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TABLE OF CONTENTS
INDEX TO FINANCIAL STATEMENTS

As filed with the Securities and Exchange Commission on July 5, 2012

Registration No. 333-182186

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



Amendment No. 2
to

Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933



Natural Grocers by Vitamin Cottage, Inc.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)
  5411
(Primary Standard Industrial
Classification Code Number)
  45-5034161
(I.R.S. Employer
Identification Number)

12612 West Alameda Parkway
Lakewood, Colorado 80228
(303) 986-4600

(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)

Kemper Isely
Natural Grocers by Vitamin Cottage, Inc.
12612 West Alameda Parkway
Lakewood, Colorado 80228
(303) 986-4600
(Name, address, including zip code, and telephone number, including area code, of agent for service)



Copies to:

Holland & Hart LLP
555 17th Street, Suite 3200
Denver, Colorado 80202
(303) 295-8000
Attn: Lucy Schlauch Stark
Attn: Scott A. Berdan

 

King & Spalding LLP
1180 Peachtree Street
Atlanta, Georgia 30309
(404) 572-4600
Attn: John J. Kelley III
Attn: Keith M. Townsend



Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.

          If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.     o

          If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o

          If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o

          If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o

          If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box.     o



          Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  o   Accelerated filer o   Non-accelerated filer  ý
(Do not check if a
smaller reporting company)
  Smaller reporting company o

CALCULATION OF REGISTRATION FEE

 

Title of Each Class of Securities to be Registered
  Proposed Maximum
Aggregate Offering
Price(1)(2)

  Amount of
Registration
Fee(3)

 

Common Stock, $0.001 par value per share

  $115,000,000   $13,179*

 

(1)
Includes shares to be sold upon exercise of the underwriters' overallotment option. See "Underwriting."

(2)
Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.

(3)
Calculated pursuant to Rule 457(o) under the Securities Act of 1933, as amended.

*
Previously paid.



           The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

   


EXPLANATORY NOTE

        This Registration Statement on Form S-1, or the Registration Statement, is being filed by Natural Grocers by Vitamin Cottage, Inc., a newly formed Delaware corporation, or the Registrant, in connection with a proposed registered public offering of shares of its common stock, or the Offering. Prior to the completion of the reorganization, or the Reorganization, described in the prospectus that is a part of this Registration Statement, which will occur immediately prior to the completion of the Offering, Natural Grocers by Vitamin Cottage, Inc. is a direct, wholly-owned subsidiary of Vitamin Cottage Natural Food Markets, Inc., a Colorado corporation, or the Operating Company, which is and immediately after the Reorganization will continue to be the operating entity for the Registrant's business.

        In connection with the completion of the Offering, (1) the existing shareholders of the Operating Company will exchange the capital stock of the Operating Company for common stock of the Registrant in a merger, (2) the Registrant will purchase the 45% membership interests in the Boulder Vitamin Cottage Group, LLC, or BVC, the only subsidiary of the Operating Company that is not currently wholly-owned, from a group of investors in exchange for cash and shares of the Registrant's common stock and (3) the Registrant will grant restricted common stock units to its Chief Financial Officer pursuant to her employment agreement. Immediately following the completion of the Offering, the common stock of the Registrant will be owned by (i) the purchasers of common stock of the Registrant pursuant to the offering, (ii) the entities and persons that, immediately prior to the completion of the Reorganization, owned membership interests in BVC, (iii) the Company's Chief Financial Officer and (iv) the entities and persons that, immediately prior to the completion of the Reorganization, were shareholders of the Operating Company and did not sell all of their shares in this Offering.

        See the section entitled "The Reorganization" in the prospectus that forms a part of this Registration Statement for additional information regarding the corporate structure of the Registrant and its related entities.


Table of Contents

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until a registration statement covering this offering is filed with the Securities and Exchange Commission and is declared effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

Subject to Completion
Preliminary Prospectus dated July 5, 2012

PROSPECTUS

                Shares

LOGO

        This is Natural Grocers by Vitamin Cottage, Inc.'s initial public offering. We are selling            shares of common stock and the selling stockholders identified in this prospectus, including certain of our officers, are selling            shares of common stock. We will not receive any proceeds from the sale of shares by the selling stockholders.

        Prior to the completion of this offering, the existing stockholders of Vitamin Cottage Natural Food Markets, Inc. will exchange the capital stock of that entity for our common stock, and we will acquire the minority interests in a controlled subsidiary not previously owned by us for a combination of cash and shares of our common stock. These transactions will result in our owning all of the outstanding capital stock of Vitamin Cottage Natural Food Markets, Inc., our operating company. See "The Reorganization" for more information about these transactions.

        We qualify as an "emerging growth company" pursuant to the provisions of the Jumpstart Our Business Startups Act, or the JOBS Act, enacted on April 5, 2012.

        We expect the public offering price to be between $            and $            per share. Currently, no public market exists for the shares. We intend to apply to list our common stock on The New York Stock Exchange under the symbol "NGVC."

         Investing in our common stock involves risks. Please read "Risk Factors" beginning on page 15.

               
 
 
  Price to Public
  Underwriting
Discounts and
Commissions

  Proceeds, before
expenses, to us

  Proceeds, before
expenses, to the
selling stockholders

 

Per share

  $           $           $           $        
 

Total

  $           $           $           $        

 

        We and the selling stockholders have granted the underwriters a 30-day option to purchase up to an additional            shares of common stock from us and             shares of common stock from the selling stockholders on the same terms and conditions as set forth above.

         Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

        The underwriters expect to deliver the shares on or about                        , 2012.



SunTrust Robinson Humphrey   Piper Jaffray

William Blair

 

Canaccord Genuity

   

        The date of this prospectus is                  , 2012


Table of Contents

GRAPHIC


Table of Contents


TABLE OF CONTENTS

SUMMARY

    1  

RISK FACTORS

    15  

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

    34  

USE OF PROCEEDS

    35  

DIVIDEND POLICY

    35  

CAPITALIZATION

    36  

THE REORGANIZATION

    38  

DILUTION

    41  

SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA

    42  

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

    47  

BUSINESS

    70  

MANAGEMENT

    87  

EXECUTIVE COMPENSATION

    92  

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

    104  

PRINCIPAL AND SELLING STOCKHOLDERS

    108  

DESCRIPTION OF CAPITAL STOCK

    111  

SHARES ELIGIBLE FOR FUTURE SALE

    116  

MATERIAL U.S. FEDERAL INCOME AND ESTATE TAX CONSIDERATIONS FOR NON-U.S. HOLDERS OF COMMON STOCK

    117  

UNDERWRITING

    120  

LEGAL MATTERS

    125  

EXPERTS

    125  

WHERE YOU CAN FIND MORE INFORMATION

    125  

INDEX TO FINANCIAL STATEMENTS

    F-1  



        Until                , 2012 (25 days after the date of this prospectus), all dealers that buy, sell or trade our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

         You should rely only on the information contained in this prospectus or in any free-writing prospectus we may specifically authorize to be delivered or made available to you. Neither we, the selling stockholders nor the underwriters have authorized anyone to provide you with information that is in addition to or different from that contained in this prospectus or any free-writing prospectus prepared by us or on our behalf. We do not, and the selling stockholders and the underwriters do not, take any responsibility for, and can provide no assurances as to, the reliability of any information that others provide to you. We and the selling stockholders are offering to sell, and seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of its date, regardless of its time of delivery or of any sale of our common stock.



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SUMMARY

         This summary provides a brief overview of information contained elsewhere in this prospectus. You should read the entire prospectus carefully, including "Risk Factors" beginning on page 15 and the historical consolidated financial statements. Unless indicated otherwise, the information presented in this prospectus assumes that the underwriters do not exercise their option to purchase additional shares of common stock. Natural Grocers by Vitamin Cottage, Inc. will be a holding company with no operations of its own. All of our operations will be conducted by Vitamin Cottage Natural Food Markets, Inc., which we refer to as the operating company, and its subsidiaries. Except where the context otherwise requires or where otherwise indicated, all references herein to "we," "us," "our," "Natural Grocers," and "the Company" refer collectively to, prior to the completion of this offering, Vitamin Cottage Natural Food Markets, Inc. and its consolidated subsidiaries and, after the completion of this offering, Natural Grocers by Vitamin Cottage, Inc. and our consolidated subsidiaries. All references to a "fiscal year" refer to a year beginning on October 1 of the previous year, and ending on September 30 of such year (for example, "fiscal year 2011" refers to the year from October 1, 2010 to September 30, 2011).


Overview

        Natural Grocers is a rapidly expanding specialty retailer of natural and organic groceries and dietary supplements. We focus on providing high-quality products at affordable prices, exceptional customer service, nutrition education and community outreach. We strive to generate long-term relationships with our customers based on transparency and trust by:

    selling only natural and organic groceries and dietary supplements that meet our strict quality guidelines—we do not approve for sale grocery products that are known to contain artificial colors, flavors, preservatives, sweeteners, or partially hydrogenated or hydrogenated oils;

    utilizing an efficient and flexible small-store format to offer affordable prices and a shopper-friendly retail environment; and

    enhancing our customers' shopping experience by providing free science-based nutrition education to help our customers make well-informed health and nutrition choices.

        We have significantly expanded from 27 stores in three states as of September 30, 2008 to 55 stores in 11 states as of June 30, 2012, including Colorado, Idaho, Kansas, Missouri, Montana, Nebraska, New Mexico, Oklahoma, Texas, Utah and Wyoming. We successfully opened six, six and ten new stores during the fiscal years ended September 30, 2009, 2010 and 2011, respectively, and six new stores in the nine months ended June 30, 2012. We plan to open four new stores in the remainder of fiscal year 2012. As of March 31, 2012, we had over 40 consecutive quarters of positive comparable store sales growth, including comparable store sales growth of 2.6%, 2.1% and 4.9% for the fiscal years ended September 30, 2009, 2010 and 2011, respectively, and 10.2% for the six months ended March 31, 2012 compared to the six months ended March 31, 2011. Our growth has been further evident during the recent economic cycle, with attractive compound annual growth rates of 13.3% and 10.4% in net sales and EBITDA (a non-GAAP measure), respectively, from fiscal year 2009 to fiscal year 2011. Over the same period, our net sales increased from $206.1 million to $264.5 million, net income decreased from $5.1 million to $4.6 million and EBITDA increased from $12.4 million to $15.1 million.


Our History

        Our founders, Margaret and Philip Isely, were early proponents of the connection between health and the use of natural and organic products and dietary supplements. In the mid-1950's, Margaret transformed her health and the health of her family by applying concepts and principles she learned from books on nutrition. This inspired the Iselys to provide the same type of nutrition education to their community. The Iselys initially started by lending books on nutrition and providing samples of

 

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whole grain bread door-to-door in Golden, Colorado and ultimately concluded they could develop a viable business that would also improve their customers' well being. Over time, they fostered relationships through nutrition education and began taking orders for dietary supplements, whole grain bread and unprocessed foods. As their customers gained more knowledge about nutrition, they were empowered to make changes to their diets in order to support their health. Using this model as the foundation for their business, the Iselys opened their first store in 1958, which they later moved to a modest cottage.

        In 1998, the second generation of the family, including Kemper Isely, Zephyr Isely, Heather Isely and Elizabeth Isely purchased our predecessor and the "Vitamin Cottage" trademark and assumed control of the business. Since then, we have grown our store count from 11 stores in Colorado to 55 stores in 11 states as of June 30, 2012. We have also implemented numerous organizational and operational improvements that have enhanced our ability to scale our operations. We believe that by staying true to our founding principles, we have been able to continue to attract new customers, extend our geographic reach and further solidify our competitive position.

Our Markets

        We operate within the natural products retail industry, which is a subset of the large and stable U.S. grocery industry. This industry includes conventional, natural, gourmet and specialty food markets, mass and discount retailers, warehouse clubs, independent health food stores, dietary supplement retailers, drug stores, farmers markets, mail order and online retailers, and multi-level marketers. According to the Nutrition Business Journal, a nutrition industry publication, total food sales in the U.S. were $631.9 billion in 2010, an increase of 0.7% over 2009.

        Natural and organic food and dietary supplement sales in the U.S. have grown at a faster rate than total food sales, according to the Nutrition Business Journal.

U.S. Natural & Organic Food Sales, 2000-2010   U.S. Dietary Supplement Sales, 2000-2010
$ in billions   $ in billions


GRAPHIC

Our Competitive Strengths

        We believe we are well-positioned to capitalize on favorable natural and organic grocery and dietary supplement industry dynamics as a result of the following competitive strengths:

        Strict focus on high-quality natural and organic grocery products and dietary supplements.     We offer high-quality products and brands, including an extensive selection of widely-recognized natural and organic food, dietary supplements, body care products, pet care products and books. We offer our customers an average of approximately 18,000 SKUs of natural and organic products per store, including an average of approximately 7,000 SKUs of dietary supplements. We believe this product offering enables our customers to utilize our stores for all of their grocery and dietary supplement purchases. In our grocery departments, we only sell USDA certified organic produce and do not approve for sale products that are known to contain artificial colors, flavors, preservatives, sweeteners,

 

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or partially hydrogenated or hydrogenated oils. Consistent with this strategy, our merchandise selection does not include conventional products or merchandise that does not meet our strict quality guidelines. Our store managers enhance our robust product offering by customizing their stores' selections to address the preferences of local customers. All products undergo a stringent review process to ensure the products we sell meet our strict quality guidelines, which helps us generate long-term relationships with our customers based on transparency and trust.

        Engaging customer service experience based on education and empowerment.     We strive to consistently offer exceptional customer service in a shopper-friendly environment, which we believe creates a differentiated shopping experience and generates repeat visits from our loyal customer base. Our customer service model is focused on providing free nutrition education to our customers. This focus provides an engaging retail experience while also empowering our customers to make informed decisions about their health. We offer our science-based nutrition education through our trained associates, Health Hotline® newsletter and sales flyer, one-on-one nutrition health coaching and nutrition classes. Our commitment to nutrition education and customer empowerment is emphasized throughout our entire organization, from executive management to store associates. Every store also maintains a Nutritional Health Coach™ position. The Nutritional Health Coach is responsible for training our store associates and educating our customers in accordance with applicable local, state and federal regulations. Each Nutritional Health Coach must have earned a degree or certificate in nutrition, human sciences or a related field from an accredited school, complete continuing education in nutrition, and be thoroughly committed to fulfilling our mission. Substantially all of our Nutritional Health Coaches are full-time employees. We believe our Nutritional Health Coach position is unique within our industry and represents a key element of our customer service model.

        Scalable operations and replicable, cost-effective store model.     We believe our scalable operating structure, attractive new store model, flexible real estate strategy and disciplined approach to new store development allow us to maximize store performance and quickly grow our store base. Our store model is successful in highly competitive markets and has supported significant growth outside of our original Colorado geography. We believe our supply chain and infrastructure are scalable and will accommodate significant growth based on the ability of our primary distribution relationships to effectively service our planned store locations. Our investments in overhead and information technology infrastructure, including purchasing, receiving, inventory, point of sale, warehousing, distribution, accounting, reporting and financial systems support this growth. In addition, we have established effective site selection guidelines, as well as scalable procedures, to enable us to open a new store within approximately nine months from the time of site selection. Our limited offering of prepared foods also reduces real estate costs, labor costs and perishable inventory shrink, and allows us to quickly leverage our new store opening costs.

        Experienced and committed team with proven track record.     Our executive management team has an average of 35 years of experience in the natural grocery industry, while our entire management team has an average of over 27 years of relevant experience. Since the second generation of the Isely family assumed control of the business in 1998, we have grown our store count from 11 to 55 stores as of June 30, 2012 while remaining dedicated to our founding principles. Over their tenure, members of our executive management team have been instrumental in establishing a successful, scalable operating model, generating consistently strong financial results and developing an effective site selection and store opening process. The depth of our management experience extends beyond our home office. As of May 1, 2012, 43% of our store managers have tenures of over four years with us, and our store and department managers have average tenures of three to four years with us. In addition, we have a track record of promoting store management personnel from within. We believe our management's experience at all levels will allow us to continue to grow our store base while improving operations and driving efficiencies.

 

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Our Growth Strategies

        We are pursuing several strategies to continue our profitable growth, including:

        Expand our store base.     We intend to continue expanding our store base through new store openings in existing markets, as well as penetrating new markets, by leveraging our core competencies of site selection and efficient store openings. Based upon our operating experience and research conducted for us by customer analytics firm The Buxton Company, we believe the entire U.S. market can support at least 1,100 Natural Grocers stores, including over 180 additional Natural Grocers stores in the 12 states in which we currently operate or have signed leases. In fiscal year 2011, we opened ten new stores, and we plan to open a total of ten new stores in fiscal year 2012. We intend to target new store openings at or above these levels over the near term.

        Increase sales from existing customers.     We have achieved positive comparable store sales growth for over 40 consecutive quarters. In order to increase our average ticket and the number of customer transactions, we plan to continue offering an engaging customer experience through science-based nutrition education and a differentiated merchandising strategy of delivering affordable, high-quality natural and organic grocery products and dietary supplements. We also plan to utilize targeted marketing efforts to our existing customers, which we anticipate will drive customer transactions and convert occasional, single-category customers into core, multi-category customers.

        Grow our customer base.     We plan to continue building our brand awareness, which we anticipate will grow our customer base. We believe offering nutrition education has historically been one of our most effective marketing efforts to reach new customers and increase the demand for natural and organic groceries and dietary supplements in our markets. We intend to enhance potential customers' nutrition knowledge through targeted marketing efforts, including the distribution of our Health Hotline newsletter and sales flyer, the Internet and social media, as well as an expansion of our educational outreach efforts in schools, businesses and communities, offering lectures, classes, printed and online educational resources and publications, health fairs and community wellness events. In addition to offering nutrition education, we intend to attract new customers with our everyday affordable pricing and to build community awareness through our support of local vendors and charities.

        Improve operating margins.     We expect to improve our operating margins as we benefit from investments we have made in fixed overhead and information technology, including the implementation of an SAP enterprise resource planning system in fiscal year 2010. We anticipate these investments will support our long-term growth strategy with only a modest amount of additional capital. We expect to achieve economies of scale through sourcing and distribution as we add more stores, and we intend to optimize performance, maintain appropriate store labor levels and effectively manage product selection and pricing to achieve additional margin expansion.

Risk Factors

        An investment in our common stock involves risks associated with our business and our corporate structure that you should carefully consider before making an investment in our common stock. Some of the principal challenges or risks facing us include, among others:

    we may not be successful in our efforts to grow;

    if we are unable to successfully identify market trends and react to changing consumer preferences in a timely manner, our sales may decrease;

    our inability to maintain or improve levels of comparable store sales could cause our stock price to decline;

 

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    our comparable store sales and quarterly financial performance may fluctuate for a variety of reasons;

    disruptions in the worldwide economy may adversely affect our business, results of operations and financial condition and could negatively impact our ability to execute our growth strategy;

    we may be unable to compete effectively in our highly competitive markets;

    our inability to maintain or increase our operating margins could adversely affect our results of operations and the price of our stock; and

    a reduction in traffic to anchor stores in the shopping areas in close proximity to our stores could significantly reduce our sales and leave us with unsold inventory, which could have a material adverse effect on our business, financial condition and results of operations.

        In addition to the foregoing, you should carefully consider all of the information set forth in this prospectus and, in particular, should evaluate the specific risks set forth in this prospectus under the heading "Risk Factors" in deciding whether to invest in our common stock.


The Reorganization

        In connection with, and immediately prior to the completion of this offering, we will enter into the reorganization transactions described below:

    The Delaware Merger.   Natural Grocers by Vitamin Cottage, Inc. was incorporated in Delaware on April 9, 2012. In connection with, and immediately prior to the completion of this offering, the existing shareholders of Vitamin Cottage Natural Food Markets, Inc. (which we refer to as the operating company) will exchange the capital stock of the operating company for an aggregate of      shares of common stock of Natural Grocers by Vitamin Cottage, Inc. Following the completion of this offering, Natural Grocers by Vitamin Cottage, Inc. will be a holding company with no material assets other than its direct 100% ownership interest in the operating company. We refer to this transaction in this prospectus as the Delaware Merger.

    The Boulder Contribution.   The operating company has historically owned a 55% interest in Boulder Vitamin Cottage Group, LLC, or BVC, which owns five of our stores in Colorado. In connection with and immediately prior to the completion of this offering, we will complete a transaction in which Natural Grocers by Vitamin Cottage, Inc. will receive the 45% membership interests in BVC owned by a group of other non-affiliated investors. In exchange for the sale and contribution of their 45% interests in BVC, the minority owners of BVC will receive a combination of cash and shares of common stock in Natural Grocers by Vitamin Cottage, Inc. In total, we will issue an aggregate of      shares of unregistered common stock of Natural Grocers by Vitamin Cottage, Inc. to the minority owners of BVC in connection with the contribution. We refer to this transaction in this prospectus as the Boulder Contribution. The cash portion of the purchase price payable to the minority owners of BVC in connection with the Boulder Contribution will be determined based on the public offering price. Assuming a public offering price of $            per share (the midpoint of the estimated price range set forth on the cover page of this prospectus), the minority owners of BVC would receive $            in cash in connection with the Boulder Contribution. For additional information regarding the Boulder Contribution, see "The Reorganization—The Boulder Contribution."

    Officer Grant.   Under our Chief Financial Officer's employment agreement, we will grant to her restricted stock units immediately following completion of the offering. Assuming a public offering price of $          per share (the midpoint of the estimated price range set forth on the cover page of this prospectus), our Chief Financial Officer would receive         restricted stock units immediately following the closing of this offering,        of which would be immediately vested and settled for a combination of         shares of common stock and $          , and          of which would remain subject to future vesting requirements. See "Executive Compensation—Compensation Discussion and Analysis—Compensation decisions for fiscal year 2011 and fiscal year 2012—Equity compensation" for additional information.

 

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        We refer to these transactions collectively in this prospectus as the Reorganization. The consummation of the Delaware Merger and the Boulder Contribution are conditions to the completion of the offering. The diagram below illustrates our corporate structure immediately following completion of the Reorganization and this offering:

GRAPHIC


Principal Stockholders

        Immediately following the offering, Kemper Isely, Zephyr Isely, Heather Isely and Elizabeth Isely will, in the aggregate, own and control approximately        % of our common stock, or approximately        % if the underwriters exercise their overallotment option in full. In addition, these shares will be subject to a stockholders agreement, pursuant to which these and certain other Isely family member stockholders will agree to vote their shares of common stock together on all matters related to the election of directors. Accordingly, we will be a "controlled company" within the meaning of The New York Stock Exchange governance standards.


Principal Executive Offices and Internet Address

        Our principal executive offices are located at 12612 West Alameda Parkway, Lakewood, Colorado 80228, and our telephone number is (303) 986-4600. Our website is located at www.naturalgrocers.com . We expect to make our periodic reports and other information filed with or furnished to the Securities and Exchange Commission, or SEC, available, free of charge, through our website as soon as reasonably practicable after those reports and other information are electronically filed with or furnished to the SEC. Information on our website or any other website is not incorporated by reference into this prospectus or the registration statement of which this prospectus is a part and does not constitute a part of this prospectus. Potential investors should not rely on such information in making a decision to purchase our common stock in this offering.

 

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Industry and Market Data

        Unless otherwise indicated, information contained in this prospectus concerning our industry and the markets in which we operate, including our general expectations and market opportunity, is based on information from independent industry organizations, such as the Nutrition Business Journal, The Buxton Company and other third-party sources (including industry publications, surveys and forecasts), and management estimates. Management estimates are derived from publicly available information released by independent industry analysts and third-party sources, as well as data from our internal research, and are based on assumptions made by us based on such data and our knowledge of such industry and markets, which we believe to be reasonable. We have not independently verified any third-party information. In addition, projections, assumptions and estimates of the future performance of the industry in which we operate and our future performance are subject to a high degree of uncertainty and risk due to a variety of factors, including those described in "Risk Factors." These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.

 

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The Offering

Common Stock Offered by Us

          shares

Common Stock Offered by the Selling Stockholders

 

        shares

Common Stock to be Outstanding Immediately following this Offering

 

        shares or        shares if the underwriters exercise their option to purchase additional shares from us and the selling stockholders.

Overallotment Option

 

The underwriters have an option to purchase a maximum of            additional shares of our common stock from us and            from the selling stockholders to cover overallotments. The underwriters could exercise this option at any time within 30 days from the date of this prospectus.

Use of Proceeds

 

We estimate that the net proceeds to us from this offering, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, will be approximately $        million, assuming an initial public offering price of $        per share, the midpoint of the estimated price range set forth on the cover page of this prospectus.

 

We will not receive any proceeds from the sale of shares by the selling stockholders.

 

We intend to use the net proceeds from this offering to repay our term loan and all outstanding amounts under our revolving credit facility, fund the payment of the cash portion of the purchase price for the Boulder Contribution, settle the cash portion of restricted stock units granted to our Chief Financial Officer, fund working capital and for general corporate purposes. See "Use of Proceeds."

Dividend Policy

 

We currently expect to retain future earnings for use in the operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future. See "Dividend Policy."

 

Because Natural Grocers by Vitamin Cottage, Inc. is a holding company, its cash flows and ability to pay dividends are dependent upon the financial results and cash flows of the operating company and its subsidiaries and the distribution or other payment of cash to Natural Grocers by Vitamin Cottage, Inc. in the form of dividends or otherwise.

New York Stock Exchange Listing

 

We intend to apply to list our common stock on The New York Stock Exchange under the symbol "NGVC."

 

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        Unless otherwise indicated, all information in this prospectus relating to the number of shares of common stock that will be outstanding immediately following this offering:

    assumes the consummation of the Reorganization, which will be a condition to the consummation of this offering;

    excludes approximately        shares of our common stock that will be reserved for issuance under our compensation plan that we intend to adopt in connection with this offering; and

    assumes no exercise of the underwriters' overallotment option to purchase additional shares of our common stock.

 

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SUMMARY HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA

        Natural Grocers by Vitamin Cottage, Inc. was incorporated in Delaware on April 9, 2012. Prior to the completion of this offering, Natural Grocers by Vitamin Cottage, Inc. will have no material assets. Following the completion of this offering, Natural Grocers by Vitamin Cottage, Inc. will be a holding company with no material assets other than its direct 100% ownership of Vitamin Cottage Natural Food Markets, Inc., which is our operating company. The consolidated financial statements of Natural Grocers by Vitamin Cottage, Inc. will reflect the assets, liabilities and results of operations of the operating company. Accordingly, the following tables set forth the summary historical consolidated financial and other data of the operating company as of the dates and for the periods indicated.

        The summary historical consolidated statements of income data for the years ended September 30, 2009, 2010 and 2011 have been derived from the audited consolidated financial statements of the operating company, which are included elsewhere in this prospectus.

        The summary historical unaudited consolidated statements of income data for the three and six months ended March 31, 2011 and 2012 and the summary unaudited consolidated balance sheet data as of March 31, 2012 have been derived from the unaudited consolidated financial statements of the operating company, which are included elsewhere in this prospectus. The unaudited consolidated financial statements of the operating company have been prepared on the same basis as the audited consolidated financial statements of the operating company and, in the opinion of management, include all adjustments necessary for a fair presentation. Interim results are not necessarily indicative of results that may be expected for a full fiscal year.

        The summary historical consolidated data presented below should be read in conjunction with the information included in the sections entitled "Risk Factors," "The Reorganization," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and related notes thereto and other financial data included elsewhere in this prospectus. The historical results of Vitamin Cottage Natural Food Markets, Inc. set forth below are not necessarily indicative of results to be expected for any future period.

 

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  Year ended September 30,   Three months
ended March 31,
  Six months
ended March 31,
 
 
  2009   2010   2011   2011   2012   2011   2012  
 
   
   
   
  (Unaudited)
 
 
  (dollars in thousands, except for per share and other
operating data)

 

Statements of Income Data:

                                           

Net sales

  $ 206,080     226,910     264,544     66,211     84,907     126,829     159,746  

Cost of goods sold and occupancy costs

    145,937     159,797     187,162     46,685     59,223     89,646     112,462  
                               

Gross profit

    60,143     67,113     77,382     19,526     25,684     37,183     47,284  

Store expenses

    41,992     47,162     57,610     14,363     18,028     27,584     34,468  

Administrative expenses

    8,619     9,631     10,397     2,603     2,812     5,092     5,525  

Pre-opening and relocation expenses

    1,236     1,293     1,964     685     427     1,022     854  
                               

Operating income

    8,296     9,027     7,411     1,875     4,417     3,485     6,437  

Other (expense) income:

                                           

Interest expense

    (1,146 )   (967 )   (669 )   (195 )   (155 )   (393 )   (330 )

Other (expense) income, net

    (60 )   3     35     18     2     23     3  
                               

Income before income taxes

    7,090     8,063     6,777     1,698     4,264     3,115     6,110  

Provision for income taxes

    (2,039 )   (2,466 )   (2,167 )   (517 )   (1,486 )   (949 )   (2,072 )
                               

Net income

    5,051     5,597     4,610     1,181     2,778     2,166     4,038  
                               

Net income attributable to noncontrolling interest

    (1,513 )   (1,189 )   (1,106 )   (307 )   (293 )   (566 )   (563 )
                               

Net income attributable to Vitamin Cottage Natural Food Markets, Inc. 

  $ 3,538     4,408     3,504     874     2,485     1,600     3,475  
                               

Per Share Data:

                                           

Net income attributable to Vitamin Cottage Natural Food Markets, Inc. per common share

                                           

Basic and diluted

  $ 5.65     7.04     5.60     1.39     3.97     2.56     5.55  
                               

Weighted average shares outstanding

                                           

Basic and diluted

    626,112     626,112     626,112     626,112     626,112     626,112     626,112  
                               

Pro Forma Statements of Income Data (Unaudited) (1):

                                           

Income before income taxes

  $ 7,090     8,063     6,777     1,698     4,264     3,115     6,110  

Pro forma provision for income taxes

    (2,592 )   (2,892 )   (2,589 )   (631 )   (1,596 )   (1,159 )   (2,283 )
                               

Pro forma net income attributable to Vitamin Cottage Natural Food Markets, Inc. 

  $ 4,498     5,171     4,188     1,067     2,668     1,956     3,827  
                               

Pro Forma Per Share Data (Unaudited) (2):

                                           

Pro forma net income per common share

                                           

Basic

                                           

Diluted

                                           

Pro forma weighted average shares outstanding

                                           

Basic

                                           

Diluted

                                           

Other Financial Data:

                                           

EBITDA(3)

  $ 12,442     14,540     15,137     3,744     6,823     7,065     11,129  
                               

EBITDA margin(4)

    6.0 %   6.4     5.7     5.7     8.0     5.6     7.0  
                               

Other Operating Data (Unaudited):

                                           

Number of stores at end of period

    33     39     49     43     53     43     53  

Change in comparable store sales(5)

    2.6 %   2.1     4.9     4.8     11.6     4.0     10.2  

Gross square footage at end of period(6)

    401,919     472,393     619,172     526,824     690,654     526,824     690,654  

Selling square footage at end of period(6)

    309,792     360,764     459,435     396,914     505,836     396,914     505,836  

Average comparable store size (gross square feet)(7)

    12,189     12,328     12,239     12,535     12,296     12,535     12,296  

Average comparable store size (selling square feet)(7)

    9,640     9,483     9,284     9,528     9,265     9,528     9,265  

Comparable store sales per selling square foot during period(8)

  $ 773     730     720     185     191     362     369  

 

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  As of March 31, 2012
 
  Actual   Pro
forma(10)(11)
 
  (Unaudited)
 
  (in thousands)

Selected Balance Sheet Data:

         

Cash and cash equivalents

  $ 3,454    

Total assets

    87,254    

Total debt(9)

    26,332    

Total stockholders' equity

    19,515    

(1)
As part of the Reorganization, BVC will become our wholly owned subsidiary. We have held a controlling interest in BVC for all periods presented, as such, our consolidated statements of income include the revenues and expenses of BVC for all periods presented as required by U.S. GAAP. 45% of BVC's net income has been reported as net income attributable to noncontrolling interest in our consolidated statements of income for all periods presented. The pro forma financial data presented above illustrates what our net income would have been had we owned 100% of BVC for the periods presented. Our effective tax rate will increase as a result of the Boulder Contribution, as the income attributable to the noncontrolling interest was nontaxable income prior to the Boulder Contribution, but will be included in our taxable income after the Boulder Contribution. The following table reconciles our effective tax rate to our pro forma effective tax rate had we owned 100% of BVC for all periods presented:

 
  Year ended
September 30,
  Three
months
ended
March 31,
  Six
months
ended
March 31,
 
 
  2009   2010   2011   2011   2012   2011   2012  
 
   
   
   
  (Unaudited)
 

Statutory tax rate

    34.0 %   34.0     34.0     34.0     34.0     34.0     34.0  

Nontaxable net income attributable to noncontrolling interest

    (7.7 )   (5.3 )   (6.2 )   (6.8 )   (2.6 )   (6.7 )   (3.5 )

State income taxes, net of federal income tax expense

    3.1     2.5     3.4     3.2     3.3     3.2     3.3  

Other, net

    (0.6 )   (0.6 )   0.8         0.1         0.1  
                               

Effective tax rate

    28.8     30.6     32.0     30.4     34.8     30.5     33.9  

Pro forma adjustment to exclude nontaxable net income attributable to noncontrolling interest

    7.7     5.3     6.2     6.8     2.6     6.7     3.5  
                               

Pro forma effective tax rate

    36.5 %   35.9     38.2     37.2     37.4     37.2     37.4  
                               

         See "The Reorganization" for additional information regarding the Boulder Contribution.

(2)
Pro forma per share data gives effect to the Reorganization, including the issuance of            shares in connection with the Delaware Merger,             shares in connection with the Boulder Contribution,            shares and            restricted stock units to our Chief Financial Officer immediately following this offering. The following table sets forth the computation of pro forma basic and diluted earnings per share:

 
  Basic   Diluted

Pro forma net income (in thousands)

  $      

Pro forma weighted average number of common shares:

         

Shares and restricted stock units issued in the Reorganization

         

Shares issued in this offering

         

Pro forma weighted average number of common shares

         

Pro forma net income per common share

  $      
(3)
EBITDA is not a measure of financial performance under U.S. GAAP. EBITDA is defined as net income attributable to Vitamin Cottage Natural Food Markets, Inc. before interest expense, provision for income tax, net income attributable to the noncontrolling interest and depreciation and amortization. We believe EBITDA provides additional information about (i) our operating performance, because it assists us in comparing the operating performance of our stores on a consistent basis, as it removes the impact of non-cash depreciation and amortization expense as well as items not directly resulting from our core operations such as interest expense and income taxes and (ii) our performance and the effectiveness of our operational strategies. Additionally, EBITDA is used as a measure in our debt covenants under the credit facility, and our incentive compensation plans base incentive compensation payments on our EBITDA performance. Furthermore, EBITDA is used by investors as a supplemental measure to evaluate the overall operating performance of companies in our industry. Management believes that investors' understanding of our performance is enhanced by including this non-GAAP financial measure as a reasonable basis for comparing our ongoing results of operations. Many investors are interested in

 

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    understanding the performance of our business by comparing our results from ongoing operations period over period and would ordinarily add back non-cash expenses such as depreciation and amortization as well as items that are not part of normal day-to-day operations of our business such as interest expense and income taxes. By providing this non-GAAP financial measure, together with a reconciliation, we believe we are enhancing investors' understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing our strategic initiatives. Our competitors may define EBITDA differently, and as a result, our measure of EBITDA may not be directly comparable to EBITDA of other companies. Items excluded from EBITDA are significant components in understanding and assessing financial performance. EBITDA is a supplemental measure of operating performance that does not represent and should not be considered in isolation or as an alternative to, or substitute for net income or other financial statement data presented in the consolidated financial statements of the operating company as indicators of financial performance. EBITDA has limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our results as reported under U.S. GAAP. Some of the limitations are:

    EBITDA does not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments;

    EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

    EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments on our debt;

    EBITDA does not reflect our tax expense or the cash requirements to pay our taxes; and

    although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and EBITDA does not reflect any cash requirements for such replacements.

    Due to these limitations, EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our U.S. GAAP results and using EBITDA only supplementally. We further believe that our presentation of these U.S. GAAP and non-GAAP financial measurements provide information that is useful to analysts and investors because they are important indicators of the strength of our operations and the performance of our business.

    The following table reconciles EBITDA to net income attributable to Vitamin Cottage Natural Food Markets, Inc.:

 
  Year ended
September 30,
  Three
months
ended
March 31,
  Six months
ended
March 31,
 
 
  2009   2010   2011   2011   2012   2011   2012  
 
   
   
   
  (Unaudited)
 
 
  (in thousands)
 

Net income attributable to Vitamin Cottage Natural Food Markets, Inc

  $ 3,538     4,408     3,504     874     2,485     1,600     3,475  

Net income attributable to noncontrolling interest

    1,513     1,189     1,106     307     293     566     563  
                               

Net income

    5,051     5,597     4,610     1,181     2,778     2,166     4,038  

Interest expense

    1,146     967     669     195     155     393     330  

Income taxes

    2,039     2,466     2,167     517     1,486     949     2,072  

Depreciation and amortization

    4,206     5,510     7,691     1,851     2,404     3,557     4,689  
                               

EBITDA

  $ 12,442     14,540     15,137     3,744     6,823     7,065     11,129  
                               
(4)
EBITDA margin is defined as the ratio of EBITDA to net sales. We present EBITDA margin because it is used by management as a performance measurement of EBITDA generated from net sales. See footnote 3 above for a discussion of EBITDA as a non-GAAP financial measure and a reconciliation of net sales to EBITDA.

(5)
When calculating change in comparable store sales, we begin to include sales from a store in our comparable store base on the first day of the thirteenth full month following the store's opening. We monitor the percentage change in comparable store sales by comparing sales from all stores in our comparable store base for a reporting period against sales from the same stores for the same number of operating months in the comparable reporting period of the prior year. When a store that is included in comparable store sales is remodeled or relocated, we continue to consider sales from that store to be comparable store sales.

(6)
Gross square footage and selling square footage at the end of the period include the square footage for all stores that were open as of the end of the period presented.

 

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(7)
Average comparable store size for gross square feet and selling square feet are calculated using the average store size for all stores that were in the comparable store base as of the end of the period presented.

(8)
Comparable store sales per selling square foot is calculated using comparable store sales for the period divided by the weighted average square feet per store based on the amount of time the store was included in the comparable store base during the period.

(9)
Total debt includes the outstanding principal balance of our term loan, outstanding borrowings on our revolving credit facility and notes payable to related parties.

(10)
The pro forma column in the selected balance sheet data table above reflects the balance sheet data after giving effect to (i) the sale of             shares of our common stock in this offering at an assumed initial offering price of $            per share (the midpoint of the estimated price range set forth on the cover page of this prospectus), after deducting underwriting discounts and commissions and estimated expenses payable by us, (ii) the application of the net proceeds from this offering as described in "Use of Proceeds" and (iii) the Reorganization.

(11)
Assumes the net proceeds from this offering to us are $            , and that the cash payable in connection with the Reorganization is $            . Each $1.00 increase (decrease) in the assumed initial public offering price would (assuming the number of shares offered, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us) increase (decrease) our total cash and cash equivalents by $            and increase (decrease) our total stockholders' equity by $            .

 

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RISK FACTORS

         This offering and an investment in our common stock involve a high degree of risk. You should carefully consider the risks described below, together with the financial and other information contained in this prospectus, before you decide to purchase shares of our common stock. If any of the following risks actually occurs, our business, financial condition, results of operations, cash flow and prospects could be materially and adversely affected. As a result, the trading price of our common stock could decline and you could lose all or part of your investment in our common stock.

Risks related to our business

    We may not be successful in our efforts to grow.

        Our continued growth largely depends on our ability to successfully open and operate new stores on a profitable basis. During fiscal year 2011, we opened ten new stores, and we plan to open approximately ten new stores in fiscal year 2012, of which we have opened six as of June 30, 2012. Delays or failures in opening new stores, or achieving lower than expected sales in new stores, could materially and adversely affect our growth. Our plans for continued expansion could place increased demands on our financial, managerial, operational and administrative resources. For example, our planned expansion will require us to increase the number of people we employ and may require us to upgrade our management information system and our distribution infrastructure. We currently operate a single bulk food repackaging facility and distribution center, which houses our bulk food repackaging operation. In order to support our recent and expected future growth and to maintain the efficient operation of our business, we may need to add additional distribution centers in the future. These increased demands and operating complexities could cause us to operate our business less efficiently, which could materially and adversely affect our operations, financial performance and ability to grow in the future.

        Our ability to successfully open new stores is dependent upon a number of factors, including our ability to select suitable sites for our new store locations, to negotiate and execute leases, to coordinate the contracting work on our new stores, to identify and recruit store managers, Nutritional Health Coaches and other staff, to secure and manage the inventory necessary for the launch and successful operation of our new stores, and to effectively promote and market our new stores. If we are ineffective in performing these activities, then our efforts to open and operate new stores may be unsuccessful or unprofitable, and we may be unable to execute our growth plans.

        Although we target particular levels of cash-on-cash returns and capital investment for each of our new stores, new stores may not meet these targets. Any store we open may not be profitable or achieve operating results similar to those of our existing stores. There is also the potential that some of our new stores will be located near areas where we have existing stores, thereby reducing the sales of such existing stores.

         If we are unable to successfully identify market trends and react to changing consumer preferences in a timely manner, our sales may decrease.

        We believe our success depends, in substantial part, on our ability to:

    anticipate, identify and react to natural and organic grocery and dietary supplement trends and changing consumer preferences in a timely manner;

    translate market trends into appropriate, saleable product and service offerings in our stores before our competitors; and

    develop and maintain vendor relationships that provide us access to the newest merchandise on reasonable terms.

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        Consumer preferences often change rapidly and without warning, moving from one trend to another among many product or retail concepts. Our performance is impacted by trends regarding natural and organic products, dietary supplements and at-home meal preparation. Consumer preferences towards dietary supplements or natural and organic food products might shift as a result of, among other things, economic conditions, food safety perceptions and the cost of these products. Our store offerings are currently comprised of natural and organic products and dietary supplements. A change in consumer preferences away from our offerings would have a material adverse effect on our business. Additionally, negative publicity over the safety of any such items may adversely affect demand for our products and could result in lower customer traffic, sales and results of operations.

        If we are unable to anticipate and satisfy consumer merchandise preferences in the regions where we operate, our net sales may decrease, and we may be forced to increase markdowns of slow-moving merchandise, either of which could have a material adverse effect on our business, financial condition and results of operations.

         Our inability to maintain or improve levels of comparable store sales could cause our stock price to decline.

        We may not be able to maintain or improve the levels of comparable store sales that we have experienced in the past. In addition, our overall comparable store sales may fluctuate in the future. A variety of factors affect comparable store sales, including:

    our ability to execute our business strategy effectively, including successfully opening new stores that achieve sales consistent with our existing stores;

    consumer preferences;

    competition;

    economic conditions;

    product pricing and availability;

    in-store merchandising-related activities;

    consumer confidence;

    unusually strong initial sales performance by our new stores; and

    our ability to source and distribute products efficiently.

        In addition, many specialty retailers have been unable to sustain high levels of comparable store sales during and after periods of substantial expansion. These factors may cause our comparable store sales results to be materially lower than in recent periods, which could have a material adverse effect on our business, financial condition and results of operations, and could result in a decline in the price of our common stock.

         Our comparable store sales and quarterly financial performance may fluctuate for a variety of reasons.

        Our comparable store sales and quarterly results of operations have fluctuated in the past, and we expect them to continue to fluctuate in the future. A variety of other factors affect our comparable store sales and quarterly financial performance, including:

    changes in our merchandising strategy or product mix;

    performance of our newer and remodeled stores;

    the effectiveness of our inventory management;

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    the timing and concentration of new store openings, and the related additional human resource requirements and pre-opening and other start-up costs;

    the cannibalization of existing store sales by new store openings;

    levels of pre-opening expenses associated with new stores;

    timing and effectiveness of our marketing activities;

    seasonal fluctuations due to weather conditions and extreme weather-related disruptions;

    actions by our existing or new competitors, including pricing changes;

    supply shortages; and

    general U.S. economic conditions and, in particular, the retail sales environment.

        Accordingly, our results for any one fiscal quarter are not necessarily indicative of the results to be expected for any other quarter, and comparable store sales of any particular future period may decrease. In the event of such a decrease, the price of our common stock would likely decline. For more information on our quarterly results of operations, see "Management's Discussion and Analysis of Financial Condition and Results of Operations."

         Disruptions in the worldwide economy may adversely affect our business, results of operations and financial condition and could negatively impact our ability to execute our growth strategy.

        Adverse and uncertain economic conditions may impact demand for the products we sell in our stores. Consumer spending and levels of disposable income, including spending for natural and organic grocery and dietary supplement products that we sell, are affected by, among other things, prevailing economic conditions, levels of employment, salaries and wages, interest rates, the availability of credit, tax rates, housing market conditions, consumer confidence, political instability and consumer perception of economic conditions. The outbreak or escalation of war, the occurrence of terrorist acts or other hostilities in or affecting the United States, or concern regarding epidemics in the United States or in international markets could also lead to a decrease in spending by consumers. In the event of an economic slowdown, consumer spending could be adversely affected, and we could experience lower net sales than expected. We could be forced to delay or slow our new store growth plans, which could have a material adverse effect on our business, financial condition and results of operations. In addition, our ability to manage normal commercial relationships with our suppliers, manufacturers of our private label products, distributors, customers and creditors may suffer. Customers may shift purchases to lower-priced or other perceived value offerings during economic downturns. In particular, customers may reduce the amount of natural and organic products that they purchase and instead purchase conventional offerings, which generally have lower retail prices, at other stores. In addition, consumers may choose to purchase private label products at other stores rather than branded products because they are generally less expensive. Suppliers may become more conservative in response to these conditions and seek to reduce their production. Our results of operations depend upon, among other things, our ability to maintain and increase sales volume with our existing customers, to attract new customers and to provide products that appeal to customers at prices they are willing and able to pay. Prolonged unfavorable economic conditions may have an adverse effect on our sales and profitability.

         We may be unable to compete effectively in our highly competitive markets.

        The markets for natural and organic groceries and dietary supplements are highly competitive with few barriers to entry. Our competition varies by market and includes conventional, natural, gourmet and specialty food markets, mass and discount retailers, warehouse clubs, independent health food stores, dietary supplement retailers, drug stores, farmers markets, mail order and online retailers and multi-level marketers. Many of our competitors are larger, more established and have greater financial,

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marketing and other resources than us, and may be able to adapt to changes in consumer preferences more quickly, devote greater resources to the marketing and sale of their products, or generate greater brand recognition. As a result, we may lose market share to our competitors, which could have a material adverse effect on our business, financial condition and results of operations.

         Our inability to maintain or increase our operating margins could adversely affect our results of operations and the price of our stock.

        We intend to continue to increase our operating margins by leveraging efficiencies of scale, improved systems, continued cost discipline, focus on appropriate store labor levels and disciplined product selection. If we are unable to successfully manage the potential difficulties associated with store growth, we may not be able to capture the efficiencies of scale that we expect from expansion. If we are not able to continue to capture efficiencies of scale, improve our systems, continue our cost discipline, and maintain appropriate store labor levels and disciplined product selection, we may not be able to achieve our goals with respect to operating margins. In addition, if we do not adequately refine and improve our various ordering, tracking and allocation systems, we may not be able to increase sales and reduce inventory shrink. As a result, our operating margins may stagnate or decline, which could have a material adverse effect on our business, financial condition and results of operations and adversely affect the price of our stock.

         A reduction in traffic to anchor stores in the shopping areas in close proximity to our stores could significantly reduce our sales and leave us with unsold inventory, which could have a material adverse effect on our business, financial condition and results of operations.

        Many of our stores are located in close proximity to shopping areas that may also accommodate other well-known anchor stores. Sales at our stores are derived, in part, from the volume of traffic generated by the other anchor stores in the shopping areas where our stores are located. Customer traffic may be adversely affected by regional economic downturns, a general downturn in the local area where our store is located, long-term nearby road construction projects, the closing of nearby anchor stores or other nearby stores or the decline of the shopping environment in a particular shopping area. Any of these events would reduce our sales and leave us with excess inventory, which could have a material adverse effect on our business, financial condition and results of operation. In response to such events, we may be required to increase markdowns or initiate marketing promotions to reduce excess inventory, which would further decrease our gross profits and net income.

         If we or our third-party suppliers fail to comply with regulatory requirements, or are unable to provide products that meet our specifications, our business and our reputation could suffer.

        If we or our third-party suppliers, including suppliers of our private label products, fail to comply with applicable regulatory requirements or to meet our specifications for quality, we could be required to take costly corrective action and our reputation could suffer. We do not own or operate any manufacturing facilities, except for our bulk food repackaging facility and distribution center discussed below, and therefore depend upon independent third-party vendors to produce our private label branded products, such as vitamins, minerals, dietary supplements, body care products, food products and bottled water. Third-party suppliers of our private label products may not maintain adequate controls with respect to product specifications and quality. Such suppliers may be unable to produce products on a timely basis or in a manner consistent with regulatory requirements. We depend upon our bulk food repackaging facility and distribution center for the majority of our private label bulk food products. We may also be unable to maintain adequate product specification and quality controls at our bulk food repackaging facility and distribution center, or produce products on a timely basis and in a manner consistent with regulatory requirements. In addition, we may be required to find new third-party suppliers of our private label products or to find third-party suppliers to source our bulk foods.

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There can be no assurance that we would be successful in finding such third-party suppliers that meet our quality guidelines.

         We, as well as our vendors, are subject to numerous laws and regulations and our compliance with these laws and regulations, as they currently exist or as modified in the future, may increase our costs, limit or eliminate our ability to sell certain products, raise regulatory enforcement risks not present in the past or otherwise adversely affect our business, results of operations and financial condition.

        As a retailer of food and dietary supplements and a seller of many of our own private label products, we are subject to numerous health and safety laws and regulations. Our suppliers and contract manufacturers are also subject to such laws and regulations. These laws and regulations apply to many aspects of our business, including the manufacturing, packaging, labeling, distribution, advertising, sale, quality and safety of our products, as well as the health and safety of our employees and the protection of the environment. In the U.S., we are subject to regulation by various government agencies, including the FDA, the USDA, Federal Trade Commission, or the FTC, Occupational Safety and Health Administration, the Consumer Product Safety Commission and the Environmental Protection Agency, as well as various state and local agencies. We are also subject to the USDA's Organic Rule, which facilitates interstate commerce and the marketing of organically produced food, and provides assurance to our customers that such products meet consistent, uniform standards. Compliance with the USDA's Organic Rule also places a significant burden on some of our suppliers, which may cause a disruption in some of our product offerings. In addition, our sales of dietary supplements are regulated under the Dietary Supplement Health and Education Act of 1994, or DSHEA. DSHEA expressly permits dietary supplements to bear statements describing how a product affects the structure, function and/or general well-being of the body. However, no statement may expressly or implicitly represent that a dietary supplement will diagnose, cure, mitigate, treat or prevent a disease. If these laws and regulations were violated by our management, associates, suppliers, distributors or vendors, we could be subject to fines, penalties and sanctions, including injunctions against future shipment and sale of products, seizure and confiscation of products, prohibition on the operation of our stores, restitution and disgorgement of profits, operating restrictions and criminal prosecution.

        In connection with the marketing and advertisement of our products, we could be the target of claims relating to false or deceptive advertising, including under the auspices of the FTC and the consumer protection statutes of some states. These events could interrupt the marketing and sales of products in our stores, including our private label products, severely damage our brand reputation and public image, increase the cost of products in our stores, result in product recalls or litigation, and impede our ability to deliver merchandise in sufficient quantities or quality to our stores, which could result in a material adverse effect on our business, financial condition and results of operations.

        New or revised government laws and regulations, such as the FDA Food Safety Modernization Act, or FSMA, passed in January 2011, which grants the FDA greater authority over the safety of the national food supply, as well as increased enforcement by government agencies, could result in additional compliance costs and civil remedies. Specifically, the FSMA requires the FDA to issue regulations mandating that risk-based preventive controls be observed by the majority of food producers. This authority applies to all domestic food facilities and, by way of imported food supplier verification requirements, to all foreign facilities that supply food products. In addition, the FSMA requires the FDA to establish science-based minimum standards for the safe production and harvesting of produce, requires the FDA to identify "high risk" foods and "high risk" facilities and instructs the FDA to set goals for the frequency of FDA inspections of such high risk facilities as well as non-high risk facilities and foreign facilities from which food is imported into the United States.

        With respect to both food and dietary supplements, the FSMA meaningfully augments the FDA's ability to access a producer's records and a supplier's records. This increased access could permit the

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FDA to identify areas of concern it had not previously considered to be problematic either for us or for our suppliers. The FSMA is also likely to result in enhanced tracking and tracing of food requirements and, as a result, added recordkeeping burdens upon our suppliers. In addition, effective July 2012, under the FSMA, the FDA will have the authority to inspect certifications and therefore evaluate whether foods and ingredients from our suppliers are compliant with the FDA's regulatory requirements. Such inspections may delay the supply of certain products or result in certain products being unavailable to us for sale in our stores.

        DSHEA established that no notification to the FDA is required to market a dietary supplement if it contains only dietary ingredients that were present in the U.S. food supply prior to DSHEA's enactment. However, for a dietary ingredient not present in the food supply prior to DSHEA's enactment, the manufacturer is required to provide the FDA with information supporting the conclusion that the ingredient will reasonably be expected to be safe at least 75 days before introducing a new dietary ingredient into interstate commerce. As required by the FSMA, the FDA issued draft guidance in July 2011, which attempts to clarify when an ingredient will be considered a "new dietary ingredient," the evidence needed to document the safety of a new dietary ingredient, and appropriate methods for establishing the identity of a new dietary ingredient. In particular, the new guidance may cause dietary supplement products available in the market before DSHEA to now be classified to include a new dietary ingredient if the dietary supplement product was produced using manufacturing processes different from those used in 1994. Accordingly, the adoption of the draft FDA guidance or similar guidance could materially adversely affect the availability of dietary supplement products.

        Furthermore, in recent years, the FDA has been aggressive in enforcing its regulations with respect to nutrient content claims (e.g., "low fat," "good source of," "calorie free," etc.), unauthorized "health claims" (claims that characterize the relationship between a food or food ingredient and a disease or health condition), and other claims that impermissibly suggest therapeutic benefits for certain foods or food components. Such FDA actions with respect to such promotional practices can result in costly product changes, potential private litigation, bad publicity and loss of consumer goodwill.

        We are also subject to laws and regulations more generally applicable to retailers, including labor and employment, taxation, zoning and land use. In addition, changes in federal and state minimum wage laws and other laws relating to employee benefits could cause us to incur additional wage and benefits costs, which could hurt our profitability.

        We cannot predict the nature of future laws, regulations, interpretations or applications, or determine what effect either additional government regulations or administrative orders, when and if promulgated, or disparate federal, state and local regulatory schemes would have on our business in the future. They could, however, require the reformulation of certain products to meet new standards, the recall or discontinuance of certain products not able to be reformulated, additional recordkeeping, expanded documentation of the properties of certain products, expanded or different labeling and/or scientific substantiation. Any or all of such requirements could have an adverse effect on our operating results.

         The activities of our Nutritional Health Coaches and our nutrition education services may be impacted by government regulation or our inability to secure adequate liability insurance.

        Some of the activities of our Nutritional Health Coaches, or NHCs, who, among other duties, provide nutrition oriented educational services to our customers, may be subject to state and federal regulation, and oversight by professional organizations. In the past, the FDA has expressed concerns regarding summarized health and nutrition-related information that (1) does not, in the FDA's view, accurately present such information, (2) diverts a consumer's attention and focus from FDA-required nutrition labeling and information or (3) impermissibly promotes drug-type disease-related benefits. Although we have provided training to our NHCs on relevant regulatory requirements, we cannot

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control the actions of such individuals, and our NHCs may not act in accordance with such regulations. If our NHCs or other employees do not act in accordance with regulatory requirements, we may become subject to penalties which could have a material adverse effect on our business. We believe we are currently in compliance with relevant regulatory requirements, and we maintain professional liability insurance on behalf of our NHCs in order to mitigate risks associated with our NHCs' nutrition oriented educational activities. However, we cannot predict the nature of future government regulation and oversight, including the potential impact of any such regulation on the services currently provided by our NHCs. Furthermore, the availability of professional liability insurance or the scope of such coverage may change, or our insurance coverage may prove inadequate, which may adversely impact the ability of our NHC's to provide some services to our customers. The occurrence of any such developments could negatively impact the perception of our brand, our sales and our ability to attract new customers.

         Our future business, results of operations and financial condition may be adversely affected by reduced availability of organic products.

        Our ability to ensure a continuing supply of organic products at competitive prices depends on many factors beyond our control, such as the number and size of farms that grow organic crops or raise organic livestock, the vagaries of these farming businesses and our ability to accurately forecast our sourcing requirements. The organic ingredients used in many of the products we sell are vulnerable to adverse weather conditions and natural disasters, such as floods, droughts, frosts, earthquakes, hurricanes and pestilences. Adverse weather conditions and natural disasters can lower crop yields and reduce crop size and quality, which in turn could reduce the available supply of, or increase the price of, organic ingredients. Certain products we purchase from our suppliers include organic ingredients sourced offshore, and the availability of such ingredients may be affected by events in other countries. In addition, we and our suppliers compete with other food producers in the procurement of organic ingredients, which are often less plentiful in the open market than conventional ingredients. This competition may increase in the future if consumer demand for organic products increases. If supplies of organic ingredients are reduced or there is greater demand for such ingredients from us and others, we may not be able to obtain sufficient supply on favorable terms, or at all, which could impact our ability to supply products to our stores and may adversely affect our business, results of operations and financial condition.

        The organic products we sell rely on independent certification and must comply with the requirements of independent organizations or certification authorities in order to be labeled as such. Certain products we sell in our stores can lose their "organic" certification if a contract manufacturing plant becomes contaminated with non-organic materials or if it is not properly cleaned after a production run, among other issues. The loss of any independent certifications could reduce the availability of organic products that we can sell in our stores and harm our business.

         Disruptions affecting our significant suppliers, or our relationships with such suppliers, could negatively affect our business.

        United Natural Foods Inc., or UNFI, is our single largest third-party supplier, accounting for approximately 46.4% of our total purchases in fiscal year 2011. Another 6.6% of our purchases were made through Albert's Organics, a subsidiary of UNFI that distributes fresh produce and meat. During fiscal year 2012, we extended our long-term relationship with UNFI as our primary supplier of dry grocery and frozen food products through 2016. Due to this concentration of purchases from a single third-party supplier, the cancellation of our distribution agreement or the disruption, delay or inability of UNFI to deliver product to our stores may materially and adversely affect our operating results and we may be unable to establish alternative distribution channels on reasonable terms or at all.

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        Certain of our vendors use overseas sourcing to varying degrees to manufacture some or all of their products. Any event causing a sudden disruption of manufacturing or imports from such foreign countries, including the imposition of additional import restrictions, unanticipated political changes, increased customs duties, labor disputes, health epidemics, adverse weather conditions, crop failure, acts of war or terrorism, legal or economic restrictions on overseas suppliers' ability to produce and deliver products, and natural disasters, could increase our costs and materially harm our operations, business and financial condition. Our business is also subject to a variety of other risks generally associated with indirectly sourcing goods from abroad, such as political instability, disruption of imports by labor disputes and local business practices. In addition, new requirements imposed by the FSMA require importers to verify that food products and ingredients produced by a foreign supplier comply with all applicable legal and regulatory requirements enforced by the FDA, which could result in certain products being deemed inadequate for import.

         The current geographic concentration of our stores creates exposure to local economies, regional downturns or severe weather or catastrophic occurrences.

        As of June 30, 2012, we have store concentration in Colorado and Texas, operating 30 stores and ten stores in those states, respectively, or a total of 72.7% of our stores. As a result, our business is currently more susceptible to regional conditions than the operations of more geographically diversified competitors, and we are vulnerable to economic downturns in those regions. Any unforeseen events or circumstances that negatively affect these areas could materially adversely affect our revenues and profitability. These factors include, among other things, changes in demographics, population, competition, consumer preferences, new or revised laws or regulations, fires, floods or other natural disasters in these regions.

         If we fail to maintain our reputation and the value of our brand, our sales may decline.

        We believe our continued success depends on our ability to maintain and grow the value of the Natural Grocers by Vitamin Cottage brand. Maintaining, promoting and positioning our brand and reputation will depend largely on the success of our marketing and merchandising efforts and our ability to provide a consistent, high quality customer experience. Brand value is based in large part on perceptions of subjective qualities, and even isolated incidents can erode trust and confidence, particularly if they result in adverse publicity, governmental investigations or litigation. Our brand could be adversely affected if we fail to achieve these objectives, or if our public image or reputation were to be tarnished by negative publicity. Our reputation could also suffer from real or perceived issues involving the labeling or marketing of our products as "natural." Although the FDA and USDA have each issued statements regarding the appropriate use of the word "natural," there is no single, U.S. government-regulated definition of the term "natural" for use in the food industry. The resulting uncertainty has led to consumer confusion, distrust and legal challenges. Plaintiffs have commenced legal actions against a number of food companies that market "natural" products, asserting false, misleading and deceptive advertising and labeling claims, including claims related to genetically modified ingredients. In limited circumstances, the FDA has taken regulatory action against products labeled "natural" but that nonetheless contain synthetic ingredients or components. Should we become subject to similar claims, consumers may avoid purchasing products from us or seek alternatives, even if the basis for the claim is unfounded. Adverse publicity about these matters may discourage consumers from buying our products. The cost of defending against any such claims could be significant. Any loss of confidence on the part of consumers in the truthfulness of our labeling or ingredient claims would be difficult and costly to overcome and may significantly reduce our brand value. Any of these events could adversely affect our reputation and brand and decrease our sales, which would have a material adverse effect on our business, financial condition and results of operations.

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         Perishable food product losses could materially impact our results of operations.

        Our stores offer a significant number of perishable products. Our offering of perishable products may result in significant product inventory losses in the event of extended power outages, natural disasters or other catastrophic occurrences.

         The decision by certain of our suppliers to distribute their specialty products through other retail distribution channels could negatively impact our revenue from the sale of such products.

        Some of the specialty retail products that we sell in our stores are not generally available through other retail distribution channels such as drug stores, conventional grocery stores, or mass merchandisers. In the future, our suppliers could decide to distribute such products through other retail distribution channels, allowing more of our competitors to offer these products, and adversely affecting the desirability of these products to our core customers, which could negatively impact our revenues.

         Our ability to operate our business effectively could be impaired if we fail to retain or attract key personnel or are unable to attract, train and retain qualified employees.

        Our business requires disciplined execution at all levels of our organization. This execution requires an experienced and talented management team. The loss of any member of our senior management team, particularly Kemper Isely and Zephyr Isely, our Co-Presidents since 1998, and Heather Isely and Elizabeth Isely, our Executive Vice Presidents since 1998, could have a material adverse effect on our ability to operate our business, our financial condition and results of operations, unless, and until, we are able to find a qualified replacement. For more information on our management team, see "Management." Furthermore, our ability to manage our new store growth will require us to attract, motivate and retain qualified managers, Nutritional Health Coaches and store associates who understand and appreciate our culture and are able to represent our brand effectively in our stores. Competition for such personnel is intense, and we may be unable to attract, assimilate and retain the personnel required to grow and operate our business profitably.

         Any significant interruption in the operations of our bulk food repackaging facility and distribution center could disrupt our ability to deliver our merchandise in a timely manner.

        Any significant interruption in the operation of our bulk food repackaging and distribution center infrastructure, such as disruptions due to fire, severe weather or other catastrophic events, power outages, labor disagreements, or shipping problems, could adversely impact our ability to receive and process orders, and distribute products to our stores. Such interruptions could result in lost sales, cancelled sales and a loss of customer loyalty to our brand. While we maintain business interruption and property insurance, if the operation of our distribution facility were interrupted for any reason causing delays in shipment of merchandise to our stores, our insurance may not be sufficient to cover losses we experience, which could have a material adverse effect on our business, financial condition and results of operations.

         A widespread health epidemic could materially impact our business.

        Our business could be severely impacted by a widespread regional, national or global health epidemic. A widespread health epidemic may cause customers to avoid public gathering places such as our stores or otherwise change their shopping behaviors. Additionally, a widespread health epidemic could also adversely impact our business by disrupting production and delivery of products to our stores and by impacting our ability to appropriately staff our stores.

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         Union activity at third-party transportation companies or labor organizing activities among our employees could disrupt our operations and harm our business.

        Independent third-party transportation companies deliver the majority of our merchandise to our stores and to our customers. Some of these third parties employ personnel represented by labor unions. Disruptions in the delivery of merchandise or work stoppages by employees of these third parties could delay the timely receipt of merchandise, which could result in cancelled sales, a loss of loyalty to our stores and excess inventory. While all of our employees are currently non-union, attempts on the part of our employees to organize labor or union activities among our employees could result in work slowdowns, reducing the efficiency of our operations, which could have a material adverse effect on our business, financial condition and results of operations.

         Our management has limited experience managing a public company, and our current resources may not be sufficient to fulfill our public company obligations.

        Following the completion of this offering, we will be subject to various regulatory requirements, including those of the Securities and Exchange Commission, or the SEC, and The New York Stock Exchange, or the NYSE. These requirements include record keeping, financial reporting and corporate governance rules and regulations. Our management team has limited experience in managing a public company and, historically, has not had the resources typically found in a public company. Our internal infrastructure may not be adequate to support our increased reporting obligations, and we may be unable to hire, train or retain necessary staff and may initially be reliant on engaging outside consultants or professionals to overcome our lack of experience. Our business could be adversely affected if our internal infrastructure is inadequate, we are unable to engage outside consultants, or are otherwise unable to fulfill our public company obligations.

         Future events could result in impairment of long-lived assets, which may result in charges that adversely affect our results of operations and capitalization.

        Our total assets included long-lived assets totaling $45.6 million at March 31, 2012. Long-lived assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Our impairment evaluations require use of financial estimates of future cash flows. Application of alternative assumptions could produce significantly different results. We may be required to recognize impairments of long-lived assets based on future economic factors such as unfavorable changes in estimated future undiscounted cash flows of an asset group.

         We have significant lease obligations, which may require us to continue paying rent for store locations that we no longer operate.

        Our stores, bulk food repackaging facility and distribution center and administrative facility are leased. We are subject to risks associated with our current and future real estate leases. Our costs could increase because of changes in the real estate markets and supply or demand for real estate sites. We generally cannot cancel our leases, so if we decide to close or relocate a location, we may nonetheless be committed to perform our obligations under the applicable lease including paying the base rent for the remaining lease term. As each lease expires, we may fail to negotiate renewals, either on commercially acceptable terms or any terms at all and may not be able to find replacement locations that will provide for the same success as a current store location. Of the current leases for our stores, four expire in fiscal 2013, two expire in fiscal 2014 and the remainder expire between fiscal 2015 and 2027.

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         Any material failure of our information systems could negatively impact our operations.

        We are increasingly dependent on a variety of information systems to effectively manage the operations of our growing store base, including our supply chain, and to fulfill customer orders from our Internet business. The failure of our information systems to perform as designed, including the failure of our warehouse management software system to operate as expected or to support an expanded distribution facility, could have an adverse effect on our business and results of operations. Any material failure or slowdown of our systems could disrupt our ability to track, record and analyze our merchandise, and could negatively impact our operations, including, among other things, our ability to process and receive shipments of goods, process financial and credit card transactions and receive and process orders through our Internet business. Any security breaches of our information systems could disrupt our operational systems, resulting in a slowdown of our normal business activities or limitations on our ability to process credit card transactions. Moreover, leaks of proprietary information, including leaks of customers' private data, could weaken customer confidence in our company and our ability to compete in the food retail marketplace, which could have a material adverse effect on our business, financial condition and results of operations. Additionally, changes in technology could cause our information systems to become obsolete and it may be necessary to incur additional costs to upgrade such systems, and if our information systems prove inadequate to handle our growth, we could lose customers, which could have a material adverse effect on our business, financial condition and results of operations. Our Internet operations, while relatively small, are increasingly important to our business. We are also vulnerable to certain risks and uncertainties associated with our websites, including changes in required technology interfaces, website downtime and other technical failures, security breaches and consumer privacy concerns. Our failure to successfully respond to these risks could reduce Internet sales and damage our reputation.

         Claims under our self-insurance program may differ from our estimates, which could materially impact our results of operations.

        We currently maintain insurance customary for businesses of our size and type using a combination of insurance and self-insurance plans to provide for the potential liabilities for workers' compensation, general liability, professional liability, property insurance, director and officers' liability insurance, vehicle liability and employee health-care benefits. There are types of losses we may incur that cannot be insured against or that we believe are not economically reasonable to insure. Such losses could have a material adverse effect on our business and results of operations. In addition, liabilities associated with the risks that are retained by the Company are estimated, in part, by considering historical claims experience, demographic factors, severity factors and other actuarial assumptions. Our results could be materially impacted by claims and other expenses related to such plans if future occurrences and claims differ from these assumptions and historical trends.

         If we are unable to protect our intellectual property rights, our ability to compete and the value of our brand could be harmed.

        We believe that our trademarks, trade dress, copyrights, trade secrets, know-how and similar intellectual property are important to our success. In particular, we believe that the Natural Grocers by Vitamin Cottage name is important to our business, as well as to the implementation of our growth strategy. Our principal intellectual property rights include registered trademarks on our names, Vitamin Cottage, Natural Grocers by Vitamin Cottage and Vitamin Cottage Natural Grocers, copyrights of our website content, rights to our domain names including www.vitamincottage.com and www.naturalgrocers.com , and trade secrets and know-how with respect to our product sourcing, sales and marketing and other aspects of our business. As such, we rely on trademark and copyright law, trade secret protection and confidentially agreements with certain of our employees, consultants, suppliers and others to protect our proprietary rights. If we are unable to defend or protect or preserve the value

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of our trademarks, copyrights, trade secrets or other proprietary rights for any reason, our brand and reputation could be impaired and we could lose customers.

        Although our brand names are registered in the United States, we may not be successful in asserting trademark or trade name protection and the costs required to protect our trademarks and trade names may be substantial. In addition, the relationship between regulations governing domain names and laws protecting trademarks and similar proprietary rights is unclear. Therefore, we may be unable to prevent third parties from acquiring domain names that are similar to, infringe upon or otherwise decrease the value of our trademarks and other proprietary rights. Additionally, other parties may infringe on our intellectual property rights and may thereby dilute our brand in the marketplace. Third parties could also bring intellectual property infringement suits against us from time to time, to challenge our intellectual property rights. Any such infringement of our intellectual property rights by others, or claims by third parties against us, would likely result in a commitment of our time and resources to protect these rights through litigation or otherwise. If we were to receive an adverse judgment in such a matter, we could suffer further dilution of our trademarks and other rights, which could harm our ability to compete as well as our business prospects, financial condition and results of operations.

         Our products could cause unexpected side effects, illness, injury or death that could result in their discontinuance or expose us to lawsuits, either of which could result in unexpected costs and damage to our reputation.

        There is increasing governmental scrutiny of and public awareness regarding food safety. We believe that many customers hold us to a higher quality standard than other retailers. Unexpected side effects, illness, injury, or death caused by our products could result in the discontinuance of sales of our products or prevent us from achieving market acceptance of the affected products. Such side effects, illnesses, injuries and death could also expose us to product liability or negligence lawsuits. Any claims brought against us may exceed our existing or future insurance policy coverage or limits. Any judgment against us that is in excess of our policy limits would have to be paid from our cash reserves, which would reduce our capital resources. Further, we may not have sufficient capital resources to pay a judgment in which case our creditors could levy against our assets. The real or perceived sale of contaminated or harmful products would cause negative publicity regarding our company, brand, or products, which could in turn harm our reputation and net sales, which could have a material adverse effect on our business, financial condition and results or operation, or result in our insolvency.

         Increase in the cost of raw materials could hurt our sales and profitability.

        The raw agricultural commodities used to make our private label products, including our bulk repackaged products, increased globally during 2011, and are generally subject to availability constraints and price volatility caused by weather, supply conditions, government regulations, energy prices, price inflation and general economic conditions and other unpredictable factors. An increase in the demand for, or the price of, raw agricultural commodities could cause our vendors to seek price increases from us, or may cause the retail price we charge for certain products to increase, in turn decreasing our sales of such products. As a result, our profitability may be adversely impacted through reduced gross margins or a decline in the number and average size of customer transactions. The cost of construction materials we use to build and remodel our stores is also subject to significant price volatility based on market and economic conditions. Higher construction material prices would increase the capital expenditures needed to construct a new store or remodel an existing store.

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         Energy costs are a significant component of our operating expenses and increasing energy costs, unless offset by more efficient usage or other operational responses, may impact our profitability.

        We utilize natural gas, water, sewer and electricity in our stores and use gasoline and diesel in our trucks that deliver products to our stores. Increases in energy costs, whether driven by increased demand, decreased or disrupted supply or an anticipation of any such events will increase the costs of operating our stores. Our shipping costs have also increased recently due to rising fuel and freight prices, and these costs may continue to increase. We may not be able to recover these rising costs through increased prices charged to our customers, and any increased prices may exacerbate the risk of customers choosing lower-cost alternatives. In addition, if we are unsuccessful in attempts to protect against these increases in energy costs through long-term energy contracts, improved energy procurement, improved efficiency and other operational improvements, the overall costs of operating our stores will increase which would impact our profitability, financial condition and results of operations.

         Increases in certain costs affecting our marketing, advertising and promotions may adversely impact our ability to advertise effectively and reduce our profitability.

        Postal rate increases, and increasing paper and printing costs affect the cost of our promotional mailings. Recent changes in postal rates have increased the cost of our Health Hotline mailings and increasing paper and printing costs have increased the cost of producing our Health Hotline newspaper inserts. In response to any future increase in mailing costs, we may consider reducing the number and size of certain promotional pieces. In addition, we rely on discounts from the basic postal rate structure, such as discounts for bulk mailings and sorting by zip code and carrier routes. We are not party to any long-term contracts for the supply of paper. We are also affected by increases in the cost of producing and broadcasting our television, radio and Internet advertising pieces. Recent changes in broadcast rates have resulted in an increase in the cost of our television commercials. In response to any future increase in broadcast costs, we may consider reducing the frequency, placement and length of certain promotional pieces. We are not party to any long-term contracts for broadcast time. Future increases in costs affecting our marketing, advertising and promotions could adversely impact our ability to advertise effectively and our profitability.

         Our credit facility could limit our operational flexibility.

        Following this offering we expect to have $            of availability under our credit facility. Substantially all of our assets are pledged as collateral for outstanding borrowings under the facility. Our credit facility contains usual and customary restrictive covenants relating to our management and the operation of our business. These covenants, among other things, restrict our ability to incur additional indebtedness, grant liens, engage in certain merger, consolidation or asset sale transactions, make certain investments, make loans, advances, guarantees or acquisitions, engage in certain transactions with affiliates, or permit sale and leaseback transactions. We are also required to maintain certain financial ratios under our credit agreement, including a consolidated leverage ratio, a consolidated fixed charge ratio and a consolidated EBITDA to revenue ratio. These covenants could restrict our operational flexibility, including our ability to open stores, and any failure to comply with these covenants or our payment obligations would limit our ability to borrow under our revolving credit facility and, in certain circumstances, may allow the lender thereunder to require repayment.

         We may need to raise additional debt or equity capital.

        We depend on cash flow from our operations and borrowings from our credit facility to fund our business and execute on our growth strategy. From time to time, after the completion of this offering, we may be required to seek additional equity or debt financing in order to fund capital expenditures or to provide additional working capital for our business, or to fund the execution of our growth strategy.

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In addition, changes in economic conditions, or market conditions requiring a shift in our business model could result in our need for additional debt or equity financing. We cannot predict the timing or amount of any such capital requirements at this time. We do not know whether we will be able to take any of such actions on a timely basis, on terms satisfactory to us or at all. If financing is not available to us on satisfactory terms, or at all, we may be unable to operate or expand our business or to successfully pursue our growth strategy, and our results of operations may suffer.

         Our political advocacy activities may reduce our customer count and sales.

        We believe our ability to profitably operate our business depends, in part, upon our access to natural and organic products and dietary supplements. We attempt to protect these interests through ongoing and proactive political advocacy campaigns, including participation in education programs, petitions, letter writing, phone calls, policy conferences, advisory boards, industry groups, public commentary and meetings with trade groups, office holders and regulators. We may publicly ally with and support trade groups, political candidates, government officials and regulators who support a particular policy we consider important to our business and in alignment with our principles regarding access to natural and organic products and dietary supplements. We may, from time to time, publicly oppose other trade groups, candidates, officeholders and regulators whose point of view we believe will harm our business, or impede access to nutritious food and dietary supplements. In some cases, we may lose customers and sales because our political advocacy activities are perceived to be contrary to those customers' points of view, political affiliations, political beliefs or voting preferences.

         Effective tax rate changes and results of examinations by taxing authorities could materially impact our results of operations.

        Our future effective tax rates could be adversely affected by our earnings mix being lower than historical results in states where we have lower statutory rates and higher-than-historical results in states where we have higher statutory rates, by changes in the valuation of our deferred tax assets and liabilities, or by changes in tax laws or interpretations thereof. In addition, we are subject to periodic audits and examinations by the Internal Revenue Service, or the IRS, and other state and local taxing authorities. Our effective tax rate is likely to change following the Boulder Contribution. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Our results could be materially impacted by the determinations and expenses related to proceedings by the IRS and other state and local taxing authorities.

         Failure to maintain adequate financial and management processes and controls could lead to errors in our financial reporting and could harm our ability to manage our expenses.

        Reporting obligations as a public company and our anticipated growth are likely to place a considerable strain on our financial and management systems, processes and controls, as well as on our personnel. In addition, as a public company, we will be required to document and test our internal controls over financial reporting pursuant to Section 404 of Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley, so that our management can periodically certify the effectiveness of such controls. Our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 until the later of the year following our first annual report required to be filed with the SEC, or the date we are no longer an "emerging growth company" as defined in the JOBS Act, if we take advantage of the exemptions contained in the JOBS Act. We expect that we will remain an "emerging growth company" until the earliest of (a) the last day of our fiscal year following the fifth anniversary of this offering; (b) the last day of our fiscal year in which we have annual gross revenue of $1.0 billion or more; (c) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt; and (d) the date on which we are deemed to be a "large accelerated filer," which

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will occur at such time as we have (1) an aggregate worldwide market value of common equity securities held by non-affiliates of $700 million or more as of the last business day of our most recently completed second fiscal quarter, (2) been required to file annual, quarterly and current reports under the Exchange Act for a period of at least 12 calendar months, and (3) filed at least one annual report pursuant to the Exchange Act. As a result, we may qualify as an "emerging growth company" until as late as September 30, 2017. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating. If our senior management is unable to conclude that we have effective internal control over financial reporting, or to certify the effectiveness of such controls, or if our independent registered public accounting firm cannot render an unqualified opinion on management's assessment and the effectiveness of our internal control over financial reporting, or if material weaknesses in our internal controls are identified, we could be subject to regulatory scrutiny and a loss of public confidence, which could have a material adverse effect on our business and our stock price.

         We are an "emerging growth company" and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.

        We are an "emerging growth company," as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting and other requirements that are applicable to other public companies that are not "emerging growth companies." For so long as we are an "emerging growth company," we will, among other things:

    not be required to comply with the auditor attestation requirements of section 404(b) of Sarbanes-Oxley;

    not be required to hold a nonbinding advisory stockholder vote on executive compensation pursuant to Section 14A(a) of the Exchange Act;

    not be required to seek stockholder approval of any golden parachute payments not previously approved pursuant to Section 14A(b) of the Exchange Act;

    be exempt from any rule adopted by the Public Company Accounting Oversight Board, requiring mandatory audit firm rotation or a supplemental auditor discussion and analysis; and

    be subject to reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements.

        We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

        In addition, Section 107 of the JOBS Act also provides that an "emerging growth company" can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. An "emerging growth company" can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. However, we are choosing to "opt out" of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

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Risks related to this offering

         The market price of our common stock may be volatile, and you may not be able to sell our stock at a favorable price or at all.

        The market price of our common stock is likely to fluctuate significantly from time to time in response to a number of factors, most of which we cannot control, including those described under "—Risks related to our business" and the following:

    differences between our actual financial and operating results and those expected by investors;

    fluctuations in our quarterly operating results;

    market conditions in our industry and the economy as a whole;

    changes in our earnings guidance;

    a change in the recommendation by any research analyst that follows our stock or any failure to meet the estimates made by research analysts;

    investor perceptions of our prospects and the prospects of the grocery and dietary supplement industries;

    the performance of our key vendors;

    announcements by us, our vendors or our competitors regarding performance, strategy, significant acquisitions, divestitures, strategic partnerships, joint ventures or capital commitments;

    introductions of new product or new pricing policies by us or our competitors;

    failure to recruit or retain key personnel; and

    the level and quality of securities research analyst coverage for our common stock.

        In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market price of equity securities.

         Our current principal stockholders will continue to have significant influence over us after this offering, and they could delay, deter or prevent a change of control or other business combination or otherwise cause us to take action with which you might not agree.

        Members of the Isely family controlled all of the voting power of our outstanding common stock prior to this offering. Immediately following the offering, members of the Isely family will own or control approximately        % of our common stock. Due to their holdings of common stock, members of the Isely family will be able to continue to determine the outcome of virtually all matters submitted to stockholders for approval, including the election of directors, an amendment of our certificate of incorporation (except when a class vote is required by law), any merger or consolidation requiring common stockholder approval, and a sale of all or substantially all of the Company's assets. Members of the Isely family have the ability to prevent change in control transactions as long as they maintain voting control of the Company. In addition, members of the Isely family and trusts controlled by them will enter into a stockholders agreement by which they will agree to aggregate their voting power with regard to the election of directors.

        In addition, because these holders will have the ability to elect all of our directors, they will be able to control our policies and operations, including the appointment of management, future issuances of our common stock or other securities, the payments of dividends on our common stock and entering into extraordinary transactions, and their interests may not in all cases be aligned with your interests.

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         No public market for our common stock currently exists, and we cannot assure you that an active, liquid trading market will develop or be sustained following this offering.

        Prior to this offering, there has been no public market for shares of our common stock. We cannot predict the extent to which investor interest in our company will lead to the development of a trading market on the NYSE or otherwise, or how liquid that market might become. If an active market does not develop, you may have difficulty selling any shares of our common stock that you purchase in this initial public offering. The initial public offering price for the shares of our common stock will be determined by negotiations between us, the selling stockholders and the representatives of the underwriters, and may not be indicative of prices that will prevail in the open market following this offering. If you purchase shares of our common stock, you may not be able to resell those shares at or above the initial public offering price.

         You will experience an immediate and substantial book value dilution after this offering.

        The initial public offering price of our common stock will be substantially higher than the net tangible book value per share attributable to our existing shareholders immediately after the offering. Based on an assumed initial public offering price of $        per share, the midpoint of the price range set forth on the cover of this prospectus and after giving effect to the Reorganization, you will incur immediate and substantial dilution in the amount of $            after the consummation of this offering. See "Dilution" included elsewhere in this prospectus.

         A substantial number of shares of our common stock will be eligible for sale in the near future, which could adversely affect our stock price and could impair our ability to raise capital through the sale of equity securities.

        If our stockholders sell, or the market perceives that our stockholders intend to sell, in the public market following this offering, substantial amounts of our common stock, the market price of our common stock could decline significantly. These sales also might make it more difficult for us to sell equity or equity-related securities in the future at a time and price we deem appropriate. Upon completion of this offering,                     shares of our common stock, or                     shares of our common stock if the underwriters' option is exercised in full, will be outstanding. The shares of common stock affected in this offering will be freely tradable without restriction under the Securities Act of 1933, as amended, or Securities Act, except for any shares held by our "affiliates" as defined in Rule 144 under the Securities Act. Up to approximately                    additional shares of our common stock could be sold upon the expiration of the 180-day lock-up period described in "Underwriting—Lock-Up Agreements." As restrictions on resale end, the market price of our common stock could drop significantly if the holders of restricted shares sell them or are perceived by the market as intending to sell them. Also, in the future, we may issue shares of our common stock in connection with investments or acquisitions. The amount of shares of our common stock issued in connection with an investment or acquisition could constitute a material portion of our then outstanding shares of our common stock.

         We do not anticipate paying dividends on our capital stock in the foreseeable future and capital appreciation may be your sole source of potential gain.

