.29

 
$
(0.35
)
 
$
0.79

Weighted average shares outstanding—diluted
38

 
38

 
38

 
38

Other Statistics of Continuing Operations
 
 
 
 
 
 
 
Depreciation and amortization
$
52

 
$
47

 
$
112

 
$
111

Capital expenditures (1)
$
33

 
$
32

 
$
118

 
$
74

Adjusted EBITDA (2)
$
111

 
$
100

 
$
254

 
$
252

Financial Position of Continuing Operations
 
 
 
 
 
 
 
Working capital (3)
 
 
 
 
$
565

 
$
307

Total assets
 
 
 
 
$
4,395

 
$
3,339

Total debt and capital lease obligations
 
 
 
 
$
1,809

 
$
2,376

Stores Supplied and Operated:
 
 
 
 
 
 
 
Wholesale primary stores (4)
 
 
 
 
3,120

 
1,815

Retail stores
 
 
 
 
217

 
197

Subtotal
 
 
 
 
3,337

 
2,012

Wholesale secondary stores (4)
 
 
 
 
2,133

 
231

Total number of stores
 
 
 
 
5,470

 
2,243

(1)
Capital expenditures include cash payments for purchases of property, plant and equipment and non-cash capital lease additions, and exclude cash payments for business acquisitions.
(2)
Adjusted EBITDA is a non-GAAP financial measure that Supervalu provides as a supplement to its results of operations and related analysis, and should not be considered superior to, a substitute for or an alternative to any financial measure of performance prepared and presented in accordance with GAAP. Refer to the “Non-GAAP Financial Measures” section below for additional information regarding Supervalu’s use of non-GAAP financial measures.
(3)
Working capital of continuing operations is calculated using the first-in, first-out method for inventories, after adding back the last-in, first-out method (“LIFO”) reserve. The LIFO reserve was $218 and $217 as of September 9, 2017 and September 10, 2016 , respectively.
(4)
Wholesale primary stores is defined as a customer location that has received over a certain dollar threshold of Wholesale product for each of the last three fiscal periods in a given quarter and purchases two or more product groups.
(5)
Wholesale secondary stores is defined as a customer location that has received over a certain dollar threshold of Wholesale product for each of the last three fiscal periods in a given quarter but fails to meet the criteria to be a primary store. The acquisition of Unified increased the secondary store count substantially because of their smaller Wholesale customer store size and their distribution of one product group to customer stores.


29
Table of Contents

Second Quarter of Fiscal 2018 and Fiscal 2018 Year-to-Date
The following discussion summarizes operating results for the second quarter of fiscal 2018 and fiscal 2018 year-to-date compared to comparative fiscal 2017 periods:
Net Sales
The following table outlines the composition of and variances in Net sales:
 
Second Quarter Ended
 
Year-To-Date Ended
September 9, 
 2017 
 (12 weeks)
 
September 10, 
 2016 
 (12 weeks)
 
Variance
 
September 9, 
 2017 
 (28 weeks)
 
September 10, 
 2016 
 (28 weeks)
 
Variance
Wholesale
$
2,738

 
$
1,731

 
$
1,007

 
$
5,294

 
$
4,006

 
$
1,288

Retail
1,022

 
1,033

 
(11
)
 
2,415

 
2,464

 
(49
)
Corporate
40

 
41

 
(1
)
 
95

 
100

 
(5
)
Total Net sales
$
3,800

 
$
2,805

 
$
995

 
$
7,804

 
$
6,570

 
$
1,234

Second Quarter Variances
Wholesale’s Net sales increased primarily due to $791 of sales from the acquired Unified business, $247 of increased sales to new customers and $19 of increased sales to new stores operated by existing customers, offset in part by $29 of lower sales due to lost Wholesale customers that are no longer supplied by Supervalu and $13 of lower military sales. Supervalu anticipates new customer sales to continue to more than offset the existing lost business in fiscal 2018.
Retail’s Net sales decreased primarily due to $35 of lower sales from negative identical store sales primarily driven by lower customer counts and $17 of lower sales from closed stores, offset in part by a sales increase of $37 from acquired stores and $5 from new stores.
Corporate’s Net sales decreased primarily due to $9 of lower fees under transition services agreements from a lower number of stores and distribution centers serviced, offset in part by $7 of higher sales from the professional services agreement with Save-A-Lot that began in December 2016.
Revenues generated from the TSA are anticipated to contribute to lower Corporate Net sales and operating earnings in fiscal 2018. In fiscal 2018, Supervalu expects TSA revenue to decrease by approximately $40, which will be partially offset by increases in revenue from the professional services agreement with Save-A-Lot.
Year-To-Date Variances
Wholesale’s Net sales increased primarily due to $791 of sales from the acquired Unified business, $551 of increased sales to new customers, $49 of increased sales to new stores operated by existing customers and $8 of higher other revenue, offset in part by $76 of lower sales due to lost Wholesale customers that are no longer supplied by Supervalu and $30 of lower military sales.
Retail’s Net sales decreased primarily due to $102 of lower sales from negative identical store sales primarily driven by lower customer counts and $46 of lower sales from closed stores, offset in part by a sales increase of $89 from acquired stores and $12 from new stores.
Corporate’s Net sales decreased primarily due to $21 of lower fees under transition services agreements from a lower number of stores and distribution centers serviced, offset in part by $16 of higher sales from the professional services agreement with Save-A-Lot that began in December 2016.

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Retail Identical Store Sales Variances
The following table summarizes identical store sales variances in percentages for Supervalu's Retail segment for the second quarter of fiscal 2018 and fiscal 2018 year-to-date:
 
September 9, 
 2017 
 (12 weeks)
 
September 9, 
 2017 
 (28 weeks)
Identical store sales percent variance (1)
(3.5
)%
 
(4.3
)%
Average basket percent variance (2)
0.2
 %
 
0.1
 %
Customer count percent variance (3)
(3.7
)%
 
(4.4
)%
(1)
Retail identical store sales are defined as Net sales from stores operating for four full quarters, including store expansions and excluding fuel and planned store dispositions.
(2)
Average basket is defined as the average purchases by customers per transaction within Retail stores operating for four full quarters, including store expansions and excluding fuel and planned store dispositions.
(3)
Customer count is defined as the number of transactions by customers within Retail stores operating for four full quarters, including store expansions and excluding fuel and planned store dispositions.
Gross Profit
The following table outlines the composition of and variances in Gross profit:
 
Second Quarter Ended
 
Year-To-Date Ended
September 9, 
 2017 
 (12 weeks)
 
September 10, 
 2016 
 (12 weeks)
 
Variance
 
September 9, 
 2017 
 (28 weeks)
 
September 10, 
 2016 
 (28 weeks)
 
Variance
Wholesale
$
118

 
$
79

 
$
39

 
$
241

 
$
188

 
$
53

% of Wholesale sales
4.3
%
 
4.6
%
 
(0.3
)%
 
4.5
%
 
4.7
%
 
(0.2
)%
Retail
270

 
275

 
(5
)
 
643

 
656

 
(13
)
% of Retail sales
26.5
%
 
26.6
%
 
(0.1
)%
 
26.6
%
 
26.6
%
 
—
 %
Corporate
40

 
42

 
(2
)
 
95

 
101

 
(6
)
Total Gross profit
$
428

 
$
396

 
$
32

 
$
979

 
$
945

 
$
34

% of total Net sales
11.3
%
 
14.1
%
 
(2.8
)%
 
12.5
%
 
14.4
%
 
(1.9
)%
Second Quarter Variances
Wholesale’s gross profit increased primarily due to higher gross margin from increased net sales of $29 and gross profit attributable to the acquired Unified business of $23, offset in part by increased trucking costs of $9 driven by higher sales volumes and $4 of higher employee-related costs driven by higher sales volumes. The acquired Unified business contributed a 60 basis point decrease in Wholesale gross profit as a percent of Wholesale sales.
Retail’s gross profit decreased primarily due to $9 of lower gross margins from higher promotional activities and net decreased sales.
Corporate’s gross profit decreased primarily due to a lower number of stores and distribution centers serviced under the TSA, net of fees earned under the professional services agreement with Save-A-Lot, discussed in the Net sales variances above. The shared service center costs incurred to support back-office functions related to the services agreements represent administrative overhead and are recorded in Selling and administrative expenses.
Total Gross profit as a percent of total Net sales decreased due to the overall Wholesale sales mix and the contribution of Unified to the gross profit rate.
Year-To-Date Variances
Wholesale’s gross profit increased primarily due to higher gross margin from increased net sales of $67 and gross profit attributable to the acquired Unified business of $23, offset in part by increased trucking costs of $23 driven by higher sales volumes and $14 of higher employee-related costs driven by higher sales volumes. The acquired Unified business contributed a 30 basis point decrease in Wholesale gross profit as a percent of Wholesale sales.
Retail’s gross profit decreased primarily due to $15 of lower gross margin from net decreased sales.

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Corporate’s gross profit decreased primarily due to a lower number of stores and distribution centers serviced under the TSA, net of fees earned under the professional services agreement with Save-A-Lot, discussed in the Net sales variances above. The shared service center costs incurred to support back-office functions related to the services agreements represent administrative overhead and are recorded in Selling and administrative expenses.
Total Gross profit as a percent of total Net sales decreased due to the overall Wholesale sales mix and the contribution of Unified to the gross profit rate.
Selling and Administrative Expenses
Second Quarter Variances
Selling and administrative expenses for the second quarter of fiscal 2018 were $435 or 11.4 percent of Net sales, compared with $338 or 12.0 percent of Net sales last year, an increase of $97 or 28.7 percent . Selling and administrative expenses for the second quarter of fiscal 2018 included net charges and costs of $65, comprised of an asset impairment charge of $42, and merger and integration costs of $23. Selling and administrative expenses for the second quarter of fiscal 2017 included a fee received from supply agreement termination of $9, offset in part by store closure charges and costs of $3. When adjusted for these items, the remaining increase of $26 in Selling and administrative expenses is primarily due to $29 of higher employee-related costs driven by the acquired Unified business, acquired Retail stores and Corporate incentive compensation and $3 of higher occupancy costs, offset in part by $7 of lower pension expense.
Year-To-Date Variances
Selling and administrative expenses for fiscal 2018 year-to-date were $919 or 11.8 percent of Net sales, compared with $798 or 12.2 percent of Net sales last year, an increase of $121 or 15.2 percent . Selling and administrative expenses for fiscal 2018 year-to-date included net charges and costs of $78, comprised of an asset impairment charge of $42, merger and integration costs of $27, a legal reserve charge of $9 and severance costs of $3, offset in part by a gain on sale of property of $2 and a gain from a store closure of $1. Selling and administrative expenses for fiscal 2017 year-to-date included a fee received from a supply agreement termination of $9, a sales and use tax refund of $2 and a severance benefit of $1, offset in part by store closure charges and costs of $3. When adjusted for these items, the remaining increase of $34 in Selling and administrative expenses is primarily due to $48 of higher employee-related costs driven by the acquired Unified business, acquired Retail stores and Corporate incentive compensation, $6 of higher Wholesale bad debt expense and $6 of higher occupancy costs, offset in part by $16 of lower pension expense and $7 of lower depreciation expense.
Operating (Loss) Earnings
The following table outlines the composition of and variances in Operating (loss) earnings:
 
Second Quarter Ended
 
Year-To-Date Ended
September 9, 
 2017 
 (12 weeks)
 
September 10, 
 2016 
 (12 weeks)
 
Variance
 
September 9, 
 2017 
 (28 weeks)
 
September 10, 
 2016 
 (28 weeks)
 
Variance
Wholesale
$
61

 
$
58

 
$
3

 
$
123

 
$
122

 
$
1

% of Wholesale sales
2.2
 %
 
3.3
 %
 
(1.1
)%
 
2.3
 %
 
3.0
 %
 
(0.7
)%
Retail
(58
)
 
(12
)
 
(46
)
 
(62
)
 
(4
)
 
(58
)
% of Retail sales
(5.6
)%
 
(1.2
)%
 
(4.4
)%
 
(2.6
)%
 
(0.2
)%
 
(2.4
)%
Corporate
(10
)
 
12

 
(22
)
 
(1
)
 
29

 
(30
)
Total Operating (loss) earnings
$
(7
)
 
$
58

 
$
(65
)
 
$
60

 
$
147

 
$
(87
)
% of total Net sales
(0.2
)%
 
2.1
 %
 
(2.3
)%
 
0.8
 %
 
2.2
 %
 
(1.4
)%
Second Quarter Variances
Wholesale operating earnings for the second quarter of fiscal 2017 included a supply agreement termination fee of $9. When adjusted for this item, the remaining $12 increase in Wholesale operating earnings is primarily due to $29 of higher gross margin from increased net sales and $23 of higher gross profit attributable to the acquired Unified business, offset in part by a $16 increase in employee-related costs primarily due to the acquired Unified operations and $12 of higher other administrative expenses, including occupancy costs, depreciation expense and contracted services, primarily due to the acquired Unified operations, $9 of increased trucking costs driven by higher sales volumes and $4 of higher employee-related costs driven by higher sales volumes.

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Retail operating loss for the second quarter of fiscal 2018 included an asset impairment charge of $42. Retail operating loss for the second quarter of fiscal 2017 included store closure charges and costs of $4. When adjusted for these items, the remaining $8 decrease in Retail operating earnings is primarily due to $9 of lower gross margins from higher promotional activities and net decreased sales, and $4 of higher employee-related costs, offset in part by $4 of lower depreciation expense.
Corporate operating loss for the second quarter of fiscal 2018 included $23 of merger and integrations costs. When adjusted for this item, the remaining $1 increase in Corporate operating earnings is primarily due to $7 of lower pension expense, offset by $8 of higher employee-related costs. In fiscal 2018, the expected $40 decrease in TSA revenue from Albertson’s LLC and NAI is expected to negatively impact Corporate operating earnings in an amount equal to approximately three-quarters of the lost revenue.
Year-To-Date Variances
Wholesale operating earnings for fiscal 2018 year-to-date included a legal reserve charge of $9. Wholesale operating earnings for fiscal 2017 year-to-date included a supply agreement termination fee of $9. When adjusted for these items, the remaining $19 increase in Wholesale operating earnings is primarily due to $67 of higher gross margin from increased net sales attributable to non-Unified related business and $23 of gross profit attributable to the acquired Unified business, offset in part by $23 of increased trucking costs driven by higher sales volumes, a $20 increase in employee-related costs primarily due to the acquired Unified business, $14 of higher employee-related costs driven by higher sales volumes, $10 of higher other administrative expenses, including occupancy costs, depreciation and contracted services, primarily due to the acquired Unified operations and $6 of higher bad debt expense.
Retail operating loss for fiscal 2018 year-to-date included an asset impairment charge of $42 and severance costs of $1, offset in part by a gain from a store closure of $1. Retail operating losses for fiscal 2017 year-to-date included store closure charges and costs of $4. When adjusted for these items, the remaining $20 decrease in Retail operating earnings is primarily due to $15 of lower gross margin from net decreased sales, $9 of higher employee-related costs and $4 of lower gross margins including vendor funds, offset in part by $10 of lower depreciation expense.
Corporate operating loss for fiscal 2018 year-to-date included net costs of $27, comprised of merger and integrations costs of $27 and severance costs of $2, offset in part by a gain on sale of property of $2. Corporate operating earnings for fiscal 2017 year-to-date included a sales and use tax refund of $2 and a severance benefit of $1. When adjusted for these items, Corporate operating earnings were flat to last year and included $16 of higher employee-related costs, driven by incentive compensation, and $5 of net lower fees earned under services agreements, offset in part by $16 of lower pension expense and $5 of lower contracted services costs.
Interest Expense, Net
 
Second Quarter Ended
 
Year-To-Date Ended
September 9, 
 2017 
 (12 weeks)
 
September 10, 
 2016 
 (12 weeks)
 
September 9, 
 2017 
 (28 weeks)
 
September 10, 
 2016 
 (28 weeks)
Interest expense on long-term debt, net of capitalized interest
$
23

 
$
32

 
$
50

 
$
72

Interest expense on capital lease obligations
5

 
4

 
11

 
10

Amortization of financing costs and discount
1

 
3

 
4

 
7

Other
3

 
2

 
6

 
6

Unamortized financing charges
—

 
—

 
3

 
5

Debt refinancing costs
—

 
—

 
2

 
2

Interest income
(1
)
 
—

 
(2
)
 
(1
)
Interest expense, net
$
31

 
$
41

 
$
74

 
$
101

Interest expense, net decreased $10 in the second quarter of fiscal 2018 compared to last year primarily due to lower average outstanding borrowings under the Secured Term Loan Facility as a result of the $832 required prepayments related to the sale of Save-A-Lot in the fourth quarter of fiscal 2017 and the $99 excess cash flow payment made in the first quarter of fiscal 2017, offset in part by additional interest expense associated with the $315 of additional borrowings under the Secured Term Loan Facility to finance the acquisition of Unified.
Interest expense, net for fiscal 2018 year-to-date included costs and charges of $5 related to the refinancing of the Secured Term Loan Facility, comprised of unamortized financing charges of $3 and debt refinancing costs of $2. Interest expense, net for fiscal 2017 year-to-date included costs and charges of $7 related to the amendment and prepayments of the Secured Term Loan

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Facility, comprised of unamortized financing charges of $5 and debt refinancing costs of $2. When adjusted for these items, Interest expense, net decreased $25 primarily due to lower average outstanding borrowings under the Secured Term Loan Facility as a result of the $832 required prepayments related to the sale of Save-A-Lot in the fourth quarter of fiscal 2017 and the $99 excess cash flow payment made in the first quarter of fiscal 2017, offset in part by additional interest expense associated with the $315 of additional borrowings under the Secured Term Loan Facility to finance the acquisition of Unified.
Income Tax (Benefit) Provision
Income tax benefit for the second quarter of fiscal 2018 was $13 , or 32.6 percent of loss from continuing operations before income taxes, compared with an income tax expense of $6 , or 33.2 percent of earnings from continuing operations before income taxes last year. The change in income tax expense is primarily due to the decrease in earnings from continuing operations before taxes. 
Income tax provision for fiscal 2018 year-to-date was $1 , or (10.4) percent of loss from continuing operations before income taxes, compared with an income tax expense of $16 , or 33.5 percent of earnings from continuing operations before income taxes last year.  The change in income tax expense is primarily due to the decrease in earnings from continuing operations before taxes. The change in the effective tax rate is primarily due to $6, or (51.1) percent of loss from continuing operations before income taxes, of excess tax expense related to stock-based compensation activity as a result of adopting ASU 2016-09. ASU 2016-09 was adopted in the first quarter of fiscal 2018 and applies prospectively to the Condensed Consolidated Statements of Operations. Upon the exercise or cancellation of a stock option or the lapse of restrictions on other stock-based awards, the tax effect of the difference between the deduction for tax purposes and the compensation cost recognized for financial reporting purposes is now recorded as a discrete item in Income tax (benefit) provision in the quarter these activities occur. These items were historically recorded in Additional paid-in capital.
Net (Loss) Earnings from Continuing Operations
Second Quarter Variances
Net loss from continuing operations for the second quarter of fiscal 2018 was $25 , compared with net earnings from continuing operations of $12 last year. Net loss from continuing operations for the second quarter of fiscal 2018 included after-tax net charges and costs of $43 , comprised of an asset impairment charge of $27 , and merger and integration costs of $16 . Net earnings from continuing operations for the second quarter of fiscal 2017 included a fee received from a supply agreement termination of $6, offset in part by store closure costs of $3. When adjusted for these items, the remaining $9 after-tax increase in net earnings from continuing operations is due to the variances discussed in the Operating (Loss) Earnings, Interest Expense, Net and Income Tax (Benefit) Provision sections above.
The results of operations, financial position and cash flows of Save-A-Lot are reported as discontinued operations for all periods presented. Accordingly, Supervalu’s consolidated financial statements have been recast from their previous presentation. The results of Save-A-Lot for the comparative quarterly periods are disclosed within Note 14—Discontinued Operations within the Condensed Consolidated Financial Statements.
Year-To-Date Variances
Net loss from continuing operations for fiscal 2018 year-to-date was $13 , compared with net earnings from continuing operations of $32 last year. Net loss from continuing operations for fiscal 2018 year-to-date included after-tax net costs and charges of $55 , comprised of an asset impairment charge of $27 , merger and integration costs of $19 , a legal reserve charge of $6 , unamortized debt financing charges of $2 , debt refinancing costs of $1 and severance costs of $1 , offset in part by a gain on sale of property of $1 . Net earnings from continuing operations for fiscal 2017 year-to-date included a fee received from a supply agreement termination of $6, a sales and use tax refund of $1 and a severance benefit of $1, offset in part by unamortized financing charges of $3, store closure costs of $3 and debt refinancing costs of $1. When adjusted for these items, the remaining $11 after-tax increase in net earnings from continuing operations is due to the variances discussed in the Operating (Loss) Earnings, Interest Expense, Net and Income Tax (Benefit) Provision sections above.

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Table of Contents

In recasting the results for the selected quarterly financial data disclosure in Supervalu’s Annual Report on Form 10-K for the fiscal year ended February 25, 2017, Supervalu supplementally disclosed a previously unreported quarterly measure of net earnings from continuing operations within the Unaudited Quarterly Financial Information. This disclosure contained an inadvertent presentation error for the first and second quarters of fiscal 2017. For the first quarter of fiscal 2017, tax expense of $17 was not allocated from continuing operations to discontinued operations, resulting in an understatement of Net earnings from continuing operations of $17 (such that Net earnings from continuing operations should have been $20 instead of $3 for the first quarter of fiscal 2017). The error had an offsetting impact to the second quarter of fiscal 2017, resulting in an overstatement of Net earnings from continuing operations of $17 in that quarter (such that Net earnings from continuing operations should have been $12 instead of $29 for the second quarter of fiscal 2017). There was no impact to total Net earnings attributable to SUPERVALU INC. within the Unaudited Quarterly Financial Information and no impact to any amounts previously reported on Quarterly Reports on Form 10-Q. There was no impact to any annual amounts previously presented. Supervalu has corrected for the presentation error in the amounts included within the Condensed Consolidated Statements of Operations for the first and second quarters of fiscal 2017.

NON-GAAP FINANCIAL MEASURES
Use of Non-GAAP Financial Measures
Supervalu’s Condensed Consolidated Financial Statements are prepared and presented in accordance with generally accepted accounting principles (“GAAP”). In addition to the above analysis of results of operations, Supervalu also considers certain non-GAAP financial measures to assess the performance of its business and understand underlying operating performance and core business trends, which it uses to facilitate operating performance comparisons of its business on a consistent basis over time. The measures and items identified below, such as Adjusted EBITDA, are provided as a supplement to Supervalu’s results of operations and related analysis, and should not be considered superior to, a substitute for or an alternative to any financial measure of performance prepared and presented in accordance with GAAP. In each of these measures, certain items are being omitted either because they are non-cash items or are items that are not considered in Supervalu’s supplemental assessment of on-going business performance. Certain of these adjustments are considered in similar supplemental analyses by other companies, such as depreciation and amortization, impairment charges and certain other adjustments.
Supervalu believes these non-GAAP measures are useful to investors and financial institutions because, for example, Adjusted EBITDA provides additional understanding of other factors and trends affecting its business, which are used in the business planning process to understand expected performance, to evaluate results against those expectations, and as one of the compensation performance measures under certain compensation programs and plans. Supervalu believes Adjusted EBITDA is more reflective of factors that affect its underlying operating performance and facilitate operating performance comparisons of its business segments on a consistent basis over time.
Limitations of Use
Investors are cautioned that there are material limitations associated with the use of non-GAAP financial measures as an analytical tool. Certain adjustments to Supervalu’s GAAP financial measures reflected below exclude items that may be considered recurring in nature and may be reflected in Supervalu’s financial results for the foreseeable future. These measurements and items may be different from non-GAAP financial measures used by other companies. All measurements are provided with a reconciliation from a GAAP measurement. The non-GAAP financial measures below should only be considered as an additional supplement to Supervalu’s financial results reported in accordance with GAAP and should be reviewed in conjunction with Supervalu’s results reported in accordance with GAAP in this Quarterly Report on Form 10-Q and in Supervalu’s Annual Report on Form 10-K for the fiscal year ended February 25, 2017 .
There are significant limitations to using Adjusted EBITDA as a financial measure including, but not limited to, it not reflecting cash expenditures for capital assets or contractual commitments, changes in working capital, income taxes, capital lease obligations and debt service expenses that are recurring in Supervalu’s results of operations.
Definitions
Supervalu defines Adjusted EBITDA as Net (loss) earnings from continuing operations, plus Interest expense, net and Income tax (benefit) provision, less Net earnings attributable to noncontrolling interests calculated in accordance with GAAP, plus non-GAAP adjustments for Depreciation and amortization, LIFO charge (credit), certain employee-related costs and pension-related charges (including severance costs, pension settlement charges, multiemployer pension withdrawal charges, accelerated stock-based compensation charges and other items), certain non-cash asset impairment and other charges (including asset write-offs, store closures and market exits), certain gains and losses on the sale of property, goodwill and intangible asset impairment charges, costs related to the separation of businesses, legal settlement charges and gains, contract breakage costs and certain other non-cash charges or items, as determined by management.

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The following table reconciles Adjusted EBITDA to Net (loss) earnings from continuing operations :
 
Second Quarter Ended
 
Year-To-Date Ended
 
September 9, 
 2017 
 (12 weeks)
 
September 10, 
 2016 
 (12 weeks)
 
September 9, 
 2017 
 (28 weeks)
 
September 10, 
 2016 
 (28 weeks)
Net (loss) earnings from continuing operations
$
(25
)
 
$
12

 
$
(13
)
 
$
32

Less net earnings attributable to noncontrolling interests
—

 
(1
)
 
(1
)
 
(2
)
Income tax (benefit) provision
(13
)
 
6

 
1

 
16

Interest expense, net
31

 
41

 
74

 
101

Depreciation and amortization
52

 
47

 
112

 
111

LIFO charge
1

 
—

 
3

 
2

Asset impairment charge (1)
42

 
—

 
42

 
—

Merger and integration costs (2)
23

 
—

 
27

 
—

Legal reserve charge (3)
—

 
—

 
9

 
—

Severance costs (benefit) (4)
—

 
—

 
3

 
(1
)
Gain on store closure (5)
—

 
—

 
(1
)
 
—

Gain on sale of property (6)
—

 
—

 
(2
)
 
—

Supply agreement termination fees (7)
—

 
(9
)
 
—

 
(9
)
Store closure costs (8)
—

 
4

 
—

 
4

Sales and use tax refunds (9)
—

 
—

 
—

 
(2
)
Adjusted EBITDA
$
111

 
$
100

 
$
254

 
$
252

(1)
Asset impairment charge reflects a non-cash write-down of a Retail geographic market asset group.
(2)
Merger and integration costs primarily reflect employee severance and transition costs related to the acquisition and integration of Unified. Supervalu expects to incur $29 to $39 of merger and integration costs related to Unified in fiscal 2018.
(3)
Legal reserve charge reflects a settlement for certain legal proceedings.
(4)
Severance costs primarily reflect termination costs for employees who are not part of Supervalu's on-going business.
(5)
Gain on store closure is from the sale of pharmacy prescription files related to a store closure.
(6)
Gain on sale of property reflects a surplus property sale for a store that was previously impaired and adjusted as a store closure charge.
(7)
Supply agreement termination fees reflect cash gains related to the termination of supply agreements.
(8)
Store closure costs include impairment, severance and related costs due to store closures.
(9)
Sales and use tax refunds reflect refunds received related to prior years.

LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Capital Resource Highlights
•
Unused available credit under the Revolving ABL Credit Facility increased $42 to $790 as of September 9, 2017 from $748 as of February 25, 2017 .
•
In fiscal 2018 year-to-date, Supervalu completed the refinancing of the Secured Term Loan Facility due March of 2019, which among other changes, reduced the interest rate by 1.00 percent for LIBOR based loans and extended the maturity to June 2024, subject to certain acceleration provisions.
•
Cash and cash equivalents decreased $123 to $209 as of September 9, 2017 from $332 as of February 25, 2017 .
•
Total debt increased $345 to $1,608 as of September 9, 2017 from $1,263 as of February 25, 2017 , net of unamortized debt financing costs and original issue discount, primarily related to the additional borrowings under the Secured Term Loan Facility to finance the Unified acquisition.
•
Scheduled debt maturities of $4 and no required prepayments are due in the remainder of fiscal 2018.
•
Payments to reduce capital lease obligations are expected to be $16 for the remainder of fiscal 2018 and approximately $29 in fiscal 2019.
•
Working capital of continuing operations increased $37 to $565 as of September 9, 2017 from $528 as of February 25, 2017 , excluding the impacts of the LIFO reserve, primarily due to the addition of receivables and inventories from the acquisition of Unified, offset in part by an increase in payables related to Unified and a reduction in the cash balance that was utilized in the acquisition of Unified.
•
Management expects that Supervalu will be able to fund debt maturities through internally generated funds, borrowings under the Revolving ABL Credit Facility, additional term loans under the Secured Term Loan Facility (subject to identifying term loan lenders or other institutional lenders and satisfying certain terms and conditions) or through new debt issuances.
•
No minimum pension contributions are required under ERISA for the remainder of fiscal 2018 .

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Table of Contents


Sources and Uses of Cash
Management expects that Supervalu will continue to replenish operating assets with internally generated funds and pay down debt obligations with internally generated funds and new debt issuances or existing credit facilities. A significant reduction in operating earnings or the incurrence of operating losses could have a negative impact on Supervalu’s operating cash flow, which may limit Supervalu’s ability to pay down its outstanding indebtedness as planned. Supervalu's credit facilities are secured by a substantial portion of Supervalu's total assets.
Supervalu’s primary sources of liquidity are from internally generated funds and from borrowing capacity under its credit facilities. Supervalu will continue to obtain short-term or long-term financing from its credit facilities. Long-term financing will be maintained through existing and new debt issuances and its credit facilities. Supervalu’s short-term and long-term financing abilities are believed to be adequate as a supplement to internally generated cash flows to fund debt obligations and capital expenditures as opportunities arise. There can be no assurance, however, that Supervalu’s business will continue to generate cash flow at current levels or that it will continually have access to credit on acceptable terms. Maturities of debt issued will depend on management’s views with respect to the relative attractiveness of interest rates at the time of issuance and other debt maturities.
Primary uses of cash include debt servicing and maturities, capital expenditures, working capital maintenance, contributions to various benefit plans and income tax payments. Supervalu’s working capital needs are generally greater during the months leading up to high sales periods, such as the time period from prior to Thanksgiving through December. Supervalu typically finances these working capital needs with cash provided from operating activities and short-term borrowings. Inventories are managed primarily through demand forecasting and replenishing depleted inventories. Strategic and operational investments in Supervalu’s businesses are funded by cash provided from operating activities and on a short-term basis through available liquidity.
Supervalu’s continued access to short-term and long-term financing through credit markets depends on numerous factors including the condition of the credit markets and Supervalu’s results of operations, cash flows, financial position and credit ratings.
Supervalu does not pay dividends, and there is no current intent to pay dividends. Supervalu is limited in the aggregate amount of dividends that it may pay under the terms of its Secured Term Loan Facility and its Revolving ABL Credit Facility and would need to meet certain conditions under these credit facilities before paying a dividend, as described in Note 6—Long-Term Debt in Part I, Item 1 of this Quarterly Report on Form 10-Q. The payment of future dividends is subject to the discretion of Supervalu’s Board of Directors and the requirements of Delaware law, and will depend on a variety of factors that Supervalu’s Board of Directors may deem relevant.
Cash Flow Information
The following summarizes Supervalu’s Condensed Consolidated Statements of Cash Flows:
 
Year-To-Date Ended
 
September 9, 
 2017 
 (28 weeks)
 
September 10, 
 2016 
 (28 weeks)
 
Variance
Cash flow activities
 
 
 
 
 
Net cash provided by operating activities – continuing operations
$
116

 
$
208

 
$
(92
)
Net cash used in investing activities – continuing operations
(216
)
 
(69
)
 
(147
)
Net cash provided by (used in) financing activities – continuing operations
30

 
(165
)
 
195

Net cash (used in) provided by discontinued operations
(53
)
 
26

 
(79
)
Net (decrease) increase in cash and cash equivalents
(123
)
 
—

 
(123
)
Cash and cash equivalents at beginning of period
332

 
57

 
275

Cash and cash equivalents at the end of period
$
209

 
$
57

 
$
152

The decrease in net cash provided by operating activities from continuing operations in fiscal 2018 year-to-date compared to last year is primarily due to cash utilized for net working capital and other assets and liabilities to support higher Wholesale sales volumes and lower cash generated from earnings.
The increase in net cash used in investing activities in fiscal 2018 year-to-date compared to last year is primarily due to cash paid this year to acquire Unified and a distribution center in Harrisburg, Pennsylvania.

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The increase in net cash provided by financing activities in fiscal 2018 year-to-date compared to last year is primarily due to debt repayments of $99 made in the first quarter of fiscal 2017 that were not required in the first quarter of fiscal 2018 and new debt in the first quarter of fiscal 2018 in the form of a mortgage to finance the Harrisburg, Pennsylvania distribution center acquisition and lower net repayments of borrowings under the Revolving ABL Credit Facility in fiscal 2018 year-to-date. In addition, in fiscal 2018 year-to-date, Supervalu borrowed $315 under the Secured Term Loan Facility to finance the acquisition of Unified and to acquire and repay the Unified debt.
The increase in net cash used in discontinued operations in fiscal 2018 year-to-date compared to last year is primarily due to the taxes paid in the first quarter of fiscal 2018 related to the sale of Save-A-Lot.
Credit Facilities and Debt Agreements
Total debt and capital lease obligations, net of unamortized debt financing costs and original issue discount, increased $334 to $1,809 as of September 9, 2017 from $1,475 as of February 25, 2017 . The increase in total debt and capital lease obligations is primarily due to the $315 of additional borrowings under the Secured Term Loan Facility to finance the acquisition of Unified and a new mortgage payable related to the acquisition of the Harrisburg, Pennsylvania distribution center, offset in part by capital lease payments of $13.
Refer to Note 6—Long-Term Debt in Part I, Item 1 of this Quarterly Report on Form 10-Q for a detailed discussion of the provisions of Supervalu's credit facilities and certain long-term debt agreements and additional information.
Capital Expenditures
Capital expenditures in fiscal 2018 year-to-date were $118 , including capital lease additions but excluding cash paid for business acquisitions, and primarily consisted of investments in a new distribution center, Retail store remodels and technology improvements. In addition, Supervalu paid $114 to acquire the equity interests of Unified in fiscal 2018 year-to-date.
Capital expenditures for fiscal 2018 are estimated to be approximately $310 to $335, including capital expenditures attributable to the acquired Unified business, and primarily relate to an acquisition of a distribution center and related improvements, investments in existing distribution centers, Retail store remodels and information technology investments.
Supervalu defines capital expenditures as cash payments for purchases of property, plant and equipment and non-cash capital lease additions, and excludes payments for business acquisitions and capitalized property, plant and equipment obligations for which cash payment has not been made and obligations exist within Accounts payable.
Pension and Other Postretirement Benefit Obligations
Cash contributions to defined benefit pension and other postretirement benefit plans were $1 and $2 in fiscal 2018 and 2017 year-to-date, respectively.
No minimum contributions are required to Supervalu's pension plans in fiscal 2018 in accordance with ERISA. Supervalu anticipates fiscal 2018 discretionary pension contributions and required minimum other postretirement benefit plan contributions will be approximately $5 to $10 .
Supervalu funds its defined benefit pension plans based on the minimum contribution amount required under ERISA, the Pension Protection Act of 2006 and other applicable laws, as determined by Supervalu’s external actuarial consultant, and additional contributions made at Supervalu's discretion. Supervalu may accelerate contributions or undertake contributions in excess of the minimum requirements from time to time subject to the availability of cash in excess of operating and financing needs or other factors as may be applicable. Supervalu assesses the relative attractiveness of the use of cash to accelerate contributions considering such factors as expected return on assets, discount rates, cost of debt, reducing or eliminating required Pension Benefit Guaranty Corporation variable rate premiums or in order to achieve exemption from participant notices of underfunding.