        We anticipate that we will retain our future earnings, for the foreseeable future, in order to fund our growth strategy and for general corporate purposes. The declaration and payment of future dividends to holders of our common stock will be at the discretion of our board of directors, or our board, and will depend upon many factors, including our financial condition, earnings, legal requirements, and restrictions in our debt agreements and other factors our board deems relevant. As a result, we can make no assurance that we will pay cash dividends to our stockholders in the future. Capital appreciation, if any, of our common stock will be your sole source of potential gain for the

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foreseeable future. In addition, the market price for our common stock after this offering might not exceed the price that you pay for our common stock in this offering.

         If securities or industry analysts do not publish research or reports about our business, if they adversely change their recommendations regarding our stock or if our operating results do not meet their expectations, our stock price could decline.

        The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. If one or more of these analysts do not cover our company or fail to publish reports on us regularly, we may lose visibility in the financial markets, which could cause our stock price or trading volume to decline. Moreover, if one or more of the analysts who cover our company downgrades our stock, or if our operating results do not meet their expectations, our stock price could decline.

         Anti-takeover provisions in our organizational documents and Delaware law may discourage or prevent a change in control, even if a sale of the Company would be beneficial to our stockholders, which could cause our stock price to decline and prevent attempts by our stockholders to replace or remove our current management.

        Several provisions of our certificate of incorporation and amended and restated bylaws, each of which will be in effect upon the consummation of this offering, could make it difficult for our stockholders to change the composition of our board, preventing them from changing the composition of management. In addition, the same provisions may discourage, delay or prevent a merger or acquisition that our stockholders may consider favorable. See "Description of Capital Stock."

        These provisions include:

    a staggered, or classified, board of directors;

    authorizing our board of directors to issue "blank check" preferred stock without stockholder approval;

    prohibiting cumulative voting in the election of directors;

    limiting the persons who may call special meetings of stockholders;

    prohibiting stockholders from acting by written consent after the Isely family ceases to own more than 50% of the total voting power of our shares; and

    establishing advance notice requirements for nominations for election to our board or for proposing matters that can be acted on by stockholders at stockholder meetings.

        These anti-takeover provisions could substantially impede the ability of our common stockholders to benefit from a change in control and, as a result, could materially adversely affect the market price of our common stock and your ability to realize any potential change-in-control premium.

         We will be a "controlled company" within the meaning of the NYSE Listed Company rules, and, as a result, will rely on exemptions from certain corporate governance requirements that provide protection to stockholders of other companies.

        Upon completion of this offering, the Isely family, or entities controlled by the Isely family, will own more than 50% of the total voting power of our common shares for the election of directors and we will be a "controlled company" under NYSE corporate governance standards. As a controlled

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company, certain exemptions under NYSE standards will free us from the obligation to comply with certain corporate governance requirements of the NYSE, including the requirements:

    that a majority of our board consists of "independent directors," as defined under the rules of the NYSE;

    that our director nominees be selected, or recommended for our boards' selection, either (1) by a majority of independent directors in a vote by independent directors, pursuant to a nominations process adopted by a board resolution, or (2) by a nominating and governance committee comprised solely of independent directors with a written charter addressing the nominations process; and

    that the compensation of our executive officers be determined, or recommended to the board for determination, by a majority of independent directors in a vote by independent directors, or a compensation committee comprised solely of independent directors.

        Accordingly, for so long as we are a "controlled company," you will not have the same protections afforded to stockholders of companies that are subject to all of the NYSE corporate governance requirements.

         Our costs will increase significantly as a result of operating as a public company, and our management will be required to devote substantial time to complying with public company regulations.

        We historically have operated our business as a private company. As a public company, we will incur additional legal, accounting, compliance and other expenses that we have not incurred as a private company. After this offering, we will become obligated to file with the SEC annual and quarterly reports and other reports that are specified in Section 13 and other sections of the Securities Exchange Act of 1934, as amended, or the Exchange Act. In addition, we will also become subject to other reporting and corporate governance requirements, including certain requirements of the NYSE, and certain provisions of Sarbanes-Oxley and the Dodd Frank Wall Street Reform and Consumer Protection Act, or Dodd-Frank, which will impose significant compliance obligations upon us. We will need to institute a comprehensive compliance function, establish internal policies, ensure that we have the ability to prepare financial statements that are fully compliant with all SEC reporting requirements on a timely basis and design, establish, evaluate and maintain internal controls over financial reporting in compliance with Sarbanes-Oxley.

        Sarbanes-Oxley and Dodd-Frank, as well as rules subsequently implemented by the SEC and the NYSE, have imposed enhanced corporate governance and disclosure practices for public companies. Our efforts to comply with evolving laws, regulations and standards in this regard are likely to result in increased administrative expenses and a diversion of management's time and attention from revenue-generating activities to compliance activities. These changes will require a significant commitment of additional capital and resources. We may not be successful in implementing these requirements, and implementing them could materially adversely affect our business, results of operations and financial condition. In addition, if we fail to implement the requirements with respect to our internal accounting and audit functions, our ability to report our operating results on a timely and accurate basis could be impaired. If we do not implement such requirements in a timely manner or with adequate compliance, we might be subject to sanctions or investigation by regulatory authorities, such as the SEC or the NYSE. Any such action could harm our reputation and the confidence of investors and customers in our company and materially adversely affect our business and cause our share price to fall.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

        This prospectus includes forward-looking statements in addition to historical information. These forward-looking statements are included throughout this prospectus, including in the sections entitled "Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business," "Executive Compensation," and "Certain Relationships and Related Party Transactions," and relate to matters such as our industry, business strategy, goals and expectations concerning our market position, future operations, margins, profitability, capital expenditures, liquidity and capital resources and other financial and operating information. We have used the words "anticipate," "assume," "believe," "continue," "could," "estimate," "expect," "intend," "may," "plan," "potential," "predict," "project," "future" and similar terms and phrases to identify forward-looking statements in this prospectus.

        The forward-looking statements contained in this prospectus are based on management's current expectations and are subject to uncertainty and changes in circumstances. We cannot assure you that future developments affecting us will be those that we have anticipated. Actual results may differ materially from these expectations due to changes in global, regional or local political, economic, business, competitive, market, regulatory and other factors, many of which are beyond our control. We believe that these factors include those described in "Risk Factors." Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, our actual results may vary in material respects from those projected in these forward-looking statements. Any forward-looking statement made by us in this prospectus speaks only as of the date on which we make it. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by any applicable securities laws.

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USE OF PROCEEDS

        Assuming an initial public offering price of $      per share (the midpoint of the estimated price range set forth on the cover page of this prospectus), we estimate that we will receive net proceeds from this offering of approximately $       million after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

        We intend to use the net proceeds to us from this offering to repay our term loan and all outstanding amounts under our revolving credit facility, fund the payment of the cash portion of the purchase price for the Boulder Contribution, settle the cash portion of restricted stock units granted to our Chief Financial Officer, fund working capital and for general corporate purposes. The amount and timing of actual requirements for working capital or funds for general corporate purposes will depend on numerous factors related to the implementation of our business strategy. Our executive management will have broad discretion in the application of the net proceeds, and investors in our common stock will be relying on the judgment of our management regarding the application of the net proceeds from this offering.

        As of March 31, 2012, we had $16.0 million of indebtedness under our term loan and $9.5 million of indebtedness under our revolving credit facility, which was used to fund new store growth and working capital. The average annual interest rate on our term loan and revolving credit facility for the six months ended March 31, 2012 was 2.06% and 2.50%, respectively. Our term loan and revolving credit facility mature on June 30, 2014. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources" for more information.

        The cash portion of the purchase price payable to the minority owners of BVC in connection with the Boulder Contribution will be determined based on the public offering price of the shares sold in this offering. Assuming a public offering price of $      per share (the midpoint of the estimated price range set forth on the cover page of this prospectus), the minority owners of BVC would receive $      in cash in connection with the Boulder Contribution. For additional information regarding the Boulder Contribution, see "The Reorganization—The Boulder Contribution."

        Each $1.00 increase (decrease) in the assumed initial public offering price of $      per share would (assuming the number of shares offered, as set forth on the cover page of this prospectus, remains the same after deducting underwriting discounts and commissions and estimated offering expenses payable by us) increase (decrease) the net proceeds to us from this offering by approximately $       million and increase (decrease) the cash payable in connection with the Reorganization by approximately $        .

        We will not receive any proceeds from the sale of shares of our common stock by the selling stockholders, including any shares that may be sold by the selling stockholders in connection with the exercise of the underwriters' overallotment option.


DIVIDEND POLICY

        Natural Grocers by Vitamin Cottage, Inc. will be a holding company with no operations of its own. It will depend on payments, dividends and distributions from the operating company, its wholly-owned subsidiary, for funds to pay dividends to our stockholders. The operating company currently expects to retain future earnings for use in the operation and expansion of our business and does not anticipate paying any cash dividends for the foreseeable future. In addition, our ability and the ability of our operating company to declare and pay cash dividends is prohibited by our credit facility. Furthermore, the declaration and payment of future dividends to holders of our common stock will be at the discretion of our board and will depend upon many factors, including our financial condition, earnings, legal requirements, restrictions in the operating company's debt agreements and other factors deemed relevant by our board. The operating company did not pay any dividends during fiscal years 2009, 2010 and 2011.

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CAPITALIZATION

        The following table sets forth our cash and cash equivalents and capitalization as of March 31, 2012, on:

    an actual basis, to reflect the cash and cash equivalents and capitalization of Vitamin Cottage Natural Food Markets, Inc. and its consolidated subsidiaries as of March 31, 2012; and

    an as adjusted basis, to reflect (1) the sale by us of            shares of our common stock in this offering at an assumed initial offering price of $            per share (the midpoint of the estimated price range set forth on the cover page of this prospectus) after deducting underwriting discounts and commissions and estimated expenses payable by us, (2) the application of net proceeds as described in "Use of Proceeds" and (3) the Reorganization.

        You should read this table in conjunction with "Use of Proceeds," "Selected Historical Consolidated Financial and Other Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the audited and unaudited consolidated financial statements and related notes included elsewhere in this prospectus.

 
  As of March 31, 2012  
 
  Actual   As Adjusted(1)  
 
  (unaudited)
 

Cash and cash equivalents(1)

  $ 3,454,355        

Debt:

             

Revolving credit facility

    9,452,986        

Term loan

    15,950,000        

Notes payable—related party

    928,708        
           

Total debt

    26,331,694        

Stockholders' equity:

             

Common stock, Class A, voting, no par value per share, 1,000 shares authorized, issued and outstanding (actual)(2)

    1,679        

Common stock, Class B, nonvoting, no par value per share, 1,000,000 shares authorized, 625,112 shares issued and outstanding (actual)(2)

    792,676        

Common stock, par value $0.001 per share,      shares authorized,      shares issued and outstanding (as adjusted)

           

Retained earnings

    17,081,168        

Additional paid-in capital(1)

           

Noncontrolling interest(3)

    1,639,037        
           

Total stockholders' equity(1)

    19,514,560        
           

Total capitalization

  $ 45,846,254        
           

(1)
Assumes the net proceeds from this offering to us are $        and that the cash portion of the purchase price payable to the minority owners of BVC in connection with the Boulder Contribution is $        . Each $1.00 increase (decrease) in the assumed initial public offering price would (assuming the number of shares offered, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us) increase (decrease) the net proceeds to us from this offering by approximately $         million, increase (decrease) our total cash and cash equivalents by $          , increase (decrease) our additional paid-in capital by $          , and increase (decrease) our total stockholders' equity by $          . See "Use of Proceeds."

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(2)
The existing Class A and Class B common stock of Vitamin Cottage Natural Food Markets, Inc. will be converted into shares of common stock of Natural Grocers by Vitamin Cottage, Inc. in connection with the Reorganization. See "The Reorganization."

(3)
As a result of the Boulder Contribution, BVC will become our wholly-owned subsidiary. We held a controlling financial interest in BVC as of March 31, 2012. As such, in accordance with U.S. GAAP, our total stockholders' equity includes the addition of the portion of BVC that we did not own as of March 31, 2012. Following the Reorganization, $        of the amount previously recorded as noncontrolling interest will be reflected as new common stock and $        will be reflected as additional paid-in capital.

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THE REORGANIZATION

        Natural Grocers by Vitamin Cottage, Inc. was incorporated on April 9, 2012, in anticipation of this offering. Prior to this offering, Natural Grocers by Vitamin Cottage, Inc. is a wholly-owned subsidiary of Vitamin Cottage Natural Food Markets, Inc. In connection with, and immediately prior to the completion of this offering, we will complete a reorganization that includes: (1) the Delaware Merger, (2) the Boulder Contribution and (3) the issuance of restricted stock units to our Chief Financial Officer. The Delaware Merger and the Boulder Contribution are conditions to the consummation of this offering. The diagram below reflects our corporate structure immediately prior to the Reorganization:

GRAPHIC

        The Reorganization includes the following transactions:

    The Delaware Merger.   In connection with, and immediately prior to the completion of, this offering, the existing shareholders of Vitamin Cottage Natural Food Markets, Inc. (which we refer to as the operating company) will exchange the capital stock of the operating company for an aggregate of      shares of common stock of Natural Grocers by Vitamin Cottage, Inc. by means of a statutory merger of the operating company with Vitamin Merger, Inc., a newly-formed, wholly-owned subsidiary of the issuer. The operating company will survive the merger and continue its existence as a wholly-owned subsidiary of the issuer. Following the completion of this offering, Natural Grocers by Vitamin Cottage, Inc. will be a holding company with no material assets other than its direct 100% ownership interest in the operating company. We refer to this transaction in this prospectus as the Delaware Merger.

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    The Boulder Contribution.   The operating company has historically owned a 55% interest in BVC, which owns five of our stores in Colorado. In connection with and immediately prior to the completion of this offering, we will complete a transaction in which Natural Grocers by Vitamin Cottage, Inc. will purchase the 45% membership interests in BVC currently owned by a group of other non-affiliated investors. In exchange for the contribution of their 45% interests in BVC, the minority owners of BVC will receive a combination of cash and shares of common stock in Natural Grocers by Vitamin Cottage, Inc. In total, we will issue an aggregate of      shares of unregistered common stock of Natural Grocers by Vitamin Cottage, Inc. to the minority owners of BVC in connection with the contribution. The cash portion of the purchase price payable to the minority owners of BVC in connection with the Boulder Contribution will be determined based on the public offering price. Assuming a public offering price of $        per share (the midpoint of the estimated price range set forth on the cover page of this prospectus), the minority owners of BVC would receive $        in cash in connection with the Boulder Contribution. Immediately following these transactions, Natural Grocers by Vitamin Cottage, Inc. will contribute the 45% interest in BVC to the operating company. We refer to this transaction in this prospectus as the Boulder Contribution.

    Officer Grant.   Under our Chief Financial Officer's employment agreement, we will grant to her restricted stock units immediately following completion of the offering and following the exercise of the underwriters' overallotment option, if any. Assuming a public offering price of $          per share (the midpoint of the estimated price range set forth on the cover page of this prospectus), our Chief Financial Officer would receive          restricted stock units in total,        of which would be immediately vested and settled for a combination of         shares of common stock and $          , and          of which would remain subject to future vesting requirements. See "Executive Compensation—Compensation Discussion and Analysis—Compensation decisions for fiscal year 2011 and fiscal year 2012—Equity compensation" for additional information.

        In addition to the lock-up agreements entered into with the underwriters in connection with this offering, the minority owners of BVC have agreed that they will not sell or otherwise dispose of the shares of common stock of Natural Grocers by Vitamin Cottage, Inc. that they will receive in connection with the Boulder Contribution for a period of 180 days following the completion of this offering.

        Each $1.00 increase (decrease) in the assumed initial public offering price would (assuming the number of shares offered, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us) increase (decrease) the cash portion of the purchase price payable to the minority owners of BVC in connection with the Boulder Contribution by approximately $          , increase (decrease) the amount of cash payable to our Chief Financial Officer in settlement of vested restricted stock units by $                .

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        The diagram below illustrates our corporate structure immediately following completion of the Reorganization and this offering:

GRAPHIC

        The preceding diagram assumes that the underwriters will not exercise their overallotment option. If the underwriters exercise their overallotment option in full, former BVC minority investors would own             shares or      % of our common stock, former shareholders of Vitamin Cottage Natural Food Markets, Inc. would own              shares or      % of our common stock, and purchasers of stock in this offering would own             shares or      % of our common stock.

        Immediately following the offering, Kemper Isely, Zephyr Isely, Heather Isely and Elizabeth Isely will, in the aggregate, own and control approximately      % of our common stock, or approximately      % if the underwriters exercise their overallotment option in full. In addition, these shares will be subject to a stockholders agreement, pursuant to which these and other Isely family stockholders will agree to vote their shares of common stock together on all matters related to the election of directors. Accordingly, we will be a "controlled company" within the meaning of The New York Stock Exchange governance standards.

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DILUTION

        Dilution is the amount by which the initial public offering price paid by purchasers of common stock sold in this offering will exceed the net tangible book value per share of common stock after this offering. Net tangible book value per share is determined by dividing the total tangible assets of Natural Grocers by Vitamin Cottage, Inc. less its total liabilities by the number of shares of its common stock outstanding. The historical as adjusted net tangible book value as of March 31, 2012, giving effect to the Reorganization and before giving effect to the offering was $        , or $        per share.

        After giving effect to the sale of shares of our common stock in this offering at an assumed initial public offering price per share of $        per share (the midpoint of the estimated price range set forth on the cover page of this prospectus) and the application of the estimated net proceeds from this offering as described in "Use of Proceeds," after deducting the estimated underwriting discounts and commissions and estimated expenses payable by us, the as adjusted net tangible book value as of March 31, 2012 would have been $         million, or $        per share of common stock. Purchasers of common stock in this offering will experience substantial and immediate dilution in net tangible book value per share of common stock for financial accounting purposes, as illustrated in the following table.

Assumed initial public offering price per common share

        $    

Historical net tangible book value per common share before giving effect to this offering and the Reorganization

  $          

Decrease in net tangible book value per common share attributable to purchasers in this offering and the Reorganization

  $          

As adjusted net tangible book value per common share after giving effect to this offering

        $    

Dilution per share to new investors

             

        A $1.00 increase (decrease) in the assumed initial public offering price per share would increase (decrease) the as adjusted net tangible book value after this offering by approximately $        , and the as adjusted net tangible book value per share after this offering by $        per share. It would also increase (decrease) the dilution per share to investors in this offering by $        per share, assuming the number of shares offered by us under this prospectus remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. The information discussed above is illustrative only and will adjust based on the actual initial public offering price and other terms of this offering determined at pricing.

        The discussion and tables above also exclude shares of common stock reserved for issuance under our omnibus incentive plan that we intend to adopt in connection with this offering.

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA

        Natural Grocers by Vitamin Cottage, Inc. was incorporated in Delaware on April 9, 2012. Prior to the completion of this offering, Natural Grocers by Vitamin Cottage, Inc. will have no material assets. Following the completion of this offering, Natural Grocers by Vitamin Cottage, Inc. will be a holding company with no material assets other than its direct 100% ownership of Vitamin Cottage Natural Food Markets, Inc., which is our operating company. The consolidated financial statements of Natural Grocers by Vitamin Cottage, Inc. will reflect the assets, liabilities and results of operations of the operating company. Accordingly, the following tables set forth the selected historical consolidated financial and other data of the operating company as of the dates and for the periods indicated.

        The selected historical consolidated financial data for the year ended September 30, 2009, and as of and for the years ended September 30, 2010 and 2011 have been derived from the audited consolidated financial statements of the operating company, which are included elsewhere in this prospectus. The selected consolidated balance sheet data as of September 30, 2009 has been derived from audited consolidated financial statements not included in this prospectus.

        The selected historical unaudited consolidated financial data as of March 31, 2012 and for the three and six months ended March 31, 2011 and 2012 have been derived from the unaudited consolidated financial statements of the operating company, which are included elsewhere in this prospectus. The unaudited consolidated financial statements of the operating company have been prepared on the same basis as the audited consolidated financial statements of the operating company and, in the opinion of management, include all adjustments necessary for a fair presentation. Interim results are not necessarily indicative of results that may be expected for a full fiscal year.

        The selected historical consolidated data presented below should be read in conjunction with the information included in the sections entitled "Risk Factors," "The Reorganization," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and related notes thereto and other financial data included elsewhere in this prospectus. The historical results of Vitamin Cottage Natural Food Markets, Inc. set forth below are not necessarily indicative of results to be expected for any future period.

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  Year ended September 30,   Three months
ended March 31,
  Six months ended
March 31,
 
 
  2009   2010   2011   2011   2012   2011   2012  
 
   
   
   
  (Unaudited)
 
 
  (dollars in thousands, except for per share and other operating data)
 

Statements of Income Data:

                                           

Net sales

  $ 206,080     226,910     264,544     66,211     84,907     126,829     159,746  

Cost of goods sold and occupancy costs

    145,937     159,797     187,162     46,685     59,223     89,646     112,462  
                               

Gross profit

    60,143     67,113     77,382     19,526     25,684     37,183     47,284  

Store expenses

    41,992     47,162     57,610     14,363     18,028     27,584     34,468  

Administrative expenses

    8,619     9,631     10,397     2,603     2,812     5,092     5,525  

Pre-opening and relocation expenses

    1,236     1,293     1,964     685     427     1,022     854  
                               

Operating income

    8,296     9,027     7,411     1,875     4,417     3,485     6,437  

Other (expense) income:

                                           

Interest expense

    (1,146 )   (967 )   (669 )   (195 )   (155 )   (393 )   (330 )

Other (expense) income, net

    (60 )   3     35     18     2     23     3  
                               

Income before income taxes

    7,090     8,063     6,777     1,698     4,264     3,115     6,110  

Provision for income taxes

    (2,039 )   (2,466 )   (2,167 )   (517 )   (1,486 )   (949 )   (2,072 )
                               

Net income

    5,051     5,597     4,610     1,181     2,778     2,166     4,038  
                               

Net income attributable to noncontrolling interest

    (1,513 )   (1,189 )   (1,106 )   (307 )   (293 )   (566 )   (563 )
                               

Net income attributable to Vitamin Cottage Natural Food Markets, Inc. 

  $ 3,538     4,408     3,504     874     2,485     1,600     3,475  
                               

Per Share Data:

                                           

Net income attributable to Vitamin Cottage Natural Food Markets, Inc. per common share

                                           

Basic and diluted

  $ 5.65     7.04     5.60     1.39     3.97     2.56     5.55  
                               

Weighted average shares outstanding

                                           

Basic and diluted

    626,112     626,112     626,112     626,112     626,112     626,112     626,112  
                               

Pro Forma Statements of Income Data (Unaudited) (1):

                                           

Income before income taxes

  $ 7,090     8,063     6,777     1,698     4,264     3,115     6,110  

Pro forma provision for income taxes

    (2,592 )   (2,892 )   (2,589 )   (631 )   (1,596 )   (1,159 )   (2,283 )
                               

Pro forma net income attributable to Vitamin Cottage Natural Food Markets, Inc. 

  $ 4,498     5,171     4,188     1,067     2,668     1,956     3,827  
                               

Pro Forma Per Share Data (Unaudited) (2):

                                           

Pro forma net income per common share

                                           

Basic

                                           

Diluted

                                           

Pro forma weighted average shares outstanding

                                           

Basic

                                           

Diluted

                                           

Other Financial Data:

                                           

EBITDA(3)

  $ 12,442     14,540     15,137     3,744     6,823     7,065     11,129  
                               

EBITDA margin(4)

    6.0 %   6.4     5.7     5.7     8.0     5.6     7.0  
                               

Other Operating Data (Unaudited):

                                           

Number of stores at end of period

    33     39     49     43     53     43     53  

Change in comparable store sales(5)

    2.6 %   2.1     4.9     4.8     11.6     4.0     10.2  

Gross square footage at end of period(6)

    401,919     472,393     619,172     526,824     690,654     526,824     690,654  

Selling square footage at end of period(6)

    309,792     360,764     459,435     396,914     505,836     396,914     505,836  

Average comparable store size (gross square feet)(7)

    12,189     12,328     12,239     12,535     12,296     12,535     12,296  

Average comparable store size (selling square feet)(7)

    9,640     9,483     9,284     9,528     9,265     9,528     9,265  

Comparable store sales per selling square foot during period(8)

  $ 773     730     720     185     191     362     369  

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  As of September 30,    
 
 
  As of
March 31,
2012
 
 
  2009   2010   2011  
 
   
   
   
  (Unaudited)
 
 
  (in thousands)
 

Selected Balance Sheet Data:

                         

Cash and cash equivalents

  $ 2,140     446     378     3,454  

Total assets

    48,565     60,272     78,915     87,254  

Total debt(9)

    20,410     23,748     28,442     26,332  

Total stockholders' equity

    7,791     12,307     15,927     19,515  

(1)
As part of the Reorganization, BVC will become our wholly owned subsidiary. We have held a controlling interest in BVC for all periods presented, as such, our consolidated statements of income include the revenues and expenses of BVC for all periods presented as required by U.S. GAAP. 45% of BVC's net income has been reported as net income attributable to noncontrolling interest in our consolidated statements of income for all periods presented above. The pro forma financial data presented above illustrates what our net income would have been had we owned 100% of BVC for the periods presented. Our effective tax rate will increase as a result of the Boulder Contribution, as the income attributable to the noncontrolling interest was nontaxable income prior to the Boulder Contribution, but will be included in our taxable income after the Boulder Contribution. The following table reconciles our effective tax rate to our pro forma effective tax rate had we owned 100% of BVC for all periods presented:

 
  Year ended
September 30,
  Three months
ended
March 31,
  Six months
ended
March 31,
 
 
  2009   2010   2011   2011   2012   2011   2012  
 
   
   
   
  (Unaudited)
 

Statutory tax rate

    34.0 %   34.0     34.0     34.0     34.0     34.0     34.0  

Nontaxable net income attributable to noncontrolling interest

    (7.7 )   (5.3 )   (6.2 )   (6.8 )   (2.6 )   (6.7 )   (3.5 )

State income taxes, net of federal income tax expense

    3.1     2.5     3.4     3.2     3.3     3.2     3.3  

Other, net

    (0.6 )   (0.6 )   0.8         0.1         0.1  
                               

Effective tax rate

    28.8     30.6     32.0     30.4     34.8     30.5     33.9  

Pro forma adjustment to exclude nontaxable net income attributable to noncontrolling interest

    7.7     5.3     6.2     6.8     2.6     6.7     3.5  
                               

Pro forma effective tax rate

    36.5 %   35.9     38.2     37.2     37.4     37.2     37.4  
                               

        See "The Reorganization" for additional information regarding the Boulder Contribution.

(2)
Pro forma per share data gives effect to the Reorganization, including the issuance of            shares in connection with the Delaware Merger,             shares in connection with the Boulder Contribution,            shares and            restricted stock units to our Chief Financial Officer

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    immediately following this offering. The following table sets forth the computation of pro forma basic and diluted earnings per share:

 
  Basic   Diluted

Pro forma net income (in thousands)

  $      

Pro forma weighted average number of common shares:

         

Shares and restricted stock units issued in the Reorganization

         

Shares issued in this offering

         

Pro forma weighted average number of common shares

         

Pro forma net income per common share

  $      
(3)
EBITDA is not a measure of financial performance under U.S. GAAP. EBITDA is defined as net income attributable to Vitamin Cottage Natural Food Markets, Inc. before interest expense, provision for income tax, net income attributable to the noncontrolling interest and depreciation and amortization. We believe EBITDA provides additional information about (i) our operating performance, because it assists us in comparing the operating performance of our stores on a consistent basis, as it removes the impact of non-cash depreciation and amortization expense as well as items not directly resulting from our core operations such as interest expense and income taxes and (ii) our performance and the effectiveness of our operational strategies. Additionally, EBITDA is used as a measure in our debt covenants under the credit facility, and our incentive compensation plans base incentive compensation payments on our EBITDA performance. Furthermore, EBITDA is used by investors as a supplemental measure to evaluate the overall operating performance of companies in our industry. Management believes that investors' understanding of our performance is enhanced by including this non-GAAP financial measure as a reasonable basis for comparing our ongoing results of operations. Many investors are interested in understanding the performance of our business by comparing our results from ongoing operations period over period and would ordinarily add back non-cash expenses such as depreciation and amortization as well as items that are not part of normal day-to-day operations of our business such as interest expense and income taxes. By providing this non-GAAP financial measure, together with a reconciliation, we believe we are enhancing investors' understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing our strategic initiatives. Our competitors may define EBITDA differently, and as a result, our measure of EBITDA may not be directly comparable to EBITDA of other companies. Items excluded from EBITDA are significant components in understanding and assessing financial performance. EBITDA is a supplemental measure of operating performance that does not represent and should not be considered in isolation or as an alternative to, or substitute for net income or other financial statement data presented in the consolidated financial statements of the operating company as indicators of financial performance. EBITDA has limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our results as reported under U.S. GAAP. Some of the limitations are:

EBITDA does not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments;

EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments on our debt;

EBITDA does not reflect our tax expense or the cash requirements to pay our taxes; and

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and EBITDA does not reflect any cash requirements for such replacements.

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      Due to these limitations, EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our U.S. GAAP results and using EBITDA only supplementally. We further believe that our presentation of these U.S. GAAP and non-GAAP financial measurements provide information that is useful to analysts and investors because they are important indicators of the strength of our operations and the performance of our business.

      The following table reconciles EBITDA to net income attributable to Vitamin Cottage Natural Food Markets, Inc.:

 
  Year ended September 30,   Three months
ended
March 31,
  Six months
ended
March 31,
 
 
  2009   2010   2011   2011   2012   2011   2012  
 
   
   
   
  (Unaudited)
 
 
  (in thousands)
 

Net income attributable to Vitamin Cottage Natural Food Markets, Inc

  $ 3,538     4,408     3,504     874     2,485     1,600     3,475  

Net income attributable to noncontrolling interest

    1,513     1,189     1,106     307     293     566     563  
                               

Net income

    5,051     5,597     4,610     1,181     2,778     2,166     4,038  

Interest expense

    1,146     967     669     195     155     393     330  

Income taxes

    2,039     2,466     2,167     517     1,486     949     2,072  

Depreciation and amortization

    4,206     5,510     7,691     1,851     2,404     3,557     4,689  
                               

EBITDA

  $ 12,442     14,540     15,137     3,744     6,823     7,065     11,129  
                               
(4)
EBITDA margin is defined as the ratio of EBITDA to net sales. We present EBITDA margin because it is used by management as a performance measurement of EBITDA generated from net sales. See footnote 3 above for a discussion of EBITDA as a non-GAAP financial measure and a reconciliation of net sales to EBITDA.

(5)
When calculating change in comparable store sales, we begin to include sales from a store in our comparable store base on the first day of the thirteenth full month following the store's opening. We monitor the percentage change in comparable store sales by comparing sales from all stores in our comparable store base for a reporting period against sales from the same stores for the same number of operating months in the comparable reporting period of the prior year. When a store that is included in comparable store sales is remodeled or relocated, we continue to consider sales from that store to be comparable store sales.

(6)
Gross square footage and selling square footage at the end of the period include the square footage for all stores that were open as of the end of the period presented.

(7)
Average comparable store size for gross square feet and selling square feet are calculated using the average store size for all stores that were in the comparable store base as of the end of the period presented.

(8)
Comparable store sales per selling square foot is calculated using comparable store sales for the period divided by the weighted average square feet per store based on the amount of time the store was included in the comparable store base during the period.

(9)
Total debt includes the outstanding principal balance of our term loan, outstanding borrowings on our revolving credit facility and notes payable to related parties.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

        The following is a discussion of the financial position and results of operations for our operating company, Vitamin Cottage Natural Food Markets, Inc., and its consolidated subsidiaries for each of the years ended September 30, 2009, 2010 and 2011, and the three and six months ended March 31, 2011 and 2012. The following Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our consolidated financial statements and notes thereto and "Selected Historical Consolidated Financial and Other Data," which are included elsewhere in this prospectus. To the extent that the following Management's Discussion and Analysis contains statements which are not of a historical nature, such statements are forward-looking statements which involve risks and uncertainties. These risks include, but are not limited to, those discussed under "Risk Factors" and included in other portions of this prospectus. Such forward-looking statements are often identified with such words as "anticipate," "assume," "believe," "continue," "could," "estimate," "expect," "intend," "may," "plan," "potential," "predict," "project," "future" or similar words concerning future events. Actual results could differ materially from these forward-looking statements. All references to a "fiscal year" refer to a year beginning on October 1 of the previous year, and ending on September 30 of such year (for example "fiscal year 2011" refers to the year from October 1, 2010 to September 30, 2011).

Company Overview

        We operate natural and organic grocery and dietary supplement stores that are focused on providing high-quality products at affordable prices, exceptional customer service, nutrition education and community outreach. Since our founding, we have been at the forefront of the natural and organic foods movement. We are headquartered in Lakewood, Colorado, and as of June 30, 2012, we operated 55 stores in 11 states, including Colorado, Idaho, Kansas, Missouri, Montana, Nebraska, New Mexico, Oklahoma, Texas, Utah and Wyoming as well as a bulk food repackaging facility and distribution center in Colorado.

        We offer a variety of natural and organic groceries and dietary supplements that meet our strict quality guidelines. The size of our stores varies from 5,000 selling square feet to 14,500 selling square feet, and a typical new store averages 9,500 selling square feet.

        The growth in the organic and natural foods industry and growing consumer interest in health and nutrition has enabled us to continue to open new stores and enter new markets. In fiscal year 2011, we opened ten new stores, and in each of fiscal years 2009 and 2010, we opened six new stores. During the nine months ended June 30, 2012, we opened six new stores, and we currently plan to open four new stores in the remaining three months of fiscal year 2012.

Industry Trends and Economics

        We have identified the following recent trends and factors that have impacted and may continue to impact our results of operations and financial condition:

    Opportunities in the growing natural and organic grocery and dietary supplements industry.   Our industry, which includes organic and natural foods and dietary supplements, has had significant growth over the last several years, driven in large part by increased public interest in health and nutrition. Our results of operations have been and may continue to be materially and adversely affected by the timing and number of new store openings. The length of time it takes for a new store to become profitable can vary depending on a number of factors including location, competition, a new market versus an existing market, the strength of store management and general economic conditions. New stores generally have lower sales compared to mature stores, but typically grow at a faster rate than mature stores for several years after their opening date. Mature stores refer to stores that have been open for five years or longer.

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    Position within the broader grocery industry.   The grocery industry is highly competitive. Our competition varies by market and includes conventional, natural, gourmet and specialty food markets, mass and discount retailers, warehouse clubs, independent health food stores, dietary supplement retailers, drug stores, farmers markets, mail order and online retailers, and multi-level marketers. Customer shopping preferences are based on a number of factors, including price, selection, quality, customer service, shopping environment, location or any combination of these factors. Natural and organic groceries and dietary supplements continue to be some of the fastest growing segments in grocery retailing. The growth in the market has also driven our competitors to open new stores and enter new markets, which has had and may continue to have an impact on our results of operations for any given period.

    Impact of broader economic trends.   The grocery industry and our sales are affected by general economic conditions. A number of factors can affect the level of consumer spending, including economic conditions, the level of disposable consumer income, consumer debt, interest rates, the price of commodities, the political environment and consumer confidence. Our sales were affected by the economic recession in fiscal years 2009 and 2010, as seen in our reduced comparable store sales growth year over year. In the twelve months ended September 30, 2007, 2008, 2009, 2010 and 2011 our comparable store sales grew 7.9%, 11.6%, 2.6%, 2.1% and 4.9%, respectively. In the six months ended March 31, 2012 our comparable store sales grew 10.2% compared to the six months ended March 31, 2011. While our comparable store sales did not decrease year over year in fiscal years 2009 and 2010, comparable store sales growth slowed substantially, due to lower growth in our average transaction size period over period.

Performance Highlights

        Key highlights of our recent performance are discussed briefly below and are discussed in further detail throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations.

    Net sales.   We reported net sales of approximately $159.7 million for the six months ended March 31, 2012, which is a 26.0% increase compared to the six months ended March 31, 2011. We reported net sales of approximately $264.5 million for the year ended September 30, 2011, which is a 16.6% increase compared to the year ended September 30, 2010. Net sales increased at a compound annual growth rate of 13.3% from fiscal year 2009 to fiscal year 2011.

    Comparable store sales.   Our comparable store sales for the six months ended March 31, 2012 increased 10.2% over the six months ended March 31, 2011. Our comparable store sales for the year ended September 30, 2011 increased 4.9% over the year ended September 30, 2010. As of March 31, 2012, we have had over 40 quarters of consecutive growth in comparable store sales.

    Net income.   We reported net income of approximately $4.0 million for the six months ended March 31, 2012 compared to net income of approximately $2.2 million for the six months ended March 31, 2011. We reported net income of approximately $4.6 million for the year ended September 30, 2011 compared to net income of approximately $5.6 million for the year ended September 30, 2010.

    EBITDA.   We generated EBITDA of $11.1 million in the six months ended March 31, 2012, which increased $4.0 million, or 57.5%, from $7.1 million in the six months ended March 31, 2011. EBITDA increased $597,000, or 4.1%, to $15.1 million in the year ended September 30, 2011 from $14.5 million in the year ended September 30, 2010. Our EBITDA has increased steadily, with a compound annual growth rate of 10.4% from fiscal year 2009 to fiscal year 2011. EBITDA is not a measure of financial performance under U.S. GAAP. Items excluded from EBITDA are significant components in understanding and assessing our financial performance. Refer to the "Selected Historical Consolidated Financial and Other Data" section of this

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      prospectus for a reconciliation of EBITDA to net income attributable to Vitamin Cottage Natural Food Markets, Inc.

    Liquidity.   We had approximately $3.5 million in cash and cash equivalents as of March 31, 2012. Following the application of the net proceeds from this offering as described in "Use of Proceeds," we expect to have $         million available under our revolving credit facility. We believe that the cash generated from operations, together with the borrowing availability under our revolving credit facility has been and will continue to be sufficient to meet our working capital needs and capital expenditures related to new store needs for at least the next twelve months.

    New store growth.   We have opened 26 new stores since the beginning of fiscal year 2009, ending with 53 stores as of March 31, 2012. We opened six, six and ten new stores in the years ended September 30, 2009, 2010 and 2011, respectively. We opened four new stores during the six months ended March 31, 2012. We opened two new stores during the three months ended June 30, 2012 and plan to open an additional four new stores in the remaining three months of fiscal year 2012.

Outlook

        We believe there are several key factors that have contributed to our success and will enable us to continue to expand profitably, including a loyal customer base, growing consumer interest in nutrition and wellness, a differentiated shopping experience that focuses on customer service, nutrition education and a shopper-friendly retail environment, and our focus on high quality, affordable natural and organic groceries and dietary supplements.

        We plan for the foreseeable future to continue opening new stores and entering new markets at or above recent levels of growth. During the past few years, we have successfully expanded our infrastructure to enable us to support our continued growth. This has included successfully implementing an enterprise resource planning, or ERP, system in fiscal year 2010, hiring key personnel and developing efficient and effective new store opening construction and operations processes. We believe there are attractive opportunities for us to continue to expand our store base and focus on increasing comparable store sales. As we continue to expand our store base, we believe there are opportunities for increased leverage in fixed costs, such as administrative expenses, as well as increased economies of scale in sourcing products.

        We expect that our expenses will increase in future periods due to additional legal, accounting, insurance, stock-based compensation and other expenses we expect to incur as a result of being a public company. Additionally, we expect to expense approximately $275,000 in the three months ended              , 2012 for an incentive payment to certain non-executive working team members to be paid within 30 days of a successful initial public offering which results in a closing, subject to active participation and continued employment conditions.

Key Financial Metrics in Our Business

        In assessing our performance, we consider a variety of performance and financial measures. The key measures are as follows:

Net sales

        Our net sales are comprised of gross sales net of discounts, in-house coupons, returns and allowances. In comparing net sales between periods we monitor the following:

    Change in comparable store sales.   We begin to include sales from a store in comparable store sales on the first day of the thirteenth full month following the store's opening. We monitor the

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      percentage change in comparable store sales by comparing sales from all stores in our comparable store base for a reporting period against sales from the same stores for the same number of operating months in the comparable reporting period of the prior year. When a store that is included in comparable store sales is remodeled or relocated, we continue to consider sales from that store to be comparable store sales. Our comparable store sales data may not be presented on the same basis as our competitors. We use the terms "new stores" and "non-comparable stores" to refer to stores that have been open for less than thirteen months.

    Transaction count.   Transaction count represents the number of transactions reported at our stores over such period and includes transactions that are voided, return transactions and exchange transactions.

    Average transaction size.   Average transaction size is calculated by dividing net sales by transaction count for a given time period. We use this metric to track the trends in average dollars spent in our stores per customer transaction.

Cost of goods sold and occupancy costs

        Our cost of goods sold and occupancy costs include the cost of inventory sold during the period (net of discounts and allowances), shipping and handling costs, distribution and supply chain costs (including the costs of our bulk food repackaging facility and distribution center), buying costs, shrink and store occupancy costs. Store occupancy costs include rent payments, common area maintenance and real estate taxes. The components of our cost of goods sold and occupancy costs may not be identical to those of our competitors. As a result, our cost of goods sold and occupancy costs data included in this prospectus may not be comparable to similar data made available by our competitors. New stores typically have higher occupancy costs as a percentage of sales compared to comparable stores, as new stores generally experience lower sales combined with fixed occupancy costs. Occupancy costs as a percentage of sales typically decrease as new stores increase sales and mature.

Gross profit and gross margin

        Gross profit is equal to our net sales less our cost of goods sold and occupancy costs. Gross margin is gross profit as a percentage of sales. Gross margin is impacted by changes in product costs, occupancy costs, changes in the mix of products sold and the rate at which we open new stores.

Store expenses

        Store expenses consist of store-level expenses, such as salary and benefits, supplies, utilities, depreciation, advertising, bank credit card charges and other related costs associated with operations and purchasing support. The majority of store expenses are comprised of salary related expenses which we closely manage and which trend closely with sales. Labor related expenses as a percentage of sales tend to be higher at new stores compared to comparable stores, as new stores require a certain level of staffing in order to maintain adequate levels of customer service combined with lower sales. As new stores increase their sales, labor related expenses as a percentage of sales typically decrease.

Administrative expenses

        Administrative expenses consist of home office related expenses, such as salary and benefits, office supplies, hardware and software expenses, depreciation expense, occupancy costs (including rent, common area maintenance, real estate taxes and utilities), professional services expenses and other general and administrative expenses. We expect that our administrative expenses will increase in future periods due to additional legal, accounting, insurance and other expenses we expect to incur as a result of being a public company.

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Pre-opening and relocation expenses

        Pre-opening and relocation expenses may include rent expense, salaries, advertising, supplies and other miscellaneous costs incurred prior to the store opening. Rent expense is generally incurred approximately two to four months prior to a store's opening date. Other pre-opening and relocation expenses are generally incurred in the 60 days prior to the store opening. Pre-opening and relocation costs are expensed as incurred.

Operating income

        Operating income consists of gross profit less store expenses, administrative expenses and pre-opening and relocation expenses. Operating income can be impacted by a number of factors, including the timing of new store openings and store relocations which impacts the level of pre-opening and relocation expenses period over period, as well as increases in store expenses and administrative expenses as a percentage of sales. The amount of time it takes for new stores to become profitable can vary depending on a number of factors, including location, competition and general economic conditions.

Interest expense

        Interest expense consists of the interest we pay on our outstanding indebtedness, which currently includes our revolving credit facility, term loan and related party notes payable. We expect to repay the term loan and amounts outstanding under our revolving credit facility with the proceeds of this offering.

Reorganization Transactions

The Boulder Contribution

        BVC, of which we own 55%, owns five stores in Colorado. In connection with the Reorganization, we have agreed to purchase the 45% noncontrolling interest in BVC concurrent with this offering. The net income attributable to noncontrolling interest amount reported in our consolidated financial statements represents the 45% noncontrolling interest in the net income of BVC. As a result of the Reorganization, BVC will become our wholly owned subsidiary. We have held a controlling interest in BVC for all periods presented in our consolidated statements of income, as such, our consolidated statements of income include the revenues and expenses of BVC for all periods presented as required by U.S. GAAP. 45% of BVC's net income has been reported as net income attributable to noncontrolling interest in our consolidated statements of income for all periods presented. Our effective tax rate will increase as a result of the Boulder Contribution as the income attributable to noncontrolling interest was nontaxable income prior to the Boulder Contribution, but will be included in our taxable income after the Boulder Contribution. See footnote 1 to "Selected Historical Consolidated Financial and Other Data" for pro forma effective tax rate presentation.

        We currently manage the day-to-day operations of the BVC stores, as well as provide all administrative support services, including payroll, human resources, information systems and accounting functions. The associates who work at the BVC stores are currently employed by us. As such, we expect that the Boulder Contribution will have a minimal impact on our current operations.

The Delaware Merger

        Natural Grocers by Vitamin Cottage, Inc. was incorporated in Delaware on April 9, 2012. Prior to the completion of this offering, Natural Grocers by Vitamin Cottage, Inc. will have no material assets. Following the completion of this offering, Natural Grocers by Vitamin Cottage, Inc. will own all of the outstanding capital stock of Vitamin Cottage Natural Food Markets, Inc., which is our operating

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company, and the consolidated financial statements of Natural Grocers by Vitamin Cottage, Inc. will reflect the assets, liabilities and results of operations of the operating company. Accordingly, this section discusses the historical consolidated financial results of the operating company.

        See "The Reorganization" for additional information regarding these transactions as well as "Selected Historical Consolidated Financial and Other Data" for pro forma presentation illustrating the pro forma impact of this transaction on prior periods.

Results of Operations

        The following table presents key components of our results of operations expressed as a percentage of net sales for the periods presented:

 
  Year ended September 30,   Three months
ended
March 31,
  Six months
ended
March 31,
 
 
  2009   2010   2011   2011   2012   2011   2012  
 
   
   
   
  (Unaudited)
 

Statements of Income Data:

                                           

Net sales

    100.0 %   100.0     100.0     100.0     100.0     100.0     100.0  

Cost of goods sold and occupancy costs

    70.8     70.4     70.7     70.5     69.8     70.7     70.4  
                               

Gross profit

    29.2     29.6     29.3     29.5     30.2     29.3     29.6  

Store expenses

    20.4     20.8     21.8     21.7     21.2     21.7     21.6  

Administrative expenses

    4.2     4.2     3.9     3.9     3.3     4.0     3.5  

Pre-opening and relocation expenses

    0.6     0.6     0.7     1.0     0.5     0.9     0.5  
                               

Operating income

    4.0     4.0     2.9     2.9     5.2     2.7     4.0  

Other income (expense):

                                           

Interest expense

    (0.6 )   (0.4 )   (0.3 )   (0.3 )   (0.2 )   (0.3 )   (0.2 )
                               

Income before income taxes

    3.4     3.6     2.6     2.6     5.0     2.4     3.8  

Provision for income taxes

    (1.0 )   (1.1 )   (0.9 )   (0.8 )   (1.8 )   (0.7 )   (1.3 )
                               

Net income

    2.4     2.5     1.7     1.8     3.2     1.7     2.5  

Net income attributable to noncontrolling interest

    (0.7 )   (0.6 )   (0.4 )   (0.5 )   (0.3 )   (0.4 )   (0.3 )
                               

Net income attributable to Vitamin Cottage Natural Food Markets, Inc. 

    1.7 %   1.9     1.3     1.3     2.9     1.3     2.2  
                               

Other Operating Data:

                                           

Number of stores at end of period

    33     39     49     43     53     43     53  

Store unit count increase period over period

    22.2 %   18.2     25.6     22.9     23.3     22.9     23.3  

Change in comparable store sales

    2.6 %   2.1     4.9     4.8     11.6     4.0     10.2  

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Three months ended March 31, 2011 compared to the three months ended March 31, 2012

        The following table summarizes our results of operations and other operating data for the periods presented:

 
  Three months
ended
March 31,
  Increase
(Decrease)
 
 
  2011   2012   Dollars   Percent  
 
  (Unaudited)
 
 
  (dollars in thousands)
 

Statements of Income Data:

                         

Net sales

  $ 66,211     84,907     18,696     28.2 %

Cost of goods sold and occupancy costs

    46,685     59,223     12,538     26.9  
                     

Gross profit

    19,526     25,684     6,158     31.5  

Store expenses

    14,363     18,028     3,665     25.5  

Administrative expenses

    2,603     2,812     209     8.0  

Pre-opening and relocation expenses

    685     427     (258 )   (37.7 )
                     

Operating income

    1,875     4,417     2,542     135.6  

Other income (expense):

                         

Dividends and interest income

    2     2          

Interest expense

    (195 )   (155 )   40     (20.5 )

Other income, net

    16         (16 )   n/a  
                     

Income before income taxes

    1,698     4,264     2,566     151.1  

Provision for income taxes

    (517 )   (1,486 )   (969 )   187.4  
                     

Net income

    1,181     2,778     1,597     135.2  

Net income attributable to noncontrolling interest

    (307 )   (293 )   14     (4.6 )
                     

Net income attributable to Vitamin Cottage Natural Food Markets, Inc. 

  $ 874     2,485     1,611     184.3  
                     

Other Operating Data:

                         

Number of stores at end of period

    43     53              

Store unit count increase period over period

    22.9 %   23.3              

Change in comparable store sales

    4.8 %   11.6              

Net sales

        Net sales increased $18.7 million, or 28.2%, to $84.9 million for the three months ended March 31, 2012 compared to $66.2 million for the three months ended March 31, 2011, due to an $11.0 million increase in non-comparable store sales and a $7.7 million, or 11.6%, increase in comparable store sales. The increase in comparable store sales was driven by an 8.4% increase in transaction count and a 3.2% increase in average transaction size at comparable stores. Comparable store average transaction size increased to $35.12 in the three months ended March 31, 2012 from $34.03 in the three months ended March 31, 2011. Net sales for the three months ended March 31, 2012 were favorably impacted by the additional day in February 2012 as a result of the leap year. Excluding the impact of the additional day, comparable store sales increased 10.4% in the three months ended March 31, 2012 compared to the three months ended March 31, 2011.

Gross profit

        Gross profit totaled approximately $25.7 million for the three months ended March 31, 2012, compared to $19.5 million for the three months ended March 31, 2011. Cost of goods sold and occupancy costs increased $12.5 million, or 26.9%, to $59.2 million for the three months ended

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March 31, 2012 compared to $46.7 million for the three months ended March 31, 2011, primarily due to an increase in cost of goods sold and occupancy costs from non-comparable stores. Gross margin increased from 29.5% for the three months ended March 31, 2011 to 30.2% for the three months ended March 31, 2012. The increase in gross margin period over period is due to increased efficiencies at our bulk food repackaging facility and distribution center, and a decrease in inventory shrink in the three months ended March 31, 2012 compared to the three months ended March 31, 2011, as well as a decrease in occupancy costs as a percentage of sales. Our gross margin increased due to the growth in comparable store sales period over period, as certain fixed costs, primarily occupancy costs, did not increase at the same rate as comparable store sales.

Store expenses

        Store expenses increased $3.7 million, or 25.5%, to $18.0 million in the three months ended March 31, 2012 from $14.4 million in the three months ended March 31, 2011, primarily due to a $2.3 million increase in salary related expenses and a $0.6 million increase in depreciation expense, both directly related to new store growth. Store expenses as a percentage of sales were 21.2% and 21.7% for the three months ended March 31, 2012 and 2011, respectively. The decrease in store expenses as a percentage of sales was primarily due to a decrease in direct store advertising expense resulting from a decrease in production costs as we began producing our Health Hotline newsletter and sales flyer in-house in fiscal year 2012. Additionally, store labor related expenses as a percentage of sales decreased by 0.1% for the three months ended March 31, 2012 compared to the same period in the prior year.

Administrative expenses

        Administrative expenses increased $209,000, or 8.0%, to $2.8 million for the three months ended March 31, 2012 compared to $2.6 million for the three months ended March 31, 2011, due to the addition of general and administrative positions to support our store growth. Administrative expenses as a percentage of sales were 3.3% and 3.9% for the three months ended March 31, 2012 and 2011, respectively. The decrease in administrative expenses as a percentage of sales reflects that our general administrative infrastructure is able to support additional store investments and sales without proportionate investments in additional overhead.

Pre-opening and relocation expenses

        Pre-opening and relocation expenses decreased $258,000, or 37.7%, in the three months ended March 31, 2012 compared to the same period in the prior year due to the timing of new store openings.

        The number of stores opened, relocated and remodeled were as follows for the periods presented:

 
  Three months ended March 31,  
 
  2011   2012  

New stores

    2     2  

Relocated stores

         

Remodeled stores

         
           

    2     2  
           

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Interest expense

        Interest expense decreased $40,000, or 20.5%, in the three months ended March 31, 2012 compared to the three months ended March 31, 2011 due to a decrease in average borrowings outstanding in the three months ended March 31, 2012, compared to the three months ended March 31, 2011.

Income taxes

        Our effective tax rate for the three months ended March 31, 2012 and 2011 was 34.8% and 30.4%, respectively. The increase in our effective income tax rate was primarily due to a 4.2% decrease in the percent of our nontaxable net income attributable to noncontrolling interest.

Six months ended March 31, 2011 compared to the six months ended March 31, 2012

        The following table summarizes our results of operations and other operating data for the periods presented:

 
  Six months
ended
March 31,
  Increase
(Decrease)
 
 
  2011   2012   Dollars   Percent  
 
  (Unaudited)
 
 
  (dollars in thousands)
 

Statements of Income Data:

                         

Net sales

  $ 126,829     159,746     32,917     26.0 %

Cost of goods sold and occupancy costs

    89,646     112,462     22,816     25.5  
                     

Gross profit

    37,183     47,284     10,101     27.2  

Store expenses

    27,584     34,468     6,884     25.0  

Administrative expenses

    5,092     5,525     433     8.5  

Pre-opening and relocation expenses

    1,022     854     (168 )   (16.4 )
                     

Operating income

    3,485     6,437     2,952     84.7  

Other income (expense):

                         

Dividends and interest income

    7     3     (4 )   (57.1 )

Interest expense

    (393 )   (330 )   63     (16.0 )

Other income, net

    16         (16 )   n/a  
                     

Income before income taxes

    3,115     6,110     2,995     96.1  

Provision for income taxes

    (949 )   (2,072 )   (1,123 )   118.3  
                     

Net income

    2,166     4,038     1,872     86.4  

Net income attributable to noncontrolling interest

    (566 )   (563 )   3     (0.5 )
                     

Net income attributable to Vitamin Cottage Natural Food Markets, Inc. 

  $ 1,600     3,475     1,875     117.2  
                     

Other Operating Data:

                         

Number of stores at end of period

    43     53              

Store unit count increase period over period

    22.9 %   23.3              

Change in comparable store sales

    4.0 %   10.2              

Net sales

        Net sales increased $32.9 million, or 26.0%, to $159.7 million for the six months ended March 31, 2012 compared to $126.8 million for the six months ended March 31, 2011, due to a $20.1 million increase in non-comparable store sales and a $12.8 million, or 10.2%, increase in comparable store sales. The increase in comparable store sales was driven by a 6.1% increase in transaction count and a 4.1% increase in average transaction size at comparable stores. Comparable store average transaction

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size increased to $34.99 in the six months ended March 31, 2012 from $33.61 in the six months ended March 31, 2011. Net sales for the six months ended March 31, 2012 were favorably impacted by the additional day in February 2012 as a result of the leap year. Excluding the impact of the additional day, comparable store sales increased 9.5% in the six months ended March 31, 2012 compared to the six months ended March 31, 2011.

Gross profit

        Gross profit totaled approximately $47.3 million for the six months ended March 31, 2012, compared to $37.2 million for the six months ended March 31, 2011. Cost of goods sold and occupancy costs increased $22.8 million, or 25.5%, to $112.5 million for the six months ended March 31, 2012 compared to $89.7 million for the six months ended March 31, 2011, primarily due to an increase in cost of goods sold and occupancy costs from non-comparable stores. Gross margin increased from 29.3% for the six months ended March 31, 2011 to 29.6% for the six months ended March 31, 2012. The increase in gross margin period over period is due to an increase in product margin, driven by increased efficiencies at our bulk food repackaging facility and distribution center as well as a decrease in occupancy costs as a percentage of sales. Our gross margin increased due to the growth in comparable store sales period over period, as certain fixed costs, primarily occupancy costs, did not increase at the same rate as comparable store sales.

Store expenses

        Store expenses increased $6.9 million, or 25.0%, to $34.5 million in the six months ended March 31, 2012 from $27.6 million in the six months ended March 31, 2011 primarily due to expenses associated with new store growth including a $4.0 million increase in salary related expenses and a $1.2 million increase in depreciation expense. Store expenses as a percentage of sales were 21.6% and 21.7% for the six months ended March 31, 2012 and 2011, respectively. The decrease was primarily due to a 0.1% decrease in store labor related expenses as a percentage of sales for the six months ended March 31, 2012 compared to the same period in the prior year.

Administrative expenses

        Administrative expenses increased $433,000, or 8.5%, to $5.5 million for the six months ended March 31, 2012 compared to $5.1 million for the six months ended March 31, 2011, due to the addition of general and administrative positions to support our store growth. Administrative expenses as a percentage of sales were 3.5% and 4.0% for the six months ended March 31, 2012 and 2011, respectively. The decrease in administrative expenses as a percentage of sales reflects that our general administrative infrastructure is able to support additional store investments and sales without proportionate investments in additional overhead.

Pre-opening and relocation expenses

        Pre-opening and relocation expenses decreased $168,000, or 16.4%, in the six months ended March 31, 2012 compared to the same period in the prior year due to the timing of new store openings.

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        The number of stores opened, relocated and remodeled were as follows for the periods presented:

 
  Six months ended March 31,  
 
  2011   2012  

New stores

    4     4  

Relocated stores

         

Remodeled stores

    1      
           

    5     4  
           

Interest expense

        Interest expense decreased $63,000, or 16.0%, in the six months ended March 31, 2012 compared to the six months ended March 31, 2011 due to a decrease in average borrowings outstanding in the six months ended March 31, 2012, compared to the six months ended March 31, 2011.

Income taxes

        Our effective tax rate for the six months ended March 31, 2012 and 2011 was 33.9% and 30.5%, respectively. The increase in our effective income tax rate was primarily due to a 3.2% decrease in the percent of our nontaxable net income attributable to noncontrolling interest.

Year ended September 30, 2010 compared to the year ended September 30, 2011

        The following table summarizes our results of operations and other operating data for the periods presented:

 
  Year ended
September 30,
  Increase (Decrease)  
 
  2010   2011   Dollars   Percent  
 
  (dollars in thousands)
 

Statements of Income Data:

                         

Net sales

  $ 226,910     264,544     37,634     16.6 %

Cost of goods sold and occupancy costs

    159,797     187,162     27,365     17.1  
                     

Gross profit

    67,113     77,382     10,269     15.3  

Store expenses

   
47,162
   
57,610
   
10,448
   
22.2
 

Administrative expenses

    9,631     10,397     766     8.0  

Pre-opening and relocation expenses

    1,293     1,964     671     51.9  
                     

Operating income

    9,027     7,411     (1,616 )   (17.9 )

Other income (expense):

                         

Dividends and interest income

    7     10     3     42.9  

Interest expense

    (967 )   (669 )   298     (30.8 )

Other (expense) income, net

    (4 )   25     29     n/a  
                     

Income before income taxes

    8,063     6,777     (1,286 )   (15.9 )

Provision for income taxes

   
(2,466

)
 
(2,167

)
 
299
   
(12.1

)
                     

Net income

    5,597     4,610     (987 )   (17.6 )

Net income attributable to noncontrolling interest

    (1,189 )   (1,106 )   83     (7.0 )
                     

Net income attributable to Vitamin Cottage Natural Food Markets, Inc. 

  $ 4,408     3,504     (904 )   (20.5 )
                     

Other Operating Data:

                         

Number of stores at end of period

    39     49              

Store unit count increase period over period

    18.2 %   25.6              

Change in comparable store sales

    2.1 %   4.9              

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Net sales

        Net sales increased $37.6 million, or 16.6%, to $264.5 million for the year ended September 30, 2011 compared to $226.9 million for the year ended September 30, 2010 due to a $26.6 million increase in non-comparable store sales and an $11.0 million, or 4.9%, increase in comparable store sales. The increase in comparable store sales was due to a 2.5% increase in transaction count and a 2.4% increase in average transaction size at comparable stores. Comparable store average transaction size increased to $33.92 in the year ended September 30, 2011 from $33.12 in the year ended September 30, 2010.

Gross profit

        Gross profit totaled $77.4 million for the year ended September 30, 2011 compared to $67.1 million for the year ended September 30, 2010. Cost of goods sold and occupancy costs increased $27.4 million, or 17.1%, to $187.2 million for the year ended September 30, 2011 compared to $159.8 million for the year ended September 30, 2010 primarily due to an increase in cost of goods sold and occupancy costs from non-comparable stores. Gross margin decreased from 29.6% for the year ended September 30, 2010 to 29.3% for the year ended September 30, 2011. The decrease in gross margin year over year is primarily due to a 0.2% decrease in product gross margin and a 0.1% increase in occupancy costs as a percentage of sales. The decrease in product gross margin year over year is primarily due to a shift in sales mix at comparable stores. The increase in occupancy costs as a percentage of sales was driven by an increase in non-comparable stores which typically have higher occupancy costs as a percentage of sales.

Store expenses

        Store expenses increased $10.4 million, or 22.2%, to $57.6 million in the year ended September 30, 2011 from $47.2 million in the year ended September 30, 2010. Store expenses as a percentage of sales were 21.8% and 20.8% for the years ended September 30, 2011 and 2010, respectively. The increase in store expenses as a percentage of sales was primary due to an increase in depreciation expense as a percentage of sales, and to a lesser extent, an increase in advertising expense. Depreciation expense as a percentage of sales increased due to the increase in new stores during fiscal year 2011. Direct store advertising expense increased due to an increase in the volume of newspaper advertising as a result of entering new markets. Store labor related expenses as a percentage of sales increased 0.3% for the year ended September 30, 2011 compared to the same period in the prior year.

Administrative expenses

        Administrative expenses increased $766,000, or 8.0%, to $10.4 million for the year ended September 30, 2011 compared to the year ended September 30, 2010, due to the addition of general and administrative positions to support our store growth. Administrative expenses as a percentage of sales were 3.9% and 4.2% for the years ended September 30, 2011 and 2010, respectively. The decrease in administrative expenses as a percentage of sales was less than the percentage increase in sales, as our general administrative infrastructure is able to support additional store investments and sales without proportionate investments in additional overhead.

Pre-opening and relocation expenses

        Pre-opening and relocation expenses increased $671,000, or 51.9%, in the year ended September 30, 2011 compared to the same period in the prior year due to the timing of new store openings. The increase in pre-opening and relocation expenses period over period is primarily due to an increase in the number of new stores in fiscal year 2011 versus fiscal year 2010. Pre-opening and relocation expenses as a percentage of sales was 0.7% and 0.6% for the years ended September 30,

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2011 and 2010, respectively. The number of stores opened, relocated and remodeled were as follows for the periods presented:

 
  Year ended
September 30,
 
 
  2010   2011  

New stores

    6     10  

Relocated stores

    2      

Remodeled stores

        1  
           

    8     11  
           

Interest expense

        Interest expense decreased $298,000, or 30.8%, in the year ended September 30, 2011 compared to the year ended September 30, 2010 due to lower interest rates on the term loan and revolving credit facility. The effect of the decrease in interest rates was partially offset by an increase in average borrowings outstanding in the year ended September 30, 2011, compared to the year ended September 30, 2010.

Income taxes

        Our effective income tax rate for the years ended September 30, 2011 and 2010 was 32.0% and 30.6%, respectively. The increase in our effective income tax rate was primarily due to different state income tax rates in the states where we operate, and the mix of our earnings in those states as well as changes in nontaxable net income attributable to noncontrolling interest.

Net income attributable to noncontrolling interest

        Net income attributable to noncontrolling interest decreased $83,000, or 7.0%, in the year ended September 30, 2011 compared to the year ended September 30, 2010, primarily due to an increase in depreciation expense associated with one store remodel and one store relocation in the year ended September 30, 2010.

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Year ended September 30, 2009 compared to the year ended September 30, 2010

        The following table summarizes our results of operations and other operating data for the periods presented:

 
  Year ended
September 30,
  Increase (Decrease)  
 
  2009   2010   Dollars   Percent  
 
  (dollars in thousands)
 

Statements of Income Data:

                         

Net sales

  $ 206,080     226,910     20,830     10.1 %

Cost of goods sold and occupancy costs

    145,937     159,797     13,860     9.5  
                     

Gross profit

    60,143     67,113     6,970     11.6  

Store expenses

   
41,992
   
47,162
   
5,170
   
12.3
 

Administrative expenses

    8,619     9,631     1,012     11.7  

Pre-opening and relocation expenses

    1,236     1,293     57     4.6  
                     

Operating income

    8,296     9,027     731     8.8  

Other income (expense):

                         

Dividends and interest income

    12     7     (5 )   (41.7 )

Interest expense

    (1,146 )   (967 )   179     (15.6 )

Other (expense) income, net

    (72 )   (4 )   68     (94.4 )
                     

Income before income taxes

    7,090     8,063     973     13.7  

Provision for income taxes

   
(2,039

)
 
(2,466

)
 
(427

)
 
20.9
 
                     

Net income

    5,051     5,597     546     10.8  

Net income attributable to noncontrolling interest

    (1,513 )   (1,189 )   324     (21.4 )
                     

Net income attributable to Vitamin Cottage Natural Food Markets, Inc. 

  $ 3,538     4,408     870     24.6  
                     

Other Operating Data:

                         

Number of stores at end of period

    33     39              

Store unit count increase period over period

    22.2 %   18.2              

Change in comparable store sales

    2.6 %   2.1              

Net sales

        Net sales increased $20.8 million, or 10.1%, to $226.9 million for the year ended September 30, 2010 compared to $206.1 million for the year ended September 30, 2009, driven by a $16.6 million increase in non-comparable store sales and a $4.2 million, or 2.1%, increase in comparable store sales. The increase in comparable store sales was due to a 2.5% increase in transaction count and a 0.4% decrease in average transaction size driven primarily by the effects of the overall economic recession. Comparable store average transaction size decreased to $33.35 in the year ended September 30, 2010 from $33.50 in the year ended September 30, 2009.

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Gross profit

        Gross profit totaled $67.1 million for the year ended September 30, 2010 compared to $60.1 million for the year ended September 30, 2009. Cost of goods sold and occupancy costs increased $13.9 million, or 9.5%, to $159.8 million for the year ended September 30, 2010 compared to $145.9 million for the year ended September 30, 2009, primarily due to an increase in cost of goods sold and occupancy costs from non-comparable stores. Gross margin increased from 29.2% for the year ended September 30, 2009 to 29.6% for the year ended September 30, 2010. The increase in gross margin year over year is primarily due to an increase in product gross margin. Occupancy costs increased 0.1% in the year ended September 30, 2010 compared to the year ended September 30, 2009, the increase in fiscal year 2010 resulted from the increase in new store openings, which typically have higher occupancy costs as a percentage of sales.

Store expenses

        Store expenses increased $5.2 million, or 12.3%, to $47.2 million in the year ended September 30, 2010 from $42.0 million in the year ended September 30, 2009. Store expenses as a percentage of sales were 20.8% and 20.4% for the years ended September 30, 2010 and 2009, respectively. The increase in store expenses as a percentage of sales was primarily due to an increase in depreciation expense as a percentage of sales, and to a lesser extent, an increase in advertising expense as a percentage of sales. Depreciation expense as a percentage of sales increased due to the number of new and relocated stores in fiscal year 2010. Direct store advertising expense increased due to an increase in the volume of newspaper advertising as a result of entering new markets. These increases were offset by a 0.2% decrease in store labor related expenses as a percentage of sales for the year ended September 30, 2010 compared to the same period in the prior year.

Administrative expenses

        Administrative expenses increased $1.0 million, or 11.7%, to $9.6 million for the year ended September 30, 2010 compared to the year ended September 30, 2009, driven by an increase in general and administrative labor related expenses and an increase in software related expenses. Labor related expenses increased due to the addition of general and administrative positions to support our store growth. The increase in software related expenses was driven by our implementation of an ERP system which was completed during fiscal year 2010. Administrative expenses as a percentage of sales was 4.2% for both the years ended September 30, 2010 and 2009. Administrative expenses as a percentage of sales remained flat year over year as the increase in software related expense was offset by a decrease in general and administrative labor related expense as a percentage of sales.

Pre-opening and relocation expenses

        Pre-opening and relocation expenses increased $57,000, or 4.6%, to $1.3 million in the year ended September 30, 2010 compared to the year ended September 30, 2009 due to the timing of new store openings. The increase in pre-opening and relocation expenses period over period is primarily due to an increase in the number of new and relocated stores in fiscal year 2010 versus fiscal year 2009. Pre-opening and relocation expenses as a percentage of sales was 0.6% for both the years ended September 30, 2010 and 2009.

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        The number of stores opened, relocated and remodeled were as follows for the periods presented:

 
  Year ended
September 30,
 
 
  2009   2010  

New stores

    6     6  

Relocated stores

        2  

Remodeled stores

         
           

    6     8  
           

Interest expense

        Interest expense decreased $179,000, or 15.6%, in the year ended September 30, 2010 compared to the year ended September 30, 2009 due to lower interest rates on the term loan and revolving credit facility resulting from an amendment to our credit facility in June 2010. The effect of the decrease in interest rates was partially offset by an increase in average borrowings outstanding in the year ended September 30, 2010 compared to the year ended September 30, 2009.

Income taxes

        Our effective income tax rate for the year ended September 30, 2010 and 2009 was 30.6% and 28.8%, respectively. The increase in our effective income tax rate was primarily due to different state income tax rates in the states where we operate and the mix of our earnings in those states as well as changes in nontaxable net income attributable to noncontrolling interest.

Net income attributable to noncontrolling interest

        Net income attributable to noncontrolling interest decreased $324,000, or 21.4%, in the year ended September 30, 2010 compared to the year ended September 30, 2009 due to an increase in the management fee paid by BVC to the operating company in the year ended September 30, 2010. Additionally, BVC incurred pre-opening and relocation expenses in the year ended September 30, 2010 in connection with the remodel of one store and the relocation of a second store.

Quarterly Results

        The following table sets forth certain unaudited financial data and other operating data in each fiscal quarter during fiscal years 2010 and 2011 and the first and second quarters of fiscal year 2012. The unaudited quarterly information includes all normal recurring adjustments that we consider necessary for a fair presentation of the information shown. This information should be read in conjunction with the audited consolidated and unaudited consolidated financial statements and related notes thereto appearing elsewhere in this prospectus.

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  Fiscal Year 2010   Fiscal Year 2011   Fiscal Year 2012  
 
  First
Quarter
  Second
Quarter
  Third
Quarter
  Fourth
Quarter
  First
Quarter
  Second
Quarter
  Third
Quarter
  Fourth
Quarter
  First
Quarter
  Second
Quarter
 
 
  (Unaudited)
   
 
 
  (dollars in thousands)
   
 

Statements of Income Data:

                                                             

Net sales

  $ 54,619     57,502     57,050     57,739     60,618     66,211     67,578     70,137     74,839     84,907  

Gross profit

    15,961     17,041     16,925     17,186     17,657     19,526     19,750     20,449     21,600     25,684  

Operating income

    2,262     2,757     2,231     1,777     1,610     1,875     2,093     1,833     2,020     4,417  

Other Operating Data:

                                                             

Change in comparable store sales

    2.7 %   0.8     2.1     2.6     3.1     4.8     5.5     6.1     8.6     11.6  

Number of stores at end of period

    34     35     36     39     41     43     46     49     51     53  

Liquidity and Capital Resources

        Our primary sources of liquidity are cash generated from operations and borrowings under our revolving credit facility. Our primary uses of cash are for purchases of inventory, operating expenses, capital expenditures primarily for opening new stores, debt service and corporate taxes. As of March 31, 2012, we had $3.5 million in cash and cash equivalents as well as $11.5 million available under our revolving credit facility. We plan to continue to open new stores, which has and may require us to borrow additional amounts under our revolving credit facility in the future. We plan to spend approximately $11 million to $13 million on capital expenditures during the remaining six months of fiscal year 2012 in association with the opening of six new stores, one store relocation and the relocation of our bulk food repackaging facility and distribution center. We believe that the cash generated from operations, together with the borrowing availability under our revolving credit facility, will be sufficient to meet our working capital needs and capital expenditures related to new store needs for at least the next twelve months. Our working capital position benefits from the fact that we generally collect cash from sales to customers the same day or, in the case of credit or debit card transactions, within days from the related sale.

        As discussed below, a portion of the proceeds from our initial public offering will be used to repay our term loan and all outstanding amounts under our revolving credit facility.

        Following is a summary of our operating, investing and financing activities for the periods presented:

 
  Year ended September 30,   Six months ended
March 31,
 
 
  2009   2010   2011   2011   2012  
 
   
   
   
  (Unaudited)
 
 
  (in thousands)
 

Net cash provided by operating activities

  $ 11,605     7,648     16,741     6,752     13,931  

Net cash used in investing activities

    (9,002 )   (11,598 )   (20,512 )   (8,398 )   (8,289 )

Net cash (used in) provided by financing activities

    (4,182 )   2,256     3,703     1,438     (2,566 )
                       

Net (decrease) increase in cash and cash equivalents

    (1,579 )   (1,694 )   (68 )   (208 )   3,076  
                       

Cash and cash equivalents, beginning of period

    3,719     2,140     446     446     378  
                       

Cash and cash equivalents, end of period

  $ 2,140     446     378     238     3,454  
                       

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Operating Activities

        Cash provided by operating activities consists primarily of net income adjusted for non-cash items, including depreciation, changes in deferred taxes and the effect of working capital changes. Cash provided by operating activities increased $7.2 million, or 106.3%, to $13.9 million in the six months ended March 31, 2012, from $6.8 million in the six months ended March 31, 2011. The increase in cash provided by operating activities was primarily due to an increase in net income adjusted for non-cash items as well as changes in working capital driven by fluctuations in the timing of payment on accounts payable, accrued expenses and inventory purchases.

        Cash provided by operating activities increased $9.1 million, or 118.9%, to $16.7 million in the year ended September 30, 2011 compared to $7.6 million in the year ended September 30, 2010. The increase in cash provided by operating activities period over period was due to an increase in net income adjusted for non-cash items and changes in working capital. The changes in working capital period over period were driven by fluctuations in the timing of accounts payable, inventory and the timing of amounts received for tenant allowances. Our working capital requirements for inventory will likely continue to increase as we continue to open new stores.

        Cash provided by operating activities decreased $4.0 million, or 34.1%, to $7.6 million in the year ended September 30, 2010 compared to $11.6 million in the year ended September 30, 2009. The decrease in cash provided by operating activities was primarily due to changes in working capital driven by fluctuations in the timing of payments on accounts payable, income tax receivables and the timing of amounts received for tenant allowances, offset by an increase in net income adjusted for non-cash items.

Investing Activities

        Cash used in investing activities consists primarily of capital expenditures. Cash used in investing activities decreased $109,000, or 1.3%, to $8.3 million in the six months ended March 31, 2012 from $8.4 million in the six months ended March 31, 2011. The slight decrease is due to a decrease in capital expenditures in the six months ended March 31, 2012 compared to the six months ended March 31, 2011, driven by the timing of capital expenditures related to new stores that opened in and around the six months ended March 31, 2012 and 2011.

        We opened four new stores in the six months ended March 31, 2012 and currently plan to open an additional six new stores, relocate one store and move our bulk food repackaging facility and distribution center to a larger space in the remaining six months of fiscal year 2012. We plan to spend approximately $11 million to $13 million on capital expenditures during the remaining six months of fiscal year 2012 in association with the six new stores and two relocations.

        Cash used in investing activities increased $8.9 million, or 76.9%, to $20.5 million in the year ended September 30, 2011 from $11.6 million in the year ended September 30, 2010 and is directly attributed to a $9.0 million increase in capital expenditures associated with the increase in new and remodeled stores period over period.

        Cash used in investing activities increased $2.6 million, or 28.8%, to $11.6 million in the year ended September 30, 2010 from $9.0 million in the year ended September 30, 2009 and is directly attributed to a $2.5 million increase in capital expenditures associated with the increase in new and relocated stores period over period.

Financing Activities

        Cash used in and provided by financing activities consists primarily of borrowings and payments under our revolving credit facility. Cash used in financing activities increased $4.0 million, or 278.4%, to $2.6 million in the six months ended March 31, 2012 compared to $1.4 million in cash provided by

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financing activities in the six months ended March 31, 2011. The increase in cash used in financing activities period over period is primarily due to a $1.6 million increase in repayments and a $2.5 million decrease in borrowings under our credit facility.

        Cash provided by financing activities increased $1.4 million, or 64.1%, to $3.7 million in the year ended September 30, 2011 compared to $2.3 million in the year ended September 30, 2010. The increase in cash provided by financing activities period over period is primarily due to a $658,000 increase in borrowings and a $500,000 decrease in repayments under our credit facility.

        Cash provided by financing activities increased $6.4 million, or 153.9%, to $2.3 million in year ended September 30, 2010 compared to $4.2 million of cash used in financing activities for the year ended September 30, 2009. The increase in cash provided by financing activities period over period is primarily due to a $3.2 million increase in borrowings and a $2.3 million decrease in repayments under our credit facility and a $945,000 decrease in distributions to noncontrolling interest.

        For the fiscal years ended September 30, 2011, 2010 and 2009, we made distributions of $1.0 million, $1.1 million and $2.0 million, respectively, to noncontrolling interests. We made distributions to noncontrolling interests of $450,000 in each of the six months ended March 31, 2011 and 2012. Following our acquisition of the 45% noncontrolling interest in BVC in connection with this offering, these distributions will cease.

Credit Facility and Notes Payable—Related Party

Credit Facility

        We are a party to a credit facility consisting of a revolving credit facility and a term loan. JPMorgan Chase Bank, N.A. serves as the lender and administrative agent under the credit facility.

        We intend to use a portion of the proceeds from this offering to repay the term loan and all outstanding amounts under our revolving credit facility, as described in "Use of Proceeds."

        The credit facility requires compliance with certain operational and financial covenants (including a leverage ratio, a fixed charge coverage ratio and a revenue ratio). The credit facility also contains certain other limitations on our ability to incur additional debt, guarantee other obligations, grant liens on assets and make investments or acquisitions as defined in the agreement. The agreement also prohibits us from declaring and paying cash dividends. As of March 31, 2012 we were in compliance with the debt covenants.

        Following the Reorganization, Natural Grocers by Vitamin Cottage, Inc. will become a party to the credit facility.

        Revolving Credit Facility.     We have a $21.0 million revolving credit facility which matures on June 30, 2014. We had approximately $9.5 million outstanding on the revolving credit facility and $11.5 million available for borrowing as of March 31, 2012. The commitment fee is 0.375% for any amounts not borrowed under the revolving credit facility. Interest is determined by the lender's administrative agent and is stated at the adjusted LIBOR rate for the interest period plus the lender spread. The lender spread can also be reduced by the lender subject to us meeting certain financial measures. The average annual interest rate for the six months ended March 31, 2011 and 2012 was 2.84% and 2.50%, respectively.

        Term Loan.     The term loan commitment was initially set at $21.0 million. We had approximately $16.0 million outstanding as of March 31, 2012. We are required to make quarterly principal payments of $125,000 on the term loan. Interest is determined by the lender's administrative agent and is stated at the base rate for the interest period plus the applicable lender spread. The average annual interest rate for the six months ended March 31, 2011 and 2012 was 2.26% and 2.06%, respectively. As noted above, we intend to pay off the term loan with proceeds from this offering.

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Notes Payable—Related Party

        We have two outstanding unsecured notes payable to related parties, which bear interest at 5.33% annually and mature in October 2013. As of March 31, 2012, $521,000 remained outstanding under the note payable to Philip Isely and $408,000 remained outstanding under the note payable to The Margaret A. Isely Spouse's Trust.

Contractual Obligations

        The following table summarizes our contractual obligations as of March 31, 2012:

 
  Payments Due by Period  
 
  Total   Less than
1 year
  1 - 3 years   3 - 5 years   More than
5 years
 
 
  (in thousands)
 

Long-term debt obligations(1)

  $ 26,332     1,078     25,254          

Interest payments(2)

    1,311     606     705          

Operating leases(3)

    111,651     10,843     21,755     20,574     58,479  

Contractual obligations for construction-related activities(4)

    1,541     1,541              
                       

  $ 140,835     14,068     47,714     20,574     58,479  
                       

(1)
Reflects the outstanding balance under our revolving credit facility, term loan and related party notes payable as of March 31, 2012. Our revolving credit facility balance fluctuates as we routinely draw new advances or make payments against outstanding advances based on our liquidity. We intend to use a portion of the proceeds from this offering to repay the term loan and all outstanding amounts under our revolving credit facility. See "Use of Proceeds."

(2)
The outstanding balances under the term loan and revolving credit facility bear interest at the one-month LIBOR plus an applicable margin. For purposes of this table, we assumed the interest payments to be paid during the remainder of the term loan using an interest rate of 2.06%, which was the average annual interest rate for the six months ended March 31, 2012. We assumed the interest payments to be paid during the remainder of the revolving credit facility using (i) an interest rate of 2.16% on amounts outstanding as of March 31, 2012, which was the average annual interest rate for the six months ended March 31, 2012 and (ii) an unused commitment fee of 0.375% for amounts not borrowed as of March 31, 2012. We assumed an interest rate of 5.33% annually on the notes payable to related parties. In addition, amounts do not give effect to the expected repayment of the term loan and outstanding amounts under our revolving credit facility with the proceeds from this offering.

(3)
Represents the minimum lease payments due under our operating leases, excluding annual common area maintenance, insurance and taxes related to our operating lease obligations. For a more detailed description of our operating leases, see Note 11 to our audited consolidated financial statements included elsewhere in this prospectus.

(4)
Construction obligations for construction-related activities include future payments to general contractors that are legally binding on us as of March 31, 2012 and relate to new store construction.

Off-Balance Sheet Arrangements

        As of March 31, 2012, our off-balance sheet arrangements consist of operating leases and the undrawn portion of our revolving credit facility, refer to Note 2 of our unaudited consolidated financial statements included elsewhere in this prospectus. All of our stores, bulk food repackaging facility and

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distribution center and administrative facilities are leased, and as of March 31, 2012, all leased properties were classified as operating leases in our consolidated financial statements. Refer to Note 11 to our audited consolidated financial statements included elsewhere in this prospectus for detailed information regarding our operating leases. We have no other off-balance sheet arrangements that have had, or are reasonably likely to have, a material current or future effect on our consolidated financial statements or financial condition.

Recent Accounting Pronouncements

        In May 2011, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2011-04, Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and IFRSs , which amends Accounting Standards Codification, or ASC, 820, Fair Value Measurement . The amended guidance changes the wording used to describe many requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. Additionally, the amendments clarify the FASB's intent about the application of existing fair value measurement requirements. The guidance provided in ASU No. 2011-04 is effective for interim and annual periods beginning after December 15, 2011 and is applied prospectively. The provisions were effective in our second quarter of fiscal year 2012. The adoption of these provisions did not have a significant effect on our consolidated financial statements.

        In June 2011, the FASB issued ASU No. 2011-05, Presentations of Comprehensive Income, which amends ASC 220, Comprehensive Income. The update eliminates the option of presenting the components of other comprehensive income as part of the statement of stockholders' equity. Instead, comprehensive income must be reported either in a single continuous statement of comprehensive income, which contains two sections, net income and other comprehensive income, or in two separate but consecutive statements. In December 2011, the FASB issued ASU No. 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 , which defers the implementation requirement in ASU No. 2011-05 to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income. The amended guidance specifies that entities should continue to report reclassifications out of accumulated other comprehensive income consistent with presentation requirements in effect before ASU No. 2011-05. The guidance provided in ASU No. 2011-05 and ASU No. 2011-12 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The provisions were effective in our second quarter of fiscal year 2012. The adoption of these provisions had no effect on our consolidated financial statements.

Critical Accounting Policies

        The preparation of our consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures of contingent assets and liabilities. Actual amounts may differ from these estimates. We base our estimates on historical experience and on various other assumptions and factors that we believe to be reasonable under the circumstances. We evaluate our accounting policies and resulting estimates on an ongoing basis to make adjustments we consider appropriate under the facts and circumstances.

        We have chosen accounting policies that we believe are appropriate to report accurately and fairly our operating results and financial position, and we apply those accounting policies in a consistent manner. Refer to our consolidated financial statements and related notes for a summary of our significant accounting policies. We believe that the following accounting policies are the most critical in the preparation of our consolidated financial statements because they involve the most difficult, subjective or complex judgments about the effect of matters that are inherently uncertain.