CRITICAL ACCOUNTING POLICIES
Except as described below, there were no material changes in Supervalu’s critical accounting policies during the period covered by this Quarterly Report on Form 10-Q. Refer to the description of critical accounting policies included in Item 7 of Supervalu’s Annual Report on Form 10-K for the fiscal year ended February 25, 2017 .

Business Combinations
Supervalu accounts for acquired businesses using the purchase method of accounting, which requires that the acquired assets and assumed liabilities be recorded at their estimated fair values. Goodwill recognized from the valuation of the acquired

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businesses represents the excess of the consideration transferred over the estimated fair values of the net assets recorded. In determining the estimated fair value of acquired intangible assets, Supervalu typically utilizes the income approach, which discounts the projected future cash flows using an appropriate discount rate that reflects the risks associated the projected cash flows. Unanticipated market or macroeconomic events and circumstances may occur that could affect the accuracy or validity of the estimates and assumptions. Other significant judgments include the estimated fair value of real and personal property that utilizes significant inputs such as rental rates and discount rates to determine the fair value of the acquired assets, and the market approach that utilizes significant inputs such as market rental rates and sales comparisons. Fair value estimates are based on available historical information, future expectations and assumptions determined to be reasonable by Supervalu but are inherently uncertain with respect to future events, including economic conditions, competition, the useful life of the acquired assets and other factors.

COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET ARRANGEMENTS
Guarantees
Supervalu has outstanding guarantees and is contingently liable under other contractual arrangements. See Note 13—Commitments, Contingencies and Off-Balance Sheet Arrangements under the caption "Guarantees and Contingent Liabilities" in Part I, Item I of this Quarterly Report on Form 10-Q.
Legal Proceedings
Supervalu is a party to various legal proceedings arising from the normal course of business as described in Note 13—Commitments, Contingencies and Off-Balance Sheet Arrangements in Part I, Item I of this Quarterly Report on Form 10-Q, none of which, in management’s opinion, is expected to have a material adverse impact on Supervalu’s financial condition, results of operations or cash flows.
Multiemployer Pension Plans
Supervalu contributes to various multiemployer pension plans, which are primarily defined benefit pension plans, under collective bargaining agreements. During fiscal 2018 and 2017 year-to-date, Supervalu contributed $21 and $21 , respectively, to these multiemployer pension plans. There have been no material changes in Supervalu's multiemployer pension plan arrangements since the end of fiscal 2017 . Refer to Item 7 of Supervalu’s Annual Report on Form 10-K for the fiscal year ended February 25, 2017 for information regarding these arrangements.
As part of the acquisition of Unified, Supervalu assumed the off-balance sheet multiemployer pension plan obligations of Unified. In Unified's 52-week fiscal year ended October 1, 2016, Unified contributed $15 to its multiemployer pension plans, comprised primarily of contributions to the Western Conference of Teamsters Pension Trust, which has a green zone status under the Pension Protection Act.
Contractual Obligations
As a result of the Unified acquisition, Supervalu’s contractual obligations increased. The contractual obligations in the table below reflect continuing operations contractual obligations as of September 9, 2017 after giving effect to the acquisition of Unified:
 
Payments Due Per Period
 
Total
 
Remaining Fiscal 2018
 
Fiscal 2019
 
Fiscal 2020-2021
 
Fiscal 2022-2023
 
Thereafter
Contractual obligations (1)(2) :
 
 
 
 
 
 
 
 
 
 
 
Long-term debt (3)
$
1,624

 
$
5

 
$
11

 
$
23

 
$
794

 
$
791

Interest on long-term debt (4)
540

 
46

 
98

 
194

 
150

 
52

Operating leases (5)
366

 
28

 
69

 
110

 
60

 
99

Capital leases (6)
268

 
17

 
40

 
73

 
57

 
81

Purchase obligations (7)
424

 
166

 
94

 
122

 
42

 
—

Self-insurance obligations (8)
72

 
13

 
16

 
19

 
9

 
15

Total contractual obligations
$
3,294

 
$
275

 
$
328

 
$
541

 
$
1,112

 
$
1,038

(1)
Because the timing of future payments beyond fiscal 2018 cannot be reasonably determined, contractual obligations payments due per fiscal period presented here exclude Supervalu’s discretionary funding of its pension and required funding of its postretirement benefit obligations, which totaled $62 for fiscal 2017 and $1 for fiscal 2018 year-to-date, and multiemployer pension plan contributions,

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which totaled $43 for fiscal 2017 and $21 for fiscal 2018 year-to-date. Pension and postretirement benefit obligations were $403 as of September 9, 2017 , which includes $105 of pension and postretirement benefit obligations from Unified. Supervalu expects to contribute $5 to $10 t o pension and postretirement benefit plans during fiscal 2018, but is not required to make minimum pension contributions.
(2)
Unrecognized tax benefits, which totaled $59 as of September 9, 2017 , were excluded from the contractual obligations table because an estimate of the timing of future tax settlements cannot be reasonably determined.
(3)
Long-term debt amounts exclude original issue discounts and deferred financing costs. Long-term debt payments due per fiscal period for 2018 through thereafter exclude any Excess Cash Flow prepayments, which may be required under the provisions of the Secured Term Loan Facility because the amount of such future prepayment amounts, if any, are not reasonably estimable as of  September 9, 2017 .
(4)
Amounts include contractual interest payments using the interest rate as of September 9, 2017 applicable to Supervalu’s variable interest debt instruments (including variable interest rates under the Secured Term Loan Facility that have been swapped to fixed interest rates) and stated fixed rates for all other debt instruments.
(5)
Represents the minimum rents payable under operating leases, excluding common area maintenance, insurance or tax payments, for which Supervalu is also obligated, offset by minimum subtenant rentals of $82, $6, $17, $26, $15 and $18, respectively.
(6)
Represents the minimum payments under capital leases, excluding common area maintenance, insurance or tax payments, for which Supervalu is also obligated, offset by minimum subtenant rentals of $21, $1, $4, $6, $5 and $5, respectively.
(7)
Supervalu’s purchase obligations include various obligations that have annual purchase commitments of $1 or greater. As of September 9, 2017 , future purchase obligations existed that primarily related to fixed asset and information technology commitments. In addition, in the ordinary course of business, Supervalu enters into supply contracts to purchase product for resale to Wholesale customers and to consumers, which are typically of a short-term nature with limited or no purchase commitments. The majority of Supervalu’s supply contracts are short-term in nature and relate to fixed assets, information technology and contracts to purchase product for resale. These supply contracts typically include either volume commitments or fixed expiration dates, termination provisions and other standard contractual considerations. The supply contracts that are cancelable have not been included above.
(8)
Supervalu’s insurance reserves include the undiscounted obligations related to workers’ compensation, general and automobile liabilities at the estimated ultimate cost of reported claims and claims incurred but not yet reported and related expenses.

RECENTLY ISSUED ACCOUNTING STANDARDS
Refer to Note 1—Summary of Significant Accounting Policies in Part I, Item 1 of this Quarterly Report on Form 10-Q under the caption “Recently Issued Accounting Standards” for a discussion of recently issued accounting standards not yet adopted by Supervalu, and for which Supervalu is currently evaluating their impact on its financial statements.

CAUTIONARY STATEMENTS FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
Any statements contained in this Quarterly Report on Form 10-Q regarding the outlook for Supervalu’s businesses and their respective markets, such as projections of future performance, guidance, statements of Supervalu’s plans and objectives, forecasts of market trends and other matters, are forward-looking statements based on Supervalu’s assumptions and beliefs. Such statements may be identified by such words or phrases as “will likely result,” “are expected to,” “will continue,” “may continue,” “outlook,” “is anticipated,” “estimate,” “project,” “believes,” “intends” or similar expressions. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those discussed in such statements and no assurance can be given that the results in any forward-looking statement will be achieved. For these statements, Supervalu claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Any forward-looking statement speaks only as of the date on which it is made, and Supervalu disclaims any obligation to subsequently revise any forward-looking statement to reflect events or circumstances after such date or to reflect the occurrence of anticipated or unanticipated events.
Certain factors could cause Supervalu’s future results to differ materially from those expressed or implied in any forward-looking statements contained in this report. These factors include the factors discussed in Part I, Item 1A of Supervalu’s Annual Report on Form 10-K for the fiscal year ended February 25, 2017 under the heading “Risk Factors,” the factors discussed in Part II, Item 1A of this Quarterly Report on Form 10-Q under the heading “Risk Factors,” and any other cautionary statements, written or oral, which may be made or referred to in connection with any such forward-looking statements. Since it is not possible to foresee all such factors, these factors should not be considered as complete or exhaustive.


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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Except as described in Note 6—Long-Term Debt in Part I, Item 1 of this Quarterly Report on Form 10-Q, there were no material changes in market risk for Supervalu in the period covered by this report. See the discussion of market risk in Item 7A of Supervalu’s Annual Report on Form 10-K for the fiscal year ended February 25, 2017 .

ITEM 4. CONTROLS AND PROCEDURES
Management of Supervalu, including the Chief Executive Officer and the Interim Chief Financial Officer, have evaluated the effectiveness of Supervalu’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended) as of September 9, 2017 . Based on this evaluation, the Chief Executive Officer and the Interim Chief Financial Officer concluded that Supervalu’s disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by Supervalu in the reports that it files or submits under the Securities Exchange Act of 1934 is (1) recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms and (2) accumulated and communicated to Supervalu’s management, including Supervalu’s Chief Executive Officer and Interim Chief Financial Officer, in a manner that allows timely decisions regarding required disclosure.
There has been no change to Supervalu’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended) that has materially affected, or is reasonably likely to materially affect, Supervalu’s internal control over financial reporting.
On June 23, 2017, Supervalu completed its acquisition of Unified. Management continues to evaluate the internal controls and procedures of Unified.  Management plans to integrate Unified’s internal control over financial reporting with Supervalu’s internal control over financial reporting. This integration may lead to changes in the internal control over financial reporting for Supervalu in future fiscal periods.

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PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Supervalu is subject to various lawsuits, claims and other legal matters that arise in the ordinary course of conducting business. In the opinion of management, based upon currently available facts, it is remote that the ultimate outcome of any lawsuits, claims and other proceedings will have a material adverse effect on the overall results of Supervalu’s operations, its cash flows or its financial position. See Note 13—Commitments, Contingencies and Off-Balance Sheet Arrangements in Part I, Item I of this Quarterly Report on Form 10-Q under the caption “Legal Proceedings” for a discussion of certain of Supervalu’s legal proceedings.

ITEM 1A.    RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider the discussion of risk factors in Part I, Item 1A of Supervalu’s Annual Report on Form 10-K for the fiscal year ended February 25, 2017 . There were no material changes in risk factors for Supervalu in the period covered by this report other than the risks described below.
Supervalu may engage in acquisitions and divestitures, and may encounter difficulties integrating acquired businesses or disposing divested businesses and may not realize the anticipated benefits of these acquisitions and divestitures.
Supervalu has engaged in, and expects to continue to pursue, strategic transactions. Acquisitions and dispositions present significant challenges and risks relating to the integration of acquired businesses and the separation of disposed businesses. The risks include Supervalu’s due diligence reviews may not identify all of the material issues, Supervalu may incur unanticipated costs or expenses, and Supervalu may not be able to integrate acquisitions with its operations or separate divested businesses and related obligations from its operations as planned. Supervalu may also not realize the degree or timing of benefits or synergies it anticipates when it first enters into a transaction. There can be no assurances that Supervalu will manage acquisitions and dispositions successfully, that strategic opportunities will be available to Supervalu on acceptable terms or at all, or that Supervalu will be able to consummate desired transactions. Any of the foregoing could materially adversely affect Supervalu’s competitive position, financial condition, results of operations or cash flows.
On June 23, 2017, Supervalu acquired Unified Grocers, Inc., a West Coast focused wholesale grocery and specialty distributor. On October 17, 2017, Supervalu entered into a definitive merger agreement to acquire Associated Grocers of Florida, Inc. (“AG Florida”), a retailer-owned cooperative that distributes full lines of grocery and general merchandise to independent retailers, primarily in South Florida, the Caribbean, Central and South America and Asia. The transaction is valued at approximately $180. There are no purchase price adjustments for any changes in AG Florida’s net debt between signing and closing. The process of integrating Unified and consummating the proposed acquisition of AG Florida may be disruptive to Supervalu’s business operations and may distract Supervalu’s management team from their day-to-day responsibilities. The acquisition of AG Florida is subject to customary closing conditions, which may not be obtained or satisfied, and as a result and due to other factors outside Supervalu’s control, the acquisition may not be completed on the current terms or on the timing currently contemplated, or at all.
There can also be no assurance that Supervalu will be able to successfully integrate Unified and AG Florida to achieve the operational efficiencies, including synergistic and other benefits of the acquisitions, or effectively retain key employees and maintain and grow customer relationships. Any of these risks or uncertainties, including the inability to complete the proposed AG Florida acquisition in the time period and on the terms contemplated, could adversely affect Supervalu’s business, financial condition, results of operations or cash flows.
Supervalu’s businesses are subject to laws and governmental regulations that could adversely impact Supervalu’s financial condition and results of operations.
Supervalu’s businesses are subject to various federal, state and local laws, regulations and administrative practices that require Supervalu to comply with numerous provisions regulating areas such as environmental, health and sanitation standards, food safety, marketing of natural or organically produced food, facilities, pharmacies, equal employment opportunity, public accessibility, employee benefits, wages and hours worked and licensing for the sale of food, drugs and alcoholic beverages, among others. For example:
Environmental, Health and Safety : Supervalu’s operations are subject to extensive and increasingly stringent laws and regulations pertaining to the protection of the environment, including those relating to the discharge of materials into the environment, the disposal of food by-products, the handling, treatment and disposal of wastes, maintenance of refrigeration systems and remediation of soil and groundwater contamination. Compliance with existing or changing environmental and

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safety requirements, including more stringent limitations imposed or expected to be imposed in recently renewed or soon-to-be renewed environmental permits, may require capital expenditures.
Food Safety : There is increasing governmental scrutiny, regulations and public awareness regarding food quality and food and drug safety. Supervalu may be adversely affected if consumers lose confidence in the safety and quality of Supervalu’s food and drug products. Any events that give rise to actual or potential food contamination, drug contamination or food-borne illness or injury, or events that give rise to claims that Supervalu’s products are not of the quality or composition claimed to be, may result in product liability claims from individuals, consumers and governmental agencies, penalties and enforcement actions from government agencies, a loss of consumer confidence, harm to Supervalu’s reputation and could cause production and delivery disruptions, which may adversely affect Supervalu’s financial condition and results of operations. It may be necessary for Supervalu to recall unsafe, contaminated or defective products or Supervalu may recall products that it determines do not satisfy its quality standards. Recall costs and product liability claims can be material. While Supervalu generally seeks contractual indemnification and insurance coverage from its suppliers, it might not be able to recover these significant costs from its suppliers.
Pharmacy : Supervalu is required to meet various security and operating standards and comply with the Controlled Substances Act and its accompanying regulations governing the sale, marketing, packaging, holding, record keeping and distribution of controlled substances. During the past several years, the United States health care industry has been subject to an increase in governmental regulation and audits at both the federal and state levels. For example, see Note 15-Commitments, Contingencies and Off-Balance Sheet Arrangements in Part II, Item 8 of this Annual Report on Form 10-K under the caption “Legal Proceedings” for a discussion of the administrative subpoena issued to Supervalu by the DEA requesting, among other things, information on Supervalu’s pharmacy policies and procedures generally as well as the production of documents that are required to be kept and maintained by Supervalu pursuant to the Controlled Substances Act and its implementing regulations. Additionally, the Patient Protection and Affordable Care Act made several significant changes to Medicaid rebates and to reimbursement. One of these changes was to revise the definition of the Average Manufacturer Price, a pricing element common to most payment formulas, and the reimbursement formula for multi-source (i.e., generic) drugs. This change will affect Supervalu’s reimbursement. In addition, the Patient Protection and Affordable Care Act made other changes that affect the coverage and plan designs that are or will be provided by many of Supervalu’s health plan clients, including the requirement for health insurers to meet a minimum medical loss ratio to avoid having to pay rebates to enrollees. These Patient Protection and Affordable Care Act changes may not affect Supervalu’s business directly, but they could indirectly impact Supervalu’s services and/or business practices.
Wage Rates and Paid Leave : Changes in federal or state minimum wage and overtime laws or employee paid leave laws could cause Supervalu to incur additional wage costs, which could adversely affect Supervalu’s operating margins.
Foreign Operations : Supervalu’s supplier base includes domestic and foreign suppliers. In addition, Supervalu has customers located outside the United States and the proposed acquisition of AG Florida would expand Supervalu’s Wholesale business to additional customers beyond the U.S. Accordingly, political or financial instability in these foreign countries, changes in U.S. and foreign relationships, laws and regulations affecting the importation and taxation of goods, including duties, tariffs and quotas, or changes in the enforcement of those laws and regulations could adversely impact Supervalu’s financial condition and results of operations. In addition, Supervalu is required to comply with laws and regulations governing export controls, and ethical, anti-bribery and similar business practices such as the Foreign Correct Practices Act. Additionally, foreign currency exchange rates and fluctuations may have an effect on our future costs or on future cash flows from our foreign operations, and could adversely affect our financial condition and results of operations.
Failure to comply with government laws and regulations or make capital expenditures required to maintain compliance with governmental laws and regulations may adversely impact Supervalu’s business operations and prospects for future growth and its ability to participate in federal and state healthcare programs and may also result in monetary liabilities, claims, fines, penalties or other sanctions and may adversely affect Supervalu’s business, financial condition and operating results. Supervalu cannot predict the nature of future laws, regulations, interpretations or applications, nor can Supervalu determine the effect that additional governmental regulations or administrative orders, when and if promulgated, or disparate federal, state and local regulatory schemes would have on Supervalu’s future business.


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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(in millions, except shares and per share amounts)
Period (1)
 
Total Number of Shares Purchased (2)
 
Average Price Paid Per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
 
Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs
First four weeks
 
 
 
 
 
 
 
 
June 18, 2017 to July 15, 2017
 
—

 
$
—

 
—

 
$
—

Second four weeks
 
 
 
 
 
 
 
 
July 16, 2017 to August 12, 2017
 
595

 
$
23.46

 
—

 
$
—

Third four weeks
 
 
 
 
 
 
 
 
August 13, 2017 to September 9, 2017
 
—

 
$
—

 
—

 
$
—

Totals
 
595

 
$
23.46

 
—

 
$
—


(1)
The reported periods conform to Supervalu's fiscal calendar composed of thirteen 28-day periods. The second quarter of fiscal 2018 contains three 28-day periods.
(2)
These amounts include the deemed surrender by participants in Supervalu's compensatory stock plans of 595 shares of previously issued common stock. These are from the vesting of restricted stock awards and restricted stock units granted under such plans.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.

ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.

ITEM 5. OTHER INFORMATION
On October 17, 2017, Supervalu entered into a letter agreement with each of Albertson’s LLC and NAI pursuant to which the parties agreed that the TSA would expire on September 21, 2018 as to those services that Supervalu is providing to Albertson’s LLC and NAI. Supervalu will continue to provide transition and wind down services as previously agreed. In addition, Supervalu will provide services to Albertson’s LLC for one distribution center until at least October 2018, and NAI may notify Supervalu that it requires services for certain stores beyond September 21, 2018. The fees for these extended services, if any, will be the same per-store weekly fee (subject to a minimum fee) and the same weekly fee for the distribution center that Albertson’s LLC and NAI pay to Supervalu currently. The parties do not expect any of these services, or any of the transition and wind down services, to extend beyond April 2019. Supervalu also agreed that Albertson’s would no longer provide services to Supervalu after September 21, 2019. Supervalu expects the revenue that it will receive under the TSA will be approximately $125 in fiscal 2018, $55 in fiscal 2019, and $0 in fiscal 2020.  With this revenue decline, adjusted EBITDA with respect to the TSA is expected to decline by up to $50 in fiscal 2019 and by up to another $40 in fiscal 2020.
On October 17, 2017, Supervalu, a newly formed wholly owned subsidiary of Supervalu (“AG Merger Sub”), and Associated Grocers of Florida, Inc. (“AG Florida”) entered into an Agreement and Plan of Merger (the “AG Merger Agreement”) pursuant to which Supervalu agreed to acquire AG Florida in a transaction valued at approximately $180.
On the terms and subject to the conditions set forth in the AG Merger Agreement, at the closing of the transactions contemplated thereby (the “AG Closing”), AG Merger Sub will merge with and into AG Florida (the “AG Merger”) with AG Florida surviving the AG Merger as a wholly owned subsidiary of Supervalu, and the shares of AG Florida will be converted into the right to receive cash consideration from Supervalu at the AG Closing.
As further provided in the AG Merger Agreement, the consummation of the transactions contemplated by the AG Merger Agreement is subject to certain closing conditions, including (i) approval of the AG Merger by the shareholders of AG Florida, (ii) any applicable waiting periods (or extensions thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 having expired or been terminated, (iii) the absence of any action or order by any governmental entity that restrains, conditions, challenges the legality or validity of, or otherwise prohibits the AG Merger, (iv) the accuracy of the representations and warranties of the parties (generally subject to a material adverse effect standard), (v) material compliance by the parties with their respective obligations under the AG Merger Agreement, (vi) no material adverse effect having occurred with respect to the

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AG Florida business after entry into the AG Merger Agreement and no Supervalu bankruptcy, and (vii) other customary closing conditions. The transaction is currently expected to be completed by the end of calendar year 2017.
Under the terms of the AG Merger Agreement, Supervalu will be entitled to receive a termination fee of $7, plus reimbursement of up to $500 thousand in costs and expenses, in the event that the AG Merger Agreement is terminated under certain circumstances, including as a result of a change in the recommendation of the board of directors of AG Florida. In addition, a reverse termination fee of $9 may be payable by Supervalu to AG Florida upon termination of the AG Merger Agreement under certain circumstances, including if Supervalu is unable to obtain antitrust approval before June 14, 2018.
The AG Merger Agreement contains customary representations and warranties that are the product of negotiations among the parties thereto and that the parties made to, and solely for the benefit of, each other as of specified dates. The assertions embodied in those representations and warranties are subject to qualifications and limitations agreed to by the respective parties and are also qualified in important part by confidential disclosure schedules delivered in connection with the AG Merger Agreement. The representations and warranties may have been made for the purpose of allocating contractual risk between the parties to the AG Merger Agreement instead of establishing these matters as facts, and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors. Investors should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of Supervalu, AG Florida, any of their respective subsidiaries or affiliates or the AG Florida business. The AG Merger Agreement has been included to provide investors with information regarding its terms. It is not intended to provide any other factual information about Supervalu, AG Florida, any of their respective subsidiaries or affiliates or the AG Florida business.
Supervalu expects to obtain “representation and warranty” insurance from certain insurers, which will provide coverage for certain breaches and warranties of AG Florida contained in the AG Merger Agreement, subject to deductibles, exclusions, policy limits, and certain other terms and conditions.
In connection with entry into the AG Merger Agreement, Supervalu entered into voting agreements with each shareholder of AG Florida that has a representative on the board of directors of AG Florida. The voting agreements require such shareholders to vote shares over which they have voting control in favor of the approval of the AG Merger and the AG Merger Agreement. Additionally, as part of the pending acquisition, Supervalu reached a long-term supply agreement with AG Florida’s largest customer that will go into effect upon the closing of the acquisition.
There is no material relationship between Supervalu and AG Florida other than in respect of the AG Merger Agreement.
The foregoing description of the AG Merger Agreement does not purport to be complete, and is qualified in its entirety by reference to the full text of the AG Merger Agreement, which is filed herewith as Exhibit 2.1 and is incorporated herein by reference.


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ITEM 6. EXHIBITS
2.1
 
 
 
 
2.2
 
 
 
 
3.1
 
 
 
 
10.1
 
 
 
 
12.1
 
 
 
 
31.1
 
 
 
 
31.2
 
 
 
 
32.1
 
 
 
 
32.2
 
 
 
 
101
 
The following information from the SUPERVALU INC. Quarterly Report on Form 10-Q for the second quarter ended September 9, 2017, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Operations, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Stockholders’ Equity, (v) the Condensed Consolidated Statements of Cash Flows and (vi) the Notes to Condensed Consolidated Financial Statements.

* Schedules and exhibits omitted pursuant to Item 601(b)(2) of Regulation S-K.  The registrant agrees to furnish supplementally a copy of any omitted schedule or exhibit to the SEC upon request.
** Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, confidential portions of this exhibit have been deleted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.






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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
SUPERVALU INC. (Registrant)
 
 
 
 
Dated: October 18, 2017
 
 
/s/ ROB N. WOSETH
 
 
 
Rob N. Woseth
Executive Vice President, Chief Strategy Officer, Interim Chief Financial Officer
(principal financial officer)


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EXHIBIT INDEX
2.1
 
 
 
 
2.2
 
 
 
 
3.1
 
 
 
 
10.1
 
 
 
 
12.1
 
 
 
 
31.1
 
 
 
 
31.2
 
 
 
 
32.1
 
 
 
 
32.2
 
 
 
 
101
 
The following information from the SUPERVALU INC. Quarterly Report on Form 10-Q for the second quarter ended September 9, 2017, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Operations, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Stockholders’ Equity, (v) the Condensed Consolidated Statements of Cash Flows and (vi) the Notes to Condensed Consolidated Financial Statements.


* Schedules and exhibits omitted pursuant to Item 601(b)(2) of Regulation S-K.  The registrant agrees to furnish supplementally a copy of any omitted schedule or exhibit to the SEC upon request.
** Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, confidential portions of this exhibit have been deleted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.



48


Exhibit 2.1

AGREEMENT AND PLAN OF MERGER
BY AND AMONG
SUPERVALU INC.,
GATOR MERGER SUB INC.,
AND
ASSOCIATED GROCERS OF FLORIDA, INC.
    
DATED OCTOBER 17, 2017









TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
2

Section 1.1
Definitions
2

Section 1.2
Additional Defined Terms
11

Section 1.3
Construction
13

Section 1.4
Knowledge
14

 
 
 
ARTICLE II
THE MERGER
14

Section 2.1
The Merger
14

Section 2.2
Articles of Incorporation and Bylaws of the Surviving Corporation
14

Section 2.3
Directors and Officers of the Surviving Corporation
14

Section 2.4
Conversion of Common Shares
15

Section 2.5
Closing Statement
17

Section 2.6
Closing Date Payments; Exchange Procedure
18

Section 2.7
No Further Rights of Transfer
20

Section 2.8
Closing
20

Section 2.9
Further Assurances
20

Section 2.10
Dissenting Shares
20

 
 
 
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
21

Section 3.1
Due Organization, Good Standing and Corporate Power
21

Section 3.2
Authorization; No Conflicts
21

Section 3.3
Capital Stock
22

Section 3.4
Consents and Approvals
23

Section 3.5
Financial Statements; Statutory Statements; No Undisclosed Liabilities
23

Section 3.6
Absence of Certain Changes
24

Section 3.7
Compliance with Laws
27

Section 3.8
Governmental Authorizations
27

Section 3.9
Litigation
28

Section 3.10
Regulatory Compliance
28

Section 3.11
Employee Benefit Plans
29

Section 3.12
Employment and Labor Matters
31

Section 3.13
Tax Matters
32

Section 3.14
Intellectual Property
35

Section 3.15
Broker’s or Finder’s Fee
37

Section 3.16
Material Contracts.
37

Section 3.17
Environmental Matters
39

Section 3.18
Real and Personal Property; Sufficiency of Assets
40


i



Section 3.19
Insurance
43

Section 3.20
Affiliate Transactions
44

Section 3.21
Customers and Suppliers
44

Section 3.22
Indebtedness
45

Section 3.23
Inventory
45

Section 3.24
Quantity, Condition and Maintenance of Vehicles
45

Section 3.25
Commercial Drivers
45

Section 3.26
Collateral Balances
45

Section 3.27
Credit Support Agreements
45

Section 3.28
Deposits
46

Section 3.29
Bank Accounts
46

Section 3.30
Accounts Receivable and Accounts Payable
46

Section 3.31
State Takeover Laws
46

Section 3.32
Exclusivity of Representations; Non-Reliance
47

 
 
 
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
47

Section 4.1
Due Organization, Good Standing and Corporate Power
47

Section 4.2
Authorization; No Conflicts
48

Section 4.3
Consents and Approvals
48

Section 4.4
Broker’s or Finder’s Fee
49

Section 4.5
Merger Sub’s Operations; Capitalization of Merger Sub
49

Section 4.6
Funds
49

Section 4.7
No Actions
49

Section 4.8
Investment Intent
49

Section 4.9
Access; Investigation by Parent and Merger Sub
50

Section 4.10
Exclusivity of Representations
50

 
 
 
ARTICLE V
COVENANTS
51

Section 5.1
Confidentiality
51

Section 5.2
Access to Information
51

Section 5.3
Conduct of the Business of the AGF Entities Prior to the Effective Time
52

Section 5.4
Efforts
56

Section 5.5
Exclusive Dealing
57

Section 5.6
Antitrust Laws
60

Section 5.7
Employee Matters
61

Section 5.8
Indemnity; Directors’ and Officers’ Insurance
63

Section 5.9
Notification of Certain Matters
64

Section 5.10
Merger Sub
65

Section 5.11
Public Announcements
65

Section 5.12
Transfer Taxes
65


ii



Section 5.13
Resignation of Officers and Directors
65

Section 5.14
Shareholder Approval
65

Section 5.15
Product and Services Continuation
67

Section 5.16
Compliance with WARN Act and Similar Statutes
68

Section 5.17
Representations and Warranties Insurance
69

Section 5.18
Tax Cooperation
69

Section 5.19
Supply Agreement
69

Section 5.20
Conversion of Customer Deposits
69

 
 
 
ARTICLE VI
CONDITIONS PRECEDENT
69

Section 6.1
Conditions to the Obligations of Each Party
69

Section 6.2
Conditions to the Obligations of Parent and Merger Sub
70

Section 6.3
Conditions to the Obligations of the Company
71

 
 
 
ARTICLE VII
TERMINATION AND ABANDONMENT
72

Section 7.1
Termination
72

Section 7.2
Effect of Termination
73

 
 
 
ARTICLE VIII
MISCELLANEOUS
74

Section 8.1
Fees and Expenses
74

Section 8.2
Survival
74

Section 8.3
Extension; Waiver
75

Section 8.4
Notices
75

Section 8.5
Entire Agreement
76

Section 8.6
Binding Effect; Benefit; Assignment
76

Section 8.7
Amendment and Modification
77

Section 8.8
Counterparts
77

Section 8.9
Applicable Law; Attorney’s Fees
77

Section 8.10
Severability
77

Section 8.11
Specific Enforcement
77

Section 8.12
Waiver of Jury Trial
78

Section 8.13
Headings
78

Section 8.14
Exhibits and Schedules
78

Section 8.15
Time of the Essence
79

Section 8.16
Construction
79

Section 8.17
Waiver of Conflicts
79


Exhibits
Exhibit 1 – Form of Voting Agreement
Exhibit 2 – Form of Letter of Transmittal
Exhibit 3 – Sample Closing Statement

iii



Exhibit 4 – Form of Agent Agreement
Exhibit 5 – Form of the FIRPTA Certificate
Exhibit 6 – Form of Landlord Estoppel Certificate
Exhibit 7 – Form of Tenant Estoppel Certificate


iv



AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this “ Agreement ”) is made and entered into as of October 17, 2017 by and among SUPERVALU INC., a corporation organized under the laws of Delaware (“ Parent ”), Gator Merger Sub Inc., a corporation organized under the laws of Florida and a wholly-owned subsidiary of Parent (“ Merger Sub ”), and Associated Grocers of Florida, Inc., a corporation organized under the laws of Florida (the “ Company ”).
W I T N E S S E T H:
WHEREAS, the respective boards of directors of Parent, Merger Sub and the Company have, on the terms and subject to the conditions set forth in this Agreement: (a) determined that the merger of Merger Sub with and into the Company, as set forth herein (the “ Merger ”), is in the best interests of Parent, Merger Sub, the Company and their respective shareholders, and (b) adopted this Agreement in accordance with the Florida Business Corporation Act, as amended (the “ Act ”);
WHEREAS, Parent has formed Merger Sub solely for the purpose of merging it with and into the Company as contemplated by the Merger;
WHEREAS, concurrently with the execution and delivery of this Agreement, as a condition and as an inducement to Parent’s and Merger Sub’s willingness to enter into this Agreement, (i) certain executives of the Company are executing and delivering to Parent an employment agreement for employment with Parent or the Surviving Corporation effective upon the Closing, and (ii) all Shareholders that are represented on the Board and that collectively own, beneficially or of record, approximately 26% of the Class A Stock, 15% of the Class B Stock, 60% of the Class C Stock, and 75% of the Class D Stock issued and outstanding on the date of this Agreement are entering into voting agreements with Parent and the Company in the form attached hereto as Exhibit 1 (collectively, the “ Voting Agreements ”), pursuant to which, upon the terms and conditions set forth therein, such Shareholders have agreed to vote the Common Shares over which they have voting control in favor of the Merger and this Agreement, and the Board has approved entry into the Voting Agreements by the parties thereto;
WHEREAS, the respective boards of directors of Merger Sub and the Company have recommended the Merger and directed that this Agreement be submitted to a vote of their respective shareholders in accordance with the Act;
WHEREAS, it is intended that Merger Sub shall obtain and deliver to the Company, a true, correct and complete copy of a written consent of sole shareholder of Merger Sub containing the approval of this Agreement and the Merger by the sole shareholder of Merger Sub;
WHEREAS, Parent, Merger Sub and the Company desire to make certain representations, warranties, covenants and agreements in connection with, and to prescribe various conditions to, the Merger.
NOW, THEREFORE, in consideration of the foregoing premises and of the mutual covenants, representations, warranties and agreements herein contained, the parties, intending to be legally bound, agree as follows:

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ARTICLE I
DEFINITIONS
Section 1.1     Definitions . When used in this Agreement, the following terms shall have the respective meanings set forth below.
“ 2017 Reinvested Amount ” means the aggregate cash portion of the Permitted Dividend with respect to the Company’s fiscal year 2017 that the Shareholders reinvest in Common Shares that are issued and outstanding immediately prior to the Closing, if any.
“ Acquisition Proposal ” means any inquiry, proposal, offer or indication of interest from any Person or group (as defined in or under Section 13 of the Exchange Act) relating to or that is reasonably likely to lead to, any direct or indirect acquisition or purchase, in one transaction or a series of related transactions, including any stock acquisition, asset acquisition, merger, joint venture, partnership, consolidation, dissolution, liquidation, tender offer, recapitalization, reorganization, spin-off, share exchange, business combination or similar transaction involving the Company or any of its Subsidiaries, (A) of assets or businesses of the AGF Entities that generate 15% or more of the consolidated net revenues or net income (before taxes or patronage payments) of the AGF Entities, taken as a whole, immediately prior to such transaction, (B) of 15% or more of the total issued and outstanding shares of any class of equity securities of the Company or any resulting successor thereof, in each case, other than as contemplated by this Agreement. For the avoidance of doubt, sales of inventory in the ordinary course of business (or inquiries, proposals, offers or indications of interest relating to any such sale) shall not constitute an Acquisition Proposal.
“ Action ” means any action, complaint, petition, suit, or other proceeding, whether civil or criminal, at law or in equity, by or before any Governmental Entity.
“ Affiliate ” of any Person means any other Person directly or indirectly controlling, controlled by, or under common control with, such Person. For purposes of this definition, “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”), as used with respect to any Person, shall means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by Contract or otherwise.
“ AGF Entities ” means the Company and the Company Subsidiaries.
“ Antitrust Authorities ” means the United States Federal Trade Commission, the Antitrust Division of the United States Department of Justice, the attorneys general of the several states of the United States and any other Governmental Entity having jurisdiction with respect to the transactions contemplated hereby pursuant to applicable Antitrust Laws.
“ Antitrust Laws ” means the Sherman Act, as amended; the Clayton Act, as amended; the HSR Act, as amended; the Federal Trade Commission Act, as amended; and all other federal, state and foreign statutes, rules, regulations, orders, decrees, administrative and judicial doctrines, and other Laws and Orders that are designed or intended to prohibit, restrict or regulate actions having the purpose or effect of monopolization or restraint of trade.

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“ BIS ” means the Bureau of Industry and Security of the United States Commerce Department.
“ Board ” means the board of directors of the Company.
“ Business Day ” means any day except a Saturday, a Sunday or any other day on which commercial banks are required or authorized to close in Miami, Florida or Minneapolis, Minnesota.
“ Change of Control Payments ” means any severance, sale bonus or change of control payments or bonuses, or similar compensatory arrangements, paid or payable to directors, officers, employees or consultants of any AGF Entity payable solely as a result of the consummation of the Merger or any other transaction described in this Agreement or any retention bonus granted prior to the Closing.
“ Class A Stock ” means one or more shares of no-par value Class A Stock of the Company.
“ Class B Stock ” means one or more shares of no-par value Class B Stock of the Company.
“ Class C Stock ” means one or more shares of no-par value Class C Stock of the Company.
“ Class D Stock ” means one or more shares of no-par value Class D Stock of the Company.
“ Code ” means the United States Internal Revenue Code of 1986, as amended, and the regulations promulgated and the rulings issued thereunder.
“ Common Shares ” means all issued and outstanding shares of Class A Stock, Class B Stock, Class C Stock and Class D Stock.
“ Company Fundamental Representations ” means the representations and warranties set forth in Section 3.1 (Due Organization, Good Standing and Corporate Power), Section 3.2(a) (Authorization), and Section 3.15 (Broker’s or Finder’s Fees).
“ Company Subsidiaries ” means the Subsidiaries of the Company.
“ Contract ” means any agreement, contract, indenture, note, bond, license, instrument, lease, or other legally enforceable commitment, promise, undertaking, arrangement or understanding, in each case whether written or oral, including all amendments thereto.
“ Customer Data ” means all data, meta data, information or other content (i) transmitted to any AGF Entity by users or customers of the Company IT Assets, or (ii) otherwise stored or hosted by any AGF Entity or as a part of any product or service sold or offered by an AGF Entity.
“ Data Room ” shall mean the electronic data room hosted by Merrill Datasite relating to the AGF Entities.
“ Environmental Law ” means any federal, state, local or foreign statute, regulation, ordinance, or rule of common law as now in effect or any other legally binding requirement relating to the environment, natural resources, spills or pollution, or protection of human health and safety,

3



including all those relating to the presence, use, production, generation, handling, transportation, treatment, storage, disposal, distribution, labeling, testing, processing, discharge, release, threatened release, control, exposure to, or cleanup of any Hazardous Materials. For the avoidance of doubt, Environmental Laws shall include the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. § 9601 et seq.), the Emergency Planning and Right-To-Know Act (42 U.S.C. § 11101 et seq.), the Hazardous Materials Transportation Act (49 U.S.C. App. § 1801 et seq.), the Solid Waste Disposal Act (42 U.S.C. § 6901 et seq.) (including the Resource Conservation and Recovery Act), the Clean Water Act (33 U.S.C. § 1251 et seq.), the Clean Air Act (42 U.S.C. § 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. § 2601 et seq.), the Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. § 136 et seq.), the Endangered Species Act (16 U.S.C. § 1531 et seq.), the Safe Drinking Water Act (42 U.S.C. § 300(f) et seq.), the Lead-Based Paint Exposure Reduction Act (42 U.S.C. § 2681 et seq.), the National Environmental Policy Act (42 U.S.C. § 4321 et seq.), and the Occupational Safety and Health Act (29 U.S.C. § 651 et seq.), and all Laws of a similar nature, and the rules and regulations promulgated pursuant thereto, each as amended.
“ Exchange Act ” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
“ GAAP ” means generally accepted accounting principles in the United States of America, as in effect from time to time, consistently applied.
“ Governmental Authorization ” means any consent, license, registration, exemption, accreditation, privilege, certificate, authorization or permit issued, granted, given or otherwise made available by or under the authority of any Governmental Entity or pursuant to any Law.
“ Governmental Entity ” means any domestic, foreign or international court, arbitral, tribunal, arbitration, administrative agency or commission or other governmental or regulatory agency or authority.
“ Hazardous Material(s) ” means any substance, material or waste which is regulated by the United States, the foreign jurisdictions in which any AGF Entity conducts business, or any state, local or foreign Governmental Entity, including petroleum and its by-products, asbestos or asbestos-containing material, polychlorinated biphenyls, and any material or substance which is defined as a “hazardous waste,” “hazardous substance,” “hazardous material,” “restricted hazardous waste,” “industrial waste,” “solid waste,” “contaminant,” “pollutant,” “special waste,” “toxic material,” “toxic waste” or “toxic substance,” or any substance the presence, use, handling, storage or disposal is prohibited under any provision of Environmental Law.
“ HSR Act ” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder.
“ Indebtedness ” of any Person means, on any date, without duplication, (a) indebtedness for borrowed money or indebtedness issued or incurred in substitution or exchange for indebtedness for borrowed money; (b) indebtedness evidenced by any note, bond, debenture, mortgage or other debt instrument or debt security; (c) capitalized lease obligations to the extent required by GAAP

4



to be recorded as a liability on a balance sheet; (d) all obligations for the deferred purchase price of property; (e) all obligations arising from deferred compensation arrangements, including any payment obligations arising from deferred compensation plans; (f) all obligations under any interest rate, currency or other hedging agreements; (g) all obligations of such Person under any letter of credit, bankers’ acceptances, surety bonds, bank guaranties or similar instruments, in each case to the extent drawn upon; (h) the unpaid portion of the redemption or repurchase price owed by such Person in respect of shares of capital stock in such Person previously redeemed or repurchased by such Person; (i) any unpaid cash rebates accrued under Contracts between such Person and its customers; (j) all guaranties, including guaranties of any items set forth in clauses (a) through (i); and (k) any accrued and unpaid interest owing by such Person with respect to any indebtedness of a type described in clauses (a) or (j); provided, that Indebtedness shall not include Change of Control Payments, management bonuses, any severance obligations, accounts payable to trade creditors, deferred revenue, accrued expenses arising in the ordinary course of business consistent with past practice, the endorsement of negotiable instruments for collection in the ordinary course of business, or any undrawn letters of credit or bonds issued or posted by or on behalf of such Person and, in the case of the AGF Entities, indebtedness owing from one AGF Entity to another.
“ Indebtedness Draw Down Exceptions ” means a draw down under the Company’s existing credit facilities between the date hereof and the Closing Date for the items specified on Section 1.1(a) of the Company Disclosure Schedule.
“ Information Privacy and Security Laws ” means all applicable Laws concerning the privacy or security of Personal Information.
“ Intellectual Property ” means, collectively, all intellectual property and industrial property rights whether arising under the Laws of the United States or of any other jurisdiction, including all (i) patents and patent applications (including additions, provisional, national, regional and international applications, as well as original, continuation, continuation-in-part, divisionals, continued prosecution applications, reissues and re-examination applications), (ii) trademarks, trademark registrations and applications therefor, trade dress, trade names, service marks, service mark registrations and applications therefor, logos and all identifiers of source and the goodwill associated therewith, (iii) copyrights, copyrightable works, copyright registrations and applications therefor, moral rights, mask works, whether or not registered, and registrations and applications for registration for any of the foregoing, (iv) Trade Secrets, and (v) internet domain names.  
“ IT Assets ” means computers, computer software, firmware, middleware, servers, workstations, routers, hubs, switches, data communications lines, and all other information technology equipment, and all associated documentation.
“ Landlord Estoppel Certificate ” shall mean an estoppel certificate with respect to a Real Property Lease, dated after the date of this Agreement, from the landlord under such Real Property Lease, in substantially the form attached hereto as Exhibit 6 .
“ Law ” means any federal, state, local or foreign law, statute, code, common law, ordinance, rule, regulation or other requirement or rule of law of any Governmental Entity.

5



“ Letter of Transmittal ” means a letter of transmittal substantially in the form as set forth on Exhibit 2 hereto.
“ Liabilities ” means any and all costs, debts and liabilities, whether accrued or fixed, known or unknown, absolute or contingent, matured or unmatured or determined or determinable.
“ Liens ” means any lien, pledge, mortgage, deed of trust, security interest, claim, lease, charge, option, right of first refusal, easement, servitude, transfer restriction or any other encumbrance, restriction or limitation whatsoever.
“ Material Adverse Effect ” means any event, fact, occurrence, circumstance, development, change or effect that has a material adverse effect on the business, rights, properties, assets, results of operations or financial condition of the AGF Entities, taken as a whole, or on the ability of the Company to timely perform its obligations hereunder or consummate the transactions contemplated hereunder, taken as a whole; provided, however, that none of the following shall be deemed to constitute a “Material Adverse Effect” nor shall be considered in determining whether a “Material Adverse Effect” has occurred: (a) changes in economic or political conditions or the financing, banking, currency or capital markets in general; (b) general changes affecting industries, markets or geographical areas in which the Company or the Company Subsidiaries conduct their respective businesses; (c) the announcement or, except for purposes of Section 3.2(b) or Section 3.4 , consummation of this Agreement or any Transaction Document or any communication by Parent or any of its Affiliates of its plans or intentions (including in respect of employees) with respect to any of the businesses of the Company and the Company Subsidiaries; (d) any actions by Parent, Merger Sub or the Company taken pursuant to this Agreement or required to be taken in connection with the transactions contemplated hereby; (e) conduct by the Company or any of the Company Subsidiaries for which Parent gave its informed prior written consent; (f) any acts of terrorism, sabotage, military action, armed hostilities or war (whether or not declared) or any escalation or worsening thereof, whether or not occurring or commenced before or after the date of this Agreement, or any natural disaster occurring prior to the date hereof; (g) any failure, in and of itself, by the Company and the Company Subsidiaries to meet any internal projections or forecasts, provided, that the exception in this clause (g) shall not prevent or otherwise affect a determination that any event, fact, occurrence, circumstance, development, change or effect underlying such failure has resulted in, or contributed to, a Material Adverse Effect; (h) changes in GAAP or any Law of general applicability, including repeal thereof, or in the interpretation or enforcement thereof; or (i) availability of debt or equity financing for Parent or Merger Sub; provided, further, that, with respect to clauses (a), (b), (f) and (h), such event, fact, occurrence, circumstance, development, change or effect does not (1) primarily relate only to (or have the effect of primarily relating only to) the AGF Entities or (2) disproportionately adversely affect the AGF Entities compared to other companies in the industries or geographies in which the AGF Entities operate. For the avoidance of doubt, a “Material Adverse Effect” shall be measured only after the date hereof against past performance of the Company and the Company Subsidiaries, and not against any forward‑looking statements, projections or forecasts of the Company and the Company Subsidiaries or any other Person.

6



“ Ocala Facility ” means the Company’s facility located at 6045 SE 83 rd Street, Ocala, Florida 34472; 5895 SE 83 Street, Ocala, Florida 34472; 5896 SE 83 Street, Ocala, Florida 34472; and 6026 SE 83 Street, Ocala, Florida 34472.
“ OFAC ” means the Office of Foreign Assets Control of the United States Department of the Treasury.
“ Order ” means any judgment, order, injunction, decree, or writ of any Governmental Entity or any arbitrator.
“ Outstanding Obligations ” means with respect to a Shareholder, as of the time of payment to such Shareholder by the Agent pursuant to Section 2.6(c)(iii) , the amount owed by such Shareholder to the Company other than non‑delinquent trade payables arising in the ordinary course of business consistent with past practice for goods and services purchased by the Shareholder from the Company.
“ Parent Material Adverse Effect ” means any of the following: (i) Parent becomes or is rendered insolvent or any event, fact, occurrence, circumstance, development, change or effect occurs which could reasonably be expected to render Parent insolvent, (ii) Parent seeks the protection under any bankruptcy or insolvency statute, (iii) any other Person commences an Action against Parent under any bankruptcy or insolvency statute and such Action is not dismissed prior to (a) the date on which all conditions to Closing other than the condition set forth in Section 6.3(d) have been satisfied or (b) sixty (60) days after such Action is commenced, whichever is earlier, or (iv) an Order is passed for the administration, reorganization, dissolution, or liquidation of Parent.
“ Payoff Letter ” means a customary payoff, termination and discharge letter from the lenders and other holders of Indebtedness of any AGF Entity of the type specified in clauses (a), (b), (f), (g), (k) and, to the extent applicable, (j) of the Indebtedness definition, showing the amount required to discharge all such Indebtedness as of the Closing Date and release any related Liens on any collateral (e.g., UCC-3 termination statements).
“ Per Share Merger Consideration ” means (i) the Class A Per Share Merger Consideration or (ii) the Class B, C and D Per Share Merger Consideration, as applicable.
“ Permitted Liens ” means (a) statutory Liens or other Liens arising by operation of law securing payments not yet due or which are being contested in good faith, including Liens of warehousemen, mechanics, suppliers, materialmen and repairmen and that do not materially interfere with the operation of or materially affect the value of any affected real property or material personal property; (b) Liens for Taxes, assessments and other charges by a Governmental Entity not yet due and payable or that may thereafter be paid without penalty or which are being contested in good faith and by appropriate Actions; (c) the following Liens affecting the Owned Real Property and Leased Real Property: (i) unrecorded easements, rights or way, servitudes, licenses, ground leases to utilities, and municipal agreements that do not materially interfere with the current use or occupancy of any such affected property or materially detract from the value of any such property, (ii) street, alley, highway, telephone line, gas pipeline, power line, and other easements and rights of way of public record on, over or in respect of any such real property, (iii) encroachments and

7



other matters that would be shown in an accurate survey or physical inspection of such real property and that do not materially interfere with the current use or occupancy of such affected property or materially detract from the value of any such property, and (iv) with respect to the Leased Real Property, Liens in favor of the lessors under the Real Property Leases or encumbering the interests of the lessors in such real property; (d) Liens created by non-exclusive licenses granted in the ordinary course of business in any Intellectual Property pursuant to the applicable AGF Entity’s standard terms and conditions for such licenses, copies of which have been made available to Parent; (e) Liens arising under original purchase price conditional sales contracts and equipment leases with third parties entered into in the ordinary course of business; (f) pledges or deposits to secure obligations under workers or unemployment compensation Laws or similar legislation or to secure public or statutory obligations; (g) other imperfections of title, licenses or encumbrances, if any, which do not materially impair the continued use and operation of the assets to which they relate in the conduct of the business of the AGF Entities; and (h) Liens listed in Section 1.1(b) of the Company Disclosure Schedule.
“ Person ” means any individual, partnership, joint venture, corporation, limited liability company, trust, unincorporated organization, business entity or Governmental Entity.
“ Personal Information ” means information that specifically identifies an individual person.
“ Pre-Closing Net Earnings ” means the net earnings of the Company for the period commencing on the first day of each of the Company’s 2017 and 2018 fiscal years, as applicable, and ending, in the case of the Company’s 2017 fiscal year, on July 29, 2017 and, in the case of the Company’s 2018 fiscal year, on the day preceding the day on which the Permitted Dividend is paid, determined using the same (and not inconsistent) methodologies, practices, assumptions, policies, principles and valuation procedures (with consistent classifications, judgment and reserve, valuation and estimation methodologies) as used by the Company in the past in determining the net earnings of the Company for purposes of Article X of the Company’s bylaws.
“ Real Property Leases ” means all leases, subleases and licenses of real property pursuant to which any AGF Entity is a tenant, subtenant or licensee, together with all amendments and modifications thereto.
“ Registered Intellectual Property ” means all Intellectual Property that is owned by or purported to be owned by an AGF Entity and that is registered with or issued by, or for which any application for registration or issuance has been filed with, a Governmental Entity.
“ Release ” means any actual release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, migration or leaching into the indoor or outdoor environment, or into or out of any property of a Hazardous Material.
“ Representatives ” of any Person means such Person’s directors, managers, officers, employees, agents, attorneys, independent contractors, consultants, advisors or other representatives.

8



“ Requisite Shareholder Approval ” means the affirmative vote of the holders of at least a majority of the outstanding shares of Class A Stock (voting separately as a class), Class B Stock (voting separately as a class), Class C Stock (voting separately as a class) and Class D stock (voting separately as a class) adopting this Agreement and approving the Merger.
“ Restricted Party ” means a Person (a) that is, or is owned or controlled by a Person that is, listed on a Sanctions List; (b) located or resident in any country or territory, or organized under the laws of any jurisdiction that is, or whose government is the subject of Sanctions broadly prohibiting dealings with such government, country or territory (a Sanctioned Country), or a Person that is, or is owned or controlled by Persons that are, the target of Sanctions; (c) acting or purporting to act on behalf of any of the Persons listed in clauses (a) and (b) above; or (d) with which any AGF Entity or the business or operations conducted by it is prohibited by Sanction from dealing or otherwise engaging in any transaction.
“ Sanctions ” means any trade, financial or other economic sanctions Laws, embargoes, or restrictive measures administered, enacted, imposed, or enforced by any Sanctions Authority.
“ Sanctions Authority ” means (a) the United States government; (b) Canada; (c) the United Nations (including the United Nations Security Council); (d) the European Union; (e) the United Kingdom; (f) the respective Governmental Entities of any of the foregoing, including OFAC, BIS the United States Department of State and Her Majesty’s Treasury; and (g) any Governmental Entity with similar sanctions authority.
“ Sanctions Lists ” means (a) the “Specially Designated Nationals and Blocked Persons” list, the “Consolidated Sanctions List”, the “Foreign Sanction Evaders” list and the “Sectoral Sanctions Identification” list, all as maintained by the Office of Foreign Assets Control of the United States Department of the Treasury; (b) the “Denied Persons” list, the “Unverified” list and the “Entity” list, all as maintained by BIS; (c) the Consolidated List of Financial Sanctions Targets maintained by Her Majesty’s Treasury; or (d) any similar lists maintained by, or public announcement of Sanctions designation made by, any of the Sanctions Authorities.
“ Securities Act ” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“ Shareholders ” means the holders of Common Shares as of the applicable time.
“ Share Count Adjustment ” means the number equal to the total number of shares of Class B Stock, Class C Stock and Class D Stock issued and outstanding immediately prior to the Closing minus 2,008,428.35.
“ Subsidiary ” of a Person means (a) any corporation more than fifty percent (50%) of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether at the time stock of any class or classes of such corporation has or might have voting power by reason of the happening of any contingency) is owned by such Person directly or indirectly through one or more subsidiaries of such Person and (b) any limited liability company, partnership, association, joint venture or other entity in which

9



such Person directly or indirectly through one or more subsidiaries of such Person has more than a fifty percent (50%) equity interest.
“ Superior Proposal ” means an unsolicited bona fide Acquisition Proposal that would result in a Person or a group (as defined in or under Section 13 of the Exchange Act) of Persons becoming the beneficial owner of, directly or indirectly, assets or businesses of the AGF Entities (including equity securities of the Company Subsidiaries) generating more than 50% of the consolidated net revenues or net income (before taxes or patronage payments) of the AGF Entities or more than 50% of the total voting power of the equity securities of the Company, that the Board has determined in good faith, after consultation with outside legal counsel and its financial advisor, taking into account all legal, financial, financing and regulatory aspects of the proposal, the identity of the Person(s) making the proposal, the likelihood of the proposal being consummated in accordance with its terms and the timing of such consummation, that if consummated, would result in a transaction more favorable to the Shareholders than the transactions contemplated by this Agreement (after taking into account any revisions to the terms of the transaction proposed by Parent pursuant to Section 5.5(f)) .
“ Tax Authority ” means the Internal Revenue Service and any other national, regional, state, municipal, foreign or other governmental or regulatory authority or administrative body responsible for the administration of any Taxes.
“ Tax Return ” means all United States federal, state, local and foreign tax returns, declarations, statements, reports, schedules, forms and information returns or other documents and any amendments thereto required to be filed with a Tax Authority.
“ Taxes ” means all taxes, assessments, charges, duties, fees, levies or other charges of a Governmental Entity, all federal, state, local, foreign and other income, franchise, profits, capital gains, capital stock, transfer, sales, use, value added, occupation, property, escheat, excise, severance, windfall profits, stamp, license, payroll, withholding and other taxes, assessments, charges, duties, fees, levies or other charges of a Governmental Entity, all estimated taxes, deficiency assessments, additions to tax, and penalties and interest thereon.
“ Tenant Estoppel Certificate ” shall mean an estoppel certificate with respect to an Owned Real Property Lease, dated after the date of this Agreement, from the applicable Tenant under such Owned Real Property Lease, in substantially the form attached hereto as Exhibit 7 .
“ Trade Secrets ” means proprietary inventions, know-how, trade secrets, and proprietary confidential business information.
“ Transaction Documents ” means, with respect to any Person, this Agreement together with any other agreements, instruments, certificates and documents executed by such Person in connection herewith or therewith or in connection with the transactions contemplated hereby or thereby.
“ Transaction Expenses ” means all expenses of the AGF Entities incurred or to be incurred (prior to and through the Closing Date) in connection with the negotiation, preparation and execution

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of this Agreement and the consummation of the transactions contemplated hereby and the Closing, including fees and disbursements of attorneys, accountants, investment banking, brokers and other advisors and service providers, paid or payable by any AGF Entity (prior to and through the Closing); provided that Change of Control Payments shall not constitute Transaction Expenses.
“ Unaudited Balance Sheet ” means the unaudited consolidated balance sheet of the AGF Entities as at July 29, 2017.
Section 1.2     Additional Defined Terms . In addition to the terms defined in Section 1.1 , additional defined terms used herein shall have the respective meanings assigned thereto in the Sections indicated below:
Defined Term
Section
280G Benefits
Section 5.14(c)
Act
Recitals
Affidavit
Section 2.6(c)(iii)
Agent
Section 2.6(c)(i)
Agent Agreement
Section 2.6(c)(i)
Agreement
Preamble
Akerman
Section 8.17
Alternative Acquisition Agreement
Section 5.5(e)(iii)
Anti-Corruption Laws
Section 3.7(b)
Anti-Money Laundering Laws
Section 3.7(b)
Articles of Merger
Section 2.1(a)
Balance Sheet
Section 3.5(a)
Balance Sheet Date
Section 3.5(a)
Certificate
Section 2.6(c)(iii)
Change of Recommendation
Section 5.5(e)(iii)
Class A Per Share Merger Consideration
Section 2.4(b)
Class B, C and D Per Share Merger Consideration
Section 2.4(c)
Closing
Section 2.8
Closing Date
Section 2.8
Closing Statement
Section 2.5(a)
CoC Payment Recipient
Section 2.6(a)(ii)
Company
Preamble
Company Disclosure Schedule
ARTICLE III
Company Employees
Section 5.7(a)
Company Intellectual Property
Section 3.14(a)
Company IT Assets
Section 3.14(f)
Company Products
Section 3.10(a)
Company Recommendation
Section 3.2(a)
Company Termination Fee
Section 7.2(b)
Confidentiality Agreement
Section 5.1

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D&O Indemnifying Persons
Section 5.8(c)
Diligence Materials
Section 4.9(b)(ii)
Dissenting Shares
Section 2.10
Dissenting Shareholders
Section 2.10
Effective Time
Section 2.8
Employee Benefit Plans
Section 3.11(a)
End Date
Section 7.1(b)(iii)
Environmental Permit
Section 3.17(a)
ERISA
Section 3.11(a)
Financial Statements
Section 3.5(a)
IDGBL
Section 3.1
Improvements
Section 3.18(a)
Indemnified Persons
Section 5.8(a)
Insurance Policies
Section 3.19(a)
Knowledge of the Company
Section 1.4
Leased Real Property
Section 3.18(e)
Material Contract(s)
Section 3.16(a)
Material Customer
Section 3.21(a)
Material Supplier
Section 3.21(b)
Member Payouts
Section 2.5(a)
Member Products
Section 5.15(a)
Member Services
Section 5.15(c)
Members
Section 5.15(a)
Merger
Recitals
Merger Sub
Preamble
Merger Sub Common Stock
Section 2.4(d)
Owned Real Property
Section 3.18(a)
Owned Real Property Lease
Section 3.18(a)
Parent
Preamble
Payment Fund
Section 2.6(a)(i)
Permitted Dividend
Section 5.3(b)
Personal Property Leases
Section 3.18(h)
Plan
Section 3.11(i)
Qualified Plans
Section 3.11(d)
Regulation S‑X
Section 5.4(d)
Regulatory Laws
Section 3.10(a)
Related Parties
Section 3.20
Reverse Termination Fee
Section 7.2(b)
Shareholder Approval Deadline
Section 5.14(a)
Shareholder Materials
Section 5.14(b)
Stakeholders
Section 8.17
Sublease
Section 3.18(e)
Supply Agreement
Section 5.19

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Surviving Corporation
Section 2.1(b)
Swaps
Section 2.5(a)
Tenant
Section 3.18(a)
Third Party Manufacturer
Section 3.10(c)
Transfer Taxes
Section 5.12
Vehicles
Section 3.24
Voting Agreements
Recitals
WARN Act
Section 5.16
 
 
Section 1.3     Construction . In this Agreement, unless the context otherwise requires:
(a)    the phrases “delivered” or “made available” mean that the information referred to has been physically or electronically delivered to the relevant parties, and, in the case of “made available” to Parent or Merger Sub, solely material that has been posted to the Data Room no later than 5:00 p.m., Miami, Florida time, two (2) Business Days prior to the date of this Agreement;
(b)    references to “day” or “days” are to calendar days;
(c)    words expressed in the singular number shall include the plural and vice versa;
(d)    references in this Agreement to “writing” or comparable expressions include a reference to facsimile transmission, email or comparable means of communication;
(e)    references to Articles, Sections, Exhibits, the Preamble and Recitals are references to articles, sections, exhibits, the preamble and recitals of this Agreement;
(f)    references to “the date hereof” shall mean as of the date of this Agreement and the words “hereof,” “herein,” “hereto” and “hereunder” and words of similar import, refer to this Agreement as a whole and not to any provision of this Agreement;
(g)    references to dollars or “$” are to United States of America dollars, which is the currency used for all purposes in this Agreement and any Transaction Document;
(h)    “include,” “includes,” and “including” are deemed to be followed by “without limitation” whether or not they are in fact followed by such words or words of similar import; and
(i)    references to “material,” “materiality” or any derivation thereof when used in connection with the AGF Entities shall be deemed to mean material to the AGF Entities taken as a whole.

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Section 1.4     Knowledge . When any representation, warranty, covenant or agreement contained in this Agreement is expressly qualified by reference to the “ Knowledge of the Company ” or words of similar import, it shall mean the actual knowledge after reasonable investigation of the individuals identified in Schedule 1.4 .
ARTICLE II
THE MERGER
Section 2.1     The Merger .
(a)    Upon the terms and subject to the conditions of this Agreement, at the Closing, Merger Sub and the Company shall duly prepare, execute and acknowledge articles of merger (the “ Articles of Merger ”) in accordance with the Act and shall file the Articles of Merger with the Florida Department of State at such time and in accordance with Section 607.1105 of the Act.
(b)    On the terms and subject to the conditions set forth in this Agreement and in accordance with the Act, at the Effective Time, Merger Sub shall be merged with and into the Company, and the separate corporate existence of Merger Sub shall cease, and the Company shall continue as the surviving corporation under the laws of the State of Florida (the “ Surviving Corporation ”).
(c)    From and after the Effective Time, the Merger shall have the effects set forth in this Agreement and Section 607.1106 of the Act. Without limiting the generality of the foregoing, at the Effective Time, the title to all real estate and other property, or any interest therein, owned by the Company and Merger Sub shall vest in the Surviving Corporation without reversion or impairment, and the Surviving Corporation shall thenceforth be responsible for all the liabilities and obligations of the Company and Merger Sub.
Section 2.2     Articles of Incorporation and Bylaws of the Surviving Corporation .
(a)    At the Effective Time and without any further action on the part of the Company or Merger Sub, the articles of incorporation of Merger Sub, as in effect immediately prior to the Effective Time but reflecting any necessary amendments to (1) change the name of Merger Sub to the Company’s name and (2) reflect the provisions of Section 5.8 , shall be the articles of incorporation of the Surviving Corporation as of the Effective Time, until duly amended in accordance with applicable Law.
(b)    At the Effective Time and without any further action on the part of the Company or Merger Sub, the bylaws of Merger Sub, as in effect immediately prior to the Effective Time but reflecting any necessary amendments to (1) change the name of Merger Sub to the Company’s name and (2) reflect the provisions of Section 5.8 , shall be the bylaws of the Surviving Corporation as of the Effective Time, until duly amended in accordance with applicable Law.
Section 2.3     Directors and Officers of the Surviving Corporation . At the Effective Time, the directors and officers of Merger Sub immediately prior to the Effective Time shall be the directors and officers of the Surviving Corporation, each of such directors and officers to hold office

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subject to the applicable provisions of the articles of incorporation and bylaws of the Surviving Corporation.
Section 2.4     Conversion of Common Shares . At the Effective Time, by virtue of the Merger and without any action on the part of any Person:
(a)    Each Common Share which is held by any wholly-owned Company Subsidiary or in the treasury of the Company or held by Parent or Merger Sub immediately prior to the Effective Time, shall cease to be outstanding and be canceled without payment of any consideration with respect thereto;
(b)    Each share of Class A Stock issued and outstanding immediately prior to the Effective Time (other than any shares of Class A Stock cancelled pursuant to Section 2.4(a) and other than the Dissenting Shares) and all rights in respect thereof shall forthwith cease to exist and be converted into and represent the right to receive $100.00 per share of Class A Stock in cash, without interest (the “ Class A Per Share Merger Consideration ”);
(c)    Each share of Class B Stock, Class C Stock and Class D Stock issued and outstanding immediately prior to the Effective Time (other than any shares of Class B Stock, Class C Stock or Class D Stock cancelled pursuant to Section 2.4(a) and other than the Dissenting Shares) and all rights in respect thereof shall forthwith cease to exist and be converted into and represent the right to receive $65.00 per each share of Class B Stock, Class C Stock and Class D Stock in cash, without interest, subject to adjustments provided in the following sentence (as adjusted pursuant to the following sentence, the “ Class B, C and D Per Share Merger Consideration ”). The Class B, C and D Per Share Merger Consideration shall be adjusted as of the Closing by each of the following, to the extent applicable:
(i)    downward, by a per share amount equal to a quotient, the numerator of which is the amount by which the Permitted Dividend paid or payable in cash exceeds the amount set forth in Section 2.4(c)(i) of the Company Disclosure Schedule, if any, and the denominator of which is the aggregate number of shares of Class B Stock, Class C Stock and Class D Stock issued and outstanding immediately prior to the Closing;
(ii)    upward, by a per share amount equal to a quotient, the numerator of which is the 2017 Reinvested Amount, and the denominator of which is the aggregate number of shares of Class B Stock, Class C Stock, and Class D Stock issued and outstanding immediately prior to the Closing;
(iii)     downward, by a per share amount equal to a quotient, the numerator of which is the amount by which the amounts paid or payable to Shareholders whose resignations have been accepted by the Company in accordance with the Company’s governing documents (including such amounts that are payable after Closing) exceed the amount set forth in Section 2.4(c)(iii) of the Company Disclosure Schedule, if any, and the denominator of which is the aggregate number of shares of Class B Stock, Class C Stock and Class D Stock issued and outstanding immediately prior to the Closing;

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(iv)     downward, by a per share amount equal to a quotient, the numerator of which is the amount by which the Swaps exceed the amount set forth in Section 2.4(c)(iv) of the Company Disclosure Schedule, if any, and the denominator of which is the aggregate number of shares of Class B Stock, Class C Stock and Class D Stock issued and outstanding immediately prior to the Closing;
(v)    upward, by a per share amount equal to a quotient, the numerator of which is the amount by which the Swaps are less than the amount set forth in Section 2.4(c)(iv) of the Company Disclosure Schedule, if any, and the denominator of which is the aggregate number of shares of Class B Stock, Class C Stock and Class D Stock issued and outstanding immediately prior to the Closing;
(vi) downward, by a per share amount equal to a quotient, the numerator of which is the amount by which the Transaction Expenses exceed the amount set forth in Section 2.4(c)(vi) of the Company Disclosure Schedule, if any, and the denominator of which is the aggregate number of shares of Class B Stock, Class C Stock and Class D Stock issued and outstanding immediately prior to the Closing;
(vii) upward, by a per share amount equal to a quotient, the numerator of which is the amount by which the Transaction Expenses less than the amount set forth in Section 2.4(c)(vi) of the Company Disclosure Schedule, if any, and the denominator of which is the aggregate number of shares of Class B Stock, Class C Stock and Class D Stock issued and outstanding immediately prior to the Closing;
(viii) downward, by a per share amount equal to a quotient, the numerator of which is the amount by which the Change of Control Payments exceed the amount set forth in Section 2.4(c)(viii) of the Company Disclosure Schedule, if any, and the denominator of which is the aggregate number of shares of Class B Stock, Class C Stock and Class D Stock issued and outstanding immediately prior to the Closing;
(ix) upward, by a per share amount equal to a quotient, the numerator of which is the amount by which the Change of Control Payments are less than the amount set forth in Section 2.4(c)(viii) of the Company Disclosure Schedule, if any, and the denominator of which is the aggregate number of shares of Class B Stock, Class C Stock and Class D Stock issued and outstanding immediately prior to the Closing;
(x)    downward, by a per share amount equal to a quotient, the numerator of which is the amount by which the aggregate amount of all customer and rental cash deposits held by the AGF Entities as of the date hereof exceeds the amount set forth in Section 2.4(c)(x) of the Company Disclosure Schedule, if any, and the denominator of which is the aggregate number of shares of Class B Stock, Class C Stock and Class D Stock issued and outstanding immediately prior to the Closing;
(xi) upward, by a per share amount equal to a quotient, the numerator of which is the amount by which the aggregate amount of all customer and rental cash deposits held by the AGF Entities as of the date hereof is less than the amount set forth in Section

16



2.4(c)(x) of the Company Disclosure Schedule, if any, and the denominator of which is the aggregate number of shares of Class B Stock, Class C Stock and Class D Stock issued and outstanding immediately prior to the Closing; and
(xii) downward, if the Share Count Adjustment is a positive number, by a per share amount equal to the product of $65.00 multiplied by a quotient, the numerator of which is the absolute value of the Share Count Adjustment and the denominator of which is the aggregate number of shares of Class B Stock, Class C Stock and Class D Stock issued and outstanding immediately prior to Closing.
(d)    Each share of common stock, par value $0.01 per share, of Merger Sub (“ Merger Sub Common Stock ”) issued and outstanding immediately prior to the Effective Time, shall be converted into one fully paid and nonassessable share of common stock, par value $0.01 per share, of the Surviving Corporation. As of the Effective Time, the shares of Merger Sub Common Stock shall no longer be outstanding and shall automatically be cancelled and shall cease to exist, and the holder or holders of such shares shall cease to have any rights with respect thereto, except the right to receive shares of common stock in the Surviving Corporation to be issued in consideration therefor as provided herein, without interest.
Section 2.5     Closing Statement .
(a)    Not later than three (3) Business Days prior to the Closing Date, the Company shall deliver to Parent executed copies of the Payoff Letters and a written statement signed by the Chief Financial Officer of the Company (the “ Closing Statement ”) specifying, as of the Closing, (i) the Transaction Expenses, (ii) any amounts payable or paid between the date of the Unaudited Balance Sheet and the Closing to settle interest rate swaps (the “ Swaps ”), (iii) the aggregate amount of the Permitted Dividend payable or paid in cash for each of the Company’s 2017 and 2018 fiscal years and the 2017 Reinvested Amount, (iv) any amounts payable or paid between the date of the Unaudited Balance Sheet and the Closing to Shareholders whose resignations have been accepted by the Company in accordance with the Company’s governing documents (collectively, the “ Member Payouts ”), together with the payment instructions for each such former Shareholder; (v) the Change of Control Payments; (vi) the aggregate amount of all customer cash deposits and rental cash deposits as of the date hereof; (vii) the calculation of the Class B, C and D Per Share Merger Consideration, after adjustments pursuant to the last sentence of Section 2.4(c) and (viii) the estimated Outstanding Obligations for each applicable Shareholder. Concurrently with the delivery of the Payoff Letters and the Closing Statement, the Company shall deliver to Parent (i) wire instructions or other delivery information for the payments set forth in Section 2.6 and (ii) a schedule setting forth a list of each Shareholder holding shares of Class A Stock, Class B Stock, Class C Stock or Class D Stock, the number of shares of Class A Stock, Class B Stock, Class C Stock or Class D Stock held by such Shareholder, which shall account for, among other things, the Share Count Adjustment, and the aggregate amount payable to each such Shareholder as of the Closing Date. An illustrative example of the Closing Statement is attached as Exhibit 3 hereto.
(b)    Upon Parent’s request, the Company shall, and shall cause its Representatives to, discuss the Closing Statement with Parent and its Representatives. The Company shall take into account in good faith any comments made by Parent and its Representatives.