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Income Taxes

        We account for income taxes using the asset and liability method. This method requires recognition of deferred tax assets and liabilities for expected future tax consequences of temporary differences that currently exist between the tax basis and financial reporting basis of our assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates in the respective jurisdictions in which we operate. We consider the need to establish valuation allowances to reduce deferred income tax assets to the amounts that we believe are more likely than not to be recovered.

        We recognize the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

        Significant accounting judgment is required in determining the provision for income taxes and related accruals, deferred tax assets and liabilities. In the ordinary course of business, there are transactions and calculations where the ultimate tax outcome is uncertain. In addition, we are subject to periodic audits and examinations by the Internal Revenue Service and other state and local taxing authorities. Although we believe that our estimates are reasonable, actual results could differ from these estimates.

        To the extent we prevail in matters for which reserves have been established, or are required to pay amounts in excess of our reserves, our effective income tax rate in a given financial statement period could be materially affected. An unfavorable tax settlement would require use of our cash and would result in an increase in our effective income tax rate in the period of resolution. A favorable tax settlement would be recognized as a reduction in our effective income tax rate in the period of resolution.

Impairment of Long-Lived Assets

        We assess our long-lived assets, principally property and equipment, for possible impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability is measured by a comparison of the carrying amount of the assets to the future undiscounted cash flows expected to be generated by the assets. We aggregate long-lived assets at the store level which we consider to be the lowest level in the organization for which independent identifiable cash flows are available. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent the carrying value exceeds its fair value.

        Our judgment regarding events or changes in circumstances that indicate an asset's carrying value may not be recoverable is based on several factors such as historical and forecasted operating results, significant industry trends and other economic factors. Further, determining whether an impairment exists requires that we use estimates and assumptions in calculating the future undiscounted cash flows expected to be generated by the assets. These estimates and assumptions look several years into the future and include assumptions on future store revenue growth, potential impact of operational changes, competitive factors, inflation and the economy. Application of alternative assumptions could produce materially different results.

Quantitative and Qualitative Disclosures about Market Risk

        We are exposed to interest rate changes of our long-term debt. We do not use financial instruments for trading or other speculative purposes.

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Interest Rate Risk

        Our principal exposure to market risk relates to changes in interest rates with respect to our term loan and revolving credit facility. Our term loan and revolving credit facility carry floating interest rates that are tied to one month LIBOR, and therefore, our statements of income and our cash flows are exposed to changes in interest rates. Based upon a sensitivity analysis at March 31, 2012, a hypothetical 100 basis point change in interest rates would change our annual interest expense by approximately $254,000.

        As noted above, we expect to use the proceeds from this offering to pay off our term loan and repay outstanding amounts under our revolving credit facility. Accordingly, we expect our interest rate exposure to decrease following this offering until we borrow additional amounts under our revolving credit facility. We do not use derivative financial instruments for speculative or trading purposes; however, this does not preclude our adoption of specific hedging strategies in the future.

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BUSINESS

Our Company

        Natural Grocers is a rapidly expanding specialty retailer of natural and organic groceries and dietary supplements. We focus on providing high-quality products at affordable prices, exceptional customer service, nutrition education and community outreach. We strive to generate long-term relationships with our customers based on transparency and trust by:

    selling only natural and organic groceries and dietary supplements that meet our strict quality guidelines—we do not approve for sale grocery products that are known to contain artificial colors, flavors, preservatives, sweeteners, or partially hydrogenated or hydrogenated oils;

    utilizing an efficient and flexible small-store format to offer affordable prices and a shopper-friendly retail environment; and

    enhancing our customers' shopping experience by providing free science-based nutrition education to help our customers make well-informed health and nutrition choices.

        We have significantly expanded from 27 stores in three states as of September 30, 2008 to 55 stores in 11 states as of June 30, 2012, including Colorado, Idaho, Kansas, Missouri, Montana, Nebraska, New Mexico, Oklahoma, Texas, Utah and Wyoming. We successfully opened six, six and ten new stores during the fiscal years ended September 30, 2009, 2010 and 2011, respectively, and six new stores in the nine months ended June 30, 2012. We plan to open four new stores in the remainder of fiscal year 2012. As of March 31, 2012, we had over 40 consecutive quarters of positive comparable store sales growth, including comparable store sales growth of 2.6%, 2.1% and 4.9% for the fiscal years ended September 30, 2009, 2010 and 2011, respectively, and 10.2% for the six months ended March 31, 2012 compared to the six months ended March 31, 2011. Our growth has been further evident during the recent economic cycle, with attractive compound annual growth rates of 13.3% and 10.4% in net sales and EBITDA (a non-GAAP measure), respectively, from fiscal year 2009 to fiscal year 2011. Over the same period, our net sales increased from $206.1 million to $264.5 million, net income decreased from $5.1 million to $4.6 million and EBITDA increased from $12.4 million to $15.1 million.

Our History and Founding Principles

        Our founders, Margaret and Philip Isely, were early proponents of the connection between health and the use of natural and organic products and dietary supplements. In the mid-1950's, Margaret transformed her health and the health of her family by applying concepts and principles she learned from books on nutrition. This inspired the Iselys to provide the same type of nutrition education to their community. The Iselys initially started by lending books on nutrition and providing samples of whole grain bread door-to-door in Golden, Colorado and ultimately concluded they could develop a viable business that would also improve their customers' well being. Over time, they fostered relationships through nutrition education and began taking orders for dietary supplements, whole grain bread and unprocessed foods. As their customers gained more knowledge about nutrition, they were empowered to make changes to their diets in order to support their health. Using this model as the foundation for their business, the Iselys opened their first store in 1958, which they later moved to a modest cottage.

        We are committed to maintaining the following founding principles, which have helped foster our growth:

    Nutrition Education.   We provide nutrition education in the communities we serve. Empowering our customers and our associates to take charge of their lives and their health is the foundation upon which our business is built.

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    Quality.   Every product on our shelves must go through a rigorous screening and approval process. Providing the highest quality groceries and supplements; Natural Grocers branded products; and only USDA, certified organic, fresh produce at the best prices in the industry is part of our mission.

    Everyday Affordable Pricing.   We work hard to secure the best possible prices on all of our customers' favorite natural and organic foods and supplements. We believe everyone should be able to afford to take care of their health and buy quality natural and organic products.

    Community.   From free nutrition education lectures, to bag-free checkouts, to sourcing local products, to our donation program, we work hard to serve the communities that help shape our world.

    Associates.   Our associates are what makes our company great. We work hard to ensure that our associates are able to live a healthy, balanced lifestyle. We support them with free nutrition education programs, good pay and excellent benefits.

        In 1998, the second generation of the family, including Kemper Isely, Zephyr Isely, Heather Isely and Elizabeth Isely purchased our predecessor and the "Vitamin Cottage" trademark and assumed control of the business. Since then, we have grown our store count from 11 stores in Colorado to 55 stores in 11 states as of June 30, 2012. We have also implemented numerous organizational and operational improvements that have enhanced our ability to scale our operations. We believe that by staying true to our founding principles, we have been able to continue to attract new customers, extend our geographic reach and further solidify our competitive position.

Our Markets

        We operate within the natural products retail industry, which is a subset of the large and stable U.S. grocery industry. This industry includes conventional, natural, gourmet and specialty food markets, mass and discount retailers, warehouse clubs, independent health food stores, dietary supplement retailers, drug stores, farmers markets, mail order and online retailers, and multi-level marketers. According to the Nutrition Business Journal, a nutrition industry publication, total food sales in the U.S. were $631.9 billion in 2010, an increase of 0.7% over 2009.

        Natural and organic food sales in the U.S. have grown at a faster rate than total food sales in the U.S. According to the Nutrition Business Journal:

    Natural and organic food sales in the U.S. totaled $41.3 billion in 2010, an increase of 8.1% over 2009.

    Natural and organic food sales have grown from $13.0 billion in 2000 to $41.3 billion in 2010, representing a compound annual growth rate of 12.3%.

    As a percentage of total food sales, natural and organic food sales increased from 2.6% to 6.5% from 2000 to 2010.

    Organic food sales have grown from $5.8 billion in 2000 to $23.4 billion in 2010, representing a compound annual growth rate of 15.0%.

        The dietary supplement industry has also experienced significant sales growth. According to the Nutrition Business Journal:

    Dietary supplement sales have grown from $17.2 billion in 2000 to $28.1 billion in 2010, representing a compound annual growth rate of 5.0%.

    Dietary supplement sales totaled $28.1 billion in 2010, an increase of 4.4% over 2009.

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    Included as part of this category, vitamin sales represented $9.6 billion in 2010, an increase of 4.9% over 2009.

        We believe the growth in sales of natural and organic foods and dietary supplements is being driven by numerous factors, including:

    an increasing consumer focus on high-quality nutritional products;

    heightened awareness of the importance of good nutrition to long-term wellness;

    an aging U.S. population seeking to support healthy aging;

    increasing consumer concerns over the purity and safety of food as a result of the presence of pesticide residues, growth hormones, artificial ingredients and genetically engineered ingredients in foods;

    increasing consumer concerns over the use of harmful chemical additives in body care and household cleaning supplies;

    the continued emergence of well-established natural and organic brands, which generate additional industry awareness and credibility with consumers; and

    a growing population of consumers with unique dietary requirements.

Our Competitive Strengths

        We believe we are well-positioned to capitalize on favorable natural and organic grocery and dietary supplement industry dynamics as a result of the following competitive strengths:

        Strict focus on high-quality natural and organic grocery products and dietary supplements.     We offer high-quality products and brands, including an extensive selection of widely-recognized natural and organic food, dietary supplements, body care products, pet care products and books. We offer our customers an average of approximately 18,000 SKUs of natural and organic products per store, including an average of approximately 7,000 SKUs of dietary supplements. We believe this product offering enables our customers to utilize our stores for all of their grocery and dietary supplement purchases. In our grocery departments, we only sell USDA certified organic produce and do not approve for sale products that are known to contain artificial colors, flavors, preservatives, sweeteners, or partially hydrogenated or hydrogenated oils. Consistent with this strategy, our merchandise selection does not include conventional products or merchandise that does not meet our strict quality guidelines. Our store managers enhance our robust product offering by customizing their stores' selections to address the preferences of local customers. All products undergo a stringent review process to ensure the products we sell meet our strict quality guidelines, which helps us generate long-term relationships with our customers based on transparency and trust.

        Engaging customer service experience based on education and empowerment.     We strive to consistently offer exceptional customer service in a shopper-friendly environment, which we believe creates a differentiated shopping experience and generates repeat visits from our loyal customer base. Our customer service model is focused on providing free nutrition education to our customers. This focus provides an engaging retail experience while also empowering our customers to make informed decisions about their health. We offer our science-based nutrition education through our trained associates, Health Hotline newsletter and sales flyer, one-on-one nutrition health coaching and nutrition classes. Our commitment to nutrition education and customer empowerment is emphasized throughout our entire organization, from executive management to store associates. Every store also maintains a Nutritional Health Coach position. The Nutritional Health Coach is responsible for training our store associates and educating our customers in accordance with applicable local, state and federal regulations. Each Nutritional Health Coach must have earned a degree or certificate in nutrition, human sciences or a related field from an accredited school, complete continuing education in

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nutrition, and be thoroughly committed to fulfilling our mission. Substantially all of our Nutritional Health Coaches are full-time employees. We believe our Nutritional Health Coach position is unique within our industry and represents a key element of our customer service model.

        Scalable operations and replicable, cost-effective store model.     We believe our scalable operating structure, attractive new store model, flexible real estate strategy and disciplined approach to new store development allow us to maximize store performance and quickly grow our store base. Our store model is successful in highly competitive markets and has supported significant growth outside of our original Colorado geography. We believe our supply chain and infrastructure are scalable and will accommodate significant growth based on the ability of our primary distribution relationships to effectively service our planned store locations. Our investments in overhead and information technology infrastructure, including purchasing, receiving, inventory, point of sale, warehousing, distribution, accounting, reporting and financial systems support this growth. In addition, we have established effective site selection guidelines, as well as scalable procedures, to enable us to open a new store within approximately nine months from the time of site selection. Our limited offering of prepared foods also reduces real estate costs, labor costs and perishable inventory shrink and allows us to quickly leverage our new store opening costs.

        Experienced and committed team with proven track record.     Our executive management team has an average of 35 years of experience in the natural grocery industry, while our entire management team has an average of over 27 years of relevant experience. Since the second generation of the Isely family assumed control of the business in 1998, we have grown our store count from 11 to 55 stores as of June 30, 2012 while remaining dedicated to our founding principles. Over their tenure, members of our executive management team have been instrumental in establishing a successful, scalable operating model, generating consistently strong financial results and developing an effective site selection and store opening process. The depth of our management experience extends beyond our home office. As of May 1, 2012, 43% of our store managers have tenures of over four years with us, and our store and department managers have average tenures of three to four years with us. In addition, we have a track record of promoting store management personnel from within. We believe our management's experience at all levels will allow us to continue to grow our store base while improving operations and driving efficiencies.

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Our Growth Strategies

        We are pursuing several strategies to continue our profitable growth, including:

        Expand our store base.     We intend to continue expanding our store base through new store openings in existing markets, as well as penetrating new markets, by leveraging our core competencies of site selection and efficient store openings. Based upon our operating experience and research conducted for us by customer analytics firm The Buxton Company, we believe the entire U.S. market can support at least 1,100 Natural Grocers stores, including over 180 additional Natural Grocers stores in the 12 states in which we currently operate or have signed leases. In fiscal year 2011, we opened ten new stores, and we plan to open a total of ten new stores in fiscal year 2012. We intend to target new store openings at or above these levels over the near term.

GRAPHIC

         *Includes signed leases: three leases in Arizona, two leases in Montana and one lease in Colorado.

        Increase sales from existing customers.     We have achieved positive comparable store sales growth for over 40 consecutive quarters. In order to increase our average ticket and the number of customer transactions, we plan to continue offering an engaging customer experience through science-based nutrition education and a differentiated merchandising strategy of delivering affordable, high-quality natural and organic grocery products and dietary supplements. We also plan to utilize targeted marketing efforts to our existing customers, which we anticipate will drive customer transactions and convert occasional, single-category customers into core, multi-category customers.

        Grow our customer base.     We plan to continue building our brand awareness, which we anticipate will grow our customer base. We believe offering nutrition education has historically been one of our most effective marketing efforts to reach new customers and increase the demand for natural and organic groceries and dietary supplements in our markets. We intend to enhance potential customers' nutrition knowledge through targeted marketing efforts, including the distribution of our Health Hotline newsletter and sales flyer, the Internet and social media, as well as an expansion of our educational outreach efforts in schools, businesses and communities, offering lectures, classes, printed and online educational resources and publications, health fairs and community wellness events. In addition to offering nutrition education, we intend to attract new customers with our everyday affordable pricing and to build community awareness through our support of local vendors and charities.

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        Improve operating margins.     We expect to improve our operating margins as we benefit from investments we have made in fixed overhead and information technology, including the implementation of an SAP enterprise resource planning system in fiscal year 2010. We anticipate these investments will support our long-term growth strategy with only a modest amount of additional capital. We expect to achieve economies of scale through sourcing and distribution as we add more stores, and we intend to optimize performance, maintain appropriate store labor levels and effectively manage product selection and pricing to achieve additional margin expansion.

Our Stores

        Our stores offer a comprehensive selection of natural and organic groceries and dietary supplements in a small-store format that aims to provide a convenient, easily shopped and relaxed environment for our customers. Our store design emphasizes a clutter-free, organized feel, a quiet ambience accented with warm lighting and the absence of aromas from meat and seafood counters present in many of our competitors' stores. We believe our core customers consider us a destination stop for their natural and organic products and that we are their primary choice for natural and organic groceries and dietary supplements.

        Our Store Format.     Our stores range from 5,000 to 14,500 selling square feet, and a typical new store averages approximately 9,500 selling square feet. Approximately one quarter of our stores' selling square footage is dedicated to dietary supplements. Some of our stores also include a dedicated community and lecture space. Our stores sell an average of approximately 18,000 SKUs of natural and organic products per store, including an average of approximately 7,000 SKUs of dietary supplements.

        The following diagram depicts a typical new store layout:

GRAPHIC

        Site Selection.     Our real estate strategy is adaptable to a variety of market conditions. When selecting locations for new stores, we use analytical models, based on research provided by The Buxton Company and our extensive experience to identify promising store locations. We typically locate new stores in prime locations which offer easy customer access and high visibility. Many of our stores are near other supermarkets or gourmet food retailers, and we complement their conventional product offerings with high-quality, affordable natural and organic groceries and dietary supplements in an efficient and convenient retail setting. Our site selection model incorporates factors such as target

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demographics, community characteristics, nearby retail activity and other measures in determining viable new store locations and is based on first-hand observation of the community's characteristics surrounding each site. We have a team of associates dedicated to opening new stores efficiently and quickly, typically within nine months from the time of site selection.

        Store Level Economics.     Our new stores require an upfront capital investment of approximately $1.9 million, consisting of capital expenditures of approximately $1.5 million, net of tenant allowances, initial inventory of approximately $300,000, net of payables and pre-opening expenses of approximately $150,000. For our new stores, we target: (1) approximately four years to recoup our initial net cash investment and (2) over 35% cash-on-cash returns by the end of the fifth year following the opening. Our payback period and cash-on-cash return targets assume average annual store-level profit and new store investment levels consistent with our stores that have been opened since January 1, 2005 that satisfy our current site selection guidelines.

        Individual new store investment levels and the performance of new store locations may differ widely from originally targeted levels and from store-to-store due to a variety of factors, and these differences may be material. In particular, investments in individual stores, store-level sales, profit margins, payback periods and cash-on-cash return levels are impacted by a range of risks and uncertainties beyond our control, including those described under the caption "Risk Factors."

Our Focus on Nutrition Education

        Nutrition education is one of our founding principles and is a primary focus for all associates. We believe our emphasis on science-based nutrition education differentiates us from our competitors and creates a unique shopping experience for our customers.

        Our Nutritional Health Coaches are a core element of our nutrition education program. Most of our stores are staffed with a full-time Nutritional Health Coach to educate customers and train associates on nutrition. Nutritional Health Coaches must have earned a degree or certificate in nutrition, human sciences or a related field from an accredited school, complete continuing education in nutrition, and be thoroughly committed to fulfilling our mission. Our Nutritional Health Coaches provide free one-on-one nutrition health coaching to educate and empower customers to make informed nutrition choices. Each Nutritional Health Coach is also responsible for various educational outreach activities, such as nutrition classes, lectures, seminars, health fairs and store tours. Our training and education programs are supplemented by outside experts, online materials and printed handouts. For our associates, our Nutritional Health Coaches are an onsite resource for nutrition training and education. Each Nutritional Health Coach trains our associates on using a compliant educational approach to customer service without attempting to diagnose or treat.

        Additionally, we use our Health Hotline to educate our customers. The Health Hotline is a newsletter and sales flyer which is published eight times per year and includes in-depth articles on health and nutrition, along with a selection of sale items.

Our Products

        Product Selection Guidelines.     We have a set of strict quality guidelines covering all products we sell. For example:

    we do not approve for sale food known to contain artificial colors, flavors, preservatives, sweeteners, or partially hydrogenated or hydrogenated oils, regardless of the proportion of its natural or organic ingredients;

    we only sell USDA certified organic produce;

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    we only sell meats naturally raised without antibiotics, hormone treatments and that were not fed animal by-products; and

    we do not sell wine, beer, liquor or tobacco.

        Our product review team analyzes all new products and approves them for sale based on ingredients, price and uniqueness within the current product set. We actively research new products in the marketplace via our product vendors, private label manufacturers, scientific findings, customer requests and general trends in popular media. Our stores are able to fully merchandise all departments by providing an extensive assortment of natural and organic products. We do not need to sell conventional products to fill our selection, increase our margins, or draw in more customers.

        What We Sell.     We operate both a full-service natural and organic grocery store and a dietary supplement store within a single retail location. The following is a breakdown of our sales mix for the year ended September 30, 2011:

GRAPHIC

        The products in our stores include:

    Grocery.   We offer a broad selection of natural and organic grocery products with an emphasis on minimally processed and single ingredient products that are not known to contain artificial colors, flavors, preservatives, sweeteners, partially hydrogenated oils or hydrogenated oils. Additionally, we carry a wide variety of products associated with special diets such as gluten free, vegetarian and non-dairy. Our grocery products include:

    Produce.   We sell only USDA certified organic produce with an emphasis on sourcing from local organic producers. Our selection varies based on seasonal availability, and we offer a variety of organic produce offerings that are not typically found at conventional food retailers.

    Bulk Food and Private Label Products.   We sell a wide selection of private label products, including nuts, water, dried fruits, grains, granolas, honey, agave nectar, herbs, spices and teas. We also sell peanut and almond butters ground in-store under the Natural Grocers brand.

    Dry, Frozen and Canned Groceries.   We offer a wide variety of natural and organic dry, frozen and canned groceries, including cereals, soups, frozen entrees and snack items. We offer a broad selection of natural chocolate bars, and energy, protein and food bars.

    Meats and Seafood.   We only offer naturally-raised and/or organic meat products. The meat products we offer are not treated with antibiotics, hormones or fed animal by-products.

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        Additionally, we only buy from companies we believe employ humane animal-raising practices. Our seafood items are generally frozen at the time of processing and sold from our freezer section, thereby ensuring freshness and reducing food spoilage and safety issues.

      Dairy Products and Dairy Substitutes.   We offer a broad selection of natural and organic dairy products, such as cheeses, yogurts and beverages as well as non-dairy substitutes made from almonds, coconuts, rice and soy.

      Prepared Foods.   Our stores have a convenient selection of refrigerated prepared food items, including salads, sandwiches and wraps. The size of this offering varies by location.

      Bread and Baked Goods.   We receive regular deliveries of a wide selection of bakery products for our fresh bakery section, which includes an extensive selection of gluten-free items.

      Beverages.   We offer a wide variety of beverages containing natural and organic ingredients. We also offer low-cost, self-serve filtered drinking water that is dispensed into one-gallon or larger containers provided by our customers.

    Dietary Supplements.   Our dietary supplement department primarily sells name-brand supplements, as well as an extensive line of private label dietary supplements. The department is carefully organized to help both associates and customers find products efficiently. We generally offer several different formulations and potencies for each type of product in order to meet our customers' varying needs.

    Other.   

    Body Care.   We offer a full range of cosmetics, skin care, hair care, fragrance and personal care products containing natural and organic ingredients. Our body care offerings range from bargain-priced basics to high-end formulations.

    Pet Care.   We offer a full line of natural pet care and food products which comply with our human food guidelines.

    Household and General Merchandise.   We offer sustainable household products, including cleaning supplies, paper products, dish and laundry soap and other common household products.

    Books and Handouts.   We stock approximately 350 titles in our book department. Titles cover various approaches to diet, lifestyle and health. Additionally, we offer approximately 300 handouts on various health topics and dietary supplements to our customers free of charge.

        Quality Assurance.     We endeavor to ensure the quality of the products we sell. We work with reputable suppliers we believe to be in compliance with established regulatory and industry guidelines. Our purchasing department requires a complete supplier and product profile as part of the approval process. Our dietary supplement suppliers must follow FDA good manufacturing practices supported by quality assurance testing for both the base ingredients and the finished product. We expect our suppliers to comply with industry best practices for food safety.

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        Many of our suppliers are inspected and certified under the USDA National Organic Program, voluntary industry associations, and other third party auditing programs with regard to additional ingredients, manufacturing and handling standards. Each Natural Grocers store is certified as an organic handler and processor by an accredited USDA certifier in the calendar year after it opens. We operate all of our stores in compliance with National Organic Program standards, which require segregation of organic and conventional products, restricted use of certain substances for cleaning and pest control, and rigorous recordkeeping, among other requirements.

Our Pricing Strategy

        We have an everyday affordable pricing strategy, while also providing special sale pricing on hundreds of additional items. We believe our everyday affordable pricing strategy allows our customers to shop our stores on a regular basis for their groceries and dietary supplements.

        Our pricing strategies include the following:

    everyday affordable pricing throughout our stores;

    heavily advertised Health Hotline deals supported by manufacturer participation;

    in-store specials generally lasting for one month and not advertised outside the store;

    managers' specials, such as clearance, overstock, short-dated or promotional incentives; and

    specials on seasonally harvested produce.

        As we continue to expand our store base, we believe there are opportunities for increased leverage in fixed costs, such as administrative expenses, as well as increased economies of scale in sourcing products. We continually strive to keep our product, operating and general and administrative costs low in order to continue to offer attractive pricing for our customers.

Our Store Operations

        Store Hours.     Our stores are open seven days a week, generally from 8:56 a.m. to 8:04 p.m. Monday through Saturday, and Sunday from 9:56 a.m. to 6:06 p.m.

        Store Management and Staffing.     Our stores are managed by a manager and assistant manager, with department managers in each of the dietary supplement, grocery, dairy and frozen, produce, body care and receiving departments. Each store manager is responsible for managing their monthly store profit and loss, including labor, merchandising and inventory costs. We also employ regional managers to oversee all store operations for regions consisting of approximately 12 to 15 stores.

        Each store is staffed with several non-management associates. To ensure a high level of service, associates receive ongoing nutrition training. Associates are carefully trained and evaluated to ensure they present nutrition information in an appropriate and legally compliant educational context while interacting with customers. Additionally, store associates are cross-trained in various functions, including cashier duties, stocking and receiving product.

        All associates are eligible to participate in our incentive compensation plan after 90 days of employment for management level associates and after one year of employment for non-management level associates. The criteria for incentive compensation include meeting sales projections, sales to labor hour goals and cost of goods sold metrics, which help align all store associates with both corporate and store-level financial goals. We have an established set of operating procedures, which includes hiring and human resource policies, training practices and operational instruction manuals. This allows each store to operate with strict accountability and still maintain independence to respond to its unique circumstances.

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        Every store also maintains a Nutritional Health Coach position. The Nutritional Health Coach is responsible for training our store associates and educating our customers in accordance with applicable local, state and federal regulations. Substantially all of our Nutritional Health Coaches are full-time employees.

        Bulk Food Repackaging Facility and Distribution Center.     We operate a 42,000 square foot bulk food repackaging facility and distribution center in Englewood, Colorado. The facility handles several different operational functions, including distribution of a limited number of grocery and dietary supplement lines. The facility also houses our private label bulk foods repackaging lines. We plan to move to a new 107,000 square foot bulk food repackaging facility and distribution center in Golden, Colorado during the fourth quarter of fiscal year 2012. The distribution center maintains a small fleet of commercial delivery trucks for use primarily within Colorado.

        Inventory.     We use a robust merchandise management and perpetual inventory system that values goods at moving average cost. We manage shelf stock based on weeks-on-hand relative to sales, resupply time and minimum economic order quantity.

        Sourcing and Vendors.     We source from over 500 suppliers, which include over 1,950 brands. These suppliers range from small mom-and-pop businesses to multi-national conglomerates. As of September 30, 2011, we purchased approximately 78.4% of the goods we sell from our top 20 suppliers.

        We contract with third-party manufacturers to produce groceries and dietary supplements under our private labels, which include the Natural Grocers, Vitamin Cottage, Clarion and Builders Foundation brands. We have longstanding relationships with our suppliers, and we require disclosure from them regarding quality, freshness, potency and safety data information. Our bulk food private label products are packaged by us in pre-packed sealed bags to help prevent contamination while in transit and in our stores. Unlike most of our competitors, most of our private label nuts, trail mix and flours are refrigerated in our warehouse and stores to maintain freshness.

        For the year ended September 30, 2011, approximately 46.4% of our total purchases were from United Natural Foods Inc., or UNFI. In addition, 6.6% of our purchases were from Albert's Organics, a subsidiary of UNFI that distributes fresh produce and meat. We maintain good relations with UNFI and believe we have adequate alternative supply methods, including self-distribution.

Our Associates

        Commitment to our associates is one of our five founding principles. Associates are eligible for health, disability and dental insurance coverage after they meet eligibility requirements. We believe we pay above average retail wages, and all associates earn an additional $0.75 per hour, up to $30 a week, in "Vitamin Bucks" which can be used to purchase products in our stores. It is important to us that our associates live a healthy, balanced lifestyle, and we believe the Vitamin Bucks incentive provides an additional resource for our associates to purchase natural and organic products. This further offers our associates the opportunity to become more familiar with our products, which we believe improves the customer service our associates are able to provide. Additionally, associates are offered a 401(k) retirement savings plan. We believe these and other factors result in higher retention rates and encourage our associates to appreciate our culture, which helps them better promote our brand.

        As of March 31, 2012, we employed 1,255 full-time and 266 part-time (less than 30 hours per week) associates, including 141 associates at our home office. None of our associates are subject to a collective bargaining agreement. We believe we have good relations with our associates.

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Our Customers

        The growth in the natural and organic grocery and dietary supplement industries and growing consumer interest in health and nutrition has led to an increase in our core customer base. We believe the demand for affordable, nutritious food and dietary supplements are shared attributes of our core customers, regardless of their socio-economic status. Additionally, we believe our core customer prefers a retail store environment that offers carefully-selected natural and organic products and dietary supplements. Our customers tend to be interested in health and nutrition, and expect our store associates to be highly knowledgeable about these topics and related products.

        An analysis of our Health Hotline subscriber database indicates that our customers come from broad geographic segments, including urban, suburban, second city and rural areas, which reflects the varied characteristics and portability of our store locations.

Our Communities

        One of our founding principles is to be an active member and steward of the communities we serve. As a commitment to this principle, we:

    provide extensive free educational services to customers in the form of lectures, classes, printed resources, online resources, publications and one-on-one nutrition coaching;

    participate in health fairs, school outreach, community wellness events and other activities to engage with and educate the community;

    disseminate new research on nutrition information;

    participate in the legislative and regulatory process at local, state and national levels so that our customers have access to quality food and dietary supplements and the educational resources to guide their own wellness;

    continually strive to source products and services from local producers and vendors;

    carefully collect all of our excess or distressed food and merchandise and donate it to local non-profit organizations;

    provide cash to local food banks, making donation determinations based on the number of customers who shop our stores with their own bags;

    do not provide paper or plastic bags at our registers and encourage use of reusable totes;

    reduce our energy costs and carbon footprint using efficient HVAC, lighting and refrigerating systems;

    implement strategies to eliminate excess packaging, energy and transportation costs;

    recycle and reuse paper, plastic, glass and electronic products whenever possible; and

    use healthy and environmentally responsible building materials and finishes in our new stores and remodels.

Marketing, Advertising and Online Sales

        A significant portion of our marketing efforts is focused on educating our customers on the benefits of natural and organic grocery products and dietary supplements. Our customer outreach programs provide practical general nutrition knowledge to a variety of groups and individuals, schools, businesses, families and seniors. These educational efforts fulfill one of our founding principles and also offer us the opportunity to build relationships with our customers.

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        Health Hotline.     At the heart of our marketing efforts is our Health Hotline, a 20-page newsletter and sales flyer which is published eight times a year and mailed to nearly 140,000 subscribers by U.S. Mail. In addition, over 1.5 million abridged versions of the Health Hotline are inserted into the Sunday newspaper of many of our communities 35 times per year, and an email version is distributed approximately twice a month to over 36,000 subscribers. The Health Hotline contains a mix of six to eight in-depth health and nutrition articles, along with a selection of popular sale items. The articles are relevant, science-based and written to reflect the most recent research findings. Generally, we negotiate with our suppliers for significantly lower costs on Health Hotline sale items, which in turn allows us to offer low sale prices to our customers. We believe both store visits and online sales increase when the Health Hotline is published.

        Web Sites and Social Media.     We maintain www.naturalgrocers.com as our official company website to host store information, sales flyers, educational materials, product information, policies and contact forms, advocacy and news items and e-commerce activities. We believe the continued growth of site visitors, page views and other metrics of our website shows that our content is timely and compelling to our communities. Our website is interlinked with other online and social media outlets, including Facebook, Foursquare, Google Places, YELP, Twitter, Pinterest and others.

        Television Commercials.     We occasionally run television commercials in our markets. The spots are shot locally and primarily feature members of the Isely family.

        Online Sales.     Our e-commerce sales department provides customers with access to an extensive selection of dietary supplements, body care, dry grocery and bulk food products primarily through www.naturalgrocers.com and www.vitamincottage.com . Internet sales accounted for less than 1% of our total sales in fiscal year 2011. All orders and inquiries generated via the Internet are handled by our Internet sales associates. Our Internet sales associates receive the same high level of education and training as our store associates, and they provide our online customers the same high-quality customer service offered in our stores.

Properties

        As of June 30, 2012, we had 55 stores located in 11 states, as shown in the chart below:

State
  Number
of Stores
 
State
  Number
of Stores
 
Colorado     30   New Mexico     4  
Idaho     1   Oklahoma     1  
Kansas     3   Texas     10  
Missouri     1   Utah     1  
Montana     1   Wyoming     2  
Nebraska     1            

        In fiscal year 2011, we opened ten new stores, and we plan to open a total of ten new stores in fiscal year 2012. We opened six new stores in the nine months ended June 30, 2012 and plan to open an additional four new stores in the remaining three months of fiscal year 2012. We have signed leases for all four of the new stores expected to open in fiscal year 2012 and two additional leases signed for stores expected to open in fiscal year 2013.

        Our home office is located in Lakewood, Colorado. We occupy our home office under a lease for approximately 35,000 square feet that expires in 2026; this facility is co-located with one of our stores.

        All of our stores and facilities are leased, with varying terms and renewal options. The typical lease term is between ten and 15 years, with additional renewal options. We do not believe that any individual store property is material to our financial condition or results of operations. Of the current

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leases for our stores, none expire in fiscal 2012, four expire in fiscal 2013, two expire in fiscal 2014 and the remainder will expire between fiscal 2015 and 2027. We expect that we will be able to renegotiate these leases or relocate these stores as necessary.

        In addition to new store openings, we remodel or relocate stores periodically in order to improve performance. For fiscal year 2012, we have no stores scheduled for remodel and one store scheduled to be relocated.

Competition

        The food retail business is a large, highly-fragmented and competitive industry. Our competition varies by market and includes conventional supermarkets such as Kroger and Safeway, mass or discount retailers such as Walmart and Target, natural and gourmet markets such as Whole Foods and The Fresh Market, specialty food retailers such as Sprouts and Trader Joe's, warehouse clubs such as Sam's Club and Costco, independent health food stores, dietary supplement retailers, drug stores, farmers markets, mail order and online retailers, and multi-level marketers. Each of these outlets competes with us on the basis of price, selection, quality, customer service, shopping experience or any combination of these factors. We believe our commitment to carrying only carefully vetted, affordably priced and high-quality natural and organic products and dietary supplements differentiates us in the industry.

Seasonality

        Our business is active throughout the calendar year and does not experience significant fluctuation caused by seasonal changes in consumer purchasing.

Insurance and Risk Management

        We use a combination of insurance and self-insurance to cover workers' compensation, automobile and general liability, product liability, director and officers' liability, associate healthcare benefits and other casualty and property risks. Changes in legal trends and interpretations, variability in inflation rates, changes in the nature and method of claims settlement, benefit level changes due to changes in applicable laws, insolvency of insurance carriers and changes in discount rates could all affect ultimate settlements of claims. We evaluate our insurance requirements on an ongoing basis to ensure we maintain adequate levels of coverage.

Trademarks and other Intellectual Property

        We believe that our intellectual property is important to the success of our business. We have received the registration of trademarks for "Vitamin Cottage," "Vitamin Cottage Natural Grocers" and "Health Hotline" for appropriate categories of trade. We do not own or license for use any patents, franchises or concessions on which our business depends. Our trademarks are generally valid and may be renewed indefinitely as long as they are in use and/or their registrations are property maintained.

Information Technology Systems

        We have made significant investments in overhead and information technology infrastructure, including purchasing, receiving, inventory, point of sale, warehousing, distribution, accounting, reporting and financial systems. We use an SAP enterprise resource planning system with integrated merchandise management, reporting and accounting system at all of our stores, as well as at our bulk food repackaging facility and distribution center, and for corporate functions including accounting, reporting and purchasing. We completed our Company-wide SAP implementation in fiscal year 2010 including software to manage inventory management capability, such as purchasing, planning, receiving and production planning, and increased accounting and reporting functions, aided by the implementation of

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a data warehouse. Our ERP system application support and hardware are outsourced which allows us to focus on our core business.

Regulatory Compliance

        The safety, formulation, manufacturing, processing, packaging, importation, labeling, promotion, advertising and distribution of products we sell in our stores, including private label products, are subject to regulation by several federal agencies, including the Food and Drug Administration, or the FDA, the Federal Trade Commission, or the FTC, the United States Department of Agriculture, or the USDA, the Consumer Product Safety Commission and the Environmental Protection Agency and various agencies of the states and localities. Pursuant to the Food, Drug, and Cosmetic Act, or the FDCA, the FDA regulates the safety, formulation, manufacturing, processing, packaging, labeling, importation and distribution of food and dietary supplements (including vitamins, minerals, amino acids and herbs). In addition, the FTC has jurisdiction to regulate the promotion and advertising of these products.

        Dietary Supplements.     The FDCA has been amended several times with respect to dietary supplements, in particular by the Dietary Supplement Health and Education Act of 1994, or DSHEA. DSHEA established a framework governing the composition, safety, labeling, manufacturing and marketing of dietary supplements, defined "dietary supplement" and "new dietary ingredient" and established new statutory criteria for evaluating the safety of substances meeting the respective definitions. In the process, DSHEA removed dietary supplements and new dietary ingredients from pre-market approval requirements that apply to food additives and pharmaceuticals and established a combination of "notification" and "post marketing controls" for regulating product safety, however, non-dietary ingredients in a dietary supplement remain subject to the FDA's food additive authorities. The FDA does not require notification to market a dietary supplement if it contains only dietary ingredients that were present in the U.S. food supply prior to DSHEA's enactment on October 15, 1994. However, for a dietary ingredient not present in the food supply prior to this date, the manufacturer must provide the FDA with information supporting the conclusion that the ingredient will reasonably be expected to be safe at least 75 days before introducing a new dietary ingredient into interstate commerce. As required by the FSMA, the FDA issued draft guidance in July of 2011, which attempts to clarify when an ingredient will be considered a "new dietary ingredient," the evidence needed to document the safety of a new dietary ingredient, and appropriate methods for establishing the identity of a new dietary ingredient. In particular, the new guidance may cause dietary supplement products available in the market before DSHEA to now be classified to include a "new dietary ingredient" if the dietary supplement product was produced using manufacturing processes different from those used in 1994.

        DSHEA also empowered the FDA to establish binding good manufacturing practice regulations governing key aspects of the production of dietary supplements. DSHEA expressly permits dietary supplements to bear statements describing how a product affects the structure, function and/or general well-being of the body. Although manufacturers must be able to substantiate any such statement, no pre-market approval authorization is required for such statements and manufacturers need only notify FDA that they are employing a given claim. No statement may expressly or implicitly represent that a dietary supplement will diagnose, cure, mitigate, treat, or prevent a disease. DSHEA does, however, authorize supplement sellers to provide "third-party literature," (e.g., a reprint of a peer-reviewed scientific publication linking a particular dietary ingredient with health benefits) in connection with the sale of a dietary supplement to consumers. This provision is an exception to the FDA's broad powers over the promotion of regulated products. Accordingly, the authorization is limited and applies only if the publication is printed in its entirety, is not false or misleading, presents a balanced view of the available scientific information and does not "promote" a particular manufacturer or brand of dietary supplement, and is displayed in an area physically separate from the dietary supplements.

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        Food.     The FDA has comprehensive authority to regulate the safety of food and food ingredients other than dietary supplements. Food additives and food contact substances are subject to pre-market approvals or notification requirements. The FDA's overall food safety authority was dramatically enhanced in 2011 with the passage of the Food Safety Modernization Act, or FSMA. The FSMA requires the FDA to issue regulations mandating that risk-based preventive controls be observed by the majority of food producers. This authority applies to all domestic food facilities and, by way of imported food supplier verification requirements, to all foreign facilities that supply us with food products. In addition, the FSMA requires the FDA to establish science-based minimum standards for the safe production and harvesting of produce, to identify "high risk" foods and "high risk" facilities and instructs the FDA to set goals for the frequency of FDA inspections of such high risk facilities as well as non-high risk facilities and foreign facilities from which food is imported into the United States. With respect to both foods and dietary supplements, the FSMA meaningfully augments the FDA's ability to access producers' records and suppliers' records which could permit the FDA to identify areas of concern it had not previously considered to be problematic for our suppliers and contract manufacturers. The FSMA gives the FDA authority to require food producers, distributors and sellers to recall adulterated or misbranded food if the FDA determines that there is a reasonable probability that the food will cause serious adverse health consequences to persons or animals. Additionally, the FSMA increases the FDA's authority for administrative detentions of adulterated and misbranded foods. The FSMA is also likely to result in enhanced tracking and tracing of food requirements and, as a result, added recordkeeping burdens upon our suppliers and contract manufacturers.

        The FDA also exercises broad jurisdiction over the labeling and promotion of food. Labeling is a broad concept that, under certain circumstances, extends even to product-related claims and representations made on a company's website or similar printed or graphic medium. All foods, including dietary supplements, must bear labeling that provides consumers with essential information with respect to ingredients, product weight, etc. The FDA administers a pre-market authorization program applicable to foods and supplements alike regarding the use of "nutrient content" claims (e.g., "high in antioxidants," "low in fat," etc.), "health" claims (claims describing the relationship between a food substance and a health or disease condition) and "natural and "all natural" claims. "Organic" claims, however, are primarily regulated by the USDA. In addition, the FDA has authority over products falsely or misleadingly labeled "organic." Products labeled "organic" must be certified by an accredited agent as compliant with USDA-established standards.

        FDA Enforcement.     The FDA has broad authority to enforce the provisions of the FDCA applicable to the safety, labeling, manufacturing and promotion of foods and dietary supplements, including powers to issue a public warning letter to a company, publicize information about illegal products, institute an administrative detention of food, request or order a recall of illegal products from the market, and request the Department of Justice to initiate a seizure action, an injunction action or a criminal prosecution in the United States courts. Pursuant to the FSMA, the FDA also has the power to refuse the import of any food or dietary supplement from a foreign supplier that is not appropriately verified as in compliance with all FDA laws and regulations. Moreover, the FDA has the authority to administratively suspend the registration of any facility producing food, including supplements, deemed to present a reasonable probability of causing serious adverse health consequences.

        Food and Dietary Supplement Advertising.     The FTC exercises jurisdiction over the advertising of foods and dietary supplements. The FTC has the power to institute monetary sanctions and the imposition of "consent decrees" and penalties that can severely limit a company's business practices. In recent years, the FTC has instituted numerous enforcement actions against dietary supplement companies for failure to have adequate substantiation for claims made in advertising or for the use of false or misleading advertising claims.

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        Compliance.     As is common in our industry, we rely on our suppliers and contract manufacturers to ensure that the products they manufacture and sell to us comply with all applicable regulatory and legislative requirements. In general, we seek certifications of compliance, representations and warranties, indemnification and/or insurance from our suppliers and contract manufacturers. However, even with adequate insurance and indemnification, any claims of non-compliance could significantly damage our reputation and consumer confidence in our products. In addition, the failure of such products to comply with applicable regulatory and legislative requirements could prevent us from marketing the products or require us to recall or remove such products from our stores. In order to comply with applicable statutes and regulations, our suppliers and contract manufacturers have from time to time reformulated, eliminated or relabeled certain of their products and we have revised certain provisions of our sales and marketing program.

        Furthermore, to ensure compliant practices, our associates working in our stores are trained regularly on how to provide customer service using an educational approach that is ethical, honest, accurate, and does not cross over into a scope of practice reserved for licensed healthcare professionals. For instance, we do not allow discussion of any "disease" or "cure." Instead, we focus on how the structure and function of the body is affected by lifestyle choices and the different nutritional components of an individual's diet, including those contained in dietary supplements. Our customers are encouraged to make informed decisions about their diet, lifestyle, and possible need for supplementation. We also conduct internal compliance reviews on all free nutrition literature that we make available to our customers upon request with the goal of ensuring that these materials only reference relevant dietary supplement ingredients and not any particular brands or products. One role of the Nutritional Health Coach is to oversee our FDA and FTC compliance measures. We believe that our nutrition education practices are in compliance with federal and state requirements, but a finding to the contrary could pose significant issues with respect to our business and reputation among our customers or otherwise have a material adverse effect on our business.

Legal Proceedings

        We periodically are involved in various legal proceedings that are incidental to the conduct of our business, including but not limited to employment discrimination claims and customer injury claims. When the potential liability from a matter can be estimated and the loss is considered probable, we record the estimated loss. Due to uncertainties related to the resolution of lawsuits and claims, the ultimate outcome may differ from our estimates. Although we cannot predict with certainty the ultimate resolution of any lawsuits, investigations and claims asserted against us, we do not believe any currently pending legal proceeding to which we are a party will have a material adverse effect on our business, prospects, financial condition, cash flows or results of operations.

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MANAGEMENT

Executive Officers and Directors

        Set forth below is information concerning our current executive officers and directors as of June 30, 2012. The business address of all of our executive officers and directors is 12612 West Alameda Parkway, Lakewood, CO 80228.

Name
  Age   Position(s)

Kemper Isely

    50   Chairman, Director and Co-President

Zephyr Isely

    63   Director and Co-President

Heather Isely

    46   Director, Executive Vice President and Corporate Secretary

Elizabeth Isely

    57   Director and Executive Vice President

Michael T. Campbell

    67   Director Nominee*

Sandra Buffa

    59   Chief Financial Officer

*
Appointment to our board effective upon the consummation of this offering.

         Kemper Isely has been a director and our Co-President since 1998. He joined the Company as an employee in 1977 and during his tenure with our company has functioned as Store Manager, Warehouse Manager, Director of Marketing, Director of Purchasing, Director of Operations and Director of Finance.

        We believe Mr. Kemper Isely's qualifications to serve on our board include his knowledge of our company and the food retail industry and his years of leadership at our company.

         Zephyr Isely has been a director and our Co-President since 1998. He joined the Company as an employee in 1969 and during his tenure with our company has functioned as Store Manager, Director of Receiving, Warehouse Manager, Director of Operations, Director of Purchasing, Director of Accounting, Manager of Payroll and Compensation and Director of Information Systems.

        We believe Mr. Zephyr Isely's qualifications to serve on our board include his knowledge of our company and the food retail industry and his extensive management experience at our company.

         Heather Isely has been a director and our Executive Vice President and Corporate Secretary since 1998. Ms. Heather Isely joined the Company as an employee in 1989 and during her tenure with our company has functioned as Produce Coordinator, Store Manager, Manager of Quality Control, Director of Nutrition Education, Manager of Operations, Manager of Compensation, Manager of Training and Director of Human Resources.

        We believe Ms. Heather Isely's qualifications to serve on our board include her knowledge of our company and the food retail industry and prior management experience at our company.

         Elizabeth Isely has been a director and our Executive Vice President since 1998. Ms. Elizabeth Isely joined the Company as an employee in 1977 and during her tenure with our company has functioned as Store Manager, Regional Manager, Director of Operations, Manager of Training and Director of New Store Openings.

        We believe Ms. Elizabeth Isely's qualifications to serve on our board include her knowledge of our company and the food retail industry, her experience in opening our new stores and her extensive management experience at our company.

         Michael T. Campbell has been selected and has agreed to serve as a member of our board, effective immediately following the consummation of this offering. Mr. Campbell has served as a member of the board of directors of Houston Wire & Cable Company (Nasdaq: HWCC) since 2008, has served as the

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chairman of its audit committee since 2009 and as a member of its nominating and corporate governance committee since 2012. Mr. Campbell has also been a member of the board of advisors of Lee Truck Equipment, Inc. (d/b/a Casper's Truck Equipment) since 2007. Mr. Campbell previously served in the technical support department of the national office of Deloitte & Touche LLP and he was also the lead technical accounting and auditing partner in the Denver office prior to his retirement in June 2001.

        We believe that Mr. Campbell's qualifications to serve on the board include his significant experience with financial reporting by public companies and his experience with mergers and acquisitions and capital markets transactions.

         Sandra Buffa has served as our Chief Financial Officer since 2008 when she joined our company. Prior to joining our company, from 2005 to 2007, Ms. Buffa worked at QCE, LLC, the parent company of the Quizno's restaurant chain, as its Chief Financial Officer. From 2001 to 2005, Ms. Buffa was the Chief Financial Officer of Mrs. Fields' Original Cookies, Inc. and also served as the Senior Vice President, Chief Financial Officer and Treasurer of its parent company from 2004 to 2005. From 1998 to 1999, Ms. Buffa was the President and Chief Operating Officer of Crabtree & Evelyn, Ltd, and its Chief Financial Officer in 1998. Ms. Buffa served as the Chief Financial Officer, Senior Vice President of Finance and Treasurer of Vista Optical from 1993 to 1998. Ms. Buffa began her career with the firm of PricewaterhouseCoopers, most recently as a Senior Audit Manager. Ms. Buffa is a Certified Public Accountant.

        Kemper Isely, Zephyr Isely and Heather Isely are siblings. Elizabeth Isely was previously married to a member of the Isely family who is not currently involved in company operations.

Board of Directors

Board Composition

        Our business and affairs are managed under the direction of our board. Our board currently has four members, Kemper Isely, Zephyr Isely, Heather Isely and Elizabeth Isely. Upon the consummation of this offering, our amended and restated bylaws will provide that our board will consist of a number of directors to be fixed from time to time by a resolution of the board. Upon the appointment of Michael T. Campbell as an independent director, which we expect to occur immediately following the completion of this offering, our board will consist of five directors.

        As of the consummation of this offering, our certificate of incorporation and amended and restated bylaws will provide for a staggered, or classified, board of directors consisting of three classes of directors, each serving staggered three-year terms, as follows:

    the Class I director will be Elizabeth Isely and her term will expire at the annual meeting of stockholders to be held in 2013;

    the Class II directors will be Zephyr Isely and Michael T. Campbell and their terms will expire at the annual meeting of stockholders to be held in 2014; and

    the Class III directors will be Heather Isely and Kemper Isely and their terms will expire at the annual meeting of stockholders to be held in 2015.

        Upon expiration of the term of a class of directors, directors for that class will be elected for a three-year term at the annual meeting of stockholders in the year in which that term expires. Each director's term continues until the election and qualification of his or her successor, or his or her earlier death, resignation or removal. Any increase or decrease in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors.

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        The division of our board into three classes with staggered three year terms may delay or prevent stockholder efforts to effect a change of our management or a change in control. See "Risk Factors—Anti-takeover provisions in our organizational documents and Delaware law may discourage or prevent a change in control, even if a sale of the Company would be beneficial to our stockholders, which could cause our stock price to decline and prevent attempts by our stockholders to replace or remove our current management" and "Description of Capital Stock—Anti takeover Effects of Certain Provisions of Our Certificate of Incorporation and Bylaws."

Board Leadership Structure and Risk Oversight

        The Chairman of our board is also the Co-President of our company. Because of his knowledge of and insight into our business, we believe Mr. Kemper Isely is in the best position to focus the attention of our independent directors on matters that are the most critical to our company. In our view, splitting the roles would potentially have the consequence of making our management and governance processes less effective through undesirable duplication of work and, in the worst case, lead to a blurring of clear lines of accountability and responsibility, without any clear offsetting benefits.

        Our board intends to administer its risk oversight function primarily through the audit committee, which will oversee our risk management practices. The audit committee is responsible for, among other things, discussing with management on a regular basis our guidelines and policies that govern the process for risk assessment and risk management. This discussion will include our major risk exposures and actions taken to monitor and control these exposures. Our board believes that its administration of risk management is not affected by our board's leadership structure, as described above.

Controlled Company

        We intend to avail ourselves of the "controlled company" exception under the corporate governance rules of The New York Stock Exchange. Under The New York Stock Exchange rules, a company of which more than 50% of the voting power is held by an individual, group or another company is a "controlled company" and may elect not to comply with certain corporate governance standards. After completion of this offering, certain members of the Isely family holding over 50% of our common stock will be parties to a stockholders agreement pursuant to which they will control the election of our directors, and we will therefore be a "controlled company." As a result, we will elect to not have a majority of "independent directors" on our board, and we will not have a compensation committee composed entirely of "independent directors" as defined under the rules of The New York Stock Exchange. Further, compensation for our executives and selection of our director nominees will not be determined by a majority of "independent directors" as defined under the rules of The New York Stock Exchange. The "controlled company" exception does not modify the independence requirements for the audit committee, and we intend to comply with the requirements of Sarbanes-Oxley and The New York Stock Exchange, which require that our audit committee be composed of at least three members, one of whom will be independent upon the consummation of this offering, a majority of whom will be independent within 90 days from the date of this prospectus and each of whom will be independent within one year from the date of this prospectus.

Committees of the Board

        Our board will establish an audit committee and a compensation committee. Each committee member will be appointed by the board and will serve until his or her successor is elected and qualified, unless he or she is earlier removed or resigns.

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Audit Committee

        Upon the consummation of this offering, we expect to have an audit committee that consists of at least one director who is not otherwise affiliated with either us or the Isely family. The committee will have responsibility for, among other things:

    overseeing management's maintenance of the reliability and integrity of our accounting policies and financial reporting and our disclosure practices;

    overseeing management's establishment and maintenance of processes to assure that an adequate system of internal control is functioning;

    overseeing management's establishment and maintenance of processes to assure our compliance with all applicable laws, regulations and corporate policies;

    reviewing our annual and quarterly financial statements prior to their filing and prior to the release of earnings; and

    reviewing the performance of the independent accountants and making decisions regarding the appointment or termination of the independent accountants and considering and approving any non-audit services proposed to be performed by the independent accountants.

        Mr. Campbell, Mr. Kemper Isely and Ms. Heather Isely will serve on the audit committee upon the consummation of this offering, with Mr. Campbell serving as the chair of the audit committee. Mr. Campbell will be our audit committee financial expert as defined under applicable SEC rules. The audit committee will have the power to investigate any matter brought to its attention within the scope of its duties and to retain counsel for this purpose where appropriate.

        Our board will adopt a written charter for our audit committee, which will be available on our corporate website at www.naturalgrocers.com upon consummation of this offering.

Compensation Committee

        Upon the consummation of this offering, we expect to have a compensation committee that will have responsibility for, among other things:

    reviewing our compensation practices and policies, including equity benefit plans and incentive compensation;

    reviewing key employee compensation policies;

    monitoring performance and compensation of our employee-directors, officers and other key employees; and

    preparing recommendations and periodic reports to the board concerning these matters.

        Ms. Heather Isely, Mr. Kemper Isely and Mr. Campbell will each serve on the compensation committee upon consummation of this offering, with Ms. Heather Isely serving as the chair of the compensation committee.

        Our board will adopt a written charter for our compensation committee, which will be available on our corporate website at www.naturalgrocers.com upon consummation of this offering.

    Compensation Committee Interlocks and Insider Participation

        None of our executive officers currently serve, or in the past year have served, as a member of the board or compensation committee of any entity that has one or more executive officers serving on our board or compensation committee.

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Code of Business Conduct and Ethics

        In connection with this offering, our board will adopt a code of business conduct and ethics that establishes the standards of ethical conduct applicable to all of our directors, officers, including our principal executive, financial and accounting officers, employees, consultants and contractors. The code of business conduct and ethics will address, among other things, competition and fair dealing, conflicts of interest, financial matters and external reporting, protection and use of company funds and assets, confidentiality and corporate opportunity requirements and the process for reporting violations of the code of business conduct and ethics, employee misconduct, conflicts of interest or other violations. Our code of business conduct and ethics will be publicly available on our website at www.naturalgrocers.com . Any waiver of our code of business conduct and ethics with respect to our Co-Presidents, Chief Financial Officer, controller or persons performing similar functions may only be authorized by our audit committee and will be disclosed as required by applicable law.

Director Compensation

        Our directors in 2011 were Kemper Isely, Zephyr Isely, Heather Isely and Elizabeth Isely. All such directors were also executive officers, and they did not receive any compensation for their services as directors in addition to their executive compensation.

        In connection with the offering, our board has engaged the outside consulting firm Frederic W. Cook & Co., Inc., or F. W. Cook, to help develop compensation policies that are appropriate for a public company. Together with F. W. Cook, our board will undertake a review of director and executive officer compensation trends at comparable companies and set compensation programs following the completion of this offering.

        Upon consummation of this offering, only those directors who are considered independent directors under the rules of The New York Stock Exchange will receive compensation from us for their service on our board. Accordingly, Kemper Isely, Zephyr Isely, Heather Isely and Elizabeth Isely will not receive compensation from us for their service on our board. Pursuant to our standard arrangements for the compensation of our independent directors, our independent directors will be compensated for their service as directors, and will receive:

    a base annual retainer of $30,000 in cash;

    an additional annual retainer of $15,000 in cash to serve as our lead independent director, if our board appoints a lead independent director and if applicable;

    an additional annual retainer of $15,000 in cash for serving as the chair of our audit committee and $10,000 in cash for serving as the chair of our compensation committee, if applicable;

    an additional annual retainer of $5,000 in cash for serving as a member of our audit committee, if applicable; and

    an additional annual retainer of $5,000 in cash for serving as a member of our compensation committee, if applicable.

        In addition, each independent director will be granted a number of restricted stock units under our Omnibus Incentive Plan equal to the number of shares of our common stock having a value of $50,000 (based on the closing price of our common stock on the NYSE on the date of grant), which will be granted each year on the date of our annual meeting of stockholders, or a pro rata portion in the case of a mid-year appointment. The restricted stock units will fully vest on the date which is one year after the date of grant and will be settled in shares of our common stock. We expect that our independent directors will be subject to equity ownership guidelines approved by our board, requiring each independent director to, within five years of their initial election to our board, achieve holdings in our equity securities, including vested and unvested restricted stock units, with a value equal to three times the annual cash retainer received. We will also reimburse our directors for reasonable expenses incurred to attend meetings of our board or any committee of our board.

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EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

        The following discussion relates to the compensation of our Co-Presidents, our Chief Financial Officer, and our other two most highly compensated executive officers for the fiscal year ended September 30, 2011 (collectively referred to as our "named executive officers" or "NEOs") whose compensation is disclosed below under "2011 Summary Compensation Table," as well as the overall principles underlying our executive compensation policies as we move towards becoming a public company. We were incorporated in Delaware on April 9, 2012. During the fiscal year ended September 30, 2011, the NEOs were officers of our operating company and the compensation related information presented for fiscal year 2011 relates to compensation received from the operating company. Immediately following the consummation of the offering, the NEOs will be officers of both the operating company and the Company, holding the same executive position with each company.

        Our NEOs for fiscal year 2011 were:

    Kemper Isely, Co-President

    Zephyr Isely, Co-President

    Heather Isely, Executive Vice President

    Elizabeth Isely, Executive Vice President

    Sandra Buffa, Chief Financial Officer

    Objectives of our executive compensation program

        Hiring and retaining our officers and other key employees has been critically important to ensure the continuity and stability required to grow our business. Our executive compensation and benefits program is designed to attract, retain, reward and create incentives for a highly talented and committed team of executive officers who share our vision and desire to work toward our goals.

        Prior to this offering, the operating company was privately held. As a result, the operating company was not subject to requirements regarding the formation and functioning of board committees, such as a compensation committee. The compensation decisions of the operating company have historically been made by its board, which is comprised of four of the NEOs. The board's philosophy is to provide our NEOs with a compensation package that attracts, motivates and retains executive talent and aligns the interests of management with those of the stockholders. Our approach to executive compensation is intended to reward our NEOs for making strong individual contributions to our success and creating long-term value.

        Consistent with this approach, for fiscal year 2011, we did not establish a formal cash-based incentive plan for any of our executive officers other than our Chief Financial Officer. As further described below, the cash incentive compensation we paid to our Chief Financial Officer for fiscal year 2011 was determined at the discretion of our board based on the achievement of quarterly EBITDA targets and a qualitative and subjective evaluation of individual performance and our business results.

    Executive compensation process

        Compensation-setting process.     During fiscal year 2011, our board determined compensation for our executive officers. While a private company, our board relied primarily on its collective experience and the recommendations of our Co-Presidents to make decisions regarding compensation. We intend to establish a compensation committee, which will determine and approve the annual compensation of our Co-Presidents and our other executive officers following the consummation of this offering, and will regularly report its compensation decisions and recommendations to our board. We currently expect the

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compensation committee to consist of Ms. Heather Isely, Mr. Kemper Isely and Mr. Campbell. Our compensation committee will also administer any equity compensation plans we adopt. In April 2012, we retained F. W. Cook as our independent compensation consultant to assist in developing our approach to executive officer and board compensation. As part of this engagement, we expect that F. W. Cook will assist in the continued development of competitive compensation programs for our executive officers and independent board members.

        We have not adopted formal or informal policies or guidelines for allocating compensation between long-term and short-term and between cash and non-cash compensation or among different forms of non-cash compensation.

        Role of management in setting compensation.     Historically, our board has set compensation for our NEOs, including with respect to their own compensation. We expect that our Co-Presidents will provide recommendations to our compensation committee regarding pay levels for all executives.

        Use of market data.     We did not use a peer group in setting fiscal year 2011 or fiscal year 2012 executive compensation, and our board did not target compensation to specific benchmarks against any peer group companies. Following our initial public offering, we expect to make more specific use of market data and may potentially expand our cash incentive compensation policy and initiate the use of equity compensation based on our findings.

Primary elements of compensation

        Base salary.     The overall compensation package is weighted toward a higher base salary, and for four of our NEOs, consists of only base salary. We believe that base salaries are of primary importance to our approach to executive compensation, allowing us to attract and retain our key executives, and reward consistent contributions to our long term success, in a manner that does not encourage excessive risk taking by our executives. As a private company, base salaries have been determined primarily based on the collective experience of our board and its view of appropriate fixed pay in our geographic location and industry. We also take into account nonparticipation in our cash incentive compensation program by all of our NEOs, except Ms. Buffa, and the absence of a long-term incentive program. Base salaries have historically been reviewed periodically by our board. The board takes into account individual performance, internal pay equity, historical compensation practice, incentive program participation and current equity ownership levels. However, our board may exercise its discretion in setting an executive's base salary, taking into account the quality of the executive's overall contribution to our success.

        Incentive awards.     Based on the achievement of quarterly EBITDA targets and a review of both business and individual performance during the fiscal year, our board may approve cash incentive compensation payments to executives participating in our cash-based incentive plan. The achievement of quarterly EBITDA goals is required before our board makes any determination of whether to make incentive compensation payments under the plan. The amount of any payment is based on set target levels and our board's assessment of the participating executive's contribution to our strategic objectives or financial results during a particular quarterly or fiscal period. If a quarterly EBITDA goal is not met, no incentive compensation payment is made for the corresponding quarter, regardless of whether or not strategic or individual performance goals have been met. Even if the quarterly EBITDA target is achieved, our board reserves the sole discretion to exercise negative discretion to the extent it deems reasonable and prudent under the circumstances. For fiscal years 2011 and 2012, Ms. Buffa is our only executive officer participating in our cash-based incentive plan.

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Compensation decisions for fiscal year 2011 and fiscal year 2012

        Base salary.     For fiscal year 2012, base salaries are as follows:

    Kemper Isely, Co-President, $607,800

    Zephyr Isely, Co-President, $576,000

    Heather Isely, Executive Vice President, $528,000

    Elizabeth Isely, Executive Vice President, $528,000

    Sandra Buffa, Chief Financial Officer, $320,000

        Elizabeth Isely's salary was increased by 10.0% from $480,000. The new salary took into account internal pay equity, historical compensation practice, incentive compensation program participation and current equity ownership levels. In making its determination to increase Elizabeth Isely's salary, our board considered Ms. Isely's strong leadership in managing numerous new store openings during fiscal year 2011. Our board also considered that Elizabeth Isely had not received an increase in base salary since fiscal year 2008. Sandra Buffa's salary was increased in June 2012 by 4.8% from $315,000 in connection with the Board's annual determination of Ms. Buffa's salary. Ms. Buffa's annual base salary is now $330,000. No other changes have been made to the salaries of our NEOs since September 30, 2011.

        Incentive awards.     Based on the achievement of certain quarterly EBITDA targets and a review of both business and individual performance during fiscal year 2011, our board approved a cash incentive compensation payment for Ms. Buffa pursuant to our cash-based incentive plan. The achievement of quarterly EBITDA goals was required before our board made a determination on whether to make an incentive compensation payment to Ms. Buffa. The amount of the payment was based on our board's assessment of Ms. Buffa's contribution to our strategic objectives and financial results during the fiscal year. For fiscal year 2011, Ms. Buffa's cash incentive target level was set at 50% of her base salary, and the minimum quarterly EBITDA goal for each quarter within the fiscal year was set at 5.5% of sales. Actual EBITDA as a percent of sales was at or above the minimum quarterly goal for each of the four quarters during fiscal year 2011, and our board determined to pay Ms. Buffa a cash incentive compensation payment for each of the quarters for which the minimum was achieved. In one quarter, the payout level on Ms. Buffa's cash incentive award was 99% of target following review of individual performance targets. For fiscal year 2012, our board has set cash incentive compensation target levels for our only executive officer participating in our cash-based incentive plan, Ms. Buffa, at 50% of base salary.

        Equity compensation.     We currently do not have a long-term incentive program in place and have not granted any equity awards. However, prior to the offering, we expect to adopt an Omnibus Incentive Plan. In addition, under our Chief Financial Officer's employment agreement, we will grant to Ms. Buffa restricted stock units under the Omnibus Incentive Plan upon completion of the offering, equal to 1.2% of the fully diluted shares of the Company at the time of the completion of the offering (including any exercise of the underwriters' overallotment option) (rounded to the nearest whole share), subject to the following terms, assuming a public offering price of $            per share (the midpoint of the estimated range set forth on the cover page of this prospectus):

    Two thirds (or            restricted stock units) will vest immediately, and will be settled 75% in shares of common stock (equal to             shares of common stock) of the Company and 25% in cash (equal to $            ).

    One third (or            restricted stock units) will be settled 100% in shares of common stock (equal to              shares of common stock) of the Company, and will vest in three equal parts: the first part on the date that is six months after completion of the offering, the second part on

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      the date that is 12 months after completion of the offering, and the third part on the date that is 18 months after completion of the offering. Ms. Buffa will forfeit this portion of the award if she is not employed with the Company on the vesting dates.

        Each $1.00 increase (decrease) in the assumed initial public offering price would (assuming the number of shares offered, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us) increase (decrease) the amount of cash payable to our Chief Financial Officer in settlement of vested restricted stock units by $            .

        Severance and change in control arrangements.     As part of our Chief Financial Officer's employment agreement, upon an involuntary termination without cause or voluntary resignation for good reason, Ms. Buffa will receive separation pay in an amount equivalent to her current base salary plus 50% of her target incentive compensation plus an amount equivalent to the cost of COBRA coverage for a period of 12 months.

        The Company does not have any agreements with the other NEOs that provide for cash severance payments upon termination of employment or in connection with a change in control.

        Retirement plan and other benefits and perquisites.     Our NEOs are eligible to participate in our employee benefit plans provided for all company employees. These benefits include a 401(k) plan with discretionary matching employer contributions, group health and life insurance, and short- and long-term disability insurance. We also provide all of our employees with Vitamin Bucks (store credit accrued at $0.75 per hour up to 40 hours per week) and birthday bonus pay (equivalent to a single work day). We may also provide our NEOs with a limited range of perquisites on a case-by-case basis that may include a monthly car allowance, spousal insurance and reimbursement for any out-of-pocket medical insurance expenses.

        Stock ownership guidelines.     We do not have specific equity or other security ownership requirements or guidelines for NEOs. However, given management's significant equity stake in the Company following the consummation of the offering, we do not believe ownership guidelines are needed at this time.

        Recoupment Policy.     We currently do not have a recoupment policy to adjust or recover bonuses or incentive compensation paid to executive officers where such bonuses or payments were based on financial statements that were subsequently restated or otherwise amended in a manner that would have reduced the size of such bonuses or payments. Upon the consummation of this offering, we will become subject to the recoupment requirements under Sarbanes-Oxley, Dodd-Frank and other applicable laws.

        Tax and accounting considerations.     We do not require executive compensation to be tax deductible for our company, but instead balance the cost and benefits of tax deductibility to comply with our executive compensation goals. For example, Section 162(m) of the Internal Revenue Code of 1986, as amended, or the Code, generally disallows a tax deduction to a publicly held corporation for compensation in excess of $1 million paid in any taxable year to its chief executive officer and certain other executive officers unless the compensation qualifies as "performance-based compensation" within the meaning of the Code. As a private company, the deductibility limit of Section 162(m) has not applied to us. Once we are a public company, our board will consider the deductibility of compensation, but will be fully authorized to approve compensation that is not deductible when it believes that such payments are appropriate to attract and retain executive talent.

        Risks from compensation policies and practices.     Our board has not undertaken a comprehensive risk assessment of all compensation policies and practices to determine areas of resulting risk. However, given the current equity ownership levels of our NEOs, the relative simplicity of our current

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compensation program and its weighting towards base salary, a fixed component of compensation, we do not believe that risks arising from our compensation policies and practices for our employees are reasonably likely to have a material adverse effect on us.

    Omnibus Incentive Plan

        In connection with this offering, we expect to adopt an Omnibus Incentive Plan, which we anticipate will include the ability to make equity grants.

2011 Summary Compensation Table

        The following table provides information concerning the compensation earned by our Co-Presidents, Chief Financial Officer, and each of the two other most highly paid executive officers during the year ended September 30, 2011. We refer to the officers listed in the table below collectively as our "NEOs."

Name and Principal Position
  Fiscal
Year
  Salary
($)
  Non-Equity
Incentive Plan
Compensation
($)
  All Other
Compensation
($)(1)
  Total
($)
 

Kemper Isely

    2011     607,800         11,304     619,104  

Co-President

                             

Zephyr Isely

    2011     576,000         11,304     587,304  

Co-President

                             

Heather Isely

    2011     496,000         11,304     507,304  

Executive Vice President

                             

Elizabeth Isely

    2011     480,000         14,804 (2)   494,804  

Executive Vice President

                             

Sandra Buffa

    2011     305,000     150,625     9,801 (3)   465,426  

Chief Financial Officer

                               

(1)
Amounts included in the All Other Compensation column are the following: 401(k) retirement benefit matching contributions and company paid medical insurance premiums.

(2)
Includes spousal medical insurance premiums.

(3)
Includes company Vitamin Bucks and birthday bonus benefits, each of which is described above under "—Retirement plan and other benefits and perquisites."

Grants of Plan Based Awards

        The following table sets forth the grant of a non-equity incentive plan award made to our Chief Financial Officer during fiscal year 2011. No equity awards were made to any of our NEOs during 2011.

 
  Estimated Possible
Payouts Under
Non-Equity Incentive
Plan Awards
 
Name
  Target
($)
  Maximum
($)
 

Sandra Buffa

    152,500 (1)   152,500 (1)

(1)
These amounts consist of the target and maximum cash award levels set per Ms. Buffa's employment agreement under the Company's quarterly cash-based incentive plan.

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Outstanding Equity Awards at Fiscal Year-End

        There are no unvested equity awards held by Kemper Isely, Zephyr Isely, Heather Isely or Elizabeth Isely as of September 30, 2011. As of September 30, 2011, under our Chief Financial Officer's employment agreement with the operating company, she was entitled to an award of restricted stock units described under "—Compensation Discussion and Analysis—Compensation decisions for fiscal year 2011 and fiscal year 2012 —Equity compensation."

Option Exercises and Stock Vested

        None of our NEOs held any equity awards during the year ended September 30, 2011.

Pension Benefits

        None of our NEOs participates in any qualified or non-qualified pension benefit plan sponsored by us.

Nonqualified Deferred Compensation

        None of our NEOs participates in any nonqualified deferred compensation plan sponsored by us.

Employment Agreement

        We have entered into an amended and restated employment agreement with our Chief Financial Officer, Ms. Buffa that supersedes any and all existing employment agreements and offer letters. Ms. Buffa's annual salary, as set forth under "—Compensation Discussion and Analysis—Compensation decisions for fiscal year 2011 and fiscal year 2012," will be reviewed on an annual basis by our board and may be changed by action of the board. Under the amended and restated employment agreement, Ms. Buffa is entitled to participate in our annual and long-term incentive compensation programs under our Omnibus Incentive Plan, and all standard employee benefit plans or programs, including personal time off, our 401(k) plan, our medical and dental insurance plans, Vitamin Bucks and employee discounts.

        Under the amended and restated employment agreement, Ms. Buffa is employed on an "at-will" basis, and, subject to applicable law, her employment may be terminated either by Ms. Buffa or by the Company at any time, for any reason, or no reason, and with or without cause. If her employment with the Company is terminated without cause or for good reason, we will pay Ms. Buffa an amount equal to the sum of her current annual base salary and 50% of current target annual incentive compensation, as well as an additional taxable amount equivalent to the cost of COBRA premiums for twelve months. If Ms. Buffa's employment with the Company is terminated for cause, Ms. Buffa will not be entitled to any salary, benefits, payments or reimbursements, except as required by law. Consistent with her historic employment agreement, under the amended and restated employment agreement, Ms. Buffa will also be entitled to a grant of restricted stock units described under "—Compensation Discussion and Analysis—Compensation decisions for fiscal year 2011 and fiscal year 2012—Equity compensation." Under the amended and restated employment agreement, Ms. Buffa is subject to a confidentiality covenant that extends indefinitely and non-solicitation and non-compete covenants that extend for one year from termination of employment.

        We do not have any employment agreements with any other NEO at this time.

Potential Payments Upon Termination

        The following table describes the potential payments and benefits triggered by a termination of employment of a NEO by us without cause, or by the executive for good reason, assuming the

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employment of the NEO was terminated on September 30, 2011. None of our NEOs other than Ms. Buffa is contractually entitled to any payments as a result of a termination.

Name
  Termination   Cash
Payment
($)
  Medical /
Insurance
Benefits
($)
  Acceleration
of Equity
Awards
($)
  Other
($)(1)
  Total
($)
 

Sandra Buffa

  Without cause or
for good reason
    393,750 (2)   5,834         11,110     410,694  

(1)
Includes accrued amounts through any other company benefit, including accrued vacation and other vested benefits the named executive officer is entitled to receive that are generally available to all full-time employees.

(2)
Amount represents severance payment equal to the named executive officer's current base salary plus 50% of target non-equity incentive awards per the terms of Ms. Buffa's employment agreement.

Equity Compensation Plan

        In connection with this offering, we expect to adopt an Omnibus Incentive Plan, or the Plan, which we anticipate will be effective immediately following the consummation of this offering. The material terms of the Plan are summarized below. The following summary is qualified in its entirety by reference to the complete text of the Plan, a copy of which is filed as an exhibit to the registration statement of which this prospectus forms a part.

    Administration of the Plan

        The Plan will be administered by our board, unless and until such time as the board delegates the administration of the Plan to a committee of the board, or the committee. To the extent the board desires that an award under the Plan be qualified for an exemption under Rule 16b-3 under the Exchange Act, the award must be approved in advance by the board or the committee, which committee must consist of two or more directors of the Company, all of whom qualify as "non-employee directors" within the meaning of Rule 16b-3 under the Exchange Act. To the extent the board desires that compensation delivered pursuant to an award under the Plan be qualified for an exemption under Section 162(m) of the Code, the committee must consist of two or more directors of the Company, all of whom qualify as "outside directors" within the meaning of Section 162(m) of the Code. We refer to the board, or the committee, as applicable, as the "administrator" of the Plan.

    Number of Authorized Shares and Award Limits

        The initial number of shares of our common stock reserved for issuance in connection with awards under the Plan, including incentive stock options will not exceed                  shares, equal to approximately 5% of our common stock outstanding immediately following this offering. The shares to be offered under the Plan may be authorized and unissued common stock, or shares of issued common stock that have been reacquired by us.

        Any shares covered by an award that are forfeited, expired, canceled, settled in cash or otherwise terminated without delivery of shares to the participant will be available for future grants under the Plan. In addition, shares issued with respect to awards assumed by us in connection with any merger, acquisition or related transaction will not reduce the total number of shares available for issuance under the Plan. However, shares surrendered to or withheld by us in payment or satisfaction of the exercise price of an award or any tax withholding obligation with respect to an award will not be available for the grant of new awards. The number and class of shares available under the Plan and

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outstanding awards, as well as the award limits described above, may be equitably adjusted by the administrator in the event of various changes in our capitalization.

    Eligibility and Participation

        Eligibility to participate in the Plan will be limited to employees, non-employee directors and consultants of the Company, or of any affiliate, as the administrator may determine and designate from time to time.

    Type of Awards

        The following types of awards will be available for grant under the Plan: incentive stock options, or ISOs, non-qualified stock options, or NSOs, stock appreciation rights, or SARs, restricted stock, restricted stock units, performance awards, other stock-based awards and cash-based incentive awards.

    Stock Options and SARs .

        Grant of Options and SARs.     The administrator may award ISOs and NSOs, collectively referred to as Options, and SARs to participants. The exercise price per share of an Option or a SAR will be at least 100% of the fair market value per share of our common stock underlying the award on the grant date. The administrator will determine the terms and conditions (including any performance requirements) under which an Option or SAR will become exercisable and will include such information in the award agreement.

        Special Limitations on ISOs.     In the case of a grant of an Option intended to qualify as an ISO to a participant who owns more than ten percent of the total combined voting power of all classes of our outstanding stock, or a 10% stockholder, the exercise price of the Option will not be less than 110% of the fair market value of a share of our common stock on the grant date. Additionally, an Option will constitute an ISO only (i) if the participant is an employee of the Company or a subsidiary of the Company on the date of grant, (ii) to the extent such Option is specifically designated as an ISO in the award agreement and (iii) to the extent that the aggregate fair market value (determined at the time the option is granted) of the shares of common stock with respect to which all ISOs held by such participant become exercisable for the first time during any calendar year (under the Plan and all other plans of the participant's employer and its affiliates) does not exceed $100,000.

        Exercise of Options and SARs.     An Option or SAR may be exercised by the delivery to us of written notice of exercise and payment in full of the exercise price in cash or by such other method as the administrator may permit in its sole discretion. Upon exercise of a SAR, the participant will receive a payment equal to the excess of (i) the fair market value of one share of our common stock on the date of exercise over (ii) the exercise price of the Option or SAR, subject to any applicable tax withholding. If not exercised, Options and SARs will expire at such time as the administrator determines. However, no Option or SAR may be exercised more than ten years from the date of grant, or in the case of an ISO held by a 10% stockholder, not more than five years from the date of grant.

        Restricted Stock and Restricted Stock Units.     The administrator may award to a participant shares of common stock subject to such terms and conditions as the administrator may establish and as set forth in the applicable award agreement, or restricted stock. The administrator also may award to a participant restricted stock units representing the right to receive shares of common stock in the future. The applicable award agreement will provide that the shares of restricted stock or restricted stock units are subject to forfeiture if the participant does not meet certain conditions such as continued employment over a specified period or the attainment of specified performance targets over such period.

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        Performance Awards.     The administrator may grant performance awards to participants, which entitle participants to receive a payment from the Company, the amount of which is based upon the attainment of predetermined performance targets established by the administrator over a specified award period. Performance awards may be paid in cash, shares of common stock or a combination thereof, as determined by the administrator. Performance awards are subject to forfeiture if the participant's employment terminates during the specified award period, except as provided in the applicable award agreement.

        Other Stock-Based Awards.     The administrator may also grant equity-based or equity-related awards, referred to as other stock-based awards, in addition to Options, SARs, restricted stock, restricted stock units or performance awards, such as stock purchase rights and awards of common stock, under such terms and conditions as the administrator may determine and as set forth in the applicable award agreement.

        Cash-Based Incentive Awards.     The Plan will authorize the administrator to award performance-based cash incentive compensation to participants. To the extent that such awards are made to executive officers of the Company who, following the Transition Period (as defined below), include "covered employees" within the meaning of Section 162(m) of the Code, such awards may be structured to qualify as performance-based compensation.

        Dividend Equivalents.     The administrator may provide for the payment or accrual of dividend equivalents with respect to any share-based awards under the Plan, other than Options and SARs. Dividend equivalents awarded in connection with a grant of any performance-based award will not be payable unless and until the performance conditions applicable to the award have been met, or the award otherwise becomes vested in accordance with the award agreement and the Plan.

    Performance Goals

        With respect to awards granted under the Plan following the Transition Period that are intended to qualify as "performance-based compensation" for purposes of Section 162(m) of the Code, the applicable performance targets will be established by the administrator based on one or more of the following measures: sales; net sales; return on sales; revenue, net revenue, gross revenue, product revenue or system-wide revenue (including growth of same); operating income (before or after taxes); pre- or after-tax income or loss (before or after allocation of corporate overhead and bonus); earnings or loss per share (including on a diluted or undiluted basis, before or after taxes); net income or loss (before or after taxes); EBITDA; return on equity; stockholder return or total stockholder return; return on assets or net assets; price of the shares or any other publicly-traded securities of the Company; market share; enterprise value; gross profits; gross or net profit margin; gross profit growth; net operating profit (before or after taxes); operating earnings; earnings or losses or net earnings or losses (including earnings or losses before taxes, before interest and taxes, or before interest, taxes, depreciation and/or amortization); economic value-added models or "value creation" or similar metrics; comparisons with various stock market indices; reductions in costs; cash flow (including, but not limited to, operating cash flow and free cash flow) or cash flow per share (before or after dividends); return on capital (including return on total capital or return on invested capital); cash flow return on investment; cash flow return on capital; improvement in or attainment of expense levels or working capital levels, including cash, inventory and accounts receivable; general and administrative expense savings; inventory control; operating margin; gross margin; year-end cash; cash margin; debt reduction; stockholders' equity; return on stockholders' equity; operating efficiencies; cost reduction or savings; customer satisfaction; client retention; customer growth; employee satisfaction; productivity or productivity ratios; financial ratios, including EBITDA margin and those measuring liquidity, activity, profitability or leverage; cost of capital or assets under management; financing and other capital raising transactions (including sales of the Company's equity or debt securities); debt level year-end cash position; book

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value; factoring transactions; competitive market metrics implementation; and completion or attainment of measurable objectives with respect to research, development, manufacturing, commercialization, products or projects, production volume levels, acquisitions and divestitures, succession and hiring projects, reorganization and other corporate transactions, expansions of specific business operations and meeting divisional or project budgets. Any one of these performance targets or goals may be measured with respect to the Company or any one or more of its subsidiaries, affiliates or divisions and either in absolute terms or as compared to another company or companies.

    Effect of Certain Transactions

        In the event of a change in control of the Company, outstanding awards under the Plan may be subject to accelerated vesting or settlement as provided in the individual award agreements. Upon the occurrence of certain corporate transactions, which may include a change in control, outstanding awards generally will be subject to the terms of the agreement entered into in connection with the transaction, which may provide for the assumption or substitution of awards by the surviving corporation or its parent or subsidiary, for accelerated vesting and accelerated expiration, or for settlement in cash or cash equivalents.

    Deferral Arrangements

        The administrator may permit or require the deferral of any payment under a restricted stock unit or performance award into a deferred compensation arrangement in a manner intended to comply with, or be exempt from, Section 409A of the Code.

    Nontransferability of Awards

        Generally, during the lifetime of a participant, only the participant may exercise rights under the Plan and no award will be assignable or transferable other than by will or laws of descent and distribution. If authorized in the award agreement, a participant may transfer, not for value, all or part of an NSO to certain family members (including trusts and foundations for their benefit). Neither restricted stock nor restricted stock units may be sold, transferred, assigned, pledged or otherwise encumbered or disposed of during the restricted period or prior to the satisfaction of any other restrictions prescribed by the administrator.

    Term of Plan

        Unless earlier terminated by our board, the authority to make grants under the Plan will terminate on the date that is ten years after it is adopted by our board.

    Amendment and Termination

        Subject to applicable laws and stock exchange listing standards requiring stockholder approval under certain circumstances, our board may, at any time, amend or terminate the Plan, provided that no such action may be taken that adversely affects any rights or obligations with respect to any awards previously made under the Plan without the consent of the applicable participants. The Plan will specifically prohibit the administrator from instituting an exchange program without stockholder approval. For this purpose, an exchange program means a program under which (i) outstanding awards are surrendered or cancelled in exchange for awards of the same type (which may have lower or higher exercise prices and different terms), awards of a different type, and/or cash, and/or (ii) the exercise price of an outstanding award is reduced.

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    Federal Income Tax Consequences

        The following is a summary of the general federal income tax consequences to us and to U.S. taxpayers of awards granted under the Plan. Tax consequences for any particular individual or under state or non-U.S. tax laws may be different.

    NSOs and SARs. No taxable income is reportable when a NSO or SAR is granted. Upon exercise, generally, the participant will have ordinary income equal to the fair market value of the underlying shares of stock on the exercise date minus the exercise price. Any gain or loss upon the disposition of the stock received upon exercise will be capital gain or loss to the recipient if the appropriate holding period under federal tax law is met for such treatment.

    ISOs. No taxable income is reportable when an ISO is granted or exercised, except for participants who are subject to the alternative minimum tax, who may be required to recognize income in the year in which the ISO is exercised. If the participant exercises the ISO and then sells the underlying shares of stock more than two years after the grant date and more than one year after the exercise date, the excess of the sale price over the exercise price will be taxed as long-term capital gain or loss. If the participant exercises the ISO and sells the shares before the end of the two- or one-year holding periods, he or she generally will have ordinary income at the time of the sale equal to the fair market value of the shares on the exercise date (or the sale price, if less) minus the exercise price of the ISO.

    Restricted Stock and Restricted Stock Units. A recipient of restricted stock or restricted stock units will not have taxable income upon the grant unless, in the case of restricted stock, he or she elects to be taxed at that time. Instead, he or she will have ordinary income at the time of vesting equal to the fair market value on the vesting date of the shares, or cash, received minus any amount paid for the shares.

    Performance Awards, Other Stock-Based Awards and Cash-Based Incentive Awards. Typically, a participant will not have taxable income upon the grant of performance awards, any other stock-based awards or any cash-based incentive awards. Subsequently, when the conditions and requirements for the grants have been satisfied and the payment determined, any cash received and the fair market value of any common stock received will constitute ordinary income to the participant.

    Section 162(m) Deduction Limits. Once we become a public company, special rules limit the deductibility of compensation paid to our CEO and to each of our three most highly compensated executive officers, other than our CFO, whose compensation is required to be reported annually in our proxy statement. Under Section 162(m) of the Code, the annual compensation paid to each of these executives may not be deductible to the extent that it exceeds $1.0 million. However, Treasury Regulation Section 1.162-27(f) provides that the deduction limit of Section 162(m) of the Code does not apply to any remuneration paid pursuant to a compensation plan or agreement that existed during the period in which the Company was not publicly held. Subject to certain requirements, we may rely on this "grandfather" provision for a transition period, which begins on the date of this offering and ends on the earliest of (i) the first meeting of stockholders at which directors are elected that occurs after the end of the third calendar year following the calendar year in which the offering is consummated; (ii) the date the Plan is materially modified; and (iii) the issuance of all shares reserved for awards under the Plan, or the Transition Period. After the expiration of the Transition Period, we can preserve the deductibility of compensation over $1.0 million if certain conditions of Section 162(m) of the Code are met. These conditions include stockholder approval of the Plan, setting limits on the number of awards that any individual may receive and, for awards other than Options and SARs, establishing performance criteria that must be met before the award will actually be settled or otherwise paid. The Plan has been designed to

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      permit the administrator to grant awards that qualify as performance-based for purposes of satisfying the conditions of Section 162(m) of the Code.

    Certain Other Tax Issues. In addition, (i) any of our officers subject to liability under Section 16(b) of the Exchange Act may be subject to special rules regarding the income tax consequences concerning their awards; (ii) in the event that the exercisability or vesting of any award is accelerated because of a change in control, payments relating to the awards (or a portion thereof), either alone or together with certain other payments, may constitute parachute payments under Section 280G of the Code, which excess amounts may be subject to excise taxes and may be nondeductible by us; and (iii) the exercise of an incentive stock option may have implications in the computation of alternative minimum taxable income. Further, Section 409A of the Code provides that all amounts deferred under a nonqualified deferred compensation plan are includible in a participant's gross income to the extent such amounts are not subject to a substantial risk of forfeiture, unless certain requirements are satisfied. If the requirements are not satisfied, in addition to current income inclusion, interest at the underpayment rate plus 1% will be imposed on the participant's underpayments that would have occurred had the deferred compensation been includible in gross income for the taxable year in which first deferred or, if later, the first taxable year in which such deferred compensation is not subject to a substantial risk of forfeiture. The amount required to be included in income is also subject to an additional 20% tax. While it is anticipated that most awards under the Plan will be intended to be exempt from the requirements of Section 409A of the Code, awards not exempt from Section 409A of the Code will be granted in a manner intended to comply with Section 409A of the Code. The Plan is not, nor is it intended to be, qualified under Section 401(a) of the Code.

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Relationship with the Isely Family

        Members of the Isely family controlled all of the voting power of our outstanding common stock prior to this offering. Immediately following the offering, members of the Isely family will own and control approximately    % of our common stock, or approximately    % if the underwriters exercise their overallotment option in full. Due to their holdings of common stock, members of the Isely family will be able to continue to determine the outcome of virtually all matters submitted to stockholders for approval, including the election of directors, an amendment of our certificate of incorporation (except when a class vote is required by law), any merger or consolidation requiring common stockholder approval, and a sale of all or substantially all of the Company's assets. In addition, members of the Isely family have the ability to prevent change in control transactions as long as they maintain voting control of the Company. The Isely family is not subject to any contractual obligation to retain its controlling interest in us, except that members of the Isely family, who will hold our common stock after this offering, have agreed, subject to exceptions, not to sell or otherwise dispose of any of our shares of common stock for a period of 180 days after the date of this prospectus without the prior written consent of SunTrust Robinson Humphrey, Inc. and Piper Jaffray & Co. See "Risk Factors—Our current principal stockholders will continue to have significant influence over us after this offering, and they could delay, deter, or prevent a change of control or other business combination or otherwise cause us to take action with which you might not agree."

Stockholders Agreement

        Prior to the consummation of this offering, Kemper Isely, Zephyr Isely, Heather Isely, Elizabeth Isely, certain trusts or entities controlled by them and certain other Isely family members or trusts, accounts and entities controlled by or for the benefit of them will enter into a stockholders agreement pursuant to which they have agreed to, among other things, certain voting agreements and limitations on the sale of shares of our common stock.

        Parties subject to the voting provisions of the agreement (the Isely voting group members) have agreed that they will vote all of their common stock in the election of directors as directed by at least three of Kemper Isely, Zephyr Isely, Heather Isely and Elizabeth Isely. If two or more of Kemper Isely, Zephyr Isely, Heather Isely and Elizabeth Isely were to die or if at least three of them are unable to reach an agreement 20 days prior to the relevant meeting, the voting direction will be given by a majority of at least three independent directors. Isely voting members have agreed to cast and submit by proxy to us their votes in a manner consistent with these voting provisions at least five days prior to the scheduled date of any annual or special meeting of stockholders. Immediately following the offering, Isely voting members will own, directly or indirectly,                         shares, or        % of our total outstanding stock.

        Parties subject to the limitations on the sale of shares of our common stock have agreed not to transfer any shares of our common stock except pursuant to the permitted transfer provisions of the stockholders agreement. Immediately following the offering, Isely family members subject to the limitations on sale own, directly or indirectly,                         shares, or         % of our total outstanding stock.

        The stockholders agreement expires on the date upon which 50% or more of our fully-diluted stock is owned by persons other than the Isely voting members. The stockholders agreement may be amended, modified, supplemented or restated by the written agreement of 85% of the shares party to the stockholders agreement.

        Disputes that relate to the subject matter of the stockholders agreement are subject to arbitration pursuant to the terms of the agreement.

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Registration Rights

        Prior to the consummation of this offering, we will enter into a registration rights agreement with certain members of the Isely family pursuant to which we will grant them registration rights with respect to             shares of common stock owned by them. These rights include demand registration rights, shelf registration rights and "piggyback" registration rights, as well as customary indemnification. All fees, costs and expenses related to registrations will be borne by us, other than stock transfer taxes and underwriting discounts or commissions.

        Demand registration rights.     The registration rights agreement grants the Isely family demand registration rights. We will be required, upon the written request of any two or more of Kemper Isely, Zephyr Isely, Heather Isely and Elizabeth Isely, to use our commercially reasonable efforts to effect registration of shares requested to be registered by the Isely family as soon as practicable after receipt of the request. However, we are not required to effect any such demand registration within 180 days after the effective date of a previous demand registration, to effect a demand registration on Form S-1 after we have effected three such demand registrations, or to comply with any registration demand unless the anticipated aggregate offering amount equals or exceeds $75.0 million.

        Shelf registration rights.     The registration rights agreement grants the Isely family shelf registration rights. Under the terms of the registration rights agreement, any two or more of Kemper Isely, Zephyr Isely, Heather Isely and Elizabeth Isely may demand that we file a shelf registration statement with respect to those shares requested to be registered by the Isely family. Upon such demand, we are required to use our commercially reasonable efforts to effect such registration.

        "Piggyback" registration rights.     The registration rights agreement grants the Isely family "piggyback" registration rights. If we register any of our securities either for our own account or for the account of other security holders, the holders of these shares are entitled to include their shares in the registration.

Unsecured Notes

        On November 1, 1998, a related company owned by Kemper Isely, Zephyr Isely, Heather Isely, Elizabeth Isely and other members of the Isely family, as debtor, entered into a $3.5 million unsecured note with Philip Isely, as lender, and also entered into a $2.8 million unsecured note with The Margaret A. Isely Spouse's Trust, as lender in order to finance the purchase of the Company from Mr. Isely and the estate of Margaret Isely. The Margaret A. Isely Spouse's Trust was controlled by Philip Isely, who acted as trustee for the trust prior to his death in June 2012. Mr. Philip Isely was the father of certain of our principal stockholders, and was the beneficial owner of less than 1% of our common stock, without giving effect to the offering. Following Philip Isely's death, the assets of the Margaret A. Isely Spouse's Trust, including the unsecured note, will be transferred to the Margaret A. Isely Family Trust. The Margaret A. Isely Family Trust is controlled by Kemper Isely, Zephyr Isely and Heather Isely, who act as trustees for the trust. The unsecured note on which Philip Isely was previously the payee is now part of the estate of Philip Isely.

        In 2008, the Company exchanged common stock for 100% ownership in the related company, which was the debtor under these unsecured notes and owned the Company's trademark. Following the 2008 transaction, the Company became the obligor under the unsecured notes. Each of these notes bears interest at an annual interest rate of 5.33% and matures in October 2013.

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        The following table presents the total outstanding amount under the unsecured note with Philip Isely and principal and interest amounts paid by us under the unsecured note as of and for the years ended September 30, 2009, 2010 and 2011, and as of and for the six months ended March 31, 2012.

 
  Year Ended
September 30,
   
 
 
  Six Months
Ended
March 31, 2012
 
 
  2009   2010   2011  
 
   
   
   
  (Unaudited)
 

Loan balance at beginning of period

  $ 1,528,857     1,259,832     976,113     676,895  

Principal paid

    269,025     283,719     299,218     155,682  

Interest paid

    74,979     60,286     44,786     16,319  
                   

Loan balance at end of period

  $ 1,259,832     976,113     676,895     521,213  
                   

Aggregate principal and interest paid for life of loan

  $ 3,755,378     4,099,383     4,443,387     4,615,388  
                   

        The following table presents the principal and interest amounts paid by us under the unsecured note with The Margaret A. Isely Spouse's Trust as of and for the years ended September 30, 2009, 2010 and 2011, and as of and for the six months ended March 31, 2012.

 
  Year Ended
September 30,
   
 
 
  Six Months
Ended
March 31, 2012
 
 
  2009   2010   2011  
 
   
   
   
  (Unaudited)
 

Loan balance at beginning of period

  $ 1,195,289     984,961     763,143     529,210  

Principal paid

    210,328     221,818     233,933     121,715  

Interest paid

    58,620     47,132     35,016     12,759  
                   

Loan balance at end of period

  $ 984,961     763,143     529,210     407,495  
                   

Aggregate principal and interest paid for life of loan

  $ 2,936,023     3,204,973     3,473,922     3,608,396  
                   

Insurance Premiums

        On January 1, 1994, we entered into a split-dollar life insurance agreement, pursuant to which we agreed to pay on an annual basis, one of the semi-annual premium payments due under a $2.0 million life insurance policy insuring the life of Philip Isely. The Philip and Margaret A. Isely Joint Trust Number One is the owner and beneficiary of the life insurance policy. The trustees of the trust are Kemper Isely, Zephyr Isely and Heather Isely, and they are among the beneficiaries. As trustees, they control the trust's assets and investments. Our only rights under the split-dollar life insurance policy are to receive a portion of the (a) death benefit, if any, and (b) cash surrender value in the event of termination of the agreement, or the lapse, surrender or cancellation of the policy, which was equal to $277,264 as of February 1, 2012.

        On August 16, 2004, we entered into a loan agreement with the trustees of The Philip and Margaret A. Isely Joint Trust Number One, whereby we agreed to advance to the trust on an annual basis, the other semi-annual split-dollar life insurance policy premium. We will be repaid the advanced premiums, plus accrued interest at a rate of 2.5% per annum.

        The following table presents the premium amounts paid by us under the split-dollar life insurance agreement described above, the amounts owed to us under the loan agreement described above and

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total accrued interest under the loan agreement as of September 30, 2009, 2010 and 2011 and as of March 31, 2012.

 
  As of
September 30,
   
 
 
  As of
March 31, 2012
 
 
  2009   2010   2011  
 
   
   
   
  (Unaudited)
 

Split-dollar life insurance premiums paid

  $ 482,260     512,498     577,861     659,852  
                   

Principal amount of loan

    181,424     211,661     241,899     241,899  

Interest accrued

    12,705     17,747     23,673     27,019  
                   

Total amount of loan

  $ 194,129     229,408     265,572     268,918  
                   

        On June 15, 2012, The Philip and Margaret A. Isely Joint Trust Number One repaid in full the outstanding amount payable to us of $930,153 related to the split-dollar life insurance arrangements, and pursuant to an agreement between us and the co-trustees of The Philip and Margaret A. Isely Joint Trust Number One, the split-dollar life insurance agreement, the related collateral assignment, the loan agreement and related promissory note were terminated and canceled. As a result of the repayment of amounts due and termination of these agreements, we have no further obligations to pay or advance the split-dollar life insurance premiums.

Lease Agreements

        We are party to real estate leases with members of the Isely family or entities controlled by the Isely family. In February 2012, we entered into a lease for our Northglenn store with an entity ultimately controlled by Kemper Isely and Zephyr Isely (the Northglenn Lease). We entered into a ground lease with an entity that was owned by Philip Isely, prior to his death, for one of our store locations (the Philip Isely Lease). Following Philip Isely's death, the lessor under the Philip Isely Lease is now owned and controlled by the estate of Philip Isely and the Margaret A. Isely Family Trust, with each holding a 50% interest in the entity. The trust is controlled by Kemper Isely, Zephyr Isely and Heather Isely, who act as its trustees. We also have seven store lease agreements with an entity owned by Kemper Isely, Zephyr Isely, Heather Isely and Elizabeth Isely, along with several other related family members (the Chalet Leases). We believe that our leases with related parties, as described in this paragraph, generally reflect the prevailing market lease terms and rental rates at the time we entered into them.

        The following table presents the amounts paid by us under the lease agreements described above for the years ended September 30, 2009, 2010 and 2011 and for the six months ended March 31, 2012.

 
  Year Ended
September 30,
   
 
 
  Six Months
ended
March 31, 2012
 
 
  2009   2010   2011  

Amount paid under the Northglenn lease

  $ 280,500     306,000     306,000     153,000  

Amount paid under the Philip Isely lease

    216,000     81,000     48,000     24,000  

Amount paid under the Chalet leases

    762,672     1,077,000     1,164,000     642,000  

Procedures for Related Party Transactions

        Our board intends to adopt a written code of ethics for our company prior to the consummation of this offering, which will be effective and publicly available on our website. The code of ethics was not in effect when we entered into the related-party transactions discussed above. Under our code of ethics, our employees, officers, directors and consultants will be discouraged from entering into any transaction that may cause a conflict of interest for us. In addition, they will be required to report any potential conflict of interest, including related-party transactions, to their supervisor, an executive officer of the Company or the compliance officer of the Company, as defined in our code of ethics, who will review and summarize the proposed transaction for our audit committee. Our audit committee will be required to approve any related-party transactions, including those transactions involving our directors.

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PRINCIPAL AND SELLING STOCKHOLDERS

        The following table sets forth information as of                        , 2012, regarding beneficial ownership of our common stock (1) immediately prior to this offering and after giving effect to the Delaware Merger and the Boulder Contribution, and (2) as adjusted to give effect to the Delaware Merger, the Boulder Contribution, and this offering (assuming no exercise of the underwriters' overallotment option) by:

    each person known to us to beneficially own more than 5% of our common stock;

    the selling stockholders;

    each of our named executive officers;

    each of our directors; and

    all of our executive officers and directors as a group.

        Beneficial ownership for the purposes of the following table is determined in accordance with the rules and regulations of the SEC. These rules generally provide that a person is the beneficial owner of securities if such person has or shares the power to vote or direct the voting thereof, or to dispose or direct the disposition thereof, or has the right to acquire such powers within 60 days. Shares of common stock issuable within 60 days to a person are deemed outstanding for purposes of computing the percentage of shares owned by such person, but are not deemed outstanding for purposes of computing the percentage of shares owned by any other person.

        The applicable percentage ownership shown in the table is based on            shares of common stock outstanding immediately prior to this offering and the assumption that             shares of common stock will be issued by us in our initial public offering (assuming no exercise of the underwriters' overallotment option). To our knowledge, except as otherwise indicated, the persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them and none of the shares shown as beneficially owned by the named executive officers or directors have been pledged as security.

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        Unless otherwise indicated, the address for each person named in the table below is c/o Natural Grocers by Vitamin Cottage, Inc., 12612 West Alameda Parkway, Lakewood, Colorado 80228.

 
  Shares of Common
Stock Beneficially
Owned Before This
Offering
  Shares Offered
Hereby
  Shares of Common
Stock Beneficially
Owned After This
Offering
 
Beneficial Owner
  Number(1)   %   Number   Number   %  

5% Stockholders:

                               

Isely Family Group(2)

          96.3 %                  

CTVC, LLC(2)(3)

          6.7 %                  

Named Executive Officers and Directors:

                               

Kemper Isely(2)(4)

          25.9 %                  

Zephyr Isely(2)(5)

          24.6 %                  

Heather Isely(2)(6)

          9.9 %                  

Elizabeth Isely(2)(7)

          10.5 %                  

Sandra Buffa(8)

          *               *  

Michael Campbell (director nominee)

                     

Executive officers and directors as a group (6 persons, including director nominee)

          96.3 %                  

Other Selling Stockholders

                               

FTVC, LLC(2)(9)

          3.5 %                  

All other selling stockholders(2)(10)

          2.8 %                  

*
Represents less than 1%

(1)
Includes shares to be sold by Kemper Isely, Zephyr Isely, Heather Isely, Elizabeth Isely, CTVC, LLC, FTVC, LLC and 5 other selling stockholders listed above who each owned less than 1% of our common stock prior to this offering.

(2)
In connection with the Delaware Merger, each of Kemper Isely, Zephyr Isely, Heather Isely, Elizabeth Isely, certain trusts or entities controlled by one or more of them, certain other Isely family members, certain custodial accounts controlled by Anthony Andueza but benefiting other Isely family members, and certain entities controlled by Mr. Andueza but owned by the above named Iselys and their family members (directly or indirectly through trusts) will enter into a Stockholders Agreement pursuant to which they will agree to, among other things, limitations on the sale of their shares of our common stock and to vote all of their shares of common stock in the election of directors as directed by a majority of Kemper Isely, Zephyr Isely, Heather Isely and Elizabeth Isely. The parties to the agreement may therefore be deemed to share voting and investment power over the shares subject to the agreement and be members of a group for beneficial ownership reporting purposes with respect to such shares. Includes            shares not subject to the Stockholders Agreement that are held in trusts or entities benefiting or established by Isely family members over which Mr. Andueza has sole voting and investment power.

(3)
Consists of shares of common stock held for the benefit of the Isely Children's Trust and its beneficiaries. Mr. Andueza is the sole manager of CTVC, LLC with sole voting and investment power over the shares of common stock held by it and thus CTVC, LLC disclaims beneficial ownership of the shares. Excludes shares of common stock deemed to be beneficially owned solely because of the Stockholders Agreement described above in note 2.

(4)
Includes            shares beneficially owned directly by Mr. Kemper Isely,            shares owned directly by the LaRock and Luke Isely Trust, with respect to which Mr. Kemper Isely shares voting and investment power with Zephyr Isely as co-trustee of the trust, and            shares held by Mr. Andueza as custodian under the Colorado Uniform Transfer to Minors Act, or UTMA, for

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    Mr. Kemper Isely's children Ritchie K. Isely and Raquel M. Isely, each of whom shares Mr. Kemper Isely's permanent residence. Excludes shares of common stock deemed to be beneficially owned solely because of the Stockholders Agreement described above in note 2.

(5)
Includes            shares beneficially owned directly by Mr. Zephyr Isely and            shares owned directly by the LaRock and Luke Isely Trust, with respect to which Mr. Zephyr Isely shares voting and investment power with Kemper Isely as co-trustee of the trust, and            shares held by Mr. Andueza as custodian under the UTMA, for Mr. Zephyr Isely's child Dyami Cy Isely-Parvanta, who shares Mr. Zephyr Isely's permanent residence. Excludes shares of common stock deemed to be beneficially owned solely because of the Stockholders Agreement described above in note 2.

(6)
Includes            shares beneficially owned directly by Ms. Heather Isely and            shares held by Mr. Andueza as custodian under the UTMA for Ms. Heather Isely's children Masala A. Isely-Rice and Charles L. Isely-Rice, each of whom shares Ms. Heather Isely's permanent residence. Excludes shares of common stock deemed to be beneficially owned solely because of the Stockholders Agreement described above in note 2.

(7)
Includes            shares beneficially owned directly by Ms. Elizabeth Isely. Excludes shares of common stock deemed to be beneficially owned solely because of the Stockholders Agreement described above in note 2.

(8)
Consists of shares of common stock expected to be issuable within 60 days pursuant to Ms. Buffa's employment agreement. See "Summary—The Reorganization" and "Executive Compensation."

(9)
Consists of            shares of common stock held for the benefit of the Margaret A. Isely Spouse's Trust and its beneficiaries and             shares of common stock held for the benefit of the Margaret A. Isely Family Trust and its beneficiaries. Excludes shares of common stock deemed to be beneficially owned solely because of the Stockholders Agreement described above in note 2.

(10)
Consists of five stockholders not listed above who each owned less than 1% of our common stock prior to this offering. Excludes shares of common stock deemed to be beneficially owned solely because of the Stockholders Agreement described above in note 2.

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DESCRIPTION OF CAPITAL STOCK

        We are a corporation incorporated under the laws of the state of Delaware. Immediately preceding the consummation of this offering, our authorized capital stock will consist of            shares, which will be made up of:

            shares of common stock, par value $0.001 per share; and

            shares of preferred stock, par value $0.001 per share.

        Upon completion of this offering, there will be                outstanding shares of common stock and no outstanding shares of preferred stock.

        The following is a summary of our capital stock and important provisions of our amended and restated certificate of incorporation (or our certificate) and amended and restated bylaws (or our bylaws) each of which will be in effect upon consummation of this offering. This summary does not purport to be complete and is subject to and qualified by our certificate and bylaws, copies of which have been filed as exhibits to the registration statement of which this prospectus is a part, and by the provisions of applicable law.

Common Stock

        The holders of our common stock are entitled to one vote per share on all matters voted upon by our stockholders, including the election or removal of directors, and do not have cumulative voting rights. Generally, all matters to be voted on by stockholders must be approved by a majority of the votes entitled to be cast by the holders of common stock present in person or represented by proxy, subject to any voting rights granted to holders of any preferred stock.

        Subject to the rights of holders of any then outstanding shares of our preferred stock, holders of our common stock are entitled to receive ratably any dividends that may be declared by our board out of funds legally available therefor. Holders of our common stock are entitled to share ratably in our net assets upon our dissolution or liquidation after payment or provision for all liabilities and any preferential liquidation rights of our preferred stock then outstanding. Holders of our common stock do not have preemptive rights to purchase shares of our capital stock. The shares of our common stock are not subject to any redemption provisions and are not convertible into any other shares of our capital stock. The rights, preferences and privileges of holders of our common stock will be subject to those of the holders of any shares of our preferred stock we may issue in the future.

Blank Check Preferred Stock

        Our board may, from time to time, authorize the issuance of one or more classes or series of preferred stock without stockholder approval. We have no current intention to issue any shares of preferred stock.

        Our certificate of incorporation permits us to issue up to            shares of preferred stock from time to time. Subject to the provisions of our certificate of incorporation and limitations prescribed by law, our board is authorized to adopt resolutions to issue shares, establish the number of shares, change the number of shares constituting any series, and provide or change the voting powers, designations, preferences and relative rights, qualifications, limitations or restrictions on shares of our preferred stock, including dividend rights, terms of redemption, conversion rights and liquidation preferences, in each case without any action or vote by our stockholders.

        The issuance of preferred stock may adversely affect the rights of our common stockholders by:

    restricting dividends on the common stock;

    diluting the voting power of the common stock;

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    impairing the liquidation rights of the common stock; or

    delaying or preventing a change in control without further action by the stockholders.

        As a result of these or other factors, the issuance of preferred stock could have an adverse impact on the market price of our common stock.

Anti-takeover Effects of Certain Provisions of Our Certificate of Incorporation and Bylaws

General

        Our certificate of incorporation and bylaws, each of which will be in effect upon consummation of this offering, contain provisions that are intended to enhance the likelihood of continuity and stability in the composition of our board and that could make it more difficult to acquire control of our company by means of a tender offer, open market purchases, a proxy contest or otherwise. A description of these provisions is set forth below.

Classified Board of Directors

        Our certificate of incorporation provides that our board will be divided into three classes. Each class of directors will serve three-year terms and may only be removed for "cause." A third party may be discouraged from making a tender offer or proxy contest or otherwise attempting to obtain control of us as it is more difficult and time-consuming for stockholders to replace a majority of the directors on a staggered board.

Board Vacancies

        Our bylaws provide that only the board may fill vacancies that may arise on the board until our next annual meeting. As a result, our board may increase the size of the board and fill vacancies without a stockholder vote.

No Cumulative Voting

        Under Delaware law, the right to vote cumulatively does not exist unless the certificate of incorporation specifically authorizes cumulative voting. Our certificate does not grant stockholders the right to vote cumulatively, and therefore, minority stockholders will be prevented from stacking cumulative voting power for desired board of director candidates.

Blank Check Preferred Stock

        We believe that the availability of the preferred stock under our certificate provides us with flexibility to react to corporate issues that may arise. Having these authorized shares available for issuance will allow us to issue shares of preferred stock without the expense and delay of a special stockholders' meeting. The authorized shares of preferred stock, as well as shares of common stock, will be available for issuance without further action by our stockholders, unless action is required by applicable law or the rules of any stock exchange on which our securities may be listed. The board has the power, subject to applicable law, to issue series of preferred stock that could, depending on the terms of the series, impede the completion of a merger, tender offer or other takeover attempt. For instance, subject to applicable law, a series of preferred stock might impede a business combination by including class voting rights, which would enable the holder or holders of such series to block a proposed transaction. Our board will make any determination to issue shares of preferred stock based on its judgment as to our and our stockholders' best interests. Our board, in so acting, could issue preferred stock having terms that could discourage an acquisition attempt or other transaction that some, or a majority, of the stockholders, might believe to be in their best interests or in which

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stockholders might receive a premium for their stock over the then prevailing market price of the stock.

Stockholder Action by Written Consent

        For so long as the Isely family beneficially owns shares of common stock representing greater than 50% of the total voting power of the outstanding shares generally entitled to elect our directors, any action required or permitted to be taken by our stockholders may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action to be taken, are signed by the holders of outstanding stock having not less than the minimum number of votes necessary to authorize such action. The Isely family will have enough shares of our common stock to amend our certificate of incorporation. That, together with the ability to take action by written consent, may have the effect of delaying, deterring or preventing a merger, tender offer or other takeover attempt that a stockholder might consider in its or our best interest. Once the Isely family ceases to beneficially own shares of common stock representing greater than 50% of the total voting power of the outstanding shares generally entitled to elect our directors, any action required or permitted to be taken by our stockholders must be effected at an annual or special meeting of the stockholders and may not be effected by written consent in lieu of a meeting. As a result, stockholders will be prevented from voting on matters that have not been properly brought before such meeting or by written consent without a meeting.

Advance Notice Procedure

        Our bylaws provide an advance notice procedure for stockholders to nominate director candidates for election or to bring business before an annual meeting of stockholders. Only persons nominated by, or at the direction of, our board or by a stockholder who has given proper and timely notice to our secretary prior to the meeting will be eligible for election as a director. In addition, any proposed business other than the nomination of persons for election to our board constitute a proper matter for stockholder action pursuant to the notice of meeting delivered to us. These advance notice provisions may have the effect of precluding the conduct of certain business at a meeting if the proper procedures are not followed or may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect its own slate of directors or otherwise attempt to obtain control of us.

Amendments to Certificate of Incorporation and Bylaws

        Upon completion of this offering, our certificate of incorporation will provide that the affirmative vote of a majority of the shares entitled to vote on any matter is required to amend our certificate of incorporation. In addition, under the Delaware General Corporation Law, an amendment to our certificate of incorporation that would alter or change the powers, preferences or special rights of one or more series of any class of our outstanding stock so as to affect such stockholders adversely must also be approved by a majority of the votes entitled to be cast by the stockholders of the shares affected by the amendment, voting as a separate class. Upon the completion of this offering, our certificate of incorporation will provide that our board may from time to time amend, supplement or repeal our bylaws by vote of a majority of our board without stockholder approval.

Special Meetings of Stockholders

        Our bylaws provide that special meetings of stockholders may be called only by a majority of our board of directors, either of our co-presidents or our chairman. As a result, stockholders will be prevented from calling a special meeting of stockholders.

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Delaware Anti-Takeover Law

        Section 203 of the Delaware General Corporation Law provides that, subject to exceptions specified therein, an "interested stockholder" of a Delaware corporation shall not engage in any "business combination," including mergers or consolidations or acquisitions of additional shares of the corporation, with the corporation for a three-year period following the time that such stockholder becomes an interested stockholder unless:

    prior to such time, the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder;

    upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced (excluding certain categories of shares); or

    at or subsequent to such time the business combination is approved by the board of directors of the corporation and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2 / 3 % of the outstanding voting stock that is not owned by the interested stockholder.

        Under Section 203, the restrictions described above also do not apply to specified business combinations proposed by an interested stockholder following the announcement or notification of one of the specified transactions involving the corporation and a person who had not been an interested stockholder during the previous three years or who became an interested stockholder with the approval of a majority of the corporation's directors, if such transaction is approved or not opposed by a majority of the directors who were directors prior to any person becoming an interested stockholder during the previous three years or were recommended for election or elected to succeed such directors by a majority of such directors.

        Except as otherwise specified in Section 203, an interested stockholder is defined to include:

    any person that is the owner of 15% or more of the outstanding voting stock of the corporation, or is an affiliate or associate of the corporation and was the owner of 15% or more of the outstanding voting stock of the corporation at any time within three years immediately prior to the date of determination; and

    the affiliates and associates of any such person.

        Under some circumstances, Section 203 makes it more difficult for a person who is an interested stockholder to effect various business combinations with us for a three-year period. Our certificate of incorporation, which will be in effect upon consummation of this offering, provides that we will have elected to be exempt from the restrictions imposed under Section 203, as permitted under the Delaware General Corporation Law.

Limitation of Liability of Directors and Officers

        Our certificate, which will be in effect upon consummation of this offering, limits the liability of directors to the fullest extent permitted by Delaware law. The effect of these provisions is to eliminate the rights of us and our stockholders, through stockholders' derivative suits on behalf of our company, to recover monetary damages from a director for breach of fiduciary duty as a director, including breaches resulting from grossly negligent behavior. However, exculpation does not apply to any director if the director has acted in bad faith, knowingly or intentionally violated the law, authorized illegal dividends or redemptions or derived an improper benefit from his or her actions as a director. In addition, our amended and restated bylaws, which will be in effect upon consummation of this offering,

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provide that we will indemnify our directors and officers to the fullest extent permitted by Delaware law. We expect to enter into indemnification agreements with our directors. These agreements will require us to indemnify these individuals to the fullest extent permitted under Delaware law against liabilities that may arise by reason of their service to us, and to advance expenses incurred as a result of any proceeding against them as to which they could be indemnified. We also expect to continue to maintain directors and officers liability insurance.

Listing

        We intend to apply to list our common stock on The New York Stock Exchange under the symbol "NGVC."

Transfer Agent and Registrar

        The transfer agent and registrar for our common stock is Broadridge Corporate Issuer Solutions, Inc.

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SHARES ELIGIBLE FOR FUTURE SALE

        Prior to this offering, there was no public market for our common stock. Future sales of substantial amounts of our common stock in the public market, or the perception that such sales may occur, could adversely affect the prevailing market price of our common stock.

Sale of Restricted Securities

        After the consummation of this offering, there will be        shares of our common stock outstanding. Of these shares, all of the shares sold in this offering will be freely tradable without restriction under the Securities Act, unless purchased by our "affiliates" as that term is defined in Rule 144 under the Securities Act. The remaining shares of common stock that will be outstanding after this offering will be "restricted securities" within the meaning of Rule 144. Restricted securities may be sold in the public market only if they are registered under the Securities Act or are sold pursuant to an exemption from registration such as Rule 144, which is summarized below.

Rule 144

        In general, under Rule 144, an affiliate who beneficially owns shares that were purchased from us, or any affiliate, at least six months previously, is entitled to sell, upon the expiration of the lock-up agreement described in "Underwriting," within any three-month period beginning 90 days after the date of this prospectus, a number of shares that does not exceed the greater of 1% of our then-outstanding shares of common stock, which will equal approximately        shares immediately after this offering, or the average weekly trading volume of our common stock on The New York Stock Exchange during the four calendar weeks preceding the filing of a notice of the sale with the SEC. Sales under Rule 144 are also subject to certain manner of sale provisions, notice requirements and the availability of current public information about us.

        Following this offering, a person that is not an affiliate of ours at the time of, or at any time during the three months preceding, a sale and who has beneficially owned restricted securities within the meaning of Rule 144 for at least six months, may sell shares subject only to the availability of current public information about us, and any such person who has beneficially owned restricted shares of our common stock for at least one year may sell shares without restriction.

        We are unable to estimate the number of shares that will be sold under Rule 144 since this will depend on the market price for our common stock, the personal circumstances of the stockholder and other factors.

Registration Statements on Form S-8

        We intend to file a registration statement on Form S-8 under the Securities Act to register all of the shares of common stock reserved for issuance under our Omnibus Incentive Plan. This registration statement on Form S-8 would cover approximately        shares. Shares registered under the registration statement on Form S-8 will generally be available for sale in the open market after the 180-day lock-up period immediately following the date of this prospectus.

Registration Rights

        Prior to the consummation of this offering, we will enter into a registration rights agreement with the Isely family pursuant to which we will grant the Isely family registration rights with respect to our common stock owned by them. For more information, see "Certain Relationships and Related Party Transactions."

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MATERIAL U.S. FEDERAL INCOME AND ESTATE TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF COMMON STOCK

        The following discussion is a general summary of certain U.S. federal income and estate tax considerations with respect to your acquisition, ownership and disposition of our common stock. This discussion is limited to holders of our common stock that (1) purchase our common stock in this offering, (2) will hold the common stock as a capital asset and (3) are "Non-U.S. Holders." You are a Non-U.S. Holder if, for U.S. federal income tax purposes, you are a beneficial owner of shares of our common stock other than:

    an individual who is a citizen or resident of the United States;

    a corporation or other entity taxable as a corporation created or organized in, or under the laws of, the United States, any state thereof or the District of Columbia;

    an estate, the income of which is subject to U.S. federal income taxation regardless of its source;

    a trust, if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust; or

    a trust that has a valid election in place pursuant to the applicable Treasury regulations to be treated as a U.S. person for U.S. federal income tax purposes.

        This summary does not address all of the U.S. federal income and estate tax considerations that may be relevant to you in light of your particular circumstances or if you are a beneficial owner subject to special treatment under U.S. federal income tax laws (such as if you are a controlled foreign corporation, passive foreign investment company, company that accumulates earnings to avoid U.S. federal income tax, foreign tax-exempt organization, bank, financial institution, broker or dealer in securities, insurance company, regulated investment company, real estate investment trust, person who holds our common stock as part of a hedging or conversion transaction or as part of a short-sale or straddle, U.S. expatriate, former long-term permanent resident of the United States or partnership or other pass-through entity for U.S. federal income tax purposes). This summary does not discuss non-income taxes (except, to a limited extent below, U.S. federal estate tax), any aspect of the U.S. federal alternative minimum tax or state, local or non-U.S. taxation. This summary is based on current provisions of the Internal Revenue Code of 1986, as amended, applicable U.S. Treasury Regulations promulgated and proposed thereunder, judicial opinions, and published positions of the Internal Revenue Service, or the IRS (we refer to all such sources of law in this prospectus as Tax Authorities). The Tax Authorities are subject to change, possibly with retroactive effect.

        If a partnership (or an entity or arrangement classified as a partnership for U.S. federal income tax purposes) beneficially owns our common stock, the tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. If you are a partner of a partnership owning or considering the acquisition of our common stock, you should consult your tax advisor.

        WE URGE PROSPECTIVE INVESTORS TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE U.S. FEDERAL, STATE, LOCAL AND NON-U.S. INCOME AND OTHER TAX CONSIDERATIONS OF ACQUIRING, HOLDING AND DISPOSING OF SHARES OF OUR COMMON STOCK.

Distributions

        In general, any distributions we make to you with respect to your shares of common stock that constitute dividends for U.S. federal income tax purposes will be subject to U.S. withholding tax at a rate of 30% of the gross amount of the dividend, unless you are eligible for a reduced rate of withholding tax under an applicable income tax treaty and you properly provide the payor or the

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relevant withholding agent with an IRS Form W-8BEN, or appropriate substitute or successor form, claiming an exemption from or reduction in withholding under the applicable income tax treaty. Special certification and other requirements may apply if you hold shares of our common stock through certain foreign intermediaries. A distribution of cash or other property (other than certain pro rata distributions of our common stock) in respect of our common stock will constitute a dividend for U.S. federal income tax purposes to the extent of our current or accumulated earnings and profits as determined under the Tax Authorities. Any distribution not constituting a dividend will be treated first as reducing your adjusted tax basis in your shares of our common stock and, to the extent it exceeds your tax basis, as capital gain from the sale of stock as described below under the heading "—Sale or Other Disposition of Our Common Stock."

        Dividends we pay to you that are effectively connected with your conduct of a trade or business within the United States (and, if certain income tax treaties apply, are attributable to a U.S. permanent establishment or a fixed base maintained by you) generally will not be subject to U.S. withholding tax if you provide an IRS Form W-8ECI, or successor form, to the payor. Instead, such dividends generally will be subject to U.S. federal income tax, net of certain deductions, at the same graduated individual or corporate rates applicable to U.S. persons. If you are a corporation, effectively connected income may also be subject to a "branch profits tax" at a rate of 30% (or such lower rate as may be specified by an applicable income tax treaty).

        A Non-U.S. Holder that is eligible for a reduced rate of U.S. federal withholding tax under an income tax treaty may obtain a refund or credit of any excess amounts withheld by timely filing an appropriate claim for a refund together with the required information with the IRS.

Sale or Other Disposition of Our Common Stock

        Subject to the discussion of backup withholding below, you generally will not be subject to U.S. federal income tax on any gain realized upon the sale or other disposition of your shares of our common stock unless:

    the gain is effectively connected with your conduct of a trade or business within the United States (and, under an applicable income tax treaty, is attributable to a U.S. permanent establishment or in certain cases a fixed base maintained by you);

    you are an individual, you are present in the United States for a period or periods aggregating 183 days or more in the taxable year of disposition and you meet other conditions; or

    we are or have been a "United States real property holding corporation" for U.S. federal income tax purposes (which we believe we are not and have not been and do not anticipate we will become) and you hold or have held, directly or indirectly, more than five percent of our common stock at any time within the five-year period ending on the date of disposition of our common stock.

        If you are described in the first bullet point above, you will be subject to U.S. federal income tax on the gain from the sale, net of certain deductions, at the same rates applicable to U.S. persons and, if you are a corporation, the 30% branch profits tax also may apply to such effectively connected gain. If you are described in the second bullet point above, you generally will be subject to U.S. federal income tax at a rate of 30% on the gain realized, although the gain may be offset by certain U.S. source capital losses realized during the same taxable year. Non-U.S. Holders should consult any applicable income tax or other treaties that may provide for different rules.

Information Reporting and Backup Withholding Requirements

        We must report annually to the IRS the amount of any dividends or other distributions we pay to you and the amount of any tax we withhold on these distributions regardless of whether withholding is required. A similar report will be sent to you. The IRS may make available copies of the information returns reporting those distributions and amounts withheld to the tax authorities in the country in which you reside pursuant to the provisions of an applicable income tax treaty or exchange of information treaty.

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        The United States imposes a backup withholding tax on any dividends and certain other types of payments to U.S. persons. You will not be subject to backup withholding tax on dividends you receive on your shares of our common stock if you provide proper certification of your status as a Non-U.S. Holder or you are one of several types of entities and organizations that qualify for an exemption (an "exempt recipient") and neither we nor the payor has actual knowledge (or reason to know) that you are a U.S. holder that is not an exempt recipient.

        Information reporting and backup withholding generally are not required with respect to the amount of any proceeds from the sale of your shares of our common stock outside the United States through a foreign office of a foreign broker that does not have certain specified connections to the United States. If you sell your shares of our common stock through a U.S. broker or the U.S. office of a foreign broker, however, the broker will be required to report to the IRS the amount of proceeds paid to you, and also backup withhold on that amount, unless you provide appropriate certification to the broker of your status as a Non-U.S. Holder or you are an exempt recipient. Information reporting will also apply if you sell your shares of our common stock through a foreign broker deriving more than a specified percentage of its income from U.S. sources or having certain other connections to the United States, unless such broker has documentary evidence in its records that you are a Non-U.S. Holder and certain other conditions are met, or you are an exempt recipient.

        Backup withholding is not an additional tax. Any amounts withheld with respect to your shares of our common stock under the backup withholding rules will be refunded to you if withholding results in an overpayment of taxes or credited against your U.S. federal income tax liability, if any, by the IRS if the required information is furnished in a timely manner.

Recently Enacted Withholding Legislation

        Recently enacted legislation will generally impose a withholding tax of 30% on dividends and the gross proceeds of a disposition of our shares paid to a foreign financial institution unless such institution enters into an agreement with the U.S. government to withhold on certain payments and collect and provide to the U.S. tax authorities substantial information regarding U.S. account holders of such institution (which would include certain account holders that are foreign entities with U.S. owners) and meets certain other requirements. This legislation will also generally impose a withholding tax of 30% on dividends and the gross proceeds of a disposition of our shares paid to a non-financial foreign entity that is the beneficial owner of the payment unless such entity certifies that it does not have any substantial U.S. owners or provides the name, address and taxpayer identification number of each substantial U.S. owner and such entity meets certain other requirements. Under certain circumstances, a Non-U.S. Holder of our common stock may be eligible for a refund or credit of such taxes. The IRS has issued a notice indicating that any withholding obligations under this legislation will begin on or after January 1, 2014, with respect to dividends and on or after January 1, 2015, with respect to gross proceeds. You should consult your own tax advisor as to the possible implications of this legislation on your investment in shares of our common stock.

U.S. Federal Estate Tax

        Shares of our common stock owned or treated as owned by an individual who is not a citizen or resident (as defined for U.S. federal estate tax purposes) of the United States at the time of his or her death will be included in the individual's gross estate for U.S. federal estate tax purposes and therefore may be subject to U.S. federal estate tax unless an applicable tax treaty provides otherwise.

         The preceding discussion of U.S. federal income and estate tax considerations is for general information only. It is not tax advice. Each prospective investor should consult their own tax advisor regarding the particular U.S. federal, state, local and non-U.S. tax consequences of purchasing, holding and disposing of our common stock, including the consequences of any proposed change in applicable laws.

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UNDERWRITING

        SunTrust Robinson Humphrey, Inc. and Piper Jaffray & Co. are acting as the joint book-running managers and as the representatives of the underwriters named below. Under the terms and subject to the conditions contained in an underwriting agreement, which will be filed as an exhibit to the registration statement of which this prospectus forms a part, we and the selling stockholders have agreed to sell to each of the underwriters named below the following respective number of shares of common stock shown opposite its name:

Underwriter
  Number of
Shares
 

SunTrust Robinson Humphrey, Inc. 

            

Piper Jaffray & Co. 

            

William Blair & Company, L.L.C. 

       

Canaccord Genuity Inc. 

       
       

Total

            
       

        The underwriting agreement provides that the underwriters are obligated to purchase all of the shares of common stock in this offering if they are purchased, other than those shares covered by the underwriter's option to purchase additional shares described below, subject to the satisfaction of the conditions contained in the underwriting agreement, including that:

    the representations and warranties made by us and the selling stockholders to the underwriters are true;

    there is no material change in our business or the financial markets; and

    we and the selling stockholders deliver customary closing documents to the underwriters.

        We intend to list our shares of common stock for quotation on The New York Stock Exchange under the symbol "NGVC."

Discounts, Commissions and Expenses

        The following table summarizes the underwriting discounts and commissions we and the selling stockholders will pay to the underwriters and the other estimated expenses we will pay in connection with this offering. These amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase additional shares. The underwriting fee is the difference between the initial price to the public and the amount the underwriters pay to us and the selling stockholders for the shares.

 
  Per Share   Total  
 
  With
No Exercise
  With
Full Exercise
  With
No Exercise
  With
Full Exercise
 

Underwriting Discounts and Commissions paid by us

  $                             

Expenses payable by us

                         

Underwriting Discounts and Commissions paid by selling stockholders

                         

Expenses payable by selling stockholders

                         

        The representatives of the underwriters have advised us that the underwriters propose to offer the shares of common stock directly to the public at the public offering price on the cover of this prospectus and to selected dealers, which may include the underwriters, at such offering price less a selling concession not in excess of $            per share. After the offering, the representatives may change the offering price and other selling terms. Sales of shares made outside of the United States may be made by affiliates of the underwriters.

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Option to Purchase Additional Shares

        We and the selling stockholders have granted the underwriters an option exercisable for 30 days after the date of the underwriting agreement, to purchase on a pro rata basis up to            and            additional shares, respectively, at the public offering price less underwriting discounts and commissions. This option may be exercised only to cover any overallotments of common stock. To the extent that this option is exercised, each underwriter will be obligated, subject to certain conditions, to purchase its pro rata portion of these additional shares based on the underwriter's underwriting commitment in the offering as indicated in the table at the beginning of this "Underwriting" section.

Lock-Up Agreements

        We, the selling stockholders and all of our directors and executive officers, and any other holder of more than 5% of our outstanding common stock, have agreed that, without the prior written consent of SunTrust Robinson Humphrey, Inc. and Piper Jaffray & Co., we and they will not directly or indirectly, (1) offer for sale, sell, issue, contract to sell, pledge or otherwise dispose of (or enter into any transaction or device that is designed to, or could be expected to, result in the disposition by any person at any time in the future of) any shares of our common stock or securities convertible into or exchangeable for our common stock (other than shares sold in this offering), or with respect to us, sell or grant options, rights or warrants with respect to any shares of our common stock or securities convertible into or exchangeable for our common stock, (2) enter into any swap or other derivatives transaction that transfers to another, in whole or in part, any of the economic benefits or risks of ownership of such shares of our common stock, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of our common stock or other securities, in cash or otherwise, (3) offer to purchase, purchase or contract to purchase or grant any option, right or warrant to purchase our common stock or securities convertible, exercisable or exchangeable into our common stock or any other securities of the Company, (4) file or cause to be filed a registration statement, including any amendments, with respect to the registration of any shares of our common stock or securities convertible, exercisable or exchangeable into our common stock or any other securities of the Company (other than with respect to the Company, any registration statement on Form S-8), (5) establish or increase a put equivalent position or liquidate or decrease a call equivalent position in securities of the Company or (6) publicly disclose the intention to do any of the foregoing for a period of 180 days after the date of this prospectus.

        SunTrust Robinson Humphrey, Inc. and Piper Jaffray & Co., in their sole discretion, may release the common stock and other securities subject to the lock-up agreements described above in whole or in part at any time with or without notice. When determining whether or not to release common stock and other securities from lock-up agreements, SunTrust Robinson Humphrey, Inc. and Piper Jaffray & Co. will consider, among other factors, the holder's reasons for requesting the release, the number of shares of common stock and other securities for which the release is being requested and market conditions at the time.

        As described below under "Directed Share Program," certain participants in the Directed Share Program (other than our directors and executive officers) shall be subject to a 25-day lock-up with respect to any shares sold to them pursuant to that program. This lock-up will have similar restrictions as the lock-up agreement described above. Any shares sold in the Directed Share Program to our directors or executive officers will be subject to the lock-up agreement described above.

Offering Price Determination

        Prior to the completion of this offering, there will have been no public market for our common stock. The initial public offering price will be determined by negotiations between the underwriters and us. In determining the initial public offering price of our common stock, the principal factors that will be considered include the following:

    the information included in this prospectus and otherwise available to the underwriters;

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    market conditions for initial public offerings;

    the history and prospects of our business and for the industry in which we compete;

    our past and present earnings and operations and current financial position;

    an assessment of our management and our future business prospects;

    the general condition of the securities markets at the time of this offering; and

    the recent market prices of, and the demand for, publicly traded shares of companies in businesses similar to ours.

Indemnification

        We and the selling stockholders have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act and liabilities incurred in connection with the directed share program referenced below, and to contribute to payments that the underwriters may be required to make for these liabilities.

Directed Share Program

        At our request, the underwriters have reserved for sale at the initial public offering price up to 5% of the shares offered hereby for officers, directors, employees and certain other persons associated with us. We do not know whether these persons will choose to purchase all or any portion of these reserved shares, but the number of shares available for sale to the general public will be reduced to the extent such persons purchase such reserved shares. Any reserved shares not so purchased will be offered by the underwriters to the general public on the same basis as the other shares offered hereby. Any shares sold in the directed share program to our directors and executive officers will be subject to the lock-up agreements described above. Any other participant who purchases shares in this program for an aggregate purchase price of $1.5 million or more shall be prohibited from selling, pledging or assigning any such shares for a period of 180 days after the date of this prospectus.

Stabilization, Short Positions and Penalty Bids

        In connection with this offering, the underwriters may engage in stabilizing transactions, overallotment transactions, syndicate covering transactions and penalty bids or purchases for the purpose of pegging, fixing or maintaining the price of the common stock, in accordance with Regulation M under the Exchange Act.

    Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum.

    Overallotment transactions involve sales by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase in the offering, which creates the syndicate short position. This short position may be either a covered short position or a naked short position. In a covered short position, the number of shares involved in the sales made by the underwriters in excess of the number of shares they are obligated to purchase is not greater than the number of shares that they may purchase by exercising their option to purchase additional shares. In a naked short position, the number of shares involved is greater than the number of shares in their option to purchase additional shares. The underwriters may close out any short position by either exercising their option to purchase additional shares and/or purchasing shares in the open market. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through their option to purchase additional shares. A naked short position is more likely to be created if the

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      underwriters are concerned that there could be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering.

    Syndicate covering transactions involve purchases of the common stock in the open market after the distribution has been completed in order to cover syndicate short positions.

    Penalty bids permit the representatives to reclaim a selling concession from a syndicate member when the common stock originally sold by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions.

        These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of our common stock. As a result, the price of our common stock may be higher than the price that might otherwise exist in the open market. These transactions may be effected on            or otherwise and, if commenced, may be discontinued at any time. Neither we, the selling stockholders nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the common stock. In addition, neither we, the selling stockholders nor any of the underwriters make any representation that the underwriters will engage in these stabilizing transactions or that any transaction, once commenced, will not be discontinued without notice.

Electronic Distribution

        A prospectus in electronic format may be made available on websites or through other online services maintained by one or more of the underwriters and/or selling group members participating in this offering, or by their affiliates. In those cases, prospective investors may view offering terms online and, depending upon the particular underwriter or selling group member, prospective investors may be allowed to place orders online. In addition, one or more of the underwriters participating in this offering may distribute prospectuses electronically. The underwriters may agree with us to allocate a specific number of shares for sale to online brokerage account holders. Any such allocation for online distributions will be made by the representatives on the same basis as other allocations. Other than the prospectus in electronic format, the information on any underwriter's or selling group member's website and any information contained in any other website maintained by an underwriter or selling group member is not part of the prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us or any underwriter or selling group member in its capacity as underwriter or selling group member and should not be relied upon by investors.

Discretionary Sales

        The underwriters have informed us that they do not expect sales to accounts over which the underwriters have discretionary authority to exceed 5% of the total number of shares offered by them.

Stamp Taxes

        If you purchase shares of common stock offered in this prospectus, you may be required to pay stamp taxes and other charges under the laws and practices of the country of purchase, in addition to the offering price listed on the cover page of this prospectus.

Relationships with Underwriters

        Some of the underwriters and their affiliates have engaged in and may, from time to time in the future engage, in transactions with and perform services for us, such as other commercial banking services, investment banking and financial advisory services, fairness opinions and other similar services, including those that may be provided in connection with any acquisitions or investments we may make,

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for which they have received, or may in the future receive customary compensation. Additionally, in the ordinary course of their various business activities, the underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investment and securities activities may involve our securities and instruments.

Selling Restrictions

European Economic Area

        In relation to each member state of the European Economic Area that has implemented the Prospectus Directive (each, a relevant member state), an offer of securities described in this prospectus may not be made to the public in that relevant member state other than:

    to any legal entity that is authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities;

    to any legal entity that has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than €43,000,000 and (3) an annual net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts;

    to fewer than 100 natural or legal persons (other than qualified investors as defined in the Prospectus Directive) subject to obtaining the prior consent of the representatives; or

    in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of securities shall require us or any underwriter to publish a prospectus pursuant to Article 3 of the Prospectus Directive.

        For purposes of this provision, the expression an "offer of securities to the public" in any relevant member state means the communication in any form and by any means of sufficient information on the terms of the offer and the securities to be offered so as to enable an investor to decide to purchase or subscribe the securities, as the expression may be varied in that member state by any measure implementing the Prospectus Directive in that member state, and the expression "Prospectus Directive" means Directive 2003/71/EC and includes any relevant implementing measure in each relevant member state.

        We have not authorized and do not authorize the making of any offer of securities through any financial intermediary on their behalf, other than offers made by the underwriters with a view to the final placement of the securities as contemplated in this prospectus. Accordingly, no purchaser of the securities, other than the underwriters, is authorized to make any further offer of the securities on behalf of us or the underwriters.

United Kingdom

        This prospectus is only being distributed to, and is only directed at, persons in the United Kingdom that are qualified investors within the meaning of Article 2(1)(e) of the Prospectus Directive ("Qualified Investors") that are also (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the "Order") or (ii) high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as "relevant persons"). This prospectus and its contents are confidential and should not be distributed, published or reproduced (in whole or in part) or disclosed by recipients to any other persons in the United Kingdom. Any person in the United Kingdom that is not a relevant person should not act or rely on this document or any of its contents.

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LEGAL MATTERS

        The validity of the common stock will be passed upon for us by Holland & Hart LLP, Denver, Colorado. Certain legal matters in connection with the common stock offered hereby will be passed upon for the underwriters by King & Spalding LLP, Atlanta, Georgia.


EXPERTS

        The consolidated financial statements of Vitamin Cottage Natural Food Markets, Inc. as of September 30, 2010 and 2011, and for each of the years in the three-year period ended September 30, 2011, have been included herein in reliance upon the report of KPMG LLP, independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.


WHERE YOU CAN FIND MORE INFORMATION

        We have filed with the SEC a registration statement on Form S-l regarding the common stock. This prospectus does not contain all of the information found in the registration statement. For further information regarding us and the common stock offered by this prospectus, you may desire to review the full registration statement, including its exhibits and schedules, filed under the Securities Act. The registration statement of which this prospectus forms a part, including its exhibits and schedules, may be inspected and copied at the public reference room maintained by the SEC at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Copies of the materials may also be obtained from the SEC at prescribed rates by writing to the public reference room maintained by the SEC at the address described above. You may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330.

        The SEC maintains a web site on the Internet at www.sec.gov. Our registration statement, of which this prospectus constitutes a part, can be downloaded from the SEC's web site and can also be inspected and copied at the offices of The New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.

        As a result of this offering, we will file with or furnish to the SEC periodic reports and other information. We intend to furnish or make available to our stockholders annual reports containing our audited financial statements prepared in accordance with U.S. GAAP. These reports and other information may be inspected and copied at the public reference facilities maintained by the SEC or obtained from the SEC's website as provided above. Our website on the Internet is located at www.naturalgrocers.com , and we expect to make our periodic reports and other information filed with or furnished to the SEC available, free of charge, through our website, as soon as reasonably practicable after those reports and other information are electronically filed with or furnished to the SEC. Information on our website or any other website is not incorporated by reference into this prospectus and does not constitute a part of this prospectus.

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INDEX TO FINANCIAL STATEMENTS

Audited Financial Statements of Vitamin Cottage Natural Food Markets, Inc.

       

Report of Independent Registered Public Accounting Firm

    F-2  

Consolidated Balance Sheets as of September 30, 2010 and 2011

    F-3  

Consolidated Statements of Income for the years ended September 30, 2009, 2010 and 2011

    F-4  

Consolidated Statements of Cash Flows for the years ended September 30, 2009, 2010 and 2011

    F-5  

Consolidated Statements of Changes in Stockholders' Equity for the years ended September 30, 2009, 2010 and 2011

    F-6  

Notes to Consolidated Financial Statements

    F-7  

Unaudited Interim Financial Statements of Vitamin Cottage Natural Food Markets, Inc.

       

Consolidated Balance Sheets as of September 30, 2011 and March 31, 2012

    F-25  

Consolidated Statements of Income for the three and six months ended March 31, 2011 and 2012

    F-26  

Consolidated Statements of Cash Flows for the six months ended March 31, 2011 and 2012

    F-27  

Notes to Unaudited Interim Consolidated Financial Statements

    F-28  

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors
Natural Grocers by Vitamin Cottage, Inc.:

        We have audited the accompanying consolidated balance sheets of Vitamin Cottage Natural Food Markets, Inc. and subsidiaries (the Company) as of September 30, 2010 and 2011, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for each of the years in the three-year period ended September 30, 2011. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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

        In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Vitamin Cottage Natural Food Markets, Inc. and subsidiaries as of September 30, 2010 and 2011, and the results of their operations and their cash flows for each of the years in the three-year period ended September 30, 2011, in conformity with U.S. generally accepted accounting principles.

                        /s/ KPMG LLP

Denver, Colorado
April 25, 2012

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VITAMIN COTTAGE NATURAL FOOD MARKETS, INC.

Consolidated Balance Sheets

 
  September 30,  
 
  2010   2011  

Assets

             

Current assets:

             

Cash and cash equivalents

  $ 445,570     377,549  

Accounts receivable, net

    861,154     1,027,141  

Accounts receivable—leasehold incentives

    1,333,438     1,111,475  

Merchandise inventory

    25,564,128     29,820,321  

Prepaid expenses

    519,429     455,126  

Income tax receivable

    990,153     1,701,917  

Deferred income tax assets

    389,188     583,668  
           

Total current assets

    30,103,060     35,077,197  

Property and equipment, net

   
27,960,539
   
41,737,234
 

Other assets:

             

Split-dollar life insurance premiums

    512,498     577,861  

Notes receivable—related party, long-term

    229,408     265,572  

Deposits and other assets

    179,233     167,558  

Goodwill

    511,029     511,029  

Deferred financing costs, net

    136,855     88,631  

Other intangibles, net

    639,139     490,301  
           

Total other assets

    2,208,162     2,100,952  
           

Total assets

  $ 60,271,761     78,915,383  
           

Liabilities and Stockholders' Equity

             

Current liabilities:

             

Accounts payable

  $ 13,028,680     16,087,882  

Accrued expenses

    4,936,239     5,785,499  

Long-term debt, current portion

    619,412     500,000  

Revolving credit facility

    5,189,283     11,036,324  

Notes payable—related party, current portion

    533,150     562,271  
           

Total current liabilities

    24,306,764     33,971,976  
           

Long-term liabilities:

             

Long-term debt, net of current portion

    16,200,000     15,700,000  

Notes payable—related party, net of current portion

    1,206,106     643,834  

Deferred income tax liabilities

    815,592     4,947,870  

Deferred rent

    2,241,559     2,845,292  

Leasehold incentives

    3,194,647     4,879,432  
           

Total long-term liabilities

    23,657,904     29,016,428  
           

Total liabilities

    47,964,668     62,988,404  
           

Commitments (Notes 11 and 18)

             

Stockholders' equity:

             

Common stock, Class A, voting, no par value. Authorized 1,000 shares, issued and outstanding

    1,679     1,679  

Common stock, Class B, nonvoting, no par value, Authorized 1,000,000 shares, 625,112 shares issued and outstanding

    792,676     792,676  

Retained earnings

    10,101,965     13,605,776  
           

Total Vitamin Cottage Natural Food Markets, Inc. equity

    10,896,320     14,400,131  

Noncontrolling interest

    1,410,773     1,526,848  
           

Total stockholders' equity

    12,307,093     15,926,979  
           

Total liabilities and stockholders' equity

  $ 60,271,761     78,915,383  
           

   

See accompanying notes to consolidated financial statements.

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VITAMIN COTTAGE NATURAL FOOD MARKETS, INC.

Consolidated Statements of Income

 
  Year ended September 30,  
 
  2009   2010   2011  

Net sales

  $ 206,079,544     226,910,054     264,544,046  

Cost of goods sold and occupancy costs

    145,936,567     159,797,435     187,162,252  
               

Gross profit

    60,142,977     67,112,619     77,381,794  

Store expenses

   
41,991,816
   
47,162,167
   
57,609,690
 

Administrative expenses

    8,618,776     9,630,646     10,396,891  

Pre-opening and relocation expenses

    1,235,919     1,292,965     1,964,186  
               

    51,846,511     58,085,778     69,970,767  
               

Operating income

    8,296,466     9,026,841     7,411,027  

Other income (expense):

                   

Dividends and interest income

    12,260     6,721     10,077  

Interest expense

    (1,146,387 )   (967,551 )   (669,125 )

Other (expense) income, net

    (71,933 )   (3,671 )   24,707  
               

Total other expense

    (1,206,060 )   (964,501 )   (634,341 )
               

Income before income taxes

    7,090,406     8,062,340     6,776,686  

Provision for income taxes

   
(2,038,957

)
 
(2,465,772

)
 
(2,166,800

)
               

Net income

    5,051,449     5,596,568     4,609,886  

Net income attributable to noncontrolling interest

    (1,513,774 )   (1,188,605 )   (1,106,075 )
               

Net income attributable to Vitamin Cottage Natural Food Markets, Inc. 

  $ 3,537,675     4,407,963     3,503,811  
               

Net income attributable to Vitamin Cottage Natural Food Markets, Inc. per common share:

                   

Basic and diluted

  $ 5.65     7.04     5.60  
               

Weighted average common shares outstanding:

                   

Basic and diluted

    626,112     626,112     626,112  
               

   

See accompanying notes to consolidated financial statements.

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VITAMIN COTTAGE NATURAL FOOD MARKETS, INC.

Consolidated Statements of Cash Flows

 
  Year ended September 30,  
 
  2009   2010   2011  

Operating activities:

                   

Net income

  $ 5,051,449     5,596,568     4,609,886  

Adjustments to reconcile net income to net cash provided by operating activities:

                   

Depreciation and amortization

    4,205,186     5,510,180     7,690,778  

Loss (gain) on disposal of property and equipment

    2,743     8,021     (24,707 )

Deferred income tax expense

    763,169     596,108     3,937,798  

Non-cash interest expense

    206,675     136,112     50,196  

Other amortization

    66,725     66,725     67,837  

Changes in operating assets and liabilities

                   

(Increase) decrease in:

                   

Accounts receivable, net

    (131,493 )   (452,303 )   (165,987 )

Accounts receivable—leasehold incentives

        (1,333,438 )   221,963  

Merchandise inventory

    (3,633,447 )   (3,811,490 )   (4,256,193 )

Prepaid expenses and other assets

    199,140     (1,116,391 )   (635,785 )

Increase (decrease) in:

                   

Accounts payable

    3,652,816     (562,718 )   2,107,957  

Accrued expenses

    661,053     765,350     849,259  

Deferred rent and lease incentives

    560,452     2,245,616     2,288,519  
               

Net cash provided by operating activities

    11,604,468     7,648,340     16,741,521  
               

Investing activities:

                   

Acquisition of property and equipment

    (8,937,295 )   (11,442,985 )   (20,446,122 )

Acquisition of intangibles

        (90,000 )    

Proceeds from sale of property and equipment

            35,600  

Notes receivable, related party—insurance premiums

    (34,403 )   (35,279 )   (36,163 )

Increase in split-dollar life insurance premiums

    (30,237 )   (30,238 )   (65,364 )
               

Net cash used in investing activities

    (9,001,935 )   (11,598,502 )   (20,512,049 )
               

Financing activities:

                   

Borrowings under credit facility

    2,000,000     5,189,283     5,847,041  

Repayments under credit facility

    (3,300,000 )   (1,000,000 )   (500,000 )

Repayments under notes payable

    (326,963 )   (345,407 )   (119,412 )

Repayments under notes payable, related party

    (479,353 )   (505,537 )   (533,150 )

Distributions to noncontrolling interests

    (2,025,000 )   (1,080,000 )   (990,000 )

Loan fees paid

    (50,700 )   (2,500 )   (1,972 )
               

Net cash (used in) provided by financing activities

    (4,182,016 )   2,255,839     3,702,507  
               

Net decrease in cash and cash equivalents

    (1,579,483 )   (1,694,323 )   (68,021 )

Cash and cash equivalents, beginning of year

   
3,719,376
   
2,139,893
   
445,570
 
               

Cash and cash equivalents, end of year

  $ 2,139,893     445,570     377,549  
               

Supplemental disclosures of cash flow information:

                   

Cash paid for interest, net of capitalized interest of $14,000, $21,000 and $32,000 as of September 30, 2009, 2010 and 2011, respectively

  $ 942,188     802,901     615,425  

Income taxes paid

    970,000     2,918,326     11,589  

Supplemental disclosures of noncash investing and financing activities:

                   

Acquisition of property and equipment not yet paid

  $ 339,940     1,103,969     2,055,213  

   

See accompanying notes to consolidated financial statements.

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VITAMIN COTTAGE NATURAL FOOD MARKETS, INC.

Consolidated Statements of Changes in Stockholders' Equity

Years ended September 30, 2009, 2010 and 2011

 
  Common Stock    
  Vitamin
Cottage
Natural Food
Markets, Inc.
Total
equity
  Boulder
Vitamin
Cottage
Group, LLC
Noncontrolling
Interest
   
 
 
  Class A   Class B    
   
 
 
  Retained
earnings
  Total
stockholders'
equity
 
 
  Shares   Amount   Shares   Amount  

Balances September 30, 2008

    1,000   $ 1,679     625,112   $ 792,676     2,156,327     2,950,682     1,813,394   $ 4,764,076  

Distributions to noncontrolling interest

                            (2,025,000 )   (2,025,000 )

Net income attributable to Vitamin Cottage Natural Food Markets, Inc. 

                    3,537,675     3,537,675         3,537,675  

Net income attributable to noncontrolling interest

                            1,513,774     1,513,774  
                                   

Balances September 30, 2009

    1,000     1,679     625,112     792,676     5,694,002     6,488,357     1,302,168     7,790,525  

Distributions to noncontrolling interest

                            (1,080,000 )   (1,080,000 )

Net income attributable to Vitamin Cottage Natural Food Markets, Inc. 

                    4,407,963     4,407,963         4,407,963  

Net income attributable to noncontrolling interest

                            1,188,605     1,188,605  
                                   

Balances September 30, 2010

    1,000     1,679     625,112     792,676     10,101,965     10,896,320     1,410,773     12,307,093  

Distributions to noncontrolling interest

                            (990,000 )   (990,000 )

Net income attributable to Vitamin Cottage Natural Food Markets, Inc. 

                    3,503,811     3,503,811         3,503,811  

Net income attributable to noncontrolling interest

                            1,106,075     1,106,075  
                                   

Balances September 30, 2011

    1,000   $ 1,679     625,112   $ 792,676     13,605,776     14,400,131     1,526,848   $ 15,926,979  
                                   

See accompanying notes to consolidated financial statements.

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Vitamin Cottage Natural Food Markets, Inc.

Notes to Consolidated Financial Statements

September 30, 2010 and 2011

1. Organization

    Nature of Business

        Vitamin Cottage Natural Food Markets, Inc. (Natural Grocers) and its consolidated subsidiaries (collectively, the Company) operate retail stores that specialize in natural and organic groceries and dietary supplements. The Company operates its retail stores under its trademark "Natural Grocers by Vitamin Cottage TM " with 49 stores as of September 30, 2011, including 30 stores in Colorado, ten in Texas, four in New Mexico, two in Wyoming, one in Utah, one in Oklahoma and one in Missouri, as well as a bulk food repackaging facility and distribution center in Colorado. The Company had 33 and 39 stores as of September 30, 2009 and 2010, respectively.

    Reorganization

        Natural Grocers by Vitamin Cottage, Inc. was incorporated in Delaware on April 9, 2012. Prior to the completion of this offering, Natural Grocers by Vitamin Cottage, Inc. will have no material assets. Following the completion of this offering, Natural Grocers by Vitamin Cottage, Inc. will own all of the outstanding capital stock of Vitamin Cottage Natural Food Markets, Inc., which is the operating company. The consolidated financial statements of Natural Grocers by Vitamin Cottage, Inc. will reflect the assets, liabilities and results of operations of Vitamin Cottage Natural Food Markets, Inc.

2. Basis of Presentation and Summary of Significant Accounting Policies

    Principles of Consolidation

        The accompanying consolidated financial statements include all the accounts of the Company's wholly owned subsidiaries, Vitamin Cottage Natural Food Markets, Inc., Vitamin Cottage Two Ltd. Liability Company ("VC2"), Natural Systems, LLC and the Company's majority 55% ownership of Boulder Vitamin Cottage Group, LLC ("BVC"). The minority interest in BVC is reported as noncontrolling interest in the consolidated financial statements. All significant intercompany balances and transactions have been eliminated in consolidation. Unless otherwise indicated, all references in these consolidated financial statements to the "Company" are to Natural Grocers and its subsidiaries.

    Use of Estimates

        The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America ("U.S. GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the 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. Management reviews its estimates on an ongoing basis, including those related to allowances for self-insurance reserves, valuation of inventories, useful lives for depreciation and amortization of property and equipment, valuation allowances for deferred tax assets and liabilities and litigation based on currently available information. Changes in facts and circumstances may result in revised estimates and actual results could differ from those estimates.

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Vitamin Cottage Natural Food Markets, Inc.

Notes to Consolidated Financial Statements (Continued)

September 30, 2010 and 2011

2. Basis of Presentation and Summary of Significant Accounting Policies (Continued)

    Segment Information

        The Company has one reporting segment, natural and organic retail stores. Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 280, Segment Reporting , establishes standards for reporting information about a company's operating segments.

    Cash and Cash Equivalents

        Cash and cash equivalents include currency on hand, demand deposits with banks, money market funds and credit and debit card transactions which settle within three days of year end. The Company considers all highly liquid investments with an original maturity of 90 days or less to be cash equivalents.

    Accounts Receivable

        Accounts receivable consists primarily of receivables from vendors for certain promotional programs, primarily newsletter advertising, and other miscellaneous receivables and are presented net of any allowances for uncollectable amounts. The Company had no allowances for doubtful accounts as of September 30, 2010 and 2011. Accounts receivable—leasehold incentives consists of receivables due from landlords for tenant allowances.

    Concentration of Credit Risk

        Financial instruments that potentially subject the Company to a concentration of credit risk consist primarily of investments in cash and cash equivalents, split-dollar life insurance premiums and accounts receivable. The Company's cash and cash equivalent account balances exceeded the Federal Deposit Insurance Corporation's federally insured limits by approximately $15,000 as of September 30, 2011. The Company records accounts receivable from the sale of newsletter advertising to vendors. If the accounts are not paid timely, the Company has the right to set off the amount of unpaid receivable balance with the amount owed to the other party for vendor product invoices. The Company periodically evaluates the ability to collect the receivables and believes the amounts appearing on the consolidated balance sheets to be fully collectible as of September 30, 2010 and 2011. Accordingly, no allowance for uncollectable accounts has been recorded for the years ended September 30, 2009, 2010 and 2011.

    Vendor Concentration

        For the years ended September 30, 2009, 2010 and 2011, purchases from the Company's largest vendor and one of its subsidiaries represented approximately 46%, 52% and 53% of all product purchases made during the respective periods. However, the Company believes that, if necessary, alternate vendors could supply similar products in adequate quantities to avoid disruption to operations.

    Merchandise Inventory

        Merchandise inventory consists of goods held for sale. The cost of inventory includes certain costs associated with the preparation of inventory for sale including inventory overhead costs. Merchandise

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Vitamin Cottage Natural Food Markets, Inc.

Notes to Consolidated Financial Statements (Continued)

September 30, 2010 and 2011

2. Basis of Presentation and Summary of Significant Accounting Policies (Continued)

inventory is carried at the lower of cost or market. Cost is determined using the weighted average cost method.

    Property and Equipment

        Property and equipment is stated at historical cost less accumulated depreciation. In accordance with FASB ASC Topic 835, Interest , the Company capitalizes interest as part of the historical costs of leasehold improvements. Depreciation is provided using the straight-line method over the following estimated useful lives of the related assets.

 
  Useful lives (in years)

Land improvements

  6 - 15

Leasehold improvements

  2 - 20

Fixtures and equipment

  5 - 7

Computer hardware and software

  3 - 5

        For leasehold and land improvements, depreciation is recorded over the shorter of the useful lives or the lease terms. The estimated useful lives range from two to 20 years. Maintenance, repairs and renewals that neither add to the value of the property nor appreciably prolong its life are charged to expense as incurred. Gains and losses on disposition of property and equipment are included in other income or expense in the year of disposition.

        The Company capitalizes certain costs incurred with developing or obtaining internal-use software. Capitalized software costs are included in property and equipment in the consolidated balance sheets and are amortized over the estimated useful lives of the software. Software costs that do not meet capitalization criteria are expensed as incurred.

    Fair Value of Financial Instruments

        The Company records its financial assets and liabilities at fair value in accordance with the framework for measuring fair value in authoritative guidance. The framework establishes a fair value hierarchy that distinguishes between assumptions based on market data (observable inputs) and the Company's own assumptions (unobservable inputs). The three levels of the fair value hierarchy are as follows:

Level 1—   Quoted market prices in active markets for identical assets or liabilities;

Level 2—

 

Inputs other than Level 1 inputs such as quoted prices for similar assets or liabilities or model-driven valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities; and

Level 3—

 

Unobservable inputs to the valuation methodology that are significant to the measurement of fair value assets and liabilities.

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Table of Contents


Vitamin Cottage Natural Food Markets, Inc.

Notes to Consolidated Financial Statements (Continued)

September 30, 2010 and 2011

2. Basis of Presentation and Summary of Significant Accounting Policies (Continued)

    Goodwill and Intangible Assets

        In September 2011, the FASB issued Accounting Standards Update ("ASU") No. 2011-08, Intangibles—Goodwill and Other (Topic 350); Testing Goodwill for Impairment . The objective of the update is to simplify how entities test goodwill for impairment. The update allows for a company to first evaluate qualitative factors, including relevant events and circumstances, to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The Company has early-adopted the provisions of this update as of September 30, 2011. Goodwill is reviewed for impairment at least annually. In order to test goodwill for impairment, the Company first evaluates qualitative factors, including relevant events and circumstances, to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, the two-step impairment test is not necessary. If it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the Company would perform the two-step impairment test. Under the first step, the fair value of the reporting unit is compared with its carrying value (including goodwill). If the fair value of the reporting unit is less than its carrying value, an indication of goodwill impairment exists for the reporting unit and the Company must perform step two of the impairment test (measurement). Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting unit's goodwill over the implied fair value of that goodwill.

    Impairment of Long-Lived Assets

        Intangible assets primarily consist of goodwill, trademarks, favorable operating leases and covenants-not-to-compete. Goodwill and the Vitamin Cottage trademark have indefinite lives and are not amortized; rather, they are tested for impairment at least annually. The Company's annual impairment testing is performed as of September 30. Intangible assets with definite lives are amortized over their estimated useful lives. The Company evaluates the reasonableness of the useful lives of these intangibles at least annually.

        Long-lived assets, such as property and equipment and purchased intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company aggregates long-lived assets at the store level which the Company considers to be the lowest level in the organization for which independent identifiable cash flows are available. If circumstances require a long-lived asset or asset group to be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that store to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. The Company considers factors such as historic and forecasted operating results, trends and future prospects, current market value, significant industry trends and other economic and regulatory factors in performing these analyses.

    Deferred Financing Costs

        Certain costs incurred with borrowings or establishment of credit facilities are deferred. These costs are amortized over the life of the borrowing or the life of the credit facility using the effective interest method.

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Table of Contents


Vitamin Cottage Natural Food Markets, Inc.

Notes to Consolidated Financial Statements (Continued)

September 30, 2010 and 2011

2. Basis of Presentation and Summary of Significant Accounting Policies (Continued)

    Self-Insurance

        The Company is self-insured for certain losses relating to employee medical and dental benefits. Stop-loss coverage has been purchased to limit exposure to any significant level of claims. Self-insured losses are accrued based upon the Company's estimates of the aggregate claims incurred but not reported using historical experience. The estimated accruals for these liabilities could be significantly affected if future occurrences and claims differ from historical trends.

    Revenue Recognition

        Revenue is recognized at the point of sale, net of in-house coupons, discounts, returns and allowances. Sales taxes are not included in sales. The Company charges sales tax on all taxable customer purchases and remits these taxes monthly to the appropriate taxing jurisdiction. The Company also ships certain products ordered through its Internet site. Revenue is recognized on Internet sales at the time the products are shipped to the customers. The Company records a deferred revenue liability within accrued expenses when it sells Natural Grocers gift cards or issues gift cards to employees, and records a sale when a customer redeems the gift card. The gift cards do not expire. The Company currently does not record breakage for unused portions of gift cards.

    Cost of Goods Sold and Occupancy Costs

        Cost of goods sold and occupancy costs includes the cost of inventory sold during the period net of discounts and allowances, as well as, distribution, shipping and handling costs, store occupancy costs and costs of the bulk food repackaging facility and distribution center. The amount shown is net of various rebates from third-party vendors in the form of quantity discounts and payments. Vendor consideration associated with product discounts is recorded as either a reduction of merchandise inventory or cost of goods sold.

    Store Expenses

        Store expenses consist of store-level expenses such as salaries and benefits, supplies, utilities, depreciation and other related costs associated with operations support. Store expenses also include purchasing support services and advertising and marketing costs.

    Administrative Expenses

        Administrative expenses consist of salaries and benefits, occupancy costs, depreciation, office supplies, hardware and software expenses, professional services expenses and other general and administrative expenses.

    Pre-Opening and Relocation Expenses

        Costs associated with the opening of new stores or relocating existing stores are expensed as incurred.

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Table of Contents


Vitamin Cottage Natural Food Markets, Inc.

Notes to Consolidated Financial Statements (Continued)

September 30, 2010 and 2011

2. Basis of Presentation and Summary of Significant Accounting Policies (Continued)

    Operating Leases

        The Company leases retail stores, a bulk food repackaging facility and distribution center and administrative offices under long-term operating leases through 2027. These leases include scheduled increases in minimum rents and renewal provisions at the option of the Company. The lease term for accounting purposes commences with the date the Company takes possession of the space and ends on the later of the primary lease term or the expiration of any renewal periods that are deemed to be reasonably assured at the inception of the lease. The Company accounts for operating leases with rent holidays and escalating payment terms by recognizing the associated expense on a straight-line basis over the lease term. For certain leases, the Company has also received cash from landlords to compensate for costs incurred by the Company in making the store locations ready for operation (leasehold incentives or tenant allowances). Leasehold incentives received from a landlord are deferred and recognized on a straight-line basis as a reduction to rent expense over the lease term.

    Advertising and Marketing

        Advertising and marketing expenses are expensed as incurred and are included in store expenses and pre-opening and relocation expenses in the consolidated statements of income. Total advertising and marketing expenses for the years ended September 30, 2009, 2010 and 2011 were approximately $3.0 million, $3.9 million and $5.4 million, respectively, net of vendor reimbursements received for newsletter advertising. Advertising expense reimbursements received from vendors totaled approximately $570,000, $651,000 and $1.1 million for the years ended September 30, 2009, 2010 and 2011, respectively.

    Income Taxes

        The Company accounts for income taxes using the asset and liability method. This method requires recognition of deferred tax assets and liabilities for expected future tax consequences of temporary differences that currently exist between the tax basis and financial reporting basis of the Company's assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates in the respective jurisdictions in which the Company operates.

        The Company considers the need to establish valuation allowances to reduce deferred income tax assets to the amounts the Company believes are more likely than not to be recovered.

        The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. Although the Company believes that its estimates are reasonable, actual results could differ from these estimates. In addition, the Company is subject to periodic audits and examinations by the Internal Revenue Service and other state and local taxing authorities.

        Any interest or penalties incurred related to income taxes are expensed as incurred and treated as permanent differences for tax purposes.

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Table of Contents


Vitamin Cottage Natural Food Markets, Inc.

Notes to Consolidated Financial Statements (Continued)

September 30, 2010 and 2011

2. Basis of Presentation and Summary of Significant Accounting Policies (Continued)

    Noncontrolling Interest in Consolidated Financial Statements

        Noncontrolling interest in the Company's consolidated financial statements relates to the noncontrolling 45% ownership in BVC. The Company has a majority 55% ownership in BVC. BVC owns five Natural Grocers by Vitamin Cottage retail stores which are managed by Natural Grocers. The noncontrolling interest in BVC is reported as noncontrolling interest in the consolidated financial statements. Net income attributable to noncontrolling interest and net income attributable to the Company are reported separately in the Consolidated Statements of Income. Additionally, noncontrolling interest in the consolidated subsidiaries of the Company are reported as a separate component of equity in the Consolidated Balance Sheet, apart from the Company's equity.

    Recent Accounting Pronouncements

        In December 2010, the FASB issued amended guidance within ASC 805, Business Combinations . The amendments specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) had occurred as of the beginning of the comparable prior annual reporting period only. Additional amendments expand supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The updated guidance is effective for fiscal years beginning after December 15, 2010 and is applied prospectively to business combinations completed on or after that date. The provisions are effective for the Company's fiscal year ending September 30, 2012. The Company does not expect the adoption of these provisions to have a significant effect on its consolidated financial statements.

        In May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs , which amends ASC 820, Fair Value Measurement . The amended guidance changes the wording used to describe many requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. Additionally, the amendments clarify the FASB's intent about the application of existing fair value measurement requirements. The guidance provided in ASU No. 2011-04 is effective for interim and annual periods beginning after December 15, 2011 and is applied prospectively. The provisions are effective for the Company's second quarter of the fiscal year ending September 30, 2012. The Company does not expect the adoption of these provisions to have a significant effect on its consolidated financial statements.

        In June 2011, the FASB issued ASU No. 2011-05, Presentations of Comprehensive Income , which amends ASC 220, Comprehensive Income . The update eliminates the option of presenting the components of other comprehensive income as part of the statement of stockholders' equity. Instead, comprehensive income must be reported either in a single continuous statement of comprehensive income, which contains two sections, net income and other comprehensive income, or in two separate but consecutive statements. The guidance provided in ASU No. 2011-05 is effective for interim and fiscal year periods beginning after December 15, 2011. The provisions are effective for the Company's second quarter of the fiscal year ending September 30, 2012. The Company does not expect the adoption of these provisions to have a significant effect on its consolidated financial statements.

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Table of Contents


Vitamin Cottage Natural Food Markets, Inc.

Notes to Consolidated Financial Statements (Continued)

September 30, 2010 and 2011

2. Basis of Presentation and Summary of Significant Accounting Policies (Continued)

    Immaterial Adjustments to Previously Reported Consolidated Statements of Cash Flows

        The Company has recorded immaterial adjustments of approximately $475,000, $340,000 and $1,104,000 to increase previously reported net cash provided by operating activities and to increase previously reported net cash used in investing activities to properly reflect cash paid for the acquisition of property and equipment for the years ended September 30, 2009, 2010 and 2011, respectively. These adjustments had no impact on the net change in cash and cash equivalents for the respective period.