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Section 2.6     Closing Date Payments; Exchange Procedure .
(a)     Closing Date Payments . Parent shall pay the following amounts at Closing in cash by wire transfer of immediately available funds (unless otherwise designated by the payee thereof) as follows:
(i)    Parent shall deposit to an account designated by the Agent for the benefit of the Shareholders, an amount (such amount, the “ Payment Fund ”) necessary for the Agent to pay to each Shareholder such Shareholder’s aggregate Class A Per Share Merger Consideration and Class B, C and D Per Share Merger Consideration in accordance with Section 2.4(b)–(c) and Section 2.5(a) .
(ii)    Parent shall pay to the Company for the benefit of the Persons specified in Section 2.6(a)(ii) of the Company Disclosure Schedule (each, a “ CoC Payment Recipient ”), the Change of Control Payments in the amounts specified in Section 2.6(a)(ii) of the Company Disclosure Schedule ( provided that if such Change of Control Payment is a retention bonus that is payable by its terms after Closing, then it will be paid in accordance with its terms).
(iii)    Parent shall pay, to the extent not paid by the Company, to the account of each Person to whom any Transaction Expenses are owed, an amount equal to the Transaction Expenses owing to such Person.
(iv)    Parent shall pay to the account of each Person to whom any Swaps are owed, an amount equal to the Swap owing to such Person.
(v)    Parent shall pay to the Person(s) specified in the Payoff Letter(s) an amount sufficient to repay in full all Indebtedness specified therein.
(vi)    Parent shall pay to the account of each former Shareholder to whom a Member Payout is owed an amount equal to the Member Payout so owed to such Person in accordance with the payment instructions specified in the Closing Statement.
(b)     Withholding . Parent, the Surviving Corporation and the Agent shall be entitled to deduct and withhold from the Per Share Merger Consideration or Change of Control Payments otherwise payable by Parent to any Shareholder or CoC Payment Recipient, respectively, the amounts required to be deducted and withheld under the Code, or under any provision of state, local or foreign Law relating to Taxes from such payments. To the extent amounts are so withheld and paid over to the appropriate Governmental Entity, the withheld amounts shall be treated for all purposes of this Agreement as having been paid to the Person in respect of which such deduction and withholding was made. Prior to withholding any amount hereunder, the withholding party shall notify the payee in writing. If any withholding obligation may be avoided by any Shareholder or CoC Payment Recipient by providing information or documentation to Parent, the Agent or the Surviving Corporation, as applicable, such Person may provide such information in a timely fashion and avoid any such withholding.

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(c)     Exchange Procedure .
(i)    Prior to Closing, Parent shall engage, at Parent's expense, Wells Fargo Bank, National Association or, with the Company’s prior written approval (which approval shall not be unreasonably conditioned, withheld or delayed), another reputable financial institution to act as the paying agent in connection with the Merger (the “ Agent ”). The paying agent agreement (the “ Agent Agreement ”) pursuant to which Parent shall engage the Agent shall be substantially in the form attached hereto as Exhibit 4 and may not be amended by Parent, except prior to Closing with the Company’s prior written consent (not to be unreasonably withheld, conditioned or delayed). The Payment Fund shall remain uninvested.
(ii)    Promptly after the Effective Time (but in any event not later than five (5) Business Days after the Effective Time), the Surviving Corporation shall cause the Agent to mail the Letter of Transmittal to each Shareholder of record immediately preceding the Effective Time (other than the Dissenting Shareholders).
(iii)    Upon (A) the delivery by each Shareholder to the Agent of a properly completed and validly executed Letter of Transmittal in respect of such Shareholders’ Common Shares and (B)(i) either the surrender by each Shareholder to the Agent of the certificate(s) (each, a “ Certificate ”) or other documents that, immediately prior to the Effective Time, represented such Common Shares, as applicable, or (2) in the event any Certificate has been lost, stolen or destroyed, the delivery to the Agent of an affidavit (in the form set forth in the Letter of Transmittal) of that fact (an “ Affidavit ”) and, if required by the Agent, the posting by such Shareholder of a bond in customary amount and upon the terms as may be required by the Agent as indemnity against any claim that may be made against it or the Surviving Corporation with respect to such Certificate, the Agent shall pay the aggregate Class A Per Share Merger Consideration and Class B, C and D Per Share Merger Consideration (less such Shareholder’s Outstanding Obligations) to each such Shareholder (by wire transfer in immediately available funds or, if the amount is less than $1,000,000, by check), in exchange for such Common Shares.
(iv)    Any portion of the Payment Fund that remains unclaimed by the Shareholders for one year after the Effective Time, or for such other period of time specified in the Agent Agreement, shall be delivered to Parent upon request. Any holder of Common Shares (other than the Dissenting Shares) who has not theretofore complied with Section 2.6(c)(iii) shall thereafter look only to Parent for payment of the applicable Per Share Merger Consideration contemplated under Section 2.4(b)–(c) and Section 2.6(c)(iii) upon delivery of the executed Letter of Transmittal, due surrender of its Certificates (or Affidavits in lieu of the Certificates), without any interest thereon and only as a general creditor thereof.
(d)     No Liability . Notwithstanding anything to the contrary in this Section 2.6 , to the fullest extent permitted by Law, neither Parent nor the Surviving Corporation shall be liable to any Shareholder for any amount properly paid to a public official pursuant to any applicable abandoned property, escheat or similar Law.

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Section 2.7     No Further Rights of Transfer . At and after the Effective Time, each Shareholder shall cease to have any rights as a shareholder of the Company, except as otherwise required by applicable Law and except for the right of each Shareholder to surrender such Shareholder’s Certificate(s) or an Affidavit, and such other documents as are required under Section 2.6(c) , in exchange for payment of the applicable aggregate Per Share Merger Consideration, and no transfer of Common Shares shall be made on the stock transfer books of the Surviving Corporation. Upon delivery of the Closing Statement pursuant to Section 2.5(a) , the stock ledger of the Company with respect to the Common Shares shall be closed.
Section 2.8     Closing . Unless this Agreement has been properly terminated and the transactions contemplated hereby have been abandoned pursuant to ARTICLE VII , and subject to the satisfaction or waiver of all of the conditions set forth in ARTICLE VI , the closing of the Merger (the “ Closing ”) shall take place at the offices of Akerman LLP, Three Brickell City Centre, 98 Southeast Seventh Street, Suite 1100, Miami, Florida 33131, on the first Monday or Friday that is a Business Day following the third Business Day after the last of the conditions set forth in ARTICLE VI is satisfied or waived, other than those conditions that by their nature are to be satisfied at the Closing, but subject to the fulfillment or waiver of those conditions, or at such other date, time or place as the parties hereto shall agree in writing; provided that the Closing will not occur earlier than December 8, 2017. The Merger shall become effective upon the filing of the Articles of Merger (or, if agreed to by the Company and Merger Sub, at such later time set forth in the Articles of Merger). The date and time when the Merger becomes effective is hereinafter referred to as the “ Effective Time ”. The Closing may take place by delivery of the documents to be delivered at the Closing by facsimile or other electronic transmission. All deliveries by one party to another party at or prior to Closing shall be deemed to have occurred simultaneously and none shall be effective until and unless all have been delivered. The Closing shall be deemed to have occurred at 12:01 A.M., Miami, Florida time, on the day of the Closing (such date is herein referred to as the “ Closing Date ”) if the Closing occurs on a Monday or 11:59 P.M., Miami, Florida time on the Closing Date if the Closing occurs on a Friday.
Section 2.9     Further Assurances . At and after the Effective Time, the officers of the Surviving Corporation shall be authorized to execute and deliver, in the name and on behalf of the Company or Merger Sub, any deeds, bills of sale, assignments or assurances and to take and do, in the name and on behalf of the Company or Merger Sub, any other actions and things to vest, perfect or confirm of record or otherwise in the Surviving Corporation any and all right, title and interest in, to and under any of the rights, properties or assets acquired or to be acquired by the Surviving Corporation as a result of, or in connection with, the Merger.
Section 2.10     Dissenting Shares . Notwithstanding any other provision of this Agreement to the contrary, each Common Share that is issued and outstanding at the Effective Time and held by a Shareholder who (i) has not voted in favor of the Merger or consented thereto in writing, and (ii) has delivered a written notice of intent to demand payment for such Common Share in accordance with the Act and otherwise perfected his, her or its appraisal rights under the Act (collectively, the “ Dissenting Shares ”) shall not be converted into or represent the right to receive the applicable Per Share Merger Consideration and shall be deemed cancelled. Such dissenting Shareholders (the “ Dissenting Shareholders ”) shall be entitled to only receive payment of the value of the Common Shares held by them in accordance with the provisions of the Act, except that each Dissenting Share

20



held by a Dissenting Shareholder who shall have failed to perfect or who effectively shall have withdrawn or lost his, her or its rights to appraisal of his, her or its Common Shares pursuant to relevant provisions of the Act shall thereupon be deemed to have been converted into and to have become exchangeable, as of the Effective Time, for the right to receive, without any interest thereon, the Per Share Merger Consideration in accordance with the terms of this Agreement. The Company shall give Parent prompt notice of any notices or other instruments received by the Company from any Shareholder with respect to demands for payment for Dissenting Shares, and the Company and Parent shall cooperate with respect to all negotiations and proceedings with respect to any such demands. Prior to the Effective Time, the Company shall not, except with the prior written consent of Parent, which shall not be unreasonably withheld, conditioned or delayed, voluntarily offer to make, or make, any payment with respect to any demands for payment for Dissenting Shares or settle or offer to settle any such demands.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as otherwise disclosed in correspondingly numbered section of the schedule (the “ Company Disclosure Schedule ”) delivered by the Company to Parent and Merger Sub concurrently with the execution of this Agreement, the Company hereby represents and warrants to Parent and Merger Sub as follows:
Section 3.1     Due Organization, Good Standing and Corporate Power . Except for International Distributors of Grand Bahama Limited (“ IDGBL ”), each AGF Entity is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Florida and each has corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted. IDGBL is a company limited by shares duly formed, validly existing and in good standing under the laws of the Commonwealth of the Bahamas and has all company power and authority to own, lease and operate its properties and to carry on its business as now being conducted. Each AGF Entity is duly qualified to do business and is in good standing as a foreign corporation or company in each jurisdiction set forth in Section 3.1 of the Company Disclosure Schedule opposite its name. Section 3.1 of the Company Disclosure Schedule lists as of the date hereof all jurisdictions in which the property owned, leased or operated by any AGF Entity, or the nature of the business conducted by such AGF Entity, makes such qualification necessary, except in such jurisdictions where the failure to be so qualified and in good standing would not be reasonably likely to have, individually or in the aggregate, a Material Adverse Effect. The Company has made available to Parent prior to the date hereof copies of the Company’s articles of incorporation and the Company’s bylaws and the comparable governing documents of each of the Company Subsidiaries, in each case, as amended and in full force and effect as of the date hereof. Neither the Company nor any Company Subsidiary is in violation in any material respect of any of its articles of incorporation, bylaws or comparable governing documents.
Section 3.2     Authorization; No Conflicts .
(a)    The Company has the requisite corporate power and authority and has taken all corporate action necessary to execute and deliver this Agreement and each other Transaction Document to which it is or will be a party, to perform its obligations hereunder and thereunder and

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to consummate the transactions contemplated hereby and thereby. At a meeting of the Board duly convened and held meeting prior to the execution of this Agreement, the execution, delivery and performance of this Agreement and the other Transaction Documents by the Company, and the consummation by it of the transactions contemplated hereby, have been duly authorized and approved by the Board, and the Board has determined that the Merger is fair to and in the best interests of the Shareholders, declared that the Merger is advisable and recommended the approval of the Merger and this Agreement by the Shareholders (such recommendation, the “ Company Recommendation ”). No other corporate action on the part of the Company is necessary to authorize the execution, delivery and performance by the Company of this Agreement and the other Transaction Documents to which the Company is or will be party and the consummation of the transactions contemplated hereby and thereby (other than the Requisite Shareholder Approval of this Agreement). This Agreement and the other Transaction Documents to which the Company is or will be party have been or will be duly and validly executed and delivered by the Company. Assuming that this Agreement constitutes a valid and binding obligation of Parent and Merger Sub, this Agreement constitutes a valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except to the extent that its enforceability may be subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors’ rights generally and by general equitable principles.
(b)    The execution and delivery of this Agreement and each other Transaction Document to which the Company is or will be a party do not, and the consummation of the transactions contemplated by this Agreement and each Transaction Document will not, directly or indirectly, (with or without notice or lapse of time, or both) (a) conflict with or violate any of the provisions of the Company’s articles of incorporation or bylaws of the Company, as amended to the date of this Agreement, (b) subject to the consents, approvals, authorizations, declarations, filings and notices referred to in Section 3.4 , conflict with, or result in any violation of, breach of or default under, result in the creation of a Lien on any of the assets of the Company or any Company Subsidiary pursuant to, or give rise to a right of termination, cancellation, acceleration, modification or loss of any material benefit or material obligation under, any Material Contract or Governmental Authorization or (c) subject to the consents, approvals, authorizations, declarations, filings and notices referred to in Section 3.4 , contravene in any material respect or require any material consent, approval, authorization, declaration, filing, or notice under any domestic or foreign Law, any Order or any Governmental Authorization currently in effect and binding upon any AGF Entity.
Section 3.3     Capital Stock . The authorized capital stock of the Company consists of 40,000 shares of Class A Stock, 3,000,000 shares of Class B Stock, 5,000,000 shares of Class C Stock, and 5,000,000 shares of Class D Stock. At the close of business on the date hereof, 2,550 shares of Class A Stock, 99,217.54 shares of Class B Stock, 493,687.11 shares of Class C Stock, and 1,415,523.7 shares of Class D Stock are issued and outstanding. Section 3.3(a) of the Company Disclosure Schedule lists the capitalization of the Company, including the number of shares of Class A Stock, Class B Stock, Class C Stock and Class D Stock held by each Shareholder at the close of business on the date hereof. All Common Shares are certificated. Each Company Subsidiary has the capitalization set forth in Section 3.3(b) of the Company Disclosure Schedule, and each Company Subsidiary is owned, directly or indirectly, 100% by the Company except that one share of common stock of IDGBL is owned by the person specified in Section 3.3(b) of the Company

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Disclosure Schedule. All issued and outstanding shares of capital stock of the Company and each of the Company Subsidiaries, as applicable, have been duly authorized and validly issued, are fully paid and nonassessable, and are not subject to any preemptive rights. No shares of Class A Stock, Class B Stock, Class C Stock or Class D Stock have been issued in violation of any agreements with, commitments to or other rights (including preemptive rights) of any Person. Except as set forth in the bylaws of the Company, no AGF Entity is a party to any outstanding option, warrant, call, conversion, exchange, subscription, right of first refusal, put, or other right (including any preemptive right), agreement or commitment or convertible or exchangeable instrument which obligates any AGF Entity to issue, cause to become outstanding, sell or transfer, repurchase, redeem or otherwise acquire, or make any payment in respect of (including any dividend or distribution), any shares of the capital stock or other equity interest in any AGF Entity. There are no outstanding stock appreciation, phantom stock or similar rights with respect to any AGF Entity. No AGF Entity owns any equity interest or is obligated to purchase any equity interest in or make any investment in any form in any Person, other than the ownership interest in the Company Subsidiaries set forth in Section 3.3(b) of the Company Disclosure Schedule. Except as set forth in Section 3.3(c) of the Company Disclosure Schedule, there are no dividends or distributions which have accrued or been declared but are unpaid on any shares of capital stock of the Company. The Company is not party to or bound by any contract, agreement or instrument with respect to the voting or transfer of capital stock or other equity interests in any Person other than the Voting Agreements. All shares of capital stock or other equity interests in any AGF Entity were issued in compliance with all applicable securities Laws, except for any failure to comply which would not be reasonably expected to have a material effect on the Company.
Section 3.4     Consents and Approvals . Assuming all filings required under the HSR Act are made and any waiting periods thereunder have been terminated or expired and the acceptance and adoption of this Agreement by the Shareholders, no consent of, notice to or filing with any Governmental Entity or any other third party, which has not been received or made, is necessary or required with respect to any AGF Entity in connection with the execution and delivery of this Agreement or any Transaction Document by the Company or the consummation by the Company of the transactions contemplated by this Agreement, except for (a) the filing of the Articles of Merger, (b) the consents or filings set forth in Section 3.4 of the Company Disclosure Schedule and (c) any other consents, notice or filings which, if not made or obtained, would not be reasonably likely to be, individually or in the aggregate, material to the AGF Entities.
Section 3.5     Financial Statements; Statutory Statements; No Undisclosed Liabilities .
(a)    The Company has made available to Parent (i) the audited consolidated balance sheet (the “ Balance Sheet ”) of the Company and the Company Subsidiaries as of July 30, 2016 (the “ Balance Sheet Date ”) and July 25, 2015, and the related audited consolidated statements of income, shareholders’ equity and cash flows for the fiscal years ended July 30, 2016 and July 25, 2015, and (ii) the Unaudited Balance Sheet, together with the unaudited consolidated statements of income, cash flows and shareholders’ equity for the period ended as of the date of the Unaudited Balance Sheet (the financial statements referred to above, including the footnotes thereto, are collectively referred to herein as the “ Financial Statements ”).

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(b)    The Financial Statements fairly present, in all material respects, the financial condition and results of the operations, shareholders’ equity and cash flows of the AGF Entities as at the dates and for the periods reflected therein. The Financial Statements have been prepared in accordance with GAAP on a consistent basis throughout the periods presented, except, in the case of the unaudited statements, for the absence of footnotes and subject to normal year-end adjustments (the effect of which will not, individually or in the aggregate, be material to the Company).
(c)    The AGF Entities do not have any Liabilities that are required to be set forth on an audited consolidated balance sheet prepared in accordance with GAAP, except (i) Liabilities reflected in the Financial Statements, (ii) Liabilities incurred in the ordinary course of business since the Balance Sheet Date, (iii) Liabilities incurred in connection with the transactions contemplated hereby, and (iv) Liabilities arising under any Contract which are not yet due and payable.
(d)    Neither the Company nor any Company Subsidiary is a party to, or has any commitment to become a party to, (i) any joint venture, off balance sheet partnership, or any similar Contract (including any Contract relating to any transaction or relationship between or among the Company or any Company Subsidiary, on the one hand, and any other Person, including any structured finance, special purpose, or limited purpose Person, on the other hand); or (ii) any “off balance sheet arrangements” (as defined in Item 303(a) of Regulation S–K under the Exchange Act).
(e)    The Company and the Company Subsidiaries maintain internal accounting controls with respect to their businesses that are designed to provide reasonable assurances regarding the reliability of financial reporting and the preparation of the Financial Statements in accordance with GAAP, except, in the case of the unaudited statements, for the absence of footnotes and subject to normal year-end adjustments (the effect of which will not, individually or in the aggregate, be material to the AGF Entities). To the Knowledge of the Company, such system of internal controls over financial reporting is effective. In connection with the routine audit practices of the Company and the Company Subsidiaries, on one hand, and its independent auditors, on the other hand, the Company has disclosed to such independent auditors, to the extent the Company has Knowledge of such matters, any fraud that involves management or other employees who have a significant role in the Company’s and the Company Subsidiaries’ internal controls over financial reporting, and any such disclosures occurring during the past three (3) years are described on Section 3.5(e) of the Company Disclosure Schedule.
Section 3.6     Absence of Certain Changes . Since the Balance Sheet Date, (a) the businesses of the AGF Entities have been conducted in all material respects in the ordinary course consistent with past practice, and (b) no event or change has occurred that had or would be reasonably likely to have any Material Adverse Effect. Except as set forth in Section 3.6 of the Company Disclosure Schedule or as expressly contemplated by this Agreement, during the period from the Balance Sheet Date to the date of this Agreement:
(a)    no AGF Entity has issued any equity or debt securities or any security exercisable or exchangeable for or convertible into equity securities of such AGF Entity, other than

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Common Shares issued to new Shareholders or pursuant to a year-end stock dividend, in each case, that are reflected on Section 3.3 of the Company Disclosure Schedule;
(b)    the Company has not declared or paid any dividends or distributions on or in respect of any capital stock or other security of the Company, or redeemed, purchased or acquired any capital stock or other security of the Company, other than rebates and discounts paid in the ordinary course of business and repurchase of the Common Shares from the Shareholders that have resigned;
(c)    there has not been any split, combination or reclassification of any shares of capital stock or other security of the Company;
(d)    no AGF Entity has made any material change in the rate of compensation, commission, bonus or other direct or indirect remuneration payable, or paid or agreed or orally promised to pay, conditionally or otherwise, any bonus, incentive, retention or other compensation, retirement, welfare, fringe or severance benefit or vacation pay, to or in respect of any director, officer, or employee of any AGF Entity, other than increases in the ordinary course of business consistent with past practice in the base wages or salaries of employees of any AGF Entity;
(e)    no AGF Entity has (i) hired any employee, other than in the ordinary course of business consistent with past practice, (ii) engaged any independent contractor, or (iii) entered into any employment or other Contract with any employee or independent contractor whose annual compensation exceeds $100,000 or that provides for any severance or change of control payments or benefits;
(f)    no AGF Entity has entered into any collective bargaining agreement with any labor organization;
(g)    there has not been any material change by any AGF Entity in accounting or Tax reporting principles, methods or policies, any settlement of any material Tax controversy, any material amendment of any Tax Return, or any material Tax election made, revoked or terminated by or with respect to such AGF Entity;
(h)    no AGF Entity has entered into, amended, or terminated, or waived any material rights under, any Material Contract;
(i)    no AGF Entity has breached a material term of any Material Contract;
(j)    no AGF Entity has made any loans, advances or capital contributions to, or investments in, any Person, other than (i) advances to employees in the ordinary course of business consistent with past practice set forth on Section 3.6(j) of the Company Disclosure Schedule, (ii) extension of trade credit to the Shareholders, their Affiliates, and non-Shareholder customers in the ordinary course of business consistent with past practice, or (iii) loans to Shareholders, their Affiliates, and non-Shareholder customers not exceeding $400,000, individually or in the aggregate, made in accordance with the Company’s policies in the ordinary course consistent with past practice;

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(k)    no AGF Entity has entered into or amended any Contract or entered into any transaction with any of its Affiliates or any of their directors, managers, officers or employees except in connection with a sale of goods and services to the Shareholders and their respective Affiliates in the ordinary course of business;
(l)    except as disclosed in the Balance Sheet, no AGF Entity has made or committed to make any capital expenditures or capital additions or improvements in excess of $100,000 individually or $300,000 in the aggregate;
(m)    there has not been any damage, destruction or loss, whether or not covered by insurance, with respect to the property and assets of any AGF Entity, which has not been remedied by such AGF Entity, having a replacement cost of more than $100,000 for any single loss or $200,000 in the aggregate for any related losses;
(n)    no AGF Entity has amended any of its organizational or constituent documents;
(o)    no AGF Entity has adopted any plan of merger, consolidation, reorganization, liquidation or dissolution or filing of a petition in bankruptcy under any provisions of federal or state bankruptcy Law or consent to the filing of any bankruptcy petition against it under any similar Law or other agreement with respect to the sale of its assets, securities or business;
(p)    no AGF Entity has incurred any Indebtedness, except borrowings in the ordinary course of business consistent with past practice under the Company’s revolving credit lines in existence as of the date of the Unaudited Balance Sheet;
(q)    no AGF Entity has transferred, assigned or granted any license or sublicense of any rights under or with respect to any material Intellectual Property;
(r)    no AGF Entity has acquired any material properties or assets, or sold, leased, licensed, transferred or otherwise disposed of any assets, in each case except for inventory and personal property acquired, sold or otherwise disposed of in the ordinary course of business consistent with past practice;
(s)    no AGF Entity has acquired any business or Person, by merger or consolidation, purchase of all or substantially all of the assets or equity interests, or by any other manner, in a single transaction or a series of related transactions, or entered into any Contract, letter of intent or similar arrangement with respect to the foregoing;
(t)    no AGF Entity has mortgaged, pledged, or subjected to any Lien (except Permitted Liens) any of its assets;
(u)    no AGF Entity has commenced any Action against any Person;
(v)    no AGF Entity has paid, discharged, or settled any Action; and

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(w)    no AGF Entity has entered into any Contracts to do any actions referred to in this Section 3.6 .
Section 3.7     Compliance with Laws .
(a)    The operations of each AGF Entity are being conducted and during the last five (5) years have been conducted in compliance with applicable Law in all material respects. Except as set forth in Section 3.7(a) of the Company Disclosure Schedule, no AGF Entity has received any written citations, complaints, consent orders, or other similar enforcement orders from any Governmental Entity or any other Person that alleges that any AGF Entity is currently not in compliance with any applicable Law in all material respects. To the Knowledge of the Company, no investigation related specifically to any AGF Entity is being conducted by or pending with any Governmental Entity. Except as set forth in Section 3.7(a) of the Company Disclosure Schedule, during the past five (5) years, the Company has not been assessed any material fine as a result of, and no material Actions have been initiated against or involving any AGF Entity for, any failure of an AGF Entity to comply with any Law or Order.
(b)    The business, operations and affairs of each AGF Entity comply, and have in the past five (5) years complied with applicable Laws relating to (i) money laundering, drug trafficking, terrorist related activities or other money laundering predicate crimes, including the Currency and Foreign Transactions Reporting Act of 1970 (otherwise known as the Bank Secrecy Act) and the USA PATRIOT Act (collectively, “ Anti-Money Laundering Laws ”) and (ii) bribery and improper payments, including the U.S. Foreign Corrupt Practices Act (collectively, “ Anti-Corruption Laws ”). Neither any AGF Entity, nor any of its Affiliates, nor any of their respective directors, officers, or employees, nor any other Representatives or other Persons acting on their respective behalf (i) has violated in the past five (5) years or currently is violating any applicable Sanctions, (ii) is a Restricted Party, or (iii) has any Action pending or threatened against it with respect to Sanctions by any Sanctions Authority. None of the AGF Entities, their Affiliates, or any of their respective directors, officers, employees, or distributors, other Representatives or other Persons acting on their respective behalf or for the benefit of any AGF Entity has, directly or indirectly (1) offered, promised, given, paid, attempted to pay, or authorized the offer, promise, giving or payment of anything of value (including kickbacks, commissions, discounts, reimbursements, or other inducements), whether in cash, services, or otherwise, to a Governmental Entity or a commercial counterparty in violation of Law, or (2) made, or agreed to make, any illegal contribution, or reimbursed any illegal political gift or contribution made by any other Person, to any candidate for U.S. federal, state or local or foreign public office.
Section 3.8     Governmental Authorizations . The AGF Entities hold and during the past five (5) years have held, and are, and during the past five (5) years have been, in compliance in all material respects with the terms and conditions of, all Governmental Authorizations that are necessary for the operation of the business of the AGF Entities as presently conducted and as conducted during the past five (5) years or that are necessary for the lawful ownership of its properties and assets. Each such Governmental Authorization is valid and in full force and effect. Except as set forth in Section 3.8 of the Company Disclosure Schedule, no AGF Entity has in the past five (5) years received any written citations, complaints, consent orders, or other similar enforcement orders from any Governmental Entity that allege that any AGF Entity was or is currently not in

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compliance in any material respect with any such Governmental Authorization. No material modification nor any termination, cancellation, revocation, suspension or non-renewal of any such Governmental Authorization held by any AGF Entity is pending or, to the Knowledge of the Company, threatened in writing. Except as set forth in Section 3.8 of the Company Disclosure Schedule, each AGF Entity has (a) filed or caused to be filed with the appropriate Governmental Entity all reports required to be filed with the appropriate Governmental Entity with respect to all material unclaimed property required to be remitted or (b) delivered or paid all material unclaimed property to its original or proper recipient. Except as set forth in Section 3.8 of the Company Disclosure Schedule, no material asset or property, or material amount of assets or properties, of any AGF Entity is escheatable to any Governmental Entity under any applicable Laws, including uncashed checks to vendors, customers, beneficiaries, or employees, non‑refunded over‑payments, or credits.
Section 3.9     Litigation . Except as set forth in Section 3.9 of the Company Disclosure Schedule, there is no, and during the past three (3) years, there have been no material Actions, pending, or, to the Knowledge of the Company, threatened in writing, against or affecting any AGF Entity (or pending or threatened in writing against any of the officers, directors or employees of any AGF Entity in relation to the business of the AGF Entities), or any of its properties or rights. No AGF Entity is subject to any currently outstanding Order of any Governmental Entity specifically targeted at any AGF Entity.
Section 3.10     Regulatory Compliance .
(a)    To the Knowledge of the Company, all food, dietary supplement, nonprescription drug, and personal care or cosmetic products developed, tested, manufactured, packaged, labeled, stored, marketed, sold or distributed by or on behalf of the AGF Entities (collectively, the “ Company Products ”) are being or have been developed, tested, manufactured, packaged, labeled, stored, marketed, sold and distributed in compliance in all material respects with all applicable Laws and Governmental Authorizations, including (i) the Federal Food, Drug, and Cosmetic Act, as amended, (ii) the Federal Trade Commission Act and any applicable equivalent state Laws, (iii) the Fair Packaging and Labeling Act, (iv) the Organic Foods Production Act and any applicable equivalent state Laws, (v) the Federal Meat, Poultry, and Egg Inspection Acts administered by the USDA, (vi) the Consumer Product Safety Act, as amended, (vii) the Food Safety Modernization Act, and (viii) any other material applicable Laws governing research, development, marketing authorization, marketing clearance, marketing approval, record keeping, reporting, testing, specification development, manufacturing, processing, packaging, labeling, storage, importation, transportation, handling, advertising, promotion, sale, commercialization, distribution or export of food, dietary supplement, personal care or nonprescription drug products (“ Regulatory Laws ”).
(b)    To the Knowledge of the Company, there are no material Company Products being developed, manufactured or sold by any AGF Entity that would require any material Governmental Authorization for the purpose for which they currently are being developed, manufactured or sold (i) which were not, and are not, developed, manufactured, tested, distributed or marketed in compliance in all material respects with all applicable Regulatory Laws, (ii) for which necessary Governmental Authorizations have not been obtained or (iii) for which such

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Governmental Authorizations have been limited, suspended, non-renewed, withdrawn, revoked or canceled or are no longer in full force and effect.
(c)    With respect to all third party manufacturers and suppliers of key raw materials used in connection with any Company Product (each a “ Third Party Manufacturer ”), to the actual Knowledge (without any inquiry or investigation) of the Company, each Third Party Manufacturer has complied and is complying in all material respects with all applicable Laws, including the maintenance of any Governmental Authorizations necessary to perform its obligations as a Third Party Manufacturer.
(d)    During the past three (3) years, no AGF Entity has (i) received or been subject to any action, written notice, citation, suspension, subpoena, revocation, written warning, administrative proceeding or, to the Knowledge of the Company, investigation by a Governmental Entity or other Person that alleges or asserts that any AGF Entity has violated in any material respect any applicable Regulatory Laws or which requires or seeks any adjustment, modification or alteration in the Company Products or in any AGF Entity’s operations, activities, or services, including FDA Form 483 reports and FDA warning letters, or (ii) been subject to a corporate integrity agreement, deferred prosecution agreement, or other similar agreements mandating or prohibiting future or past activities. During the past three (3) years, no AGF Entity has settled, or agreed to settle, any actions brought by any Governmental Entity for a violation of any applicable Regulatory Laws.
(e)    None of the AGF Entities, nor, to the Knowledge of the Company, any officer, employee or agent of any AGF Entity, has been convicted of any crime or engaged in any conduct for which debarment is mandated or authorized by 21 U.S.C. § 335a or any similar applicable Law, nor, to the Knowledge of the Company, has any such Person been so debarred. To the Knowledge of the Company, none of the AGF Entities nor any officer, employee or agent of any AGF Entity is subject to an investigation or proceeding by any Governmental Entity that would reasonably be expected to result in such suspension, exclusion or debarment.
Section 3.11     Employee Benefit Plans .
(a)     Section 3.11(a) of the Company Disclosure Schedule sets forth a complete and correct list of all “employee benefit plans” as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ ERISA ”), and any other pension plans or employee benefit agreements, arrangements, programs or payroll practices (including severance pay, other termination benefits or compensation, vacation pay, salary, retention pay, change‑of‑control payments, company awards, stock option, stock purchase, salary continuation for disability, sick leave, retirement, deferred compensation, bonus or other incentive compensation, stock purchase arrangements or policies, hospitalization, medical insurance, life insurance, scholarship programs, and car allowance or other vehicle program) (whether funded or unfunded, written or oral, qualified or nonqualified), sponsored, maintained or contributed to or required to be contributed to by any AGF Entity for the benefit of any employee, leased employee, director, officer, shareholder or independent contractor (in each case either current or former) of any AGF Entity (“ Employee Benefit Plans ”).