3. Earnings Per Share and Share Based Compensation

        Basic earnings per share ("EPS") excludes dilution and is computed by dividing net income attributable to Vitamin Cottage Natural Food Markets, Inc. stockholders by the weighted average shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised, resulting in the issuance of common stock that would then share in the earnings of the Company. Presented below is basic and diluted EPS for the years ended September 30, 2009, 2010 and 2011:

 
  Year ended September 30,  
 
  2009   2010   2011  

Net income attributable to Vitamin Cottage Natural Food Markets, Inc. 

  $ 3,537,675     4,407,963     3,503,811  

Weighted average common shares outstanding

   
626,112
   
626,112
   
626,112
 

Effect of dilutive securities

             
               

Total shares

    626,112     626,112     626,112  
               

Net income per share attributable to Vitamin Cottage Natural Food Markets, Inc. 

  $ 5.65     7.04     5.60  
               

        The Company did not declare any dividends in the years ended September 30, 2009, 2010 and 2011.

    Share based compensation

        The Company currently does not have a long-term incentive program or stock option plan in place. However, in May 2008, the Company entered into an employment agreement with an executive of the Company whereby the executive is entitled to receive a grant of restricted stock units equal to 1.2% of the fully diluted shares of the Company in connection with an initial public offering.

        The obligation to grant restricted stock units is subject to the executive's continuous employment and the Company's completion of an initial public offering. Accordingly, the grant date fair value of the awards will not be expensed until the Company completes an initial public offering.

4. Fair Value Measurements

        The Company records its financial assets and liabilities at fair value in accordance with the framework for measuring fair value in authoritative guidance. The framework establishes a fair value hierarchy that distinguishes between assumptions based on market data (observable inputs) and the Company's own assumptions (unobservable inputs).

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Table of Contents


Vitamin Cottage Natural Food Markets, Inc.

Notes to Consolidated Financial Statements (Continued)

September 30, 2010 and 2011

4. Fair Value Measurements (Continued)

        As of September 30, 2010 and 2011, the Company had the following financial assets and liabilities that were subject to fair value measurements according to the fair value hierarchy:

 
   
  As of September 30,  
 
   
  2010   2011  
 
  Input
Level
  Carrying
Amount
  Fair Value   Carrying
Amount
  Fair Value  

Long-term debt—term loan and note payable

    2   $ 16,819,412     16,819,412     16,200,000     16,200,000  

Revolving credit facility

    2   $ 5,189,283     5,189,283     11,036,324     11,036,324  

        The carrying amounts of the term loan and revolving credit facility approximate fair value for the years ended September 30, 2010 and 2011. Management believes that the carrying values approximate fair values of notes payable—related party because stated interest rates approximate market rates. The carrying amounts of other financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities and other accrued expenses approximate fair value because of the short maturity of those instruments.

5. Property and Equipment

        The Company had the following property and equipment balances as of September 30, 2010 and 2011.

 
   
  As of September 30,  
 
  Useful lives
(in years)
 
 
  2010   2011  

Land

  n/a   $     604,855  

Construction in process

  n/a     477,111     1,618,661  

Land improvements

  6 - 15     775,226     811,304  

Leasehold improvements

  2 - 20     23,556,333     33,573,855  

Fixtures and equipment

  5 - 7     22,217,131     30,666,013  

Computer hardware and software

  3 - 5     4,225,094     5,362,468  
               

        51,250,895     72,637,156  

Less accumulated depreciation

        (23,290,356 )   (30,899,922 )
               

Property and equipment, net

      $ 27,960,539     41,737,234  
               

        Costs capitalized for computer software development for the years ended September 30, 2010 and 2011 were approximately $250,000 and $122,000, respectively, including approximately $106,000 and $110,000, respectively, related to internal staff compensation. Amortization expense related to capitalized computer software development was approximately $470,000 and $530,000 for the years ended September 30, 2010 and 2011, respectively.

        Total costs capitalized for leasehold improvements and fixtures and equipment include approximately $295,000 and $337,000 related to internal staff compensation, and approximately $21,000 and $32,000 in interest costs for the years ended September 30, 2010 and 2011, respectively.

        Depreciation expense for the years ended September 30, 2009, 2010 and 2011 was approximately $4.2 million, $5.5 million and $7.6 million, respectively.

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Table of Contents


Vitamin Cottage Natural Food Markets, Inc.

Notes to Consolidated Financial Statements (Continued)

September 30, 2010 and 2011

6. Goodwill and Other Intangible Assets

        Goodwill and other intangible assets are summarized as follows as of September 30, 2010 and 2011:

 
   
  As of September 30,  
 
  Useful lives (in years)  
 
  2010   2011  

Amortizable intangible assets:

                 

Covenants-not-to-compete

  5.0   $ 292,500     292,500  

Favorable operating lease

  5.0     339,187     339,187  

Other intangibles

  0.5     22,500     22,500  
               

Amortized intangible assets

        654,187     654,187  

Less accumulated amortization

        (403,934 )   (552,772 )
               

Amortized intangible assets, net

        250,253     101,415  

Trademark

 

Indefinite

   
388,886
   
388,886
 
               

Total other intangibles, net

        639,139     490,301  

Goodwill

 

Indefinite

   
511,029
   
511,029
 
               

Total goodwill and other intangibles, net

      $ 1,150,168     1,001,330  
               

        Amortization expense was approximately $73,000, $88,000 and $149,000 for the years ended September 30, 2009, 2010 and 2011, respectively. Amortization expense is expected to be approximately $74,000 and $27,000 annually for the years ended September 30, 2012 and 2013, respectively. Amortization expense is expected to be zero for the year ended September 30, 2014, 2015 and 2016.

7. Deferred Financing Costs

        The Company has capitalized costs incurred in securing its long-term debt (see Note 8). Deferred financing costs, net of accumulated amortization were approximately $137,000 and $89,000 as of September 30, 2010 and 2011, respectively. Accumulated amortization was approximately $744,000 and $794,000 as of September 30, 2010 and 2011, respectively.

        Total amortization expense for deferred financing costs was approximately $207,000, $136,000 and $50,000 for the years ended September 30, 2009, 2010 and 2011, respectively. Scheduled amortization expenses for the years ending September 30, 2012 and 2013 are approximately $51,000 and $38,000, respectively.

8. Long-Term Debt

    Credit Facility

        The Company has an outstanding credit facility consisting of a revolving credit facility and a term loan.

        The credit facility requires compliance with certain operational and financial covenants (including a leverage ratio, a fixed charge coverage ratio and a revenue ratio). The credit facility also contains certain other limitations on the Company's ability to incur additional debt, guarantee other obligations,

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Table of Contents


Vitamin Cottage Natural Food Markets, Inc.

Notes to Consolidated Financial Statements (Continued)

September 30, 2010 and 2011

8. Long-Term Debt (Continued)

grant liens on assets and make investments or acquisitions as defined in the credit facility agreement. The credit facility agreement also prohibits the company from declaring and paying cash dividends. At September 30, 2010 and 2011, the Company was in compliance with the debt covenants.

    Revolving Credit Facility

        The Company amended the agreement governing the revolving credit facility in 2011 to increase the credit facility limit to $21.0 million, and again in 2012 to extend the maturity date to June 30, 2014. The Company may borrow, prepay and reborrow amounts under this credit facility at any time prior to the maturity date.

        The Company had approximately $5,189,000 and $11,036,000 outstanding on its revolving credit facility balance as of September 30, 2010 and 2011, respectively. The commitment fee is 0.375% for any amounts not borrowed under the revolving credit facility as amended in fiscal year 2011. Interest is determined by the lender's administrative agent and is stated at the adjusted LIBOR rate for the interest period plus the lender spread. As amended in 2011 in conjunction with the decrease in the commitment fee, the lender spread was decreased 0.2%. The lender spread can also be reduced by the lender subject to the Company meeting certain financial measures. The average annual interest rates for the years ended September 30, 2009, 2010 and 2011 were 3.76%, 3.88% and 2.38%, respectively.

    Term Loan

        The term loan commitment was initially set at $21.0 million. These amounts may be prepaid, but they are not available for additional borrowing and have a final maturity of June 30, 2014, as amended in 2012. The Company had $16.2 million outstanding as of September 30, 2011. Interest is determined by the lender's administrative agent and is stated at the alternate base rate for the interest period plus the applicable lender spread. As amended in fiscal year 2011, the lender spread was decreased 0.2%. The interest rate at September 30, 2011 was approximately 2.03% and the average interest rate for the years ended September 30, 2009, 2010 and 2011 was approximately 3.73%, 3.46% and 2.19%, respectively.

    Notes Payable

        The Company entered into a three-year promissory installment note for $1.0 million at 5.50% per annum, which matured January 31, 2011.

        The revolving credit facility and long-term debt balances outstanding as of September 30, 2010 and 2011 were as follows:

 
  As of September 30,  
 
  2010   2011  

Revolving credit facility

  $ 5,189,283     11,036,324  
           

Long-term debt—term loan

 
$

16,700,000
   
16,200,000
 

Notes payable

    119,412      
           

    16,819,412     16,200,000  

Less current portion

    (619,412 )   (500,000 )
           

Long-term debt, net of current portion

  $ 16,200,000     15,700,000  
           

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Table of Contents


Vitamin Cottage Natural Food Markets, Inc.

Notes to Consolidated Financial Statements (Continued)

September 30, 2010 and 2011

8. Long-Term Debt (Continued)

        Estimated principal maturities for years ending after September 30, 2011 are as follows:

 
  Revolving
credit facility
  Long-term debt  

2012

  $     500,000  

2013

        500,000  

2014

    11,036,324     15,200,000  
           

  $ 11,036,324     16,200,000  
           

9. Notes Payable—Related Party

        The Company has two unsecured notes payable, which bear interest at 5.33% annually and mature in October 2013.

        Notes payable, related party consists of the following:

 
  As of September 30,  
 
  2010   2011  

Philip Isely

  $ 976,113     676,895  

Margaret A. Isely Spouse's Trust

    763,143     529,210  
           

    1,739,256     1,206,105  

Less current maturities

    (533,150 )   (562,271 )
           

Notes payable—related party, net of current portion

  $ 1,206,106     643,834  
           

        Estimated principal maturities for the years ending after September 30, 2011 are as follows:

2012

  $ 562,271  

2013

    592,983  

2014

    50,851  
       

  $ 1,206,105  
       

10. Split-Dollar Life Insurance Premiums and Note Receivable—Related Party

        The Company has an agreement with a related party trust that owns a split-dollar life insurance policy dated January 1, 1994, on Philip Isely. One of the semiannual policy premium payments is paid by the Company each year. Split-dollar life insurance premiums are reflected in long-term assets and represent the lesser of: (1) the cash surrender value of the policy; or (2) an amount equal to the total premiums paid by the Company. Split-dollar life insurance premiums were approximately $512,000 and $578,000 as of September 30, 2010 and 2011, respectively, which represents premiums paid to date.

        Additionally, the Company entered into a note receivable on August 16, 2004, with the co-trustees of the related party trust whereby the Company has agreed to pay the other semiannual policy premium due each policy year. When the policy is paid, the Company will be repaid the premiums paid

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Table of Contents


Vitamin Cottage Natural Food Markets, Inc.

Notes to Consolidated Financial Statements (Continued)

September 30, 2010 and 2011

10. Split-Dollar Life Insurance Premiums and Note Receivable—Related Party (Continued)

plus interest at 2.5% per annum. Amounts owed to the Company under this arrangement were approximately $229,000 and $266,000 at September 30, 2010 and 2011, respectively.

        The Company entered into a collateral assignment with the related party trust whereby the split-dollar life insurance policy is held as collateral security for its advances for premiums paid to date.

11. Lease Commitments

        The Company leases retail stores, a bulk food repackaging facility and distribution center and administrative offices under long-term operating leases through 2027. These leases include scheduled increases in minimum rents and renewal provisions at the option of the Company. Deferred rent as of September 30, 2010 and 2011 was approximately $2.2 million and $2.8 million, respectively. Tenant improvement allowances received from landlords (leasehold incentives) are recorded as liabilities and recognized evenly as a reduction to rent expense over the lease term. Leasehold incentives at September 30, 2010 and 2011 were approximately $3.2 million and $4.9 million, respectively.

        Natural Grocers has six leases with Chalet Properties, LLC ("Chalet"), one lease with the Isely Family Land Trust LLC and one lease with 3801 East Second Avenue LLC, all related parties (see Note 13). BVC has one lease with Chalet, a related party. The terms and rental rates of these related party leases are similar to leases with nonrelated parties and are at market rental rates. The leases began at various times with the earliest occurring in November 1999, continue for various terms through February 2027 and include various options to renew. Present monthly lease payments range from $4,000 to $26,000 per lease.

        The minimum annual commitments under the terms of these operating leases as of September 30, 2011 are as follows:

 
  Third
parties
  Related
parties
  Total  

2012

  $ 7,314,684     1,644,000   $ 8,958,684  

2013

    7,310,189     1,650,000     8,960,189  

2014

    6,558,090     1,580,000     8,138,090  

2015

    6,342,966     1,486,000     7,828,966  

2016

    5,978,987     1,465,250     7,444,237  

Thereafter

    25,750,104     10,253,750     36,003,854  
               

  $ 59,255,020     18,079,000   $ 77,334,020  
               

        Total rent expense, including common area expenses and warehouse rent, for the years ended September 30, 2009, 2010 and 2011 totaled approximately $7.2 million, $8.2 million and $9.9 million, respectively, including approximately $273,000, $340,000 and $388,000 in pre-opening and relocation expenses associated with rent expense for stores that had not yet opened for the years ended September 30, 2009, 2010 and 2011, respectively.

F-19


Table of Contents


Vitamin Cottage Natural Food Markets, Inc.

Notes to Consolidated Financial Statements (Continued)

September 30, 2010 and 2011

12. Stockholders' Equity

        The Company has authorized and issued 1,000 shares of no par value voting Class A common stock as of September 30, 2010 and 2011. Additionally, the Company has authorized 1,000,000 shares of no par value nonvoting Class B common stock. As of September 30, 2010 and 2011, 625,112 shares of nonvoting Class B common stock were issued and outstanding. The Company's voting stock is owned and controlled by Kemper Isely, Zephyr Isely, Heather Isely and Elizabeth Isely.

        The Company owns 55% of BVC.

        The Company did not pay dividends during the years ended September 30, 2009, 2010 or 2011.

13. Related Party Transactions

        The Company has ongoing relationships with several related entities:

        Philip Isely:     The Company has two agreements with the trust that owns a split-dollar life insurance policy dated January 1, 1994, on Philip Isely. The trustees of the trust are Kemper Isely, Zephyr Isely and Heather Isely, all of whom control the trust's assets and investments. Additionally, the Company has one operating lease (see Note 11) for one of its store locations with 3801 East Second Avenue LLC, an entity owned by Philip Isely, father of the principal stockholders of the Company. Philip Isely and 3801 East Second Avenue LLC do not have any ownership interest in the Company, BVC, or Chalet. Rent paid to 3801 East Second Avenue LLC was approximately $216,000, $81,000 and $48,000 for the years ended September 30, 2009, 2010 and 2011, respectively.

        Isely Family Land Trust LLC:     The Company has a lease for one of its store locations with the Isely Family Land Trust LLC (Land Trust). The Land Trust is owned by the Isely Children's Trust and by the Margaret A. Isely Family Trust. Rent paid to the Isely Family Land Trust LLC was approximately $281,000, $306,000 and $306,000 for the years ended September 30, 2009, 2010 and 2011, respectively.

        Chalet:     The Company has six store operating lease agreements and BVC has one store operating lease agreement with Chalet, a related party (see Note 11). Chalet is owned by the Company's voting stockholders and other related family members. Rent paid to Chalet was approximately $763,000, $1.1 million and $1.2 million for the years ended September 30, 2009, 2010 and 2011, respectively.

14. Income Taxes

        BVC is treated as a partnership under the Internal Revenue Code and similar state statutes; therefore, no provision or liability for federal or state income taxes related to the noncontrolling interest in BVC has been included in these consolidated financial statements. The deferred tax amounts for the Company's book versus tax basis in its 55% interest of BVC is reflected in the consolidated tax provision as outside basis in BVC.

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Table of Contents


Vitamin Cottage Natural Food Markets, Inc.

Notes to Consolidated Financial Statements (Continued)

September 30, 2010 and 2011

14. Income Taxes (Continued)

        The following are the components of the provision for income taxes as of September 30, 2009, 2010 and 2011, respectively:

 
  As of September 30,  
 
  2009   2010   2011  

Current federal income tax expense (benefit)

  $ 1,188,740     1,657,441     (1,547,238 )

Current state income tax expense (benefit)

    87,048     212,223     (223,760 )
               

    1,275,788     1,869,664     (1,770,998 )

Deferred federal income tax

   
660,922
   
521,273
   
3,425,149
 

Deferred state income tax

    102,247     74,835     512,649  
               

    763,169     596,108     3,937,798  
               

Total provision for income taxes

  $ 2,038,957     2,465,772     2,166,800  
               

        The differences between the U.S. federal statutory income tax rate and the Company's effective tax rate are as follows:

 
  As of
September 30,
 
 
  2009   2010   2011  

Statutory tax rate

    34.0 %   34.0     34.0  

Nontaxable income attributable to noncontrolling interest

    (7.7 )   (5.3 )   (6.2 )

State income taxes, net of federal income tax expense

    3.1     2.5     3.4  

Other, net

    (0.6 )   (0.6 )   0.8  
               

Effective tax rate

    28.8 %   30.6     32.0  
               

        Deferred taxes have been classified on the consolidated balance sheets as follows:

 
  As of September 30,  
 
  2010   2011  

Current assets

  $ 389,188     583,668  

Long-term liabilities

    (815,592 )   (4,947,870 )
           

Net deferred tax liabilities

  $ (426,404 )   (4,364,202 )
           

F-21


Table of Contents


Vitamin Cottage Natural Food Markets, Inc.

Notes to Consolidated Financial Statements (Continued)

September 30, 2010 and 2011

14. Income Taxes (Continued)

        The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities are as follows:

 
  As of September 30,  
 
  2010   2011  

Deferred tax assets

             

Trademarks

  $ 989,286     999,871  

Deferred rent

    786,781     975,748  

Leasehold incentives

    1,098,518     1,736,643  

Accrued employee benefits

    336,468     414,800  

Intangible assets—other

    84,895     96,265  

Goodwill

    33,085     11,662  

Charitable contribution

        46,818  

Other

    52,719     122,050  
           

Gross deferred tax assets

    3,381,752     4,403,857  

Gross deferred tax liabilities

             

Property and equipment

    (2,592,618 )   (6,727,381 )

Leasehold improvements

    (1,116,425 )   (1,763,365 )

Favorable operating lease

    (59,812 )   (34,737 )

Investment in BVC

    (39,301 )   (242,576 )
           

Gross deferred tax liabilities

    (3,808,156 )   (8,768,059 )
           

Net deferred tax liabilities

  $ (426,404 )   (4,364,202 )
           

        The Company believes that it is more likely than not that it will fully realize all deferred tax assets in the form of future deductions based on the nature of the deductible temporary differences and expected future taxable income.

        The Company files income tax returns with federal, state and local tax authorities. With limited exceptions, the Company is no longer subject to federal income tax examinations for fiscal years 2007 and prior and is no longer subject to state and local income tax examinations for fiscal years 2006 and prior.

        The increase in deferred federal income taxes in fiscal year 2011 is the result of the 100% bonus depreciation legislation passed in fiscal year 2011, which provides that the Company may take a 100% bonus depreciation deduction for qualified property acquired or constructed and placed into service from September 8, 2010 through December 31, 2011.

15. Defined Contribution Plan

        The Company has a defined contribution retirement plan ("the Plan") covering substantially all employees who meet certain eligibility requirements as to age and length of service. The Plan incorporates the salary deferral provisions of Section 401(k) of the Internal Revenue Code. Employees may defer up to the annual maximum limit prescribed by the Internal Revenue Code. The Company, on a discretionary basis, matches 25% of participant contributions up to a maximum annual employer

F-22


Table of Contents


Vitamin Cottage Natural Food Markets, Inc.

Notes to Consolidated Financial Statements (Continued)

September 30, 2010 and 2011

15. Defined Contribution Plan (Continued)

match of $2,500. The Company's matching contribution included in expense was approximately $218,000, $232,000 and $260,000 for the years ended September 30, 2009, 2010 and 2011, respectively.

16. Segment Reporting

        The Company has one reporting segment, natural and organic retail stores. The Company's revenues are derived from the sale of natural and organic products at its stores. All existing operations are domestic.

        Sales from the Company's natural and organic retail stores are derived from sales of the following products which are presented as a percentage of sales for the years ended September 30, 2009, 2010 and 2011 as follows:

 
  As of September 30,  
 
  2009   2010   2011  

Grocery

    56.2 %   57.6     59.8  

Dietary supplements

    32.4     31.3     29.3  

Other

    11.4     11.1     10.9  
               

    100.0 %   100.0     100.0  
               

17. Selected Quarterly Financial Data (Unaudited)

        The summarized quarterly financial data presented below reflect all adjustments, which in the opinion of management, are of a normal and recurring nature necessary to present fairly the results of operations for the periods presented.

        Summarized unaudited quarterly financial data for fiscal years 2010 and 2011 is as follows:

 
  Three months ended  
 
  December 31,
2010
  March 31,
2011
  June 30,
2011
  September 30,
2011
 

Net sales

  $ 60,618,292     66,211,085     67,578,181     70,136,488  

Gross profit

    17,657,274     19,525,846     19,749,886     20,448,788  

Operating income

    1,609,734     1,875,298     2,093,042     1,832,953  

Net income attributable to Vitamin Cottage Natural Food Markets, Inc. 

    726,376     873,408     986,059     917,968  

Net income attributable to Vitamin Cottage Natural Food Markets, Inc. per common share:

                         

Basic and diluted

    1.16     1.39     1.57     1.47  

F-23


Table of Contents


Vitamin Cottage Natural Food Markets, Inc.

Notes to Consolidated Financial Statements (Continued)

September 30, 2010 and 2011

17. Selected Quarterly Financial Data (Unaudited) (Continued)


 
  Three months ended  
 
  December 31,
2009
  March 31,
2010
  June 30,
2010
  September 30,
2010
 

Net sales

  $ 54,619,205     57,502,043     57,050,199     57,738,607  

Gross profit

    15,960,789     17,040,664     16,925,373     17,185,793  

Operating income

    2,261,512     2,756,724     2,231,483     1,777,122  

Net income attributable to Vitamin Cottage Natural Food Markets, Inc. 

    1,095,294     1,392,193     1,074,154     846,322  

Net income attributable to Vitamin Cottage Natural Food Markets, Inc. per common share:

                         

Basic and diluted

    1.75     2.22     1.72     1.35  

18. Commitments and Contingencies

    Self-Insurance

        The Company is self-insured for claims under its health benefit plans, subject to a stop loss policy. The self-insurance liability related to claims under the Company's health benefit plans is determined based on analysis of actual claims. The amounts related to these claims are included as a component of accrued benefits in accounts payable and accrued liabilities. Liabilities associated with the risks that are retained by the Company are estimated, in part, by considering historical claims experience, demographic factors and other actuarial assumptions. While the Company believes that its assumptions are appropriate, the estimated accrual for these liabilities could be significantly affected if future occurrences and claims differ from these assumptions and historical trends.

    Legal

        The Company is periodically involved in various legal proceedings that are incidental to the conduct of its business, including but not limited to employment discrimination claims and customer injury claims. When the potential liability from a matter can be estimated and the loss is considered probable, the Company records the estimated loss. Due to uncertainties related to the resolution of lawsuits and claims, the ultimate outcome may differ from the estimates. Although the Company cannot predict with certainty the ultimate resolution of any lawsuits, investigations and claims asserted against it, management does not believe any currently pending legal proceeding to which the Company is a party will have a material adverse effect on its business, prospects, financial condition, cash flows or results of operations.

19. Subsequent Events

        The Company has committed to an incentive payment totaling $275,000 to certain non-executive working team members within 30 days of a successful initial public offering which results in a closing, subject to active participation and continued employment conditions.

        On April 16, 2012, the Company sold land to a developer for $600,000, which resulted in no gain or loss.

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VITAMIN COTTAGE NATURAL FOOD MARKETS, INC.

Consolidated Balance Sheets

 
  September 30,
2011
  March 31,
2012
(Unaudited)
 

Assets

             

Current assets:

             

Cash and cash equivalents

  $ 377,549     3,454,355  

Accounts receivable, net

    1,027,141     983,205  

Accounts receivable—leasehold incentives

    1,111,475     1,065,624  

Merchandise inventory

    29,820,321     33,612,735  

Prepaid expenses and other current assets

    455,126     710,637  

Income tax receivable

    1,701,917     41,262  

Deferred income tax assets

    583,668     659,594  
           

Total current assets

    35,077,197     40,527,412  
           

Property and equipment, net

   
41,737,234
   
44,592,230
 

Other assets:

             

Split-dollar life insurance premiums

    577,861     659,852  

Notes receivable—related party, long-term

    265,572     268,918  

Deposits and other assets

    167,558     171,311  

Goodwill

    511,029     511,029  

Deferred financing costs, net

    88,631     70,256  

Other intangibles, net of accumulated amortization of $552,772 and $589,690, respectively

    490,301     453,383  
           

Total other assets

    2,100,952     2,134,749  
           

Total assets

  $ 78,915,383     87,254,391  
           

Liabilities and Stockholders' Equity

             

Current liabilities:

             

Accounts payable

  $ 16,087,882     18,984,230  

Accrued expenses

    5,785,499     8,051,611  

Long-term debt, current portion

    500,000     500,000  

Revolving credit facility

    11,036,324     9,452,986  

Notes payable—related party, current portion

    562,271     577,423  
           

Total current liabilities

    33,971,976     37,566,250  
           

Long-term liabilities:

             

Long-term debt, net of current portion

    15,700,000     15,450,000  

Notes payable—related party, net of current portion

    643,834     351,285  

Deferred income tax liabilities

    4,947,870     5,523,418  

Deferred rent

    2,845,292     3,174,446  

Leasehold incentives

    4,879,432     5,674,432  
           

Total long-term liabilities

    29,016,428     30,173,581  
           

Total liabilities

    62,988,404     67,739,831  
           

Commitments

             

Stockholders' equity:

             

Common stock, Class A, voting, no par value. Authorized 1,000 shares, issued and outstanding

    1,679     1,679  

Common stock, Class B, nonvoting, no par value, Authorized 1,000,000 shares, 625,112 shares issued and outstanding

    792,676     792,676  

Retained earnings

    13,605,776     17,081,168  
           

Total Vitamin Cottage Natural Food Markets, Inc. equity

    14,400,131     17,875,523  

Noncontrolling interest

    1,526,848     1,639,037  
           

Total stockholders' equity

    15,926,979     19,514,560  
           

Total liabilities and stockholders' equity

  $ 78,915,383     87,254,391  
           

   

See accompanying notes to consolidated financial statements.

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VITAMIN COTTAGE NATURAL FOOD MARKETS, INC.

Consolidated Statements of Income

(Unaudited)

 
  Three months ended
March 31,
  Six months ended
March 31,
 
 
  2011   2012   2011   2012  

Net sales

  $ 66,211,085     84,907,259     126,829,377     159,745,878  

Cost of goods sold and occupancy costs

    46,685,239     59,223,589     89,646,257     112,462,998  
                   

Gross profit

    19,525,846     25,683,670     37,183,120     47,282,880  

Store expenses

    14,362,484     18,028,062     27,583,494     34,467,921  

Administrative expenses

    2,602,642     2,812,256     5,091,987     5,524,926  

Pre-opening and relocation expenses

    685,422     426,728     1,022,607     853,631  
                   

    17,650,548     21,267,046     33,698,088     40,846,478  
                   

Operating income

    1,875,298     4,416,624     3,485,032     6,436,402  

Other income (expense):

                         

Dividends and interest income

    1,450     2,329     6,707     4,011  

Interest expense

    (195,177 )   (154,928 )   (392,808 )   (330,127 )

Other income, net

    16,069         16,069      
                   

Total other expense

    (177,658 )   (152,599 )   (370,032 )   (326,116 )
                   

Income before income taxes

    1,697,640     4,264,025     3,115,000     6,110,286  

Provision for income taxes

    (516,926 )   (1,486,443 )   (948,556 )   (2,072,705 )
                   

Net income

    1,180,714     2,777,582     2,166,444     4,037,581  

Net income attributable to noncontrolling interest

    (307,306 )   (292,503 )   (566,660 )   (562,189 )
                   

Net income attributable to Vitamin Cottage Natural Food Markets, Inc. 

  $ 873,408     2,485,079     1,599,784     3,475,392  
                   

Net income attributable to Vitamin Cottage Natural Food Markets, Inc. per common share:

                         

Basic and diluted

  $ 1.39     3.97     2.56     5.55  
                   

Weighted average common shares outstanding:

                         

Basic and diluted

    626,112     626,112     626,112     626,112  
                   

   

See accompanying notes to consolidated financial statements.

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VITAMIN COTTAGE NATURAL FOOD MARKETS, INC.

Consolidated Statements of Cash Flows

(Unaudited)

 
  Six months ended March 31,  
 
  2011   2012  

Operating activities:

             

Net income

  $ 2,166,444     4,037,581  

Adjustments to reconcile net income to net cash provided by operating activities:

             

Depreciation and amortization

    3,557,160     4,688,997  

Deferred income tax expense

    1,548,540     499,622  

Non-cash interest expense

    67,756     22,424  

Other amortization

    33,918     33,918  

Gain on disposal of property and equipment

    (16,069 )    

Changes in operating assets and liabilities

             

(Increase) decrease in:

             

Accounts receivable, net

    (362,021 )   43,936  

Accounts receivable—leasehold incentives

    688,972     45,851  

Merchandise inventory

    (2,947,802 )   (3,792,414 )

Prepaid expenses and other assets

    (141,702 )   (259,264 )

Income tax receivable

    (599,162 )   1,660,655  

Increase in:

             

Accounts payable

    1,715,514     3,559,122  

Accrued expenses

    300,726     2,266,112  

Deferred rent and lease incentives

    739,291     1,124,154  
           

Net cash provided by operating activities

    6,751,565     13,930,694  
           

Investing activities:

             

Acquisition of property and equipment

    (8,354,299 )   (8,203,767 )

Proceeds from sale of property and equipment

    25,000      

Notes receivable, related party—insurance premiums

    (2,875 )   (3,346 )

Increase in split-dollar life insurance premiums

    (65,363 )   (81,991 )
           

Net cash used in investing activities

    (8,397,537 )   (8,289,104 )
           

Financing activities:

             

Borrowings under credit facility

    2,520,381      

Repayments under credit facility

    (250,000 )   (1,833,338 )

Repayments under notes payable, related party

    (382,443 )   (277,397 )

Distributions to noncontrolling interests

    (450,000 )   (450,000 )

Loan fees paid

        (4,049 )
           

Net cash provided by (used in) financing activities

    1,437,938     (2,564,784 )
           

Net (decrease) increase in cash and cash equivalents

    (208,034 )   3,076,806  

Cash and cash equivalents, beginning of the period

    445,570     377,549  
           

Cash and cash equivalents, end of the period

  $ 237,536     3,454,355  
           

Supplemental disclosures of cash flow information:

             

Cash paid during the period for interest

  $ 327,237     336,668  

Cash paid during the period for income taxes

    3,000     519,231  

Supplemental disclosures of noncash investing and financing activities:

             

Acquisition of property and equipment not yet paid

  $ 2,023,424     1,392,439  

   

See accompanying notes to consolidated financial statements.

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Table of Contents


Vitamin Cottage Natural Food Markets, Inc.

Notes to Unaudited Interim Consolidated Financial Statements

March 31, 2011 and 2012

1. Basis of Presentation and Summary of Significant Accounting Policies

    Consolidated Financial Statements

        The accompanying unaudited consolidated financial statements of Vitamin Cottage Natural Food Markets, Inc. and its consolidated subsidiaries have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") for interim financial statements and are in the form prescribed by the Securities and Exchange Commission in Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These unaudited financial statements should be read in conjunction with the audited financial statements and notes thereto of the Company included herein and Management's Discussion and Analysis of Financial Condition and Results of Operations found elsewhere in this prospectus. In the opinion of management, the accompanying consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation. Interim results are not necessarily indicative of results for any other interim period or for a full fiscal year. The Company reports its results of operations on a fiscal year ending September 30.

        The accompanying consolidated financial statements include all the accounts of the Company's wholly owned subsidiaries, Vitamin Cottage Two Ltd. Liability Company ("VC2"), Natural Systems, LLC and the Company's majority 55% ownership of Boulder Vitamin Cottage Group, LLC ("BVC"). The minority 45% interest in BVC is reported as noncontrolling interest in the consolidated financial statements. All significant intercompany balances and transactions have been eliminated in consolidation.

        The Company has one reporting segment, natural and organic retail stores. Sales from the Company's natural and organic retail stores are derived from sales of the following products which are presented as a percentage of sales for the three and six months ended March 31, 2011 and 2012 as follows:

 
  Three months
ended March 31,
  Six months
ended March 31,
 
 
  2011   2012   2011   2012  

Grocery

    59.3 %   61.9     59.1     62.0  

Dietary supplements

    29.9     27.9     29.9     27.5  

Other

    10.8     10.2     11.0     10.5  
                   

    100.0 %   100.0     100.0     100.0  
                   

    Reorganization

        Natural Grocers by Vitamin Cottage, Inc. was incorporated in Delaware on April 9, 2012. Prior to the completion of this offering, Natural Grocers by Vitamin Cottage, Inc. will have no material assets. Following the completion of this offering, Natural Grocers by Vitamin Cottage, Inc. will own all of the outstanding capital stock of Vitamin Cottage Natural Food Markets, Inc., which is the operating company. The consolidated financial statements of Natural Grocers by Vitamin Cottage, Inc. will reflect the assets, liabilities and results of operations of Vitamin Cottage Natural Food Markets, Inc.

F-28


Table of Contents


Vitamin Cottage Natural Food Markets, Inc.

Notes to Unaudited Interim Consolidated Financial Statements (Continued)

March 31, 2011 and 2012

1. Basis of Presentation and Summary of Significant Accounting Policies (Continued)

    Use of Estimates

        The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the balance sheet date and reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

    Noncontrolling Interest in Consolidated Financial Statements

        Net income attributable to noncontrolling interest along with net income attributable to the stockholders of the Company are reported separately in the Consolidated Statements of Income. Additionally, noncontrolling interest in the consolidated subsidiaries of the Company are reported as a separate component of equity in the Consolidated Balance Sheets, apart from the Company's equity. The following tables summarize the changes in total stockholders' equity for the six months ended March 31, 2012:

 
  Six months ended March 31, 2012  
 
  Vitamin
Cottage
Natural Food
Markets, Inc.
equity
  Noncontrolling
interest
  Total
stockholders'
equity
 

Balance, beginning of period

  $ 14,400,131   $ 1,526,848   $ 15,926,979  

Net income

    3,475,392     562,189     4,037,581  

Distributions to noncontrolling interest

        (450,000 )   (450,000 )
               

Balance, end of period

  $ 17,875,523   $ 1,639,037   $ 19,514,560  
               

    Recent Accounting Pronouncements

        In May 2011, the Financial Accounting Standards Board ("FASB ") issued Accounting Standards Update ("ASU") No. 2011-04, Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and IFRSs , which amends Accounting Standards Codification ("ASC") 820, Fair Value Measurement . The amended guidance changes the wording used to describe many requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. Additionally, the amendments clarify the FASB's intent about the application of existing fair value measurement requirements. The guidance provided in ASU No. 2011-04 is effective for interim and annual periods beginning after December 15, 2011 and is applied prospectively. The provisions were effective for the Company's second quarter of fiscal year 2012. The adoption of this provision did not have a significant effect on the Company's consolidated financial statements.

        In June 2011, the FASB issued ASU No. 2011-05, Presentations of Comprehensive Income , which amends ASC 220, Comprehensive Income . The update eliminates the option of presenting the components of other comprehensive income as part of the statement of stockholders' equity. Instead, comprehensive income must be reported either in a single continuous statement of comprehensive income, which contains two sections, net income and other comprehensive income, or in two separate but consecutive statements. In December 2011, the FASB issued ASU No. 2011-12, Deferral of the

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Table of Contents


Vitamin Cottage Natural Food Markets, Inc.

Notes to Unaudited Interim Consolidated Financial Statements (Continued)

March 31, 2011 and 2012

1. Basis of Presentation and Summary of Significant Accounting Policies (Continued)

Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 , which defers the implementation requirement in ASU No. 2011-05 to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income. The amended guidance specifies that entities should continue to report reclassifications out of accumulated other comprehensive income consistent with presentation requirements in effect before ASU No. 2011-05. The guidance provided in ASU No. 2011-05 and ASU No. 2011-12 is effective for fiscal years and interim periods within those years, beginning after December 15, 2011. The provisions were effective for the Company's second quarter of fiscal year 2012. The adoption of this provision had no effect on the Company's consolidated financial statements.

2. Long-Term Debt

        Long-term debt as of September 30, 2011 and March 31, 2012 is summarized as follows:

 
  Maturity   As of
September 30,
2011
  As of
March 31,
2012
 

Revolving credit facility

    June 2014   $ 11,036,324     9,452,986  
                 

Long-term debt—term loan

    June 2014   $ 16,200,000     15,950,000  

Less current maturities(a)

          (500,000 )   (500,000 )
                 

Long-term debt, net of current portion

        $ 15,700,000     15,450,000  
                 

(a)
Current maturities represent principal payments due in the next 12 months.

        The Company incurred gross interest expense of $169,000 and $155,000 for the three months ended March 31, 2011 and 2012, respectively, as well as $34,000 and $10,000 in amortization of deferred financing costs for the three months ended March 31, 2011 and 2012, respectively. The Company had capitalized interest of $8,000 and $9,000 for the three months ended March 31, 2011 and 2012, respectively.

        The Company incurred gross interest expense of $339,000 and $323,000 for the six months ended March 31, 2011 and 2012, respectively, as well as $68,000 and $22,000 in amortization of deferred financing costs for the six months ended March 31, 2011 and 2012, respectively. The Company had capitalized interest of $14,000 and $15,000 for the six months ended March 31, 2011 and 2012, respectively.

        During the three months ended March 31, 2012, the Company extended the maturity date of its credit facility from June 30, 2013 to June 30, 2014.

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Table of Contents


Vitamin Cottage Natural Food Markets, Inc.

Notes to Unaudited Interim Consolidated Financial Statements (Continued)

March 31, 2011 and 2012

3. Property and Equipment

        Following is the composition of property and equipment, net as of September 30, 2011 and March 31, 2012:

 
  As of
September 30,
2011
  As of
March 31,
2012
 

Land

  $ 604,855     616,450  

Construction in progress

    1,618,661     484,891  

Land improvements

    811,304     811,588  

Leasehold Improvements

    33,573,855     37,429,220  

Fixtures and equipment

    30,666,013     34,728,308  

Computer hardware and software

    5,362,468     6,107,693  
           

    72,637,156     80,178,150  

Less accumulated depreciation

    (30,899,922 )   (35,585,920 )
           

Property and equipment, net

  $ 41,737,234     44,592,230  
           

4. Fair Value Measurements

        The Company records its financial assets and liabilities at fair value in accordance with the framework for measuring fair value in authoritative guidance. The framework establishes a fair value hierarchy that distinguishes between assumptions based on market data (observable inputs) and the Company's own assumptions (unobservable inputs). The three levels of the fair value hierarchy are as follows:

Level 1—   Quoted market prices in active markets for identical assets or liabilities;

Level 2—

 

Inputs other than Level 1 inputs such as quoted prices for similar assets or liabilities or model-driven valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities; and

Level 3—

 

Unobservable inputs to the valuation methodology that are significant to the measurement of fair value assets and liabilities.

        As of September 30, 2011 and March 31, 2012, the Company had the following financial assets and liabilities that were subject to fair value measurements according to the above fair value hierarchy:

 
   
  As of September 30, 2011   As of March 31, 2012  
 
  Input
Level
  Carrying
Amount
  Fair Value   Carrying
Amount
  Fair Value  

Long-term debt—term loan

    2     16,200,000     16,200,000     15,950,000     15,950,000  

Revolving credit facility

    2     11,036,324     11,036,324     9,452,986     9,452,986  

        The carrying amounts of the term loan and revolving credit facility approximate fair value as of September 30, 2011 and March 31, 2012. Management believes that the carrying values approximate fair values of notes payable—related party because stated interest rates approximate market rates. The

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Table of Contents


Vitamin Cottage Natural Food Markets, Inc.

Notes to Unaudited Interim Consolidated Financial Statements (Continued)

March 31, 2011 and 2012

4. Fair Value Measurements (Continued)

carrying amounts of other financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities and other accrued expenses approximate fair value because of the short maturity of those instruments.

5. Commitments and Contingencies

    Self-Insurance

        The Company is self-insured for claims under its health benefit plans, subject to a stop loss policy. The self-insurance liability related to claims under the Company's health benefit plans is determined based on analysis of actual claims. The amounts related to these claims are included as a component of accrued benefits in accounts payable and accrued liabilities. Liabilities associated with the risks that are retained by the Company are estimated, in part, by considering historical claims experience, demographic factors and other actuarial assumptions. While the Company believes that its assumptions are appropriate, the estimated accrual for these liabilities could be significantly affected if future occurrences and claims differ from these assumptions and historical trends.

    Legal

        The Company is periodically involved in various legal proceedings that are incidental to the conduct of its business, including but not limited to employment discrimination claims and customer injury claims. When the potential liability from a matter can be estimated and the loss is considered probable, the Company records the estimated loss. Due to uncertainties related to the resolution of lawsuits and claims, the ultimate outcome may differ from the estimates. Although the Company cannot predict with certainty the ultimate resolution of any lawsuits, investigations and claims asserted against it, management does not believe any currently pending legal proceeding to which the Company is a party will have a material adverse effect on its business, prospects, financial condition, cash flows or results of operations.

6. Subsequent Events

        The Company has committed to an incentive payment totaling $275,000 to certain non-executive working team members within 30 days of a successful initial public offering which results in a closing, subject to active participation and continued employment conditions.

        On April 16, 2012, the Company sold land to a developer for $600,000, which resulted in no gain or loss.

        Section 402 of the Sarbanes-Oxley Act of 2002 was enacted to prohibit publicly traded companies from providing personal loans to directors and executive officers. As part of the Company's process to initiate a public offering, it has evaluated its arrangement with the related party trust that owns the life insurance policy and determined that it would be appropriate to extinguish the amounts receivable from the trust for the premiums paid by the Company on behalf of the trust. On June 14, 2012, the Company entered into an agreement with Zephyr Isely, Kemper Isely and Heather C. Isely, as co-trustees of The Philip and Margaret A. Isely Joint Trust Number One to terminate and cancel the Split-Dollar Life Insurance Agreement, the Collateral Assignment, the Loan Agreement and related Promissory Note effective with the payment by the co-trustees/trust of all outstanding sums payable to

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Table of Contents


Vitamin Cottage Natural Food Markets, Inc.

Notes to Unaudited Interim Consolidated Financial Statements (Continued)

March 31, 2011 and 2012

6. Subsequent Events (Continued)

the Company. As of June 14, 2012, the outstanding amounts were $659,852.14 for the premiums paid under the split-dollar life insurance agreement and $270,301.41 for the premiums paid and interest accrued per the loan agreement for a total receivable to the Company of $930,153.55. On June 15, 2012, the trust repaid this amount in full, and consistent with the original terms of the agreement, the Company has no further arrangements with the employee or the trust and no further obligations to pay the split-dollar life insurance policy premiums or any death benefit.

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Table of Contents

GRAPHIC


Table of Contents

LOGO



PROSPECTUS

                    , 2012



SunTrust Robinson Humphrey

Piper Jaffray

William Blair

Canaccord Genuity

   



PART II

INFORMATION NOT REQUIRED IN THE PROSPECTUS

Item 13.    Other Expenses of Issuance and Distribution.

        Set forth below are the expenses (other than underwriting discounts and commissions) expected to be incurred in connection with the issuance and distribution of the securities registered hereby. With the exception of the Securities and Exchange Commission registration fee, the FINRA filing fee and the NYSE filing fee, the amounts set forth below are estimates.

SEC registration fee

  $ 13,179  

FINRA filing fee

    12,000  

NYSE listing fee

    125,000  

Printing and engraving expenses

    334,000  

Accounting fees and expenses

    550,000  

Legal fees and expenses

    1,300,000  

Transfer agent and registrar fees

    15,000  

Miscellaneous

    55,000  
       

Total

  $ 2,404,179  
       

Item 14.    Indemnification of Directors and Officers.

        Prior to the consummation of this offering, we intend to enter into indemnification agreements with each of our current directors and executive officers. These agreements will require us to indemnify these individuals to the fullest extent permitted under Delaware law against liabilities that may arise by reason of their service to us, and to advance expenses incurred as a result of any proceeding against them as to which they could be indemnified. We also intend to enter into indemnification agreements with our future directors and executive officers.

        Section 145 of the Delaware General Corporation Law provides that a corporation may indemnify directors and officers as well as other employees and individuals against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with any threatened, pending or completed actions, suits or proceedings in which such person is made a party by reason of such person being or having been a director, officer, employee or agent to the Registrant. The Delaware General Corporation Law provides that Section 145 is not exclusive of other rights to which those seeking indemnification may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise. The Registrant's bylaws, as in effect upon the consummation of the offering, will provide for indemnification by the Registrant of its directors, officers and employees to the fullest extent permitted by the Delaware General Corporation Law.

        Section 102(b)(7) of the Delaware General Corporation Law permits a corporation to provide in its certificate of incorporation that a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) for unlawful payments of dividends or unlawful stock repurchases, redemptions or other distributions, or (iv) for any transaction from which the director derived an improper personal benefit. The Registrant's certificate of incorporation, as in effect upon the consummation of the offering, will provide for such limitation of liability.

        The Registrant maintains standard policies of insurance under which coverage is provided (a) to its directors and officers against loss arising from claims made by reason of breach of duty or other

II-1


wrongful act, and (b) to the Registrant with respect to payments which may be made by the Registrant to such officers and directors pursuant to the above indemnification provision or otherwise as a matter of law.

        The proposed form of underwriting agreement to be filed as Exhibit 1.1 to this Registration Statement provides for indemnification of directors and officers of the Registrant by the underwriters against certain liabilities.

Item 15.    Recent Sales of Unregistered Securities.

        In the three years preceding the filing of this Registration Statement, the Registrant has issued and sold the following unregistered securities:

        Pursuant to the Registrant's employment agreement with Sandra Buffa, our Chief Financial Officer, the Registrant will issue shares of its common stock to Ms. Buffa immediately following the consummation of the offering, at the public offering price, as consideration for services provided by Ms. Buffa since her employment with the Registrant commenced in 2008 as described in "The Reorganization." The issuance of securities to Ms. Buffa will be made in reliance upon Section 4(2) of the Securities Act, as amended, and will not involve any underwriters, underwriting discounts or commissions, or any public offering. Ms. Buffa has represented her intention to acquire these securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends will be affixed to any share certificates issued.

        In connection with and immediately prior to the consummation of the Registrant's initial public offering, the Registrant will issue shares of its common stock to the minority members of BVC, as consideration for their contribution of equity interests in BVC to the Registrant, as described in "The Reorganization." This issuance of the Registrant's common stock will be made in reliance upon Section 4(2) of the Securities Act, as amended, and will not involve any underwriters, underwriting discounts or commissions, or any public offering. The persons and entities who will receive such securities have represented their intention to acquire these securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends will be affixed to any share certificates issued.

Item 16.    Exhibits and Financial Statement Schedules.

(a)
The following documents are filed as exhibits to this registration statement:

 
  Exhibit No.   Description
      1.1   Form of Underwriting Agreement

 

 

 

2.1†

 

Limited Liability Company Interest Purchase and Contribution Agreement between Vitamins, Inc., Howard & Forey, Inc., Natural Grocers by Vitamin Cottage, Inc. and Vitamin Cottage Natural Food Markets, Inc. dated June 14, 2012

 

 

 

2.2*

 

Form of Agreement and Plan of Merger by and among Vitamin Cottage Natural Food Markets, Inc., Vitamin Merger, Inc. and Natural Grocers by Vitamin Cottage, Inc.

 

 

 

3.1

 

Form of Amended and Restated Certificate of Incorporation, to be in effect upon completion of this offering

 

 

 

3.2

 

Form of Amended and Restated Bylaws, to be in effect upon completion of this offering

 

 

 

4.1

 

Reference is made to Exhibits 3.1 and 3.2

 

 

 

4.2*

 

Specimen Common Stock Certificate

 

 

 

4.3

 

Form of Registration Rights Agreement

II-2


 
  Exhibit No.   Description
      5.1†   Form of opinion of Holland & Hart LLP as to the legality of the securities being registered

 

 

 

10.1†

 

Amended and Restated Employment Agreement by and between Vitamin Cottage Natural Food Markets, Inc., Natural Grocers by Vitamin Cottage, Inc. and Sandra M. Buffa, dated June 26, 2012

 

 

 

10.2†

 

Credit Agreement among Vitamin Cottage Natural Food Markets, Inc., the Lenders Party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent, dated September 29, 2006

 

 

 

10.3†

 

First Amendment to Credit Agreement by and among Vitamin Cottage Natural Food Markets, Inc. and JPMorgan Chase Bank, N.A., dated November 2, 2006

 

 

 

10.4†

 

Second Amendment to Credit Agreement by and among Vitamin Cottage Natural Food Markets, Inc. and JPMorgan Chase Bank, N.A., dated December 13, 2006

 

 

 

10.5†

 

Third Amendment to Credit Agreement among Vitamin Cottage Natural Food Markets, Inc. the Lenders under the Credit Agreement and JPMorgan Chase Bank, N.A., as Lender and Administrative Agent, dated June 26, 2007

 

 

 

10.6†

 

Fourth Amendment to Credit Agreement among Vitamin Cottage Natural Food Markets, Inc., the Lenders under the Credit Agreement and JPMorgan Chase Bank, N.A., as Lender and Administrative Agent, dated November 30, 2008

 

 

 

10.7†

 

Fifth Amendment to Credit Agreement among Vitamin Cottage Natural Food Markets, Inc., the Lenders under the Credit Agreement and JPMorgan Chase Bank, N.A., as Lender and Administrative Agent, dated June 30, 2009

 

 

 

10.8†

 

Sixth Amendment to Credit Agreement among Vitamin Cottage Natural Food Markets, Inc., the Lenders under the Credit Agreement and JPMorgan Chase Bank, N.A., as Lender and Administrative Agent, dated June 30, 2010

 

 

 

10.9†

 

Seventh Amendment to Credit Agreement among Vitamin Cottage Natural Food Markets, Inc., the Lenders under the Credit Agreement and JPMorgan Chase Bank, N.A., as Lender and Administrative Agent, dated December 21, 2010

 

 

 

10.10†

 

Eighth Amendment to Credit Agreement among Vitamin Cottage Natural Food Markets, Inc., the Lenders under the Credit Agreement and JPMorgan Chase Bank, N.A., as Lender and Administrative Agent, dated May 13, 2011

 

 

 

10.11†

 

Ninth Amendment to Credit Agreement among Vitamin Cottage Natural Food Markets, Inc., the Lenders under the Credit Agreement and JPMorgan Chase Bank, N.A., as Lender and Administrative Agent, dated July 11, 2011

 

 

 

10.12†

 

Tenth Amendment to Credit Agreement among Vitamin Cottage Natural Food Markets, Inc., the Lenders under the Credit Agreement and JPMorgan Chase Bank, N.A., as Lender and Administrative Agent, dated January 26, 2012

 

 

 

10.13†

 

Subordination Agreement by and among Vitamin Cottage Two Ltd. Liability Company, and Vitamin Cottage Natural Food Markets, Inc., in favor of JPMorgan Chase Bank, N.A., as administrative agent, dated September 29, 2006

 

 

 

10.14†

 

First Amendment to Subordination Agreement by and between Vitamin Cottage Two Ltd. Liability Company, and Vitamin Cottage Natural Food Markets, Inc., in favor of JPMorgan Chase Bank, N.A., as administrative agent, dated June 26, 2007

 

 

 

10.15†

 

Amended and Restated Promissory Note by Vitamin Cottage Natural Food Markets, Inc., for the benefit of JPMorgan Chase Bank, N.A., as Lender, dated December 21, 2010

 

 

 

10.16

 

Form of Omnibus Incentive Plan

II-3


 
  Exhibit No.   Description
      10.17†   Summary of Compensation Arrangements for Non-Employee Directors

 

 

 

10.18†

 

Form of Indemnification Agreement

 

 

 

10.19†

 

Shopping Center Lease by and between Chalet Properties, LLC and Vitamin Cottage Natural Food Markets, Inc., dated January 1, 2010

 

 

 

10.20†

 

Ground lease by and between 3801 East Second Avenue, LLC and Vitamin Cottage Natural Food Markets, Inc., dated March 1, 2001

 

 

 

10.21†

 

Commercial Lease by and between Chalet Properties, LLC and Vitamin Cottage Natural Food Markets, Inc., dated June 1, 2006

 

 

 

10.22†

 

Sublease by and between Chalet Properties, LLC and Vitamin Cottage Natural Food Markets, Inc., dated June 1, 2006

 

 

 

10.23†

 

Lease by and between Chalet Properties, LLC and Vitamin Cottage Natural Food Markets, Inc., dated September 1, 2011

 

 

 

10.24†

 

Lease by and between Chalet Properties, LLC and Boulder Vitamin Cottage Group, LLC, dated July 1, 2011

 

 

 

10.25†

 

Lease by and between Isely Family Land Trust, LLC and Vitamin Cottage Natural Food Markets, Inc., dated February 29, 2012

 

 

 

10.26†

 

Lease by and between Chalet Properties, Austin, LLC and Vitamin Cottage Natural Food Markets, Inc., dated February 29, 2012

 

 

 

10.27†

 

Building Lease by and between Chalet Properties, LLC and Vitamin Cottage Natural Food Markets, Inc., dated December 8, 2010

 

 

 

10.28†

 

Distribution Agreement between United Natural Foods, Inc. and Vitamin Cottage Natural Food Markets, Inc., dated May 20, 2008 #

 

 

 

10.29†

 

Addendum A to Distribution Agreement between United Natural Foods, Inc. and Vitamin Cottage Natural Food Markets, Inc., dated February 27, 2009 #

 

 

 

10.30†

 

Agreement Addendum to Distribution Agreement between United Natural Foods, Inc. and Vitamin Cottage Natural Food Markets, Inc., dated March 10, 2012 #

 

 

 

10.31†

 

Third Amendment to Distribution Agreement between United Natural Foods, Inc. and Vitamin Cottage Natural Food Markets, Inc., dated June 3, 2012 #

 

 

 

10.32*

 

Form of Stockholders Agreement, by, between and among Natural Grocers by Vitamin Cottage, Inc. and the stockholders to be named therein

 

 

 

21.1

 

List of subsidiaries

 

 

 

23.1†

 

Consent of KPMG LLP

 

 

 

23.2*

 

Consent of Holland & Hart LLP (contained in Exhibit 5.1)

 

 

 

24.1†

 

Powers of Attorney (included on the signature page)

 

 

 

99.1†

 

Confidential Submission No. 1 submitted to the Securities and Exchange Commission on April 25, 2012

 

 

 

99.2†

 

Confidential Submission No. 2 submitted to the Securities and Exchange Commission on May 31, 2012

*
To be filed by amendment

Previously filed

#
Confidential portions of this exhibit have been omitted pursuant to a request for confidential treatment

II-4


Item 17.    Undertakings.

        The undersigned registrant hereby undertakes that:

    (1)
    The undersigned will provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

    (2)
    For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933, shall be deemed to be part of this registration statement as of the time it was declared effective.

    (3)
    For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

    (4)
    For the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however , that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

    (5)
    For the purpose of determining liability under the Securities Act of 1933 to any purchaser in the initial distribution of securities, the undersigned undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

              (a)   Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;

              (b)   Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;

              (c)   The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and

              (d)   Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

        Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.

II-5



SIGNATURES

        Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Amendment No. 2 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Denver, State of Colorado, on July 5, 2012.

    Natural Grocers by Vitamin Cottage, Inc.

 

 

By:

 

/s/ HEATHER ISELY

Heather Isely,
Its Executive Vice President

        Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 2 to the Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.

Name
 
Title
 
Date

 

 

 

 

 

 

 
*

Kemper Isely
  (Principal Executive Officer, Co-President, Director)   July 5, 2012

/s/ SANDRA BUFFA

Sandra Buffa

 

(Principal Financial and Accounting Officer)

 

July 5, 2012

*

Zephyr Isely

 

Director

 

July 5, 2012

/s/ HEATHER ISELY

Heather Isely

 

Director

 

July 5, 2012

*

Elizabeth Isely

 

Director

 

July 5, 2012

*By:

 

/s/ HEATHER ISELY

Heather Isely, attorney-in-fact

 

 

 

 

II-6



EXHIBIT INDEX

 
  Exhibit No.   Description
      1.1   Form of Underwriting Agreement

 

 

 

2.1†

 

Limited Liability Company Interest Purchase and Contribution Agreement between Vitamins, Inc., Howard & Forey, Inc., Natural Grocers by Vitamin Cottage, Inc. and Vitamin Cottage Natural Food Markets, Inc. dated June 14, 2012

 

 

 

2.2*

 

Form of Agreement and Plan of Merger by and among Vitamin Cottage Natural Food Markets, Inc., Vitamin Merger, Inc. and Natural Grocers by Vitamin Cottage, Inc.

 

 

 

3.1

 

Form of Amended and Restated Certificate of Incorporation, to be in effect upon completion of this offering

 

 

 

3.2

 

Form of Amended and Restated Bylaws, to be in effect upon completion of this offering

 

 

 

4.1

 

Reference is made to Exhibits 3.1 and 3.2

 

 

 

4.2*

 

Specimen Common Stock Certificate

 

 

 

4.3

 

Form of Registration Rights Agreement

 

 

 

5.1†

 

Form of opinion of Holland & Hart LLP as to the legality of the securities being registered

 

 

 

10.1†

 

Amended and Restated Employment Agreement by and between Vitamin Cottage Natural Food Markets, Inc., Natural Grocers by Vitamin Cottage, Inc. and Sandra M. Buffa, dated June 26, 2012

 

 

 

10.2†

 

Credit Agreement among Vitamin Cottage Natural Food Markets, Inc., the Lenders Party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent, dated September 29, 2006

 

 

 

10.3†

 

First Amendment to Credit Agreement by and among Vitamin Cottage Natural Food Markets, Inc. and JPMorgan Chase Bank, N.A., dated November 2, 2006

 

 

 

10.4†

 

Second Amendment to Credit Agreement by and among Vitamin Cottage Natural Food Markets, Inc. and JPMorgan Chase Bank, N.A., dated December 13, 2006

 

 

 

10.5†

 

Third Amendment to Credit Agreement among Vitamin Cottage Natural Food Markets, Inc. the Lenders under the Credit Agreement and JPMorgan Chase Bank, N.A., as Lender and Administrative Agent, dated June 26, 2007

 

 

 

10.6†

 

Fourth Amendment to Credit Agreement among Vitamin Cottage Natural Food Markets, Inc., the Lenders under the Credit Agreement and JPMorgan Chase Bank, N.A., as Lender and Administrative Agent, dated November 30, 2008

 

 

 

10.7†

 

Fifth Amendment to Credit Agreement among Vitamin Cottage Natural Food Markets, Inc., the Lenders under the Credit Agreement and JPMorgan Chase Bank, N.A., as Lender and Administrative Agent, dated June 30, 2009

 

 

 

10.8†

 

Sixth Amendment to Credit Agreement among Vitamin Cottage Natural Food Markets, Inc., the Lenders under the Credit Agreement and JPMorgan Chase Bank, N.A., as Lender and Administrative Agent, dated June 30, 2010

 

 

 

10.9†

 

Seventh Amendment to Credit Agreement among Vitamin Cottage Natural Food Markets, Inc., the Lenders under the Credit Agreement and JPMorgan Chase Bank, N.A., as Lender and Administrative Agent, dated December 21, 2010

 

 

 

10.10†

 

Eighth Amendment to Credit Agreement among Vitamin Cottage Natural Food Markets, Inc., the Lenders under the Credit Agreement and JPMorgan Chase Bank, N.A., as Lender and Administrative Agent, dated May 13, 2011

 
  Exhibit No.   Description
      10.11†   Ninth Amendment to Credit Agreement among Vitamin Cottage Natural Food Markets, Inc., the Lenders under the Credit Agreement and JPMorgan Chase Bank, N.A., as Lender and Administrative Agent, dated July 11, 2011

 

 

 

10.12†

 

Tenth Amendment to Credit Agreement among Vitamin Cottage Natural Food Markets, Inc., the Lenders under the Credit Agreement and JPMorgan Chase Bank, N.A., as Lender and Administrative Agent, dated January 26, 2012

 

 

 

10.13†

 

Subordination Agreement by and among Vitamin Cottage Two Ltd. Liability Company, and Vitamin Cottage Natural Food Markets, Inc., in favor of JPMorgan Chase Bank, N.A., as administrative agent, dated September 29, 2006

 

 

 

10.14†

 

First Amendment to Subordination Agreement by and between Vitamin Cottage Two Ltd. Liability Company, and Vitamin Cottage Natural Food Markets, Inc., in favor of JPMorgan Chase Bank, N.A., as administrative agent, dated June 26, 2007

 

 

 

10.15†

 

Amended and Restated Promissory Note by Vitamin Cottage Natural Food Markets, Inc., for the benefit of JPMorgan Chase Bank, N.A., as Lender, dated December 21, 2010

 

 

 

10.16

 

Form of Omnibus Incentive Plan

 

 

 

10.17†

 

Summary of Compensation Arrangements for Non-Employee Directors

 

 

 

10.18†

 

Form of Indemnification Agreement

 

 

 

10.19†

 

Shopping Center Lease by and between Chalet Properties, LLC and Vitamin Cottage Natural Food Markets, Inc., dated January 1, 2010

 

 

 

10.20†

 

Ground lease by and between 3801 East Second Avenue, LLC and Vitamin Cottage Natural Food Markets, Inc., dated March 1, 2001

 

 

 

10.21†

 

Commercial Lease by and between Chalet Properties, LLC and Vitamin Cottage Natural Food Markets, Inc., dated June 1, 2006

 

 

 

10.22†

 

Sublease by and between Chalet Properties, LLC and Vitamin Cottage Natural Food Markets, Inc., dated June 1, 2006

 

 

 

10.23†

 

Lease by and between Chalet Properties, LLC and Vitamin Cottage Natural Food Markets, Inc., dated September 1, 2011

 

 

 

10.24†

 

Lease by and between Chalet Properties, LLC and Boulder Vitamin Cottage Group, LLC, dated July 1, 2011

 

 

 

10.25†

 

Lease by and between Isely Family Land Trust, LLC and Vitamin Cottage Natural Food Markets, Inc., dated February 29, 2012

 

 

 

10.26†

 

Lease by and between Chalet Properties, Austin, LLC and Vitamin Cottage Natural Food Markets, Inc., dated February 29, 2012

 

 

 

10.27†

 

Building Lease by and between Chalet Properties, LLC and Vitamin Cottage Natural Food Markets, Inc., dated December 8, 2010

 

 

 

10.28†

 

Distribution Agreement between United Natural Foods, Inc. and Vitamin Cottage Natural Food Markets, Inc., dated May 20, 2008 #

 

 

 

10.29†

 

Addendum A to Distribution Agreement between United Natural Foods, Inc. and Vitamin Cottage Natural Food Markets, Inc., dated February 27, 2009 #

 

 

 

10.30†

 

Agreement Addendum to Distribution Agreement between United Natural Foods, Inc. and Vitamin Cottage Natural Food Markets, Inc., dated March 10, 2012 #

 

 

 

10.31†

 

Third Amendment to Distribution Agreement between United Natural Foods, Inc. and Vitamin Cottage Natural Food Markets, Inc., dated June 3, 2012 #

 
  Exhibit No.   Description
      10.32*   Form of Stockholders Agreement, by, between and among Natural Grocers by Vitamin Cottage, Inc. and the stockholders to be named therein

 

 

 

21.1

 

List of subsidiaries

 

 

 

23.1†

 

Consent of KPMG LLP

 

 

 

23.2*

 

Consent of Holland & Hart LLP (contained in Exhibit 5.1)

 

 

 

24.1†

 

Powers of Attorney (included on the signature page)

 

 

 

99.1†

 

Confidential Submission No. 1 submitted to the Securities and Exchange Commission on April 25, 2012

 

 

 

99.2†

 

Confidential Submission No. 2 submitted to the Securities and Exchange Commission on May 31, 2012

*
To be filed by amendment

Previously filed

#
Confidential portions of this exhibit have been omitted pursuant to a request for confidential treatment



Exhibit 1.1

 

[ · ] shares

 

Natural Grocers by Vitamin Cottage, Inc.

 

Common Stock

 

UNDERWRITING AGREEMENT

 

, 2012

 

SUNTRUST ROBINSON HUMPHREY, INC.

PIPER JAFFRAY & CO.
As Representatives of the several
  Underwriters named in Schedule I attached hereto,
c/o SunTrust Robinson Humphrey, Inc.
3333 Peachtree Road, NE, 10
th  Floor

Atlanta, Georgia 30326

 

Ladies and Gentlemen:

 

Natural Grocers by Vitamin Cottage, Inc. a Delaware corporation (the “ Company ”), and certain stockholders of the Company named in Schedule II attached hereto (the “ Selling Stockholders ” and each, a “ Selling Stockholder ”), propose, subject to the terms and conditions herein, to sell an aggregate of [ · ] shares (the “ Firm Shares ”) of the Company’s common stock, par value $0.001 per share (the “ Common Stock ”).  Of the [ · ] Firm Shares, [ · ] are being sold by the Company and [ · ] by the Selling Stockholders.  In addition, the Company and the Selling Stockholders propose to grant to the underwriters (the “ Underwriters ”) named in Schedule I attached to this agreement (this “ Agreement ”), options to purchase up to an aggregate of [ · ] additional shares of Common Stock on the terms set forth in Section 3 hereof (the “ Option Shares ”).  The Firm Shares and the Option Shares, if purchased, are hereinafter collectively called the “ Shares .”

 

1.     Representations, Warranties and Agreements of the Company .  The Company represents, warrants and agrees with each of the Underwriters that:

 

(a)           A registration statement on Form S-1 (No. 333-182186) relating to the Shares, including a related preliminary prospectus or prospectuses has (i) been prepared by the Company in conformity with the requirements of the Securities Act of 1933, as amended (the “ Securities Act ”), and the rules and regulations (the “ Rules and Regulations ”) of the Securities and Exchange Commission (the “ Commission ”) thereunder; (ii) been filed with the Commission under the Securities Act and is not proposed to be amended; and (iii) become effective under the Securities Act.  Such registration statement, as initially filed on a confidential basis with the Commission, was, and all confidential amendments thereto were, filed publicly with the Commission in conformity with the requirements of the Securities Act and the Rules and Regulations not later than 21 days prior to [ · ], 2012.  Copies of such registration statement and any amendment thereto have been delivered by the Company to you as the representatives (the “ Representatives ”) of the Underwriters.  As used in this Agreement:

 



 

(i)            “ Applicable Time ” means [ · ] [a.m.][p.m.] (New York City time) on [ · ], 2012;

 

(ii)           “ Effective Date ” means the date and time as of which the Registration Statement was declared effective by the Commission;

 

(iii)          “ Issuer Free Writing Prospectus ” means any “issuer free writing prospectus” (as defined in Rule 433 under the Securities Act) relating to the offering of the Shares in the final form filed or required to be filed with the Commission or, if not required to be filed with the Commission, in the form retained in the Company’s records pursuant to Rule 433(g);

 

(iv)          “ Preliminary Prospectus ” means any preliminary prospectus relating to the Shares included in such registration statement or filed by the Company with the Commission with the consent of the Underwriters pursuant to Rule 424(a) of the Rules and Regulations;

 

(v)           “ Pricing Disclosure Package ” means, as of the Applicable Time, the most recent Preliminary Prospectus, together with [the information included in Schedule [IV] hereto and] each Issuer Free Writing Prospectus filed or used by the Company on or before the Applicable Time, other than a road show that is an Issuer Free Writing Prospectus but is not required to be filed under Rule 433 of the Rules and Regulations;

 

(vi)          “ Prospectus ” means the final prospectus relating to the Shares, as filed with the Commission pursuant to Rule 424(b) of the Rules and Regulations; and

 

(vii)         “ Registration Statement ” means such registration statement, as amended as of the Effective Date, including any Preliminary Prospectus or the Prospectus and all exhibits to such registration statement.

 

(viii)        “ Testing-the-Waters Communication ” means any oral or written communication with potential investors undertaken in reliance on Section 5(d) of the Securities Act.

 

(ix)           “ Written Testing-the-Waters Communication ” means any Testing-the-Waters Communication that is a written communication within the meaning of Rule 405 under the Securities Act.

 

Any reference to the “ most recent Preliminary Prospectus ” shall be deemed to refer to the latest Preliminary Prospectus included in the Registration Statement or filed pursuant to Rule 424(b) prior to or on the date hereof.  The Commission has not issued any order preventing or suspending the use of any Preliminary Prospectus or the Prospectus or suspending the effectiveness of the Registration Statement, and no proceeding or examination for such purpose has been instituted or threatened by the Commission.

 

2



 

(b)           The Company was not at the time of the initial filing of the Registration Statement and at the earliest time thereafter that the Company or another offering participant made a bona fide offer (within the meaning of Rule 164(h)(2) of the Rules and Regulations) relating to the Shares, is not on the date hereof and will not be on the applicable Delivery Date an “ineligible issuer” (as defined in Rule 405).

 

(c)           The Registration Statement conformed and will conform in all material respects on the Effective Date, on the date hereof and on each applicable Delivery Date, and any amendment to the Registration Statement filed after the date hereof will conform in all material respects when filed, to the requirements of the Securities Act and the Rules and Regulations.  The most recent Preliminary Prospectus conformed, and the Prospectus will conform when filed with the Commission pursuant to Rule 424(b) and on each applicable Delivery Date, in all material respects, to the requirements of the Securities Act and the Rules and Regulations.

 

(d)           The Registration Statement does not and did not as of the Effective Date, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; provided that no representation or warranty is made as to information contained in or omitted from the Registration Statement in reliance upon and in conformity with written information furnished to the Company through the Representatives by or on behalf of any Underwriter specifically for inclusion therein, which information is specified in Section 10(f) hereof.

 

(e)           The Prospectus will not, as of its date and on each applicable Delivery Date, contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that no representation or warranty is made as to information contained in or omitted from the Prospectus in reliance upon and in conformity with written information furnished to the Company through the Representatives by or on behalf of any Underwriter specifically for inclusion therein, which information is specified in Section 10(f) hereof.

 

(f)            The Pricing Disclosure Package did not, as of the Applicable Time, contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that no representation or warranty is made as to information contained in or omitted from the Pricing Disclosure Package in reliance upon and in conformity with written information furnished to the Company through the Representatives by or on behalf of any Underwriter specifically for inclusion therein, which information is specified in Section 10(f) hereof.

 

(g)           Each Issuer Free Writing Prospectus (including, without limitation, any road show that is an Issuer Free Writing Prospectus but is not required to be filed under Rule 433 of the Securities Act), as of its issue date and at all subsequent times throughout the completion of the public offer and sale of the Shares, when considered together with the Pricing Disclosure Package as of the Applicable Time, did not contain an untrue

 

3



 

statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.

 

(h)           Each Issuer Free Writing Prospectus conformed or will conform in all material respects to the requirements of the Securities Act and the Rules and Regulations on the date of first use, and the Company has complied with all prospectus delivery and any filing requirements applicable to such Issuer Free Writing Prospectus pursuant to the Rules and Regulations.  The Company has not made any offer relating to the Shares that would constitute an Issuer Free Writing Prospectus without the prior written consent of the Representatives.  The Company has retained in accordance with the Rules and Regulations all Issuer Free Writing Prospectuses that were not required to be filed pursuant to the Rules and Regulations.  The Company has taken all actions necessary so that any “road show” (as defined in Rule 433 of the Rules and Regulations) in connection with the offering of the Shares will not be required to be filed pursuant to the Rules and Regulations.

 

(i)            Any individual Written Testing-the-Waters Communication, when considered together with the Pricing Disclosure Package as of the Applicable Time, did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading

 

(j)            Each of the Company and its subsidiaries (as defined in Section 19 hereof) has been duly organized, is validly existing and in good standing as a corporation or other business entity under the laws of its jurisdiction of organization; each of the Company and its subsidiaries is duly qualified to do business and in good standing as a foreign corporation or other business entity in each jurisdiction in which its ownership or lease of property or the conduct of its businesses requires such qualification, except where the failure to be so qualified or in good standing would not, in the aggregate, reasonably be expected to have a material adverse effect on (i) the condition (financial or otherwise), results of operations, stockholders’ equity, properties, business or prospects of the Company and its subsidiaries taken as a whole or (ii) the ability of the Company to consummate the transactions contemplated hereby (in each case, a “ Material Adverse Effect ”); and each of the Company and its subsidiaries has all power and authority necessary to own or hold its properties and to conduct the businesses in which it is engaged and as disclosed in the Pricing Disclosure Package.  The Company does not own or control, directly or indirectly, any corporation, association or other entity other than the subsidiaries listed in Exhibit 21 to the Registration Statement.  Vitamin Cottage Natural Food Markets, Inc., a Colorado corporation, and Boulder Vitamin Cottage Group, LLC, a Colorado limited liability company are the only subsidiaries of the Company that are a “significant subsidiary” (as defined in Rule 405).

 

(k)           The Company has an authorized capitalization as set forth in each of the most recent Preliminary Prospectus and the Prospectus, and all of the issued shares of capital stock of the Company have been duly authorized and validly issued, are fully paid and non-assessable, conform to the description thereof contained in the most recent

 

4



 

Preliminary Prospectus and were issued in compliance with federal and state securities laws and not in violation of any preemptive right, resale right, right of first refusal or similar right.  No options, warrants or other rights to purchase or exchange any securities for shares of the Company’s capital stock are outstanding.  All of the issued shares of capital stock or membership interests, as the case may be, of each subsidiary of the Company have been duly authorized and validly issued, are fully paid and non-assessable and are owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims, except for such liens, encumbrances, equities or claims as would not, in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

(l)            The Shares to be issued and sold by the Company to the Underwriters hereunder have been duly authorized and, upon payment therefor, and delivery in accordance with this Agreement, will be validly issued, fully paid and non-assessable, will conform to the description thereof contained in the most recent Preliminary Prospectus, will be issued in compliance with federal and state securities laws and will be free of statutory and contractual preemptive rights, rights of first refusal and similar rights.  The Shares to be sold by the Selling Stockholders will be sold in compliance with federal and state securities laws.

 

(m)          The Company has all requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement.  This Agreement has been duly and validly authorized, executed and delivered by the Company.

 

(n)           The execution, delivery and performance of this Agreement, the consummation of the transactions contemplated hereby and the application of the proceeds from the sale of the Shares as described under “Use of Proceeds” in the most recent Preliminary Prospectus and the transactions described in the most recent Preliminary Prospectus under the caption “The Reorganization” (such actions are herein collectively called the “ Reorganization ”) will not (i) conflict with or result in a breach or violation of any of the terms or provisions of, impose any lien, charge or encumbrance upon any property or assets of the Company and its subsidiaries, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement, license or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject; (ii) result in any violation of the provisions of the charter or by-laws (or similar organizational documents) of the Company or any of its subsidiaries; or (iii) result in any violation of any statute or any order, rule or regulation of any court or governmental agency or body, domestic or foreign, having jurisdiction over the Company or any of its subsidiaries or any of their properties or assets, except in the case of clauses (i) and (iii), to the extent that any such conflict, breach, violation or default would not reasonably be expected to have a Material Adverse Effect.

 

(o)           No consent, approval, authorization or order of, or filing, registration or qualification with, any person (including any court or governmental agency or body having jurisdiction over the Company or any of its subsidiaries or any of their properties or assets) is required to be obtained by the Company for the execution, delivery and

 

5



 

performance of this Agreement, the consummation of the transactions contemplated hereby, the offering of the Directed Shares (as defined in Section 4 hereof) in any jurisdiction where the Directed Shares will be offered, the application of the proceeds from the sale of the Shares as described under “Use of Proceeds” in the most recent Preliminary Prospectus and the Reorganization, except for (i) the registration of the Shares under the Securities Act, (ii) such consents, approvals, authorizations, orders, filings, registrations or qualifications as may be required under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), the rules and regulations of the Financial Industry Regulatory Authority, Inc. (“ FINRA ”) and applicable state or foreign securities laws in connection with the purchase and sale of the Shares by the Underwriters, (iii) such consents that have been, or prior to the Initial Delivery Date will be, obtained, or, if not obtained, would not reasonably be expected to have a Material Adverse Effect or materially impair the ability of the parties hereto to consummate the transactions contemplated by this Agreement and (iv) as disclosed in the Pricing Disclosure Package .

 

(p)           Except as disclosed in the most recent Preliminary Prospectus and the Prospectus, there are no contracts, agreements or understandings between the Company and any person granting such person the right to require the Company to file a registration statement under the Securities Act with respect to any securities of the Company owned or to be owned by such person or to require the Company to include such securities in the securities registered pursuant to the Registration Statement or in any securities being registered pursuant to any other registration statement filed by the Company under the Securities Act.

 

(q)           The Company has not sold or issued any securities that would be integrated with the offering of the Shares contemplated by this Agreement pursuant to the Securities Act, the Rules and Regulations or the interpretations thereof by the Commission.

 

(r)            Neither the Company nor any of its subsidiaries has sustained, since the date of the latest audited financial statements included in the most recent Preliminary Prospectus, any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, and since such date, there has not been any change in the capital stock, total current assets, long-term debt or short-term debt of the Company or any of its subsidiaries or any adverse change, or any development or event involving a prospective change, in or affecting the condition (financial or otherwise), results of operations, stockholders’ equity, properties, management, business or prospects of the Company and its subsidiaries taken as a whole, in each case except as would not, in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

(s)           Since the date as of which information is given in the most recent Preliminary Prospectus, the Company has not (i) incurred any material liability or obligation, direct or contingent, other than liabilities and obligations that were incurred in the ordinary course of business, (ii) entered into any material transaction not in the ordinary course of business, (iii) declared or paid any dividend on its capital stock or (iv) purchased any of its capital stock.

 

6



 

(t)            The historical financial statements (including the related notes and supporting schedules thereto) included in the Registration Statement and the Pricing Disclosure Package comply in all material respects with the requirements of Regulation S-X under the Securities Act and present fairly the financial condition, results of operations and cash flows of the entities purported to be shown thereby on the basis stated therein at the dates and for the periods indicated and have been prepared in conformity with accounting principles generally accepted in the United States applied on a consistent basis throughout the periods involved and the schedules included in the Registration Statement present fairly the information required to be stated therein.

 

(u)           KPMG LLP, who have certified certain financial statements of the Company and its consolidated subsidiaries, whose report appears in the Registration Statement and the Pricing Disclosure Package and who have delivered the initial letter referred to in Section 9(h) hereof, are independent public accountants with respect to the Company and its consolidated subsidiaries, as required by the Securities Act and the Rules and Regulations during the periods covered by the initial letter referred to in Section 9(h).

 

(v)           The statements in the Pricing Disclosure Package and the Prospectus under the headings “Material U.S. Federal Income and Estate Tax Considerations for Non-U.S. Holders of Common Stock,” “Certain Relationships and Related Party Transactions,” “Description of Capital Stock,” “Business—Regulatory Compliance” and “Risk Factors— We, as well as our vendors, are subject to numerous laws and regulations and our compliance with these laws and regulations, as they currently exist or as modified in the future, may increase our costs, limit or eliminate our ability to sell certain products, raise regulatory enforcement risks not present in the past or otherwise adversely affect our business, results of operations and financial condition,” insofar as such statements summarize legal matters, agreements, documents or proceedings discussed therein, are, in all material respects, accurate summaries of such legal matters, agreements, documents or proceedings, subject to the qualifications and assumptions stated therein, and present the information required to be shown.

 

(w)          The Company and each of its subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them, in each case free and clear of all liens, encumbrances and defects, except such (i) as are described in the most recent Preliminary Prospectus or such as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and its subsidiaries, or (ii) that arise under the Credit Agreement among Vitamin Cottage Natural Food Markets, Inc., the lenders party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent, dated September 29, 2006, as amended; and all assets held under lease by the Company and its subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as do not materially interfere with the use made or to be made by such assets.

 

(x)            The Company and each of its subsidiaries carry, or are covered by, insurance from insurers of recognized financial responsibility in such amounts and

 

7



 

covering such risks as is adequate for the conduct of their respective businesses and the value of their respective properties and as is customary for companies engaged in similar businesses in similar industries.  All policies of insurance of the Company and its subsidiaries are in full force and effect; the Company and its subsidiaries are in compliance with the terms of such policies in all material respects; and neither the Company nor any of its subsidiaries has received notice from any insurer or agent of such insurer that capital improvements or other expenditures are required or necessary to be made in order to continue such insurance; there are no claims by the Company or any of its subsidiaries under any such policy or instrument as to which any insurance company is denying liability or defending under a reservation of rights clause; and neither the Company nor any such subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not reasonably be expected to have a Material Adverse Effect.

 

(y)           Except as disclosed in the Pricing Disclosure Package with respect to the Reorganization, the Company has not sold or issued any securities during the six-month period preceding the date of the Prospectus, including but not limited to any sales pursuant to Rule 144A or Regulation D or S of the Securities Act.

 

(z)            Any statistical and market-related data included in the most recent Preliminary Prospectus and the consolidated financial statements of the Company and its subsidiaries included in the most recent Preliminary Prospectus are based on or derived from sources that the Company believes to be reliable and accurate.

 

(aa)         Neither the Company nor any subsidiary is, and as of the applicable Delivery Date and, after giving effect to the offer and sale of the Shares and the application of the proceeds therefrom as described under “Use of Proceeds” in the most recent Preliminary Prospectus and the Prospectus, none of them will be, (i) an “investment company” within the meaning of such term under the Investment Company Act of 1940, as amended (the “ Investment Company Act ”), and the Rules and Regulations or (ii) a “business development company” (as defined in Section 2(a)(48) of the Investment Company Act).

 

(bb)         Except as described in the most recent Preliminary Prospectus, there are no legal or governmental actions, suits or proceedings pending (including any inquiries or investigations) to which the Company or any of its subsidiaries is a party or of which any property or assets of the Company or any of its subsidiaries is the subject that would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect or would, materially and adversely affect the performance of this Agreement or the consummation of the transactions contemplated hereby; and to the Company’s knowledge, no such proceedings are threatened or contemplated by governmental authorities or others.

 

(cc)         There are no legal or governmental proceedings or contracts or other documents of a character required to be described in the Registration Statement or the most recent Preliminary Prospectus or, in the case of documents, to be filed as exhibits to

 

8



 

the Registration Statement that are not described and filed as required.  Neither the Company nor any of its subsidiaries has knowledge that any other party to any such contract, agreement or arrangement has any intention not to render full performance as contemplated by the terms thereof .

 

(dd)         No relationship, direct or indirect, or related-party transaction exists between or among the Company or any of its subsidiaries, on the one hand, and the directors, officers, stockholders, customers or suppliers of the Company, on the other hand, that is required to be described in the most recent Preliminary Prospectus that is not so described.

 

(ee)         There are no outstanding loans, advances (except normal advances for business expenses in the ordinary course of business) or guarantees of indebtedness by the Company to or for the benefit of any of the officers or directors of the Company or any of their respective family members.  The Company has not, directly or indirectly, including through its subsidiaries, extended or maintained credit, arranged for the extension of credit, or renewed an extension of credit, in the form of a personal loan to or for any director or executive officer of the Company, other than any extensions of credit that ceased to be outstanding prior to the date the Registration Statement was first filed with the Commission.

 

(ff)           No labor disturbance by the employees of the Company or its subsidiaries exists or, to the knowledge of the Company, is imminent that would reasonably be expected to have a Material Adverse Effect.

 

(gg)         (i) Each “employee benefit plan” (within the meaning of Section 3(3) of the Employee Retirement Security Act of 1974, as amended (“ ERISA ”)) for which the Company or any member of its “Controlled Group” (defined as any organization which is a member of a controlled group of corporations within the meaning of Section 414 of the Internal Revenue Code of 1986, as amended (the “ Code ”)) would have any liability (each a “ Plan ”), has been maintained in compliance in all material respects with its terms and with the requirements of all applicable statutes, rules and regulations including ERISA and the Code; (ii) with respect to each Plan subject to Title IV of ERISA (a) no “reportable event” (within the meaning of Section 4043(c) of ERISA) has occurred or is reasonably expected to occur, (b) no “accumulated funding deficiency” (within the meaning of Section 302 of ERISA or Section 412 of the Code), whether or not waived, has occurred or is reasonably expected to occur, (c) the fair market value of the assets under each Plan exceeds the present value of all benefits accrued under such Plan (determined based on those assumptions used to fund such Plan) and (d) neither the Company nor any member of its Controlled Group has incurred, or reasonably expects to incur, any liability under Title IV of ERISA (other than contributions to the Plan or premiums to the PBGC in the ordinary course and without default) in respect of a Plan (including a “multiemployer plan”, within the meaning of Section 4001(c)(3) of ERISA); and (iii) each Plan that is intended to be qualified under Section 401(a) of the Code is so qualified and nothing has occurred, whether by action or by failure to act, which would cause the loss of such qualification.

 

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(hh)         The Company and each of its subsidiaries have filed, subject to permitted extensions, all federal, state, local and foreign income and franchise tax returns required to be filed through the date hereof, and have paid all taxes due thereon (other than those that are being contested in good faith and for which adequate reserves have been established in accordance with accounting principles generally accepted in the United States), and no tax deficiency has been determined adversely to the Company or any of its subsidiaries, nor does the Company have any knowledge of any tax deficiencies that would, in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

(ii)           There are no transfer taxes or other similar fees or charges under Federal law or the laws of any state, or any political subdivision thereof, required to be paid in connection with the execution and delivery of this Agreement or the issuance by the Company or sale by the Company of the Shares.

 

(jj)           Neither the Company nor any of its subsidiaries (i) is in violation of its charter or by-laws (or similar organizational documents), (ii) is in default, and no event has occurred that, with notice or lapse of time or both, would constitute such a default, in the due performance or observance of any term, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement, license or other agreement or instrument to which it is a party or by which it is bound or to which any of its properties or assets is subject or (iii) is in violation of any law, statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over it or its property or assets or has failed to obtain any license, permit, certificate, franchise or other governmental authorization or permit necessary to the ownership of its property or to the conduct of its business, except in the case of clauses (ii) and (iii), to the extent that any such conflict, breach, violation or default would not, in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

(kk)         The Company and each of its subsidiaries (i) make and keep accurate books and records and (ii) maintain and have maintained effective internal controls over financial reporting as defined in Rule 13a-15(f) under the Exchange Act and a system of internal accounting controls sufficient to provide reasonable assurance that (A) transactions are executed in accordance with management’s general or specific authorization, (B) transactions are recorded as necessary to permit preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States and to maintain accountability for its assets, (C) access to the Company’s assets is permitted only in accordance with management’s general or specific authorization and (D) the recorded accountability for the Company’s assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

 

(ll)           (i) The Company and each of its subsidiaries have established and maintain disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act), (ii) such disclosure controls and procedures are designed to ensure that the information required to be disclosed by the Company and its subsidiaries in the reports they will file or submit under the Exchange Act is accumulated and communicated to management of the Company and its subsidiaries, including their

 

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respective principal executive officers and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure to be made and (iii) such disclosure controls and procedures are effective in all material respects to perform the functions for which they were established.

 

(mm)       Since the date of the most recent balance sheet of the Company and its consolidated subsidiaries reviewed or audited by KPMG LLP and the audit committee of the board of directors of the Company, (i) the Company has not been advised of (A) any significant deficiencies in the design or operation of internal controls that could adversely affect the ability of the Company and each of its subsidiaries to record, process, summarize and report financial data, or any material weaknesses in internal controls or (B) any fraud, whether or not material, that involves management or other employees who have a significant role in the internal controls of the Company and each of its subsidiaries, and (ii) there have been no significant changes in the Company’s or any of its subsidiaries’ internal controls over financial reporting or in other factors that could significantly affect internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses.  Neither the Company nor its Audit Committee is reviewing or investigating, and neither the Company’s independent auditors nor its internal auditors have recommended that the Company or its Audit Committee review or investigate (1) adding to, deleting, changing the application of, or changing the Company’s disclosure with respect to, any of the Company’s material accounting policies, or (2) any matter that could result in a restatement of the Company’s financial statements for any annual or interim period during the current or prior three fiscal years.

 

(nn)         There is and has been no failure on the part of the Company and, to the knowledge of the Company, any of the Company’s directors or officers, in their capacities as such, to comply with the provisions of the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated in connection therewith.

 

(oo)         Except as disclosed in the Pricing Disclosure Package, there are no off-balance sheet arrangements, outstanding guarantees or other contingent obligations of the Company that would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

 

(pp)         The section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies” in the most recent Preliminary Prospectus accurately describes in all material respects (A) the accounting policies that the Company believes are the most important in the portrayal of the Company’s financial condition and results of operations and that require management’s most difficult, subjective or complex judgments (“ Critical Accounting Policies ”); (B) the judgments and uncertainties affecting the application of Critical Accounting Policies; and (C) the likelihood that materially different amounts would be reported under different conditions or using different assumptions and an explanation thereof.

 

(qq)         The Company and each of its subsidiaries have and are in compliance with such permits, licenses, patents, franchises, certificates of need and other approvals or

 

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authorizations of governmental or regulatory authorities (“ Permits ”) as are necessary under applicable law to own their properties and conduct their businesses in the manner described in the most recent Preliminary Prospectus, except for any of the foregoing that would not, in the aggregate, reasonably be expected to have a Material Adverse Effect; each of the Company and its subsidiaries has fulfilled and performed all of its obligations with respect to the Permits, and no event has occurred that allows, or after notice or lapse of time would allow, revocation or termination thereof or results in any other impairment of the rights of the holder or any such Permits, except for any of the foregoing that would not reasonably be expected to have a Material Adverse Effect.  Neither the Company nor any of its subsidiaries has received notice of any revocation or modification of any Permits that would reasonably be expected to, in the aggregate, result in a Material Adverse Effect or has any reason to believe that any such Permits will not be renewed in the ordinary course.

 

(rr)           The Company and each of its subsidiaries own or possess adequate rights to use all patents, patent applications, trademarks, service marks, trade names, trademark registrations, service mark registrations, copyrights, licenses, know-how, software, systems and technology (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures) that are material or necessary for the conduct of their respective businesses and have no reason to believe that the conduct of their respective businesses will conflict with, and have not received any notice of any claim of conflict with, any such rights of others.

 

(ss)         Except as described in the most recent Preliminary Prospectus, (A) there are no proceedings that are pending, or to the Company’s knowledge, contemplated, against the Company or any of its subsidiaries under any laws, regulations, ordinances, rules, orders, judgments, decrees, permits or other legal requirements of any governmental authority, including without limitation any international, national, state, provincial, regional, or local authority, relating to the protection of human health or safety, the environment, or natural resources, or to hazardous or toxic substances or wastes, pollutants or contaminants (“ Environmental Laws ”) in which a governmental authority is also a party, other than such proceedings regarding which it is reasonably believed no monetary sanctions of $100,000 or more will be imposed, (B) the Company and its subsidiaries are not aware of any material noncompliance with Environmental Laws, or liabilities or other obligations under Environmental Laws or concerning hazardous or toxic substances or wastes, pollutants or contaminants, that would reasonably be expected to have a Material Adverse Effect, and (C)  none of the Company and its subsidiaries anticipates material capital expenditures relating to Environmental Laws.

 

(tt)           The Company and each of its subsidiaries have conducted and are conducting their business, operations and facilities in material compliance with the applicable provisions of the Dietary Supplement Health and Education Act, as amended, the Federal Food, Drug, and Cosmetic Act, as amended, the Federal Trade Commission Act, the Dietary Supplement and Nonprescription Consumer Protection Act, the Dietary Supplement Safety Act and any consent decrees to which the Company or any of its subsidiaries are a party. To the knowledge of the Company and except as disclosed in the

 

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most recent Preliminary Prospectus, there are no facts that make it possible to cause any federal, state, or local regulatory authority to (i) initiate a regulatory action, including but not limited to a warning letter, field notification, field correction, safety alert, recall, or withdrawal relating to any product manufactured or sold by or for the Company or any of its subsidiaries, or (ii) take an action or make a decision that would cause a change in the marketing classification or labeling on any product manufactured, marketed or sold by or for the Company or any of its subsidiaries that would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

 

(uu)         The Company and each of its subsidiaries are in material compliance with the applicable requirements of the Federal Trade Commission (the “ FTC ”) rules governing advertising, product promotion and other applicable provisions of federal, state, local and other U.S. laws or regulations applicable to their business as presently conducted.

 

(vv)         Neither the Company nor any subsidiary is in violation of or has received notice of any violation with respect to any federal or state law relating to discrimination in the hiring, promotion or pay of employees, nor any applicable federal or state wage and hour laws, nor any state law precluding the denial of credit due to the neighborhood in which a property is situated, the violation of any of which would reasonably be expected to have a Material Adverse Effect.

 

(ww)       Except as described in the most recent Preliminary Prospectus and the Prospectus, no subsidiary of the Company is currently prohibited, directly or indirectly, from paying any dividends to the Company, from making any other distribution on such subsidiary’s capital stock, from repaying to the Company any loans or advances to such subsidiary from the Company or from transferring any of such subsidiary’s property or assets to the Company or any other subsidiary of the Company, except as described in the most recent Preliminary Prospectus.

 

(xx)          Neither the Company nor any of its subsidiaries nor any director, officer, agent, employee or other person associated with or acting on behalf of the Company or any of its subsidiaries has (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity; (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; (iii) violated or is in violation of any provision of the Foreign Corrupt Practices Act of 1977; or (iv) made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment.

 

(yy)         The operations of the Company and its subsidiaries are, and have been conducted at all times, in compliance with applicable financial recordkeeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the money laundering statutes of all jurisdictions, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any governmental agency (collectively, the “ Money Laundering Laws ”) and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any of its subsidiaries with

 

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respect to the Money Laundering Laws is pending or, to the knowledge of the Company, threatened.

 

(zz)          None of the Company, any of its subsidiaries or any director, officer, agent, employee or affiliate of the Company or any of its subsidiaries is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury (“ OFAC ”); and the Company will not, directly or indirectly, use the proceeds of the offering of the Shares hereunder, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other person or entity, for the purpose of financing the activities of any person currently subject to any U.S. sanctions administered by OFAC.

 

(aaa)       The Company and each of its subsidiaries have complied in all material respects and are presently in compliance in all material respects with all laws and regulations applicable to it regarding the collection, use, transfer, import, export, storage, protection, disposal and disclosure by the Company and its subsidiaries of personally identifiable information or other information relating to persons protected by law.

 

(bbb)      The operations of the Company and its subsidiaries, taken as a whole, are and have been conducted at all times in material compliance with all provisions of the Credit Card Accountability Responsibility and Disclosure Act of 2009 and the rules and regulations thereunder (collectively, the “ Credit Card Laws ”).  No action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any of its subsidiaries with respect to the Credit Card Laws is pending or, to the knowledge of the Company, threatened.

 

(ccc)       None of the Directed Shares distributed in connection with the Directed Share Program (as defined in Section 4 hereof) will be offered or sold outside of the United States.

 

(ddd)      The Company has not offered, or caused the Designated Underwriter (as defined in Section 4 hereof) to offer, Shares to any person pursuant to the Directed Share Program with the specific intent to unlawfully influence (i) a customer or supplier of the Company to alter the customer’s or supplier’s level or type of business with the Company or (ii) a trade journalist or publication to write or publish favorable information about the Company, its business or its products.  To the Company’s knowledge, no participant in the Directed Share Program (each, a “ Participant ”) is a “restricted person” within the meaning of FINRA Rule 5130.

 

(eee)       Neither the Company nor any person acting on its behalf has furnished any written materials of any kind to any individual or entity with respect to the Directed Share Program unless such recipient first received a copy of the Preliminary Prospectus.

 

(fff)         The Company has not distributed and, prior to the later to occur of any Delivery Date and completion of the distribution of the Shares, will not distribute any offering material in connection with the offering and sale of the Shares other than any Preliminary Prospectus, the Prospectus, any Issuer Free Writing Prospectus to which the

 

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Representatives have consented in accordance with Section 1(h) or 6(a)(vi) and, in connection with the Directed Share Program described in Section 4 hereof, the enrollment materials prepared by the Designated Underwriter.

 

(ggg)      The Company has no debt securities or preferred stock that is rated by any “nationally recognized statistical rating organization” (as that term is defined by the Commission for purposes of Section 3(a)(62) of the Exchange Act).

 

(hhh)      The Company has not taken and will not take, directly or indirectly, any action designed to or that has constituted or that could reasonably be expected to cause or result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares.

 

(iii)          Except as disclosed in the Pricing Disclosure Package, there are no contracts, agreements or understandings between the Company and any person that would give rise to a valid claim against the Company or any Underwriter for a brokerage commission, finder’s fee or other like payment in connection with this offering.

 

(jjj)          The Shares have been approved for listing, subject to official notice of issuance, on the New York Stock Exchange.

 

(kkk)       From the time of the initial confidential submission of the Registration Statement to the Commission (or, if earlier, the first date on which the Company engaged directly or through any person authorized to act on its behalf in any Testing-the-Waters Communication) through the date hereof, the Company has been and is an “emerging growth company,” as defined in Section 2(a) of the Securities Act (an “ Emerging Growth Company ”).

 

(lll)          The Company (a) has not alone or together with others engaged in any Testing-the-Waters Communication and (b) has not authorized anyone other than the Representatives to engage in Testing-the-Waters Communications.  The Company reconfirms that the Representatives have been authorized to act on its behalf in undertaking Testing-the-Waters Communications.  The Company has not distributed any Written Testing-the-Waters Communications.

 

Any certificate signed by any officer of the Company and delivered to the Representatives or counsel for the Underwriters in connection with the offering of the Shares shall be deemed a representation and warranty by the Company, as to matters covered thereby, to each Underwriter.

 

2.     Representations, Warranties and Agreements of the Selling Stockholders.  Each Selling Stockholder, severally and not jointly, represents, warrants and agrees that:

 

(a)               Neither the Selling Stockholder nor any person acting on behalf of the Selling Stockholder (other than, if applicable, the Company and the Underwriters) has used or will use or referred to or will refer to any “free writing prospectus” (as defined in Rule 405), relating to the Shares;

 

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(b)              The Selling Stockholder has, and immediately prior to any Delivery Date on which the Selling Stockholder is selling Shares, the Selling Stockholder will have, good and valid title to, or a valid “security entitlement” within the meaning of Section 8-501 of the New York Uniform Commercial Code (the “ UCC ”) in respect of, the Shares to be sold by the Selling Stockholder hereunder on such Delivery Date, free and clear of all liens, encumbrances, equities or claims.

 

(c)               The Shares to be sold by the Selling Stockholder hereunder are subject to the interest of the Underwriters, and the obligations of the Selling Stockholder hereunder shall not be terminated by any act of the Selling Stockholder, by operation of law, by the death or incapacity of any individual Selling Stockholder or, in the case of a trust, by the death or incapacity of any executor or trustee or the termination of such trust, or the occurrence of any other event.

 

(d)              Upon payment for the Shares to be sold by such Selling Stockholder, delivery of such Shares, as directed by the Underwriters, to Cede & Co. (“ Cede ”) or such other nominee as may be designated by The Depository Trust Company (“ DTC ”), registration of such Shares in the name of Cede or such other nominee and the crediting of such Shares on the books of DTC to securities accounts of the Underwriters (assuming that neither DTC nor any such Underwriter has notice of any adverse claim (within the meaning of Section 8-105 of the UCC) to such Shares), (i) DTC shall be a “protected purchaser” of such Shares within the meaning of Section 8-303 of the UCC, (ii) under Section 8-501 of the UCC, the Underwriters will acquire a valid security entitlement in respect of such Shares and (iii) no action based on any “adverse claim,” within the meaning of Section 8-102 of the UCC, to such Shares may be asserted against the Underwriters with respect to such security entitlement.  For purposes of this representation, such Selling Stockholder may assume that when such payment, delivery and crediting occur, (A) such Shares will have been registered in the name of Cede or another nominee designated by DTC, in each case on the Company’s share registry in accordance with its certificate of incorporation, bylaws and applicable law, (B) DTC will be registered as a “clearing corporation” within the meaning of Section 8-102 of the UCC and (C) appropriate entries to the accounts of the several Underwriters on the records of DTC will have been made pursuant to the UCC.

 

(e)               The Selling Stockholder has duly and irrevocably executed and delivered a power of attorney (the “ Power of Attorney ” and, together with all other similar agreements executed by the other Selling Stockholders, the “ Powers of Attorney ”) appointing Kemper Isely and Heather Isely as attorneys-in-fact (each, a “ Custodian ”), with full power of substitution, and with full authority (exercisable by any one or more of them) to execute and deliver this Agreement and to take such other action as may be necessary or desirable to carry out the provisions hereof on behalf of the Selling Stockholder.

 

(f)               The Selling Stockholder has full right, power and authority, corporate or otherwise, to enter into this Agreement and the Power of Attorney and to sell, assign, transfer and deliver the Shares to be delivered by such Selling Stockholder.

 

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(g)              This Agreement has been duly and validly authorized, executed and delivered by or on behalf of the Selling Stockholder.

 

(h)              The Power of Attorney has been duly and validly authorized, executed and delivered by or on behalf of the Selling Stockholder and constitutes a valid and legally binding obligation of the Selling Stockholder, enforceable against the Selling Stockholder in accordance with its terms, subject to (i) the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally, (ii) general equitable principles (whether considered in a proceeding in equity or at law) and (iii) an implied covenant of good faith and fair dealing.

 

(i)                The execution, delivery and performance of this Agreement and the Power of Attorney by the Selling Stockholder and the consummation by the Selling Stockholder of the transactions contemplated hereby and thereby do not and will not (i) conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement, license or other agreement or instrument to which the Selling Stockholder is a party or by which the Selling Stockholder is bound or to which any of the property or assets of the Selling Stockholder is subject (ii) result in any violation of the provisions of any charter or by-laws (or similar organizational documents) of the Selling Stockholder, (iii) result in any violation of the provisions of any deed of trust (or similar organizational documents) of the Selling Stockholder or (iv) result in any violation of any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Selling Stockholder or the property or assets of the Selling Stockholder, except in the case of clauses (i), (iii) and (iv), to the extent that any such conflict, breach, violation or default would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the ability of the parties hereto to consummate the transactions contemplated hereby.

 

(j)                No consent, approval, authorization or order of, or filing or registration with, any court or governmental agency or body having jurisdiction over the Selling Stockholder or the property or assets of the Selling Stockholder is required for the execution, delivery and performance of this Agreement or the Power of Attorney by the Selling Stockholder and the consummation by the Selling Stockholder of the transactions contemplated hereby and thereby, except for the registration of the Shares under the Securities Act and such consents, approvals, authorizations, registrations or qualifications as may be required under the Exchange Act and applicable state or foreign securities laws in connection with the purchase and sale of the Shares by the Underwriters, except (i) such consents that have been, or prior to the Initial Delivery Date will be, obtained, or if not obtained, would not reasonably be expected to have a material adverse effect on the ability of the parties hereto to consummate the transactions contemplated hereby and (ii) as disclosed in the most recent Preliminary Prospectus and the Prospectus.

 

(k)               To the knowledge of the Selling Stockholder, the Registration Statement did not, as of the Effective Date, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; provided that no representation or warranty is made as to information contained in or omitted from the Registration Statement in reliance upon and

 

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in conformity with written information furnished to the Company through the Representatives by or on behalf of any Underwriter specifically for inclusion therein, which information is specified in Section 10(f) hereof.

 

(l)                To the knowledge of the Selling Stockholder, the Prospectus will not, as of its date and on the applicable Delivery Date, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that no representation or warranty is made as to information contained in or omitted from the Prospectus in reliance upon and in conformity with written information furnished to the Company through the Representatives by or on behalf of any Underwriter specifically for inclusion therein, which information is specified in Section 10(f) hereof.

 

(m)              To the knowledge of the Selling Stockholder, the Pricing Disclosure Package did not, as of the Applicable Time, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that no representation or warranty is made as to information contained in or omitted from the Pricing Disclosure Package in reliance upon and in conformity with written information furnished to the Company through the Representatives by or on behalf of any Underwriter specifically for inclusion therein, which information is specified in Section 10(f) hereof.

 

(n)              To the knowledge of the Selling Stockholder, each Issuer Free Writing Prospectus (including, without limitation, any road show that is a free writing prospectus under Rule 433), when considered together with the Pricing Disclosure Package as of the Applicable Time, did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.

 

(o)              The Selling Stockholder is not and has not been prompted to sell shares of Common Stock by any information concerning the Company that is not set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus.

 

(p)              The Selling Stockholder has not taken and will not take, directly or indirectly, any action that is designed to or that has constituted or that could reasonably be expected to cause or result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares.

 

(q)              Except as disclosed in the Pricing Disclosure Package, there are no contracts, agreements or understandings between such Selling Stockholder and any person that would give rise to a valid claim against such Selling Stockholder or any Underwriter for a brokerage commission, finder’s fee or other like payment in connection with this offering.

 

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(r)               To the extent such Selling Stockholder is an entity, such Selling Stockholder is validly existing and, to the extent such concept exists in the relevant jurisdiction, in good standing under the laws of the jurisdiction of its organization.

 

(s)               There are no material agreements or arrangements relating to the Company or its subsidiaries to which such Selling Stockholder (or, to such Selling Stockholder’s knowledge, any direct or indirect stockholder of such Selling Stockholder) is a party, which are required to be described in the Registration Statement or the Prospectus or to be filed as exhibits thereto that are not so described or filed.

 

(t)               If, at any time when a prospectus relating to the offered Shares is (or but for the exemption in Rule 172 would be) required to be delivered under the Securities Act and the Rules and Regulations by any Underwriter or dealer, any event occurs as a result of which the Pricing Disclosure Package or the Prospectus as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading with respect to such Selling Stockholder, in the light of the circumstances under which they were made, such Selling Stockholder will immediately notify the Company and the Representatives of such change.

 

(u)              The sale of the Common Stock by the Selling Stockholder does not violate any of the Company’s internal policies regarding the sale of stock by its affiliates.

 

In addition to the representations and warranties of the Selling Stockholders above, each of Kemper Isely, Zephyr Isely, Heather Isely and Elizabeth Isely (each, a “ Management Selling Stockholder ”), severally and not jointly, represents and warrants to the Underwriters that such Management Selling Stockholder has carefully reviewed the representations and warranties contained in this Agreement and has no reason to believe that such representations and warranties are untrue or incorrect.

 

Any certificate signed by any Selling Stockholder or any officer of any Selling Stockholder and delivered to the Representatives or counsel for the Underwriters in connection with the offering of the Shares shall be deemed a representation and warranty by such Selling Stockholder as to matters covered thereby, to each Underwriter.

 

3.     Purchase of the Shares by the Underwriters .    On the basis of the representations and warranties contained in, and subject to the terms and conditions of, this Agreement, the Company agrees to sell [ · ] Firm Shares and each Selling Stockholder agrees to sell the number of Firm Shares set forth opposite its name in Schedule II hereto, severally and not jointly, to the several Underwriters, and each of the Underwriters, severally and not jointly, agrees to purchase the number of Firm Shares set forth opposite that Underwriter’s name in Schedule I hereto.  Each Underwriter shall be obligated to purchase from the Company, and from each Selling Stockholder, that number of Firm Shares that represents the same proportion of the number of Firm Shares to be sold by the Company and by each Selling Stockholder as the number of Firm Shares set forth opposite the name of such Underwriter in Schedule I represents of the total number of Firm Shares to be purchased by all of the Underwriters pursuant to this Agreement.  The respective purchase obligations of the Underwriters with respect to the Firm

 

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Shares shall be rounded among the Underwriters to avoid fractional shares, as the Representatives may determine.

 

In addition, the Company grants to the Underwriters an option to purchase up to [ · ] additional Option Shares and each Selling Stockholder grants to the Underwriters an option to purchase up to the number of Option Shares set forth opposite such Selling Stockholder’s name in Schedule II hereto, severally and not jointly. Such options are exercisable in the event that the Underwriters sell more shares of Common Stock than the number of Firm Shares in the offering and as set forth in Section 5 hereof.  Any such election to purchase Option Shares shall be made in proportion to the maximum number of Option Shares to be sold by the Company and each Selling Shareholder as set forth in Schedule II hereto. Each Underwriter agrees, severally and not jointly, to purchase the number of Option Shares (subject to such adjustments to eliminate fractional shares as the Representatives may determine) that bears the same proportion to the total number of Option Shares to be sold on such Delivery Date as the number of Firm Shares set forth in Schedule I hereto opposite the name of such Underwriter bears to the total number of Firm Shares.

 

The price of both the Firm Shares and any Option Shares purchased by the Underwriters shall be $[ · ] per share.

 

The Company and the Selling Stockholders shall not be obligated to deliver any of the Firm Shares or Option Shares to be delivered on the applicable Delivery Date, except upon payment for all such Shares to be purchased on such Delivery Date as provided herein.

 

4.     Offering of Stock by the Underwriters .   Upon authorization by the Representatives of the release of the Firm Shares, the several Underwriters propose to offer the Firm Shares for sale upon the terms and conditions to be set forth in the Prospectus.

 

It is understood that up to [ · ] Firm Shares (the “ Directed Shares ”) will initially be reserved by SunTrust Robinson Humphrey, Inc. (in such capacity, the “ Designated Underwriter ”), for offer and sale upon the terms and conditions to be set forth in the most recent Preliminary Prospectus and in accordance with the rules and regulations of FINRA to employees of the Company and its subsidiaries [and persons having business relationships with the Company and its subsidiaries] who have heretofore delivered to the Designated Underwriter offers [or indications of interest] to purchase Firm Shares in form satisfactory to the Designated Underwriter (such program, the “ Directed Share Program ”) and that any allocation of such Firm Shares among such persons will be made in accordance with timely directions received by the Designated Underwriter from the Company; provided that under no circumstances will the Designated Underwriter or any Underwriter be liable to the Company or to any such person for any action taken or omitted in good faith in connection with such Directed Share Program.  It is further understood that any Directed Shares not affirmatively reconfirmed for purchase by any Participant in the Directed Share Program by [ · ]:00 A.M., New York City time, on the [date hereof / first business day following the date hereof] or otherwise are not purchased by such persons will be offered by the Underwriters to the public upon the terms and conditions set forth in the Prospectus.

 

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The Company agrees to pay all fees and disbursements incurred by the Underwriters in connection with the Directed Share Program and any stamp duties or other taxes incurred by the Underwriters in connection with the Directed Share Program.

 

5.     Delivery of and Payment for the Shares .   Delivery of and payment for the Firm Shares shall be made at 10:00 A.M., New York City time, on the third full business day following the date of this Agreement or at such other date or place as shall be determined by agreement between the Representatives and the Company.  This date and time are sometimes referred to as the “ Initial Delivery Date .”  Delivery of the Firm Shares shall be made to the Representatives for the account of each Underwriter against payment therefor by the several Underwriters through the Representatives and of the respective aggregate purchase prices of the Firm Shares being sold by the Company and the Selling Stockholders to or upon the order of the Company and the Selling Stockholders of the purchase price by wire transfer in immediately available funds to the accounts specified by the Company and the Selling Stockholders. Time shall be of the essence, and delivery at the time and place specified pursuant to this Agreement is a further condition of the obligation of each Underwriter hereunder.  The Company shall deliver the Firm Shares through the facilities of DTC unless the Representatives shall otherwise instruct.

 

The options granted by the Company and the Selling Stockholders in Section 3 hereof will expire 30 days after the date of this Agreement and may be exercised in whole or from time to time in part by written notice being given to the Company and the Selling Stockholders by the Representatives; provided that if such date falls on a day that is not a business day, the options granted in Section 3 hereof will expire on the next succeeding business day.  Such notice shall set forth the aggregate number of Option Shares as to which the options are being exercised, the names in which the Option Shares are to be registered, the denominations in which the Option Shares are to be issued and the date and time, as determined by the Representatives, when the Option Shares are to be delivered; provided, however , that this date and time shall not be earlier than the Initial Delivery Date nor earlier than the second business day after the date on which the options shall have been exercised nor later than the fifth business day after the date on which the options shall have been exercised.  Each date and time the Option Shares are delivered is sometimes referred to as an “ Option Share Delivery Date ,” and the Initial Delivery Date and any Option Share Delivery Date are sometimes each referred to as a “ Delivery Date .”

 

Delivery of the Option Shares by the Company and the Selling Stockholders and payment for the Option Shares by the several Underwriters through the Representatives shall be made at 10:00 A.M., New York City time, on the date specified in the corresponding notice described in the preceding paragraph or at such other date or place as shall be determined by agreement between the Representatives and the Company.  On the Option Share Delivery Date, the Company and the Selling Stockholders shall deliver or cause to be delivered the Option Shares to the Representatives for the account of each Underwriter against payment by the several Underwriters through the Representatives and of the respective aggregate purchase prices of the Option Shares being sold by the Company and the Selling Stockholders to or upon the order of the Company and the Selling Stockholders of the purchase price by wire transfer in immediately available funds to the accounts specified by the Company and the Selling Stockholders. Time shall be of the essence, and delivery at the time and place specified pursuant to this Agreement is a further condition of the obligation of each Underwriter hereunder.  The Company and the

 

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Selling Stockholders shall deliver the Option Shares through the facilities of DTC unless the Representatives shall otherwise instruct.

 

6.     Further Agreements of the Company and the Underwriters .  (a) The Company agrees:

 

(i)            To prepare the Prospectus in a form approved by the Representatives and to file such Prospectus pursuant to Rule 424(b) under the Securities Act not later than the Commission’s close of business on the second business day following the execution and delivery of this Agreement and to provide satisfactory evidence to the Representatives of such timely filing; to make no further amendment or any supplement to the Registration Statement or the Prospectus prior to the last Delivery Date except as provided herein; to advise the Representatives, promptly after it receives notice thereof, of the time when any amendment or supplement to the Registration Statement or the Prospectus has been filed and to furnish the Representatives with copies thereof; to advise the Representatives, promptly after it receives notice thereof, of the issuance by the Commission of any stop order or of any order preventing or suspending the use of the Prospectus or any Issuer Free Writing Prospectus, of the suspension of the qualification of the Shares for offering or sale in any jurisdiction, of the initiation or threatening of any proceeding or examination for any such purpose or of any request by the Commission for the amending or supplementing of the Registration Statement, the Prospectus or any Issuer Free Writing Prospectus or for additional information; and, in the event of the issuance of any stop order or of any order preventing or suspending the use of the Prospectus or any Issuer Free Writing Prospectus or suspending any such qualification, to use promptly its commercially reasonable efforts to obtain its withdrawal;

 

(ii)           To furnish promptly to each of the Representatives and to counsel for the Underwriters a signed copy of the Registration Statement as originally filed with the Commission, and each amendment thereto filed with the Commission, including all consents and exhibits filed therewith;

 

(iii)          To deliver promptly to the Representatives such number of the following documents as the Representatives shall reasonably request:  (A) conformed copies of the Registration Statement as originally filed with the Commission and each amendment thereto (in each case excluding exhibits other than this Agreement and the computation of per share earnings), (B) each Preliminary Prospectus, the Prospectus and any amended or supplemented Prospectus and (C) each Issuer Free Writing Prospectus; and, if the delivery of a prospectus is required at any time after the date hereof in connection with the offering or sale of the Shares or any other securities relating thereto and if at such time any events shall have occurred as a result of which the Prospectus as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made when such Prospectus is delivered, not misleading, or, if for any other reason it shall be necessary to amend or supplement the Prospectus in order to comply with the Securities Act, to notify the Representatives and, upon their request, to prepare and file such document and to prepare and furnish without charge to each Underwriter and to any dealer in securities as many copies as the

 

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Representatives may from time to time reasonably request of an amended or supplemented Prospectus that will correct such statement or omission or effect such compliance;

 

(iv)          To file promptly with the Commission any amendment or supplement to the Registration Statement or the Prospectus that may, in the judgment of the Company or the Representatives, be required by the Securities Act or requested by the Commission;

 

(v)           Prior to filing with the Commission any amendment or supplement to the Registration Statement or the Prospectus, to furnish a copy thereof to the Representatives and counsel for the Underwriters and obtain the consent of the Representatives to the filing.  Neither the Representative’s consent to, nor the Underwriters’ delivery of, any such amendment or supplement shall constitute a waiver of any of the conditions set forth in Section 9 hereof;

 

(vi)          Not to make any offer relating to the Shares that would constitute an Issuer Free Writing Prospectus without the prior written consent of the Representatives;

 

(vii)         To comply with all applicable requirements of Rule 433 with respect to any Issuer Free Writing Prospectus; and if at any time after the date hereof any events shall have occurred as a result of which any Issuer Free Writing Prospectus, as then amended or supplemented, would conflict with the information in the Registration Statement, the most recent Preliminary Prospectus or the Prospectus or would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, or, if for any other reason it shall be necessary to amend or supplement any Issuer Free Writing Prospectus, to notify the Representatives and, upon their request, to file such document and to prepare and furnish without charge to each Underwriter as many copies as the Representatives may from time to time reasonably request of an amended or supplemented Issuer Free Writing Prospectus that will correct such conflict, statement or omission or effect such compliance;

 

(viii)        As soon as practicable, but not later than the Availability Date (as defined below), the Company to make generally available to its security holders an earnings statement covering a period of at least 12 months beginning after the Effective Date of the Registration Statement, which will satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 under the Securities Act (for the purpose of the preceding clause, “ Availability Date ” means the day after the end of the fourth fiscal quarter following the fiscal quarter that includes such Effective Time on which the Company is required to file its Form 10-Q for such fiscal quarter except that, if such fourth fiscal quarter is the last quarter of the Company’s fiscal year, “Availability Date” means the day after the end of such fourth fiscal quarter on which the Company is required to file its Form 10-K);

 

(ix)           Promptly from time to time to take such action as the Representatives may reasonably request to qualify the Shares for offering and sale under the securities laws of Canada and such other jurisdictions as the Representatives may request and to comply with such laws so as to permit the continuance of sales and dealings therein in such

 

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jurisdictions for as long as may be necessary to complete the distribution of the Shares; provided that in connection therewith the Company shall not be required to (i) qualify as a foreign corporation in any jurisdiction in which it would not otherwise be required to so qualify, (ii) file a general consent to service of process in any such jurisdiction or (iii) subject itself to taxation in any jurisdiction in which it would not otherwise be subject;

 

(x)            Except as described in the Registration Statement under the heading “Reorganization,” for a period commencing on the date hereof and ending on the 180th day after the date of the Prospectus (the “ Lock-Up Period ”), not to, directly or indirectly, (1) offer for sale, sell, issue, contract to sell, pledge, or otherwise dispose of (or enter into any transaction or device that is designed to, or could be expected to, result in the disposition by any person at any time in the future of), any shares of Common Stock or securities convertible into or exercisable or exchangeable for Common Stock (other than the Shares), or sell or grant options, rights or warrants with respect to any shares of Common Stock or securities convertible into or exchangeable for Common Stock, (2) enter into any swap, hedge or other derivatives transaction that transfers to another, in whole or in part, any of the economic benefits or risks of ownership of shares of Common Stock, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Common Stock or other securities, in cash or otherwise, (3) offer to purchase, purchase or contract to purchase or grant any option, right or warrant to purchase Common Stock or securities convertible, exercisable or exchangeable into Common Stock or any other securities of the Company, (4) file or cause to be filed a registration statement, including any amendments thereto, with respect to the registration of any shares of Common Stock or securities convertible into or exercisable or exchangeable for Common Stock or any other securities of the Company (other than any registration statement on Form S-8), (5) establish or increase a put equivalent position or liquidate or decrease a call equivalent position in securities of the Company or (6) publicly disclose the intention to do any of the foregoing, in each case without the prior written consent of the Representatives on behalf of the Underwriters, and to cause each officer, director and stockholder of the Company set forth on Schedule III hereto to furnish to the Representatives, prior to the Initial Delivery Date, a letter or letters, substantially in the form of Exhibit A hereto (the “ Lock-Up Agreements ”); provided, however, that if (i) during the last 17 days of the initial Lock-Up Period, the Company releases earnings results or material news or a material event relating to the Company occurs or (ii) prior to the expiration of the initial Lock-Up Period, the Company announces that it will release earnings results during the 16-day period beginning on the last day of the initial Lock-Up Period, then in each case the Lock-Up Period will be extended until the expiration of the 18-day period beginning on the date of release of the earnings results or the occurrence of the materials news or material event, as applicable, unless the Representatives waive, in writing, such extension;

 

(xi)           To provide the Representatives notice of any announcement described in Section 6(x) above that gives rise to an extension of the Lock-Up Period;

 

(xii)          To apply the net proceeds from the sale of the Shares being sold by the Company as set forth in the Prospectus;

 

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(xiii)         To not take, directly or indirectly, any action designed to or that would constitute or that might reasonably be expected to cause or result in, stabilization or manipulation of the price of any securities of the Company to facilitate the sale or resale of the Shares;

 

(xiv)        That if the Representatives in their sole discretion, agree to release or waive the restrictions set forth in a Lock-Up Agreement for an officer or director of the Company (except where release or waiver is effected solely to permit a transfer of securities that is not for consideration and where the transferee has agreed in writing to be bound by the same Lock-Up Agreement in place for the transferor) and provides the Company with notice of the impending release or waiver at least three business days before the effective date of the release or waiver, it will (at the request of the Representatives) announce the impending release or waiver by issuing a press release substantially in the form of Exhibit B hereto, and containing such other information as the Representatives may reasonably require with respect to the circumstances of the release or waiver and/or the identity of the officer(s) and/or director(s) with respect to which the release or waiver applies, through a major news service at least two business days before the effective date of the release or waiver;

 

(xv)         To do and perform all things required or necessary to be done and performed under this Agreement by it prior to each Delivery Date, and to satisfy all conditions precedent to the Underwriters’ obligations hereunder to purchase the Shares;

 

(xvi)        In connection with the Directed Share Program, ensure that any Participant in the Directed Share Program who purchases shares in Directed Share Program for an aggregate purchase price of $1.5 million or more shall be restricted for a period commencing on the date hereof and ending on the 180th day after the date of the Prospectus, from the sale, transfer, assignment, pledge or hypothecation of Common Stock to the same extent as sales and dispositions of Common Stock by the Company are restricted pursuant to Section 6(a)(x), and the Designated Underwriter will notify the Company as to which Directed Share Participants will need to be so restricted.  At the request of the Designated Underwriter, the Company will direct the transfer agent to place stop transfer restrictions upon such securities for such period of time set forth above; and

 

(xvii)       The Company will promptly notify the Representatives if the Company ceases to be an Emerging Growth Company at any time prior to the later of (a) completion of the distribution of the Shares within the meaning of the Securities Act and (b) completion of the 180-day restricted period referred to in Section 6(a)(x) above.

 

(b)           Each Underwriter severally agrees that such Underwriter shall not include any “issuer information” (as defined in Rule 433) in any “free writing prospectus” (as defined in Rule 405) used or referred to by such Underwriter without the prior consent of the Company (any such issuer information with respect to which use the Company has given its consent, “ Permitted Issuer Information ”); provided that (i) no such consent shall be required with respect to any such issuer information contained in any document filed by the Company with the Commission prior to the use of such free writing prospectus and (ii) “issuer information,” as used

 

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in this Section 6(b), shall not be deemed to include information prepared by or on behalf of such Underwriter on the basis of or derived from issuer information.

 

7.     Further Agreements of the Selling Stockholders .   Each Selling Stockholder agrees:

 

(a)           During the Lock-Up Period, not to, directly or indirectly, (1) offer for sale, sell, contract to sell, pledge, or otherwise dispose of (or enter into any transaction or device that is designed to, or could be expected to, result in the disposition by any person at any time in the future of) any shares of Common Stock or securities convertible into or exchangeable for Common Stock (other than the Shares), (2) enter into any swap, hedge or other derivatives transaction that transfers to another, in whole or in part, any of the economic benefits or risks of ownership of shares of Common Stock, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Common Stock or other securities, in cash or otherwise, (3) offer to purchase, purchase or contract to purchase or grant any option, right or warrant to purchase Common Stock or securities convertible into or exercisable or exchangeable for Common Stock, (4) make any demand for or exercise any right or cause to be filed a registration statement, including any amendments, with respect to the registration of any shares of Common Stock or securities convertible into or exercisable or exchangeable for Common Stock or any other securities of the Company, (5) establish or increase a put equivalent position or liquidate or decrease a call equivalent position in securities of the Company, or (6) publicly disclose the intention to do any of the foregoing, in each case without the prior written consent of the Representatives on behalf of the Underwriters; provided, however, that if (1) during the last 17 days of the initial Lock-Up Period, the Company releases earnings results or material news or a material event relating to the Company occurs or (2) prior to the expiration of the initial Lock-Up Period, the Company announces that it will release earnings results during the 16-day period beginning on the last day of the initial Lock-Up Period, then in each case the Lock-Up Period will be extended until the expiration of the 18-day period beginning on the date of release of the earnings results or the occurrence of the material news or material event, as applicable, unless the Representatives waive, in writing, such extension; and

 

(b)           To deliver to the Representatives prior to the Initial Delivery Date a properly completed and executed United States Treasury Department Form W-8 (if the Selling Stockholder is a non-United States person) or Form W-9 (if the Selling Stockholder is a United States person).

 

8.     Expenses .    The Company agrees, whether or not the transactions contemplated by this Agreement are consummated or this Agreement is terminated, to pay all costs, expenses, fees and taxes incident to and in connection with (a) the authorization, issuance, sale and delivery of the Shares and any stamp duties or other taxes payable in that connection, and the preparation and printing of certificates for the Shares; (b) the preparation, printing and filing under the Securities Act of the Registration Statement (including any exhibits thereto), any Preliminary Prospectus, the Prospectus, any Issuer Free Writing Prospectus and any amendment or supplement thereto; (c) the distribution of the Registration Statement (including any exhibits thereto), any Preliminary Prospectus, the Prospectus, any Issuer Free Writing Prospectus and any

 

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amendment or supplement thereto, all as provided in this Agreement; (d) the delivery and distribution of the Powers of Attorney and the fees and expenses of the Custodian (and any other attorney-in-fact); (e) any required review by FINRA of the terms of sale of the Shares (including filing fees and the fees and expenses of counsel to the Underwriters relating to such review); (f)  the listing of the Shares on the New York Stock Exchange; (g) the qualification of the Shares under the securities laws of the several jurisdictions as provided in Section 6(a)(ix) and the preparation, printing and distribution of a Blue Sky Memorandum (including related fees and expenses of counsel to the Underwriters); (h) the preparation, printing and distribution of one or more versions of the Preliminary Prospectus and the Prospectus for distribution in Canada, often in the form of a Canadian “wrapper” (including related fees and expenses of Canadian counsel to the Underwriters not to exceed $10,000); (j) the offer and sale of Shares by the Underwriters in connection with the Directed Share Program, including the fees and disbursements of counsel to the Underwriters related thereto, the costs and expenses of preparation, printing and distribution of the Directed Share Program material and all stamp duties or other taxes incurred by the Underwriters in connection with the Directed Share Program; (k) the investor presentations on any “road show” undertaken in connection with the marketing of the Shares, including, without limitation, expenses associated with any electronic roadshow, travel and lodging expenses of the Representatives and officers of the Company; and (l) all other costs and expenses incident to the performance of the obligations of the Company and the Selling Stockholders under this Agreement, including the costs of counsel and the Custodians (and any other attorney-in-fact) incurred on behalf of the Selling Stockholders; provided , however , that the costs associated with the chartering of an aircraft used by the Company and the Underwriters in connection with the road show will be allocated 50% to the Company and 50% to the Underwriters.

 

9.     Conditions of Underwriters’ Obligations .   The respective obligations of the Underwriters hereunder are subject to the accuracy, when made and on each Delivery Date, of the representations and warranties of the Company and the Selling Stockholders contained herein, to the performance by the Company and the Selling Stockholders of their respective obligations hereunder, and to each of the following additional terms and conditions:

 

(a)           The Prospectus shall have been timely filed with the Commission in accordance with Section 6(a)(i); the Company shall have complied with all filing requirements applicable to any Issuer Free Writing Prospectus used or referred to after the date hereof; no stop order suspending the effectiveness of the Registration Statement or preventing or suspending the use of the Prospectus or any Issuer Free Writing Prospectus shall have been issued and no proceeding or examination for such purpose shall have been initiated or threatened, or to the knowledge of any Selling Stockholder, the Company or the Representatives contemplated by the Commission; and any request of the Commission for inclusion of additional information in the Registration Statement or the Prospectus or otherwise shall have been complied with.

 

(b)           No Underwriter shall have discovered and disclosed to the Company on or prior to such Delivery Date that the Registration Statement, the Prospectus or the Pricing Disclosure Package, or any amendment or supplement thereto, contains an untrue statement of a fact which, in the opinion of King & Spalding LLP, counsel for the Underwriters, is material or omits to state a fact which, in the opinion of such counsel, is

 

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material and is required to be stated therein or is necessary to make the statements therein not misleading.

 

(c)           All corporate proceedings and other legal matters incident to the authorization, form and validity of this Agreement, the Powers of Attorney, the Shares, the Registration Statement, the Prospectus and any Issuer Free Writing Prospectus, and all other legal matters relating to this Agreement and the transactions contemplated hereby shall be reasonably satisfactory in all material respects to counsel for the Underwriters, and the Company and the Selling Stockholders shall have furnished to such counsel all documents and information that they may reasonably request to enable them to pass upon such matters.

 

(d)           Holland & Hart LLP shall have furnished to the Representatives its written opinion, as counsel to the Company, addressed to the Underwriters and dated such Delivery Date, in form and substance reasonably satisfactory to the Representatives, substantially in the form attached hereto as Exhibit C-1 .

 

(e)           The counsel for each of the Selling Stockholders shall have furnished to the Representatives its written opinion, as counsel to each of the Selling Stockholders for whom it is acting as counsel, addressed to the Underwriters and dated such Delivery Date, in form and substance reasonably satisfactory to the Representatives, substantially in the form attached hereto as Exhibit C-2 .

 

(f)            The Representatives shall have received from King & Spalding LLP, counsel for the Underwriters, such opinion or opinions, dated such Delivery Date, with respect to the issuance and sale of the Shares, the Registration Statement, the Prospectus and the Pricing Disclosure Package and other related matters as the Representatives may reasonably require, and the Company shall have furnished to such counsel such documents as they reasonably request for the purpose of enabling them to pass upon such matters.

 

(g)           At the time of execution of this Agreement, the Representatives shall have received from KPMG LLP a letter, in form and substance satisfactory to the Representatives, to the effect set forth in Exhibit D , addressed to the Underwriters and dated the date hereof (i) confirming that they are independent public accountants within the meaning of the Securities Act and are in compliance with the applicable requirements relating to the qualification of accountants under Rule 2-01 of Regulation S-X of the Commission, and (ii) stating, as of the date hereof (or, with respect to matters involving changes or developments since the respective dates as of which specified financial information is given in the most recent Preliminary Prospectus, as of a date not more than three days prior to the date hereof), the conclusions and findings of such firm with respect to the financial information and other matters ordinarily covered by accountants’ “comfort letters” to underwriters in connection with registered public offerings.

 

(h)           With respect to the letter of KPMG LLP referred to in the preceding paragraph and delivered to the Representatives concurrently with the execution of this Agreement (the “ initial letter ”), the Company shall have furnished to the Representatives

 

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a letter (the “ bring-down letter ”) of such accountants, to the effect set forth in Exhibit D , addressed to the Underwriters and dated such Delivery Date (i) confirming that they are independent public accountants within the meaning of the Securities Act and are in compliance with the applicable requirements relating to the qualification of accountants under Rule 2-01 of Regulation S-X of the Commission, (ii) stating, as of the date of the bring-down letter (or, with respect to matters involving changes or developments since the respective dates as of which specified financial information is given in the Prospectus, as of a date not more than three days prior to the date of the bring-down letter), the conclusions and findings of such firm with respect to the financial information and other matters covered by the initial letter and (iii) confirming in all material respects the conclusions and findings set forth in the initial letter.

 

(i)            The Company shall have furnished to the Representatives a certificate, dated such Delivery Date, of its principal executive officer and its principal financial officer stating that:

 

(i)            the representations, warranties and agreements of the Company in Section 1 herein are true and correct on and as of such Delivery Date, and the Company has complied with all of its agreements contained herein and satisfied all the conditions on its part to be performed or satisfied hereunder at or prior to such Delivery Date;

 

(ii)           no stop order suspending the effectiveness of the Registration Statement has been issued; and no proceedings or examination for that purpose have been instituted or, to the knowledge of such officers, threatened or contemplated;

 

(iii)          subsequent to the date of the most recent financial statements in the Pricing Disclosure Package, there has been no material adverse change, nor any development or event involving a prospective material adverse change, in the condition (financial or otherwise), results of operations, business, properties or prospects of the Company and its subsidiaries taken as a whole except as set forth in the Pricing Disclosure Package or as described in such certificate; and

 

(iv)          they have carefully examined the Registration Statement, the Prospectus and the Pricing Disclosure Package, and, in their opinion, (A) (1) the Registration Statement, as of the Effective Date, (2) the Prospectus, as of its date and on the applicable Delivery Date, and (3) the Pricing Disclosure Package, as of the Applicable Time, did not and do not contain any untrue statement of a material fact and did not and do not omit to state a material fact required to be stated therein or necessary to make the statements therein (except in the case of the Registration Statement and the Prospectus, in the light of the circumstances under which they were made) not misleading, and (B) since the Effective Date, no event has occurred that should have been set forth in a supplement or amendment to the Registration Statement, the Prospectus or any Issuer Free Writing Prospectus that has not been so set forth.

 

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(j)             Each Selling Stockholder (or one or more attorneys-in-fact on behalf of the Selling Stockholders) shall have furnished to the Representatives on such Delivery Date a certificate, dated such Delivery Date, signed by, or on behalf of, the Selling Stockholder (or one or more attorneys-in-fact) stating that:

 

(i)             the representations, warranties and agreements of the Selling Stockholder contained herein are true and correct on and as of such Delivery Date and that the Selling Stockholder has complied with all of its agreements contained herein and has satisfied all the conditions on its part to be performed or satisfied hereunder at or prior to such Delivery Date; and

 

(ii)            such Selling Stockholder has carefully examined the Registration Statement, the Prospectus and the Pricing Disclosure Package, and, to its knowledge, (A) (1) the Registration Statement, as of the Effective Date, (2) the Prospectus, as of its date and on the applicable Delivery Date, and (3) the Pricing Disclosure Package, as of the Applicable Time, did not and do not contain any untrue statement of a material fact and did not and do not omit to state a material fact required to be stated therein or necessary to make the statements therein (except in the case of the Registration Statement and the Prospectus, in the light of the circumstances under which they were made) not misleading and (B) since the Effective Date, no event has occurred that should have been set forth in a supplement or amendment to the Registration Statement, the Prospectus or any Issuer Free Writing Prospectus that has not been so set forth.

 

(k)            Except as described in the most recent Preliminary Prospectus, (i) neither the Company nor any of its subsidiaries shall have sustained, since the date of the latest audited financial statements included in the most recent Preliminary Prospectus, any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or any court or governmental action, order or decree or (ii) since such date there shall not have been any adverse change in the capital stock, total current assets, long-term debt or short-term debt of the Company or any of its subsidiaries or any change, or any development involving a prospective change, in or affecting the condition (financial or otherwise), results of operations, stockholders’ equity, properties, management, business or prospects of the Company and its subsidiaries taken as a whole, the effect of which, in any such case described in clause (i) or (ii), is, in the judgment of the Representatives, so material and adverse as to make it impracticable or inadvisable to proceed with the public offering or the delivery of the Shares being delivered on such Delivery Date on the terms and in the manner contemplated in the Prospectus.

 

(l)             Subsequent to the execution and delivery of this Agreement if any debt securities or preferred stock of the Company are rated by any “nationally recognized statistical rating organization” (as that term is defined by the Commission for purposes of Section 3(a)(62) of the Exchange Act) (i) no downgrading shall have occurred to such debt securities or preferred stock by any “nationally recognized statistical rating organization” (as that term is defined by the Commission for purposes of Rule 436(g)(2) of the Rules and Regulations), and (ii) no such organization shall have publicly

 

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announced that it has under surveillance or review, with possible negative implications, its rating of any of the Company’s debt securities or preferred stock.

 

(m)           Subsequent to the execution and delivery of this Agreement there shall not have occurred any of the following:  (i) trading in securities generally on the New York Stock Exchange, NYSE Amex Equities, Nasdaq Global Market or in the over-the-counter market, or trading in any securities of the Company on any exchange or in the over-the-counter market, shall have been suspended or materially limited or the settlement of such trading generally shall have been materially disrupted or minimum prices shall have been established on any such exchange or such market by the Commission, by such exchange or by any other regulatory body or governmental authority having jurisdiction, (ii) a banking moratorium shall have been declared by federal or state authorities, (iii) any attack on, or outbreak involving the United States, the United States shall have become engaged in hostilities, there shall have been an escalation in hostilities involving the United States or there shall have been a declaration of a national emergency or war by the United States or (iv) there shall have occurred such a material adverse change in general economic, political or financial conditions, including, without limitation, as a result of terrorist activities after the date hereof (or the effect of international conditions on the financial markets in the United States shall be such), as to make it, in the judgment of the Representatives, impracticable or inadvisable to proceed with the public offering or delivery of the Shares being delivered on such Delivery Date on the terms and in the manner contemplated in the Prospectus.

 

(n)            The New York Stock Exchange shall have approved the Shares for listing, subject only to official notice of issuance and evidence of satisfactory distribution.

 

(o)            The Lock-Up Agreements between the Representatives and the officers, directors and stockholders of the Company set forth on Schedule III , shall have been delivered to the Representatives on or before the date of this Agreement, and shall be in full force and effect on such Delivery Date.

 

(p)            The Company and the Selling Stockholders shall have furnished such other opinions, certificates, letters and documents as the Representatives reasonably request.

 

(q)            The Company shall have taken all steps necessary to complete the Boulder Contribution (as defined in the Prospectus) and the Delaware Merger (as defined in the Prospectus) each as described in the Prospectus

 

All opinions, letters, evidence and certificates mentioned above or elsewhere in this Agreement shall be deemed to be in compliance with the provisions hereof only if they are in form and substance reasonably satisfactory to counsel for the Underwriters.

 

10.    Indemnification and Contribution .

 

(a)            The Company, each Management Selling Stockholder and each entity or trust controlled by a Management Selling Stockholder or for which a Management Selling Stockholder is the primary beneficiary that is a Selling Stockholder, as applicable,

 

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listed on Schedule V hereto (collectively, the “ Management Selling Stockholder Entities ”), jointly and severally, shall indemnify and hold harmless each Underwriter, its directors, officers, employees, partners, agents, affiliates and each person, if any, who controls any Underwriter within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (each an “ Indemnified Party ”), from and against any and all loss, claim, damage or liability, joint or several, or any action in respect thereof (including, but not limited to, any loss, claim, damage, liability or action relating to purchases and sales of Shares), to which such Indemnified Party may become subject, under the Securities Act, the Exchange Act, other federal or state statutory law or otherwise, insofar as such loss, claim, damage or liability (or action in respect thereof) arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in (A) any Preliminary Prospectus as of any time, any part of any Registration Statement at any time, the Prospectus or in any amendment or supplement thereto, (B) any Issuer Free Writing Prospectus or in any amendment or supplement thereto, (C) any Permitted Issuer Information used or referred to in any “free writing prospectus” (as defined in Rule 405) used or referred to by any Underwriter, (D) any “road show” (as defined in Rule 433) not constituting an Issuer Free Writing Prospectus or any other similar presentation preceding the formal road show (each a “ Non-Prospectus Road Show ”), (E) any Written Testing-the-Waters Communication or (F) any Blue Sky application or other document prepared or executed by the Company (or based upon any written information furnished by the Company for use therein) specifically for the purpose of qualifying any or all of the Shares under the securities laws of any state or other jurisdiction (any such application, document or information being hereinafter called a “ Blue Sky Application ”) or (ii) the omission or alleged omission to state in any Preliminary Prospectus, any part of any Registration Statement, the Prospectus, any Issuer Free Writing Prospectus or in any amendment or supplement thereto or in any Permitted Issuer Information, any Non-Prospectus Road Show, any Written Testing-the-Waters Communication or any Blue Sky Application, any material fact required to be stated therein or necessary to make the statements therein not misleading, and shall reimburse each Indemnified Party promptly upon demand for any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending or preparing to defend against any such loss, claim, damage, liability, action, litigation, investigation or proceeding whatsoever (whether or not such Indemnified Party is a party thereto), whether threatened or commenced, as such expenses are incurred; provided , however , that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability or action arises out of, or is based upon, an untrue statement or alleged untrue statement or omission or alleged omission made in any of such documents, in reliance upon and in conformity with written information about such Underwriter furnished to the Company through the Representatives by or on behalf of any Underwriter specifically for inclusion therein, which information consists solely of the information specified in Section 10(f) hereof. The liability of each Management Selling Stockholder and Management Selling Stockholder Entity under the indemnity agreement contained in this paragraph and Section 10(b) below shall be limited to an amount equal to the total net proceeds from the offering of the Shares purchased under this Agreement received by the Management Selling Stockholder or Management Selling Stockholder Entity.  The foregoing indemnity agreement is in addition to any liability

 

32



 

which the Company, any Management Selling Stockholder or any Management Selling Stockholder Entity may otherwise have to any Indemnified Party.

 

(b)            The Selling Stockholders, other than the Management Selling Stockholders and the Management Selling Stockholder Entities (the “ Non-Management Selling Stockholders ”) with respect to clauses (i) and (ii) below, severally, and not jointly, in proportion to the number of Shares to be sold by each of them hereunder, shall indemnify and hold harmless each Indemnified Party, from and against any and all loss, claim, damage or liability, joint or several, or any action in respect thereof (including, but not limited to, any loss, claim, damage, liability or action relating to purchases and sales of Shares), to which such Indemnified Party may become subject, under the Securities Act, the Exchange Act, other federal and state statutory law or otherwise, insofar as such loss, claim, damage or liability (or action in respect thereof) arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus as of any time, any part of any Registration Statement at any time, the Prospectus, any Issuer Free Writing Prospectus or in any amendment or supplement thereto or in any Permitted Issuer Information, any Non-Prospectus Road Show, any Written Testing-the-Waters Communication, any Blue Sky Application or any “free writing prospectus” (as defined in Rule 405), prepared by or on behalf of the Non-Management Selling Stockholder or used or referred to by the Non-Management Selling Stockholder in connection with the offering of the Shares in violation of Section 7(d) (a “ Non-Management Selling Stockholder Free Writing Prospectus ”), (ii) the omission or alleged omission to state in any Preliminary Prospectus, any part of any Registration Statement, the Prospectus, any Issuer Free Writing Prospectus or in any amendment or supplement thereto or in any Permitted Issuer Information, any Non-Prospectus Road Show, any Written Testing-the-Waters Communication, any Blue Sky Application or any Non-Management Selling Stockholder Free Writing Prospectus, any material fact required to be stated therein or necessary to make the statements therein not misleading, and shall reimburse each Indemnified Party promptly upon demand for any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending or preparing to defend against any such loss, claim, damage, liability, action, litigation, investigation or proceeding whatsoever (whether or not such Indemnified Party is a party thereto), whether threatened or commenced, as such expenses are incurred or (iii) any breach of any representation or warranty of the Selling Stockholders in this Agreement or any certificate or other agreement delivered pursuant hereto or contemplated hereby, but in the cases of clauses (i) and (ii) only to the extent that the untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information concerning such Non-Management Selling Stockholder furnished to the Company by or on behalf of such Non-Management Selling Stockholder specifically for inclusion therein, which information is limited to the number of offered Shares and the address and other information with respect to such Non-Management Selling Stockholder (excluding percentages) that appear in the table (and the corresponding footnotes) under the caption “Principal and Selling Stockholders” in the Pricing Disclosure Package.  The liability of each Non-Management Selling Stockholder under the indemnity agreement contained in this paragraph shall be limited to an amount equal to the total net proceeds from the offering of the Shares purchased under this Agreement received by the Non-Management Selling

 

33



 

Stockholder.  The foregoing indemnity agreement is in addition to any liability that the Non-Management Selling Stockholders may otherwise have to any Indemnified Party.

 

(c)            Each Underwriter, severally and not jointly, shall indemnify and hold harmless the Company, each Selling Stockholder, their respective directors (including any person who, with his or her consent, is named in the Registration Statement as about to become a director of the Company), officers who signs a Registration Statement and each person, if any, who controls the Company or such Selling Stockholder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (each an “ Underwriter Indemnified Party ”), from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof, to which such Underwriter Indemnified Party may become subject, under the Securities Act, the Exchange Act, other federal or state statutory law or regulation or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, any Registration Statement, the Prospectus, any Issuer Free Writing Prospectus or in any amendment or supplement thereto or in any Non-Prospectus Road Show, any Written Testing-the-Waters Communication or any Blue Sky Application, or (ii) the omission or alleged omission to state in any Preliminary Prospectus, any Registration Statement, the Prospectus, any Issuer Free Writing Prospectus or in any amendment or supplement thereto or in any Non-Prospectus Road Show, any Written Testing-the-Waters Communication or any Blue Sky Application, any material fact required to be stated therein or necessary to make the statements therein not misleading, but in each case only to the extent that the untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information concerning such Underwriter furnished to the Company through the Representatives by or on behalf of that Underwriter specifically for inclusion therein, which information is limited to the information set forth in Section 10(f) hereof.  The foregoing indemnity agreement is in addition to any liability that any Underwriter may otherwise have to an Underwriter Indemnified Party.

 

(d)            Promptly after receipt by an indemnified party under this Section 10 of notice of any claim or the commencement of any action, the indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under this Section 10, notify the indemnifying party in writing of the claim or the commencement of that action; provided , however , that the failure to notify the indemnifying party shall not relieve it from any liability that it may have under this Section 10 except to the extent it has been materially prejudiced (through the forfeiture of substantive rights or defenses) by such failure and, provided ,  further , that the failure to notify the indemnifying party shall not relieve it from any liability which it may have to an indemnified party otherwise than under this Section 10.  If any such claim or action is brought against an indemnified party, and it notifies the indemnifying party thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof with counsel reasonably satisfactory to the indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party).  After notice from the indemnifying party to the indemnified party of its election to assume the defense of such

 

34



 

claim or action, the indemnifying party shall not be liable to the indemnified party under this Section 10 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than reasonable costs of investigation; provided, however , that the indemnified party shall have the right to employ counsel to represent jointly the indemnified party and those other indemnified parties who may be subject to liability arising out of any claim in respect of which indemnity may be sought under this Section 10 if (i) the indemnified party and the indemnifying party shall have so mutually agreed; (ii) the indemnifying party has failed within a reasonable time to retain counsel reasonably satisfactory to the indemnified party; (iii) the indemnified party shall have reasonably concluded that there may be legal defenses available to them that are different from or in addition to those available to the indemnifying party; or (iv) the named parties in any such proceeding (including any impleaded parties) include both the indemnified parties or their respective directors, officers, employees, partners, agents, affiliates or controlling persons, on the one hand, and the indemnifying party, on the other hand, and representation of both sets of parties by the same counsel would be inappropriate due to actual or potential differing interests between them, and in any such event the fees and expenses of such separate counsel shall be paid by the indemnifying party.  No indemnifying party shall (i) without the prior written consent of the indemnified party (which consent shall not be unreasonably withheld), settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent includes an unconditional release of such indemnified party from all liability arising out of such claim, action, suit or proceeding and does not include any findings of fact or admissions of fault or culpability as to the indemnified party, or (ii) be liable for any settlement of any such action effected without its written consent (which consent shall not be unreasonably withheld), but if settled with the consent of the indemnifying party or if there be a final judgment for the plaintiff in any such action, the indemnifying party agrees to indemnify and hold harmless any indemnified party from and against any loss or liability by reason of such settlement or judgment.

 

(e)            If the indemnification provided for in this Section 10 shall for any reason be unavailable to or insufficient to hold harmless an indemnified party under Sections 10(a), 10(b), 10(c) or 10(g) hereof in respect of any loss, claim, damage or liability, or any action in respect thereof, referred to therein, then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability, or action in respect thereof, (i) in such proportion as shall be appropriate to reflect the relative benefits received by the Company and the Selling Stockholders, on the one hand, and the Underwriters, on the other, from the offering of the Shares or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and the Selling Stockholders, on the one hand, and the Underwriters, on the other, with respect to the statements or omissions that resulted in such loss, claim, damage or liability, or action in respect thereof, as well as any other relevant equitable considerations.  The relative benefits received by the Company and the

 

35



 

Selling Stockholders, on the one hand, and the Underwriters, on the other, with respect to such offering shall be deemed to be in the same proportion as the total net proceeds from the offering of the Shares purchased under this Agreement (before deducting expenses) received by the Company and the Selling Stockholders, as set forth in the table on the cover page of the Prospectus, on the one hand, and the total underwriting discounts and commissions received by the Underwriters with respect to the Shares purchased under this Agreement, as set forth in the table on the cover page of the Prospectus, on the other hand.  The relative fault shall be determined by reference to whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company, the Selling Stockholders or the Underwriters, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such statement or omission.  The Company, the Selling Stockholders and the Underwriters agree that it would not be just and equitable if contributions pursuant to this Section 10(e) were to be determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take into account the equitable considerations referred to herein.  The amount paid or payable by an indemnified party as a result of the loss, claim, damage or liability, or action in respect thereof, referred to above in this Section 10(e) shall be deemed to include, for purposes of this Section 10(e), any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim.  Notwithstanding the provisions of this Section 10(e), no Underwriter shall be required to contribute any amount in excess of the underwriting discounts and commissions received by it (except as may be provided in any agreement among the Underwriters relating to the offering of the Shares).  No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.  The Underwriters’ obligations to contribute as provided in this Section 10(e) are several in proportion to their respective underwriting obligations and not joint.

 

(f)             The Underwriters severally confirm and the Company and each Selling Stockholder acknowledges and agrees that the statements in the most recent Preliminary Prospectus and the Prospectus regarding (i) delivery of shares by the Underwriters set forth on the cover page thereof (ii) the concession and reallowance figures under the caption “Underwriting—Discounts, Commissions and Expenses,” (iii) the paragraph (including the bullet points contained therein) relating to stabilization by the Underwriters appearing under the caption “Underwriting—Stabilization, Short Positions and Penalty Bids” and (iv) the Underwriters respective participation in the sale of the Shares in the table following the first paragraph under the caption “Underwriting” are correct and constitute the only information concerning such Underwriters furnished in writing to the Company by or on behalf of the Underwriters specifically for inclusion in any Preliminary Prospectus, any Registration Statement, the Prospectus, any Issuer Free Writing Prospectus or in any amendment or supplement thereto or in any Non-Prospectus Road Show.

 

(g)            The Company shall indemnify and hold harmless the Designated Underwriter (including its directors, officers, employees, partners, agents and affiliates)

 

36



 

and each person, if any, who controls the Designated Underwriter within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act (“ Designated Entities ”), from and against any loss, claim, damage or liability or any action in respect thereof to which any of the Designated Entities may become subject, under the Securities Act, the Exchange Act, other federal or state statutory law or otherwise, insofar as such loss, claim, damage, liability or action (i) arises out of, or is based upon, any untrue statement or alleged untrue statement of a material fact contained in any material prepared by or with the approval of the Company for distribution to Directed Share Participants in connection with the Directed Share Program (including, but not limited to, any Preliminary Prospectus, any Registration Statement, the Prospectus and any Issuer Free Writing Prospectus) or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) arises out of, or is based upon, the failure of the Directed Share Participant to pay for and accept delivery of Directed Shares that the Directed Share Participant agreed to purchase or (iii) is otherwise related to the Directed Share Program; provided that the Company shall not be liable under this clause (iii) for any loss, claim, damage, liability or action that is determined in a final judgment by a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of the Designated Entities.  The Company shall reimburse the Designated Entities promptly upon demand for any legal or other expenses reasonably incurred by them in connection with investigating or defending or preparing to defend against any such loss, claim, damage, liability, action, litigation, investigation or proceeding whatsoever (whether or not the Designated Entities are a party thereto), whether threatened or commenced, as such expenses are incurred.

 

11.    Defaulting Underwriters .   If, on any Delivery Date, any Underwriter defaults in the performance of its obligations to purchase Shares under this Agreement, the remaining non-defaulting Underwriters shall be obligated to purchase or make arrangements reasonably satisfactory to the Company and the Selling Stockholders for other persons to purchase the Shares that the defaulting Underwriter agreed but failed to purchase on such Delivery Date in the respective proportions which the number of Firm Shares set forth opposite the name of each remaining non-defaulting Underwriter in Schedule I hereto bears to the total number of Firm Shares set forth opposite the names of all the remaining non-defaulting Underwriters in Schedule I hereto; provided, however , that the remaining non-defaulting Underwriters shall not be obligated to purchase any of the Shares on such Delivery Date if the total number of Shares that the defaulting Underwriter or Underwriters agreed but failed to purchase on such date exceeds 9.09% of the total number of Shares to be purchased on such Delivery Date, and any remaining non-defaulting Underwriter shall not be obligated to purchase more than 110% of the number of Shares that it agreed to purchase on such Delivery Date pursuant to the terms of Section 3 hereof.  If the foregoing maximums are exceeded, the remaining non-defaulting Underwriters, or those other underwriters satisfactory to the Representatives who so agree, shall have the right, but shall not be obligated, to purchase, in such proportion as may be agreed upon among them, all the Shares to be purchased on such Delivery Date.  If the remaining Underwriters or other underwriters satisfactory to the Representatives do not elect within 36 hours of the default to purchase the shares that the defaulting Underwriter or Underwriters agreed but failed to purchase on such Delivery Date, this Agreement (or, with respect to any Option Share Delivery Date, the obligation of the Underwriters to purchase, and of the Company to sell, the Option Shares) shall

 

37



 

terminate without liability on the part of any non-defaulting Underwriter or the Company or the Selling Stockholders, except as provided in Section 18 hereof and except that the Company will continue to be liable for the payment of expenses to the extent set forth in Sections 8 and 13 hereof.  As used in this Agreement, the term “Underwriter” includes, for all purposes of this Agreement unless the context requires otherwise, any party not listed in Schedule I hereto that, pursuant to this Section 11, purchases Shares that a defaulting Underwriter agreed but failed to purchase.

 

Nothing contained herein shall relieve a defaulting Underwriter of any liability it may have to the Company and the Selling Stockholders for damages caused by its default.  If other Underwriters are obligated or agree to purchase the Shares of a defaulting or withdrawing Underwriter, either the Representatives or the Company may postpone the Delivery Date for up to seven full business days in order to effect any changes that, in the opinion of counsel for the Company or counsel for the Underwriters, may be necessary in the Registration Statement, the Prospectus or in any other document or arrangement.

 

12.    Termination .    The obligations of the Underwriters hereunder may be terminated by the Representatives by notice given to and received by the Company and the Selling Stockholders prior to delivery of and payment for the Firm Shares if, prior to that time, any of the events described in Sections 9(k), 9(l) and 9(m) shall have occurred or if the Underwriters shall decline to purchase the Shares for any reason permitted under this Agreement.

 

13.    Reimbursement of Underwriters’ Expenses .    If (a) the Company or any Selling Stockholder shall fail to tender the Shares for delivery to the Underwriters for any reason or (b) the Underwriters shall decline to purchase the Shares for any reason permitted under this Agreement, the Company and the Selling Stockholders will reimburse the Underwriters for all reasonable out-of-pocket expenses (including fees and disbursements of counsel) incurred by the Underwriters in connection with this Agreement and the proposed purchase of the Shares, and upon demand, the Company and the Selling Stockholders shall pay the full amount thereof to the Representatives.  If this Agreement is terminated pursuant to Section 11 hereof by reason of the default of one or more Underwriters, neither the Company nor any Selling Stockholder shall be obligated to reimburse any defaulting Underwriter on account of those expenses.

 

14.    Research Analyst Independence.  The Company acknowledges that the Underwriters’ research analysts and research departments are required to be independent from their respective investment banking divisions and are subject to certain regulations and internal policies, and that such Underwriters’ research analysts may hold views and make statements or investment recommendations and/or publish research reports with respect to the Company and/or the offering that differ from the views of their respective investment banking divisions.  The Company and the Selling Stockholders hereby waive and release, to the fullest extent permitted by law, any claims that the Company or the Selling Stockholders may have against the Underwriters with respect to any conflict of interest that may arise from the fact that the views expressed by their independent research analysts and research departments may be different from or inconsistent with the views or advice communicated to the Company or the Selling Stockholders by such Underwriters’ investment banking divisions.  The Company and the Selling Stockholders acknowledge that each of the Underwriters is a full service securities firm and as such from time to time, subject to applicable securities laws, may effect transactions for

 

38



 

its own account or the account of its customers and hold long or short positions in debt or equity securities of the companies that may be the subject of the transactions contemplated by this Agreement.

 

15.    No Fiduciary Duty .  The Company and the Selling Stockholders acknowledge and agree that in connection with this offering, sale of the Shares or any other services the Underwriters may be deemed to be providing hereunder, notwithstanding any preexisting relationship, advisory or otherwise, between the parties or any oral representations or assurances previously or subsequently made by the Underwriters:  (i) no fiduciary or agency relationship between the Company , Selling Stockholders and any other person, on the one hand, and the Underwriters, on the other, exists; (ii) the Underwriters are not acting as advisors, expert or otherwise, to either the Company or the Selling Stockholders, including, without limitation, with respect to the determination of the public offering price of the Shares, and such relationship between the Company and the Selling Stockholders, on the one hand, and the Underwriters, on the other, is entirely and solely commercial, based on arms-length negotiations; (iii) any duties and obligations that the Underwriters may have to the Company or Selling Stockholders shall be limited to those duties and obligations specifically stated herein; and (iv) the Underwriters and their respective affiliates may have interests that differ from those of the Company and the Selling Stockholders.  The Company and the Selling Stockholders hereby waives any claims that the Company or the Selling Stockholders may have against the Underwriters with respect to any breach of fiduciary duty in connection with this offering.

 

16.    Notices, Etc .    All statements, requests, notices and agreements hereunder shall be in writing, and:

 

(a)    if to the Underwriters, shall be delivered or sent by mail or facsimile transmission to SunTrust Robinson Humphrey, Inc., 3333 Peachtree Road, NE, 10 th  Floor, Atlanta, Georgia 30326, Attention:  Equity Capital Origination (Fax: 404-926-5940), with a copy, in the case of any notice pursuant to Section 10(d), to the Legal Department of SunTrust Robinson Humphrey, Inc., 303 Peachtree Street, NE, 36 th  Floor, Atlanta, Georgia 30308 and to Piper Jaffray & Co., 800 Nicollet Mall, 12 th  Floor, Minneapolis, Minnesota 55402, Attention: Equity Capital Markets, with a copy to the Legal Department of Piper Jaffray & Co., 800 Nicollet Mall, 10 th  Floor, Minneapolis, Minnesota 55402;

 

(b)    if to the Company, shall be delivered or sent by mail or facsimile transmission to the address of the Company set forth in the Registration Statement, Attention: Kemper Isely and Sandra Buffa, with a copy sent by email, receipt of which shall not constitute notice, to kemper@vitamincottage.com and sbuffa@vitamincottage.com and

 

(c)    if to any Selling Stockholder, shall be delivered or sent by mail or facsimile transmission to such Selling Stockholder at the address set forth on Schedule II hereto.

 

Any such statements, requests, notices or agreements shall take effect at the time of receipt thereof.  The Company and the Selling Stockholders shall be entitled to act and rely upon any

 

39



 

request, consent, notice or agreement given or made on behalf of the Underwriters by SunTrust Robinson Humphrey, Inc. on behalf of the Representatives, and the Company and the Underwriters shall be entitled to act and rely upon any request, consent, notice or agreement given or made on behalf of the Selling Stockholders by the Custodian.

 

17.    Persons Entitled to Benefit of Agreement .   This Agreement shall inure to the benefit of and be binding upon the Underwriters, the Company, the Selling Stockholders and their respective personal representatives and successors.  This Agreement and the terms and provisions hereof are for the sole benefit of only those persons, except that (A) the representations, warranties, indemnities and agreements of the Company and the Selling Stockholders contained in this Agreement shall also be deemed to be for the benefit of the directors, officers and employees of the Underwriters and each person or persons, if any, who control any Underwriter within the meaning of Section 15 of the Securities Act and (B) the indemnity agreement of the Underwriters contained in Section 10(c) of this Agreement shall be deemed to be for the benefit of the directors of the Company, the officers of the Company who have signed the Registration Statement and any person controlling the Company within the meaning of Section 15 of the Securities Act.  Nothing in this Agreement is intended or shall be construed to give any person, other than the persons referred to in this Section 17, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision contained herein.

 

18.    Survival .    The respective indemnities, representations, warranties and agreements of the Company, the Selling Stockholders and the Underwriters contained in this Agreement or made by or on behalf of them, respectively, pursuant to this Agreement, shall survive the delivery of and payment for the Shares and shall remain in full force and effect, regardless of any investigation made by or on behalf of any of them or any person controlling any of them.

 

19.    Definition of the Terms “Business Day” and “Subsidiary” .   For purposes of this Agreement, (a) “ business day ” means each Monday, Tuesday, Wednesday, Thursday or Friday that is not a day on which banking institutions in New York are generally authorized or obligated by law or executive order to close and (b) “ subsidiary ” has the meaning set forth in Rule 405.

 

20.    Governing Law This Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to the choice of law provisions thereof that would apply the laws of any other state.

 

21.    Waiver of Jury Trial The Company and the Underwriters each hereby irrevocably waive any right they may have to a trial by jury in respect of any claim based upon or arising out of this Agreement or the transactions contemplated hereby .

 

22.    Counterparts .    This Agreement may be executed in one or more counterparts and, if executed in more than one counterpart, the executed counterparts shall each be deemed to be an original but all such counterparts shall together constitute one and the same instrument.  Delivery of a signed counterpart of this Agreement by facsimile or other electronic transmission shall constitute valid and sufficient delivery thereof.

 

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23.    Headings .    The headings herein are inserted for convenience of reference only and are not intended to be part of, or to affect the meaning or interpretation of, this Agreement.

 

41


 

If the foregoing correctly sets forth the agreement among the Company, the Selling Stockholders and the Underwriters, please indicate your acceptance in the space provided for that purpose below.

 

 

Very truly yours,

 

 

 

Natural Grocers by Vitamin Cottage, Inc.

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

 

 

[SELLING STOCKHOLDER](1)

 

 

 

 

 

 

 

By:

 

 

 

Attorney-in-Fact

 

 

Name:

 

 

Title:

 


(1)                Signature blocks for all Selling Stockholders to be included.

 

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Accepted:

 

SUNTRUST ROBINSON HUMPHREY, INC.
PIPER JAFFRAY & CO.

 

For themselves and as Representatives
of the several Underwriters named
in Schedule I hereto

 

By SUNTRUST ROBINSON HUMPHREY, INC.

 

 

By:

 

 

 

Authorized Representative

 

 

 

 

By PIPER JAFFRAY & CO.

 

 

 

 

 

 

 

By:

 

 

 

Authorized Representative

 

 

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SCHEDULE I

 

Underwriters

 

Number of Firm
Shares

 

 

 

 

 

SunTrust Robinson Humphrey, Inc.

 

 

 

Piper Jaffray & Co.

 

 

 

William Blair & Company, L.L.C.

 

 

 

Canaccord Genuity Inc.

 

 

 

Total

 

 

 

 



 

SCHEDULE II

 

Name and Address of Selling Stockholder

 

Number of Firm
Shares

 

Number of Option
Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 



 

SCHEDULE III

 

PERSONS DELIVERING LOCK-UP AGREEMENTS

 

Directors

 

 

 

Officers

 

 

 

Other Stockholders

 

 

 



 

[ SCHEDULE IV]

 

ORALLY CONVEYED PRICING INFORMATION

 

1. [ Public offering price ]

 

 

 

2. [ Number of shares offered ]

 

 

 



 

SCHEDULE V

 

MANAGEMENT SELLING STOCKHOLDER ENTITIES

 


 

EXHIBIT A

 

LOCK-UP LETTER AGREEMENT

 

SUNTRUST ROBINSON HUMPHREY, INC.

PIPER JAFFRAY & CO.

As Representatives of the several

Underwriters named in Schedule I,

c/o SunTrust Robinson Humphrey, Inc.

3333 Peachtree Road, 10 th  Floor

Atlanta, Georgia 30326

 

Ladies and Gentlemen:

 

The undersigned understands that you and certain other firms (the “ Underwriters ”) propose to enter into an Underwriting Agreement (the “ Underwriting Agreement ”) providing for the purchase by the Underwriters of shares (the “ Shares ”) of Common Stock, par value $0.001 per share (the “ Common Stock ”), of Natural Grocers by Vitamin Cottage, Inc., a Delaware corporation (the “ Company ”), and that the Underwriters propose to reoffer the Shares to the public (the “ Offering ”).

 

In consideration of the execution of the Underwriting Agreement by the Underwriters, and for other good and valuable consideration, the undersigned hereby irrevocably agrees that, without the prior written consent of the Representatives, on behalf of the Underwriters, the undersigned will not, directly or indirectly, (1) offer for sale, sell, contract to sell, pledge, or otherwise dispose of (or enter into any transaction or device that is designed to, or could be expected to, result in the disposition by any person at any time in the future of), directly or indirectly, any shares of Common Stock (including, without limitation, shares of Common Stock that may be deemed to be beneficially owned by the undersigned in accordance with the Rules and Regulations and shares of Common Stock that may be issued upon exercise of any options or warrants) or securities convertible into or exercisable or exchangeable for Common Stock, (2) enter into any swap, hedge or other derivatives transaction that transfers to another, in whole or in part, any of the economic benefits or risks of ownership of shares of Common Stock, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Common Stock or other securities, in cash or otherwise, (3) make any demand for or exercise any right or cause to be filed a registration statement, including any amendments thereto, with respect to the registration of any shares of Common Stock or securities convertible into or exercisable or exchangeable for Common Stock or any other securities of the Company, (4) establish or increase a put equivalent position or liquidate or decrease a call equivalent position in securities of the Company or (5) publicly disclose the intention to do any of the foregoing, for a period commencing on the date hereof and ending on the 180th day after the date of the Prospectus relating to the Offering (such 180-day period, the “ Lock-Up Period ”); provided, however, that if (i) during the last 17 days of the initial Lock-Up Period, the Company releases earnings results or material news or a material event relating to the Company occurs or (ii) prior to the expiration of the initial Lock-Up Period, the Company announces that it will release

 



 

earnings results during the 16-day period beginning on the last day of the initial Lock-Up Period, then in each case the Lock-Up Period will be extended until the expiration of the 18-day period beginning on the date of release of the earnings results or the occurrence of the material news or material event, as applicable, unless the Representatives waive, in writing, such extension.

 

Any Common Stock (i) received upon exercise of options granted to the undersigned or (ii) purchased by the undersigned in the Directed Share Program will also be subject to this Lock-Up Letter Agreement.

 

In furtherance of the foregoing, the Company and its transfer agent are hereby authorized to decline to make any transfer of securities if such transfer would constitute a violation or breach of this Lock-Up Letter Agreement.

 

It is understood that, if the Company notifies the Underwriters that it does not intend to proceed with the Offering, if the Underwriting Agreement does not become effective, or if the Underwriting Agreement (other than the provisions thereof which survive termination) shall terminate or be terminated prior to payment for and delivery of the Shares, the undersigned will be released from its obligations under this Lock-Up Letter Agreement.

 

The undersigned understands that the Company and the Underwriters will proceed with the Offering in reliance on this Lock-Up Letter Agreement.

 

Whether or not the Offering actually occurs depends on a number of factors, including market conditions.  Any Offering will only be made pursuant to an Underwriting Agreement, the terms of which are subject to negotiation between the Company, the Selling Stockholders named therein and the Underwriters.

 

[Signature page follows]

 

2



 

The undersigned hereby represents and warrants that the undersigned has full power and authority to enter into this Lock-Up Letter Agreement and that, upon request, the undersigned will execute any additional documents necessary in connection with the enforcement hereof.  Any obligations of the undersigned shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned.

 

 

Very truly yours,

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

Dated:

 

 

 

 

3



 

EXHIBIT B

 

FORM OF PRESS RELEASE

 

Natural Grocers by Vitamin Cottage, Inc.