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(b)    True, correct and complete copies of the following documents, with respect to each of the Employee Benefit Plans, have been made available to Parent (to the extent applicable): (A) any plans and related trust documents (including all amendments thereto), insurance contracts, service agreements, business associate agreements, collective bargaining agreements and employee handbooks, (B) the most recent Form 5500 and schedules thereto, (C) the most recent combined financial statements and actuarial valuations, (D) in the case of any Employee Benefit Plan that is intended to be qualified under Section 401(a) of the Code, the most recent IRS determination opinion or advisory letter, and (E) the most recent summary plan descriptions (including any summaries of material modifications).
(c)    No AGF Entity participates in, is required to contribute to, or otherwise is required to participate in any multiemployer plans (as defined in Section 4001(a)(3) of ERISA). No Employee Benefit Plan is a “defined benefit plan” as defined in Section 3(35) of ERISA or a pension plan subject to the funding standards of Section 302 of ERISA or Section 412 of the Code. No AGF Entity has ever participated in, been required to contribute to, or otherwise been required to participate in any plan, program or arrangement subject to Title IV of ERISA.
(d)    Each Employee Benefit Plan has been established, maintained and administered in material compliance with all applicable Laws (including ERISA and the Code). Each of the Employee Benefit Plans intended to qualify under Section 401(a) or 403(a) of the Code (“ Qualified Plans ”) has received a determination letter from the IRS to such effect, or with respect to a prototype plan, can rely on an opinion letter from the IRS to the prototype plan sponsor to such effect and the trusts maintained thereto are exempt from federal income taxation under Section 501 of the Code. There has been no termination or partial termination of such Qualified Plan within the meaning of Code Section 411(d)(3).
(e)    All contributions, reimbursements, accruals and premiums required by Law or by the terms of any Employee Benefit Plan or any agreement relating thereto for all periods ending prior to or as of the Closing have been timely paid or properly accrued on the Balance Sheet and the books and records of the AGF Entities. No Employee Benefit Plan has any unfunded Liabilities which are not reflected on the Balance Sheet or the books and records of the AGF Entities.
(f)    There are no pending Actions which have been asserted or instituted or, to the Knowledge of the Company, threatened against any of the Employee Benefit Plans, the assets of any such plans or of any related trust or any AGF Entity, the plan administrator or any fiduciary of the Employee Benefit Plans with respect to such plans (other than routine benefit claims). No Employee Benefit Plan is under audit or investigation by the IRS, the Department of Labor, or any other Governmental Entity and no such completed audit, if any, has resulted in the imposition of any material Tax, interest, or penalty.
(g)    Except as listed in Section 3.11(g) of the Company Disclosure Schedule, neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby (in each case either alone or in conjunction with any other event) will (i) result in any payment or benefit becoming due to any current or former employee under any Employee Benefit Plan; (ii) increase any compensation or benefits otherwise payable or due to any current or former employee under any Employee Benefit Plan; or (iii) result in the acceleration of the time of

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payment or vesting of any payments or benefits to any current or former employee under any Employee Benefit Plan.
(h)    No Employee Benefit Plan provides post-retirement welfare benefits for any current or former employees (and their beneficiaries or dependents) of the Company or any of the Company Subsidiaries after termination of employment other than the rights that may be provided by Section 601 et seq. of ERISA or other applicable Law.
(i)    Each agreement, contract, plan, or other arrangement that is a “nonqualified deferred compensation plan” subject to Section 409A of the Code to which any AGF Entity is a party (collectively, a “ Plan ”) complies with and has been maintained in accordance with the requirements of Section 409A(a)(2), (3), and (4) of the Code and any U.S. Department of Treasury or Internal Revenue Service guidance issued thereunder and no amounts under any such Plan is or has been subject to the interest and additional tax set forth under Section 409A(a)(1)(B) of the Code. No AGF Entity has any actual or potential obligation to reimburse or otherwise “gross‑up” any person for the interest or additional tax set forth under Section 409A(a)(1)(B) of the Code.
(j)    No nonexempt “prohibited transaction,” within the meaning of ERISA or the Code, or breach of any duty imposed on “fiduciaries” pursuant to ERISA has occurred with respect to any Employee Benefit Plan.
(k)    No Employee Benefit Plan is part of a multiple employer welfare arrangement (as defined in Section 3(4) of ERISA).
Section 3.12     Employment and Labor Matters .
(a)     Section 3.12(a) of the Company Disclosure Schedule sets forth for each employee of any AGF Entity as of the date of this Agreement the name, job title, exempt or non-exempt employment classification for wage and hour purposes, base salary or hourly wage, bonus or other incentive compensation paid to such employee for fiscal year 2016 and expected to be paid for fiscal year 2017 and car allowance. Except as set forth in Section 3.12(a) of the Company Disclosure Schedule, the employment of each employee employed by any AGF Entity is “at will.”
(b)     Section 3.12(b) of the Company Disclosure Schedule contains a true, correct and complete listing, of each individual paid by any AGF Entity as an independent contractor, rather than as an employee, and who was paid in excess of $100,000 since January 1, 2017.
(c)    Except as set forth in Section 3.12(c) of the Company Disclosure Schedule, there are no Actions pending or, to the Knowledge of the Company, threatened in writing or that are likely to be initiated against any AGF Entity by any existing or former employee pertaining to the employment of labor, including those related to wages, hours, collective bargaining, wrongful dismissal, or violations of equal opportunity or anti‑discrimination Laws.
(d)    No AGF Entity has been notified in writing of any pending or threatened Action or investigation by any branch or department of U.S. Immigration and Customs Enforcement, or other Governmental Entity charged with administration and enforcement of federal immigration laws concerning the AGF Entities. All employees of each AGF Entity have completed, and the

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Company has retained, a U.S. Citizenship and Immigration Service Form I‑9 in accordance with applicable Law. No current employee is (i) a non-immigrant employee whose status would terminate or otherwise be affected by the transactions consummated under this Agreement, or (ii) an alien who is authorized to work in the United States in non‑immigrant status. No AGF Entity currently employs, nor in the last three (3) years has employed, any employee whose residence or primary work location is outside the U.S.
(e)    The AGF Entities are, and have been for the last three (3) years, in compliance in all material respects with all applicable Laws pertaining to employment and employment practices to the extent they relate to the employees, including equal employment opportunity, workplace safety, Americans with Disabilities Act, the Fair Labor Standards Act, discrimination, retaliation, terms and conditions of employment and wage and hour requirements. No AGF Entity has been notified in writing of any pending or threatened Action, investigation, or audit by any Governmental Entity charged with enforcing employment and employment practices Laws. The AGF Entities are, and have been for the last three (3) years, in compliance in all material respects with applicable workers’ compensation Laws. The AGF Entities have withheld all amounts required by Law or by agreement to be withheld from the wages, salaries and other payments to employees in all material respects.
(f)    No AGF Entity is a party or subject to any union or collective bargaining agreement or other Contract with a labor organization representing any of its employees, and there are no labor organizations representing, purporting to represent or, to the Knowledge of the Company, attempting to represent any group of employees of any AGF Entity. No labor organization or group of employees of any AGF Entity has made a demand for recognition or certification, and there are no representation or certification demands, proceedings or petitions seeking a representation proceeding presently pending or, to the Knowledge of the Company, threatened or reasonably likely to be brought or filed with the National Labor Relations Board or any other labor relations tribunal or authority. There is not, and there has not been in the last three (3) years, any labor strike, dispute, walk out, work stoppage, slow down or lockout involving the AGF Entities, and to the Knowledge of the Company is not threatened or reasonably likely.
(g)    No employee or former employee of an AGF Entity has experienced an “employment loss,” as defined by the WARN Act, termination of employment, layoff, and/or reduction in hours within the past 90 days.
Section 3.13     Tax Matters .
(a)     Tax Returns . All Tax Returns required and due to be filed with respect to any AGF Entity or any of its income, properties, franchises or operations have been prepared and timely filed with the appropriate Tax Authorities, and all such Tax Returns (including Tax attributes and carryforwards) are true, correct and complete in all material respects. No AGF Entity is currently the beneficiary of any extension of time within which to file any Tax Return. There are no Liens for Taxes (other than Taxes not yet due and payable) upon any of the assets of the AGF Entities. The Company has made available to Parent true, correct and complete copies of all income and other Tax Returns, examination reports and statements of deficiencies filed by, assessed against or

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issued by any tax authority with respect to any AGF Entity for each of the fiscal years ending on or after July 27, 2013.
(b)     Payment of Taxes . All Taxes due and payable by or with respect to AGF Entities have been paid by the AGF Entities.
(c)     Other Tax Matters .
(i)    Except as disclosed in Section 3.13(c)(i) of the Company Disclosure Schedule, there is no Action or claim for refund in progress, pending or threatened in writing against or with respect to the AGF Entities regarding Taxes. No deficiency or proposed adjustment which has not been settled or otherwise resolved for any amount of Taxes has been asserted or assessed against the AGF Entities.
(ii)    No AGF Entity will be required to include any amount in taxable income or exclude any item of deduction or loss from taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of (i) any closing agreement, private letter ruling or similar agreement or rulings with respect to Tax executed or issued on or prior to the Closing Date, (ii) any deferred intercompany gain or excess loss account described in Treasury Regulations under Code §1502 (or any corresponding or similar provision or administrative rule of federal, state, local or foreign Law), (iii) a change in method of accounting or use of an improper method of accounting for a taxable period ending on or before the Closing Date, (iv) any installment sale or open transaction disposition made on or prior to the Closing Date, or (v) any prepaid amount received on or prior to the Closing Date.
(iii)    No AGF Entity is subject to, is party to or has otherwise requested any closing agreement, private letter ruling, technical advice memoranda or similar agreement or ruling related to Taxes.
(iv)    Except for the consolidated group in which the Company is a common parent, the Company has not been a member of an affiliated group (as defined in Section 1504 of the Code), filed or been included in a combined, consolidated or unitary income Tax Return. Except for Tax obligations of the AGF Entities, the Company does not have any liability for Taxes of any other person under Treasury Regulations Section 1.1502-6 (or any corresponding provision of state, local or foreign income Tax law), as transferee or successor, by Contract or otherwise. The AGF Entities are not party to or bound by any tax allocation or tax sharing agreement or have any obligation to indemnify any other Person with respect to Taxes (other than Taxes of the AGF Entities).
(v)    No AGF Entity has participated in any listed transaction as contemplated in Treasury Regulations Section 1.6011-4.
(vi)    Except as disclosed in Section 3.13(c)(vi) of the Company Disclosure Schedule, the AGF Entities have withheld and paid all Taxes required to have been withheld

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and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, shareholder or other third party.
(vii)    No AGF Entity has been a United States real property holding corporation within the meaning of Code §897(c)(2) during the applicable period specified in Code §897(c)(1)(A)(ii). No AGF Entity is a party to or bound by any Tax allocation or sharing agreement.
(viii)    Since the Balance Sheet Date, no AGF Entity has incurred any liability for Taxes arising from extraordinary gains or losses, as that term is used in GAAP, outside the ordinary course of business.
(ix)     No AGF Entity has distributed stock of another Person, or has had its stock distributed by another Person, in a transaction that was purported or intended to be governed in whole or in part by Code §355 or Code §361.
(x)    To the Knowledge of the Company, no AGF Entity is currently the subject of an audit, dispute, investigation, proceeding, claim or other examination by any Governmental Entity relating to the payment of a material amount of Taxes. No AGF Entity has received any written notice from any taxing authority that such an audit, dispute, investigation, proceeding, claim or other examination, which has not yet been completed, is contemplated or pending.
(xi)    No AGF Entity (A) has entered into any written agreement or waiver extending any statute of limitations relating to the payment or collection of Taxes of such AGF Entity that has not expired or (B) is presently contesting any Tax Liability of any AGF Entity before any Governmental Entity.
(xii)    During the past three (3) years, no claim has been made by a Governmental Entity in a jurisdiction where an AGF Entity does not file Tax Returns that such AGF Entity is or may be subject to taxation by that jurisdiction.
(xiii)    For all federal and applicable state and local income Tax purposes, the Company is and has been treated at all times since its formation as a “cooperative” within the meaning of Code §1382 that is subject to the provisions of Subchapter T of Chapter 1 of Subtitle A of the Code. Each Company Subsidiary, other than IDGBL, is a member of the “affiliated group” as defined in Code §1504(a), the common parent of which is the Company.
(xiv)    No AGF Entity is resident or has a permanent establishment (within the meaning of an applicable Tax treaty) or an office or fixed place of business in a country other than the one in which it is organized.
(xv)    Except as listed in Section 3.13(c)(xv) of the Company Disclosure Schedule, any amount that could be received or has been received (whether in cash or property or the vesting of property) by any employee, officer or director of any AGF Entity under any Employee Benefit Plan or otherwise, will not (1) fail to be deductible by

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reason of Section 280G of the Code or (2) be subject to an excise tax under Section 4999 of the Code. No AGF Entity has any indemnity obligation for any taxes, interest or penalties imposed under Section 4999 of the Code.
(xvi)    Adequate reserves and accruals have been established in accordance with GAAP to provide for the payment of all Taxes which are not yet due and payable with respect to any AGF Entity, and the unpaid Taxes will not exceed such reserves and accruals as adjusted for the passage of time through the Closing Date in accordance with past custom and practice of the Company in filings its Tax Return.
(xvii)    Except as listed in Section 3.13(c)(xvii) of the Company Disclosure Schedule, no AGF Entity owns any property, the indirect transfer of which, pursuant to this Agreement, would give rise to any Transfer Taxes.
Section 3.14     Intellectual Property .
(a)     Section 3.14(a) of the Company Disclosure Schedule sets forth (i) a list and description of all material Intellectual Property owned by any AGF Entity, and (ii) a list and description of all additional material Intellectual Property used, licensed or controlled by any AGF Entity. AGF Entities own or have the right to use any and all Intellectual Property that is necessary for the ownership, management or operation of business of AGF Entities, including the Intellectual Property listed in Section 3.14 of the Company Disclosure Schedule (the “ Company Intellectual Property ”).
(b)    All registrations for the Registered Intellectual Property are (i) in full force and effect and have not expired or been abandoned, and (ii) to the Knowledge of the Company, are valid, subsisting and enforceable. The Company Intellectual Property owned by each AGF Entity is owned by the applicable AGF Entity, free and clear of all Liens (other than Permitted Liens).
(c)    The conduct by the AGF Entities of their business as currently conducted does not infringe the rights with respect to the Intellectual Property owned by any Person other than an AGF Entity. There are no material claims pending or, to the Knowledge of the Company, threatened against any AGF Entity asserting the invalidity, abuse, misuse or unenforceability of any Company Intellectual Property. No AGF Entity has during the past three (3) years received written notice from any third party of any pending or threatened claim related to the infringement or other violation of that party’s Intellectual Property used in the business of the applicable AGF Entity. No AGF Entity has any pending claims against, nor, during the past three (3) years, has given notice to, any third party alleging infringement of the Company Intellectual Property and, to the Knowledge of the Company, the AGF Entities’ rights in any Company Intellectual Property owned by any of them are not being infringed.
(d)    Except as otherwise set forth in Section 3.14(d) of the Company Disclosure Schedule, no royalties, license or other fees are payable by any AGF Entity to any Person by reason of the ownership or use of the Company Intellectual Property, other than any non-exclusive “shrink wrap” or other standard end user license for commercial off-the-shelf software that would not reasonably be expected to require aggregate annual license fees greater than $20,000.

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(e)    Each AGF Entity has taken reasonable measures to protect the confidentiality of all Trade Secrets that are owned, used or held by the applicable AGF Entity, and to the Knowledge of the Company, such Trade Secrets have not been used, disclosed to or discovered by any Person except pursuant to valid and appropriate non-disclosure and/or license Contracts which, to the Knowledge of the Company, have not been breached in any material respect.
(f)    The IT Assets owned by the AGF Entities or used by the AGF Entities in connection with the respective businesses of the AGF Entities (collectively, the “ Company IT Assets ”) (i) have not materially malfunctioned or failed within the past twenty-four (24) months, (ii) are sufficient for conduct of the respective businesses of the AGF Entities as they are currently conducted and (iii) to the Knowledge of the Company, do not contain any disabling or other unauthorized code. The AGF Entities (as applicable) have implemented commercially reasonable measures to protect the confidentiality and security of the Company IT Assets against any unauthorized use, access, interruption, modification or corruption. The AGF Entities (as applicable) have implemented commercially reasonable data backup, data storage and disaster recovery and business continuity procedures with respect to the Company IT Assets.
(g)    With respect to the collection, use, handling, storage, privacy, protection, and security of Personal Information, the AGF Entities, have adopted commercially reasonable policies and procedures and have complied, and are currently operating in compliance with, in all material respects: (A) all such policies and procedures and all applicable Information Privacy and Security Laws, (B) all additional or higher leading industry standards or requirements applicable to the conduct of the businesses of the AGF Entities (including PCI-DSS), and (C) all Material Contracts to which any of the AGF Entities is a party. To the Knowledge of the Company, no equityholder, officer, or director of the AGF Entities, has during the past three (3) years engaged in any act on behalf of such entity that violates any Information Privacy and Security Law, or any standard, requirement, or Material Contract described in the previous sentence. No AGF Entity has received any written notice from any Governmental Entity of any violation of any Information Privacy and Security Law by any of the AGF Entities in the conduct of their respective businesses. The AGF Entities have established and maintain commercially reasonable data and information security programs and privacy policies. The AGF Entities, have during the past three (3) years complied, and are in compliance, in all material respects with all such programs and policies. To the Knowledge of the Company, no AGF Entity has made or suffered any unauthorized acquisition, access, intrusion, breach, use or disclosure of the Company IT Assets or any information, including Personal Information, relating to the respective businesses of the AGF Entities or otherwise acted in a manner that would trigger a notification or reporting requirement under any Information Privacy and Security Laws. No AGF Entity has during the past three (3) years notified in writing, either voluntarily or as required by Law, any affected individual, any Governmental Entity, or the media, of any breach of information, including Personal Information, relating to the respective businesses of the AGF Entities, and no AGF Entity is conducting any such notification or investigating any such breach, regardless of whether any such notification is required.
(h)    The AGF Entities have taken commercially reasonable measures to ensure that all third parties that are authorized to access Personal Information, Customer Data or any other data contained in any AGF Entity’s databases similarly take commercially reasonable measures to protect the privacy, security and confidentiality of such data and information.

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Section 3.15     Broker’s or Finder’s Fee     . Except as set forth in Section 3.15 of the Company Disclosure Schedule, no agent, broker, Person or firm acting on behalf of any AGF Entity is, or shall be, entitled to any broker’s fees, finder’s fees or commissions from any AGF Entity or any of the other parties hereto in connection with this Agreement or any of the transactions contemplated hereby. The Company has made available to Parent a complete and accurate copy of all agreements pursuant to which RBC Capital Markets, LLC is entitled to any fees and expenses in connection with any of the transactions contemplated by this Agreement.
Section 3.16     Material Contracts .
(a)     Section 3.16(a) of the Company Disclosure Schedule contains a list, as of the date hereof, of the following Contracts (each, a “ Material Contract ”) to which any AGF Entity is a party or by which it or its assets are bound:
(i)    Contracts that materially restrain, limit or impede any AGF Entity’s ability to compete with or conduct any business or line of business, including those which (1) grant any right of first refusal, right of first offer or similar right with respect to any assets, rights or properties of any AGF Entity (or, after the Effective Time, Parent or its Subsidiaries), (2) could require the disposition of any assets (other than in the ordinary course of business, consistent with past practice) or line of business of any AGF Entity (or, after the Effective Time, Parent or its Subsidiaries), (3) grant “most favored nation” status or equivalent preferential pricing terms to any Person (other than any AGF Entity) (or, after the Effective Time, Parent or its Subsidiaries), or (4) prohibit or limit the right of any AGF Entity to make, sell or distribute any products or services;  
(ii)    Contracts relating to the acquisition of any operating business or the capital stock of any other Person, whether by merger, sale of stock, sale of assets, or otherwise;
(iii)    Contracts that are employment, consultant, contractor, broker or agent agreements of any AGF Entity that provide for an annual salary plus target bonus payment or severance payment of $100,000 or more in the aggregate or that restrict any AGF Entity’s right to terminate the employment relationship without notice or penalty;
(iv)    Contracts with any (1) Affiliate (other than another AGF Entity), Shareholder, officer or director, or (2) any immediate family member of any of the Persons in clause (1), except for Contracts for the sale by the AGF Entities to its Shareholders of goods and services in the ordinary course of business consistent with past practice and employment relationships and compensation, benefits, and travel advances in the ordinary course of business consistent with past practice;
(v)    Contracts pursuant to which any AGF Entity has outstanding Indebtedness;

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(vi)    Contracts (other than those described in clause (v)) pursuant to which any AGF Entity has guaranteed the obligations of any other Person, other than another AGF Entity;
(vii)    Contracts under which any AGF Entity has advanced, loaned or made any investment in any Person (other than another AGF Entity) that is currently outstanding;
(viii)    Contracts involving the payment or receipt of royalties or other amounts calculated based upon the revenues or income of any AGF Entity or income or revenue related to any product or service of any AGF Entity;
(ix)    Contracts with (1) any Material Customer, (2) any Material Supplier, or (3) any supplier or vendor with which any AGF Entity has a non‑divert or rebate program;
(x)    Contracts the performance of the executory portion of which involves consideration in excess of $250,000;
(xi)    Contracts containing any future capital expenditure obligations in excess of $100,000;
(xii)    Contracts that create any exclusive or preferred relationship, or where the Company is the beneficiary of an exclusive dealing, preferred relationship or any similar exclusivity provision;
(xiii)    “take-or-pay” Contracts or Contracts that contain minimum purchase commitments or requirements;
(xiv)    Contracts with any distributor, manufacturer’s representative or broker of any Company Product;
(xv)    Contracts to which an ultimate contracting party is a Governmental Entity (including any subcontract with a prime contractor or other subcontractor who is a party to any such Contract);
(xvi)    Contracts (other than those solely among the Company and any Company Subsidiary) that were not negotiated and entered into on an arms’‑length basis;
(xvii)    Contracts concerning or consisting of a partnership, strategic alliance or joint venture agreement;
(xviii)    Contracts by which (A) any AGF Entity is granted a right or license to the Intellectual Property of any other Person, or (B) any AGF Entity has granted to any other Person any rights in any Company Intellectual Property, in the cases of both (A) and (B) excluding non‑exclusive shrink wrap or off-the-shelf software licenses or licenses with annual fees of $20,000 or less and non-exclusive licenses of Intellectual

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Property that are incidental to the sale or purchase of products or services in the ordinary course of business consistent with past practice;
(xix)    Contracts with any third-party vendor providing for annual payments to or from any AGF Entity in excess of $100,000, other than contracts listed in Section 3.16(a)(ix) of the Company Disclosure Schedule;
(xx)    Contracts involving the settlement of any Action by or against the Company with respect to which (A) any amounts remain unpaid, (B) any equitable relief has been granted to any Person that is not fully performed or satisfied, or (C) conditions precedent to the settlement thereof have not been satisfied;
(xxi)    the Owned Real Property Leases and the Real Property Leases;
(xxii)    any Contracts for the lease of personal property involving aggregate annual payments in excess of $100,000 in a calendar year;
(xxiii)    Contracts, other than the organizational and constituent documents of any AGF Entity, a primary purpose of which is to indemnify, advance expenses to or exculpate any Person (other than another AGF Entity); and
(xxiv)    Contracts with any Person located in a foreign country or which will be performed outside of the United States.
(b)    A true, correct and complete copy of each Material Contract, including any amendments thereto, has been made available to Parent. Each Material Contract is in full force and effect and is a legal, valid and binding obligation of an AGF Entity, except to the extent that its enforceability may be subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar Laws affecting the enforcement of creditors’ rights generally and by general equitable principles. No AGF Entity is in material default under any Material Contract and, to the Knowledge of the Company, no event has occurred that with notice or lapse of time, or both, would constitute such a material default by such AGF Entity. To the Knowledge of the Company, no other party to any such Material Contract is in material default under any such Material Contract. Each AGF Entity, and to the Knowledge of the Company, each other party to any such Material Contract is in compliance in all material respects with all obligations of such AGF Entity or such other party, as the case may be.
Section 3.17     Environmental Matters .
(a)    Each AGF Entity is and for the past five (5) years has been in compliance with all applicable Environmental Laws and has obtained, and is, and in the past five (5) years has been, in material compliance with, all Governmental Authorizations issued pursuant to Environmental Laws (“ Environmental Permit ”) in connection with the operation of its properties, assets and business and there are no Actions pending or, to the Knowledge of the Company, threatened in writing in connection with the operation of the properties, assets or business of the AGF Entities under any Environmental Law.

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(b)    No AGF Entity is the subject of any outstanding written Order or Contract with any Governmental Entity or other Person respecting any Environmental Laws or any Release or threatened Release of a Hazardous Material.
(c)    No AGF Entity has received any written communication alleging either that it may be in violation of any Environmental Law or Environmental Permit or that it may have any Liability under any Environmental Law or with respect to any Release of Hazardous Material that remains unresolved. No AGF Entity has installed, used, generated, treated, disposed of or arranged for the disposal of any Hazardous Materials in any manner so as to create any material Liabilities for any AGF Entity under any Environmental Law.
(d)    Except as set forth in Section 3.17(d) of the Company Disclosure Schedule, to the Knowledge of the Company, there is not located at any of the Owned Real Properties any (i) underground storage tanks, (ii) asbestos or asbestos-containing material, (iii) equipment containing polychlorinated biphenyls, or (iv) any Hazardous Materials in such form or quantity as to create any material Liability for any AGF Entity under any Environmental Law.
(e)    The Company has made available to Parent copies of all material environmental reports, studies, assessments, sampling data and other material assessments in the possession or control of any AGF Entity and accessible by it without unreasonable burden that relate to any AGF Entity or their respective current or former properties or operations, including the environmental condition of their respective facilities and their compliance (or non-compliance) with any Environmental Laws.
Section 3.18     Real and Personal Property; Sufficiency of Assets .
(a)     Section 3.18(a) of the Company Disclosure Schedule sets forth a true, correct, and complete list of all real property and interests in real property owned in fee by any AGF Entity (each such real property, together with all of the facilities, buildings, structures, fixtures, roofs, walls, foundation, refrigeration and cold storage systems and HVAC systems and any other major operating systems or other improvements situated thereon (collectively, “ Improvements ”) and all of such AGF Entity’s rights, if any, to access, all strips or gores adjoining the real property, easements, alleys, privileges, rights-of-way, reversions, remainders, riparian and other air, water, mineral, development, utility and other rights, entitlements, privileges, incentives, rights to lands underlying any adjacent streets or roads, and other tenements, hereditaments and appurtenances, if any, pertaining to or accruing for the benefit of such real property and Improvements or used in connection with the ownership, maintenance or operation of the real property or Improvements, an “ Owned Real Property ” and collectively, the “ Owned Real Properties ”), which description in Section 3.18(a) of the Company Disclosure Schedule includes: (i) the address of each Owned Real Property and (ii) a true, correct, and complete list of all leases, subleases, licenses or other occupancy or rental agreements relating to or affecting any portion of each Owned Real Property together with any and all assignments and amendments thereof (each, an “ Owned Real Property Lease ” and collectively, the “ Owned Real Property Leases ”), including the names of the parties to each Owned Real Property Lease (each tenant, subtenant, licensee or occupant under any Owned Real Property Lease is hereinafter referred to as a “ Tenant ”) and the date of each Owned Real Property Lease. Copies of each Owned Real Property Leases have been made available to Parent. To the extent in the possession

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of the AGF Entities, the Company has made available to Parent prior to the date hereof copies of all of the Company’s existing title insurance policies relating to the Owned Real Properties, existing surveys, and property inspection reports, certificates of occupancy, appraisals, and other documents relating to the Owned Real Property. There are no Liens on the Owned Real Property except as set forth in Section 3.18(a) of the Company Disclosure Schedule.
(b)    No AGF Entity owes any brokerage commissions or finder’s fees with respect to any Owned Real Property Lease. Except as disclosed on Section 3.18(a) of the Company Disclosure Schedule, no AGF Entity has given or received any written notice of termination, cancellation, adverse modification, or non-renewal with respect to any Owned Real Property Lease. With respect to the Owned Real Property, there is no pending or, to the Knowledge of the Company, threatened zoning application or proceeding or condemnation, eminent domain, or taking proceeding which would materially impede the use of any Owned Real Property. To the Knowledge of the Company, there are no special assessments outstanding in respect of the Owned Real Property, nor has any AGF Entity received any written notice of proposed special assessments. To the Knowledge of the Company, no public improvements have been commenced and none are planned which in either case would be reasonably expected to result in special assessments against or otherwise materially adversely affect any Owned Real Property. With respect to each Owned Real Property, other than the rights of Parent and Merger Sub pursuant to this Agreement, there are no outstanding options, rights to purchase, rights of first offer or rights of first refusal in favor of any Person to purchase or lease such Owned Real Property or any portion thereof or interest therein, except as may be set forth in any Owned Real Property Lease as disclosed on Section 3.18(b) of the Company Disclosure Schedule.
(c)    Except as disclosed on Section 3.18(c) of the Company Disclosure Schedule, all Improvements located on the Owned Real Property used by any AGF Entity are structurally sound and free of any material defects. Except as would be observed by an inspection of the Owned Real Property, there are no conditions affecting any of the Owned Real Property that, individually or in the aggregate, would materially impede the use of any Owned Real Property. During the past six (6) years, no written notice of violation of any Laws (including any zoning law) or of any material covenant, restriction or easement affecting any Owned Real Property or any part of it or with respect to the use or occupancy of such Owned Real Property or any part of it has been given by any Governmental Entity having jurisdiction over such Owned Real Property or by any other Person entitled to enforce the same. The Owned Real Property and all Improvements thereon are in good operating condition and repair, reasonable wear and tear excepted, and the Company has substantially complied with its regularly scheduled maintenance program, which is in accordance, in all material respects, with applicable manufacturers’ standards and guidelines for all such Improvements and no required maintenance has been materially delayed or deferred. To the Knowledge of the Company, no Improvement (except for immaterial Improvements, back-up systems, spare equipment or equipment not in regular use in the ordinary course of business consistent with past practice) is near the end of its useful life as of the date hereof.
(d)    Except as set forth in Section 3.18(d) of the Company Disclosure Schedule , in the last three (3) years, there has been no material shutdown of, or material interruption of the flow of coolant, refrigeration, and properly refrigerated air sufficient to maintain the intended cold temperature range in, any frozen or refrigerated warehouse area comprising a portion of the Owned

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Real Property or Leased Real Property by reason of equipment failure, malfunction, or replacement or interruption of utilities, or any other cause of any nature whatsoever, other than those shutdowns and interruptions occasioned by reason of routine and ordinary scheduled maintenance or replacement to compressors and other equipment comprising the refrigeration systems located thereat or by the applicable utility company, in each case which have not caused any material claims by any AGF Entity’s customers for loss or damage to the inventory or property of any AGF Entity’s customers as a result of any such shutdown or interruption. The compressors and other equipment comprising the refrigeration systems located at the Ocala Facility do not currently contain ammonia and have not contained ammonia since at least July 30, 2008.
(e)     Section 3.18(e) of the Company Disclosure Schedule contains a list as of the date hereof of the addresses of the real property leased or subleased by any AGF Entity (the “ Leased Real Property ”) pursuant to a Real Property Lease and a description of each Real Property Lease, including the name of the instrument constituting the Real Property Lease, the date of the Real Property Lease and the name of the tenant and landlord thereunder. Copies of such Real Property Leases and, to the extent in the Company’s possession, copies of all extension notices, written notices of default, estoppel certificates and subordination, non-disturbance and attornment agreements delivered pursuant to each Real Property Lease, have been made available to Parent. Any AGF Entity that is party to a Real Property Lease has a valid leasehold interest in the respective Leased Real Property, free and clear of any Liens, except any Permitted Liens. Except as set forth on Section 3.18(e) of the Company Disclosure Schedule, there are no written or oral subleases, licenses, concessions, occupancy agreements or other contractual obligations (each, a “ Sublease ”) granting to any other Person the right of use or occupancy of the Leased Real Property, and there is no Person (other than an AGF Entity or pursuant to a Sublease) in possession of the Leased Real Property.
(f)    No AGF Entity is in material default under any Owned Real Property Lease or Real Property Lease and no AGF Entity has received any written notice of any event that with notice or lapse of time, or both, would constitute such a material default by such AGF Entity which has not been cured. To the Knowledge of the Company, no other party to any such Owned Real Property Lease or Real Property Lease is in default thereunder. Each AGF Entity, and to the Knowledge of the Company, each other party to any Owned Real Property Lease or any Real Property Lease is in material compliance with all obligations of such AGF Entity or such other party, as the case may be, thereunder.
(g)    With respect to the Leased Real Property, (i) either the Company or one of the Company Subsidiaries is now in possession of the applicable Leased Real Property and (ii) no AGF Entity has received written notice that any condemnation or eminent domain Action against any Leased Real Property is pending or threatened. The Improvements located on the Leased Real Property are, taken as a whole, suitable for the purposes for which they are currently intended and the premises leased under the applicable Real Property Lease are in good operating condition and repair, reasonable wear and tear excepted. With respect to the Leased Real Property and all Improvements thereon for which any AGF Entity is responsible for maintenance thereof pursuant to the terms of the relevant Real Property Lease, the AGF Entities have substantially complied with their regularly scheduled maintenance program, which is in accordance, in all material respects, with applicable manufacturers’ standards and guidelines for all such Improvements located on the