[Insert date]

 

Natural Grocers by Vitamin Cottage, Inc. (the “Company”) announced today that SunTrust Robinson Humphrey, Inc. and Piper Jaffray & Co., the co-book-running managers in the Company’s recent public sale of [ · ] shares of common stock and the other underwriters of such offering whose consent is required are [waiving] [releasing] a lock-up restriction with respect to [ · ] shares of the Company’s common stock held by [certain officers or directors] [an officer or director] of the Company.  The [waiver] [release] will take effect on [insert date], and the shares may be sold or otherwise disposed of on or after such date.

 

This press release is not an offer for sale of the securities in the United States or in any other jurisdiction where such offer is prohibited, and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the United States Securities Act of 1933, as amended.

 

B-1



 

EXHIBIT C-1

 

FORM OF OPINION OF ISSUER’S COUNSEL

 

C-1-1



 

EXHIBIT C-2

 

FORM OF OPINION OF SELLING STOCKHOLDER(S)’ COUNSEL

 

C-2-1



 

EXHIBIT D

 

LETTER OF KPMG LLP

 

D-1




Exhibit 3.1

 

FORM OF

 

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

 

OF

 

NATURAL GROCERS BY VITAMIN COTTAGE, INC.

 

Natural Grocers by Vitamin Cottage, Inc., (the “ Corporation ”) a corporation organized and existing under the General Corporation Law of the State of Delaware as set forth in Title 8 of the Delaware Code (the “ DGCL ”), hereby certifies as follows:

 

1.                                        The name of the Corporation is Natural Grocers by Vitamin Cottage, Inc. The Corporation was originally incorporated pursuant to the DGCL on April 9, 2012 when the original Certificate of Incorporation was filed with the Secretary of State of the State of Delaware.

 

2.                                        This Amended and Restated Certificate of Incorporation (the “ Amended and Restated Certificate of Incorporation ”), which restates and amends the original Certificate of Incorporation of the Corporation, has been declared advisable by the board of directors (the “ Board ”) of the Corporation, duly adopted by the stockholders of the Corporation and duly executed and acknowledged by the officers of the Corporation in accordance with Sections 103, 228, 242 and 245 of the DGCL.

 

3.                                        The Certificate of Incorporation of the Corporation is hereby amended and restated in its entirety to read as follows:

 

ARTICLE 1

 

The name of the corporation is Natural Grocers by Vitamin Cottage, Inc. (the “ Corporation ”).

 

ARTICLE 2

 

The address of its registered office in the State of Delaware is 2711 Centerville Road, Suite 400, Wilmington, Delaware 19808 in New Castle County, Delaware. The name of its registered agent at such address is Corporation Service Company.

 

ARTICLE 3

 

The nature of the business or purposes to be conducted or promoted by the Corporation is to engage in any lawful act or activity for which corporations may be organized under the Delaware General Corporation Law as it currently exists or may hereafter be amended.

 

ARTICLE 4

 

Section 4.1                                       Authorized Capital Stock .  The total number of shares of stock which the Corporation shall have authority to issue is [                              ] shares of capital stock, classified as

 



 

(i)  [                 ] shares of preferred stock, par value $0.001 per share (“ Preferred Stock ”), and (ii) [                   ] shares of common stock, par value $0.001 per share (“ Common Stock ”).

 

Section 4.2                                       Provisions Relating to the Preferred Stock .

 

(a)                                   The Preferred Stock may be issued from time to time in one or more classes or series, the shares of each class or series to have such designations and powers, preferences, and rights, and qualifications, limitations, and restrictions thereof, as are stated and expressed herein and in the resolution or resolutions providing for the issue of such class or series adopted by the board of directors of the Corporation (the “ Board of Directors ”) as hereafter prescribed (a “ Preferred Stock Designation ”).

 

(b)                                  Authority is hereby expressly granted to and vested in the Board of Directors to authorize the issuance of the Preferred Stock from time to time in one or more classes or series, and with respect to each class or series of the Preferred Stock, to fix and state by the resolution or resolutions from time to time adopted providing for the issuance thereof the designation and the powers, preferences, rights, qualifications, limitations and restrictions relating to each class or series of the Preferred Stock, including, but not limited to, the following:

 

(i)                                      whether or not the class or series is to have voting rights, full, special or limited, or is to be without voting rights, and whether or not such class or series is to be entitled to vote as a separate class either alone or together with the holders of one or more other classes or series of stock;

 

(ii)                                   the number of shares to constitute the class or series and the designations thereof;

 

(iii)                                the preferences, and relative, participating, optional or other special rights, if any, and the qualifications, limitations or restrictions thereof, if any, with respect to any class or series;

 

(iv)                               whether or not the shares of any class or series shall be redeemable at the option of the Corporation or the holders thereof or upon the happening of any specified event, and, if redeemable, the redemption price or prices (which may be payable in the form of cash, notes, securities or other property), and the time or times at which, and the terms and conditions upon which, such shares shall be redeemable and the manner of redemption;

 

(v)                                  whether or not the shares of a class or series shall be subject to the operation of retirement or sinking funds to be applied to the purchase or redemption of such shares for retirement, and, if such retirement or sinking fund or funds are to be established, the annual amount thereof, and the terms and provisions relative to the operation thereof;

 

(vi)                               the dividend rate, whether dividends are payable in cash, stock of the Corporation or other property, the conditions upon which and the times when such dividends are payable, the preference to or the relation to the payment of dividends payable on any other class or classes or series of stock, whether or not such dividends shall be cumulative or noncumulative, and if cumulative, the date or dates from which such dividends shall accumulate;

 

2



 

(vii)                            the preferences, if any, and the amounts thereof which the holders of any class or series thereof shall be entitled to receive upon the voluntary or involuntary liquidation, dissolution or winding up of, or upon any distribution of the assets of, the Corporation;

 

(viii)                         whether or not the shares of any class or series, at the option of the Corporation or the holder thereof or upon the happening of any specified event, shall be convertible into or exchangeable for, the shares of any other class or classes or of any other series of the same or any other class or classes of stock, securities or other property of the Corporation and the conversion price or prices or ratio or ratios or the rate or rates at which such exchange may be made, with such adjustments, if any, as shall be stated and expressed or provided for in such resolution or resolutions; and

 

(ix)                                 such other powers, preferences, rights, qualifications, limitations and restrictions with respect to any class or series as may to the Board of Directors seem advisable.

 

(c)                                   The shares of each class or series of the Preferred Stock may vary from the shares of any other class or series thereof in any or all of the foregoing respects. The Board of Directors may increase the number of shares of the Preferred Stock designated for any existing class or series by a resolution adding to such class or series authorized and unissued shares of the Preferred Stock not designated for any other class or series. The Board of Directors may decrease the number of shares of the Preferred Stock designated for any existing class or series by a resolution subtracting from such class or series authorized and unissued shares of the Preferred Stock designated for such existing class or series, and the shares so subtracted shall become authorized, unissued, and undesignated shares of the Preferred Stock.

 

Section 4.3                                       Provisions Relating to Common Stock .

 

(a)                                   Each share of Common Stock of the Corporation shall have identical rights and privileges in every respect. Common Stock shall be subject to the express terms of the Preferred Stock and any series thereof. Except as may otherwise be provided in this Amended and Restated Certificate of Incorporation, in a Preferred Stock Designation or by applicable law, the holders of shares of Common Stock shall be entitled to one vote for each such share upon all questions presented to the stockholders, the holders of shares of Common Stock shall have the exclusive right to vote for the election of directors and for all other purposes, and the holders of Preferred Stock shall not be entitled to vote at or receive notice of any meeting of stockholders. Each holder of Common Stock shall be entitled to notice of any stockholders’ meeting in accordance with the bylaws of the Corporation (as in effect at the time in question) and applicable law on all matters put to a vote of the stockholders of the Corporation.

 

(b)                                  Notwithstanding the foregoing, except as otherwise required by law, holders of Common Stock, as such, shall not be entitled to vote on any amendment to this Amended and Restated Certificate of Incorporation (including any certificate of designations relating to any series of Preferred Stock) that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together with the holders of one or more other such series, to vote thereon pursuant to this Amended and Restated Certificate of Incorporation (including any certificate of designations relating to any series of Preferred Stock) or pursuant to the General Corporation Law of the State of Delaware.

 

3



 

(c)                                   Subject to the prior rights and preferences, if any, applicable to shares of the Preferred Stock or any series thereof, the holders of shares of Common Stock shall be entitled to receive ratably in proportion to the number of shares of Common Stock held by them such dividends and distributions (payable in cash, stock or otherwise), if any, as may be declared thereon by the Board of Directors at any time and from time to time out of any funds of the Corporation legally available therefor.

 

(d)                                  In the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Corporation, after distribution in full of the preferential amounts, if any, to be distributed to the holders of shares of the Preferred Stock or any class or series thereof, the holders of shares of Common Stock shall be entitled to receive all of the remaining assets of the Corporation available for distribution to its stockholders, ratably in proportion to the number of shares of Common Stock held by them. A liquidation, dissolution or winding-up of the Corporation, as such terms are used in this Paragraph (d), shall not be deemed to be occasioned by or to include any consolidation or merger of the Corporation with or into any other corporation or corporations or other entity or a sale, lease, exchange or conveyance of all or a part of the assets of the Corporation.

 

(e)                                   The number of authorized shares of Common Stock or Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority in voting power of the stock of the Corporation entitled to vote thereon irrespective of the provisions of Section 242(b)(2) of the Delaware General Corporation Law (or any successor provision thereto), and no vote of the holders of either the Common Stock or the Preferred Stock voting separately as a class shall be required therefor.

 

Section 4.4                                       General .

 

(a)                                   Subject to the foregoing provisions of this Amended and Restated Certificate of Incorporation and any then-existing Preferred Stock Designation, the Corporation may issue shares of its Preferred Stock and Common Stock from time to time for such consideration (not less than the par value thereof) as may be fixed by the Board of Directors, which is expressly authorized to fix the same in its absolute and uncontrolled discretion subject to the foregoing conditions. Shares so issued for which the consideration shall have been paid or delivered to the Corporation shall be deemed fully paid stock and shall not be liable to any further call or assessment thereon, and the holders of such shares shall not be liable for any further payments in respect of such shares.

 

(b)                                  The Corporation shall have authority to create and issue rights and options entitling their holders to purchase shares of the Corporation’s capital stock of any class or series or other securities of the Corporation, and such rights and options shall be evidenced by instrument(s) approved by the Board of Directors. The Board of Directors shall be empowered to set the exercise price, duration, times for exercise, and other terms of such options or rights; provided , however , that the consideration to be received for any shares of capital stock subject thereto shall not be less than the par value thereof.

 

(c)                                   The Corporation shall be entitled to treat the person in whose name any share of its stock is registered as the owner thereof for all purposes and shall not be bound to recognize any equitable or other claim to, or interest in, such share on the part of any other person, whether or not the Corporation shall have notice thereof, except as expressly provided by applicable law.

 

4



 

ARTICLE 5

 

Section 5.1                                       Board of Directors .  The business and affairs of the Corporation shall be managed by or under the direction of the Board. Subject to the then-applicable terms of the Stockholders Agreement, the number of directors of the Corporation shall be as specified in, or determined in the manner provided in, the bylaws of the Corporation.  If the number of directors is changed, any increase or decrease shall be so apportioned by the Board among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional director of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of directors shorten the term of any incumbent director. Unless and except to the extent that the bylaws of the Corporation so provide, the election of directors need not be by written ballot.

 

Section 5.2                                       Staggered Terms .  The directors, other than those who may be elected by the holders of any series of Preferred Stock specified in the related Preferred Stock Designation, shall be divided, with respect to the time for which they severally hold office, into three classes, as nearly equal in number as is reasonably possible, with the initial term of office of the first class to expire at the 2013 annual meeting of stockholders (the “ Class I Directors ”), the initial term of office of the second class to expire at the 2014 annual meeting of stockholders (the “ Class II Directors ”) and the initial term of office of the third class to expire at the 2015 annual meeting of stockholders (the “ Class III Directors ”), with each director to hold office until his or her successor shall have been duly elected and qualified.  At each annual meeting of stockholders, (i) directors elected to succeed those directors whose terms then expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election, with each director to hold office until his or her successor shall have been duly elected and qualified, and (ii) if authorized by a resolution of the Board, directors may be elected to fill any vacancy on the Board, regardless of how such vacancy shall have been created.

 

Section 5.3                                       Filling of Newly Created Directorships and Vacancies.   Except as otherwise provided for or fixed by or pursuant to the provisions of Article 4 of this Restated Certificate of Incorporation relating to the rights of the holders of any series of Preferred Stock (including any Certificate of Designation relating to such series of Preferred Stock), newly created directorships resulting from any increase in the number of directors and vacancies on the Board resulting from death, resignation, removal or other cause may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. Any director elected in accordance with the preceding sentence of this Section 5.3 shall hold office for a term that shall coincide with the remaining term of the class such director is elected to and until such director’s successor shall have been duly elected and qualified.

 

Section 5.4                                       Removal of Directors .  Any director or the entire Board may only be removed for cause, such removal to require the affirmative vote of shares representing at least a majority of the votes entitled to be cast by the then outstanding shares of all classes and series of capital stock of the Corporation entitled generally to vote on the election of the directors of the Corporation. Unless the Board has made a determination that removal is in the best interests of the Corporation (in which case the following definition shall not apply), “cause” for removal of a director shall be deemed to exist only if (a) the director whose removal is proposed has been convicted of a felony by a court of competent jurisdiction and such conviction is no longer subject

 

5



 

to direct appeal; (b) such director has been found by the affirmative vote of a majority of the directors then in office at any regular or special meeting of the Board called for that purpose, or by a court of competent jurisdiction, to have been guilty of willful misconduct in the performance of such director’s duties to the Corporation in a matter of substantial importance to the Corporation; or (c) such director has been adjudicated by a court of competent jurisdiction to be mentally incompetent, which mental incompetency directly affects such director’s ability to perform his or her obligations as a director of the Corporation. Notwithstanding the foregoing, whenever holders of outstanding shares of one or more series of Preferred Stock voting separately are entitled to elect directors of the Corporation pursuant to the provisions of this Certificate of Incorporation (including any Certificate of Designation relating to such series of Preferred Stock), any such director of the Corporation so elected may be removed in accordance with this Certificate of Incorporation.

 

Section 5.5                                       Qualifications of Directors.   There shall be no limitation on the qualifications of any person to be a director or on the ability of any director to vote on any matter brought before the Board, except (a) as required by applicable law or (b) as set forth in this Amended and Restated Certificate of Incorporation.

 

ARTICLE 6

 

Section 6.1                                       Subject to the rights of the holders of any series of Preferred Stock, any action required or permitted to be taken by the stockholders of the Corporation may be effected at a duly called annual or special meeting of the stockholders of the Corporation. Until such time (the “ Trigger Date ”) as the Stockholders Agreement is terminated pursuant to its terms, Isely Family (as defined below) no longer beneficially owns shares of the Corporation’s common stock representing greater than 50% of the votes entitled to be cast by the then outstanding shares of all classes and series of capital stock of the Corporation entitled generally to vote for the election of directors, any action required or permitted to be taken by the stockholders of the Corporation may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action to be taken, are signed by the holders of outstanding stock having not less than the minimum number of votes necessary to authorize such action, and are delivered to the Corporation by delivery to the Secretary or his or her representative at the principal executive offices of the Corporation. Effective upon the Trigger Date, no action required or permitted to be taken at any annual or special meeting of the stockholders of the Corporation may be taken without a meeting and the power of the stockholders to consent in writing, without a meeting, to the taking of any action is specifically denied.

 

Section 6.2                                       For purposes of this Article 6:

 

(a)                                   Isely Family ” means (i)  Kemper Isely, Zephyr Isely, Heather C. Isely, Elizabeth Isely, LaRock Isely and Lark Isely, (ii) the existing and future lineal descendents, including adopted children, of Kemper Isely, Zephyr Isely, Heather C. Isely, Elizabeth Isely, LaRock Isely and Lark Isely; (iii) existing and future spouses of any Persons named in clauses (i) and (ii); (iv) any United States situs trusts for the current or future, direct or indirect, vested or contingent, benefit of any of the Persons named in clauses (i) through (iii); (v) a custodial or retirement account benefiting any of the Persons named in clauses (i) through (iii), (vi) any estate of any of the Persons named in clauses (i) through (iii); and (vii) any entity (or wholly owned subsidiary of such entity) in which all of the equity interests are owned by Persons, trusts, accounts or estates named in clauses (i) through (vi).

 

6



 

(b)                                  Affiliate ” means any Person who directly or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with, a specified Person (the term “control” for these purposes meaning the ability, whether by ownership of shares or other equity interests, by contract or otherwise, to elect a majority of the directors of a corporation, to act as or select the managing or general partner of a partnership, manager or managing member of a limited liability company, or otherwise to select, or have the power to remove and then select, a majority of those Persons exercising governing authority over a Person).

 

(c)                                   Person ” means an individual, trust, estate, charitable organization, account (including, but not limited to, a brokerage, nominee, custodial or retirement account), company (including, but not limited to, a limited liability company, a corporation or a partnership), and/or governmental authority.

 

ARTICLE 7

 

Special meetings of stockholders of the Corporation may be called only by the Chief Executive Officer, the Chairman of the Board or the Board of Directors pursuant to a resolution adopted by a majority of the total number of directors which the Corporation would have if there were no vacancies.

 

ARTICLE 8

 

In furtherance of, and not in limitation of, the powers conferred by the laws of the State of Delaware, the Board of Directors is expressly authorized to adopt, amend or repeal the bylaws of the Corporation subject to any limitations contained therein and the power of the stockholders of the Corporation to alter or repeal any bylaw whether adopted by them or otherwise; provided , however , that, the provisions of this Article 8 notwithstanding, bylaws shall not be adopted, altered, amended or repealed by the stockholders of the Corporation (i) prior to the Trigger Date, except by the vote of holders of not less than 50% in voting power of the then-outstanding shares of stock entitled to vote generally in the election of directors (considered for this purpose as one class) or (ii) after the Trigger Date, except by the vote of holders of not less than 66  2 /3% in voting power of the then-outstanding shares of stock entitled to vote generally in the election of directors (considered for this purpose as one class).

 

ARTICLE 9

 

Whenever a compromise or arrangement is proposed between the Corporation and its creditors or any class of them and/or between the Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of the Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for the Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for the Corporation under the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case

 

7



 

may be, agree to any compromise or arrangement and to any reorganization of the Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of the Corporation, as the case may be, and also on the Corporation.

 

ARTICLE 10

 

Section 10.1                                 Limitation on Director Liability .  No director of the Corporation shall be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is not permitted under the Delaware General Corporation Law as it now exists. In addition to the circumstances in which a director of the Corporation is not personally liable as set forth in the preceding sentence, a director of the Corporation shall not be liable to the fullest extent permitted by any amendment to the Delaware General Corporation Law hereafter enacted that further limits the liability of a director.

 

Section 10.2                                 Indemnification of Directors and Officers .  To the fullest extent that the DGCL or any other law of the State of Delaware as it exists or as it may hereafter be amended permits, the Corporation may (a) indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding and, in all cases, otherwise on such terms and conditions as the Board may determine and (b) advance all costs and expenses (including reasonable attorneys’ fees and expenses) incurred by any director or officer, with respect to any one or more actions, suits or proceedings, whether civil, criminal, administrative or investigative, on such terms and conditions as the Board may determine.

 

Section 10.3                                 Any amendment, repeal or modification of this Article 10 shall be prospective only and shall not affect any limitation on liability of a director for acts or omissions occurring prior to the date of such amendment, repeal or modification.

 

ARTICLE 11

 

The Corporation hereby expressly elects not to be governed by the provisions of Section 203 of the DGCL, and the restrictions and limitations set forth therein.

 

ARTICLE 12

 

The Corporation shall have the right, subject to any express provisions or restrictions contained in this Amended and Restated Certificate of Incorporation or bylaws of the Corporation, from time to time, to amend this Amended and Restated Certificate of Incorporation or any

 

8



 

provision hereof in any manner now or hereafter provided by law, and all rights and powers of any kind conferred upon a director or stockholder of the Corporation by this Amended and Restated Certificate of Incorporation or any amendment hereof are subject to such right of the Corporation.

 

ARTICLE 13

 

Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer, employee or agent of the Corporation to the Corporation or the Corporation’s stockholders, (iii) any action asserting a claim against the Corporation arising pursuant to any provision of the Delaware General Corporation Law, this Amended and Restated Certificate of Incorporation or the Corporation’s bylaws, or (iv) any action asserting a claim against the Corporation governed by the internal affairs doctrine, in each such case subject to said Court of Chancery having personal jurisdiction over the indispensable parties named as defendants therein.  Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Corporation shall be deemed to have notice of and consented to the provisions of this Article 13.

 

The undersigned has executed this Amended and Restated Certificate of Incorporation as of this [      ] day of [             ], 2012.

 

 

 

NATURAL GROCERS BY VITAMIN COTTAGE, INC.

 

 

 

 

 

 

By:

 

 

 

Name:  Title:

 

 

9




Exhibit 3.2

 

FORM OF

 

BYLAWS

 

OF

 

NATURAL GROCERS BY VITAMIN COTTAGE, INC.

 

AMENDED AND RESTATED AS OF [          ], 2012

 

ARTICLE I

 

Offices

 

SECTION 1.01. Registered Office. The registered office of Natural Grocers by Vitamin Cottage, Inc. (hereinafter the “ Corporation ”) in the State of Delaware shall be in the City of Wilmington, County of New Castle, and the resident agent in charge thereof shall be Corporation Services Company, or such other office or agent as the Board of Directors of the Corporation (the “ Board ”) shall from time to time select.

 

SECTION 1.02. Other Offices. The Corporation may also have an office or offices, and keep the books and records of the Corporation, except as may otherwise be required by law, at such other place or places, either within or without the State of Delaware, as the Board may from time to time determine or the business of the Corporation may require.

 

ARTICLE II

 

Meetings of Stockholders

 

SECTION 2.01. Annual Meetings. The annual meeting of the stockholders of the Corporation (the “ Stockholders ”) for the election of directors and for the transaction of such other business as may properly come before the meeting shall be held on such date and at such hour as shall from time to time be fixed by the Board.

 

SECTION 2.02. Special Meetings. Except as otherwise required by law or by the Restated Certificate of Incorporation of the Corporation (the “ Certificate ”) and subject to the rights of the holders of any series of preferred stock of the Corporation (the “ Preferred Stock ”) with respect to special meetings of the holders thereof, special meetings of stockholders of the Corporation may be called only by either of the Co-Presidents, the Chairman of the Board or the Board of Directors pursuant to a resolution adopted by a majority of the total number of directors which the Corporation would have if there were no vacancies.  The Board may postpone, reschedule or cancel any special meeting of the stockholders previously scheduled by the Board.  The stockholders of the Corporation do not have the power to call a special meeting of stockholders of the Corporation.

 

SECTION 2.03. Place of Meetings. The meetings of the Stockholders shall be held at such time and place, either within or without the State of Delaware, as shall from time to time be fixed by the Board. If no designation is made by the Board, the place of meeting shall be the principal executive offices of the Corporation. The Board may, in its sole discretion, determine that the meeting shall not be held at any place, but may instead be held solely by means of

 



 

remote communication as authorized by Section 211(a)(2) of the General Corporation Law of the State of Delaware (the “ DGCL ”) (or any successor provision thereto).

 

SECTION 2.04. Notice of Meetings. Except as otherwise provided by law or by the Certificate, notice of each meeting of the Stockholders, whether annual or special, shall be given not less than 10 days nor more than 60 days before the date of the meeting to each Stockholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed given when deposited in the United States mail, postage prepaid, directed to the Stockholder at such Stockholder’s address as it appears on the records of the Corporation. Each such notice shall state the place, if any, date and hour of the meeting, the means of remote communications, if any, by which Stockholders and proxy holders may be deemed to be present in person and vote at such meeting, and, in the case of special meetings, the purpose or purposes for which such special meeting is called. Notice of any meeting of the Stockholders shall not be required to be given to any Stockholder who shall attend such meeting in person or by proxy without protesting, prior to or at the commencement of the meeting, the lack of proper notice to such Stockholder, or who shall waive notice thereof as provided in Article VII of these Amended and Restated Bylaws (the “ Bylaws ”). Notice of adjournment of a meeting of the Stockholders need not be given if the place, if any, date and hour, and the means of remote communications, if any, by which Stockholders and proxy holders may be deemed to be present in person and vote at such adjourned meeting, to which it is adjourned are announced at such meeting, unless the adjournment is for more than 30 days or, after adjournment, a new record date is fixed for the adjourned meeting. If the adjournment is for more than 30 days, or if after adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given to each Stockholder of record entitled to vote at such meeting. Such further notice shall be given as may be required by law.

 

SECTION 2.05. Quorum, Adjournment and Postponement. (a) Except as otherwise provided by law, the Certificate or these Bylaws, the holders of a majority of the voting power of the outstanding shares of capital stock of the Corporation entitled to vote generally on the business properly brought before the meeting in accordance with these Bylaws (collectively, the “ Voting Stock ”), represented in person or by proxy, shall constitute a quorum at a meeting of the Stockholders; provided , however , that (i) in the election of directors of the Corporation, the holders of a majority of the voting power of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, represented in person or by proxy, shall constitute a quorum at a meeting of the Stockholders for the purpose of such election and (ii) if specified business is to be voted on by a class of the Corporation’s capital stock or a series of the Corporation’s capital stock voting as a class, the holders of a majority of the voting power of the shares of such class or series shall constitute a quorum for the transaction of such specified business. The Stockholders present at a duly organized meeting may continue to transact any business for which a quorum existed at the commencement of such meeting until adjournment, notwithstanding the withdrawal of enough Stockholders to leave less than a quorum.

 

(b) The chairman of the meeting or the holders of a majority of the voting power of the outstanding shares of Voting Stock represented at a meeting of the Stockholders may adjourn the meeting from time to time, whether or not there is such a quorum (or, in the case of specified business to be voted on by a class or series, the chairman of the meeting or the holders of a majority of the voting power of the outstanding shares of such class or series so represented may

 



 

adjourn the meeting with respect to such specified business). At any such adjourned meeting at which a quorum may be present, any business may be transacted which might have been transacted at the meeting as originally called.

 

(c) Any previously-scheduled meeting of the Stockholders may be postponed, and any previously-scheduled special meeting of the Stockholders may be canceled, by the Board upon public notice given prior to the time previously scheduled for such meeting of Stockholders.

 

SECTION 2.06. Proxies. At all meetings of the Stockholders, a Stockholder may vote by proxy as may be permitted by law; provided , however , that no proxy shall be voted after three years from its date, unless the proxy provides for a longer period. Any proxy to be used at a meeting of the Stockholders must be delivered to the Secretary of the Corporation (the “ Secretary ”) or his or her representative at the principal executive offices of the Corporation at or before the time of the meeting.

 

SECTION 2.07. Notice of Stockholder Business and Nominations. (a)  Annual Meetings of the Stockholders. (i) Nominations of persons for election to the Board and the proposal of business to be considered by the Stockholders may be made at an annual meeting of the Stockholders (A) pursuant to the Corporation’s notice of meeting delivered pursuant to Section 2.04 of this Article II, (B) by or at the direction of the Board or (C) by any Stockholder who is entitled to vote at the meeting on the election of directors or such business (as applicable), who complies with the notice procedures set forth in Sections 2.07(a)(ii) and 2.07(a)(iii) and who is a Stockholder of record at the time such notice is delivered to the Secretary.

 

(ii) For nominations or other business to be properly brought before an annual meeting of the Stockholders by a Stockholder pursuant to Section 2.07(a)(i)(C), the Stockholder must give timely notice thereof in proper written form to the Secretary and, in the case of business other than nominations, such other business must otherwise be a proper matter for Stockholder action. To be timely, a Stockholder’s notice must be delivered to the Secretary at the principal executive offices of the Corporation not less than 90 days nor more than 120 days prior to the first anniversary of the preceding year’s annual meeting; provided , however , that in the event that the date of the annual meeting is advanced by more than 30 days, or delayed by more than 90 days, from such anniversary date, notice by the Stockholder to be timely must be so delivered not earlier than the 120th day prior to such annual meeting and not later than the later of the 90th day prior to such annual meeting and the 10th day following the day on which the Public Announcement of the date of such meeting is first made by the Corporation. Notwithstanding the foregoing, the notice requirements in the immediately preceding sentence shall not apply to the Isely Family, as defined below (the “ Controlling Stockholders ”) so long as Controlling Stockholders hold at least 25% of the outstanding shares of Common Stock” Isely Family ” means (i)  Kemper Isely, Zephyr Isely, Heather C. Isely, Elizabeth Isely, LaRock Isely and Lark Isely, (ii) the existing and future lineal descendents, including adopted children, of Kemper Isely, Zephyr Isely, Heather C. Isely, Elizabeth Isely, LaRock Isely and Lark Isely; (iii) existing and future spouses of any Persons named in clauses (i) and (ii); (iv) any United States situs trusts for the current or future, direct or indirect, vested or contingent, benefit of any of the Persons named in clauses (i) through (iii); (v) a custodial or retirement account benefiting any of the Persons named in clauses (i) through (iii), (vi) any estate of any of the Persons named in clauses (i) through (iii); and (vii) any entity (or wholly owned subsidiary of such entity) in which all of the equity interests are owned by Persons, trusts, accounts or estates named in

 



 

clauses (i) through (vi).   In no event shall the Public Announcement of an adjournment or postponement of an annual meeting commence a new time period for the giving of a Stockholder’s notice as described in this Section 2.07(a)(ii). In order to be in proper written form, such Stockholder’s notice must include the following information and documents, as applicable: (A) the name and address of the Stockholder giving the notice, as they appear on the Corporation’s books, and of the beneficial owner of stock of the Corporation, if any, on whose behalf such nomination or proposal of other business is made (such beneficial owner, the “ Beneficial Owner ”); (B) representations that, as of the date of delivery of such notice, such Stockholder is a holder of record of stock of the Corporation and is entitled to vote at such meeting and intends to appear in person or by proxy at such meeting to propose and vote for such nomination and any such other business; (C) as to each natural person whom the Stockholder proposes to nominate for election or reelection as a director (a “ Stockholder Nominee ”), (1) all information relating to such Stockholder Nominee that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934 (as amended from time to time, the “ Exchange Act ”), and Rule 14a-11 thereunder (or any successor provisions thereto), including such Stockholder Nominee’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected and to being named in the Corporation’s proxy statement and form of proxy if the Corporation so determines and (2) such other information as may be reasonably requested by the Corporation, including a completed questionnaire duly executed by such Stockholder Nominee, as required under Section 3.02 of Article III,  and such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as an independent director of the Corporation or that could be material to a reasonable stockholder’s understand of the independence or lack thereof of such nominee; (D) as to any other business that the Stockholder proposes to bring before the meeting, (1) a brief description of such business, (2) the text of the proposal (including the text of any resolutions proposed for consideration and, in the event that such business includes a proposal to amend these Bylaws, the text of the proposed amendment) and (3) the reasons for conducting such business at the meeting; and (E) in all cases (1) the name of each individual, trust, estate, charitable organization, account (including, but not limited to, a brokerage, nominee, custodial or retirement account), company (including, but not limited to, a limited liability company, a corporation or a partnership), and/or governmental authority. (including any successor thereto, a “ Person ”) with whom the Stockholder, any Beneficial Owner, any Stockholder Nominee and their respective affiliates and associates (as defined under Regulation 12B under the Exchange Act or any successor provision thereto) (each of the foregoing, a “ Stockholder Group Member ”) and each other Person with whom any Stockholder Group Member either is acting in concert with respect to the Corporation or has any agreement, arrangement or understanding (whether written or oral) for the purpose of acquiring, holding, voting (except pursuant to a revocable proxy given to such Person in response to a public proxy solicitation made generally by such Person to all holders of common stock of the Corporation) or disposing of any capital stock of the Corporation or to cooperate in obtaining, changing or influencing the control of the Corporation (except independent financial, legal and other advisors acting in the ordinary course of their respective businesses) (each Person described in this clause (1), including each Stockholder Group Member, a “ Covered Person ”), and a description of each such agreement, arrangement or understanding (whether written or oral), (2) a list of the class and number of shares of stock of the Corporation that are Beneficially Owned or owned of record by each

 



 

Covered Person, together with documentary evidence of such record or Beneficial Ownership, (3) a list of (A) all of the derivative securities (as defined under Rule 16a-1 under the Exchange Act or any successor provision thereto) and other derivatives or similar agreements or arrangements with an exercise or conversion privilege or a periodic or settlement payment or payments or mechanism at a price or in an amount or amounts related to any security of the Corporation or with a value derived or calculated in whole or in part from the value of the Corporation or any security of the Corporation, in each case, directly or indirectly owned of record or Beneficially Owned by any Covered Person and (B) each other direct or indirect opportunity of any Covered Person to profit or share in any profit derived from any increase or decrease in the value of any security of the Corporation, in each case, regardless of whether (x) such interest conveys any voting rights in such security to such Covered Person, (y) such interest is required to be, or is capable of being, settled through delivery of such security or (z) such Person may have entered into other transactions that hedge the economic effect of such interest (any such interest described in this clause (3) being a “ Derivative Interest ”), (4) a description of each agreement, arrangement or understanding (whether written or oral) with the effect or intent of increasing or decreasing the voting power of, or that contemplates any Person voting together with, any Covered Person with respect to any capital stock of the Corporation, Stockholder Nominee or other proposal (“ Voting Arrangements ”), (5) details of all other material interests of each Covered Person in such nomination or proposal or capital stock of the Corporation (including any rights to dividends or performance related fees based on any increase or decrease in the value of such capital stock or Derivative Interests) (collectively, “ Other Interests ”), (6) a description of all economic terms of all such Derivative Interests, Voting Arrangements and Other Interests and copies of all agreements and other documents (including but not limited to master agreements, confirmations and all ancillary documents and the names and details of the counterparties to, and brokers involved in, all such transactions) relating to each such Derivative Interest, Voting Arrangement and Other Interests, (7) a list of all transactions by each Covered Person involving any shares of stock of the Corporation or any Derivative Interests, Voting Arrangements or Other Interests within six months prior to the date of the notice and (8) a representation whether any Covered Person intends or is part of a group that intends to deliver a proxy statement or form of proxy to holders of at least the percentage of the Corporation’s outstanding capital stock required to elect any Stockholder Nominee or approve such proposal or otherwise to solicit or participate in the solicitation of proxies from Stockholders in support of such nomination or proposal. A notice delivered by or on behalf of any Stockholder under this Section 2.07(a) shall be deemed to be not in compliance with this Section 2.07(a) and not be effective if (x) such notice does not include all of the information, documents and representations required under this Section 2.07(a) and (y) after delivery of such notice, any information or document required to be included in such notice changes or is amended, modified or supplemented, as applicable, prior to the date of the relevant meeting and such information or document is not delivered to the Corporation by way of a further written notice as promptly as practicable following the event causing such change in information or amendment, modification or supplement, as applicable, and in any case where such event occurs within 45 days of the date of the relevant meeting, within five business days after such event; provided , however , that the Board shall have the authority to waive any such non-compliance if the Board determines that such action is appropriate in the exercise of its fiduciary duties.

 

(iii) Notwithstanding the second sentence of Section 2.07(a)(ii), in the event that the number of directors to be elected to the Board is increased effective at the next annual

 



 

meeting and there is no Public Announcement specifying the size of the increased Board made by the Corporation at least 100 days prior to the first anniversary of the preceding year’s annual meeting, a Stockholder’s notice required by this Section 2.07(a) shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it is delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 10th day following the day on which such Public Announcement is first made by the Corporation and such notice otherwise complies with the requirements of this Section 2.07(a).

 

(b)  Special Meetings of the Stockholders. Only such business shall be conducted at a special meeting of the Stockholders as shall have been brought before the meeting (i) pursuant to the Corporation’s notice of meeting delivered pursuant to Section 2.04 of this Article II or (ii) by or at the direction of the Board. At a special meeting of Stockholders at which directors are to be elected pursuant to the Corporation’s notice of meeting, nominations of natural persons for election to the Board may be made (A) by or at the direction of the Board or (B) by any Stockholder of the Corporation who is entitled to vote at the meeting on the election of directors, who complies with the notice procedures set forth in this Section 2.07(b) and who is a Stockholder of record at the time such notice is delivered to the Secretary. In the event the Corporation calls a special meeting of the Stockholders for the purpose of electing directors to the Board, any Stockholder may nominate such number of persons for election to such position(s) as are specified in the Corporation’s notice of meeting, if the Stockholder’s notice, containing all of the information, documents and representations required under Section 2.07(a)(ii), shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the 120th day prior to such special meeting and not later than the later of the 90th day prior to such special meeting and the 10th day following the day on which Public Announcement of the date of the special meeting and of the nominees proposed by the Board to be elected at such meeting is first made by the Corporation. A notice delivered by or on behalf of any Stockholder under this Section 2.07(b) shall be deemed to be not in compliance with this Section 2.07(b) and not be effective if (x) such notice does not include all of the information, documents and representations required under this Section 2.07(b) and (y) after delivery of such notice, any information or document required to be included in such notice changes or is amended, modified or supplemented, as applicable, prior to the date of the relevant meeting and such information and/or document is not delivered to the Corporation by way of a further written notice as promptly as practicable following the event causing such change in information or amendment, modification or supplement, as applicable, and in any case where such event occurs within 45 days of the date of the relevant meeting, within five business days after such event; provided , however , that the Board shall have the authority to waive any such non-compliance if the Board determines that such action is appropriate in the exercise of its fiduciary duties. In no event shall the Public Announcement of an adjournment or postponement of a special meeting commence a new time period for the giving of a Stockholder’s notice as described above.

 

(c)  General. (i) Only persons who are nominated in accordance with the procedures and other requirements described in these bylaws shall be eligible to be elected as directors at a meeting of Stockholders and only such business shall be conducted at a meeting of Stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 2.07. The Board may adopt by resolution such rules and regulations for the conduct of

 



 

meetings of the Stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board or these Bylaws, the chairman of the meeting shall have the right and authority to convene the meeting, to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of the chairman of the meeting, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board or prescribed by the chairman of the meeting, may include the following: (i) the establishment of an agenda or order of business for the meeting; (ii) rules and procedures for maintaining order at the meeting and the safety of those present; (iii) limitations on attendance at or participation in the meeting to Stockholders of record of the Corporation, their duly authorized proxies or representatives and such other persons as the Board or the chairman of the meeting shall determine; (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (v) limitations on the time allotted to questions or comments by participants. Except as otherwise provided by law, the Certificate or these Bylaws, the Board or the chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that any business (including a nomination for election as a director) was not properly brought before the meeting (including whether such business proposed to be brought before the meeting was made in accordance with the procedures and other requirements set forth in these Bylaws (including this Section 2.07)) and if the Board or the chairman of the meeting should so determine, shall so declare to the meeting, and any such business not properly brought before the meeting shall not be transacted or considered. Notwithstanding the foregoing provisions of this Section 2.07, unless otherwise required by law, if the Stockholder (or a qualified representative of the Stockholder) does not appear at the annual or special meeting of Stockholders to present and vote for a nomination and any such other proposed business previously put forward by or on behalf of such Stockholder or, immediately prior to the commencement of such meeting, such Stockholder does not provide a written certification to the Corporation on and as of the date of the applicable meeting that such Stockholder and each Covered Person, if any, is then in compliance with this Section 2.07, then such nomination shall be disregarded and such proposed business shall not be transacted, notwithstanding that proxies in respect of such nomination or business may have been received by the Corporation.

 

(ii) For purposes of these Bylaws, “ Public Announcement ” shall mean disclosure in a press release reported by the Dow Jones News Service, the Associated Press or any other comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act or any document delivered to all Stockholders (including any quarterly income statement).

 

(d) A Person shall be deemed the “ Beneficial Owner ” of, shall be deemed to “ Beneficially Own ” and shall be deemed to have “ Beneficial Ownership ” of, any capital stock of the Corporation (i) that such Person or any of such Person’s Affiliates or Associates (as defined under Regulation 12B under the Exchange Act or any successor provision thereto) is deemed to “beneficially own” within the meaning of Section 13(d) of, and Regulation 13D under, the Exchange Act or any successor provisions thereto, or (ii) that is the subject of, or the reference security for or that underlies any Derivative Interest of such Person or any of such Person’s Affiliates or Associates (as defined under Regulation 12B under the Exchange Act or any successor provision thereto), with the number of shares of stock of the Corporation deemed Beneficially Owned being the notional or other number of shares of stock of the Corporation

 



 

specified in the documentation evidencing the Derivative Interest as being subject to be acquired upon the exercise or settlement of the Derivative Interest or as the basis upon which the value or settlement amount of such Derivative Interest is to be calculated in whole or in part or, if no such number of shares of stock of the Corporation is specified in such documentation, as determined by the Board in good faith to be the number of shares of stock of the Corporation to which the Derivative Interest relates. When two or more Persons act as a partnership, limited partnership, syndicate, or other group, or otherwise act in concert, in each case, for the purpose of acquiring, holding, or disposing of securities of the Corporation or for the purpose of proposing one or more Stockholder Nominees, putting forward any other proposal for consideration or voting together on any matter presented at a Stockholder meeting, such syndicate or group shall be deemed a “Person” for the purpose of this Section 2.07. In addition, any Person who, directly or indirectly, creates or uses a trust, proxy, power of attorney, pooling arrangement or any contract, arrangement, or device with the purpose or effect of divesting such Person of Beneficial Ownership of any capital stock of the Corporation or preventing the vesting of such Beneficial Ownership as part of a plan or scheme to evade the reporting requirements of this Section 2.07 shall be deemed for the purposes of these Bylaws to be the Beneficial Owner of such capital stock of the Corporation.

 

SECTION 2.08. Voting. (a) Except as otherwise provided by law or by the Certificate, each Stockholder of record of any series of Preferred Stock shall be entitled at each meeting of Stockholders to such number of votes, if any, for each share of such stock, as may be fixed in the Certificate (including any Certificate of Designation relating to such series of Preferred Stock), and each Stockholder of record of common stock shall be entitled at each meeting of the Stockholders to one vote for each share of such stock, in each case, registered in such Stockholder’s name on the books of the Corporation:

 

(i) on the date fixed pursuant to Section 5.06 of these Bylaws as the record date for the determination of Stockholders entitled to notice of and to vote at such meeting; or

 

(ii) if no such record date shall have been so fixed, then at the close of business on the day immediately preceding the day on which notice of such meeting is given, or, if notice is waived, at the close of business on the day immediately preceding the day on which the meeting is held.

 

(b) All matters other than the election of directors submitted to Stockholders at any meeting shall be decided by the affirmative vote of a majority of the voting power of the shares of stock of the Corporation present in person or represented by proxy at the meeting and voting thereon, and where a separate vote by class is required, a majority of the voting power of the shares of that class present in person or represented by proxy at the meeting and voting thereon.

 

(c) The vote on any matter, including the election of directors, need not be by written ballot. Any written ballot shall be signed by the Stockholder voting, or by such Stockholder’s proxy, and shall state the number of shares voted.

 

SECTION 2.09. Consent of Stockholders in Lieu of Meeting. Stockholders may act by written consent solely to the extent provided in the Certificate.

 

SECTION 2.10. Inspectors of Elections; Opening and Closing the Polls. (a) To the extent required by law, the Board shall, in advance of any meeting of the Stockholders, appoint

 



 

one or more inspectors, which inspector or inspectors may not be directors, nominees for directors, officers or employees of the Corporation, to act at the meeting and make a written report thereof. One or more persons may be designated as alternate inspectors to replace any inspector who fails to act. Each inspector, before discharging his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspectors shall have the duties prescribed by the DGCL.

 

(b) The chairman of the meeting shall fix and announce at the meeting the date and hour of the opening and the closing of the polls for each matter upon which the Stockholders will vote at the meeting.

 

ARTICLE III

 

Board of Directors

 

SECTION 3.01. General Powers. The business and affairs of the Corporation shall be managed by or under the direction of the Board, except as otherwise provided by law or by the Certificate. In addition to the powers and authorities by these Bylaws expressly conferred upon them, the Board may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these Bylaws required to be exercised or done by the stockholders. The directors shall act only as a Board, and the individual directors shall have no power as such.

 

SECTION 3.02. Number, Tenure and Election. (a) Except as otherwise provided for or fixed by or pursuant to the provisions of Article IV of the Certificate relating to the rights of the holders of any series of Preferred Stock, prior to the earlier of (i) ten (10) business days following the date on which the Controlling Stockholders no longer beneficially own shares of the Corporation’s common stock representing greater than 50% of the votes entitled to be cast by the then outstanding shares of all classes and series of capital stock of the Corporation entitled generally to vote for the election of directors and (ii) the business day following public announcement by the Corporation that the Controlling Stockholders holding at least 85% of the Corporation’s shares of common stock held by all Controlling Shareholders have made an election that a “Trigger Date” has occurred (the earlier of (i) and (ii), the “ Trigger Date ”), the number of directors shall be no less than one and no more than nine, provided that the Board may, pursuant to a resolution adopted by a majority of the Board, fix a greater number of directors with the approval of a majority of the Controlling Stockholders, and (ii) on and after the Trigger Date, the number of directors shall be fixed from time to time exclusively pursuant to a resolution adopted by a majority of the Board.  However, no decrease in the number of directors constituting the Board shall shorten the term of any incumbent director. The directors shall be designated as Class I Directors, Class II Directors or Class III Directors (in each case, as defined in the Certificate of Incorporation) in accordance with the Certificate of Incorporation. The election and term of director shall be as set forth in the Certificate of Incorporation.

 

(b) The directors, other than those who may be elected by the holders of any series of Preferred Stock (including any Certificate of Designation relating to such series of Preferred Stock), shall be elected by the Stockholders entitled to vote thereon at each annual meeting of the Stockholders by a plurality of the votes cast thereon.

 


 

SECTION 3.03. Notification of Nominations. Subject to the rights of the holders of any series of Preferred Stock, nominations for the election of directors may be made by (i) the Board or (ii) any Stockholder entitled to vote on the election of directors in accordance with Article II.

 

SECTION 3.04. Quorum and Manner of Acting. Except as otherwise provided by law, the Certificate or these Bylaws, (i) a majority of the Whole Board (as defined below) shall constitute a quorum for the transaction of business at any meeting of the Board, and (ii) the vote of a majority of the directors present at any meeting at which a quorum is present and voting on the relevant matter shall be the act of the Board. The chairman of the meeting may adjourn the meeting to another time and place whether or not a quorum is present. At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called.  The term “ Whole Board ” shall mean the total number of authorized directors, whether or not there exist any vacancies or unfilled previously authorized directorships.

 

SECTION 3.05. Place of Meetings. Subject to Section 3.07, the Board may hold its meetings at such place or places within or without the State of Delaware as the Board may from time to time determine or as shall be specified or fixed in the respective notices or waivers of notice thereof.

 

SECTION 3.06. Special Meetings. Special meetings of the Board shall be held whenever called by the Chairman of the Board, either Co-President of the Corporation or by a majority of the directors, and shall be held at such place, on such date and at such hour as he or she, or they, as applicable, shall fix.

 

SECTION 3.07. Notice of Meetings. Notice of regular meetings of the Board or of any adjourned meeting thereof need not be given. Notice of each special meeting of the Board shall be given by overnight delivery service or mailed to each director, in either case addressed to such director at such director’s residence or usual place of business, at least two days before the day on which the meeting is to be held or shall be sent to such director by telecopy, facsimile, e-mail or be given personally or by telephone, not later than 24 hours before the meeting is to be held.  Notice need not be given to any director who submits a signed waiver or indicates by electronic transmission a written waiver thereof, either before or after the meeting, of such notice or who attends such meeting without protesting, prior to or at its commencement, the lack of proper notice to such director. Every such notice shall state the time and place but need not state the purpose of the meeting.

 

SECTION 3.08. Rules and Regulations. The Board may adopt such rules and regulations not inconsistent with the provisions of law, the Certificate or these Bylaws for the conduct of its meetings and management of the affairs of the Corporation as the Board may deem proper.

 

SECTION 3.09. Participation in Meeting by Means of Communications Equipment. Any one or more members of the Board or any committee thereof may participate in any meeting of the Board or of any such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear

 



 

each other and be heard or as otherwise permitted by law, and such participation in a meeting shall constitute presence in person at such meeting.

 

SECTION 3.10. Action Without Meeting. Any action required or permitted to be taken at any meeting of the Board or any committee thereof may be taken without a meeting if all of the members of the Board or of any such committee, as the case may be, consent thereto in writing, by electronic transmission or transmissions, or as otherwise permitted by law and, if required by law, the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board or of such committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.

 

SECTION 3.11. Resignations. Any director may resign at any time by giving written notice to the Board, the Chairman, either Co-President or the Secretary. Such resignation shall take effect at the time specified therein or, if the time be not specified therein, upon receipt thereof, and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

 

SECTION 3.12. Vacancies. Subject to the rights of the holders of any series of Preferred Stock, newly created directorships resulting from any increase in the number of directors and vacancies on the Board resulting from death, resignation, removal or other cause shall only be filled by the Board, and not by the Stockholders, by the affirmative vote of a majority of the remaining directors then in office or by a sole remaining director, even though less than a quorum of the Board.  Any director elected in accordance with the preceding sentence of this Section 3.12 shall hold office for a term that shall coincide with the remaining term of the class such director is elected to and until such director’s successor shall have been duly elected and qualified.

 

SECTION 3.13. Compensation. Each director, in consideration of such person serving as a director, shall be entitled to receive from the Corporation such amount per annum and such fees (payable in cash or stock) for attendance at meetings of the Board or of committees of the Board, or both, as the Board shall from time to time determine. In addition, each director shall be entitled to receive from the Corporation reimbursement for the reasonable expenses incurred by such person in connection with the performance of such person’s duties as a director. Nothing contained in this Section 3.13 shall preclude any director from serving the Corporation or any of its subsidiaries in any other capacity and receiving proper compensation therefor.

 

SECTION 3.14. Establishment of Committees of the Board of Directors.

 

(a)                  The Board may from time to time by resolution create committees of directors, officers, employees or other persons, with such functions, duties and powers as the Board shall by resolution prescribe. A majority of all the members of any such committee may determine its actions and rules and procedures, and fix the time, place and manner of its meetings, unless these Bylaws or the Board shall otherwise provide. The Board shall have power to change the members of any such committee at any time, to fill vacancies, and to discharge any such committee, either with or without cause, at any time.

 

(b)                 Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of:

 



 

i.                                           Section 3.04 - (Quorum and Manner of Acting);

 

ii.                                        Section 3.05 (Place of Meetings);

 

iii.                                     Section 3.06 (Special Meetings);

 

iv.                                    Section 3.07 (Notice of Meetings);

 

v.                                       Section 3.08 (Rules and Regulations);

 

vi.                                    Section 3.09 ( Participation in Meetings by Means of Communication Equipment); and

 

vii.                                 Section 3.10 (Action Without Meeting).

 

with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the Board and its members; provided, that the time of regular meetings of committees may be determined either by resolution of the Board or by resolution of the committee; special meetings of committees may also be called by resolution of the Board; and notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The Board may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws.

 

ARTICLE IV

 

Officers

 

SECTION 4.01. Definition of Officer; Number; Term of Office. The officers of the Corporation shall be elected by the Board and shall consist of:  Chairperson of the Board, one or two Co-Presidents, one or more Executive Vice Presidents, a Chief Financial Officer a Secretary, and a General Counsel. In addition, the Corporation may also have, at the discretion of the Board, a Vice Chairperson of the Board, a Chief Executive Officer, one or more additional Vice Presidents, a Treasurer, one or more Assistant Treasurers, one or more Assistant Secretaries and such other officers or agents with such titles and such duties as the Board may from time to time determine, each to have such authority, functions and duties as provided in these Bylaws or as the Board may from time to time determine, and each to hold office for such term as may be prescribed by the Board and until such person’s successor shall have been chosen and qualified, or until such person’s death or resignation, or until such person’s removal in the manner hereinafter provided. One person may hold the offices and perform the duties of any two or more officers. The Board may require any officer or agent to give security for the faithful performance of such person’s duties.

 

SECTION 4.02. Removal. Any officer may be removed, either with or without cause, by the Board at any meeting thereof called for such purpose or, except in the case of any officer elected by the Board, by any superior officer upon whom such power may be conferred by the Board.

 



 

SECTION 4.03. Resignation. Any officer may resign at any time by giving notice to the Board, either Co-President or the Secretary. Any such resignation shall take effect at the date of receipt of such notice or at any later date specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

 

SECTION 4.04. Chairman of the Board. The Chairman of the Board shall discharge those responsibilities as shall be determined by the Board, with the assistance of the officers reporting directly to the Chairman of the Board. The Chairman of the Board shall preside at meetings of the Stockholders.

 

SECTION 4.05. President or Co-Presidents. The Corporation shall have the ability to appoint two Presidents.  Each Co-President shall have general supervision and direction of the business, affairs and property of the Corporation, subject to control of the Board. The Co-Presidents shall have all authority incident to the office of a chief executive officer and a president, shall have such other authority and perform such other duties as may from time to time be assigned by the Board and shall report directly to the Board.  In the absence of the Chairman of the Board, one or both of the Co-Presidents shall preside at meetings of the Stockholders or the Board.

 

SECTION 4.06. Executive Vice Presidents. Any Executive Vice President shall have such powers and duties with respect to material operations of the business and affairs of the Corporation as shall be prescribed by his or her superior officer or the Board and shall have overall supervision of such operations. An Executive Vice President shall, when requested, counsel with and advise the other officers of the Corporation and shall perform such other duties as he or she may agree with the Co-Presidents or as the Board may from time to time determine.

 

SECTION 4.07. Chief Financial Officer. The Chief Financial Officer shall perform all the powers and duties of the office of the Chief Financial Officer and in general have overall supervision of the financial operations of the Corporation.  The Chief Financial Officer shall, when requested, counsel with and advise the other officers of the Corporation and shall perform such other duties as he or she may agree with either Co-President or as the Board may from time to time determine.

 

SECTION 4.08. Vice Presidents. Any Vice President, Executive Vice President or Senior Vice President (collectively referred to as “ Vice Presidents ”) shall have such powers and duties as shall be prescribed by his or her superior officer or the Board. A Vice President shall, when requested, counsel with and advise the other officers of the Corporation and shall perform such other duties as he or she may agree with either Co-President or as the Board may from time to time determine. A Vice President need not be an officer of the Corporation and shall not be deemed an officer of the Corporation unless elected as an officer by the Board.

 

SECTION 4.09. Treasurer. The Treasurer shall supervise and be responsible for all the funds and securities of the Corporation; the deposit of all moneys and other valuables to the credit of the Corporation in depositories of the Corporation; borrowings and compliance with the provisions of all indentures, agreements and instruments governing such borrowings to which the Corporation is a party; the disbursement of funds of the Corporation and the investment of its funds; and in general shall perform all of the duties incident to the office of the Treasurer. The Treasurer shall, when requested, counsel with and advise the other officers of the Corporation

 



 

and shall perform such other duties as he or she may agree with either Co-President or as the Board may from time to time determine.

 

SECTION 4.10. Secretary. It shall be the duty of the Secretary to act as secretary at all meetings of the Board, of the committees of the Board and of the Stockholders and to record the proceedings of such meetings in a book or books to be kept for that purpose; the Secretary shall see that all notices required to be given by the Corporation are duly given and served; the Secretary shall be custodian of the seal of the Corporation and shall affix the seal or cause it to be affixed to all certificates of stock of the Corporation (unless the seal of the Corporation on such certificates shall be a facsimile, as hereinafter provided) and to all documents, the execution of which on behalf of the Corporation under its seal is duly authorized in accordance with the provisions of these Bylaws; the Secretary shall have charge of the books, records and papers of the Corporation and shall see that the reports, statements and other documents required by law to be kept and filed are properly kept and filed; and in general shall perform all of the duties incident to the office of Secretary. The Secretary shall, when requested, counsel with and advise the other officers of the Corporation and shall perform such other duties as he or she may agree with either Co-President or as the Board may from time to time determine.

 

SECTION 4.11. General Counsel. The General Counsel shall perform all the powers and duties of the office of the General Counsel and in general have overall supervision of the legal affairs of the Corporation.  The General Counsel shall, when requested, counsel with and advise the other officers of the Corporation and shall perform such other duties as he or she may agree with either Co-President or as the Board may from time to time determine.

 

SECTION 4.12.  Assistant Treasurers and Assistant Secretaries. Any Assistant Treasurers and Assistant Secretaries shall perform such duties as shall be assigned to them by the Board, by the Treasurer or Secretary, respectively, or by either Co-President.

 

SECTION 4.12.  Action with Respect to Securities of Other Corporations . Unless otherwise directed by the Board of Directors, the Co-Presidents shall have power to vote and otherwise act on behalf of the Corporation, in person or by proxy, at any meeting of security holders of or with respect to any action of security holders of any other corporation in which this Corporation may hold securities and otherwise to exercise any and all rights and powers which this Corporation may possess by reason of its ownership of securities in such other corporation.

 

ARTICLE V

 

Capital Stock

 

SECTION 5.01. Certificates for Shares. (a) The shares of capital stock of the Corporation may be represented by certificates or may be uncertificated shares that may be evidenced by a book-entry system maintained by the registrar of such stock, or a combination of both.  To the extent that shares of capital stock are represented by certificates, such certificates, whenever authorized by the Board, shall be in such form as shall be approved by the Board. The certificates representing shares of capital stock of each class shall be signed by, or in the name of the Corporation by, the Chairman of the Board, either Co-President or a Vice President, and by the Treasurer or any Assistant Treasurer or the Secretary or any Assistant Secretary. Any or all such signatures may be facsimiles if countersigned by a transfer agent or registrar. Although any

 



 

officer, transfer agent or registrar whose manual or facsimile signature is affixed to such a certificate ceases to be such officer, transfer agent or registrar before such certificate has been issued, it may nevertheless be issued by the Corporation with the same effect as if such officer, transfer agent or registrar were still such at the date of its issue.

 

(b) The stock ledger and blank share certificates shall be kept by the Secretary or by a transfer agent or by a registrar or by any other officer or agent designated by the Board.

 

SECTION 5.02. Transfer of Shares. Transfers of shares of stock of each class of the Corporation shall be made only on the books of the Corporation upon authorization by the registered holder thereof, or by such holder’s attorney thereunto authorized by a power of attorney duly executed and filed with the Secretary or a transfer agent for such stock, if any, and if such shares are represented by a certificate, upon surrender of the certificate or certificates for such shares properly endorsed or accompanied by a duly executed stock transfer power (or by proper evidence of succession, assignment or authority to transfer) and the payment of any taxes thereon; provided , however , that the Corporation shall be entitled to recognize and enforce any lawful restriction on transfer. The person in whose name shares are registered on the books of the Corporation shall be deemed the owner thereof for all purposes as regards the Corporation; provided , however , that whenever any transfer of shares shall be made for collateral security and not absolutely, and written notice thereof shall be given to the Secretary or to such transfer agent, such fact shall be stated in the entry of the transfer. No transfer of shares shall be valid as against the Corporation, its Stockholders or creditors for any purpose, except to render the transferee liable for the debts of the Corporation to the extent provided by law, until it shall have been entered in the stock records of the Corporation by an entry showing from and to whom transferred.

 

SECTION 5.03. Registered Stockholders and Addresses of Stockholders. (a) The Corporation shall be entitled to recognize the exclusive right of a person registered on its records as the owner of shares of stock to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments a person registered on its records as the owner of shares of stock, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares of stock on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.

 

(b) Each Stockholder shall designate to the Secretary or transfer agent of the Corporation an address at which notices of meetings and all other corporate notices may be given to such person, and, if any Stockholder fails to designate such address, corporate notices may be given to such person by mail directed to such person at such person’s post office address, if any, as the same appears on the stock record books of the Corporation or at such person’s last known post office address or as otherwise provided by applicable law.

 

SECTION 5.04. Lost, Stolen, Destroyed and Mutilated Certificates. The holder of any certificate representing any shares of stock of the Corporation shall notify the Corporation of any loss, theft, destruction or mutilation of such certificate; the Corporation may issue to such holder a new certificate or certificates for shares, upon the surrender of the mutilated certificate or, in the case of loss, theft or destruction of the certificate, upon satisfactory proof of such loss, theft or destruction; the Board, or a committee designated thereby, or the transfer agents and registrars for the stock, may, in their discretion, require the owner of the lost, stolen or destroyed

 



 

certificate, or such person’s legal representative, to give the Corporation an indemnity or a bond in such sum and with such surety or sureties as they may direct to indemnify the Corporation and said transfer agents and registrars against any claim that may be made on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate.

 

SECTION 5.05. Regulations. The Board may make such additional rules and regulations as it may deem expedient concerning the issue, transfer and registration of certificated or uncertificated shares of stock of each class of the Corporation and may make such rules and take such action as it may deem expedient concerning the issue of certificates in lieu of certificates claimed to have been lost, stolen, destroyed or mutilated.

 

SECTION 5.06. Fixing Date for Determination of Stockholders of Record. (a) In order that the Corporation may determine the Stockholders entitled to notice of or to vote at any meeting of the Stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment or any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix, in advance, a record date, which shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action. A determination of Stockholders entitled to notice of or to vote at a meeting of the Stockholders shall apply to any adjournment of the meeting; provided , however , that the Board may fix a new record date for the adjourned meeting.

 

(b) Subject to the provisions of Section 2.09 of these Bylaws, in order that the Corporation may determine the Stockholders entitled to consent to corporate action in writing without a meeting, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which date shall not be more than 10 days after the date upon which the resolution fixing the record date is adopted by the Board. If no record date has been fixed by the Board, the record date for determining Stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board is required by law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Secretary or his or her representative at the principal executive offices of the Corporation. If no record date has been fixed by the Board and prior action by the Board is required by law, the record date for determining Stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board adopts the resolution taking such prior action.

 

SECTION 5.07. Transfer Agents and Registrars. The Board may appoint, or authorize any officer or officers to appoint, one or more transfer agents and one or more registrars.

 

ARTICLE VI

 

Indemnification

 

SECTION 6.01. Power to Indemnify in Actions, Suits or Proceedings other than Those by or in the Right of the Corporation. Subject to Section 6.03 of this Article VI, the Corporation shall, to the fullest extent permitted by the DGCL and Delaware law as in effect at any time, indemnify any person who was or is a party or is threatened to be made a party to any threatened,

 



 

pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that such person is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, partner, member or agent of another corporation, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise (including the heirs, executors, administrators or estate of such person), against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person’s conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea or nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that such person’s conduct was unlawful.

 

SECTION 6.02. Power to Indemnify in Actions, Suits or Proceedings by or in the Right of the Corporation. Subject to Article X of the Certificate and Section 6.03 of this Article VI, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that such person is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, partner, member or agent of another corporation, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise (including the heirs, executors, administrators or estate of such person), against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.

 

SECTION 6.03. Authorization of Indemnification. Any indemnification under this Article VI (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because such person has met the applicable standard of conduct set forth in Section 6.01 or 6.02 of this Article VI, as the case may be. Such determination shall be made, with respect to a person who is a director or officer at the time of such determination, (a) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (b) by a committee of such directors designated by a majority vote of such directors, even though less than a quorum, or (c) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion or (d) by the Stockholders. Such determination shall be made, with respect to former

 



 

directors and officers, by any person or persons having the authority to act on the matter on behalf of the Corporation. To the extent, however, that a present or former director or officer of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding set forth in Section 6.01 or 6.02 of this Article VI or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection therewith, without the necessity of authorization in the specific case.

 

SECTION 6.04. Good Faith Defined. For purposes of any determination under Section 6.03 of this Article VI, a person shall be deemed to have acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation, or, with respect to any criminal action or proceeding, to have had no reasonable cause to believe such person’s conduct was unlawful, if such person’s action is based on good faith reliance on the records or books of account of the Corporation or another enterprise, or on information supplied to such person by the officers of the Corporation or another enterprise in the course of their duties, or on the advice of legal counsel for the Corporation or another enterprise or on information or records given or reports made to the Corporation or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Corporation or another enterprise. The term “another enterprise” as used in this Section 6.04 shall mean any other corporation or any partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise of which such person is or was serving at the request of the Corporation as a director, officer, employee, partner, member or agent. The provisions of this Section 6.04 shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth in Section 6.01 or 6.02 of this Article VI, as the case may be.

 

SECTION 6.05. Indemnification by a Court. Notwithstanding any contrary determination in the specific case under Section 6.03 of this Article VI, and notwithstanding the absence of any determination thereunder, any director or officer may apply to the Court of Chancery in the State of Delaware for indemnification to the extent otherwise permissible under Sections 6.01 and 6.02 of this Article VI. The basis of such indemnification by a court shall be a determination by such court that indemnification of the director or officer is proper in the circumstances because such person has met the applicable standards of conduct set forth in Section 6.01 or 6.02 of this Article VI, as the case may be. Neither a contrary determination in the specific case under Section 6.03 of this Article VI nor the absence of any determination thereunder shall be a defense to such application. Notice of any application for indemnification pursuant to this Section 6.05 shall be given to the Corporation promptly upon the filing of such application. If successful, in whole or in part, the director or officer seeking indemnification under this Section 6.05 shall also be entitled to be paid the expenses of prosecuting such application.

 

SECTION 6.06. Expenses Payable in Advance. Expenses, including attorneys’ fees, incurred by a director or officer in defending any civil, criminal, administrative or investigative action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that such person is not entitled

 



 

to be indemnified by the Corporation as authorized in this Article VI. Such expenses (including attorneys’ fees) incurred by former directors or officers may be so paid upon such terms and conditions, if any, as the Board deems appropriate.

 

SECTION 6.07. Nonexclusivity of Indemnification and Advancement of Expenses. The indemnification and advancement of expenses provided by or granted pursuant to this Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under the Certificate, any agreement, vote of Stockholders or disinterested directors or otherwise, both as to action in such person’s official capacity and as to action in another capacity while holding such office, it being the policy of the Corporation that indemnification of the persons specified in Sections 6.01 and 6.02 of this Article VI shall be made to the fullest extent permitted by applicable law. The provisions of this Article VI shall not be deemed to preclude the indemnification of any person who is not specified in Section 6.01 or 6.02 of this Article VI but whom the Corporation has the power or obligation to indemnify under the provisions of the DGCL or otherwise. The Corporation’s obligation, if any, to indemnify any person that was or is serving at the request of the Corporation as a director, officer, employee, partner, member or agent of another corporation, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise shall be reduced by any amount such person may collect as indemnification from such other corporation, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise, as applicable.

 

SECTION 6.08. Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, partner, member or agent of another corporation, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether or not the Corporation would have the power or the obligation to indemnify such person against such liability under the provisions of this Article VI.

 

SECTION 6.09. Certain Definitions. For purposes of this Article VI, references to “the Corporation” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees or agents so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee, partner, member or agent of another corporation, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise, shall stand in the same position under the provisions of this Article VI with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued. For purposes of this Article VI, references to “fines” shall include any excise taxes assessed on a person with respect of any employee benefit plan; and references to “serving at the request of the Corporation” shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner such

 



 

person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the Corporation” as referred to in this Article VI.

 

SECTION 6.10. Survival of Indemnification and Advancement of Expenses. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VI shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such a person.

 

SECTION 6.11. Limitation on Indemnification. Notwithstanding anything contained in this Article VI to the contrary, except for proceedings to enforce rights to indemnification under this Article VI (which shall be governed by Section 6.05 of this Article VI), the Corporation shall not be obligated under this Article VI to indemnify any director, officer, employee or agent in connection with a proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized by the Board.

 

SECTION 6.12. Contract Rights. The obligations of the Corporation under this Article VI to indemnify a person who is or was a director, officer, employee or agent of the Corporation, including the duty to advance expenses, shall be considered a contract between the Corporation and such person, and no modification or repeal of any provision of this Article VI shall affect, to the detriment of such person, such obligations of the Corporation in connection with a claim based on any act or failure to act occurring before such modification or repeal.

 

ARTICLE VII

 

Miscellaneous

 

SECTION 7.01. Seal. The Board shall provide a suitable corporate seal, which shall bear, but not be limited to, the full name of the Corporation and shall be in the charge of the Secretary. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced.

 

SECTION 7.02. Fiscal Year. The fiscal year of the Corporation shall be fixed by resolution by the Board and if not so fixed by the Board the fiscal year shall be the calendar year.  Until altered by the Board, the Corporation’s fiscal year shall begin on October 1 of each year, and shall end on September 30 of each year.

 

SECTION 7.03. Waiver of Notice. Whenever any notice whatsoever is required to be given by these Bylaws, by the Certificate or by law, the person entitled thereto may, either before or after the meeting or other matter in respect of which such notice is to be given, waive such notice in writing or as otherwise permitted by law, which shall be filed with or entered upon the records of the meeting or the records kept with respect to such other matter, as the case may be, and in such event such notice need not be given to such person and such waiver shall be deemed equivalent to such notice.

 

SECTION 7.04. Amendments. These Bylaws may be altered, amended or repealed, in whole or in part, and new Bylaws may be adopted as provided for in the Certificate.  In the event no such provisions exist in the Certificate, these Bylaws may be altered, amended or repealed, in

 



 

whole or in part, and new Bylaws may be adopted by the vote of holders of not less than 66  2 /3% in voting power of the then-outstanding shares of stock entitled to vote generally in the election of directors (considered for this purpose as one class).  The provisions of this Section 7.04 are subject to any contrary provisions and any provisions requiring a greater vote that are set forth in the Certificate or these Bylaws.

 

SECTION 7.05. Execution of Documents. The Board shall designate the officers, employees and agents of the Corporation who shall have power to execute and deliver deeds, contracts, mortgages, bonds, debentures, notes, checks, drafts and other orders for the payment of money and other documents for and in the name of the Corporation and may authorize (including authority to redelegate) by written instrument to other officers, employees or agents of the Corporation. Such delegation may be by resolution or otherwise and the authority granted shall be general or confined to specific matters, all as the Board or any such committee may determine. In the absence of such designation referred to in the first sentence of this Section 7.05, the officers of the Corporation shall have such power so referred to, to the extent incident to the normal performance of their duties.

 

SECTION 7.06. Checks. All checks, drafts and other orders for the payment of money out of the funds of the Corporation, and all notes or other evidences of indebtedness of the Corporation, shall be signed on behalf of the Corporation in such manner as shall from time to time be determined by resolution of the Board or of any committee thereof or by any officer of the Corporation to whom power in respect of financial operations shall have been delegated by the Board or any such committee thereof or as set forth in these Bylaws.

 

SECTION 7.07. Proxies in Respect of Stock or Other Securities of Other Corporations. The Board shall designate the officers of the Corporation who shall have authority from time to time to appoint an agent or agents of the Corporation to exercise in the name and on behalf of the Corporation the powers and rights which the Corporation may have as the holder of stock or other securities in any other corporation or other entity, and to vote or consent in respect of such stock or securities; such designated officers may instruct the person or persons so appointed as to the manner of exercising such powers and rights; and such designated officers may execute or cause to be executed in the name and on behalf of the Corporation and under its corporate seal, or otherwise, such written proxies, powers of attorney or other instruments as they may deem necessary or proper in order that the Corporation may exercise its said powers and rights.

 

SECTION 7.08. Dividends. Dividends upon the capital stock of the Corporation, subject to the requirements of the DGCL and the Certificate, if any, may be declared by the Board at any regular or special meeting of the Board (or any action by written consent in lieu thereof in accordance with these Bylaws), and may be paid in cash, in property or in shares of the Corporation’s capital stock. Before any payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board from time to time, in its absolute discretion, deems proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for any proper purpose, and the Board may modify or abolish any such reserve.

 

SECTION 7.09. Subject to Law and Restated Certificate of Incorporation. All powers, duties and responsibilities provided for in these Bylaws, whether or not explicitly so qualified, are qualified by the provisions of the Certificate and applicable law.

 



 

SECTION 7.10.  Time Periods . In applying any provision of these Bylaws which require that an act be done or not done a specified number of days prior to an event or that an act be done during a period of a specified number of days prior to an event, calendar days shall be used, the day of the doing of the act shall be excluded, and the day of the event shall be included.

 

SECTION 7.11  Reliance Upon Books, Reports and Records . Each director, each member of any committee designated by the Board, and each officer of the Corporation shall, in the performance of his duties, be fully protected in relying in good faith upon the records of the Corporation and upon information, opinions, reports or statements presented to the Corporation by any of the Corporation’s officers or employees, or committees designated by the Board, or by any other person as to the matters the member reasonably believes are within such other person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation.

 




Exhibit 4.3

 

REGISTRATION RIGHTS AGREEMENT

 

This REGISTRATION RIGHTS AGREEMENT (this “ Agreement ”), dated as of                     , 2012 by and among Natural Grocers by Vitamin Cottage, Inc., a Delaware corporation (the “ Company ”), the Persons listed as Eligible Stockholders on Schedule 1 attached hereto and the Persons listed as Stockholder Representatives on Schedule 2 attached hereto.

 

R E C I T A L S

 

WHEREAS, the Company has filed a Registration Statement (as defined below) on Form S-1 under the Securities Act (as defined below) with respect to the Initial Public Offering (as defined below) of shares of the Company’s common stock, par value $0.001 per share (the “ Common Stock ”); and

 

WHEREAS, the Company has agreed to grant certain stockholders the registration rights and other rights set forth in this Agreement.

 

NOW, THEREFORE, in consideration of the recitals and the mutual premises, covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

 

ARTICLE I
DEFINITIONS

 

In addition to capitalized terms defined elsewhere in this Agreement, the following capitalized terms shall have the following meanings when used in this Agreement:

 

Affiliate ” means, as to any specified Person, any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, “ control ”, as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise. For purposes of this definition, the terms “ controlling ”, “ controlled by ” and “ under common control with ” have correlative meanings.

 

Agreement ” shall have the meaning set forth in the first paragraph of this Agreement.

 

Business Day ” means any day other than a Saturday, Sunday or other day in New York, New York on which commercial banks are authorized or required by law or regulation to close.

 

Commission ” means the Securities and Exchange Commission and any successor agency performing comparable functions.

 

Common Stock ” shall have the meaning set forth in the Recitals.

 

Company ” shall have the meaning set forth in the first paragraph of this Agreement.

 

Demand Registrations ” shall have the meaning set forth in Section 2.2(a) .

 

Eligible Stockholder ” means each of the Persons identified as “Eligible Stockholders” on Schedule 1 attached hereto, as amended, and any Transferee.

 

Governmental Authority ” means any regional, federal, state or local legislative, executive or judicial body or agency, any court of competent jurisdiction, any department, political subdivision or other governmental authority or instrumentality, or any arbitral authority, in each case, whether domestic or foreign.

 

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Immediate Family ” means any relationship by blood, marriage or adoption, not more remote than first cousin.

 

Indemnified Party ” shall have the meaning set forth in Section 8.3 .

 

Indemnifying Party ” shall have the meaning set forth in Section 8.3 .

 

Long-Form Demand Registration ” shall have the meaning set forth in Section  2.1(b) .

 

Losses ” shall have the meaning set forth in Section 8.1 .

 

Majority Vote ” means the majority vote of the Stockholder Representatives.

 

Other Stockholders ” shall have the meaning set forth in Section 4.3 .

 

Permitted Transferee ” means, with respect to any Transferring Stockholder, (i) any Affiliate of such Transferring Stockholder, (ii) any trust for the direct or indirect benefit of such Transferring Stockholder or the Immediate Family of such Transferring Stockholder or (iii) the beneficiaries, limited partners or stockholders of such Transferring Stockholder.

 

Person ” means an individual, a company, a partnership, a joint venture, a limited liability company, a limited liability partnership, an association, a trust, estate or other fiduciary or any other legal entity, and any Governmental Authority.

 

Piggyback Registration ” shall have the meaning set forth in Section 4.1 .

 

Initial Public Offering ” means the initial public offering by the Company of its equity securities to the public pursuant to an effective registration statement under the Securities Act or any comparable statement under any comparable federal statute then in effect (other than any registration statement on Form S-8 or Form S-4 or any successor forms thereto).

 

Records ” shall have the meaning set forth in Section 6.1(l) .

 

Registrable Securities ” means (i) the shares of Common Stock beneficially owned by the Eligible Stockholders; (ii) other equity securities of the Company beneficially owned by the Eligible Stockholders into which the Common Stock shall be reclassified or changed, including by reason of a merger, consolidation, reorganization, recapitalization or statutory conversion; and (iii) any other securities of the Company issued or issuable as a distribution with respect to or in exchange or replacement for or on exercise of any shares or other securities referred to in clause (i) or (ii) of this definition; provided , however , that any such shares or other securities shall cease to be Registrable Securities when they (a) have been effectively registered under the Securities Act and sold by the holder thereof in accordance with such registration; (b) have been sold pursuant to Rule 144; or (c) are eligible for resale by an Eligible Stockholder under Rule 144 without volume or manner-of-sale restrictions, as determined by the Company in its discretion after consultation with Company counsel.

 

Registration Expenses ” shall have the meaning set forth in Section 7.1 .

 

Rule 144 ” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission as a replacement thereto.

 

Securities Act ” means the Securities Act of 1933, as amended, or any successor United States federal statute, and the rules and regulations of the Commission thereunder, as the same shall be in effect from time to time.

 

Shelf Registration Statement ” shall have the meaning set forth in Section 3.1 .

 

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Short-Form Demand Registrations ” shall have the meaning set forth in Section 2.2(a) .

 

Stockholder Representative ” means each of the persons identified as “Stockholder Representatives” on Schedule 2 attached hereto, as amended.

 

Subsequent Shelf Registration Statement ” shall have the meaning set forth in Section 3.1(a) .

 

Transferee ” shall have the meaning set forth in Section 11.2(a) .

 

Transferring Stockholder ” shall have the meaning set forth in Section 11.2(a) .

 

ARTICLE II
DEMAND REGISTRATION

 

SECTION 2.1      Long-Form Registrations .

 

(a)            Subject to the terms of this Agreement, at any time no earlier than 180 days after the Company’s Initial Public Offering, the Stockholder Representatives, acting by Majority Vote, shall be entitled to request registration under the Securities Act of all or part of the Registrable Securities on Form S-1 or any similar long-form registration statement; provided , however , that with respect to any request under this Section 2.1(a) , (i) the anticipated aggregate offering amount of the Registrable Securities covered by such registration shall equal or exceed $75,000,000 and (ii) the Company shall not otherwise be eligible at the time of the request to file a registration statement on Form S-3 or any similar short-form registration statement for the sale of Registrable Securities by the Eligible Stockholders.

 

(b)            Within 30 days after receipt of any written request pursuant to this Section 2.1 , the Company will give written notice of such request to all Eligible Stockholders, and will use commercially reasonable efforts to include in such registration all Registrable Securities with respect to which the Company has received written requests for inclusion within ten days after delivery of the Company’s notice, and thereupon the Company will use commercially reasonable efforts to effect, at the earliest possible date, the registration under the Securities Act. A registration requested pursuant to this Section 2.1 is referred to herein as a “ Long-Form Demand Registration ”. The Company shall not be obligated to effect more than three Long-Form Demand Registrations for the Eligible Stockholders pursuant to this Section 2.1 .

 

SECTION 2.2      Short-Form Registrations .

 

(a)            In addition to the Long-Form Demand Registration rights provided pursuant to Section 2.1 above, commencing on the date on which the Company becomes eligible to register securities issued by it on a Form S-3 or any similar short-form registration statement, the Stockholder Representatives, acting by Majority Vote, shall be entitled to request registration under the Securities Act of all or part of the Registrable Securities on Form S-3 or such similar short-form registration statement (“ Short-Form Demand Registrations ” and, together with Long-Form Demand Registrations, “ Demand Registrations ”); provided , however , that with respect to any request under this Section 2.2(a)  the anticipated aggregate offering amount of the Registrable Securities covered by such registration shall equal or exceed $75,000,000.

 

(b)            Within 30 days after receipt of any written request pursuant to this Section 2.2 , the Company will give written notice of such request to all Eligible Stockholders, and will use commercially reasonable efforts to include in such registration all Registrable Securities with respect to which the Company has received written requests for inclusion within ten days after delivery of the Company’s notice, and thereupon the Company will use commercially reasonable efforts to effect, at the earliest possible date, the registration under the Securities Act. Demand Registrations will be Short-Form Demand Registrations whenever the Company is permitted to use any applicable short form. If for marketing or other reasons the managing underwriter(s) with respect to any Short-Form Demand Registration request the inclusion in the registration statement of information that is not required under the Securities Act to be included in a registration statement on the applicable form for the Short-Form

 

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Demand Registration, the Company will provide such information as may be reasonably requested for inclusion by the managing underwriter(s) in the Short-Form Demand Registration.

 

SECTION 2.3        Amount .  Each request for a Demand Registration shall specify the number of shares of Registrable Securities proposed to be sold.

 

SECTION 2.4        Payment of Expenses for Demand Registrations .  The Company will pay all Registration Expenses for the Demand Registrations made under Section 2.1 and Section 2.2 . A registration statement will not count as a Demand Registration until it has become effective; provided , that at any time prior to the effective date of such registration statement, the majority-in-interest of the holders requesting such registration may withdraw such request by providing written notice of such withdrawal to the Company.  A request, so withdrawn by the holders, shall count as a Demand Registration hereunder unless (i) such withdrawal arose out of the fault of the Company (in which case the Company shall be obligated to pay all registration expenses in connection with such withdrawn request), (ii) such withdrawal was determined to be necessary by the managing underwriter(s) or by the Company as a result of  an event or series of related events that has had, is having or is reasonably likely to have a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its subsidiaries taken as a whole or (iii) the requesting holders reimburse the Company for all expenses incurred in connection with such withdrawn request; further provided, that the requesting holders may not utilize this provision more than once.

 

SECTION 2.5        Priority .  If the managing underwriter(s) with respect to a Demand Registration involving more than one Eligible Stockholder advise the Company in writing that, in their opinion, the number of Registrable Securities requested to be included in such Demand Registration should be reduced due to adverse market conditions, market demand or otherwise, then, unless otherwise agreed by all of the Stockholder Representatives who have requested inclusion of Registrable Securities in the applicable Demand Registration, the number of Registrable Securities shall be reduced pro rata among the respective holders of such Registrable Securities on the basis of the number of such Registrable Securities requested by such holders to be included in the applicable Demand Registration.

 

SECTION 2.6        Restrictions .  The Company will not be obligated to effect any Demand Registration within 180 days after the effective date of a previous Demand Registration. In addition, with respect to any Demand Registration, if (A) (i) in the good faith judgment of the Company, there is a material development relating to the business, results of operations, condition (financial or otherwise) or prospects of the Company that has not been disclosed to the general public; (ii) the Company is planning to prepare and file a registration statement for a primary offering by the Company of its securities; (iii) the Demand Registration would require the preparation of (x) audited financial statements as of a date other than the Company’s fiscal year end (unless the Stockholder Representatives agree to pay the reasonable expenses of such required audit) or (y) pro forma financial statements; or (iv) the Company’s Board of Directors determines the Demand Registration would have a material adverse effect on the Company; and (B) the chief executive officer or chief financial officer of the Company notifies in writing the holders of the Registrable Securities requesting such Demand Registration that such officer has reasonably concluded that under such circumstances it would be in the Company’s best interest to postpone the filing of a Demand Registration, then the Company may postpone for up 60 days the filing or the effectiveness (but not the preparation) of a registration statement for a Demand Registration; provided , that the Company may not on any of the foregoing grounds postpone the filing or effectiveness of a registration statement for a Demand Registration more than twice during any 12-month period.

 

SECTION 2.7        Underwritten Offerings .  All Demand Registrations shall be underwritten (which shall include “block trades”) and in no event shall the Company be obligated to effect any underwritten offering other than through a Demand Registration.

 

SECTION 2.8        Selection of Underwriters .  In connection with any Demand Registration, the managing underwriter(s) in respect of such offering shall be chosen by a majority-in-interest of the holders requesting such registration, subject to the approval of the Company (which approval shall not be unreasonably withheld).

 

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ARTICLE III
SHELF REGISTRATIONS

 

SECTION 3.1      Right to Shelf Registration .

 

(a)            Subject to the terms of this Agreement, in addition to the Demand Registrations and commencing on the date on which the Company becomes eligible to register securities issued by it on a Form S-3 or any similar short-form registration statement, but no earlier than 180 days after the Company has registered securities under Section 2.1 or Section 2.2, the Stockholder Representatives, acting by Majority Vote, shall be entitled to request that the Company file a shelf registration statement on Form S-3 pursuant to Rule 415 of the Securities Act (or any successor rule thereto) with respect to all or part of the Registrable Securities (including the prospectus, amendments and supplements to the shelf registration statement or prospectus, including pre- and post-effective amendments thereto, all exhibits thereto and all material incorporated by reference or deemed incorporated by reference therein, the “ Shelf Registration Statement ”). The Company shall use commercially reasonable efforts to cause the Shelf Registration Statement to be declared effective by the Commission as soon as practicable after such filing, and shall use commercially reasonable efforts to keep the Shelf Registration Statement effective and updated, from the date such Shelf Registration Statement is declared effective until the earlier of (i) the date as of which all of the Registrable Securities included in the Shelf Registration Statement have been sold or (ii) the third anniversary of the initial effective date of the Shelf Registration Statement. If the Shelf Registration Statement has been effective for three years, at the end of the third year, if requested by a Stockholder Representative, the Company shall use commercially reasonable efforts to promptly file a new shelf registration statement (a “ Subsequent Shelf Registration Statement ”) on Form S-3 pursuant to Rule 415 of the Securities Act (or any successor rule thereto).