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Leased Real Property and no required maintenance has been materially delayed or deferred. The Leased Real Property constitutes all leasehold interests in real property currently used for the business of the AGF Entities.
(h)     Section 3.18(h) of the Company Disclosure Schedule lists all leases of personal property by any AGF Entity (“ Personal Property Leases ”) involving annual payments in excess of $100,000. The AGF Entity has a valid leasehold interest in or a valid right to use the tangible personal property under each of the Personal Property Leases under which it is a lessee, and there is no material default under any Personal Property Lease by any AGF Entity or, to the Knowledge of the Company, by any other party thereto. Each AGF Entity, and to the Knowledge of the Company, each other party to the Personal Property Leases is in material compliance with all obligations of such AGF Entity or such other party, as the case may be, thereunder.
(i)    All tangible personal property owned by the AGF Entities and all of the items of tangible personal property used by the AGF Entities under the Personal Property Leases are in good operating condition and repair and adequate for the uses to which they are being put. The AGF Entities have substantially complied with their regularly scheduled maintenance programs, which is in accordance, in all material respects, with applicable manufacturers’ standards and guidelines for all such personal property, and no required maintenance of any material tangible personal property has been materially delayed or deferred.
(j)    The AGF Entities have good and marketable title to or a valid leasehold interest in all their assets (whether real, personal, or mixed and whether tangible or intangible) that they purport to own or lease, including all of the properties and assets reflected in the Balance Sheet and the Unaudited Balance Sheet (except for personal property sold since the date of the Balance Sheet and the Unaudited Balance Sheet in the ordinary course of business consistent with past practice), free and clear of any and all Liens, except for Permitted Liens. Such assets include all assets, rights and interests reasonably required for the continued conduct of the business of the AGF Entities as now being conducted by them.
Section 3.19     Insurance .
(a)     Section 3.19(a) of the Company Disclosure Schedule sets forth a list, as of the date hereof of each insurance policy, including expiration dates, with respect to the properties, assets, or business of the AGF Entities (collectively, the “ Insurance Policies ”). Each Insurance Policy is in full force and effect and all premiums due and payable thereon as of the date hereof have been paid in full. No AGF Entity has received a written notice of cancellation, reduction or non-renewal of any Insurance Policy.
(b)    There is no material claim pending under any of the AGF Entities’ insurance policies as to which coverage has been questioned, denied or disputed by the underwriters of such policies. The AGF Entities are in compliance in all material respects with the terms of such policies. There is no claim which, individually or in the aggregate with other claims, could reasonably be expected to materially impair any current or historical limits of insurance available to the AGF Entities. To the Knowledge of the Company, there are no events or circumstances that would

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reasonably be expected to give rise to any material claim under any of the AGF Entities’ insurance policies.
Section 3.20     Affiliate Transactions . Except as set forth in Section 3.20(a) of the Company Disclosure Schedule, and except for Contracts for the sale by the AGF Entities to its Shareholders of goods and services in the ordinary course of business consistent with past practice, and except for employment relationships and compensation, benefits and travel advances in the ordinary course of business consistent with past practice, and, in the case of clauses (ii) and (iii) below, except for passive ownership of not more than 2% of any publicly traded company or equity or economic interest in any hedge fund or private equity fund, (i) no AGF Entity is a party to any outstanding Contract or engaged in any business with any shareholder, officer, or director of any AGF Entity or any Affiliate of any AGF Entity (other than an AGF Entity) or any immediate family member thereof (collectively, the “ Related Parties ”), (ii) to the Knowledge of the Company, no Related Party owns any equity interest or has any investment in, nor is a party to any Contract or made any commitment to purchase any equity interest or make any investment in or has any other material interest in, any customer, supplier, vendor, distributor, contractor, licensor, lessor or competitor of any AGF Entity, and (iii) no Related Party owns or has any interest in any property used by any AGF Entity in the business.
Section 3.21     Customers and Suppliers .
(a)     Section 3.21(a) of the Company Disclosure Schedule sets forth a complete and correct list of the top twenty (20) customers for each of the domestic and international operations of the AGF Entities by purchase volume, for the most recent fiscal year and the amount and percentage of sales to each such customer during such period (each, a “ Material Customer ”). Except as set forth in Section 3.21(a) of the Company Disclosure Schedule, since the Balance Sheet Date, no Material Customer, and no customer with international operations that was impacted by any hurricane or other natural disaster since the Balance Sheet Date, has cancelled or otherwise terminated, materially reduced, or provided written notice of its intent or threat to cancel, terminate, or materially reduce, its relationship with the AGF Entities or change its prices. Since the Balance Sheet Date, there has not been, and, to the Knowledge of the Company, there has not been any threat of, any material Actions or material disputes between any AGF Entity, on the one hand, and any Material Customer, on the other hand. To the Knowledge of the Company, no Material Customer is insolvent, the subject of a pending case under any Law regarding bankruptcy, insolvency or receivership, or has in the past three (3) years made an assignment for the benefit of its creditors.
(b)     Section 3.21(b) of the Company Disclosure Schedule sets forth a complete and correct list of the top thirty (30) suppliers of the AGF Entities, for the most recent fiscal year and the amount and percentages of purchases from each such supplier during such period (each, a “ Material Supplier ”). Except as set forth in Section 3.21(b) of the Company Disclosure Schedule, since the Balance Sheet Date, no Material Supplier has cancelled or otherwise terminated, materially reduced, or provided written notice of its intent to cancel, terminate, or materially reduce, its relationship with the AGF Entities. Since the Balance Sheet Date, there has not been, and, to the Knowledge of the Company, there has not been any threat of, any material Actions or material disputes between any AGF Entity, on the one hand, and any Material Supplier, on the other hand.

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Section 3.22     Indebtedness . As of the date hereof, the AGF Entities have no Liabilities in respect of Indebtedness except as set forth in Section 3.22 of the Company Disclosure Schedule. For each item of Indebtedness of the AGF Entities, Section 3.22 of the Company Disclosure Schedule correctly sets forth the debtor, the principal amount of the Indebtedness as of the date hereof, the creditor, the interest rate, the maturity date, the collateral, if any, securing the Indebtedness, and the estimated prepayment penalty (in each case, as applicable). Except as set forth in Section 3.22 of the Company Disclosure Schedule, the Company is not a guarantor for any Liability of any other Person.
Section 3.23     Inventory . All inventory of the Company, whether or not reflected in the Balance Sheet, consists of a quality and quantity usable and salable in the ordinary course of business consistent with past practice, except for obsolete, damaged, defective or slow-moving items that have been written off or written down to fair market value or for which adequate reserves have been established. All such inventory is owned by the AGF Entities free and clear of all Liens (except Permitted Liens), and no inventory is held on a consignment basis. The quantities of each item of inventory are not excessive, but are reasonable in the present circumstances of the Company.
Section 3.24     Quantity, Condition and Maintenance of Vehicles . The Company has made available to Parent true and correct lists of the quantities, types, use, locations, cost and book value of the vehicles used in the business (the “ Vehicles ”) in all material respects as of the Balance Sheet Date, and indicates, by Vehicle, the vehicle lease agreement, if any, to which such Vehicle is subject. No AGF Entity has initiated or conducted a campaign, fleet‑wide maintenance program or systematic practice that materially violates any manufacturers’ guidelines, specifications or warranty requirements.
Section 3.25     Commercial Drivers . Section 3.25 of the Company Disclosure Schedule sets forth the Company’s Department of Transportation numbers and MC operating authority numbers, each of which is valid and in good standing. Each AGF Entity has complied in all material respects with the financial and other regulatory requirements related to its operating authorities and all other state and federal requirements related to interstate transportation and the employment of commercial drivers. To the Knowledge of the Company, neither the Department of Transportation nor any Governmental Entity is currently auditing, inquiring or investigating any AGF Entity with respect to its operating authorities or commercial driver management.
Section 3.26     Collateral Balances . Section 3.26 of the Company Disclosure Schedule lists, as of the date set forth therein, the cash collateral balance and the type and position of other collateral for each of the Company’s top one hundred (100) members or customers based on net sales in the most recent completed fiscal year. To the Knowledge of the Company, there is no Contract or governing document to which the Company is a party or by which the Company’s assets are bound that will require the Company to return such collateral, other than Common Shares that have been pledged to the Company, to such customers as a result of the consummation of the transactions contemplated by this Agreement.
Section 3.27     Credit Support Agreements     . Section 3.27 of the Company Disclosure Schedule lists, as of the date of this Agreement, all of the Company’s credit support agreements, including standby and commercial letters of credit, surety bonds and cash security deposits, and

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the amounts, underlying issuer of the instrument, beneficiaries and expiration dates thereof. Except as set forth in Section 3.27 of the Company Disclosure Schedule, there are no other credit support instruments issued on behalf of the Company or any of the Company Subsidiaries as of the date of this Agreement.
Section 3.28     Deposits . Section 3.28 of the Company Disclosure Schedule lists, as of the date of this Agreement, all of the Company’s customer cash deposits and rental cash deposits. Except as set forth on Section 3.28 of the Company Disclosure Schedule, neither the Company nor any Company Subsidiary has any other customer cash deposits or rental cash deposits as of the date of this Agreement.
Section 3.29     Bank Accounts . Section 3.29 of the Company Disclosure Schedule sets forth the name of each bank or other financial institution in which any of AGF Entities has an account, lockbox or safe deposit box, the account number and account type of each such account, an indication of whether a control agreement exists on each such account, and the names of all persons authorized to draw thereon or to have access thereto.
Section 3.30     Accounts Receivable and Accounts Payable .
(a)    All accounts and notes receivable reflected on the Unaudited Balance Sheet and arising after the date thereof are bona fide and valid receivables arising from sales actually made or to be made or services actually performed or to be performed and have arisen or will arise in the ordinary course of business consistent with past practice and (i) are current and properly reflected on the Unaudited Balance Sheet and there are no material disputes, contests, claims, counterclaims, deductions or setoffs with respect to such accounts or notes receivable that have not been reserved for in the Unaudited Balance Sheet or, with respect to accounts receivable arising after the date of the Unaudited Balance Sheet, on the accounting records of the AGF Entities and (ii) to the Knowledge of the Company, all such accounts and notes receivable have been, or will be, collected or are, or will be, collectible within one hundred twenty (120) days of when such accounts and notes receivable become payable in the aggregate recorded amounts thereof in accordance with their terms (subject to any applicable reserves reflected on the Unaudited Balance Sheet or, with respect to accounts receivable arising after the date of the Unaudited Balance Sheet, on the accounting records of the AGF Entities).
(b)    All accounts payable of the AGF Entities reflected on the Unaudited Balance Sheet and arising after the date thereof have arisen or will arise in the ordinary course of business consistent with past practice and have been paid or are not yet due and payable, except for accounts payable that are being disputed in good faith in an appropriate manner and for which there are adequate reserves on the Unaudited Balance Sheet, or, with respect to accounts payable arising after the date of the Unaudited Balance Sheet, on the accounting records of the AGF Entities.
Section 3.31     State Takeover Laws . This Agreement, the Voting Agreements and the transactions contemplated hereby and thereby are exempt from, the requirements of any “moratorium,” “control share,” “fair price,” “affiliate transaction,” “anti-greenmail,” “business combination” or other applicable anti-takeover Laws of any jurisdiction and comply with, the requirements of any provisions of its organizational or constituent documents concerning “business

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combination,” “fair price,” “voting requirement,” “constituency requirement” or other related provisions.
Section 3.32     Exclusivity of Representations; Non-Reliance .
(a)    The representations and warranties made by the Company in this ARTICLE III or in the other Transaction Documents are the exclusive representations and warranties made by the Company with respect to the AGF Entities, including the assets of each of them. THE COMPANY HEREBY DISCLAIMS ANY OTHER EXPRESS OR IMPLIED REPRESENTATIONS OR WARRANTIES WITH RESPECT TO ITSELF OR ANY OF THE COMPANY SUBSIDIARIES AND ANY AND ALL STATEMENTS MADE OR INFORMATION COMMUNICATED BY THE COMPANY OR ANY OF ITS REPRESENTATIVES OUTSIDE OF THIS AGREEMENT (INCLUDING BY WAY OF THE DOCUMENTS PROVIDED IN RESPONSE TO PARENT’S DILIGENCE REQUESTS AND ANY MANAGEMENT PRESENTATIONS PROVIDED), WHETHER ORALLY OR IN WRITING, ARE DEEMED TO HAVE BEEN SUPERSEDED BY THIS AGREEMENT, IT BEING AGREED THAT NO SUCH PRIOR OR CONTEMPORANEOUS STATEMENTS OR COMMUNICATIONS OUTSIDE OF THIS AGREEMENT SHALL SURVIVE THE EXECUTION AND DELIVERY OF THIS AGREEMENT. EXCEPT AS EXPRESSLY SET FORTH HEREIN AND IN THE OTHER TRANSACTION DOCUMENTS, THE CONDITION OF THE ASSETS OF THE AGF ENTITIES SHALL BE “AS IS” AND “WHERE IS” AND THE COMPANY MAKES NO WARRANTY OF MERCHANTABILITY, SUITABILITY, FITNESS FOR A PARTICULAR PURPOSE OR QUALITY WITH RESPECT TO ANY OF THE ASSETS OF ANY AGF ENTITY OR AS TO THE CONDITION OR WORKMANSHIP THEREOF OR THE ABSENCE OF ANY DEFECTS THEREIN, WHETHER LATENT OR PATENT.
(b)    Parent and Merger Sub acknowledge and agree that materials they and their Representatives have received from, or that have been made available by, the Company and its Representatives, include projections, forecasts and predictions relating to the AGF Entities’ and their business; that there are uncertainties inherent in attempting to make such projections, forecasts and predictions; that Parent, Merger Sub and their Representatives are familiar with such uncertainties and are taking full responsibility for making their own evaluation of the adequacy and accuracy of all projections, forecasts and predictions so furnished.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub jointly and severally represent and warrant to the Company as follows:
Section 4.1     Due Organization, Good Standing and Corporate Power . Each of Parent and Merger Sub is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated and has all corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted. All of the issued and outstanding capital stock of Merger Sub is owned directly by Parent free and clear of any Liens of any kind.

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Section 4.2     Authorization; No Conflicts     .
(a)    Each of Parent and Merger Sub has the requisite corporate power and authority and has taken all corporate action necessary to execute and deliver this Agreement and each other Transaction Document to which it is or will be a party, to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance of this Agreement by Parent and Merger Sub, the consummation by each of them of the transactions contemplated hereby and the performance by each of them of their respective obligations hereunder have been duly authorized and approved by the board of directors of Merger Sub and have been duly approved and adopted by Parent as the sole shareholder of Merger Sub. No other corporate action on the part of either of Parent or Merger Sub is necessary to authorize the execution, delivery and performance of this Agreement by each of Parent and Merger Sub and the consummation of the transactions contemplated hereby. This Agreement and the other Transaction Documents to which Parent or Merger Sub is a party have been or will be duly executed and delivered by each of Parent and Merger Sub and, assuming that this Agreement constitutes a valid and binding obligation of the Company, constitutes a valid and binding obligation of each of Parent and Merger Sub, enforceable against each of Parent and Merger Sub in accordance with its terms, except that such enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors’ rights generally, and by general equitable principles.
(b)    The execution and delivery of this Agreement and each other Transaction Document do not, and the consummation of the transactions contemplated by this Agreement and each other Transaction Document will not, directly or indirectly (with or without notice or lapse of time or both), (i) conflict with or violate any of the provisions of the certificate of incorporation or bylaws (or comparable documents) of Parent or Merger Sub, (ii) conflict with, or result in any violation of, breach of or default under, or give rise to a right of termination, cancellation, acceleration, modification or loss of any material benefit or material obligation under, or result in the creation of any Lien upon any of the properties or assets of Parent or Merger Sub under, any material Contract, to which Parent or Merger Sub is a party or by which Parent or Merger Sub or any of their respective assets is bound or subject or (iii) subject to the consents, approvals, authorizations, declarations, filings and notices referred to in Section 4.3 , contravene in any material respect any domestic or foreign Law or any Order currently in effect and binding upon Parent or Merger Sub, except, in the case of clauses (ii) and (iii), as would not, individually or in the aggregate, reasonably be expected to prevent, materially delay or materially impair the ability of Parent or Merger Sub to consummate the Merger and the other transactions contemplated by this Agreement.
Section 4.3     Consents and Approvals . Assuming all filings required under the Antitrust Laws are made and any waiting periods thereunder have been terminated or expired, no consent of, notice to or filing with any Governmental Entity, which has not been received or made, is necessary or required by or with respect to Parent or Merger Sub in connection with the execution and delivery of this Agreement by Parent and Merger Sub or the consummation by Parent and Merger Sub of any of the transactions contemplated by this Agreement, except for the filing of the Articles of Merger and the filing of Parent’s reports with the Securities and Exchange Commission pursuant to the Exchange Act and except as would not, individually or in the aggregate, reasonably be expected

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to prevent, materially delay or materially impair the ability of Parent or Merger Sub to consummate the Merger and the other transactions contemplated by this Agreement.
Section 4.4     Broker’s or Finder’s Fee . The Company is not responsible for any fee, commission or broker’s or finder’s fees in connection with this Agreement or any of the transactions contemplated hereby based upon arrangements made by and on behalf of Parent or any of its Subsidiaries, including Merger Sub.
Section 4.5     Merger Sub’s Operations; Capitalization of Merger Sub     . Merger Sub was formed solely for the purpose of engaging in the transactions contemplated by this Agreement and has not engaged in any business activities or conducted any operations, and has not incurred Liabilities or other obligations of any nature, other than in connection with such transactions. Immediately prior to Closing, Parent will hold 100% of the issued and outstanding shares of capital stock of Merger Sub.
Section 4.6     Funds . Parent and Merger Sub collectively will have on the Closing Date, sufficient funds to make all payments required by Section 2.6(a) , all other amounts to be paid or repaid by Parent and Merger Sub under this Agreement (whether payable on or after the Closing), and all of Parent’s and Merger Sub’s and their Affiliates’ fees and expenses associated with the transaction contemplated in this Agreement.
Section 4.7     No Actions . There is no Action pending or, to the knowledge of Parent, threatened in writing, against or affecting Parent or Merger Sub (or pending or threatened in writing against any of the officers, directors or key employees of Parent or Merger Sub), that would adversely affect Parent or Merger Sub’s ability to consummate the transactions contemplated hereby.
Section 4.8     Investment Intent . The Common Shares are being acquired by Parent for its own account and without a view to, or for sale in connection with, any distribution of the Common Shares or any interest therein. Parent has sufficient knowledge and experience in financial and business matters so as to be capable of evaluating the merits and risks of its investment in the Common Shares and participation in the transactions contemplated by this Agreement, and Parent is capable of bearing the economic risks of such investment, including a complete loss of its investment in the Common Shares. Parent is an “accredited investor” as defined in Rule 501 of Regulation D promulgated under the Securities Act. Parent acknowledges that none of the Company, any other AGF Entity or any Affiliate, employee, agent or other representative of the Company or any other AGF Entity has made or shall be deemed to have made, and that Parent has not relied on, any representation, warranty, covenant or agreement, express or implied, with respect to the AGF Entities or the transactions contemplated by this Agreement, other than the respective representations, warranties, covenants and agreements of the Sellers that are expressly set forth in ARTICLE III or in the Transaction Documents. Parent acknowledges that the Common Shares and the sale thereof to Parent have not been registered under the Laws of any jurisdiction.

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Section 4.9     Access; Investigation by Parent and Merger Sub .
(a)    Each of Parent and Merger Sub and their Representatives have made their own inquiry and investigation into the AGF Entities’ business, operations and legal affairs, and based thereon and on the representations and warranties set forth in ARTICLE III and in the other Transaction Documents, each of Parent and Merger Sub has formed an independent judgment concerning the AGF Entities and will rely solely on such investigations and inquiries and the express representations and warranties of the Company set forth in ARTICLE III and in the other Transaction Documents.
(b)    Each of Parent and Merger Sub acknowledges and agrees, that, except as otherwise provided in ARTICLE III or in any other Transaction Document:
(i)    none of the AGF Entities or any of their respective Representatives, the Shareholders or any other Person makes or has made any oral or written representation or warranty, either express or implied, as to the accuracy or completeness of (A) any materials made available in any “online data room” or otherwise, including any financial or other projections, acquisition pipelines, in presentations of the management of any AGF Entity, whether oral or written or in any discussions or responses to questions by or on behalf of Parent, its Affiliates or its Representatives, or in any materials prepared by or on behalf of any AGF Entity, or in any other form (such information and materials, collectively, “ Diligence Materials ”), (B) the pro-forma financial information, projections or other forward-looking statements of any AGF Entities, or (C) any information delivered or made available pursuant to Section 5.2(a) or otherwise, in each case in expectation of the transactions contemplated hereby;
(ii)    the Company does not and is not making any representation or warranty regarding any third party beneficiary rights or other rights that Parent or Merger Sub might claim under any studies, reports, tests or analyses prepared by any third parties for the Company or any other AGF Entity or any of their Affiliates, regardless of whether the same were made available to Parent, Merger Sub or their respective Representatives; and
(iii)    none of the documents, information or other materials provided to Parent, Merger Sub or any of their Representatives or Affiliates at any time or in any format by the AGF Entities or their respective Affiliates or Representatives constitutes legal advice. Parent and Merger Sub waive all rights to assert that it received any legal advice from the AGF Entities or any of their Affiliates, or any of their respective Representatives or counsel, or that it had any sort of attorney-client relationship with any of such Persons.
Section 4.10     Exclusivity of Representations . The representations and warranties made by Parent and Merger Sub in this ARTICLE IV or in the other Transaction Documents are the exclusive representations and warranties made by Parent and Merger Sub. Each of Parent and Merger Sub hereby disclaims any other express or implied representations or warranties.

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ARTICLE V
COVENANTS
Section 5.1     Confidentiality . Information obtained by Parent, Merger Sub and their Representatives in connection with this Agreement and the transactions contemplated hereby shall be subject to the Confidentiality Agreement by and between the Company and Parent, dated May 3, 2017 (the “ Confidentiality Agreement ”). Effective upon the Closing, the Confidentiality Agreement shall terminate automatically; provided that Parent and the Surviving Corporation shall keep confidential and not disclose to any third party the aggregate Per Share Merger Consideration paid to any specific Shareholder.
Section 5.2     Access to Information .
(a)    During the period commencing on the date hereof and ending on the earlier of (i) the date on which the Effective Time occurs and (ii) the date on which this Agreement is terminated pursuant to Section 7.1 , upon reasonable notice and in compliance with Law, the Company shall, and shall cause each of the Company Subsidiaries to, afford Parent and Merger Sub and their respective Representatives reasonable access during normal business hours to the officers, directors, senior management personnel, accountants, properties, systems, network, books and records of the Company and the Company Subsidiaries (excluding those books and records relating to the negotiation of this Agreement and the process leading to the execution of this Agreement) and, during such period, the AGF Entities shall furnish promptly to Parent and Merger Sub all material information concerning their business, properties and personnel as Parent and Merger Sub may reasonably request; provided , that (A) the Company may limit such access if in the reasonable judgment of the Company, any applicable Law requires it or the Company Subsidiaries to restrict access to any of their business, properties, information or personnel (provided, however, that the Company shall endeavor to provide access to Parent and Merger Sub in a manner consistent with the Antitrust Laws), (B) such access shall not unreasonably disrupt the Company’s or any of the Company Subsidiaries’ operations, (C) review of the information received by Parent pursuant to this Section 5.2(a) shall be conducted at Parent’s expense, (D) all documents or other information subject to attorney-client privilege and work-product doctrine shall be provided under a joint defense or common-interest privilege, to the extent applicable, and Parent, Merger Sub and the applicable AGF Entities shall enter into such documentation as may reasonably be required to evidence such privilege, and (E) such access shall be under the supervision of appropriate personnel of the AGF Entities. Subject to the foregoing, no AGF Entity shall be required to conduct, or permit Parent, Merger Sub or any of their Representatives to conduct, any Phase II investigation or other environmental soil or groundwater investigation relating to any real property leased by any AGF Entity without the prior consent of the applicable landlord to the extent required by the Real Property Lease.
(b)    Nothing contained in this Agreement shall be deemed to give Parent or Merger Sub, directly or indirectly, rights to control or direct the AGF Entities’ operations prior to the Effective Time. Prior to the Effective Time, the Company shall exercise, consistent with the terms and conditions of this Agreement, complete control and supervision of its and the Company Subsidiaries’ operations.

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(c)    In order to plan for the efficient integration of the business, the Company shall provide Parent and its Representatives reasonable access to, and will cooperate with Parent in its dealings with, the Company’s employees, Shareholders, customers, and vendors so that Parent may ensure a smooth continuation of supply and services post-Closing, explore additional opportunities that Parent may offer such members, customers, and vendors post-Closing, evaluate such members’ or customers’ credit profile and discuss reasonable credit support and collateral to support such members’ or customers’ obligations post-Closing; provided that the Company shall at all times have the right to impose reasonable controls and monitor such access and the communications between Parent or its Representatives and such Persons. Any arrangements negotiated pursuant to this Section 5.2(c) shall be conditioned upon Closing and shall not take effect until after Closing.
(d)    The Company shall use good faith efforts to complete and deliver to Parent, prior to October 31, 2017, a copy of the audited consolidated balance sheet of the Company and the Company Subsidiaries as of July 29, 2017, and the related audited consolidated statements of income, shareholders’ equity and cash flows for the fiscal year ended July 29, 2017, together with the report of the independent accountants thereon. If any of the financial statements of the Company or Company Subsidiaries that are provided to Parent are subsequently amended or restated by the Company, the Company shall, as promptly as reasonably practicable, provide such amended or restated financial statements and related footnote information to Purchaser.
Section 5.3     Conduct of the Business of the AGF Entities Prior to the Effective Time . The Company agrees that, except as (i) is required by this Agreement, or (ii) is required to comply with Law, any Governmental Entity, or any Material Contract disclosed in Section 3.16(a) of the Company Disclosure Schedule, during the period commencing on the date hereof and ending at the earlier of (A) the Closing Date and (B) termination of this Agreement in accordance with Section 7.1 :
(a)    the Company shall and shall cause each of the Company Subsidiaries to conduct their respective operations in all material respects in the ordinary course of business consistent with past practice, including using reasonable best efforts to (i) maintain existing relations and goodwill with Shareholders, members, lenders, licensors, licensees, customers, suppliers, distributors, creditors, lessors, employees and other business relationships they may have, (ii) keep available the services of present employees and agents, (iii) maintain normal levels of net working capital, subject to seasonal adjustments consistent with past practice and pre-Closing payments expressly permitted by this Agreement, including the Permitted Dividend, and (iv) maintain Governmental Authorizations; provided, however, that no action or failure to take action by any AGF Entity with respect to the matters addressed by any provision of Section 5.3(b) shall constitute a breach under this Section 5.3(a) unless such action or failure to take such action would constitute a breach of such provision of Section 5.3(b) (it being understood that the AGF Entities shall not be required to expend any funds not in the ordinary course of business consistent with past practice); and
(b)    the Company shall not and shall cause each Company Subsidiary not to effect any of the following without the prior written consent of Parent (such consent not to be unreasonably withheld, conditioned or delayed):

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(i)    make any change in or amendment to its articles of incorporation or its bylaws (or comparable documents);
(ii)    declare or pay any dividends or distribution on or in respect of any capital stock or other security of the Company, other than (A) the Permitted Dividend, (B) rebates on goods and services offered by the AGF Entities to the Shareholders in the ordinary course of business consistent with past practice and (C) dividends and distributions paid by any wholly-owned Company Subsidiary to the Company or to any other direct or indirect wholly-owned Company Subsidiary;
(iii)    split, combine, or reclassify any shares of its capital stock or its other securities;
(iv)    redeem, purchase or otherwise acquire, any shares of its capital stock or its other securities, as applicable, except for redemptions pursuant to a resignation or expulsion of any Shareholder approved by the Board in accordance with its bylaws prior to the date hereof;
(v)    issue or sell, or authorize to issue or sell, any Common Shares or any other equity interests in any AGF Entity, or issue or sell, or authorize to issue or sell, any securities convertible into or exchangeable for, or options, warrants or rights to purchase or subscribe for, or enter into any Contract with respect to the issuance or sale of, any Common Shares or any other equity interests, as applicable, except for the issuance by the Company of the Common Shares to (A) newly admitted Shareholders or to existing Shareholders opening new stores, in each case in accordance with the Company’s bylaws, consistent with past practice and for subscription price of not less than the value set forth in the Company’s articles of incorporation and bylaws, (B) in connection with the annual patronage dividend paid in accordance with the Company’s bylaws with respect to the fiscal year 2017, and (C) with respect to the Pre-Closing Net Earnings, in accordance with the Company’s bylaws;
(vi)    amend or modify in any material respect, or terminate (which shall not include expiration), or waive any material rights or obligations under, any Material Contract or enter into a Contract which, if entered into prior to the date hereof, would have been a Material Contract; provided, however, that the AGF Entities may negotiate and enter into purchase orders to acquire inventory in the ordinary course consistent with past practice and amend or renew Material Contracts listed in Section 5.3(b)(vi) of the Company Disclosure Schedule solely to the extent set forth therein;
(vii)    intentionally breach the material terms of any Material Contract;
(viii)    make any loans or advances to any Person, or assume, guarantee or otherwise become responsible for the obligations of any Person, other than (w) guarantees by an AGF Entity of another AGF Entity, (x) advances to employees for business expenses in the ordinary course of business consistent with past practice, (y) extension of trade credit to the Shareholders, their Affiliates, and non‑Shareholder

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customers in the ordinary course of business consistent with past practice, or (z) loans to Shareholders, their Affiliates, and non-Shareholder customers not exceeding $300,000, individually or in the aggregate, made in accordance with the Company’s policies in the ordinary course consistent with past practice;
(ix)    enter into any Contract requiring the Company to make any rebates or customer support payments, other than in the ordinary course of business consistent with past practice and not in excess of $500,000 in the aggregate;
(x)    acquire from any other Person any asset or group of related assets with a value or purchase price in excess of $50,000 individually or $100,000 in the aggregate, in any transactions or series of related transactions, other than in the ordinary course consistent with past practice or pursuant to Contracts set forth on Section 5.3(b)(x) of the Company Disclosure Schedule;
(xi)    sell, lease or otherwise dispose of any of its properties or assets, other than sales, leases or other dispositions of inventory in the ordinary course of business consistent with past practice;
(xii)    hire any new employee whose annual compensation is in excess of $100,000 or grant or agree to grant to any employee of any AGF Entity any increase in salary, wages or bonus, severance, profit sharing, retirement, insurance or other compensation or benefits, or establish any new compensation or benefit plans or arrangements, or amend or agree to amend any existing Employee Benefit Plans, except (1) as may be required under applicable Law, (2) in the ordinary course of business with respect to base salary or wages of any non-officer employees whose annual compensation is not in excess of $100,000 after giving effect to such increase, or (3) pursuant to employment, retention, change-of-control or similar type Contract existing as of the date hereof (as such Contracts may be amended or renewed to the extent permitted pursuant to Section 5.3(b)(vi) );
(xiii)    except as may be required by any Governmental Entity or under GAAP, make any material change in its accounting methods, principles and practices;
(xiv)    (1) waive or compromise any rights or claims of substantial value or (2) cancel or forgive any Indebtedness owed to any AGF Entity, other than Indebtedness of an AGF Entity owed to another AGF Entity;
(xv)    incur or issue any Indebtedness, except (1) the Indebtedness Draw Down Exceptions, in each case in the ordinary course of business consistent with past practice or expressly permitted by this Agreement and (2) interest accrued pursuant to the terms of Contracts in effect as of the date hereof underlying the Indebtedness of the AGF Entities;
(xvi)    subject to any Lien (other than a Permitted Lien) any of its assets;

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(xvii)    except for capital expenditures set forth in Section 5.3(b)(xvii) of the Company Disclosure Schedule, make or commit to make any capital expenditures;
(xviii)    implement any platform or software migration to a different computing platform or software;
(xix)    merge or consolidate any AGF Entity with any other Person (other than as required by this Agreement) or restructure, reorganize, completely or partially liquidate, or dissolve (except as set forth in Section 5.3(b)(xix) of the Company Disclosure Schedule), or adopt any plan of merger (other than as required by this Agreement), consolidation, reorganization, liquidation or dissolution or file a petition in bankruptcy under any provisions of federal or state bankruptcy Law or consent to the filing of any bankruptcy petition against it under any similar Law;
(xx)    fail to prepare and timely file any Tax Return with respect to each AGF Entity required to be filed before Closing in a manner consistent with past practice or timely withhold and remit any employment Taxes applicable to any AGF Entity, make or change any election with respect to Taxes, or settle or compromise any Liability with respect to Taxes or surrender any known claim for a refund of Taxes;
(xxi)    except as set forth in Section 5.3(b)(xxi) of the Company Disclosure Schedule, commence any material Action against any Person or pay, discharge or settle any such Action;
(xxii)    become a party to, establish, adopt, commence, negotiate or participate in any collective bargaining agreement or similar labor agreement or recognize any union or other bargaining representative claiming to represent any group of employees of any AGF Entity;
(xxiii)    cancel or reduce coverage under or permit to lapse any Insurance Policy;
(xxiv)    accelerate the collection of or discount in any material respect any accounts receivable, materially delay the payment of any accounts payable or materially defer expenses, or materially reduce inventories, except in the ordinary course of business consistent with past practice;
(xxv)    increase or decrease customer cash deposits and rental cash deposits, except in the ordinary course of business consistent with past practice; or
(xxvi)    authorize, commit or agree to take any of the foregoing actions to the extent such actions are restricted by this Section 5.3 .
Notwithstanding anything contained in this Agreement to the contrary, (A) the AGF Entities shall be permitted to maintain through the Closing the cash management systems of the AGF Entities, maintain the cash management procedures as currently conducted by the AGF Entities, and