 

(b)            The Company shall use commercially reasonable efforts to cause any Subsequent Shelf Registration Statement to be declared effective by the Commission as soon as practicable after such filing, and shall use commercially reasonable efforts to keep any Subsequent Shelf Registration Statement effective and updated, from the date such Subsequent Shelf Registration Statement is declared effective until the earlier of (i) the date as of which all of the Registrable Securities included in the Subsequent Shelf Registration Statement have been sold or (ii) the third anniversary   of the initial effective date of the Subsequent Shelf Registration Statement. If the Subsequent Shelf Registration Statement has been effective for three years, at the end of the third year, if requested by a Stockholder Representative, the Company shall use commercially reasonable efforts to promptly file a new Subsequent Shelf Registration Statement on Form S-3 pursuant to Rule 415 of the Securities Act (or any successor rule thereto).

 

(c)            From time to time, any Stockholder Representative shall be entitled to request that the Company amend the Shelf Registration Statement or any Subsequent Shelf Registration Statement to (i) include all or part of the Registrable Securities not already covered by the Shelf Registration Statement or any Subsequent Shelf Registration Statement or (ii) amend the plan of distribution as reasonably necessary to permit resales of Registrable Securities in the manner contemplated by such Stockholder Representative (subject to the limitations of Section 2.7 ). Upon receipt of a request to amend a Shelf Registration Statement or any Subsequent Shelf Registration Statement in accordance with this subsection, the Company shall use commercially reasonable efforts to cause such amendment to be filed as soon as reasonably practicable after the receipt of such request.

 

(d)            Payment of Expenses for Shelf Registrations .  The Company will pay all Registration Expenses for the shelf registrations made under this Article III .

 

ARTICLE IV
PIGGYBACK REGISTRATIONS

 

SECTION 4.1      Right to Piggyback .  At any time, whenever the Company proposes to register any of its Common Stock (or other securities of the type contemplated by clause (ii) or (iii) of the definition of Registrable Securities) under the Securities Act for its own account or otherwise, and the registration form to be used may be used for the registration of Registrable Securities (each, a “ Piggyback Registration ”) (except for registrations on Form S-8 or Form S-4 or any successor forms thereto), the Company will give written notice, at least ten days prior to the proposed filing of such registration statement, to all Stockholder Representatives and all Eligible Stockholders, of its intention to effect such a registration and will use commercially reasonable efforts to include in

 

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such registration all Registrable Securities (in accordance with the priorities set forth in Section 4.2 and Section 4.3 below) with respect to which the Company has received written requests for inclusion specifying the number of Registrable Securities desired to be registered, which requests shall be delivered within ten days after the delivery of the Company’s notice. The Company may postpone or withdraw the filing or the effectiveness of a Piggyback Registration at anytime in its sole discretion.

 

SECTION 4.2        Priority on Primary Registrations .  If a Piggyback Registration is an underwritten primary offering on behalf of the Company and the managing underwriter(s) advise the Company in writing that, in their opinion, the number of Company securities requested to be included in the registration (including securities of the Company that are not Registrable Securities) should be reduced due to adverse market conditions, market demand or otherwise, then the Company may exclude securities (including Registrable Securities) from the registration and the underwriting, and the number of securities to be included in such registration and underwriting shall be determined as follows: (a)  first , any securities that the Company proposes to sell; (b)  second , the Registrable Securities requested to be included in such registration, pro rata among the Eligible Stockholders on the basis of the total number of Registrable Securities which are requested by such Eligible Stockholders to be included in such registration, and (c)  third , other securities, if any, requested to be included in such registration.

 

SECTION 4.3        Priority on Secondary Registrations .  If a Piggyback Registration is an underwritten secondary offering on behalf of any Person, other than the Eligible Stockholders, who has the contractual right to initiate such a registration (the “ Other Stockholders ”), and the managing underwriter(s) advise the Company in writing that, in their opinion, the number of Company securities requested to be included in the registration (including securities of the Company that are not Registrable Securities) should be reduced due to adverse market conditions, market demand or otherwise, the Company will include in such registration: (a)  first , the Common Stock requested to be included therein by the Other Stockholders, (b)  second , the Registrable Securities requested to be included in such registration, pro rata among the Eligible Stockholders on the basis of the total number of Registrable Securities which are requested by such Eligible Stockholders to be included in such registration, (c)  third , any securities that the Company proposes to sell, and (d)  fourth , other securities, if any, requested to be included in such registration.

 

SECTION 4.4        Selection of Underwriters .  In connection with any Piggyback Registration resulting from the Company’s proposal to register any of its Common Stock for its own account, the Company will have the right to select the managing underwriter(s) in respect of such offering in its sole discretion.  In connection with any Piggyback Registration resulting from the proposal of Other Stockholders to register any of its Common Stock for its own account, either the Other Stockholders or the Company will have the right to select the managing underwriter(s) in respect of such offering, as determined as between them.

 

SECTION 4.5        Payment of Expenses for Demand Registrations .  The Company will pay all Registration Expenses for the Piggyback Registrations under this Article IV .

 

ARTICLE V
ADDITIONAL AGREEMENTS

 

SECTION 5.1        Holders’ Agreements .  To the extent consistent with applicable law, each holder of Registrable Securities agrees that upon request of the Company or the managing underwriter(s) of any underwritten offering of the Company’s securities, it will (i) not, directly or indirectly (A) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of, or lend or otherwise dispose of or transfer any shares of Common Stock or any securities convertible into or exchangeable or exercisable for Common Stock, whether then owned or thereafter acquired by such holder or with respect to which the holder has or hereafter acquires the power of disposition (collectively, the “ Lock-Up Securities ”), or exercise any right with respect to the registration of any of the Lock-up Securities, or file or cause to be filed any registration statement in connection therewith, under the Securities Act, or (B) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the Lock-Up Securities, whether any such swap or transaction described in clause (A) or (B) above is to be settled by delivery of Common Stock or other securities, in cash or otherwise (other than those securities included by such holder in the offering in question, if any), without the prior written consent of the Company or such underwriters, as the case may be, during the period of up to 180 days following the effective date

 

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of the registration statement for such underwritten offering, and (ii) enter into and be bound by such form of agreement with respect to the foregoing as the Company or such managing underwriter(s) may reasonably request.

 

SECTION 5.2        Company’s Agreements .  The Company agrees not to effect any public sale or public distribution of its equity securities, or any securities convertible into or exchangeable or exercisable for such securities, during the 90 day period following the effective date of a registration statement filed under Article II hereof (except as part of any such underwritten registration or pursuant to registrations on Form S-8 or Form S-4 or any successor forms thereto), unless the managing underwriter(s) otherwise agree.

 

SECTION 5.3        Third-Party Beneficiaries .  The underwriters in connection with the offering that is the subject of Section 5.1   are intended third-party beneficiaries of such section and shall have the right and power to enforce the provisions of Section  5.1 as though they were a party hereto.

 

SECTION 5.4        Suspension of Resales .  The Company shall be entitled to suspend for up to 60 days the use of the prospectus forming the part of any registration statement, including a Shelf Registration Statement, which has theretofore become effective at any time if, in the good faith judgment of the Company, there is a material development relating to the business, results of operations, condition (financial or otherwise) or prospects of the Company that has not been disclosed to the general public and the chief executive officer or chief financial officer of the Company notifies in writing the holders of the Registrable Securities included in such registration statement and not previously sold thereunder that such officer has reasonably concluded that under such circumstances it would be in the Company’s best interest to suspend the use of such prospectus; provided , however , that the Company may not exercise its rights under this Section 5.4 more than twice in any 12-month period and the duration of such suspensions shall not, taken together with any postponements pursuant to Section 2.6 , exceed 90 days in the aggregate in any 12 month period (unless the holders of a majority of the unsold Registrable Securities included in such registration statement and not previously sold thereunder consent in writing to a longer suspension).  Each holder of Registrable Securities included in any such registration statement and not previously sold thereunder agrees that upon its receipt of such written notification it will immediately discontinue the sale of any Registrable Securities pursuant to such registration statement or otherwise until such holder has received copies of the supplemented or amended prospectus or until such holder is advised by the Company in writing that the use of the prospectus forming a part of such registration statement may be resumed and has received copies of any additional or supplemental filings that are incorporated by reference in such prospectus.

 

ARTICLE VI
REGISTRATION PROCEDURES

 

SECTION 6.1        Registration Procedures .  Whenever requests for registration have been made pursuant to this Agreement, the Company will use commercially reasonable efforts to effect the registration of such Registrable Securities in accordance with the intended method of disposition thereof and, pursuant thereto, the Company will as expeditiously as reasonably possible:

 

(a)            prepare and, as soon as practicable, file with the Commission a registration statement with respect to such Registrable Securities and use commercially reasonable efforts to cause such registration statement to become effective (provided that before filing a registration statement or prospectus, or any amendments or supplements thereto, the Company will furnish copies of all such documents proposed to be filed to one counsel for the holders of Registrable Securities (which counsel shall be designated by holders of a majority of the Registrable Securities covered by such registration statement) and to the extent practicable under the circumstances, provide such counsel an opportunity to comment only on information pertaining to the holders of Registrable Securities covered by such registration statement contained therein; and the Company shall consider in good faith any comments reasonably requested by such counsel with respect to such information, but shall not have any obligation to modify any information if the Company reasonably expects that so doing would cause the registration statement or prospectus to contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading);

 

(b)            prepare and file with the Commission such amendments and supplements to such registration statement and the prospectuses used in connection therewith as may be necessary to keep such registration statement effective until the earlier of (i) the date that is 180 days after its effectiveness or such greater

 

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period of time as required by Section 3.1 , or (ii) the date that all of the securities covered by the registration statement have been sold, and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such registration statement;

 

(c)            in connection with any filing of any registration statement or prospectus or amendment or supplement thereto, cause such document (i) to comply in all material respects with the requirements of the Securities Act and the rules and regulations of the Commission thereunder and (ii) to not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading;

 

(d)            furnish to each seller of Registrable Securities, without charge, such number of copies of such registration statement, each amendment and supplement thereto, the prospectuses included in such registration statement (including each preliminary prospectus) and such other documents as such seller may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such seller;

 

(e)            use commercially reasonable efforts to register or qualify such Registrable Securities under such securities or blue sky laws of such United States jurisdictions as the Eligible Stockholders reasonably request, keep each such registration or qualification effective during the period the associated registration statement is required to be kept effective, and do any and all other acts and things that may be reasonably necessary or advisable to enable such seller to consummate the disposition in such jurisdictions of the Registrable Securities owned by such seller; provided , however , that the Company will not be required to (i) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this subparagraph, (ii) consent to general service of process in any such jurisdiction, or (iii) subject itself or any of its Affiliates to taxation in any such jurisdiction in which it is not already subject to taxation;

 

(f)             promptly notify each seller of such Registrable Securities and, if requested by such seller, confirm in writing, when a registration statement has become effective and when any post-effective amendments and supplements thereto become effective;

 

(g)            promptly notify each seller of such Registrable Securities, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement contains an untrue statement of a material fact or omits any fact necessary to make the statements therein not misleading, and, at the request of any such seller (but subject to the terms of Section 5.4 ), the Company will prepare a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus will not contain any untrue statement of a material fact or omit to state any fact necessary to make the statements therein not misleading; provided , that, each seller of such Registrable Securities, upon receipt of any notice from the Company of any event of the kind described in this Section 6.4(g) , shall immediately discontinue disposition of the Registrable Securities pursuant to the registration statement covering such Registrable Securities until such seller is advised in writing by the Company that the use of the prospectus may be resumed and is furnished with a supplemented or amended prospectus as contemplated by this Section 6.4(g) , and if so directed by the Company, such holder shall deliver to the Company (at the Company’s expense) all copies, other than permanent file copies then in such seller’s possession, of the prospectus covering such Registrable Securities at the time of receipt of such notice;

 

(h)            use commercially reasonable efforts to cause all such Registrable Securities to be listed on each securities exchange on which similar securities issued by the Company are then listed or if no such securities are then listed, on a national securities exchange selected by the Company;

 

(i)             provide a transfer agent, registrar and CUSIP number for all such Registrable Securities not later than the effective date of such registration statement;

 

(j)             enter into such customary agreements (including, if applicable, underwriting agreements in customary form) and take all such other customary actions as the holders of a majority of the Registrable Securities being sold or the underwriters, if any, reasonably request in order to expedite or facilitate the disposition of such Registrable Securities;

 

8



 

(k)            use commercially reasonable efforts to cooperate with each seller and the underwriter or managing underwriter, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold and not bearing any restrictive legends; and enable such Registrable Securities to be in such denominations (consistent with the provisions of the governing documents thereof) and registered in such names as each seller or the underwriter or managing underwriter, if any, may reasonably request at least five business days prior to any sale of Registrable Securities;

 

(l)             make available for inspection, at such place and in such manner as determined by the Company in its sole discretion, by any seller of Registrable Securities, any underwriter participating in any disposition pursuant to such registration statement, and any attorney, accountant or other agent retained by any such seller or underwriter, financial and other records, pertinent corporate documents and properties of the Company (collectively, the “ Records ”) reasonably necessary to enable any such seller, underwriter, attorney, accountant or agent in connection with such registration statement to exercise their due diligence responsibly, and cause the Company’s officers, directors, employees and independent accountants to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement; provided , that, unless, the disclosure of such Records is necessary to avoid or correct a misstatement or omission in the registration statement or the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction, the Company shall not be required to provide any information under this Section 6(l) if (i) the Company believes, after consultation with counsel for the Company, that to do so would cause the Company to forfeit an attorney-client privilege that was applicable to such information or (ii) if either (A) the Company has requested and been granted from the Commission confidential treatment of such information contained in any filing with the Commission or documents provided supplementally or otherwise or (B) the Company reasonably determines in good faith that such Records are confidential and so notifies the seller, underwriter, attorney, accountant or agent in writing, unless prior to furnishing any such information with respect to clause (ii) the holder of Registrable Securities requesting such information agrees to enter into a confidentiality agreement in form and substance reasonably satisfactory to the Company; and provided , further, that each holder of Registrable Securities agrees that it shall, upon learning that disclosure of such Records is sought in a court of competent jurisdiction, give immediate notice to the Company and allow the Company, at its expense, to undertake appropriate action and to prevent disclosure of the Records deemed confidential;

 

(m)           advise each seller of such Registrable Securities, promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the Commission suspending the effectiveness of such registration statement or the initiation or threatening of any proceeding for such purpose and use commercially reasonable efforts to prevent the issuance of any stop order or to obtain its withdrawal if such stop order should be issued;

 

(n)            make available to its security holders, as soon as reasonably practicable, an earnings statement (which need not be audited) covering at least 12 months beginning after the effective date of the registration statement which shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder;

 

(o)            cooperate and assist in any filing required to be made with the Financial Industry Regulatory Authority, Inc.;

 

(p)            in connection with an underwritten offering, furnish on the date or dates provided for in the underwriting agreement a “comfort letter” or “comfort letters” from the independent certified public accountants of the Company addressed to the underwriters, covering such matters as such accountants, underwriters  may reasonably agree upon, in which comfort letter(s) such accountants shall state, without limiting the generality of the foregoing, that they are an independent registered public accounting firm within the meaning of the Securities Act and that in their opinion the financial statements and other financial data of the Company included in the registration statement, the prospectuses, or any amendment or supplement thereto, comply in all material respects with the applicable accounting requirements of the Securities Act;

 

(q)            with respect to Demand Registrations, make senior executives of the Company reasonably available to assist the managing underwriter(s) with respect to, and participate, in “road shows” in

 

9



 

connection with the customary marketing efforts for the distribution and sale of Registrable Securities pursuant to a registration statement; and

 

(r)             if any registration statement refers to any holder by name or otherwise as the holder of any securities of the Company and if in holder’s sole and exclusive judgment such holder is or might be deemed to be an underwriter or a controlling person of the Company, the Company shall permit such holder to require (i) the insertion therein of language, in form and substance reasonably satisfactory to such holder and presented to the Company in writing, to the effect that the holding by such holder of such securities is not to be construed as a recommendation by such holder of the investment quality of the Company’s securities covered thereby and that such holding does not imply that such holder shall assist in meeting any future financial requirements of the Company, or (ii) in the event that such reference to such holder by name or otherwise is not required by the Securities Act or any similar federal statute then in force, the deletion of the reference to such holder if such holder shall furnish to the Company an opinion of counsel to such effect, which opinion and counsel shall be reasonably satisfactory to the Company.

 

ARTICLE VII
REGISTRATION EXPENSES

 

SECTION 7.1        Company’s Expenses .  Subject to Section 2.4 and Section 3.1(d) , the Company will pay all expenses incident to the Company’s performance of or compliance with this Agreement, including, but not limited to: all registration and filing fees; fees and expenses of compliance with securities or blue sky laws; printing expenses; messenger and delivery expenses; and fees and disbursements of counsel for the Company; reasonable fees and disbursements of one counsel chosen by the holders of a majority of the Registrable Securities to be included in such registration to represent all holders of Registrable Securities to be included in the registration; fees and disbursements of the Company’s registered public accounting firm; and reasonable fees and disbursements of all other Persons retained by the Company (all such expenses being herein called “ Registration Expenses ”); provided , however , that, as between the Company and holders of Registrable Securities, all underwriting discounts and commissions and transfer taxes relating to the Registrable Securities will be borne by the holders of such Registrable Securities. In addition, the Company will pay its internal expenses (including, but not limited to, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit (except as set forth in Section 2.6 ) or quarterly review, the expense of any liability insurance obtained by the Company and the expenses and fees for listing the securities to be registered on each securities exchange.

 

SECTION 7.2        Holder’s Expenses .  To the extent that any expenses incident to any registration are not required to be paid by the Company, each holder of Registrable Securities included in a registration will pay all such expenses which are clearly and solely attributable to the registration of such holder’s Registrable Securities so included in such registration, and any other expenses not so attributable to one holder will be borne and paid by all sellers of securities included in such registration in proportion to the number of securities so included by each such seller.

 

ARTICLE VIII
INDEMNIFICATION

 

SECTION 8.1        By the Company .  The Company agrees to indemnify, to the extent permitted by law, each holder of Registrable Securities and, as applicable, each of its trustees, stockholders, members, directors, managers, partners, officers and employees, and each Person who controls such holder (within the meaning of the Securities Act), against all losses, claims, damages, liabilities and expenses (including, but not limited to, reasonable attorneys’ fees and expenses) (collectively, “ Losses ”) caused by any untrue or alleged untrue statement of material fact contained in any registration statement, prospectus or preliminary prospectus, or any amendment thereof or supplement thereto (including, in each case, all documents incorporated therein by reference), or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as the same are caused by or contained in any information furnished in writing to the Company by such holder expressly for use therein or by such holder’s failure to deliver a copy of the prospectus or preliminary prospectus, or any amendments or supplements thereto after the Company has furnished such holder with a sufficient number of copies of the same. In connection with an underwritten offering, the Company will indemnify such underwriters, their officers and directors and each Person who controls such underwriters  to the

 

10


 

same extent as provided above with respect to the indemnification of the holders of Registrable Securities. The payments required by this Section 8.1 will be made periodically during the course of the investigation or defense, as and when bills are received or expenses incurred; provided , however , that if a final and non-appealable judicial determination shall be made that such Indemnified Party (as defined below) is not entitled to indemnification for any such Losses, such Indemnified Party shall repay to the Company the amount of such Losses for which the Company shall have paid or reimbursed such Indemnified Party.

 

SECTION 8.2                           By Each Holder of Registrable Securities .  In connection with any registration statement in which a holder of Registrable Securities is participating, each such holder will furnish to the Company in writing such information relating to such holder as is reasonably necessary for use in connection with any such registration statement or prospectus and, to the extent permitted by law, will indemnify the Company and, as applicable, each of its directors, employees and officers and each Person who controls the Company against any Losses resulting from any untrue or alleged untrue statement of material fact contained in the registration statement, prospectus or preliminary prospectus, or any amendment thereof or supplement thereto (including, in each case, all documents incorporated therein by reference), or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, but only to the extent that such untrue statement or omission is contained in or omitted from any information furnished in writing by such holder for the acknowledged purpose of inclusion in such registration statement, prospectus or preliminary prospectus. In connection with a Demand Registration or any other underwritten offering in which a holder of Registrable Securities is participating, such holder will indemnify such underwriters, their officers and directors and each Person who controls such underwriters (within the meaning of the Securities Act) to the same extent as provided above with respect to the indemnification of the Company; provided , however , that any obligation to indemnify under this Section 8.2 will be several, not joint and several, among such holders of Registrable Securities and the liability of each such holder of Registrable Securities will be in proportion to and limited to the gross amount (before underwriting discounts) received by such holder from the sale of Registrable Securities pursuant to such registration statement, unless such Losses resulted from such holder’s fraudulent conduct.

 

SECTION 8.3                           Procedure .  Each party entitled to indemnification under this Article VIII (the “ Indemnified Party ”) shall give written notice to the party required to provide indemnification (the “ Indemnifying Party ”) promptly after such Indemnified Party has received written notice of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that the counsel for the Indemnifying Party who is to conduct the defense of such claim or litigation is reasonably satisfactory to the Indemnified Party (whose approval shall not be unreasonably withheld or delayed). The Indemnified Party may participate in such defense at such Indemnified Party’s expense; provided , however , that the Indemnifying Party shall bear the expense of such participation if (i) the Indemnifying Party has agreed in writing to pay such expenses, (ii) the Indemnifying Party shall have failed to assume the defense of such claim or to employ counsel reasonably satisfactory to the Indemnified Party or (iii) in the reasonable judgment of the Indemnified Party, based upon the written advice of such Indemnified Party’s counsel, representation of both parties by the same counsel would be inappropriate due to actual or potential conflicts of interest; provided , further , that in no event shall the Indemnifying Party be liable for the fees and expenses of more than one counsel (excluding one local counsel per jurisdiction as necessary) for all Indemnified Parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same event, allegations or circumstances.  The Indemnifying Party shall not be liable for any settlement entered into without its written consent.  No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the prior written consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement (a) that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation in form and substance reasonably satisfactory to such Indemnified Party or (b) that includes an admission of fault, culpability or a failure to act, by or on behalf of any Indemnified Party.

 

SECTION 8.4                           Survival .  The indemnification (and contribution provisions in Section 9.1 below) provided for under this Agreement will remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Party or any officer, director or controlling Person of such Indemnified Party and will survive the transfer of securities.

 

11



 

ARTICLE IX
CONTRIBUTION

 

SECTION 9.1                           Contribution .  If the indemnification provided for in Section 8.1 from the Indemnifying Party is unavailable to or unenforceable by the Indemnified Party in respect of any Losses, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Losses in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Parties in connection with the actions which resulted in such Losses, as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Parties shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, such Indemnifying Party or Indemnified Parties, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in Article VIII , any legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding. Notwithstanding this Article IX , an indemnifying holder shall not be required to contribute any amount in excess of the amount by which (a) the gross amount (before underwriting discounts) received by such holders from the sale of Registrable Securities sold by such holder exceeds (b) the amount of any damages which such Indemnifying Party has otherwise been required to pay by reason of the untrue or alleged untrue statement or omission or alleged omission giving rise to such payments, unless such Losses in respect of which contribution is required resulted from such holder’s intentionally fraudulent conduct.

 

SECTION 9.2                           Equitable Considerations; Etc.   The Company and the holders of Registrable Securities agree that it would not be just and equitable if contribution pursuant to this Article IX were determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to in the immediately preceding paragraph. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.

 

ARTICLE X
COMPLIANCE WITH RULE 144

 

SECTION 10.1                     Compliance with Rule 144 .  At the request of any holder of Registrable Securities who proposes to sell securities in compliance with Rule 144, the Company will (i) promptly furnish to such holder a written statement of compliance with the filing requirements of the Commission as set forth in Rule 144, and (ii) make available to the public and such holders such information, and take such action as is reasonably necessary, to enable the holders of Registrable Securities to make sales pursuant to Rule 144.

 

ARTICLE XI
MISCELLANEOUS

 

SECTION 11.1                     Amendments and Waivers .  Any waiver, consent or approval of any kind of any provision or condition of this Agreement must be made in writing and shall be effective only to the extent specifically set forth in writing. Any Stockholder Representative may, with respect to such Stockholder Representative and any Eligible Stockholders it represents, waive the benefit of any provision of this Agreement. Except as set forth in Section 11.2(d) , any amendment, modification, supplement or restatement of this Agreement must be effected by written agreement of the Company, each of the Stockholder Representatives and each of the Eligible Stockholders. No waiver by any party of any default, misrepresentation or breach covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation or breach of covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence.

 

SECTION 11.2                     Transfer Rights .

 

(a)            The rights of any Eligible Stockholder (the “ Transferring Stockholder ”), shall be transferable to any transferee (the “ Transferee ”) of any interests in the Registrable Securities held by such Transferring Stockholder; provided , however , that the Demand Registration rights and Shelf Registration Statement

 

12



 

rights of any Transferring Stockholder shall only be transferable to a Transferee purchasing at least 66.67% of the Registrable Securities held by the Transferring Stockholder as of the date of this Agreement.

 

(b)            Notwithstanding the foregoing, all rights (including, without limitation, Demand Registration rights and Shelf Registration Statement rights) of a Transferring Stockholder shall be transferable to a Permitted Transferee that acquires Registrable Securities from such Transferring Stockholder.

 

(c)            Any such transfer of rights under this Agreement will be effective upon (i) receipt by the Company of written notice from such Transferring Stockholder stating the name and address of any Transferee and identifying the number of Registrable Securities with respect to which rights under this Agreement are being transferred and the nature of the rights so transferred and (ii) receipt by the Company of a written agreement from the Transferee to be bound by the terms of this Agreement, upon which such Transferee will be deemed to be a party hereto and have the rights and obligations of the Transferring Stockholder hereunder with respect to the Registrable Securities transferred.

 

(d)            In connection with any transfer pursuant to the proviso in Section 11.2(a)  or Section 11.2(b)  in which the Transferee acquires Demand Registration rights and Shelf Registration rights, Schedule 2 of this Agreement will be amended so as to reflect such transfer and such amended Schedule 2 will be in a form determined by the Company and the Transferee.

 

SECTION 11.3                     Successors and Assigns .  Except as otherwise expressly provided herein, all covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto will bind and inure to the benefit of the respective successors, assigns, heirs, executors and personal representatives of the parties hereto, whether so expressed or not.

 

SECTION 11.4                     Descriptive Headings .  The descriptive headings of this Agreement are inserted for convenience of reference only and do not constitute a part of and shall not be utilized in interpreting this Agreement.

 

SECTION 11.5                     Notices .  Any notice or communication by the Company, any Stockholder Representative or any Eligible Stockholder is duly given if in writing and delivered in person or by first class mail (registered or certified, return receipt requested), facsimile transmission, email or overnight air courier guaranteeing next day delivery, to the recipient’s address:

 

 

If to the Company:

 

 

 

Natural Grocers by Vitamin Cottage, Inc.

 

12612 West Alameda Parkway

 

Lakewood, Colorado 80228

 

Facsimile No.: (303) 986-1891

 

Attention: Chief Executive Officer

 

 

 

With a copy to:

 

 

 

Holland & Hart LLP

 

555 17th Street, Suite 3200

 

Denver, Colorado 80202

 

Facsimile No.: (303) 295-8261

 

Attention: Lucy Stark

 

If to an Eligible Stockholder, to the address indicated on Schedule 1 attached hereto as amended from time to time.

 

If to a Stockholder Representative, to the address indicated on Schedule 2 attached hereto as amended from time to time.

 

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The Company, any Stockholder Representative or any Eligible Stockholder, by notice to the other parties hereto, may designate additional or different addresses for subsequent notices or communications. All notices and communications will be deemed to have been duly given: at the time delivered by hand, if personally delivered; three Business Days after being deposited in the mail, postage prepaid, if mailed; when receipt acknowledged, if transmitted by facsimile; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. If a notice or communication is mailed, transmitted or sent in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it.

 

SECTION 11.6                     GOVERNING LAW .  THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF COLORADO EXCLUDING (TO THE GREATEST EXTENT PERMISSIBLE BY LAW) ANY RULE OF LAW THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF COLORADO.

 

SECTION 11.7                     Consent to Jurisdiction .  Each of the parties (a) consents to submit itself to the personal jurisdiction of the courts of the State of Colorado and any federal court sitting in the State of Colorado in the event any dispute arises out of this Agreement or the transactions contemplated by this Agreement, (b) agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court and (c) agrees that it will not bring any action relating to this Agreement or the transactions contemplated by this Agreement in any court other than the courts of the State of Colorado or any federal court sitting in the State of Colorado.

 

SECTION 11.8                     Remedies .  Each of the parties to this Agreement will be entitled to enforce its rights under this Agreement specifically, to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights existing in its favor. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and that any party shall be entitled to immediate injunctive relief or specific performance without bond or the necessity of showing actual monetary damages in order to enforce or prevent any violations of the provisions of this Agreement.

 

SECTION 11.9                     Further Assurances .  Each of the parties hereto will, without additional consideration, execute and deliver such further instruments and take such other action as may be reasonably requested by any other party hereto in order to carry out the purposes and intent of this Agreement.

 

SECTION 11.10               Severability .  If any provision of this Agreement (or any portion thereof) or the application of any such provision (or any portion thereof) to any Person or circumstance shall be held invalid, illegal or unenforceable in any respect by a Governmental Authority, such invalidity, illegality or unenforceability shall not affect any other provision hereof (or the remaining portion thereof) or the application of such provision to any other persons or circumstances. Upon such determination that any provision of this Agreement (or any portion thereof) or the application of any such provision (or any portion thereof) to any Person or circumstance is invalid, illegal or unenforceable, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties hereto as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible.

 

SECTION 11.11               Entire Agreement .  This Agreement (including Schedule 1 and Schedule 2 attached hereto) constitutes the entire agreement of the parties with respect to the subject matter hereof and supersede and shall supersede all prior agreements and understandings (whether written or oral) among the Company, the Stockholder Representatives and the Eligible Stockholders, or any of them, with respect to the subject matter hereof.

 

SECTION 11.12               Execution in Counterparts .  This Agreement may be executed by any one or more of the parties hereto in any number of counterparts, each of which shall be deemed to be an original, but all such respective counterparts shall together constitute one and the same instrument. Delivery of an executed counterpart of a signature page of this Agreement by facsimile or other electronic image scan shall be effective as delivery of a manually executed counterpart of this Agreement.

 

SECTION 11.13               No Third Party Beneficiaries .  Except as provided in Section 5.3 , Article VIII , Article IX and Section 11.2 , nothing in this Agreement is intended or shall be construed to give any Person, other than the

 

14



 

parties hereto, their successors and permitted assigns, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision contained herein.

 

SECTION 11.14               Waiver of Certain Damages .  To the extent permitted by applicable law, each party hereto agrees not to assert, and hereby waives, any claim against any other party hereto, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement or any of the transactions contemplated hereby.

 

SECTION 11.15               WAIVER OF JURY TRIAL .  EACH PARTY HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY DISPUTE ARISING OUT OF THIS AGREEMENT. EACH PARTY (A) CERTIFIES THAT 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 AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 11.15 .

 

[Signature Pages Follow]

 

15



 

The parties hereto have executed this Registration Rights Agreement as of the date first above written.

 

 

NATURAL GROCERS BY VITAMIN COTTAGE, INC.

 

 

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

 

 

 

 

The Stockholder Representatives :

 

 

 

 

 

 

 

Kemper Isely

 

 

 

 

 

 

 

Zephyr Isely

 

 

 

 

 

 

 

Heather Isely

 

 

 

 

 

 

 

Elizabeth Isely

 

 

 

The Eligible Stockholders :

 

 

 

INDIVIDUAL STOCKHOLDERS:

 

 

 

 

 

 

 

Kemper Isely

 

 

 

 

 

 

 

Zephyr Isely

 

 

 

 

 

 

 

Heather C. Isely

 

 

 

 

 

 

 

Elizabeth Isely

 

 

 

 

 

 

 

Lark Isely

 

 

 

 

 

 

 

Lucas B. Isely

 



 

 

 

 

Charity Isely

 

 

 

 

 

 

 

Mariah C. Isely

 

 

 

 

 

 

 

Guy D. Isely

 

 

 

LLCs :

 

 

 

KIVC 2, LLC

 

 

 

 

 

By:

 

 

 

Anthony Andueza, Manager

 

 

 

 

ZIVC, LLC

 

 

 

 

 

 

 

By:

 

 

 

Anthony Andueza, Manager

 

 

 

 

HIVC 2, LLC

 

 

 

 

 

 

 

By:

 

 

 

Anthony Andueza, Manager

 

 

 

EIVC 2, LLC

 

 

 

 

 

 

 

By:

 

 

 

Anthony Andueza, Manager

 

 

 

FTVC, LLC

 

 

 

 

 

 

 

By:

 

 

 

Kemper Isely, Co-Manager

 

 

 

 

 

 

 

By:

 

 

 

Zephyr Isely, Co-Manager

 

 

 

 

 

 

 

By:

 

 

 

Heather C. Isely, Co-Manager

 



 

 

CTVC, LLC

 

 

 

 

 

By:

 

 

 

Anthony Andueza, Manager

 

 

 

 

TRUST:

 

 

 

LAROCK AND LUKE ISELY TRUST

 

 

 

 

 

 

 

By:

 

 

 

Kemper Isely, Co-Trustee

 

 

 

 

 

 

 

By:

 

 

 

Zephyr Isely, Co-Trustee

 

 

 

 

UTMAs:

 

 

 

COLORADO UNIFORM TRANSFERS TO MINORS ACT
f/b/o RITCHIE K. ISELY

 

 

 

 

 

 

 

By:

 

 

 

Anthony Andueza, Custodian

 

 

 

 

COLORADO UNIFORM TRANSFERS TO MINORS ACT
f/b/o RAQUEL M. ISELY

 

 

 

 

 

 

 

By:

 

 

 

Anthony Andueza, Custodian

 

 

 

COLORADO UNIFORM TRANSFERS TO MINORS ACT
f/b/o MASALA A. ISELY-RICE

 

 

 

 

 

 

 

By:

 

 

 

Anthony Andueza, Custodian

 

 

 

COLORADO UNIFORM TRANSFERS TO MINORS ACT
f/b/o CHARLES L. ISELY-RICE

 

 

 

 

 

 

 

By:

 

 

 

Anthony Andueza, Custodian

 

 

 

COLORADO UNIFORM TRANSFERS TO MINORS ACT
f/b/o DYAMI CY ISELY-PARVANTA

 

 

 

 

 

 

 

By:

 

 

 

Anthony Andueza, Custodian

 



 

SCHEDULE 1

 

Eligible Stockholders

 

Name

 

Address

 

 

 

Kemper Isely

 

 

Zephyr Isely

 

 

Heather Isely

 

 

Elizabeth Isely

 

 

Lark Isely

 

 

Lucas B. Isely

 

 

Charity Isely

 

 

Mariah C. Isely

 

 

Guy D. Isely

 

 

KIVC 2, LLC

 

 

ZIVC, LLC

 

 

HIVC 2, LLC

 

 

EIVC 2, LLC

 

 

FTVC, LLC

 

 

CTVC, LLC

 

 

LaRock and Luke Isely Trust

 

 

Colorado Uniform Transfers to Minors Act f/b/o Ritchie K. Isely

 

 

Colorado Uniform Transfers to Minors Act f/b/o Raquel M. Isely

 

 

Colorado Uniform Transfers to Minors Act f/b/o Masala A. Isely-Rice

 

 

Colorado Uniform Transfers to Minors Act f/b/o Charles L. Isely-Rice

 

 

Colorado Uniform Transfers to Minors Act f/b/o Dyami Cy Isely-Parvanta

 

 

 



 

SCHEDULE 2

 

Stockholder Representatives

 

Stockholder
Representative

 

Address

 

Eligible Stockholders Represented by
Stockholder Representative

 

 

 

 

 

Kemper Isely

 

 

 

 

Zephyr Isely

 

 

 

 

Heather Isely

 

 

 

 

Elizabeth Isely

 

 

 

 

 




Exhibit 10.16

 

NATURAL GROCERS BY VITAMIN COTTAGE, INC.
2012 OMNIBUS INCENTIVE PLAN
EFFECTIVE AS OF               , 2012

 

SECTION 1.         INTRODUCTION .

 

The Company’s Board of Directors adopts the Natural Grocers by Vitamin Cottage, Inc. 2012 Omnibus Incentive Plan on                    , 2012; provided that, the Plan shall become effective upon its approval by Company shareholders. If the Company’s shareholders do not approve this Plan, no Awards will be made under this Plan.

 

The purpose of the Plan is to promote the long-term success of the Company and the creation of shareholder value by offering Key Employees an opportunity to share in such long-term success by acquiring a proprietary interest in the Company.

 

The Plan seeks to achieve this purpose by providing for discretionary long-term incentive Awards in the form of Options (which may constitute Incentive Stock Options or Nonstatutory Stock Options), Stock Appreciation Rights, Stock Grants, Stock Units, Other Stock-Based Awards and Cash-Based Incentive Awards.

 

The Plan shall be governed by, and construed in accordance with, the laws of the State of Delaware.

 

Capitalized terms shall have the meaning provided in Section 2 unless otherwise provided in this Plan or any related Stock Option Agreement, SAR Agreement, Stock Grant Agreement, Stock Unit Agreement or other Award agreement.

 

SECTION 2.                             DEFINITIONS .

 

(a)                                  “Affiliate” means any entity other than a Subsidiary, if the Company and/or one or more Subsidiaries own not less than 50% of such entity.

 

(b)                                  “Award” means any award of an Option, SAR, Stock Grant, Stock Unit, Other Award or Cash-Based Incentive Award under the Plan.

 

(c)                                   “Board” means the Board of Directors of the Company, as constituted from time to time.

 

(d)                                  “Cash-Based Incentive Award” means an award described in Section 12.

 

(e)                                   “Cashless Exercise” means, to the extent that a Stock Option Agreement so provides and as permitted by applicable law, a program approved by the Committee in which payment may be made all or in part by delivery (on a form prescribed by the Committee) of an irrevocable direction to a securities broker to sell Shares and to deliver all or part of the sale proceeds to the Company in payment of the aggregate Exercise Price and, if applicable, the amount necessary to satisfy the Company’s withholding obligations at the minimum statutory withholding rates, including, but not limited to, U.S. federal and state income taxes, payroll taxes, and foreign taxes, if applicable.

 

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(f)                                    “Cause” means, except as may otherwise be provided in a Participant’s employment agreement or Award agreement, a conviction of a Participant for a felony crime or the failure of a Participant to contest prosecution for a felony crime, or a Participant’s misconduct, fraud or dishonesty (as such terms are defined by the Committee in its sole discretion), or any unauthorized use or disclosure of confidential information or trade secrets, in each case as determined by the Committee, and the Committee’s determination shall be conclusive and binding.

 

(g)                                   “Change In Control” except as may otherwise be provided in a Participant’s employment agreement or Award agreement, means the occurrence of any of the following:

 

(i)                                      A change in the composition of the Board over a period of thirty-six consecutive months or less such that two-thirds of the Board membership ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who either (A) have been Board members continuously since the beginning of such period or (B) have been elected or nominated for election as Board members during such period by at least two-thirds of the Board members described in clause (A) who were still in office at the time the Board approved such election or nomination; or

 

(ii)                                   The acquisition, directly or indirectly, by any person or related group of persons (other than the Company or a person that directly or indirectly controls, is controlled by, or is under common control with, the Company) of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company representing more than 35% of the total combined voting power of the Company’s then outstanding securities pursuant to a tender or exchange offer made directly to the Company’s voting shareholders which the Board does not recommend such voting shareholders accept.

 

(h)                                  “Code” means the Internal Revenue Code of 1986, as amended, and the regulations and interpretations promulgated thereunder.

 

(i)                                      “Committee” means a committee described in Section 3.

 

(j)                                     “Common Stock” means the Company’s common stock.

 

(k)                                  “Company” means Natural Grocers by Vitamin Cottage, Inc., a Delaware corporation.

 

(l)                                      “Consultant” means an individual who performs bona fide services to the Company, a Parent, a Subsidiary or an Affiliate, other than as an Employee or Director or Non-Employee Director.

 

(m)                              “Corporate Transaction” except as may otherwise be provided in a Participant’s employment agreement or Award agreement, means the occurrence of any of the following shareholder approved transactions:

 

(i)                                      The consummation of a merger or consolidation of the Company with or into another entity or any other corporate reorganization, if more than 50% of the

 

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combined voting power of the continuing or surviving entity’s securities outstanding immediately after such merger, consolidation or other reorganization is owned by persons who were not shareholders of the Company immediately prior to such merger, consolidation or other reorganization; or

 

(ii)                                   The sale, transfer or other disposition of all or substantially all of the Company’s assets.

 

A transaction shall not constitute a Corporate Transaction if its sole purpose is to change the state of the Company’s incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately before such transactions.

 

(n)                                  “Covered Employees” means those persons who are subject to the limitations of Code Section 162(m).

 

(o)                                  “Director” means a member of the Board who is also an Employee.

 

(p)                                  “Disability” means that the Key Employee is classified as disabled under a long-term disability policy of the Company or, if no such policy applies, the Key Employee is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months.

 

(q)                                  “Employee” means any individual who is a common-law employee of the Company, a Parent, a Subsidiary or an Affiliate.

 

(r)                                     “Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

(s)                                    “Exercise Price” means, in the case of an Option, the amount for which a Share may be purchased upon exercise of such Option, as specified in the applicable Stock Option Agreement. “Exercise Price,” in the case of a SAR, means an amount, as specified in the applicable SAR Agreement, which is subtracted from the Fair Market Value in determining the amount payable upon exercise of such SAR.

 

(t)                                     “Fair Market Value” means, on any date, (i) the closing sale price of a Share as reported on an established stock exchange on which such Share is regularly traded on such date or, if there were no sales on such date, on the last date preceding such date on which a sale was reported; or (ii) if Shares are not listed for trading on an established stock exchange, Fair Market Value shall be determined by the Committee in good faith and otherwise in accordance with Section 409A of the Code, and any regulations and other guidance thereunder.

 

(u)                                  “Fiscal Year” means the Company’s fiscal year.

 

(v)                                  “Grant” means any grant of an Award under the Plan.

 

(w)                                “Incentive Stock Option” or “ISO” means an incentive stock option described in Code Section 422.

 

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(x)                                  “Key Employee” means an Employee, Director, Non-Employee Director or Consultant who has been selected by the Committee to receive an Award under the Plan.

 

(y)                                  “Non-Employee Director” means a member of the Board who is not an Employee.

 

(z)                                   “Nonstatutory Stock Option” or “NSO” means a stock option that is not an ISO.

 

(aa)                           “Option” means an ISO or NSO granted under the Plan entitling the Optionee to purchase Shares.

 

(bb)                           “Optionee” means an individual, estate or other entity that holds an Option.

 

(cc)                             “Other Stock-Based Award” means an Award described in Section 11.

 

(dd)                           “Parent” means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if each of the corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A corporation that attains the status of a Parent on a date after the adoption of the Plan shall be considered a Parent commencing as of such date.

 

(ee)                             “Participant” means an individual or estate or other entity that holds an Award.

 

(ff)                               “Performance Goals” means one or more objective measurable performance factors as determined by the Committee with respect to each Performance Period based upon one or more factors, including, but not limited to: (i) operating income; (ii) earnings before interest, taxes, depreciation and amortization (“EBITDA”); (iii) earnings; (iv) cash flow; (v) market share; (vi) sales or revenue; (vii) expenses; (viii) cost of goods sold; (ix) profit/loss or profit margin; (x) working capital; (xi) return on equity or assets; (xii) earnings per share; (xiii) economic value added (“EVA”); (xiv) stock price; (xv) price/earnings ratio; (xvi) debt or debt-to-equity; (xvii) accounts receivable; (xviii) writeoffs; (xix) cash; (xx) assets; (xxi) liquidity; (xxii) operations; (xxiii) intellectual property (e.g., patents); (xxiv) product development; (xxv) regulatory activity; (xxvi) manufacturing, production or inventory; (xxvii) mergers and acquisitions or divestitures; and/or (xxviii) financings, each with respect to the Company and/or one or more of its affiliates or operating units. Awards issued to persons who are not Covered Employees may take into account other factors.

 

(gg)                             “Performance Period” means any period not exceeding 36 months as determined by the Committee, in its sole discretion. The Committee may establish different Performance Periods for different Participants, and the Committee may establish concurrent or overlapping Performance Periods.

 

(hh)                           “Plan” means this Vitamin Cottage, Inc. 2012 Omnibus Incentive Plan as it may be amended from time to time.

 

(ii)                                   “Registration Date” means the first date (i) on which the Company sells its Common Stock in a bona fide, firm commitment underwriting pursuant to a registration

 

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statement under the Securities Act or (ii) any class of common equity securities of the Company are required to be registered under Section 12 of the Exchange Act.

 

(jj)                                 “SAR Agreement” means the agreement described in Section 8 evidencing each Award of a Stock Appreciation Right.

 

(kk)                           “SEC” means the Securities and Exchange Commission.

 

(ll)                                   “Section 16 Persons” means those officers, directors or other persons who are subject to Section 16 of the Exchange Act.

 

(mm)                   “Securities Act” means the Securities Act of 1933, as amended.

 

(nn)                           “Service” means service as an Employee, Director, Non-Employee Director or Consultant. A Participant’s Service does not terminate when continued service crediting is required by applicable law. However, for purposes of determining whether an Option is entitled to continuing ISO status, a common-law employee’s Service will be treated as terminating ninety (90) days after such Employee went on leave, unless such Employee’s right to return to active work is guaranteed by law or by a contract. Service terminates in any event when the approved leave ends, unless such Employee immediately returns to active work. The Committee determines which leaves count toward Service, and when Service terminates for all purposes under the Plan. Further, unless otherwise determined by the Committee, a Participant’s Service shall not be deemed to have terminated merely because of a change in the capacity in which the Participant provides service to the Company, a Parent, Subsidiary or Affiliate, or a transfer between entities (the Company or any Parent, Subsidiary, or Affiliate); provided that there is no interruption or other termination of Service.

 

(oo)                           “Share” means one share of Common Stock.

 

(pp)                           “Stock Appreciation Right” or “SAR” means a stock appreciation right awarded under the Plan.

 

(qq)                           “Stock Grant” means Shares awarded under the Plan.

 

(rr)                                 “Stock Grant Agreement” means the agreement described in Section 9 evidencing each Award of a Stock Grant.

 

(ss)                               “Stock Option Agreement” means the agreement described in Section 6 evidencing each Award of an Option.

 

(tt)                                 “Stock Unit” means a bookkeeping entry representing the equivalent of one Share, as awarded under the Plan.

 

(uu)                           “Stock Unit Agreement” means the agreement described in Section 10 evidencing each Award of a Stock Unit.

 

(vv)                           “Subsidiary” means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, if each of the corporations other than the last

 

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corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A corporation that attains the status of a Subsidiary on a date after the adoption of the Plan shall be considered a Subsidiary commencing as of such date.

 

(ww)                       “10-Percent Shareholder” means an individual who owns more than 10% of the total combined voting power of all classes of outstanding stock of the Company, its Parent or any of its Subsidiaries. In determining stock ownership, the attribution rules of Section 424 (d) of the Code shall be applied.

 

(xx)                           “Transition Period” means the period beginning with the Registration Date and ending as of the earlier of: (i) the date of the first annual meeting of stockholders of the Company at which directors are to be elected that occurs after the close of the third calendar year following the calendar year in which the Registration Date occurs; or (ii) the expiration of the “reliance period” under Treasury Regulation Section 1.162-27(f)(2).

 

SECTION 3.                             ADMINISTRATION .

 

(a)                                  Committee Composition. The Board or a Committee appointed by the Board shall administer the Plan. Members of the Committee shall serve for such period of time as the Board may determine and shall be subject to removal by the Board at any time. The Board may also at any time terminate the functions of the Committee and reassume all powers and authority previously delegated to the Committee.

 

Following the appointment or election of a sufficient number of independent directors to the Board, to the extent desired by the Board, the Committee shall have membership composition which enables (i) Awards to Section 16 Persons to qualify as exempt from liability under Section 16(b) of the Exchange Act and (ii) Awards to Covered Employees to qualify as performance-based compensation as provided under Code Section 162(m).

 

The Board may also appoint one or more separate committees of the Board, each composed of two or more directors of the Company who need not be independent under Rule 16b-3 or Code Section 162(m), that may administer the Plan with respect to Key Employees who are not Section 16 Persons or Covered Employees, respectively, may grant Awards under the Plan to such Key Employees and may determine all terms of such Awards.

 

Notwithstanding the foregoing, the Board shall constitute the Committee and shall administer the Plan with respect to Non-Employee Directors, shall grant Awards under the Plan to such Non-Employee Directors, and shall determine all terms of such Awards.

 

(b)                                  Authority of the Committee. Subject to the provisions of the Plan, the Committee shall have full authority and sole discretion to take any actions it deems necessary or advisable for the administration of the Plan. Such actions shall include:

 

(i)                                      selecting Key Employees who are to receive Awards under the Plan;

 

(ii)                                   determining the type, number, vesting requirements and other features and conditions of such Awards and amending such Awards;

 

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(iii)                                correcting any defect, supplying any omission, or reconciling any inconsistency in the Plan or any Award agreement;

 

(iv)                               accelerating the vesting, or extending the post-termination exercise term, of Awards at any time and under such terms and conditions as it deems appropriate;

 

(v)                                  interpreting the Plan;

 

(vi)                               making all other decisions relating to the operation of the Plan; and

 

(vii)                            adopting such plans or subplans as may be deemed necessary or appropriate to provide for the participation by Key Employees of the Company and its Subsidiaries and Affiliates who reside outside the U.S., which plans and/or subplans shall be attached hereto as Appendices.

 

The Committee may adopt such rules or guidelines as it deems appropriate to implement the Plan. The Committee’s determinations under the Plan shall be final and binding on all persons.

 

(c)                                   Indemnification. To the maximum extent permitted by applicable law, each member of the Committee, or of the Board, shall be indemnified and held harmless by the Company against and from (i) any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under the Plan or any Stock Option Agreement, SAR Agreement, Stock Grant Agreement or Stock Unit Agreement, and (ii) from any and all amounts paid by him or her in settlement thereof, with the Company’s approval, or paid by him or her in satisfaction of any judgment in any such claim, action, suit, or proceeding against him or her, provided he or she shall give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company’s Articles of Incorporation or Bylaws, by contract, as a matter of law, or otherwise, or under any power that the Company may have to indemnify them or hold them harmless.

 

SECTION 4.                             GENERAL .

 

(a)                                  General Eligibility. Only Employees, Directors, Non-Employee Directors and Consultants shall be eligible for designation as Key Employees by the Committee, in its sole discretion.

 

(b)                                  Incentive Stock Options. Only Key Employees who are common-law employees of the Company, a Parent or a Subsidiary shall be eligible for the grant of ISOs. In addition, a Key Employee who is a 10-Percent Shareholder shall not be eligible for the grant of an ISO unless the requirements set forth in Section 422(c)(5) of the Code are satisfied.

 

(c)                                   Restrictions on Shares. Any Shares issued pursuant to an Award shall be subject to such rights of repurchase, rights of first refusal and other transfer restrictions as the Committee may determine, in its sole discretion. Such restrictions shall apply in addition to any restrictions

 

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that may apply to holders of Shares generally and shall also comply to the extent necessary with applicable law. In no event shall the Company be required to issue fractional Shares under this Plan.

 

(d)                                  Beneficiaries. Unless stated otherwise in an Award agreement, a Participant may designate one or more beneficiaries with respect to an Award by timely filing the prescribed form with the Company. A beneficiary designation may be changed by filing the prescribed form with the Company at any time before the Participant’s death. If no beneficiary was designated or if no designated beneficiary survives the Participant, then after a Participant’s death any vested Award(s) shall be transferred or distributed to the Participant’s estate.

 

(e)                                   Performance Conditions. The Committee may, in its discretion, include performance conditions in an Award. If performance conditions are included in Awards to Covered Employees, then such Awards may be subject to the achievement of Performance Goals established by the Committee. Such Performance Goals shall be established and administered pursuant to the requirements of Code Section 162(m). Before any Shares underlying an Award or any Award payments subject to Performance Goals are released to a Covered Employee with respect to a Performance Period, the Committee shall certify in writing that the Performance Goals for such Performance Period have been satisfied. Awards with performance conditions that are granted to Key Employees who are not Covered Employees need not comply with the requirements of Code Section 162(m).

 

(f)                                    No Rights as a Shareholder. A Participant, or a transferee of a Participant, shall have no rights as a shareholder with respect to any Common Stock covered by an Award until such person has satisfied all of the terms and conditions to receive such Common Stock, has satisfied any applicable withholding or tax obligations relating to the Award and the Shares have been issued (as evidenced by an appropriate entry on the books of the Company or a duly authorized transfer agent of the Company).

 

(g)                                   Termination of Service. Unless the applicable Award agreement or, with respect to Participants who reside in the U.S., the applicable employment agreement provides otherwise, the following rules shall govern the vesting, exercisability and term of outstanding Awards held by a Participant in the event of termination of such Participant’s Service (in all cases subject to the term of the Option or SAR as applicable):  (1) upon termination of Service for any reason, all unvested portions of any outstanding Awards shall be immediately forfeited without consideration and the vested portions of any outstanding Stock Units shall be settled upon termination; (ii) if the Service of a Participant is terminated for Cause, then all unexercised Options and SARs, unvested portions of Stock Units and unvested portions of Stock Grants shall terminate and be forfeited immediately without consideration; (iii) if the Service of Participant is terminated for any reason other than for Cause, death, or Disability, then the vested portion of his/her then-outstanding Options/SARs may be exercised by such Participant or his or her personal representative within three months after the date of such termination; or (iv) if the Service of a Participant is terminated due to death or Disability, the vested portion of his/her then-outstanding Options/SARs may be exercised within eighteen months after the date of termination of Service.

 

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SECTION 5.                             SHARES SUBJECT TO PLAN AND SHARE LIMITS .

 

(a)                                  Basic Limitation. The stock issuable under the Plan shall be authorized but unissued Shares. The aggregate number of Shares reserved for Awards under the Plan shall not exceed                      Shares, subject to adjustment pursuant to Section 13.

 

(b)                                  Additional Shares. If any portion or all of an Award is forfeited, cancelled, exchanged or surrendered or if an Award otherwise terminates or expires without a distribution of shares to the Participant, the Shares underlying such Award shall, to the extent of any such forfeiture, cancellation, exchange, surrender, termination or expiration, again be available for Awards under the Plan. The number of Shares available for the purpose of Awards under the Plan shall be reduced by (i) the total number of Stock Options, Stock Appreciation Rights or Other Stock-Based Awards (subject to exercise) that have been exercised, regardless of whether any of the Shares underlying such Awards are not actually issued to the Participant as the result of a net settlement, and (ii) any Shares used to pay any exercise price or tax withholding obligation with respect to any Award. In addition, the Company may not use the cash proceeds it receives from Stock Option exercises to repurchase Shares on the open market for reuse under the Plan. Notwithstanding anything to the contrary herein, Awards that may be settled solely in cash shall not be deemed to use any Shares which may be issued under the Plan.

 

(c)                                   Dividend Equivalents. Any dividend equivalents distributed under the Plan shall not be applied against the number of Shares available for Awards.

 

(d)                                  Share Limits. Subject to adjustment in accordance with this Plan, in any calendar year following the Transition Period, no Participant shall be granted Awards in respect of more than                    Shares (whether through grants of Options or other Awards of Common Stock or rights with respect thereto) or cash-based Awards for more than $              . Notwithstanding the foregoing, following the Transition Period the Committee may grant Awards to a Participant in excess of the preceding Award limits if the Committee expressly determines that a particular Award shall not be designed to qualify as “performance-based compensation” for purposes of Section 162(m) of the Code.

 

SECTION 6.                             TERMS AND CONDITIONS OF OPTIONS .

 

(a)                                  Stock Option Agreement. Each Grant of an Option under the Plan shall be evidenced and governed exclusively by a Stock Option Agreement between the Optionee and the Company. Such Option shall be subject to all applicable terms and conditions of the Plan and may be subject to any other terms and conditions that are not inconsistent with the Plan and that the Committee deems appropriate for inclusion in a Stock Option Agreement (including without limitation any performance conditions). The provisions of the various Stock Option Agreements entered into under the Plan need not be identical. The Stock Option Agreement shall also specify whether the Option is an ISO or an NSO.

 

(b)                                  Number of Shares. Each Stock Option Agreement shall specify the number of Shares that are subject to the Option and shall be subject to adjustment of such number in accordance with Section 13.

 

(c)                                   Exercise Price. An Option’s Exercise Price shall be established by the Committee and set forth in a Stock Option Agreement. The Exercise Price of an Option shall not be less than

 

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100% of the Fair Market Value (110% for ISO grants to 10-Percent Shareholders) on the date of Grant.

 

(d)                                  Exercisability and Term. Each Stock Option Agreement shall specify the date when all or any installment of the Option is to become exercisable. The Stock Option Agreement shall also specify the term of the Option; provided that the term of an Option shall in no event exceed ten years from the date of Grant. Unless the applicable Stock Option Agreement provides otherwise, each Option shall vest and become exercisable with respect to 20% of the Shares subject to the Option upon completion of one year of Service measured from the vesting commencement date, the balance of the Shares subject to the Option shall vest and become exercisable in forty-eight equal installments upon completion of each month of Service thereafter, and the term of the Option shall expire ten years from the date of Grant. A Stock Option Agreement may provide for accelerated vesting in the event of the Participant’s death, Disability, or other events.  Notwithstanding any other provision of the Plan, no Option can be exercised after the expiration date provided in the applicable Stock Option Agreement and no Option may provide that, upon exercise of the Option, a new Option will automatically be granted.

 

(e)                                   Modifications or Assumption of Options. Within the limitations of the Plan, the Committee may modify, extend or assume outstanding options or may accept the cancellation of outstanding options (whether granted by the Company or by another issuer) in return for the grant of new Options for the same or a different number of Shares, at the same or a different Exercise Price, and with the same or different vesting provisions.

 

(f)                                    Assignment or Transfer of Options. Except as otherwise provided in the applicable Stock Option Agreement and then only to the extent permitted by applicable law, no Option shall be transferable by the Optionee other than by will or by the laws of descent and distribution.  Except as otherwise provided in the applicable Stock Option Agreement, an Option may be exercised during the lifetime of the Optionee only by the Optionee or by the guardian or legal representative of the Optionee. No Option or interest therein may be assigned, pledged or hypothecated by the Optionee during his or her lifetime, whether by operation of law or otherwise, or be made subject to execution, attachment or similar process.

 

SECTION 7.                             PAYMENT FOR OPTION SHARES .

 

The entire Exercise Price of Shares issued upon exercise of Options shall be payable in cash at the time when such Shares are purchased, except as follows and if so provided for in an applicable Stock Option Agreement:

 

(i)                                      Surrender of Stock. Payment for all or any part of the Exercise Price may be made with Shares which have already been owned by the Optionee; provided that the Committee may, in its sole discretion, require that Shares tendered for payment be previously held by the Optionee for a minimum duration. Such Shares shall be valued at their Fair Market Value.

 

(ii)                                   Cashless Exercise. Payment for all or any part of the Exercise Price may be made through Cashless Exercise.

 

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(iii)                                Other Forms of Payment. Payment for all or any part of the Exercise Price may be made in any other form that is consistent with applicable laws, regulations and rules and approved by the Committee.

 

In the case of an ISO granted under the Plan, payment shall be made only pursuant to the express provisions of the applicable Stock Option Agreement. The Stock Option Agreement may specify that payment may be made in any form(s) described in this Section 7. In the case of an NSO granted under the Plan, the Committee may, in its discretion at any time, accept payment in any form(s) described in this Section 7.

 

SECTION 8.                             TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS .

 

(a)                                  SAR Agreement. Each Grant of a SAR under the Plan shall be evidenced and governed exclusively by a SAR Agreement between the Participant and the Company. Such SAR shall be subject to all applicable terms and conditions of the Plan and may be subject to any other terms and conditions that are not inconsistent with the Plan and that the Committee deems appropriate for inclusion in a SAR Agreement (including without limitation any performance conditions). A SAR Agreement may provide for a maximum limit on the amount of any payout notwithstanding the Fair Market Value on the date of exercise of the SAR. The provisions of the various SAR Agreements entered into under the Plan need not be identical. SARs may be granted in consideration of a reduction in the Participant’s compensation.

 

(b)                                  Number of Shares. Each SAR Agreement shall specify the number of Shares to which the SAR pertains and shall be subject to adjustment of such number in accordance with Section 13.

 

(c)                                   Exercise Price. Each SAR Agreement shall specify the Exercise Price which shall be established by the Committee. The Exercise Price of SAR shall not be less than 100% of the Fair Market Value on the date of Grant.

 

(d)                                  Exercisability and Term. Each SAR Agreement shall specify the date when all or any installment of the SAR is to become exercisable. The SAR Agreement shall also specify the term of the SAR which shall not exceed ten years from the date of Grant. Unless the applicable SAR Agreement provides otherwise, each SAR shall vest and become exercisable with respect to 20% of the Shares subject to the SAR upon completion of one year of Service measured from the vesting commencement date, the balance of the Shares subject to the SAR shall vest and become exercisable in forty-eight equal installments upon completion of each month of Service thereafter, and the term of the SAR shall be ten years from the date of Grant. A SAR Agreement may provide for accelerated vesting in the event of the Participant’s death, Disability, or other events. SARs may be awarded in combination with Options or Stock Grants, and such an Award shall provide that the SARs will not be exercisable unless the related Options or Stock Grants are forfeited. A SAR may be included in an ISO only at the time of Grant but may be included in an NSO at the time of Grant or at any subsequent time, but not later than six months before the expiration of such NSO. No SAR may provide that, upon exercise of the SAR, a new SAR will automatically be granted.

 

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(e)                                   Exercise of SARs. If, on the date when a SAR expires, the Exercise Price under such SAR is less than the Fair Market Value on such date but any portion of such SAR has not been exercised or surrendered, then such SAR shall automatically be deemed to be exercised as of such date with respect to such portion. Upon exercise of a SAR, the Participant (or any person having the right to exercise the SAR) shall receive from the Company (i) Shares, (ii) cash or (iii) any combination of Shares and cash, as the Committee shall determine at the time of Grant of the SAR, in its sole discretion. The amount of cash and/or the Fair Market Value of Shares received upon exercise of SARs shall, in the aggregate, be equal to the amount by which the Fair Market Value (on the date of exercise) of the Shares subject to the SARs exceeds the Exercise Price of the Shares.

 

(f)                                    Modification or Assumption of SARs. Within the limitations of the Plan, the Committee may modify, extend or assume outstanding stock appreciation rights or may accept the cancellation of outstanding stock appreciation rights (including stock appreciation rights granted by another issuer) in return for the grant of new SARs for the same or a different number of Shares, at the same or a different Exercise Price, and with the same or different vesting provisions.

 

(g)                                   Assignment or Transfer of SARs. Except as otherwise provided in the applicable SAR Agreement and then only to the extent permitted by applicable law, no SAR shall be transferable by the Participant other than by will or by the laws of descent and distribution. Except as otherwise provided in the applicable SAR Agreement, a SAR may be exercised during the lifetime of the Participant only by the Participant or by the guardian or legal representative of the Participant. No SAR or interest therein may be assigned, pledged or hypothecated by the Participant during his or her lifetime, whether by operation of law or otherwise, or be made subject to execution, attachment or similar process.

 

SECTION 9.                             TERMS AND CONDITIONS FOR STOCK GRANTS .

 

(a)                                  Amount and Form of Awards. Awards under this Section 9 may be granted in the form of a Stock Grant. Each Stock Grant Agreement shall specify the number of Shares to which the Stock Grant pertains and shall be subject to adjustment of such number in accordance with Section 13. A Stock Grant may also be awarded in combination with NSOs, and such an Award may provide that the Stock Grant will be forfeited in the event that the related NSOs are exercised.

 

(b)                                  Stock Grant Agreement. Each Stock Grant awarded under the Plan shall be evidenced and governed exclusively by a Stock Grant Agreement between the Participant and the Company. Each Stock Grant shall be subject to all applicable terms and conditions of the Plan and may be subject to any other terms and conditions that are not inconsistent with the Plan and that the Committee deems appropriate for inclusion in the applicable Stock Grant Agreement (including without limitation any performance conditions). The provisions of the various Stock Grant Agreements entered into under the Plan need not be identical.

 

(c)                                   Payment for Stock Grants. Stock Grants may be issued with or without cash consideration or any other form of legally permissible consideration approved by the Committee.

 

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(d)                                  Vesting Conditions. Each Stock Grant may or may not be subject to vesting. Any such vesting provision may provide that Shares shall vest based on Service over time or shall vest, in full or in installments, upon satisfaction of performance conditions specified in the Stock Grant Agreement which may include Performance Goals pursuant to Section 4(e). Unless the applicable Stock Grant Agreement provides otherwise, each Stock Grant shall vest with respect to 20% of the Shares subject to the Stock Grant upon completion of each year of Service on each of the first through fifth annual anniversaries of the vesting commencement date. A Stock Grant Agreement may provide for accelerated vesting in the event of the Participant’s death, Disability, or other events.

 

(e)                                   Assignment or Transfer of Stock Grants. Except as provided in the applicable Stock Grant Agreement, and then only to the extent permitted by applicable law, a Stock Grant awarded under the Plan shall not be anticipated, assigned, attached, garnished, optioned, transferred or made subject to any creditor’s process, whether voluntarily, involuntarily or by operation of law. Any act in violation of this Section 9(e) shall be void. However, this Section 9(e) shall not preclude a Participant from designating a beneficiary who will receive any vested outstanding Stock Grant Awards in the event of the Participant’s death, nor shall it preclude a transfer of vested Stock Grant Awards by will or by the laws of descent and distribution.

 

(f)                                    Voting and Dividend Rights. The holder of a Stock Grant awarded under the Plan shall have the same voting, dividend and other rights as the Company’s other shareholders. A Stock Grant Agreement, however, may require that the holder of such Stock Grant invest any cash dividends received in additional Shares subject to the Stock Grant. Such additional Shares subject to the Stock Grant shall be subject to the same conditions and restrictions as the Stock Grant with respect to which the dividends were paid. Such additional Shares subject to the Stock Grant shall not reduce the number of Shares available for issuance under Section 5.

 

(g)                                   Modification or Assumption of Stock Grants. Within the limitations of the Plan, the Committee may modify or assume outstanding stock grants or may accept the cancellation of outstanding stock grants (including stock granted by another issuer) in return for the grant of new Stock Grants for the same or a different number of Shares and with the same or different vesting provisions. Notwithstanding the preceding sentence or anything to the contrary herein, no modification of a Stock Grant shall, without the consent of the Participant, impair his or her rights or obligations under such Stock Grant.

 

SECTION 10.                      TERMS AND CONDITIONS OF STOCK UNITS .

 

(a)                                  Stock Unit Agreement. Each grant of Stock Units under the Plan shall be evidenced and governed exclusively by a Stock Unit Agreement between the Participant and the Company. Such Stock Units shall be subject to all applicable terms and conditions of the Plan and may be subject to any other terms and conditions that are not inconsistent with the Plan and that the Committee deems appropriate for inclusion in the applicable Stock Unit Agreement (including without limitation any performance conditions). The provisions of the various Stock Unit Agreements entered into under the Plan need not be identical. Stock Units may be granted in consideration of a reduction in the Participant’s other compensation.

 

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(b)                                  Number of Shares. Each Stock Unit Agreement shall specify the number of Shares to which the Stock Unit Grant pertains and shall be subject to adjustment of such number in accordance with Section 13.

 

(c)                                   Payment for Stock Units. Stock Units shall be issued without consideration.

 

(d)                                  Vesting Conditions. Each Award of Stock Units may or may not be subject to vesting. Any such vesting provision may provide that Shares shall vest based on Service over time or shall vest, in full or in installments, upon satisfaction of performance conditions specified in the Stock Unit Agreement which may include Performance Goals pursuant to Section 4(e). Unless the applicable Stock Unit Agreement provides otherwise, each Stock Unit shall vest with respect to 20% of the Shares subject to the Stock Unit upon completion of each year of Service on each of the first through fifth annual anniversaries of the vesting commencement date. A Stock Unit Agreement may provide for accelerated vesting in the event of the Participant’s death, Disability, or other events.

 

(e)                                   Voting and Dividend Rights. The holders of Stock Units shall have no voting rights. Prior to settlement or forfeiture, any Stock Unit awarded under the Plan may, at the Committee’s discretion, carry with it a right to dividend equivalents. Such right entitles the holder to be credited with an amount equal to all cash dividends paid on one Share while the Stock Unit is outstanding. Dividend equivalents may be converted into additional Stock Units. Settlement of dividend equivalents may be made in the form of cash, in the form of Shares, or in a combination of both. Prior to distribution, any dividend equivalents which are not paid shall be subject to the same conditions and restrictions as the Stock Units to which they attach.

 

(f)                                    Form and Time of Settlement of Stock Units. Settlement of vested Stock Units may be made in the form of (a) cash, (b) Shares or (c) any combination of both, as determined by the Committee at the time of the grant of the Stock Units, in its sole discretion. Methods of converting Stock Units into cash may include (without limitation) a method based on the average Fair Market Value of Shares over a series of trading days. Vested Stock Units may be settled in a lump sum or in installments. The distribution may occur or commence when the vesting conditions applicable to the Stock Units have been satisfied or have lapsed, or it may be deferred, in accordance with applicable law, to any later date. The amount of a deferred distribution may be increased by an interest factor or by dividend equivalents. Until an Award of Stock Units is settled, the number of such Stock Units shall be subject to adjustment pursuant to Section 13.

 

(g)                                   Creditors’ Rights. A holder of Stock Units shall have no rights other than those of a general creditor of the Company. Stock Units represent an unfunded and unsecured obligation of the Company, subject to the terms and conditions of the applicable Stock Unit Agreement.

 

(h)                                  Modification or Assumption of Stock Units. Within the limitations of the Plan, the Committee may modify or assume outstanding stock units or may accept the cancellation of outstanding stock units (including stock units granted by another issuer) in return for the grant of new Stock Units for the same or a different number of Shares and with the same or different vesting provisions. Notwithstanding the preceding sentence or anything to the contrary herein, no modification of a Stock Unit shall, without the consent of the Participant, impair his or her rights or obligations under such Stock Unit.

 

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(i)                                      Assignment or Transfer of Stock Units. Except as provided in the applicable Stock Unit Agreement, and then only to the extent permitted by applicable law, Stock Units shall not be anticipated, assigned, attached, garnished, optioned, transferred or made subject to any creditor’s process, whether voluntarily, involuntarily or by operation of law. Any act in violation of this Section 10(i) shall be void. However, this Section 10(i) shall not preclude a Participant from designating a beneficiary who will receive any outstanding vested Stock Units in the event of the Participant’s death, nor shall it preclude a transfer of vested Stock Units by will or by the laws of descent and distribution.

 

SECTION 11.                      OTHER STOCK-BASED AWARDS .

 

(a)                                  Grant of Other Stock-Based Awards. Other stock-based awards, consisting of substitute awards, stock purchase rights (with or without loans to Participants by the Company containing such terms as the Committee shall determine), Awards of Shares, or Awards valued in whole or in part by reference to, or otherwise based on, Shares, may be granted either alone or in addition to or in conjunction with other Awards under the Plan. Subject to the provisions of the Plan, the Committee shall have sole and complete authority to determine the persons to whom and the time or times at which such Awards shall be made, the number of Shares to be granted pursuant to such Awards, and all other conditions of the Awards. Any such Award shall be confirmed by an Award Agreement executed by the Committee and the Participant, which Award Agreement shall contain such provisions as the Committee determines to be necessary or appropriate to carry out the intent of this Plan with respect to such Award.

 

(b)                                  Terms of Other Stock-Based Awards. In addition to the terms and conditions specified in the Award Agreement, Awards made pursuant to this Section 11 shall be subject to the following:

 

(i)                                      Any Shares subject to Awards made under this Section 11 may not be sold, assigned, transferred, pledged or otherwise encumbered prior to the date on which the shares are issued, or, if later, the date on which any applicable restriction, performance or deferral period lapses; and

 

(ii)                                   The Award Agreement with respect to any Award shall contain provisions dealing with the disposition of such Award in the event of a termination of Service prior to the exercise, payment or other settlement of such Award, with such provisions taking account of the specific nature and purpose of the Award.

 

SECTION 12.                      CASH-BASED INCENTIVE AWARDS.

 

(a)                                  Eligibility. Executive officers of the Company as determined from time to time by the Committee will be eligible to receive cash-based incentive awards under this Section 12. Following the Transition Period, such executive officers shall be executive officers who are determined from time to time by the Committee to be Covered Employees.

 

(b)                                  Awards.

 

(i)                                      Performance Targets. The Committee shall establish objective performance targets based on specified levels of one or more of the Performance Goals.

 

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Following the Transition Period, such performance targets shall be established by the Committee on a timely basis to ensure that the targets are considered “preestablished” for purposes of Section 162(m) of the Code.

 

(ii)                                   Amounts of Awards. In conjunction with the establishment of performance targets for a fiscal year or such other performance period established by the Committee, the Committee shall adopt an objective formula (on the basis of percentages of Participants’ salaries, shares in a bonus pool or otherwise) for computing the respective amounts payable under the Plan to Participants if and to the extent that the performance targets are attained. Following the Transition Period, such formula shall comply with the requirements applicable to performance-based compensation plans under Section 162(m) of the Code and, to the extent based on percentages of a bonus pool, such percentages shall not exceed 100% in the aggregate.

 

(iii)                                Payment of Awards. Awards will be payable to Participants in cash each year upon prior written certification by the Committee of attainment of the specified performance targets for the preceding fiscal year or other applicable performance period.

 

(iv)                               Negative Discretion. Notwithstanding the attainment by the Company of the specified performance targets, the Committee shall have the discretion, which need not be exercised uniformly among the Participants, to reduce or eliminate the Award that would be otherwise paid.

 

(v)                                  Guidelines. The Committee may adopt from time to time written policies for its implementation of this Section 12.  Such guidelines shall reflect the intention of the Company that following the Transition Period all payments hereunder qualify as performance-based compensation under Section 162(m) of the Code.

 

(vi)                               Non-Exclusive Arrangement. The adoption and operation of this Section 12 shall not preclude the Board or the Committee from approving other cash-based incentive compensation arrangements for the benefit of individuals who are Participants hereunder as the Board or Committee, as the case may be, deems appropriate and in the best interests of the Company.

 

SECTION 13.                      PROTECTION AGAINST DILUTION.

 

(a)                                  Adjustments. In the event of a stock split, reverse stock split, a declaration of a dividend payable in Shares, a declaration of a dividend payable in a form other than Shares in an amount that has a material effect on the price of Shares, a combination or consolidation of the outstanding Shares (by reclassification or otherwise) into a lesser number of Shares, a recapitalization, a spin-off, separation, partial or complete liquidation or a similar occurrence, the Committee shall make appropriate adjustments to the following:

 

(i)                                      the number of Shares and the kind of shares or securities available for future Awards under Section 5;

 

(ii)                                   the limits on Awards specified in Section 5;

 

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(iii)                                the number of Shares and the kind of shares or securities covered by each outstanding Award; or

 

(iv)                               the Exercise Price under each outstanding SAR or Option.

 

(b)                                  Participant Rights. Except as provided in this Section 13, a Participant shall have no rights by reason of any issue by the Company of stock of any class or securities convertible into stock of any class, any subdivision or consolidation of shares of stock of any class, the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class. If by reason of an adjustment pursuant to this Section 13 a Participant’s Award covers additional or different shares of stock or securities, then such additional or different shares and the Award in respect thereof shall be subject to all of the terms, conditions and restrictions which were applicable to the Award and the Shares subject to the Award prior to such adjustment.

 

(c)                                   Fractional Shares. Any adjustment of Shares pursuant to this Section 13 shall be rounded down to the nearest whole number of Shares.  Under no circumstances shall the Company be required to authorize or issue fractional shares and no consideration shall be provided as a result of any fractional shares not being issued or authorized.

 

SECTION 14.                      EFFECT OF A CORPORATE TRANSACTION.

 

(a)                                  Corporate Transaction. In the event that the Company is a party to a Corporate Transaction, outstanding Awards shall be subject to the applicable agreement of merger, reorganization, or sale of assets. Such agreement may provide, without limitation, for the assumption or substitution of outstanding Options, SARs, or Stock Units by the surviving corporation or its parent, for the assumption of outstanding Stock Grant Agreements by the surviving corporation or its parent, for the replacement of outstanding Options, SARs, and Stock Units with a cash incentive program of the surviving corporation which preserves the spread existing on the unvested portions of such outstanding Awards at the time of the transaction and provides for subsequent payout in accordance with the same vesting provisions applicable to those Awards, for accelerated vesting of outstanding Awards, or for the cancellation of outstanding Options, SARs, and Stock Units, with or without consideration, in all cases without the consent of the Participant.

 

(b)                                  Acceleration. The Committee may determine, at the time of grant of an Award or thereafter, that such Award shall become fully vested as to all Shares subject to such Award in the event that a Corporate Transaction or a Change in Control occurs. Unless otherwise provided in the applicable Award agreement, in the event that a Corporate Transaction occurs and any outstanding Options, SARs or Stock Units are not assumed, substituted, or replaced with a cash incentive program pursuant to Section 14(a) or any outstanding Stock Grant Agreements are not assumed pursuant to Section 14(a), then such Awards shall fully vest and be fully exercisable immediately prior to such Corporate Transaction. Immediately following the consummation of a Corporate Transaction, all outstanding Options, SARs and Stock Units shall terminate and cease to be outstanding, except to the extent that they are assumed by the surviving corporation or its parent.

 

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(c)                                   Dissolution. To the extent not previously exercised or settled, Options, SARs and Stock Units shall terminate immediately prior to the dissolution or liquidation of the Company.

 

SECTION 15.                      LIMITATIONS ON RIGHTS.

 

(a)                                  No Entitlements. A Participant’s rights, if any, in respect of or in connection with any Award is derived solely from the discretionary decision of the Company to permit the individual to participate in the Plan and to benefit from a discretionary Award. By accepting an Award under the Plan, a Participant expressly acknowledges that there is no obligation on the part of the Company to continue the Plan and/or grant any additional Awards. Any Award granted hereunder is not intended to be compensation of a continuing or recurring nature, or part of a Participant’s normal or expected compensation, and in no way represents any portion of a Participant’s salary, compensation, or other remuneration for purposes of pension benefits, severance, redundancy, resignation or any other purpose.

 

Neither the Plan nor any Award granted under the Plan shall be deemed to give any individual a right to remain an employee, consultant or director of the Company, a Parent, a Subsidiary or an Affiliate. The Company and its Parents and Subsidiaries and Affiliates reserve the right to terminate the Service of any person at any time, and for any reason, subject to applicable laws, the Company’s Articles of Incorporation and Bylaws and a written employment agreement (if any), and such terminated person shall be deemed irrevocably to have waived any claim to damages or specific performance for breach of contract or dismissal, compensation for loss of office, tort or otherwise with respect to the Plan or any outstanding Award that is forfeited and/or is terminated by its terms or to any future Award.

 

(b)                                  Shareholders’ Rights. A Participant shall have no dividend rights, voting rights or other rights as a shareholder with respect to any Shares covered by his or her Award prior to the issuance of such Shares (as evidenced by an appropriate entry on the books of the Company or a duly authorized transfer agent of the Company). No adjustment shall be made for cash dividends or other rights for which the record date is prior to the date when such Shares are issued, except as expressly provided in Section 13.

 

(c)                                   Regulatory Requirements. Any other provision of the Plan notwithstanding, the obligation of the Company to issue Shares or other securities under the Plan shall be subject to all applicable laws, rules and regulations and such approval by any regulatory body as may be required. The Company reserves the right to restrict, in whole or in part, the delivery of Shares or other securities pursuant to any Award prior to the satisfaction of all legal requirements relating to the issuance of such Shares or other securities, to their registration, qualification or listing or to an exemption from registration, qualification or listing.

 

SECTION 16.                      WITHHOLDING TAXES .

 

(a)                                  General. A Participant shall make arrangements satisfactory to the Company for the satisfaction of any withholding tax obligations that arise in connection with his or her Award. The Company shall not be required to issue any Shares or make any cash payment under the Plan until such obligations are satisfied.

 

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(b)                                  Share Withholding. If a public market for the Company’s Shares exists, the Committee may permit a Participant to satisfy all or part of his or her withholding or income tax obligations by having the Company withhold all or a portion of any Shares that otherwise would be issued to him or her or by surrendering or attesting to all or a portion of any Shares that he or she previously acquired. Such Shares shall be valued based on the value of the actual trade or, if there is none, the Fair Market Value as of the previous day. Any payment of taxes by assigning Shares to the Company may be subject to restrictions, including, but not limited to, any restrictions required by rules of the SEC. The Committee may, in its discretion, also permit a Participant to satisfy withholding or income tax obligations related to an Award through Cashless Exercise or through a sale of Shares underlying the Award.

 

SECTION 17.                      DURATION AND AMENDMENTS .

 

(a)                                  Term of the Plan. The Plan shall become effective upon its approval by Company shareholders and shall have a term of 10 years from such initial adoption.

 

(b)                                  Right to Amend or Terminate the Plan. The Board may amend or terminate the Plan at any time and for any reason. The termination of the Plan, or any amendment thereof, shall not impair the rights or obligations of any Participant under any Award previously granted under the Plan without the Participant’s consent. No Awards shall be granted under the Plan after the Plan’s termination. An amendment of the Plan shall be subject to the approval of the Company’s shareholders only to the extent such approval is otherwise required by applicable laws, regulations or rules.

 

(c)                                   No Repricing Without Shareholder Approval. Notwithstanding any provision herein to the contrary, the repricing of Options or Stock Appreciation Rights is prohibited without prior approval of the Company’s shareholders. For this purpose, a “repricing” means any of the following (or any other action that has the same effect as any of the following): (i) changing the terms of an Option or Stock Appreciation Right to lower its Exercise Price; (ii) any other action that is treated as a “repricing” under generally accepted accounting principles; and (iii) repurchasing for cash or canceling an Option or Stock Appreciation Right at a time when its Exercise Price is greater than the Fair Market Value of the underlying Common Stock in exchange for another Award, unless the cancellation and exchange occurs in connection with a change in capitalization or similar change under Section 13 above. Such cancellation and exchange as described in clause (iii) of the preceding sentence would be considered a “repricing” regardless of whether it is treated as a “repricing” under generally accepted accounting principles and regardless of whether it is voluntary on the part of the Participant.

 

(d)                                  Recovery of Compensation in Connection with Financial Restatement. Notwithstanding any other provision of this Plan or any applicable Award Agreement to the contrary, if the Board determines that the Company is required to restate its financial statements due to material noncompliance with any financial reporting requirement under the law, whether such noncompliance is the result of misconduct or other circumstances, a Participant shall be required to reimburse the Company for any amounts earned or payable with respect to an Award to the extent required by and otherwise in accordance with applicable law and any Company policies. Without limiting the foregoing, all Awards granted or other compensation paid by the Company under the Plan will be subject to any compensation recapture policies required by

 

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applicable law (including the Sarbanes-Oxley Act of 2002) or that are established by the Board or the Committee from time to time, in their respective sole discretion, including any clawback policy adopted or implemented by the Board or Committee in respect of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and such regulations as are promulgated thereunder from time to time to the extent required therein and the implementing regulations.

 

SECTION 18.                      EXECUTION .

 

To record the adoption of the Plan by the Board, the Company has caused its duly authorized officer to execute this Plan on behalf of the Company.

 

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Exhibit 21.1

 

SUBSIDIARIES OF THE REGISTRANT

 

The following entities will be subsidiaries of the registrant upon the consummation of the Reorganization described in the registration statement:

 

Vitamin Cottage Natural Food Markets, Inc. (Colorado)

Boulder Vitamin Cottage Group, LLC (Colorado)