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periodically settle intercompany balances consistent with past practices (including through dividends or distributions and capital contributions and all such intercompany balances shall be settled at the Closing in accordance with their terms), and (B) the Company shall be permitted to declare and pay prior to Closing (1) the annual patronage dividend for fiscal 2017 Pre-Closing Net Earnings in accordance with its bylaws and (2) a special one-time cash dividend in the amount equal to the cash portion of its fiscal 2018 Pre-Closing Net Earnings (such dividends described in clauses (1) and (2), collectively, the “ Permitted Dividend ”) to be distributed to the Shareholders in accordance with the Company’s bylaws on a patronage basis in proportion to the amount of business conducted by each Shareholder with the Company during the period for which the Pre-Closing Net Earnings are calculated.
Section 5.4     Efforts     .
(a)    Subject to the terms and conditions set forth herein and to applicable Law, each of the Company, Parent and Merger Sub shall cooperate and use their respective reasonable best efforts to take, or cause to be taken, all necessary action, and do, or cause to be done, all things necessary, proper or advisable to consummate and make effective, as expeditiously as practicable, the Merger and the other transactions contemplated hereby, including the satisfaction of the respective conditions set forth in ARTICLE VI . Neither Parent nor the Company shall take, nor permit any of their respective Subsidiaries to take, any action that is reasonably likely to prevent the consummation of the Merger.
(b)    Subject to Section 5.6 , the Company, Parent and Merger Sub will use reasonable best efforts to: (i) prepare, as soon as reasonably practicable, all filings and other presentations in connection with seeking any regulatory approval, exemption or other authorization from any Governmental Entity necessary to consummate the transactions contemplated hereby; (ii) obtain, as soon as reasonably practicable, all necessary or advisable consents, approvals or waivers from such Governmental Entities or other third parties, (iii) prosecute such filings and other presentations with diligence; and (iv) oppose any objections to, appeals from or petitions to reconsider or reopen any such approval by Persons not party to this Agreement. In furtherance thereof, the Company, Parent and Merger Sub will (A) use their respective reasonable best efforts to facilitate obtaining any final order or orders approving such transactions, consistent with this Agreement and to remove any impediment to the consummation of the transactions contemplated hereby and (B) timely furnish all information in connection with the approvals of or filings with any Governmental Entity. The Company, Parent and Merger Sub will each advise the other party as promptly as reasonably practicable of any material communication received by such party or any of its Affiliates from any Governmental Entity regarding the Merger or any other transactions contemplated hereby, and of any understandings, undertakings or agreements (oral or written) such party proposes to make or enter into with any Governmental Entity in connection with the Merger or other transactions contemplated hereby. The Company, Parent and Merger Sub will each consult with the other in advance of any material meetings with any Governmental Entity in connection with the Merger or other transactions contemplated hereby and to the extent allowed by such Governmental Entity, not participate independently in any such meeting without first giving the other party an opportunity to attend and participate in such meeting. The Company, Parent and Merger Sub shall provide each other with advance opportunity to review and comment upon and consider in good faith the views of the other in connection with all written communications with a

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Governmental Entity, and promptly provide each other with copies of all written communications to or from any Governmental Entity in connection with the Merger or other transactions contemplated hereby. Written communications may be redacted and provided solely to the other party’s outside counsel to comply with contracts, to preserve legal privileges, or to comply with the Antitrust Laws.
(c)    The Company shall use its reasonable best efforts to obtain, as promptly as possible after the date hereof, (i) for each Real Property Lease that requires the landlord thereunder to deliver an estoppel certificate in a specified form, the landlord estoppel certificate in that form; (ii) for each Real Property Lease not described in clause (i) immediately above, the Landlord Estoppel Certificate; (iii) for each Owned Real Property Lease that requires the tenant thereunder to deliver an estoppel certificate in a specified form, the tenant estoppel certificate in that form; and (iv) for each Owned Real Property Lease not described in clause (iii) immediately above, the Tenant Estoppel Certificate; in each case of clauses (i)–(iv) above executed and delivered by the appropriate counterparties thereto. If requested by any such counterparty, the Company shall be obligated to pay to such counterparty, as applicable, (i) any amounts payable for provision of estoppel certificates pursuant to the applicable Real Property Lease or Owned Real Property Lease or (ii) up to the amount specified in Section 5.4(c) of the Company Disclosure Schedule any reasonable consideration to obtain such Landlord Estoppel Certificate or Tenant Estoppel Certificate.
(d)    Between the date of this Agreement and the Closing Date, the Company shall, and shall cause the Company Subsidiaries to, as promptly as reasonably practicable following a request by Parent, reasonably cooperate with and provide reasonable support to Parent and its Affiliates and their respective Representatives (including by providing financial information in its possession, reasonable access to its Representatives and otherwise providing reasonable assistance to Parent) in Parent’s preparation of any financial statements, as well as related footnote information, of the AGF Entities that may be required for the preparation of any unaudited interim financial statements, or audited year-end financial statements of the Company and pro forma financial statements of Parent or any of its Affiliates, solely for purposes of Parent’s financial reporting requirements under Regulation S‑X of the Securities Act, Exchange Act, Investment Company Act of 1940, as amended, Investment Advisers Act of 1940, as amended, and Energy Policy and Conservation Act of 1975, as amended (“ Regulation S‑X ”). In addition, between the date of this Agreement and the Closing Date, the Company shall, and shall cause the Company Subsidiaries to, as promptly as reasonably practicable following a request by Parent, reasonably participate in the preparation of unaudited interim financial statements of the Company, and the related efforts of determining the Company’s interim period reporting periods, and allow Parent to enter into an agreement with the Company’s independent auditors for the purpose of providing financial statement preparation assistance for such unaudited interim financial statements or any required changes that may need to be made to the audited year-end financial statements of the Company, solely for purposes of Parent’s financial reporting requirements as required under Regulation S-X. Parent will reimburse the Company for its reasonable out-of-pocket expenses incurred in connection with fulfilling its obligations under this Section 5.4(d) .

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Section 5.5     Exclusive Dealing .
(a)    Subject to the below, during the period from the date of this Agreement until the earlier of (i) the date this Agreement is terminated in accordance with its terms and (ii) the Closing Date, the Company shall not take, and shall direct its Affiliates and its and their respective Representatives to refrain from taking, any action to knowingly encourage, initiate, solicit or engage in negotiations with, any Person, other than Parent or Merger Sub (and their Affiliates and Representatives), concerning any Acquisition Proposal.
(b)    Immediately following the execution of this Agreement, the Company shall, and shall cause each of the Company Subsidiaries, and shall direct each of their respective Representatives to terminate any existing discussions or negotiations with any Persons, other than Parent or Merger Sub (and their respective Affiliates and Representatives), concerning any Acquisition Proposal. The Company shall promptly request from each Person that has executed a confidentiality agreement in connection with its consideration of making an Acquisition Proposal to promptly return or destroy all confidential information concerning the AGF Entities and shall promptly terminate all access to the Data Room previously granted to each such Person.
(c)    Notwithstanding anything to the contrary in this Agreement, prior to the time, but not after, the Requisite Shareholder Approval is obtained, in response to an unsolicited, bona fide written Acquisition Proposal, the Company may:
(i)    provide access to non-public information regarding the AGF Entities to the Person who made such Acquisition Proposal; provided, that similar information has previously been made available to, or is made available to, Parent prior to or substantially concurrently with the time such information is made available to such Person and that, prior to furnishing any such information, the Company receives from the Person making such Acquisition Proposal an executed confidentiality agreement with terms at least as restrictive in all material respects on such Person as the terms in the Confidentiality Agreement are on Parent (it being understood that such confidentiality agreement need not prohibit the making or amending of an Acquisition Proposal);
(ii)    engage and participate in any discussions or negotiations with any such Person regarding such Acquisition Proposal;
in each case, if, and only if, prior to taking any action described in clause (i) or (ii) above, the Board determines in good faith after consultation with outside legal counsel that (A) based on the information then available and after consultation with its financial advisor that such Acquisition Proposal either constitutes a Superior Proposal or would reasonably be expected to result in a Superior Proposal and (B) the failure to take such action would reasonably be expected to be a breach of its fiduciary duties under applicable Law.
(d)    The Company shall promptly (and, in any event, within 48 hours) give notice to Parent if (i) any inquiries, proposals or offers with respect to an Acquisition Proposal are received by, (ii) any non-public information is requested in connection with any Acquisition Proposal from, or (iii) any discussions or negotiation with respect to an Acquisition Proposal are sought to be

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initiated or continued with, it or any of its Representatives, indicating, in connection with such notice the name of such Person or group and the material terms and conditions of any proposals or offers (including, if applicable, copies of any written requests, proposals or offers, including proposed agreements) and thereafter shall keep Parent reasonably informed, on a current basis (and, in any event, within 48 hours), of the status and material terms of any such proposals, or offers (including any material amendments thereto) and any material changes to the status of any such discussions or negotiations.
(e)    Except as permitted by Section 5.5(f) , the Board and each committee of the Board shall not:
(i)     withhold, withdraw, qualify or modify (or publicly propose or resolve to withhold, withdraw, qualify or modify), in a manner adverse to Parent, the Company Recommendation;
(ii)     fail to include the Company Recommendation in the Shareholder Materials;
(iii)    approve or recommend, or publicly declare advisable or publicly propose to enter into, any letter of intent, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement, option agreement, joint venture agreement, partnership agreement or other agreement (other than a confidentiality agreement referred to in Section 5.5(c)(i) entered into in compliance with Section 5.5(c)(i) ) providing for any Acquisition Proposal (an “ Alternative Acquisition Agreement ”, and any of the actions set forth in these clauses (i)–(iii), a “ Change of Recommendation ”); or
(iv)    cause or permit the Company to enter into an Alternative Acquisition Agreement.
(f)    Notwithstanding anything to the contrary set forth in this Agreement, prior to the time, but not after, the Requisite Shareholder Approval is obtained, the Board may effect a Change of Recommendation in connection with a Superior Proposal made after the date of this Agreement that was not solicited, initiated, encouraged or facilitated in breach of this Agreement, if the Board determines in good faith, after consultation with its outside legal counsel and its financial advisor, that (i) such offer constitutes a Superior Proposal and (ii) such action is necessary or required in order for the directors to comply with the directors’ fiduciary duties under applicable Law; provided, however, that no Change of Recommendation may be effected unless and until the Company has given Parent written notice of such action five (5) Business Days in advance, such notice to comply in form, substance and delivery with the provisions of Section 5.5(d) and Section 8.4 , setting forth in writing that management of the Company intends to recommend to the Board that it effect a Change of Recommendation and providing all information required to be provided under Section 5.5(d) . After giving such notice and prior to effecting such Change of Recommendation, (i) the Company shall, throughout such five (5) Business Day-period, negotiate in good faith with Parent with respect to any revisions to the terms of the transaction contemplated by this Agreement proposed by Parent in response to a Superior Proposal, and (ii) in determining whether to effect a Change of Recommendation in response to a Superior Proposal, the Board shall

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take into account any changes to the terms of this Agreement proposed by Parent and any other information provided by Parent in response to such notice. Any material amendment to any Acquisition Proposal will be deemed to be a new Acquisition Proposal for purposes of this Section 5.5(f) , including with respect to the notice period referred to in this Section 5.5(f) , except that the five (5) Business Day advance written notice obligation set forth in this Section 5.5(f) shall be reduced to two (2) Business Days for such purposes.
Section 5.6     Antitrust Laws .
(a)    Each party hereto shall (i) take, as promptly as reasonably practicable, all actions necessary to make the filings required of it or any of its Affiliates under any applicable Antitrust Laws in connection with this Agreement and the transactions contemplated hereby, including filing the Notification and Report Form required under the HSR Act with respect to the Merger with the Antitrust Division of the U.S. Department of Justice and the U.S. Federal Trade Commission not later than the tenth (10th) Business Day following the date hereof, (ii) comply as promptly as reasonably practicable with any formal or informal request for additional information or documentary material received by it or any of its Affiliates from any Antitrust Authority and (iii) cooperate with one another in connection with any filing under applicable Antitrust Laws and in connection with resolving any investigation or other inquiry concerning the transactions contemplated by this Agreement initiated by any Antitrust Authority. Subject to applicable Laws and the preservation of any applicable attorney-client privilege, Parent, Merger Sub and the Company each shall promptly (x) supply the other with any information which may be required in order to effectuate such filings, (y) supply any additional information which reasonably may be required by the Antitrust Division of the U.S. Department of Justice and the U.S. Federal Trade Commission, and each will use reasonable best efforts to obtain a waiver of the applicable waiting period and (z) make any further filings pursuant thereto that may be necessary, proper or advisable in connection therewith.
(b)    Parent shall be responsible for the payment of all filing fees under the HSR Act.
(c)    Each party hereto shall use its reasonable best efforts to resolve as promptly as reasonably practicable such objections, if any, as may be asserted with respect to the transactions contemplated by this Agreement under any Antitrust Law. Notwithstanding the foregoing or anything to the contrary in this Agreement, in no event shall the Company or Parent or any of their respective Affiliates be required to pay any consideration to any third parties or give anything of value to obtain any such Person’s authorization, approval, consent or waiver to effectuate the transactions contemplated by this Agreement, other than filing, recordation or similar fees, and neither the Company nor Parent (nor any of their respective Subsidiaries) will be obligated in connection with the Merger to enter into any agreement, consent decree or other commitment requiring the divestiture or holding separate of any assets or other restriction on the operation of the businesses of the Company, Parent, or their respective Subsidiaries, or to commence, pursue or defend any litigation, and the Company shall not accept or agree to any such agreement, consent decree, commitment or restrictions without Parent’s prior written consent.

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(d)    Each party hereto shall promptly inform the other parties of any material communication made to, or received by such party from, any Antitrust Authority or any other Governmental Entity regarding any of the transactions contemplated hereby.
(e)    The parties hereto commit to instruct their respective counsel to cooperate with each other and use their reasonable best efforts to facilitate and expedite the identification and resolution of any issues arising under the HSR Act and any other Law at the earliest practicable dates. Such efforts and cooperation include counsel’s undertaking (i) to keep each other appropriately informed of communications from and to personnel of the reviewing Governmental Entity, and (ii) to confer with each other regarding appropriate contacts with and response to personnel of such Governmental Entity and the content of any such contacts or presentations. Neither the Company nor Parent shall participate in any meeting or discussion with any Governmental Entity with respect of any such filings, applications, investigation, or other inquiry without giving the other party prior notice of the meeting or discussion and, to the extent permitted by the relevant Governmental Entity, the opportunity to attend and participate in such meeting or discussion (which, at the request of either Parent or the Company, shall be limited to outside antitrust counsel only). The Company and Parent shall each be entitled to review and approve the content of any material presentations, white papers or other written materials to be submitted to any Governmental Entity in advance of any such submission in respect of this Agreement and the transactions contemplated hereunder. Notwithstanding the foregoing or anything to the contrary in this Agreement, Parent shall have the sole right to control and direct the process by which the parties seek to avoid or eliminate impediments under any applicable Antitrust Laws and shall take the lead in and control all discussions, negotiations and other communications with Governmental Entities.
Section 5.7     Employee Matters .
(a)    Parent shall, and shall cause the Surviving Corporation and its Subsidiaries to, and the Surviving Corporation immediately following the Closing agrees to continue the employment effective immediately after the Closing Date of all employees of the AGF Entities, including each such employee on medical, disability, family or other leave of absence as of the Closing Date (collectively, “ Company Employees ”). For at least one (1) year following the Effective Time, Parent shall provide or cause the Surviving Corporation or its Subsidiaries to provide, and the Surviving Corporation immediately following the Closing agrees to provide, to each of the Company Employees (i) a base salary or wage level, car allowance and annual bonus opportunity at least equal to the base salary or wage level and car allowance immediately prior to the Effective Time and average annual bonus payout amount for such Company Employee for the fiscal years ending in 2015, 2016 and 2017 (or for those with less than three (3) years of history, the average bonus payout for similarly situated peers in the same role), (ii) medical and retirement benefits that are, in the aggregate, substantially similar to the medical and retirement benefits that they were entitled to receive immediately prior to the Effective Time, and (iii) severance benefits set forth in Section 5.7(a) of the Company Disclosure Schedule. Nothing in this Section 5.7 shall obligate Parent or the Surviving Corporation or its Subsidiaries to continue the employment of any Company Employees for any specific period.
(b)    Parent shall cause the Surviving Corporation to pay to each Company Employee who was notified of a target bonus for the current fiscal year and who remains employed

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by the Company as of the date of payment, as soon as administratively practicable following the end of the current fiscal year of the Parent (but not later than two and one-half (2½) months following the end of the current fiscal year of the Parent), an annual bonus based on actual performance, as determined under the applicable bonus plan of the Parent, based on a target opportunity for each such Company Employee at least equal to the average annual bonus payout amount for such Company Employee for the fiscal years of the Company ending in 2015, 2016 and 2017 (or for those with less than three (3) years of history, the average bonus payout for similarly situated peers in the same role), and pro‑rated for the period from the first day of the fiscal year of the Company through the end of the current fiscal year of the Parent.
(c)    Following the Effective Time, (i) Parent shall cause the Surviving Corporation to ensure, and the Surviving Corporation immediately following the Closing agrees to ensure, or cause to ensure, that no limitations or exclusions as to pre-existing conditions, evidence of insurability or good health, waiting periods or actively-at-work exclusions or other limitations or restrictions on coverage are applicable to any Company Employees or their dependents or beneficiaries as a result of the transactions contemplated by this Agreement under any Company welfare benefit plans in which such employees are currently enrolled and (ii) Parent shall cause the Surviving Corporation to provide, and the Surviving Corporation immediately following the Closing agrees to provide or cause to be provided, that any costs or expenses incurred by Company Employees (and their dependents or beneficiaries) during the current plan year up to (and including) the Effective Time shall be taken into account for purposes of satisfying applicable deductible, co-payment, coinsurance, maximum out-of-pocket provisions and like adjustments or limitations on coverage under any such welfare benefit plans.
(d)    To the extent Company Employees are eligible to participate in an Employee Benefit Plan, policy or practice, including sick leave, vacation and paid time off plans, policies or practices, sponsored or maintained by the Surviving Corporation or its Subsidiaries, Parent shall (i) cause the Surviving Corporation to grant or cause to be granted, and the Surviving Corporation immediately following the Closing agrees to grant, or cause to be granted, to all Company Employees from and after the Effective Time credit for all service with the Company or any of the Company Subsidiaries, and their respective predecessors, prior to the Effective Time for all purposes (including eligibility to participate, vesting credit, eligibility to commence benefits, benefit accrual and early retirement subsidies) and (ii) if any of the Employee Benefit Plans are terminated prior to the end of the plan year that includes the Closing Date, credit, or cause the Surviving Corporation or its Subsidiaries to credit, each Company Employee with any expenses that were covered by the Employee Benefit Plans for purposes of determining deductibles, co-pays and other applicable limits under any similar replacement plans.
(e)    The provisions of this Section 5.7 are solely for the benefit of the parties to this Agreement, and no current or former employee, officer, director or consultant, or any other individual associated therewith, shall be regarded for any purpose as a third party beneficiary of this Section 5.7 . In no event shall the terms of this Agreement be deemed to (i) establish, amend or modify any Employee Benefit Plan or any other “employee benefit plan” as defined in Section 3(3) of ERISA, or any other benefit plan, program, agreement or arrangement maintained or sponsored by Parent, the Surviving Corporation or any of their respective Subsidiaries; (ii) alter or limit the ability of Parent, the Surviving Corporation or any of their respective Subsidiaries to amend,

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modify or terminate any Employee Benefit Plan or any other benefit or employment plan, program, agreement or arrangement after the Closing Date; or (iii) confer upon any current or former employee, officer, director or consultant, any right to employment or continued employment or continued service with Parent, the Surviving Corporation or any of their respective Subsidiaries, or constitute or create an employment agreement with any employee.
Section 5.8     Indemnity; Directors’ and Officers’ Insurance .
(a)    Parent shall cause the Surviving Corporation to ensure, and the Surviving Corporation immediately following the Closing shall ensure, that all indemnification rights now existing in favor of any individual who, at or prior to the Effective Time, was a director, officer or employee of any AGF Entity (the “ Indemnified Persons ”) as provided in the respective governing documents and applicable indemnification agreements to which the Company or any of the Company Subsidiaries is a party as of the date hereof and which are set forth on Section 5.8(a) of the Company Disclosure Schedule, shall survive the Merger and shall continue in full force and effect for a period of not less than six (6) years from the Effective Time and the provisions with respect to indemnification and limitations on liability set forth in such governing documents shall not be amended, repealed or otherwise modified in a manner adverse to such Indemnified Persons during such time; provided, that in the event any claim or claims are asserted or made within such six (6) year-period that could reasonably involve an Indemnified Person, all rights to indemnification in respect of any such claim or claims shall continue until final disposition of any and all such claims.
(b)    At the Effective Time, Parent shall cause the Surviving Corporation to purchase, and the Surviving Corporation immediately following the Closing shall purchase (at the Surviving Corporation’s sole cost and expense) and maintain in effect for a period of six (6) years thereafter, tail policies to the current directors’ and officers’ liability policy maintained by the Company or any Company Subsidiary, in each case, covering those Persons who are covered immediately prior to the Closing by such policies and with terms, conditions, retentions and limits of liability that are no less advantageous than the coverage provided under the Company’s or any Company Subsidiary’s existing policy.
(c)    From and after the Closing Date, Parent shall and shall cause the Surviving Corporation (each, a “ D&O Indemnifying Person ”) to indemnify, defend and hold harmless each Indemnified Person against all losses, claims, damages, costs, expenses, liabilities or judgments or amounts that are paid in settlement with the prior written approval of the D&O Indemnifying Person (which approval shall not be unreasonably delayed, conditioned, or withheld) or in connection with any Action or investigation based in whole or in part on or arising in whole or in part out of the fact that such Indemnified Person is or was a director, officer, employee or agent of any AGF Entity and arising out of actions or omissions, occurring at or prior to the Closing and whether asserted or claimed prior to, or at or after, the Closing Date; provided, that each D&O Indemnifying Person shall only be required to indemnify an Indemnified Person pursuant to this Section 5.8 to the extent permitted under the Act and required under the applicable governing documents and indemnification agreements to indemnify directors and officers, as the case may be or those of a direct or indirect subsidiary (and Parent shall, or shall cause the Surviving Corporation to, pay expenses in advance of the final disposition of any such Action or investigation to each Indemnified Person to the fullest extent permitted by Law and required under the applicable governing documents and indemnification agreements, provided that the Indemnified Person to whom expenses are advanced

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provides an undertaking to repay such advances if it is ultimately determined that such Indemnified Person is not entitled to indemnification).
(d)    Each Indemnified Person under this Section 5.8 will, promptly after the receipt of notice of the commencement of any Action or investigation against such Indemnified Person in respect of which indemnity may be sought from a D&O Indemnifying Person under this Section 5.8 , notify the D&O Indemnifying Person in writing of the commencement thereof. The omission of any Indemnified Person to notify a D&O Indemnifying Person of any such Action or investigation shall not relieve such D&O Indemnifying Person from any liability which it may have to such Indemnified Person pursuant to this Section 5.8 , unless, and only to the extent that, such omission actually materially prejudices the D&O Indemnifying Person. In case any such Action or investigation shall be brought against any Indemnified Person and it shall notify the D&O Indemnifying Person of the commencement thereof, the D&O Indemnifying Person shall be entitled to participate therein and, to the extent that it may wish, to assume the defense thereof, with counsel reasonably satisfactory to such Indemnified Person; provided, however, that any Indemnified Person may, at its own expense, retain separate counsel to participate in such defense. Notwithstanding the foregoing, in any Action or investigation in which both the D&O Indemnifying Person and the Indemnified Person are, or are reasonably likely to become, a party, such Indemnified Person shall have the right to employ separate counsel reasonably satisfactory to the D&O Indemnifying Person and at the D&O Indemnifying Person’s expense and to control his or her own defense of such Action or investigation if any conflict exists between the D&O Indemnifying Person and such Indemnified Person that would make such separate representation advisable. The D&O Indemnifying Person shall not, without the consent of the Indemnified Person, consent to the entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Person of a release from all liability in respect to such Action or investigation or which requires action by the Indemnified Person. The rights accorded to Indemnified Persons hereunder shall be in addition to any rights that any Indemnified Person may have at common law, by separate agreement or otherwise.
(e)    Notwithstanding any other provisions hereof, the obligations of Parent and the Surviving Corporation contained in this Section 5.8 shall be binding upon the successors and assigns of Parent and the Surviving Corporation. In the event Parent or the Surviving Corporation, or any of their respective successors or assigns, (i) consolidates with or merges into any other Person or (ii) transfers all or substantially all of its properties or assets to any Person, then, in each case, proper provision shall be made so that the successors and assigns of Parent or the Surviving Corporation, as the case may be, honor the indemnification and other obligations set forth in this Section 5.8 .
(f)    The obligations of Parent and the Surviving Corporation under this Section 5.8 shall survive the Closing and shall not be terminated or modified in any manner that could reasonably be expected to adversely affect any Indemnified Person to whom this Section 5.8 applies without the consent of such affected Indemnified Person (it being agreed that the Indemnified Persons to whom this Section 5.8 applies shall be third-party beneficiaries of this Section 5.8 , each of whom may enforce the provisions of this Section 5.8 ).
Section 5.9     Notification of Certain Matters . Parent, on the one hand, and the Company, on the other hand, shall promptly notify each other of (i) any material Actions in connection with

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the transactions contemplated by this Agreement commenced or, to the Knowledge of Parent or Merger Sub or the Knowledge of the Company, threatened against the Company, any of the Company Subsidiaries, Parent or Merger Sub, as the case may be, (ii) any notice or other communication from any Governmental Entity or a counterparty to a Material Contract alleging that the consent of such Person is or may be required in connection with the transactions contemplated hereby, and (iii) the occurrence or non‑occurrence of any fact or event which would reasonably be expected to cause any of the conditions set forth in ARTICLE VI not to be satisfied. No such notifications, nor the obligation to make such notification, shall affect the representations, warranties or covenants, or the conditions to the obligations, of any party to this Agreement.
Section 5.10     Merger Sub . Parent will take all action necessary to cause Merger Sub to perform its obligations under this Agreement and to consummate the Merger subject to the terms and conditions set forth in this Agreement. Immediately following execution of this Agreement, Parent (directly or through its Subsidiaries) shall cause the sole shareholder of Merger Sub to execute and deliver, in accordance with applicable Law and its articles of incorporation and bylaws, a written consent approving the Merger and this Agreement.
Section 5.11     Public Announcements . Parent, Merger Sub and the Company each agree to (a) consult with each other before issuing any press release or otherwise making any public statement with respect to the transactions contemplated by this Agreement, (b) provide to the other parties for review a copy of any such press release or public statement and (c) not issue any such press release or make any such public statement prior to such consultation and review and the receipt of the prior written consent of the other parties to this Agreement, unless required by applicable Law or Order and then only to the extent so required.
Section 5.12     Transfer Taxes . Except as set forth in this Section 5.12 , Merger Sub or the Surviving Corporation after the Effective Time shall pay all stamp, transfer, documentary, sales and use, value added, registration and other such taxes and fees (including any penalties and interest) incurred in connection with this Agreement or any other transaction contemplated hereby (collectively, the “ Transfer Taxes ”). Parent shall cause Merger Sub or the Surviving Corporation, as the case may be, to, at its own expense, procure any stock transfer stamps required by, and properly file on a timely basis all necessary Tax Returns and other documentation with respect to, any of the Transfer Taxes.
Section 5.13     Resignation of Officers and Directors     . At the written request of Parent (which request shall be delivered at least three (3) Business Days prior to the Closing), the Company shall (i) cause any so requested officer of any AGF Entity or member of the boards of directors of any Company Subsidiaries to resign from such position effective immediately prior to the Effective Time and (ii) use its commercially reasonable efforts to deliver resignations of any Board members effective immediately prior to the Effective Time Parent requested to resign. No such requested resignation of an officer of the Company or the Company Subsidiaries shall be deemed a voluntary resignation for purposes of any employment agreements and will not terminate, reduce or modify any severance or other rights thereunder.
Section 5.14     Shareholder Approval .

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(a)    The Board shall submit this Agreement to a vote by the Shareholders, shall recommend that the Shareholders vote to approve this Agreement and the transactions contemplated hereby, and shall take all actions necessary in accordance with the Act and the Company’s articles of incorporation and bylaws to duly call, give notice (in form and substance reasonably satisfactory to Parent) of, convene and hold a meeting of the Shareholders (or deliver a written consent in lieu thereof) as promptly as practicable after the date hereof, and in no event later than forty‑five (45) days after the date hereof (the “ Shareholder Approval Deadline ”), to consider and vote upon the adoption and approval of this Agreement, the Merger and the other transactions contemplated hereby; provided that the date of such meeting of the Shareholders may be adjourned, recessed or delayed for a reasonable period (provided, that without the prior written consent of Parent, each such adjournment, recess or delay shall be for a period not to exceed ten (10) days), if as of the time for which such meeting is scheduled, the Company reasonably believes there are insufficient Common Shares of any class represented (either in person or by proxy) and voting to obtain the Requisite Shareholder Approval or to constitute a quorum necessary to conduct the business of the Company’s shareholders at such meeting and the Company shall not otherwise postpone, recess or adjourn such meeting except to the extent required by Law. Subject to Section 5.5(f) , the Board shall use its commercially reasonable efforts to obtain the Requisite Shareholder Approval. In the event that subsequent to the date of this Agreement, the Board effects a Change of Recommendation, the Company nevertheless shall continue to submit this Agreement for approval at the Shareholder meeting unless this Agreement shall have been terminated in accordance with its terms prior to such meeting.
(b)    In connection with the foregoing, the Company shall prepare and deliver to each Shareholder of record an information statement regarding this Agreement and the transactions contemplated hereby (the information statement and all material delivered contemporaneously therewith, the “ Shareholder Materials ”). The Company shall use commercially reasonable efforts to mail the Shareholder Materials to each Shareholder not later than five (5) Business Days after the date hereof. The Company and Parent each shall, upon request by the other, furnish the other with all information concerning itself, its Subsidiaries, directors, officers and shareholders and such other matters as may be reasonably necessary or advisable in connection with the preparation of the Shareholder Materials. The Company agrees that the Shareholder Materials will contain all material information regarding this Agreement and the transactions contemplated hereby that are reasonably necessary for the Shareholders to vote on the same on an informed basis and will include the Company Recommendation. The Company and Parent agree, each as to itself and its Subsidiaries, that none of the information supplied by it or any of their respective Subsidiaries for inclusion or incorporation by reference in the Shareholder Materials will, at the date of mailing to the Shareholders or, if applicable, at the time of the shareholders meeting contemplated in Section 5.14(a) , contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.
(c)    The Company shall not make or provide for any payment to any “disqualified individual” with respect to the AGF Entities (within the meaning of Section 280G(c) of the Code) who could otherwise receive any payment or benefits that would constitute a “parachute payment” (within the meaning of Section 280G(b)(2)(A) of the Code) (the “ 280G Benefits ”) so

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that all remaining payments or benefits, if any, shall not be deemed to be “excess parachute payments” (within the meaning of Section 280G of the Code).
(d)    The Company shall provide Parent and legal counsel to Parent with a reasonable opportunity to review and comment on drafts of the Shareholder Materials prior to mailing such documents to the Shareholders. The Company shall include in the Shareholder Materials all comments reasonably and promptly proposed by Parent or its legal counsel and agrees that all information relating to Parent and its Subsidiaries included in the Shareholder Materials shall be in form and content satisfactory to Parent, acting reasonably.
Section 5.15     Product and Services Continuation . During the period commencing on the Closing Date and ending on the first anniversary of the Closing Date, Parent shall, or shall cause the Surviving Corporation to:
(a)    continue to sell products, including dry grocery, frozen food, deli, ethnic, gourmet, specialty foods, natural and organic, general merchandise, health and beauty care, service deli, service bakery, meat, eggs, produce, bakery and dairy products (the “ Member Products ”), in the areas where such Member Products are currently sold, to Shareholders who have purchased Member Products in the previous twelve (12) months prior to the date of this Agreement and who do not enter into Supply Agreements within 30 days following the Closing (the “ Members ”), on terms and conditions (including pricing and quantity terms) that are consistent in all material respects with the terms and conditions received by such Member as of July 29, 2017 with respect to such Member Products;
(b)    continue to offer the number of items within each category of Member Products that is substantially similar to the number of items offered as of July 29, 2017 to such Member within such category of Member Products and not materially reduce that number of items offered;
(c)    continue to provide financing and support services, including merchandising, retail pricing, advertising, promotional planning, schematics, retail technology, and equipment purchasing (the “ Member Services ”) to the Members on terms and conditions (including pricing) that are consistent in all material respects with the terms and conditions received by such Member as of July 29, 2017 with respect to such Member Services;
in each case of clauses (a) through (c) subject to credit review and such Member having provided reasonable credit support and collateral within thirty (30) days after Closing to support its obligations to Parent or the Surviving Corporation which credit support and collateral will be consistent with the guidelines set forth on Schedule 5.15; provided, however, that Parent’s and the Surviving Corporation’s obligations under this Section 5.15 :
(i)    shall apply only with respect to a Member to the extent such Member continues to purchase Member Products and Member Services, without interruption in all material respects, in substantially the same or greater amounts (and in substantially the same mix of Member Products) as such Member has purchased Member Products and Member Services in the twelve (12) months prior to July 29, 2017 (provided, that for purposes of

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this clause (i): (1) any changes with respect to a Member’s decision to sell, close or otherwise dispose of a non-material portion of its existing store locations and (2) reasonable adjustments resulting from changes in consumer preferences and competitive retail factors in the regions in which such Member operates will not allow for a change to Parent’s or the Surviving Corporation’s obligations in this Section 5.15 );
(ii)    shall apply only with respect to a Member to the extent such Member is and continues to be in good standing with respect to all of its payment obligations (e.g., has made all required payments on time, in full, and without deduction) to Parent, the Surviving Corporation and their respective Affiliates and is not otherwise in material breach of its agreements with Parent, the Surviving Corporation or any of their respective Affiliates and Parent has no reason to believe that Member will not continue to be in good standing;
(iii)    shall not apply to changes that are the direct result of changes in taxes, product or trademark availability from a vendor (including as a result of a change in, addition or termination of a vendor), commodity cost changes, vendor price changes, force majeure events, lack of necessary vendor or third party cooperation, or the extinguishment of year-end patronage payments to Members; and
(iv)    to the extent relating to any fee, cost or other charge that is arrived at by way of a particular calculation (as opposed to a fixed fee, cost or other charge), shall only be a commitment to employ such calculation in arriving at such fee, cost or other charge, subject to adjustment based on clauses (i)–(iii) above.
During the period commencing on the Closing Date and ending on the first anniversary of the Closing Date, Parent shall cause the Surviving Corporation to, and the Surviving Corporation shall, use commercially reasonable efforts to (i) maintain and enhance the Company’s approach to Member engagement, including by using its commercially reasonable efforts to retain key employees of the Company who interact directly with the Company’s Members and are critical to maintaining Company’s Member-facing functions, and (ii) fulfill Member orders out of the Company’s existing warehouse facilities or another location within the fifteen (15) mile-radius of such facilities.
For the avoidance of doubt, nothing in this Section 5.15 shall limit the ability of Parent, the Surviving Corporation, or any of their respective Affiliates to (1) alter, enhance, modify, or replace any IT system, including any accounting, management, information or other systems used by Parent, the Surviving Corporation, or any of their respective Affiliates to operate their respective businesses; (2) assign or change personnel who perform a service or other function related to any aspect of the Company’s business; (3) perform a service or a function in a manner selected by the Surviving Corporation; or (4) otherwise manage the Surviving Corporation’s business, so long as, in each case of clauses (1)–(4), the Surviving Corporation continues to comply with its obligations under this Section 5.15 .
Section 5.16     Compliance with WARN Act and Similar Statutes . Parent and Surviving Corporation shall not, at any time within ninety (90) days after the Closing Date, effectuate or cause to be effectuated (a) a “plant closing” (as defined in the Worker Adjustment and Retraining Notification Act of 1988 or any state Law of similar import (the “ WARN Act ”)) affecting any site

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of employment or one or more facilities or operating units within any site of employment or facility of the Surviving Corporation or any of its Subsidiaries or (b) a “mass layoff” (as defined in the WARN Act) affecting any site of employment or facility of the Surviving Corporation or any of its Subsidiaries; and/or, in the case of clauses (a) and (b) above, any similar action under any comparable Law requiring notice to employees in the event of a plant closing, mass layoff or other action triggering statutory notice requirements. Parent shall indemnify and hold harmless the Indemnified Persons (as defined herein) in accordance with Section 5.8 with respect to any liability under the WARN Act (and any comparable Law requiring notice to employees) arising or resulting, in whole or in part, from any actions taken by Parent, the Surviving Corporation or any of its Subsidiaries on or after the Closing Date.
Section 5.17     Representations and Warranties Insurance . If Parent elects to obtain a representations and warranties insurance policy, the Company shall, and shall cause its officers, directors, employees or agents to, reasonably cooperate with Parent and the insurer and any of their respective Affiliates or representatives in connection with the issuance of the such policy by providing all documents and information reasonably requested by the insurer, its Affiliates or any of its or their respective representatives or required for the issuance of such policy.
Section 5.18     Tax Cooperation . Following the Closing, the Company will provide to all former Shareholders as of the Closing Date such information as the Company is required to provide under applicable Tax Laws; provided that nothing in this Section 5.18 shall require Parent, the Company or their Affiliates to incur any out-of-pocket expenses in complying with such requests unless the former Shareholder requesting such information agrees to reimburse the Company, Parent and their Affiliates for any such expenses.
Section 5.19     Supply Agreement . During the period commencing on the Business Day after the Shareholder Materials are mailed to the Shareholders and ending on thirtieth (30 th ) day after the Closing Date, Parent shall extend to each Shareholder in good standing an offer to enter into a supply agreement in the form mutually agreed to by Parent to the Company prior to the date of this Agreement (the “ Supply Agreement ”). Such Supply Agreement shall be effective in accordance with its terms but in any event not earlier than immediately after the Effective Time.
Section 5.20     Conversion of Customer Deposits . Prior to the Closing Date, the Company will convert outstanding customer deposits in the amount of $69,600 into newly issued Class B Shares, which Class B Shares will be issued and outstanding immediately prior to the Closing and will be factored into the Share Count Adjustment.
ARTICLE VI
CONDITIONS PRECEDENT
Section 6.1     Conditions to the Obligations of Each Party . The respective obligations of Parent, Merger Sub and the Company to consummate the Merger are subject to the satisfaction or waiver by Parent, Merger Sub or the Company, as appropriate, at or before the Closing Date, of each of the following conditions:

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(a)     Injunctions; Illegality . (i) No Governmental Entity shall have enacted, issued, promulgated, enforced or entered into any Law and (ii) no Action shall have been instituted by a Governmental Entity or Order shall be in effect, in either case, which has the effect of restraining, conditioning, challenging the legality or validity of, or making the transaction contemplated by this Agreement illegal or otherwise prohibited.
(b)     Antitrust Laws . The waiting period, if any, applicable to the consummation of the transactions contemplated by this Agreement under the HSR Act shall have expired or been terminated, or approval of the relevant Government Entity under the applicable Antitrust Laws shall have otherwise been obtained.
(c)     Shareholder Approval . The Requisite Shareholder Approval shall have been obtained in accordance with the Act and the Company’s articles of incorporation and bylaws.
Section 6.2     Conditions to the Obligations of Parent and Merger Sub     . The obligations of Parent and Merger Sub to consummate the Merger are subject to the satisfaction or waiver by Parent on or prior to the Closing Date of the following further conditions:
(a)     Performance . All of the agreements and covenants of the Company to be performed prior to the Closing pursuant to this Agreement shall have been duly performed in all material respects.
(b)     Representations and Warranties . (i) The Company Fundamental Representations (without giving effect to any qualification by materiality, Material Adverse Effect or similar terms contained therein) shall be true and correct in all material respects as of the date of this Agreement and as of the Effective Time (or, if any such Company Fundamental Representation is expressly stated to have been made as of a specific date, then, for such Company Fundamental Representation, as of such specific date), (ii) the representations and warranties of the Company set forth in Section 3.3 (Capital Stock) and Section 3.22 (Indebtedness) shall be true and correct, subject to only de minimis inaccuracies, as of the date of this Agreement and as of the Effective Time (other than those made at and as of a specified date in which case such representations and warranties shall have been true and correct, subject to only de minimis inaccuracies, as of such earlier date), and (iii) the representations and warranties of the Company contained in ARTICLE III other than the Company Fundamental Representations and Section 3.3 (Capital Stock) and Section 3.22 (Indebtedness) (without giving effect to any qualification by materiality, Material Adverse Effect or similar terms contained therein) shall be true and correct as of the date of this Agreement and as of Effective Time (other than those made at and as of a specified date in which case such representations and warranties shall have been true and correct as of such earlier date), except for such failures to be true and correct that would not be reasonably likely to have, individually or in the aggregate, a Material Adverse Effect.
(c)     No Material Adverse Effect . Between the date of this Agreement and the Closing Date, there shall not have occurred any event, fact, occurrence, circumstance, development, change or effect that, individually or in the aggregate, has had, or would reasonably be expected to have, a Material Adverse Effect.

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(d)     Officer’s Certificate . Parent shall have received a certificate, dated as of the Closing Date and signed by an authorized officer of the Company, to the effect that the conditions set forth in Section 6.2(a), Section 6.2(b) and Section 6.2(c) have been satisfied.
(e)     Secretary’s Certificate . Parent shall have received a certificate, dated as of the Closing Date and signed by the secretary of the Company, certifying that (i) attached thereto is a true, correct and complete copy of the articles of incorporation of the Company as in effect as of the date of such certificate and certified by the Florida Department of State, (ii) attached thereto is a true, correct and complete copy of the bylaws of the Company as in effect as of the date of the certificate, (iii) attached thereto is a true, correct and complete copy of all resolutions duly adopted by the Board and the Shareholders of the Company authorizing the execution, delivery and performance of this Agreement, and the consummation of the transactions contemplated hereby, and that all such resolutions are in full force and effect on the date of such certificate and are all of the resolutions adopted in connection with the transactions contemplated by this Agreement; and (iv) attached thereto is the certificate of status for the Company issued by the Florida Department of State, dated not more than ten (10) days before the Closing Date.
(f)     FIRPTA . Parent shall have received a notice pursuant to Treasury Regulations Section 1.897-2(h) and 1.1445-2(c)(3), dated as of the Closing Date and signed by an authorized officer of the Company, in the form as set forth on Exhibit 5 hereto, that the Company is not a United States real property holding corporation within the meaning of Code Section 897(c)(2).
Section 6.3     Conditions to the Obligations of the Company . The obligations of the Company to consummate the Merger are subject to the satisfaction or waiver by the Company on or prior to the Closing Date of the following further conditions:
(a)     Performance . All of the material agreements and covenants of Parent and Merger Sub to be performed at or prior to the Closing pursuant to this Agreement shall have been duly performed in all material respects.
(b)     Representations and Warranties . The representations and warranties of Parent and Merger Sub contained in ARTICLE IV without giving effect to any qualification by materiality or Material Adverse Effect contained therein) shall have been true and correct as of the Effective Time as if made at and as of such time (other than those made at and as of a specified date in which case such representations and warranties shall have been true and correct as of such earlier date), except for such failures to be true and correct that do not have, individually or in the aggregate, a material adverse effect on Parent or its ability to consummate the transactions contemplated by this Agreement.
(c)     Officer’s Certificate . The Company shall have received from Parent and Merger Sub, as applicable, a certificate, dated as of the Closing Date signed by an authorized officer of Parent or Merger Sub, as applicable, to the effect that the conditions set forth in Section 6.3(a) and Section 6.3(b) have been satisfied.

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(d)     No Parent Material Adverse Effect . Between the date of this Agreement and the Closing Date, there shall not have occurred any Parent Material Adverse Effect.
ARTICLE VII
TERMINATION AND ABANDONMENT
Section 7.1     Termination . This Agreement may be terminated and the transactions contemplated hereby may be abandoned, at any time prior to the Effective Time:
(a)    by mutual written consent of the Company and Parent;
(b)    by either Parent, on the one hand, or the Company, on the other hand, if:
(i)    any Governmental Entity shall have issued, enacted, entered, promulgated or enforced any Law or Order (that is final and non-appealable and that has not been vacated, withdrawn or overturned) restraining, enjoining or otherwise prohibiting the Merger; provided, that the party seeking to terminate pursuant to this Section 7.1(b)(i) has complied with its obligations, if any, under Section 5.4 or Section 5.6 in connection with such Law or Order;
(ii)    the Requisite Shareholder Approval shall not have been obtained pursuant to Section 5.14(a) ; provided, that the Company may not terminate pursuant to this Section 7.1(b)(ii) if the Company is in breach of Section 5.14 ; or
(iii)    the Effective Time shall not have occurred on or prior to the one hundred fiftieth (150 th ) calendar day after the date hereof (the “ End Date ”), except, that if, as of the Business Day preceding the End Date, the conditions set forth in Section 6.1(a) (due to any Order imposed by a Governmental Entity under any applicable Antitrust Laws) or Section 6.1(b) have not been satisfied or waived, then either Parent or the Company (provided that such party has complied in all material respects with its obligations under Section 5.6 ) may by written notice extend the End Date by an additional ninety (90) days; provided, that neither Parent nor the Company may terminate this Agreement pursuant to this Section 7.1(b)(iii) if such party is in material breach of this Agreement in a manner that shall have proximately contributed to the failure of the Merger to be consummated on or prior to the End Date;
(c)    by the Company, if (i) any of the representations and warranties of Parent or Merger Sub contained in ARTICLE IV shall fail to be true and correct as of the date made, or (ii) there shall be a breach by Parent or Merger Sub of any covenant or agreement of Parent or Merger Sub in this Agreement that, in either case (i) or (ii), (A) would result in the failure of a condition set forth in Section 6.3(a) or Section 6.3(b) and (B) which is not curable or, if curable, is not cured on or before the earlier of (x) the thirtieth (30th) day after the Company provides Parent written notice thereof and (y) the day that is two (2) Business Days prior to the End Date; provided, that the Company may not terminate this Agreement pursuant to this Section 7.1(c) if the Company is in material breach of this Agreement;

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(d)    by Parent, if (i) any of the representations and warranties of the Company contained in ARTICLE III shall fail to be true and correct as of the date made, or (ii) there shall be a breach by the Company of any covenant or agreement of the Company in this Agreement that, in either case (i) or (ii), (A) would result in the failure of a condition set forth in Section 6.2(a) or Section 6.2(b) and (B) which is not curable or, if curable, is not cured on or before the earlier of (x) the thirtieth (30th) day after Parent provides the Company written notice thereof and (y) the day that is two (2) Business Days prior to the End Date; provided, that Parent may not terminate this Agreement pursuant to this Section 7.1(d) if Parent or Merger Sub is in material breach of this Agreement; or
(e)    by Parent, if the Board shall have effected a Change of Recommendation.
Section 7.2     Effect of Termination .
(a)    If this Agreement is terminated pursuant to Section 7.1 by Parent, on the one hand, or the Company, on the other hand, written notice thereof shall forthwith be given to the other party or parties specifying the provision hereof pursuant to which such termination is made, and, except as specified in Section 7.2(b) , this Agreement shall be terminated and become void and have no effect, and there shall be no liability hereunder on the part of Parent, Merger Sub or the Company, except that Section 5.1 (Confidentiality), Section 5.11 (Public Announcements), ARTICLE VIII (Miscellaneous) and this Section 7.2 , and any corresponding definitions in Section 1.1 and Section 1.2 and rules of construction in Section 1.3 shall survive any termination of this Agreement. Notwithstanding anything to the contrary set forth herein, nothing in this Section 7.2 shall (i) relieve or release any party to this Agreement of any liability or damages arising out of such party’s breach of any provision of this Agreement, (ii) impair the right of any party hereto to compel specific performance by the other party or parties, as the case may be, of such party’s obligations under this Agreement, or (iii) except as set forth in Section 7.2(b)(A)–(B) , limit any liability or damages arising out of such party’s breach of any provision of this Agreement.
(b)    In the event that this Agreement is terminated:
(i)    by either Parent or the Company pursuant to Section 7.1(b)(ii) or Section 7.1(b)(iii) (other than a termination pursuant to Section 7.1(b)(iii) described in Section 7.2(b)(iv) ), or by Parent pursuant to Section 7.1(d)(i) , and, in each such case, either (A) any AGF Entity shall have consummated an Acquisition Proposal pursuant to an Alternative Acquisition Agreement within twelve (12) months after such termination or (B) any AGF Entity shall have entered into an Alternative Acquisition Agreement with respect to an Acquisition Proposal within twelve (12) months after such termination which Acquisition Proposal is subsequently consummated after such twelve (12)‑month period (provided that for the purposes of this Section 7.2(b)(i) , the references to “15%” in the definition of Acquisition Proposal shall be deemed to be reference to “50%”);
(ii)    by Parent pursuant to Section 7.1(e) ;
(iii)    by either Parent or the Company pursuant to Section 7.1(b)(i) if the final and nonappealable Law or Order restraining, enjoining or otherwise prohibiting the Merger relates to the HSR Act; or

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(iv)    by either Parent or the Company pursuant to Section 7.1(b)(iii) if at the time of the termination the condition set forth in Section 6.1(b) has not been satisfied with respect to the HSR Act, provided that all conditions set forth in Section 6.2 have been satisified or are capable of being satisfied as of the date of termination of this Agreement;
then, (A) (1) in the case of Section 7.2(b)(i) , within two (2) Business Days after consummation of such Acquisition Proposal, and (2) in the case of Section 7.2(b)(ii) , within two (2) Business Days after termination of this Agreement, the Company shall pay a termination fee of $7,000,000 (plus all reasonable documented out-of-pocket fees, costs and expenses (including investment banking, legal and accounting fees, costs and expenses) incurred by Parent and Merger Sub in connection with, or arising out of, the planning, structuring, negotiation or consummation of the transactions contemplated by this Agreement, which shall not exceed an aggregate of $500,000) (collectively, the “ Company Termination Fee ”), to Parent by wire transfer of immediately available funds to an account designated in writing by Parent; and (B) in the case of Section 7.2(b)(iii) and Section 7.2(b)(iv) , within two (2) Business Days after termination of this Agreement, Parent shall pay a termination fee of $9,000,000 (the “ Reverse Termination Fee ”) to the Company by wire transfer of immediately available funds to an account designated in writing by the Company; provided that no Reverse Termination Fee shall be payable if this Agreement is terminated pursuant to Section 7.2(b)(iii) or Section 7.2(b)(iv) after the Shareholder Approval Deadline and the Requisite Shareholder Approval shall not have been obtained at the time of the termination. In no event shall the Company be obligated to pay the Company Termination Fee or Parent be obligated to pay the Reverse Termination Fee on more than one (1) occasion. The parties agree that in the event that the Company Termination Fee or the Reverse Termination Fee is paid to a party hereto, as applicable, the payment of such fee to such party shall be the sole and exclusive remedy of such party and its Affiliates against the other party and its Affiliates, and such party and its Affiliates shall have no further liability or obligation to the other party or its Affiliates relating to or arising out of this Agreement or the transactions contemplated hereby; it being understood that nothing herein shall limit or impair the right of any party to seek damages for any termination of this Agreement with respect to which the Company Termination Fee or the Reverse Termination Fee is not payable pursuant to this Section 7.2(b) . The parties agree that the Company Termination Fee and the Reverse Termination Fee were negotiated as an estimate of damages and are not penalties.
ARTICLE VIII
MISCELLANEOUS
Section 8.1     Fees and Expenses . Except as otherwise set forth herein, all costs and expenses incurred in connection with this Agreement and the consummation of the transactions contemplated hereby shall be paid by the party incurring such costs and expenses.
Section 8.2     Survival . This ARTICLE VIII and the agreements of the Company, Parent and Merger Sub contained in ARTICLE II, Section 5.7 (Employee Matters), Section 5.8 (Indemnity; Directors’ and Officers’ Insurance), Section 5.12 (Transfer Taxes), Section 5.15 (Product and Services Continuation), and Section 5.16 (Compliance with WARN Act and Similar Statutes) shall survive the consummation of the Merger. This ARTICLE VIII (other than Section 8.3 (Extension; Waiver) and Section 8.7 (Amendment and Modification)) and the agreements of the Company,

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Parent and Merger Sub contained in Section 7.2 (Effect of Termination) and the Confidentiality Agreement shall survive the termination of this Agreement. Notwithstanding any provisions contained herein to the contrary, all representations and warranties under this Agreement and all covenants in this Agreement other than those set forth in the preceding sentence shall not survive the consummation of the Merger or the termination of this Agreement.
Section 8.3     Extension; Waiver . Subject to the limitations set forth herein, at any time prior to the Effective Time, the parties hereto, by action taken by or on behalf of the Company, Parent or Merger Sub, as the case may be, may (a) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (b) waive any inaccuracies in the representations and warranties contained herein by any other applicable party or in any document, certificate or writing delivered pursuant hereto by any other applicable party or (c) waive compliance with any of the agreements or conditions contained herein. Any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of the party extending or waiving the applicable provision. No failure or delay on the part of any party hereto in the exercise of any right or remedy hereunder shall impair such right or remedy or be construed as a waiver of, or acquiescence in, any breach of any representation, warranty, covenant or agreement herein, nor shall any single or partial exercise of any such right or remedy preclude other or further exercise thereof or of any other right.
Section 8.4     Notices . Except as otherwise specifically set forth herein, all notices, requests, claims, demands, waivers and other communications hereunder shall be in writing and shall be delivered prepaid by hand or prepaid overnight courier service or sent by facsimile or email and shall be effective and deemed to have been given when received or (i) when delivered, if personally delivered, (ii) on the next business day after dispatch, if sent postage pre-paid by nationally recognized, overnight courier guaranteeing next business day delivery, and (iii) upon receipt of confirmation, if sent by facsimile or email, in each case to:
(a)    if, prior to the Closing, to the Company, at:
Associated Grocers of Florida, Inc.
1141 Southwest 12 th Avenue,
Pompano Beach, FL 33069
Attn:     Chris Miller
Louis Moore
Facsimile: (954) 876-3231
Email: cmiller@agfla.com
    lmoore@agfla.com

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with a copy (which shall not constitute notice) to:
Akerman LLP
Three Brickell City Centre
350 East Las Olas Boulevard
Ft. Lauderdale, Florida 33301
Attn: Teddy D. Klinghoffer
Sergey Kotelnikov
Facsimile: (305) 374-5095
Email: teddy.klinghoffer@akerman.com
sergey.kotelnikov@akerman.com

(b)    if to any of Parent, Merger Sub, or, after the Closing, the Surviving Corporation, at:
SUPERVALU INC.
11840 Valley View Road
Eden Prairie, MN 55344
Facsimile: (952) 828-4403
Email: karla.c.robertson@supervalu.com
Attn: Karla C. Robertson
with a copy (which shall not constitute notice) to:
Faegre Baker Daniels LLP
2200 Wells Fargo Center
90 S. Seventh Street
Minneapolis, MN 55402
Facsimile: (612) 766-1600
Email: mike.stanchfield@FaegreBD.com
kate.sherburne@FaegreBD.com
Attn: Michael A. Stanchfield
Kate Sherburne
Notices sent by multiple means, each of which is in compliance with the provisions of this Agreement will be deemed to have been received at the earliest time provided for by this Agreement.
Section 8.5     Entire Agreement . This Agreement, together with the Company Disclosure Schedule and the Transaction Documents, contains the entire understanding of the parties hereto with respect to the subject matter contained herein and supersedes all prior agreements, covenants, representations, warranties and understandings, oral and written, with respect thereto, other than the Confidentiality Agreement.
Section 8.6     Binding Effect; Benefit; Assignment . This Agreement shall inure to the benefit of and be binding upon the parties hereto and, with respect to the provisions of Section 5.8 (Indemnity; Directors’ and Officers’ Insurance), Section 8.17 (Waiver of Conflicts) and this Section 8.6 shall inure to the benefit of the Persons benefiting from the provisions thereof all of whom are

76



intended to be third-party beneficiaries thereof. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto without the prior written consent of each of the other parties; provided, that Parent or Merger Sub may assign this Agreement to any Affiliate of Parent without the prior written consent of the Company to the extent Parent remains responsible for its and/or the Merger Sub’s obligations hereunder irrespective of such assignment. Any attempted assignment in violation of this Section 8.6 will be void.
Section 8.7     Amendment and Modification . This Agreement may not be amended except by a written instrument executed by all parties hereto.
Section 8.8     Counterparts . This Agreement may be executed in several counterparts, each of which shall be deemed to be an original, and all of which together shall be deemed to be one and the same instrument. Signed counterparts of this Agreement may be delivered by facsimile transmission, by email of a .pdf attachment or by similar electronic means, each of which shall be effective as delivery of a manually executed counterpart of this Agreement.
Section 8.9     Applicable Law; Attorney’s Fees . This Agreement shall be governed by and construed in accordance with the Laws of the State of Delaware without regard to any conflicts or choice of law provisions of the State of Delaware that would result in the application of the Law of any other jurisdiction, except that (a) the internal affairs of the corporations party hereto that are organized and existing under the Laws of the State of Florida, including fiduciary duties of the directors and officers of such corporations, and (b) all other provisions of, or transactions contemplated by, this Agreement that are expressly or otherwise required to be governed by the Act shall be governed by the Laws of the State of Florida. The parties hereto hereby irrevocably submit to the exclusive jurisdiction of any federal or state court located in the State of Delaware over any dispute arising out of or relating to this Agreement or any of the transactions contemplated hereby and each party hereby irrevocably agrees that all claims in respect of such dispute or any Action related thereto may be heard and determined in such courts. The Parties hereby irrevocably waive, to the fullest extent permitted by applicable Law, any objection which they may now or hereafter have to the laying of venue of any such dispute brought in such court or any defense of inconvenient forum for the maintenance of such dispute. Each of the Parties agrees that a judgment in any such dispute may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by Law. If the parties are involved in an Action to resolve any dispute arising under or in connection with this Agreement or any of the transactions contemplated hereby, the losing party in such Action shall be liable for the payment of reasonable attorneys’ fees, costs and ancillary expenses incurred by the prevailing party in such Action in enforcing, defending, settling or prosecuting such Action.
Section 8.10     Severability . If any term, provision, covenant or restriction contained in this Agreement or any of the Transaction Documents is held by a court of competent jurisdiction or other authority to be invalid, void, unenforceable or against its regulatory policy, the remainder of the terms, provisions, covenants and restrictions contained in this Agreement or such Transaction Document shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and this Agreement or such Transaction Document shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable term, provision, covenant or restriction or any portion thereof had never been contained herein.
Section 8.11     Specific Enforcement . The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance

77



with their specific terms or were otherwise breached or threatened to be breached and that an award of money damages would be inadequate in such event. Accordingly, it is acknowledged that the parties and the third party beneficiaries (to the extent specified in Section 8.6 ) to this Agreement shall be entitled to seek equitable relief, without proof of actual damages, including an injunction or injunctions or Orders for specific performance to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement (including any Order sought by any party to cause the other party to perform its agreements and covenants contained in this Agreement), in addition to any other remedy to which they are entitled at law or in equity as a remedy for any such breach or threatened breach. Each party further agrees that no other party hereto or any other Person shall be required to obtain, furnish or post any bond or similar instrument in connection with or as a condition to obtaining any remedy referred to in this Section 8.11 , and each party hereto irrevocably waives any right it may have to require the obtaining, furnishing or posting of any such bond or similar instrument. The Company, on the one hand, and Parent and Merger Sub, on the other hand, hereby agree not to raise any objections to the availability of the equitable remedy of specific performance to prevent or restrain breaches or threatened breaches of this Agreement by the Company, on the one hand, or Parent or Merger Sub, on the other hand, and to specifically enforce the terms and provisions of this Agreement to prevent breaches or threatened breaches of, or to enforce compliance with, the covenants and obligations of Parent and Merger Sub under this Agreement.
Section 8.12     Waiver of Jury Trial . EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY TRANSACTION DOCUMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED IN CONNECTION HEREWITH OR THEREWITH, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES OR ANY OF THEM IN RESPECT OF THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH SUCH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE WAIVERS AND CERTIFICATIONS IN THIS SECTION. EACH PARTY AGREES THAT THE OTHER MAY FILE A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
Section 8.13     Headings . The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.
Section 8.14     Exhibits and Schedules . All schedules and exhibits attached hereto (including the Company Disclosure Schedule) are incorporated herein and expressly made a part

78



of this Agreement as though completely set forth herein. All references to this Agreement herein or in any of the schedules or exhibits shall be deemed to refer to this entire Agreement, including all schedules and exhibits. Notwithstanding anything to the contrary contained in the Company Disclosure Schedule or in this Agreement, the information and disclosures contained in any section of the Company Disclosure Schedule shall be deemed to be disclosed and incorporated by reference in any other section of the Company Disclosure Schedule as though fully set forth in such section if applicability of such information and disclosure to such other section is reasonably apparent on the face of such disclosure (and without the need to examine any document referred to therein) notwithstanding the absence of a cross reference contained therein. The information set forth in the Company Disclosure Schedule is disclosed solely for the purposes of this Agreement, and no information set forth therein shall be deemed to be an admission by any party hereto to any third party of any matter whatsoever, including of any violation of Law or breach of any Contract. The specification of any dollar amount or the inclusion of any item in the Company Disclosure Schedule is not intended to imply that the amounts, or higher or lower amounts, or the items so included, or other items, are or are not required to be disclosed (including whether such amounts or items are required to be disclosed as material or threatened) or are within or outside of the ordinary course of business. In addition, matters reflected in the Company Disclosure Schedule are not necessarily limited to matters required by this Agreement to be reflected in the Company Disclosure Schedule. Such additional matters are set forth for informational purposes only and do not necessarily include other matters of a similar nature. Nothing in the Company Disclosure Schedule is intended to broaden the scope of any representation or warranty contained in this Agreement or create any covenant. Such information and the dollar thresholds set forth herein shall not be used as a basis for interpreting the terms “material” or “Material Adverse Effect” or other similar terms in this Agreement.
Section 8.15     Time of the Essence . Time is of the essence in this Agreement. If the date specified for giving any notice or taking any action is not a Business Day (or if the period during which any notice is required to be given or any action taken expires on a date which is not a Business Day), then the date for giving such notice or taking such action (and the expiration date of such period during which notice is required to be given or action taken) shall be the next day that is a Business Day.
Section 8.16     Construction . The parties hereto agree that they have been represented by counsel during the negotiation and execution of this Agreement and have participated jointly in the drafting of this Agreement. The parties hereto waive the application of any Law or rule of construction providing that ambiguities in an agreement or other document will be construed against the party drafting such agreement or document.
Section 8.17     Waiver of Conflicts . Each of the parties hereto acknowledges and agrees that the Company has retained Akerman LLP (“ Akerman ”) to act as its counsel in connection with the transactions contemplated hereby and that Akerman has not acted as counsel for any other Person in connection herewith and that no other party hereto or Person has the status of a client of Akerman for any purpose, including conflicts of interest. Parent hereby agrees that, if a dispute arises between Parent or any of its Affiliates (including Merger Sub and, after the Closing, the Surviving Corporation or any other AGF Entity) and any Person who was a Shareholder as of the Closing or any of their Affiliates (collectively, the “ Stakeholders ”), and if that dispute is related to the transactions

79



contemplated hereby or to this Agreement, Akerman may represent any such Stakeholder in such dispute even though the interests of such Stakeholder may be directly adverse to Parent or any of its Affiliates (including Merger Sub and, after the Closing, the Surviving Corporation or any other AGF Entity), and even though Akerman may be handling ongoing matters for Parent, the Company or another AGF Entity. In furtherance of the foregoing, Parent and the Company hereby (a) to the extent allowed by professional responsibility rules, waive, on behalf of themselves and each of their Affiliates, any claim they have or may have that Akerman has a conflict of interest in connection with or is otherwise prohibited from engaging in such representation, and (b) agree that, if a dispute arises after the Closing between Parent or any of its Affiliates (including Merger Sub and, after the Closing, the Surviving Corporation or any other AGF Entity) and any Stakeholder related to the transactions contemplated hereby or to this Agreement, Akerman may represent any such Stakeholder in such dispute even though the interest of any such party may be directly adverse to Parent or any of its Affiliates (including Merger Sub and, after the Closing, the Surviving Corporation or any other AGF Entity) and even though Akerman may be handling ongoing matters for Parent, the Company or any of the other AGF Entities (on the condition that, if Akerman is handling ongoing matters for Parent, the Company or any of the other AGF Entities, Akerman takes appropriate steps to wall off lawyers handling such ongoing matters for Parent, the Company or any of the other AGF Entities, on the one hand, and lawyers representing Stakeholders in a dispute arising out of the transactions contemplated hereby or this Agreement, on the other hand). Parent agrees to take, and to cause its Affiliates to take, all steps reasonably necessary to implement the intent of this Section 8.17 . The Company and Parent agree that Stakeholders, Akerman and its partners and employees are third-party beneficiaries of this Section 8.17 .
* * * * *


80



IN WITNESS WHEREOF, each of Parent, Merger Sub and the Company have caused this Agreement to be executed by their respective duly authorized officers, all as of the date first above written.


SUPERVALU INC.
 
 
 
 
By:
/s/ Mark Gross
 
Name: Mark Gross
 
Title: President and Chief Executive Officer
 
 
 
 
 
 
 
GATOR MERGER SUB INC.

 
 
 
 
By:
/s/ Karla Robertson
 
Name: Karla Robertson
 
Title: President and Secretary
 
 
 
 
ASSOCIATED GROCERS OF FLORIDA, INC.

 
 
 
 
By:
/s/ Christopher Miller
 
Name: Christopher Miller
 
Title: President
 
 
 
 
 
 
 




Signature Page to Agreement and Plan of Merger



Exhibit 12.1  
Ratio of Earnings to Fixed Charges
(In millions, except ratios)  
 
Year-To-Date Ended
 
Fiscal Year Ended
 
September 9, 
 2017 (1) 
 (28 weeks)
 
February 25, 2017
(52 weeks)
 
February 27, 
2016 
 (52 weeks)
 
February 28, 
2015 
 (53 weeks)
 
February 22, 2014 (2)
(52 weeks)
Earnings (loss) from continuing operations before income taxes
$
(12
)
 
7

 
$
108

 
$
12

 
$
(163
)
Less net earnings attributable to noncontrolling interests
(1
)
 
(4
)
 
(8
)
 
(7
)
 
(7
)
Net overdistributed earnings of less than fifty percent owned affiliates
1

 
—

 
1

 
—

 
1

Fixed charges
89

 
205

 
220

 
269

 
430

Amortized capitalized interest
—

 
—

 
(1
)
 
(1
)
 
(1
)
Earnings (loss) available to cover fixed charges
$
77

 
$
208

 
$
320

 
$
273

 
$
260

 
 
 
 
 
 
 
 
 
 
Interest expense
75

 
183

 
196

 
243

 
403

Capitalized interest
—

 
—

 
1

 
1

 
1

Interest on operating leases
14

 
22

 
23

 
25

 
26

Total fixed charges
$
89

 
205

 
$
220

 
$
269

 
$
430

 
 
 
 
 
 
 
 
 
 
Excess (deficiency) of earnings to fixed charges
$
(12
)
 
$
3

 
$
100

 
$
4

 
$
(170
)
Ratio of earnings to fixed charges
N/A

 
1.01

 
1.45

 
1.01

 
N/A


N/A represents a ratio of less than one.

(1)
The Company’s earnings available to cover fixed charges were insufficient to cover fixed charges for fiscal 2018 year-to-date due to $42 asset impairment charge before tax, $27 of merger and integration costs before tax, $9 of legal reserve charge before tax, $3 of severance costs before tax, $3 of unamortized financing charges before tax, and $2 of debt refinancing costs before tax, offset in part by $2 of gain on sale of property before tax and $1 from a gain on store closure.
(2)
The Company’s earnings available to cover fixed charges were insufficient to cover fixed charges for fiscal 2014 due to $99 of charges for the write-off of non-cash unamortized financing costs and original issue discount acceleration before tax, $75 of debt refinancing costs before tax, $42 of severance costs before tax, $13 of non-cash asset impairment and other charges before tax, $6 of contract breakage and other costs before tax, and $3 of multi-employer pension withdrawal charge before tax, offset in part by $15 of gain on sale of property before tax.






Exhibit 31.1
Certification Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
I, Mark Gross, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of SUPERVALU INC. for the quarterly fiscal period ended September 9, 2017 ;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: October 18, 2017
 
/s/ MARK GROSS
 
 
Mark Gross
 
 
Chief Executive Officer and President




Exhibit 31.2
Certification Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
I, Rob N. Woseth, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of SUPERVALU INC. for the quarterly fiscal period ended September 9, 2017 ;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: October 18, 2017
 
/s/ ROB N. WOSETH
 
 
Rob N. Woseth
Executive Vice President, Chief Strategy Officer, Interim Chief Financial Officer
(principal financial officer)





Exhibit 32.1
Certification Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of SUPERVALU INC. (the “Company”) certifies that the Quarterly Report on Form 10-Q of the Company for the quarterly fiscal period ended September 9, 2017 , fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in that Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company for the period and as of the dates covered thereby.
Date: October 18, 2017
 
/s/ MARK GROSS
 
 
Mark Gross
Chief Executive Officer and President




Exhibit 32.2
Certification Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of SUPERVALU INC. (the “Company”) certifies that the Quarterly Report on Form 10-Q of the Company for the quarterly fiscal period ended September 9, 2017 , fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in that Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company for the period and as of the dates covered thereby.
Date: October 18, 2017
 
/s/ ROB N. WOSETH
 
 
Rob N. Woseth
Executive Vice President, Chief Strategy Officer, Interim Chief Financial Officer
(principal financial officer)